IT Staffing Report: Nov. 7, 2013

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IT staffing revenue up median 13% in Q3 at public US firms

Publicly traded IT staffing companies experienced stronger than anticipated demand for their services in the quarter ended Sept. 30. These firms chalked up year-over-year median growth of 12.6 percent during the quarter, with only two of the seven companies we track showing decline in revenue as compared to the same period in 2012.  

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Some IT staffing executives attributed the healthy growth to a shift in clients’ perception and utilization of staff augmentation as a more strategic method of getting projects done.

“Interactions with our clients and consultants continue to affirm our belief about the secular shifts taking place in the employment marketplace,” said David Dunkel, chairman and CEO of Kforce Inc. “U.S. GDP growth continues to be below 3 percent, translating to a slow and steady overall job growth rate whereas we continue to see a disproportionate amount of job growth coming from the staffing sector.”

Kforce is a professional staffing firm that generates about 63 percent of its revenue from temporary IT staffing. The company posted an uptick of 14.2 percent year over year in IT staffing for the quarter.

According to Peter Dameris, CEO and president of On Assignment, corporations are considering staff augmentation as the preferred workforce arrangement.

“What we’re seeing is that CIOs are looking at staff augmentation as a more attractive deployment model than potentially offshoring or project consulting outsourcing because of the cost, flexibility, visibility and accountability,” Dameris said in an analyst conference call. “And what I would tell you is we haven’t seen a change in the CIO’s mindset at this point. They think they'll spend a bigger chunk of their total IT services dollars on projects that are deployed or developed with staff augmentation versus other deployment models.”

On Assignment is a professional staffing firm with two IT staffing divisions, including Oxford Global Resources, which places senior-level IT, engineering and regulatory and compliance professionals both in North America and in Europe. Oxford grew 13.5 percent year over year during the quarter. On Assignment’s second technology division, Apex Systems, was acquired by On Assignment in May 2012. Its third-quarter revenue rose 21.6 percent. Apex is U.S.-based and provides IT staffing and deliverable-based services.

There has been some talk lately regarding the cooling of the health information technology market. However, staffing firms that are doing business in this marketplace said they are fairly optimistic about the long-term prospects of health information technology and expect the market to pick up momentum again soon.

“In the short-term, we believe that our EMR [electronic medical records] business growth will be constrained, due to hospitals having to deal with the reimbursement costs that have occurred,” said Jim Boldt, chairman and CEO of Computer Task Group Inc. “Long-term there is still a significant opportunity for the growth in our EMR business. Only 40 percent of hospitals in the United States have reached the meaningful use Stage I threshold. Not all of the software the hospitals [and physicians’ practices] use for EMR has been upgraded to meet the standards of meaningful use Stage II, and many are concerned that some of the existing software cannot be modified to meet the more rigid standards. … And finally, we believe the European hospitals will ultimately install U.S. software, and it will likely create EMR work for CTG for another decade.”

Computer Task Group provides IT and business consulting solutions to the healthcare market, as well as managed services IT staffing for technology companies and large corporations. For the quarter ended Sept. 30, the company’s solutions business, which accounts for about 40 percent of its total revenue, was down 9.5 percent on a year-over-year basis. The company attributed this to delays in healthcare project starts. It’s IT staffing division slipped 2.5 percent due to a reduction in spending from IBM, the division’s largest customer.

IBM was cited as the cause for decline in revenue for yet another professional staffing firm. CDI Corp., an IT and engineering staffing and solutions firm, reported a year-over-year decline of 9.2 percent in the high-tech revenue of its professional services staffing division. About 75 percent of the high-tech revenue in the division are derived from business through IBM.

Other trends noted in conference calls, press releases and U.S. Securities and Exchange Commission filings include increases in revenue from larger clients. This may be causing a slight margin compression as these are clients that typically engage in volume placements. Bill rates appear to be stable, “inching up” but not as much as desired considering the tight IT labor market. Some of the hot skills mentioned by Kforce where candidate supply remains tight included .NET and Java developers, business analysts and project managers. On Assignment’s IT staffing divisions reported robust growth in their top accounts in the financial, healthcare, telecommunications and consumer industrial verticals. The company’s healthcare IT unit continues to be the fastest-growing unit. 

There was a lot of buzz about potential strategic acquisitions during analyst conference calls, with special mentions of data analytics and health information technology as the sought after areas of focus for acquisitions.

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