IT Staffing Report: Dec. 11, 2014

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IT staffing revenue growth among public companies shows continued divergence

Reading the earnings report tea leaves to discern trends in IT staffing demand continues to pose a challenge, with year-over-year (y/y) revenue growth rates ranging from double-digit increases to declines of equivalent magnitude.

In its 2Q14 earnings call with analysts, Robert Half International Inc. (NYSE: RHI) noted demand was running well ahead of supply in many IT skills. To address this supply-constrained dynamic, the company has been in recruiter hiring mode, and reported an immediate impact on revenue growth that accelerated throughout the quarter. Robert Half Technology had $150.2 million in revenue for 3Q14, up 11.0 percent from the same period in 2013.

Likewise, Kforce (NASDAQ: KFRC) described a similar trend of strengthening contract starts and job order flow during the third quarter, with the highest demand coming from customers in the financial services, communications and healthcare industries. Tech Flex (temporary staffing) revenue for the firm jumped by 12.4 percent y/y, to $212.3 million, and management expressed confidence in the prospect of reaching its 15 percent targeted growth rate for the business early next year. Kforce’s move in August to sell off its Health Information Management business appears to have been a sound one strategically, as that market was cited as an area of demand weakness by several of its competitors.

On Assignment (NYSE: ASGN) experienced top-line growth of 10.7 percent y/y in its Apex division, and a more modest 1.3 percent in its Oxford division (excluding the impact of the acquired CyberCoders business). Spending among its smaller clients was up more than 20 percent, but was balanced by far slower growth from its larger enterprise customers. To capitalize on what it believes may prove a sustained dynamic, On Assignment intends to sharpen its focus on smaller customers in order to expand the percentage of its total revenue derived therefrom.

Both CTG (NASD: CTG) and CDI (NYSE: CDI) mentioned in their preceding quarterly earnings commentaries that heavy exposure to a single, common customer — IBM — was largely responsible for their declining IT staffing revenue. That was the story once again from CDI in the recent quarter, when it reported a 16 percent y/y drop in revenue for its Hi-Tech Professional Services staffing division. For its part, however, CTG said that IBM was among the sources of marginally increased staffing demand that enabled the firm to grow that revenue stream by 1.0 percent y/y, despite the continuing slowdown in electronic medical record implementation projects.

Experiencing slight y/y revenue growth was Mastech Holdings, which increased its billable consultant base by 4 percent sequentially following an unanticipated early contract termination in the second quarter. Conversely, Staffing Services revenue at Volt Information Sciences (NYSE: VISI) fell 13.1 percent y/y, due primarily to lower demand from enterprise customers.

While IT staffing revenue growth among publicly held companies continues to be all over the map, two characteristics have correlated with success in recent quarters: diversification of the customer base and less exposure to electronic medical records business. The latter is likely to be a persistent phenomenon, with the lower volume representing a “new normal” as most hospitals have completed implementation and begun the process of demonstrating meaningful use. The more telling indicator of sustainable demand in the fourth quarter and beyond will be whether the level of enterprise IT investment continues to rise at the somewhat tepid recent pace characterized in several of the 3Q14 reports, or begins to show signs of acceleration.

Company 3Q14 Revenue
$MM Y/Y Change
CDI Corp1 $57.8 -16.0%
CTG2 $61.4 1.0%
Kforce3 $212.3 12.4%
Mastech Holdings $28.6 1.0%
On Assignment - Apex $306.0 10.7%
On Assignment - Oxford4 $125.9 1.3%
Robert Half Technology5 $150.2 11.0%
Volt Information Sciences6 $397.0 -13.1%
1. Hi-Tech segment of Professional Staffing Services reporting unit. 2. IT Staffing revenue based on % of total revenue. 3. Tech Flex segment revenue. 4. Growth excludes impact from acquired CyberCoders. 5. Robert Half Technology reporting segment. 6. Reflects revenue from Staffing Services reporting segment.