IT Staffing Report: Aug. 14, 2014

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IT staffing providers report mixed results for Q2

Second-quarter results for public companies in IT staffing were a mixed bag. Some companies showed robust year-over-year (y/y) revenue growth and others reported a decline.

Kforce, (NASD: KFRC) led the pack with 17.7 percent year-over-year growth in its Tech Flex segment revenue. The company also announced the $119 million sale of its health information management segment to focus more on its core, revenue-driving operations.

Robert Half’s (NYSE: RHI) Technology segment revenue rose 7.8 percent y/y, decelerating slightly from last quarter’s 9.3 percent growth. Mastech Holdings (NYSEMKT: MHH) reported y/y revenue growth of 5.8 percent, though it was a marked deceleration from the 19.5 percent growth reported in the previous quarter.

CDI Corp. (NYSE: CDI) experienced another quarter of double-digit y/y revenue decline in its Hi-Tech Professional Services staffing business (down 16.2 percent). CTG (NASD: CTG), while improving upon its decline from last quarter, indicated a 7.4 percent decrease in staffing revenue for the quarter. Volt Information Sciences (OTCMKTS: VISI) reported a 14.7 percent revenue decline in its Staffing Services segment. (We estimate that IT is Volt’s largest staffing segment).

On Assignment Inc. (NYSE: ASGN) grew revenue by 13.5% in its Apex division, but revenue declined by 2.8 percent (excluding the contribution from acquired CyberCoders) in the company’s Oxford division.

Health IT cooling off a bit

CTG and On Assignment were both less than sanguine regarding health IT trends. Comments included “lumpy” growth in health IT business and a shrinking backlog of health IT projects, contributing to earnings weakness. On Assignment noted sluggish demand in health IT.

Customer concentration

Client mix, or lack thereof, at both CDI and CTG were cited again as being the primary negative contributor to both companies’ performance this quarter. Management at CDI said customer concentration in their largest account (IBM) represented 75 percent of the $59.9 million in hi-tech sales from its professional staffing services segment. CTG reported in its 10-Q report that IBM accounted for 22.6 percent of its 2Q14 revenue.

While Mastech noted less client concentration, indicating that its largest client made up 11 percent of its business, the company did note the early termination of one large project as a primary negative impact on revenue performance.

On the other hand, Robert Half noted stronger demand from its many small and mid-sized clients. Kforce commented that its largest 25 clients accounted for 42.9 percent of Tech Flex revenue. It is notable that the company with the strongest revenue growth in this report also appears to have relatively low client concentration.

Recruiting difficult-to-fill skills

Finally, in a segment full of difficult-to-fill roles, a staffing firm’s ability to recruit is key. Robert Half CFO Keith Waddell made a notable comment regarding its Technology business: “We felt like we got a little bit behind adding to recruiter internal staff, which impacted our growth rates a touch.” Speaking to the impact of sourcing skilled talent, Waddell commented, “At the moment, demand isn’t the problem. The problem is getting the candidates. The demand for skilled talent continues to outpace the supply in many of our specialty areas. …The skill sets that are the tightest from a supply standpoint are in the technology segment, the applications developers, the database developers. It’s the higher-level development side of technology.”

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