On Assignment Reports Results for Second Quarter 2013
On Assignment Reports Results for Second Quarter 2013
Revenues, Income, EPS & Adjusted EBITDA above High-end of Previously Announced Estimates
Revenues from IT Segments up 18.4 percent Year-over-Year
CALABASAS, Calif.--(BUSINESS WIRE)-- On Assignment, Inc. (NYS: ASGN) , a leading global provider of diversified professional staffing solutions, today reported results for the quarter ended June 30, 2013.
Second Quarter Highlights
- Revenues were $417.9 million, up 15.4 percent year-over-year on a pro forma basis and 7.4 percent sequentially. Pro forma results, as used herein, assume that our acquisition of Apex Systems occurred on January 1, 2012. Pro forma operating results are summarized in a table below.
- Income from continuing operations, excluding the write-off of loan costs, acquisition-related costs and strategic planning expenses, which were not included in the previously announced estimates (a non-GAAP measure set forth in the table below) was $17.4 million ($0.32 per diluted share), up from $11.0 million ($0.20 per diluted share) in the first quarter of 2013. Adjusted income from continuing operations (a non-GAAP measure set forth in the table below) was $25.5 million ($0.47 per diluted share).
- Adjusted EBITDA (a non-GAAP measure defined below) was $44.2 million, up from $38.4 million in second quarter of 2012 on a pro forma basis.
- Percentage of gross profit converted into Adjusted EBITDA was 35.5 percent, up from 34.4 percent in second quarter of 2012 on a pro forma basis.
- Leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) was 2.3 to 1, down from 2.88 to 1 at December 31, 2012.
- On May 16, we closed on a new $500 million credit facility that expanded our borrowing capacity and flexibility and reduced our interest rates.
Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, "Our results for the quarter were above our previously announced estimates and driven by strong year-over-year revenue growth and improved operating leverage. Our conversion of gross profit into Adjusted EBITDA was 35.5 percent for the quarter, up from 34.4 in the second quarter of 2012 on a pro forma basis and 30.1 percent in the preceding quarter.
"Our strong revenue growth was mainly driven by our IT businesses, Apex Systems and Oxford, which account for 80 percent of our business. Our IT businesses grew 18.4 percent year-over-year on a pro forma basis and 8.7 percent sequentially. In that sector of the market, we are the second largest provider of staffing services and we continue to grow faster than the overall market reflecting the benefit of our scale and operating models. We also believe we are benefiting from a shift in spending toward IT staffing and away from other IT services delivery models, such as consulting and offshoring, as CIOs continue to focus sharply on project flexibility and accountability and cost control.
"Our non-IT segments, which account for 20 percent of our overall business, grew 4.7 percent year-over-year and 2.2 percent sequentially. While these segments reported modest growth, we have not yet seen the returns on our investments in sales staff and recruiters. We are evaluating various actions in an effort to improve the growth rate and overall performance of these units."
Dameris continued, "In May, we put in place a new $500 million credit facility. This facility improves our borrowing capacity and flexibility for acquisitions and stock repurchases and results in significant interest savings."
Second Quarter 2013 Results
Revenues for the quarter were $417.9 million, up 57.2 percent year-over-year and 7.4 percent sequentially. On a pro forma basis assuming the acquisition of Apex Systems had occurred at the beginning of 2012, revenues were up 15.4 percent year-over-year. Virtually all the growth in revenues was from the Information Technology businesses (Apex Systems and Oxford), which grew 18.4 percent year-over-year on a pro forma basis and 8.7 percent sequentially.
Gross profit was $124.6 million, up 47.4 percent year-over-year and up 10.0 percent sequentially. This increase was due to growth in revenues and the inclusion of the operating results of Apex Systems for a full quarter. The year-over-year compression in gross margin was mainly attributable to the inclusion of Apex Systems for a full quarter, which has a lower gross margin than the Company's other business segments, lower permanent placement revenues and higher growth of lower-margin services.
Selling, general and administrative expenses were $86.5 million, up from $84.2 million in the first quarter of 2013. The sequential increase in expense was primarily due to higher incentive compensation related to the sequential growth in gross profit and headcount additions to drive growth.
Amortization of intangible assets was $5.3 million, up from $3.9 million in the second quarter of 2012. This increase related to the timing of the acquisition of Apex Systems, which was acquired in the middle of the second quarter of 2012. Consequently, the second quarter of 2012 included amortization expense for only half the quarter.
Interest expense for the quarter was $4.2 million compared with $4.0 million in the second quarter of 2012. Interest expense was comprised of interest on the credit facility of $3.8 million and amortization of capitalized loan costs of $0.4 million.
Write-off of loan costs totaled $15.0 million ($9.2 million, $0.17 per diluted share, after tax) and related to the refinancing of the credit facility in May. This refinancing was treated as an early extinguishment of debt, which resulted in a full write-off of all capitalized loan costs associated with the old facility. Under the new $500 million credit facility, the interest rate on the term B loan was reduced 150 basis points and the interest rate on the revolver and term A loan was reduced 75 to 125 basis points, depending on the leverage ratio.
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets plus equity-based compensation expense, impairment charges, acquisition-related costs and fees and expenses of the outside consulting firm assisting with our strategic planning initiatives), was $44.2 million, up from $38.4 million for the second quarter of 2012 on a pro forma basis. The Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenues) was 10.6 percent.
Income from continuing operations (excluding the write-off of loan costs, acquisition-related costs and strategic planning expenses) was $17.4 million ($0.32 per diluted share) compared with $12.7 million ($0.24 per diluted share) for the second quarter of 2012 on a pro forma basis.
Net income, which is comprised of income from continuing operations and the loss from discontinued operations, was $7.3 million ($0.14 per diluted share) compared with $7.6 million ($0.16 per diluted share) in the second quarter of 2012. Net income for the quarter included (i) a $15.0 million ($9.2 million, $0.17 per diluted share, after tax) write-off of loan costs, (ii) acquisition-related costs and strategic planning expenses totaling $0.7 million ($0.4 million, or $0.01 per diluted share, after tax) and (iii) a $0.5 million loss from discontinued operations.
Financial Estimates for Q3 2013
On Assignment is providing below financial estimates from continuing operations for the third quarter of 2013. These estimates do not include acquisition-related costs and strategic planning expenses.
- Revenues of $429 million to $433 million
- Gross Margin of 29.8 percent to 30.1 percent
- SG&A (excludes amortization of intangible assets) of $87.5 to $89.0 million (includes $2.3 million in depreciation and $4.2 million in equity-based compensation expense)
- Amortization of intangible assets of $5.2 million
- Adjusted EBITDA of $46 million to $48 million
- Effective tax rate of 42.5 percent
- Adjusted Income from Continuing Operations of $25.8 million to $27.0 million
- Adjusted Income from Continuing Operations per diluted share of $0.47 to $0.49
- Income from Continuing Operations of $17.8 million to $18.9 million
- Income from Continuing Operations per diluted share of $0.33 to $0.35
- Diluted shares outstanding of 54.4 million
These estimates reflect normal seasonality in the business. The estimates assume year-over-year revenue growth of approximately high-teens for Apex Systems and Oxford, mid-single digit for Life Sciences, low single-digit for Physician Staffing and Allied Healthcare. The estimates above assume no deterioration in the staffing markets that On Assignment serves. For the full year, the Company expects to trend toward the high-end of the previously-announced full year 2013 targets.
On Assignment will hold a conference call today at 4:30 p.m. EDT to review its second quarter financial results. The dial-in number is 800-260-0702 (+1-612-234-9962 for callers outside the United States) and the conference ID number is 297394. Participants should dial in ten minutes before the call. A replay of the conference call will be available beginning today at 7:30 p.m. EDT and ending at midnight EDT on Saturday, August 24, 2013. The access number for the replay is 800-475-6701 (1+320-365-3844 for callers outside the United States) and the conference ID number 297394.
This call is being webcast by Thomson/CCBN and can be accessed via On Assignment's web site at www.onassignment.com. Individual investors can also listen at Thomson/CCBN's site at www.fulldisclosure.com or by visiting any of the investor sites in Thomson/CCBN's Individual Investor Network.
About On Assignment
On Assignment, Inc. (NYS: ASGN) , is a leading global provider of in-demand, skilled professionals in the growing technology, healthcare and life sciences sectors, where quality people are the key to success. The Company goes beyond matching résumés with job descriptions to match people they know into positions they understand for temporary, contract-to-hire, and direct hire assignments. Clients recognize On Assignment for their quality candidates, quick response, and successful assignments. Professionals think of On Assignment as career-building partners with the depth and breadth of experience to help them reach their goals.
On Assignment was founded in 1985 and went public in 1992. The corporate headquarters are located in Calabasas, California, with a network of 133 branch offices throughout the United States, Canada, United Kingdom, Netherlands, Ireland and Belgium. Additionally, physician placements are made in Australia and New Zealand. To learn more, visit http://www.onassignment.com.
Reasons for Presentation of Non-GAAP Financial Measures
Statements made in this release and the Supplemental Financial Information accompanying this release include non-GAAP financial measures. Such information is provided as additional information, not as an alternative to our consolidated financial statements presented in accordance with GAAP, and is intended to enhance an overall understanding of our current financial performance. The Supplemental Financial Information sets forth financial measures reviewed by our management to evaluate our operating performance. Such measures also are used to determine a portion of the compensation for some of our executives and employees. We believe the non-GAAP financial measures provide useful information to management, investors and prospective investors by excluding certain charges and other amounts that we believe are not indicative of our core operating results. These non-GAAP measures are included to provide management, our investors and prospective investors with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between quarters. One of the non-GAAP financial measures presented is EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets), other terms include Adjusted EBITDA (EBITDA plus equity-based compensation expense, impairment charges, write-off of loan fees, acquisition related costs and strategic planning costs) and Non-GAAP Income from Continuing Operations (Income from continuing operations, plus acquisition related expenses, deferred financing fees written-off and strategic planning costs, net of tax) and Adjusted Income from Continuing Operations and related per share amounts. These terms might not be calculated in the same manner as, and thus might not be comparable to, similarly titled measures reported by other companies. The financial statement tables that accompany this press release include reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
Certain statements made in this news release are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and involve a high degree of risk and uncertainty. Forward-looking statements include statements regarding the Company's anticipated financial and operating performance in 2013. All statements in this release, other than those setting forth strictly historical information, are forward-looking statements. Forward-looking statements are not guarantees of future performance, and actual results might differ materially. In particular, the Company makes no assurances that the estimates of revenues, gross margin, SG&A, Adjusted EBITDA, income from continuing operations, adjusted income from continuing operations, earnings per share or earnings per diluted share set forth above will be achieved. Factors that could cause or contribute to such differences include actual demand for our services, our ability to attract, train and retain qualified staffing consultants, our ability to remain competitive in obtaining and retaining temporary staffing clients, the availability of qualified temporary professionals, management of our growth, continued performance of our enterprise-wide information systems, and other risks detailed from time to time in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 18, 2013, our report on Form 8-K filed with the SEC on June 13, 2013, and our Form 10-Q for the quarterly period ended March 31, 2013 as filed with the SEC on May 9, 2013. We specifically disclaim any intention or duty to update any forward-looking statements contained in this news release.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share amounts)
|Three Months Ended||Six Months Ended|
|June 30,||March 31,||June 30,|
|Cost of services||293,356||181,326||275,919||569,275||285,337|
|Selling, general and administrative expenses||86,454||65,173||84,161||170,615||107,918|
|Amortization of intangible assets||5,275||3,884||5,379||10,654||4,518|
|Interest expense, net||(4,198||)||(3,957||)||(5,331||)||(9,529||)||(4,658||)|
|Write-off of loan costs||(14,958||)||(813||)||—||(14,958||)||(813||)|
|Income before income taxes||13,682||10,710||18,403||32,085||19,379|
|Provision for income taxes||5,860||4,633||7,793||13,653||8,255|
|Income from continuing operations||7,822||6,077||10,610||18,432||11,124|
|Gain on sale of discontinued operations, net of tax||—||—||14,412||14,412||—|
|Income (loss) from discontinued operations, net of tax||(483||)||1,485||(409||)||(892||)||1,821|
|Basic earnings per common share:|
|Income from continuing operations||$||0.15||$||0.14||$||0.20||$||0.35||$||0.27|
|Income from discontinued operations||(0.01||)||0.03||0.26||0.25||0.05|
|Diluted earnings per common share:|
|Income from continuing operations||$||0.14||$||0.13||$||0.20||$||0.34||$||0.26|
|Income from discontinued operations||—||0.03||0.26||0.25||0.05|
|Number of shares and share equivalents used to calculate earnings per share:|
|(1)Amounts differ from the previously reported numbers on our Form 10-Q for the period ended June 30, 2012, due to the retrospective adjustment of amortization of the identifiable intangible assets of Apex purchase price allocation, and the retrospective presentation of discontinued operations related to the sale of Nurse Travel during 2013.|
SUPPLEMENTAL SEGMENT FINANCIAL INFORMATION (Unaudited)
|Three Months Ended||Six Months Ended|
|June 30,||March 31,||June 30,|