ASGN Inc (ASGN) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the On Assignment Q4 2013 earnings call.

At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Ed Pierce. Please go ahead, sir.

Thank you. Good afternoon. First, I would like to remind everyone that our presentation contains forward-looking statements representing our current judgment of what the future holds. Although we believe these statements are reasonable, they are subject to risks and uncertainties that could cause the actual results to differ materially from those statements, and we do not assume the obligation to update statements made on this conference call. We describe some of these risks and uncertainties in today's press release and in our filings with the Securities and Exchange Commission.

I would like now like to introduce Peter Dameris, our CEO and President, who will provide an overview of our results for the quarter. Peter?

Thank you, Ed. Good afternoon, everyone. I would like to welcome everyone to the On Assignment 2013 fourth quarter earnings conference call. With Ed and me today are Rand Blazer, President of Apex System Systems, and Mike McGowan, COO of On Assignment and President of Oxford Global Resources.

During our call today, I will give a review of the markets we serve and our operational highlights, followed by a discussion of the performance of our operating segments by Rand and Mike. I will then turn the call over to Ed for a more detailed review and discussion of our fourth quarter and full-year financial performance, and our estimates for the first quarter of 2014 and the full year of 2014. We will then open the call up for questions.

Now, on to the fourth quarter and full year results. Revenues from continuing operations in the fourth quarter were $423.6 million, up 14.7% year-over-year. Income from continuing operations was $17.4 million, or $0.32 per diluted share, up from $12 million, or $0.22 per diluted share in Q4 of 2012. Revenues generated outside the United States was $19.8 million, or $4.7 million of consolidated revenues in the fourth quarter, versus $19.8 million, or 5.4% in the fourth quarter of 2012.

Adjusted EBITDA from continuing operations was $48.4 million, or 11.4% of revenues, up from $39.4 million, or 10.7% of revenues in the fourth quarter of 2012. All the markets we serve remained productive and stable during and exiting the quarter, and all of our divisions, including physician staffing, showed positive momentum exiting the quarter.

Once again, we saw particularly strong growth and strength in the IT end markets. Our IT group grew 16% year-over-year in the fourth quarter. Our life sciences grew 11.8% year-over-year, and recorded its strongest performance since the first quarter of 2012. While demand is still remaining -- while demand still remains challenging in the physician staffing market, our team is working hard to gain market share.

Exiting the quarter, our IT and life sciences groups had the strongest momentum and appeared poised to have another strong growth year. As many of you have heard us state, we believe our scientific staffing business is the most directly correlated to GDP growth, and our best internal predicting tool of the strength of the broader US economy.

Based on demand in that division, exiting the quarter in our actual fourth quarter results, we believe the broader US economy is gaining momentum. As for IT staffing, we continue to see positive demand and a continuing adoption of staff augmentation, as a viable alternative to outsourcing, off-shoring, and consulting.

Consolidated gross margins of 30.6% was up from 30.3% in the fourth quarter of 2012, and up from 30.2% in the preceding quarter. The year-over-year expansion was primarily due to a higher mix of revenues from permanent placement, which carries a higher gross margin, and a favorable adjustment to the medical malpractice actuarial reserve. The sequential expansion in gross margin was also primarily due to a higher mix of permanent placement and conversion fees, which were 2.1% of total revenues for the quarter, up from 1.7% of total revenues in Q3 2013, driven by the inclusion of CyberCoders for the month of December.

Regarding our operating efficiency, the percentage of gross profit converted into adjusted EBITDA was 37.3% during the quarter, and 35.3% for the full year. We believe these conversion rates are amongst the highest in the staffing industry, despite a lower contribution of revenues from permanent conversion fees.

Our adjusted EBITDA margin was 11.4% in the fourth quarter, compared with 11.3% in the preceding quarter. Because of our lack of dependence on permanent conversion fees for profitability, we believe that as we increase our contribution from those services as a percentage of our total revenues, we will expand our profit margins from the levels that exist today.

As we previously reported on December 2, 2013, we sold selected operating assets of our Allied health care unit and acquired two companies, CyberCoders, a $58 million revenue contingent search business, and Whitaker Medical, a $27 million revenue Physician staffing business. We are moving quickly and thoughtfully to integrate the two acquired businesses and build sales bridges between our existing business and the acquired businesses. During our analyst day, we hope to lay out our five-year growth plan, new EBITDA percentage targets, and integration optimization projects that should permit us to expand our EBITDA margins.

Regarding industry dynamics, during and exiting the fourth quarter secular trends continue to permit temporary labor to see greater growth prospects than full-time labor. As previously mentioned, we believe the macroeconomic environment in North America, where we derive 95% of our total revenues, has improved from the first half of 2013, and we continue to see a classic cyclical recovery in professional staffing.

As for the financial services sector, we continue to see higher demand from clients in that sector than what we experienced in Q3 of 2013. Ed will provide you our first quarter financial estimates later in this call, but based on our current weekly revenues, and the normal seasonal patterns, we do not see any appreciable negative change in demand for our services from our customers.

Our operating performance in the fourth quarter of 2013, and our estimates for the first quarter, demonstrate that our business model and areas of focus permit us to grow despite less than optimal economic conditions. As for actions we took to sustain our future positive revenue growth rates, we continued to add to the number of recruiters and sales personnel that we employ.

Exiting the quarter, demand for our services remains stable in all divisions. Our weekly assignment revenues, which excludes conversion, global expenses, and direct placement revenues, averaged $31 million for the last two weeks, up 11.2% over the same period in 2012, and also reflects the impact of the adverse weather on the northeast.

Integration, coordination, and cash generation related to our acquisitions continue to be at or above our expectations. Ed will walk you through specifics later in this call. Our leverage ratio is now 2.2 times trailing 12-month adjusted EBITDA.

As for an update on our strategic planning, we have completed the same, and will have an analyst day on March 25, 2014, at the New York Palace Hotel in New York City. Notices and invitations have gone out, and you can contact Ed Pierce for further information.

Finally, we have launched our process to amend our existing credit facility to replace $82.5 million of our Term B loan with a like amount of Term A loan. This amendment will save us about $1 million a year in interest and is permitted under the terms of our existing loan agreement.

I will now turn the call over to Rand Blazer, President of Apex Systems, who will review the operations of his segment. Rand?

Great. Thank you, Peter. Apex Systems had another solid quarter. Requisition flow from our accounts for Q4 continued to rise on a year-over-year basis, and we again turned that flow into year-over-year revenue and earnings growth.

We posted revenues of $249.9 million, representing 20.4% growth within the same period a year ago and sequential growth over Q3 of 1.4%. For the full year 2013, we achieved revenues of $942.5 million.

Going back to Q4, our growth was paced by positive double digit revenue growth across our portfolio of accounts in all seven industry verticals that we operate in. For the year, our largest growth came from our top accounts in the financial, health care, telecommunications, and consumer industrial verticals. Again in Q4, we saw broad-based growth [in accounts] across all industries.

Gross margins for Apex for the quarter were up 34 basis points from a year ago, at 27.68% versus 27.34%. Growth in our revenue from the mix of skills required by our account impacted positively our gross margin performance. The pricing environment remains steady in the quarter.

Our conversion of revenue and gross margin to operating margins continues strong in the quarter. Apex's business unit contribution for the quarter was up from a year ago, driven by the continued increase in the productivity of our sales, recruiting and back office teams.

We are seeing a solid market environment for our business in Q1 2014, as Peter mentioned, and expect that our revenues and operating performance will grow on a year-over-year basis. The weather we are seeing to date, in the east and midwest particularly, will impact our growth in revenues by approximately 1% in the quarter. Overall, though, we believe Apex will perform well despite these impacts.

I will now turn the call over to Mike McGowan to discuss Oxford and legacy On Assignment division results. Mike?

Thanks, Rand. As Peter mentioned earlier, we sold selected operating assets of our Allied Healthcare unit in December. We retained a health information management, or HIM, practice of Allied, and it has been integrated with Oxford's health care IT division. Accordingly, HIM is now reported on Oxford's segment data for all periods; the Oxford segment also includes the results of CyberCoders.

Oxford's Q4 revenues were $101.8 million, a 6.6% year-over-year increase, which included $3.6 million in revenues from CyberCoders. For the quarter, average consultants on assignment were up approximately 2%. However, average bill rates were slightly lower, primarily due to the inclusion of HIM.

Our firm revenues for the quarter were $3.7 million, up from $935,000 in Q4 2012. This improvement in mix relates to the inclusion of CyberCoders, that accounted for $2.7 million of the year-over-year increase in firm revenues.

As we previously discussed, Oxford's second half of 2013 revenue performance was negatively impacted by the winding down of a significant project at our largest client, and lower growth in our health care IT group. The quarter played out as we predicted in December, and we have started to see our consultants on assignment increase since the 1st of January, especially in our health care IT group.

Oxford's 2013 fourth quarter gross margin of 37.01% was 224 basis points higher than the fourth quarter of 2012, and 258 basis points higher than the third quarter of 2013. Both of these increases were related to the inclusion of CyberCoders and improvements in our contract margin. Excluding CyberCoders, our fourth quarter gross margin was 35.46%, a 68 basis point improvement over the fourth quarter of 2012, and a 103 basis point improvement over the third quarter of 2013.

Moving into 2014, as I just mentioned, we have started to see our consultants on assignment increase in Q1, and the trends that we experienced in the second half of 2013, are beginning to be reversed. However, as Rand stated, we will also see a negative impact in the quarter due to the weather we have been experiencing.

Revenues in Q4 for our Life Sciences segment were $45 million, a 2.1% increase over the prior quarter, and an 11.8% increase year-over-year. Our US operations, which comprise 74% of total segment revenues, grew 1.6% sequentially, and 12.3% year-over-year. European operations increased 3.4% sequentially, and 10.2% year-over-year.

Key drivers of growth for the segment included an improved operating environment across all core industries, with pharmaceuticals, biotech, and food and beverage leading demand for contract and direct hire services. Gross margin for the life science segment was 32.81%, a sequential increase of 39 basis points, but down year-over-year. The year-over-year decline was primarily the result of a gross margin lift from a nonrecurring Belgian tax subsidy by that we recognized in the fourth quarter of 2012.

Moving on to the first quarter of 2014, we continue to see signs that the environment in which we operate is stable and growing. Demand for contract, contingent and retained services throughout the United States and Europe remain steady, and we are encouraged with the number of weekly contract assignments and permanent placement activity. However, as with the other divisions, we have weather issues to deal with this quarter.

Now, moving on to our Physician staffing segment, revenues were up 2.3% sequentially to $26.8 million, and up 2.9% year-over-year. This improvement related to a $2.3 million contribution from Whitaker Medical. The core business, excluding Whitaker, was as expected, down 5.8% year-over-year.

Demand from key clients slowed in the fourth quarter. However, intra-quarter cancellations, from previously booked business, was less than previously experienced.

Our government business, which is 40% of our mix, slowed throughout the year, as a result of state and federal budget issues. Our average bill rates were down slightly at 1% as compared to the prior year period, primarily due to mix. Gross margins were flat year-over-year, and up 207 basis points sequentially, due to a favorable medical malpractice reserve adjustment.

The overall physician staffing marketplace continues to experience slow growth, and has been very inconsistent from quarter to quarter. However, on a long term basis, we believe that drivers of the overall market are very positive.

I will now turn the call back over to Ed Pierce. Ed?

Thanks, Mike.

Before reviewing our financial results, please note that our results from continuing operations do not include Allied Healthcare, which was sold in Q4. The results of this division are now recorded as discontinued operations, and the restated quarterly results for 2012 and 2013 were included in our press release on December 2, 2013.

Also in December, we acquired Whitaker Medical, a physician staffing business, and CyberCoders, a permanent placement firm. The operating results of those two businesses are included in our consolidated results of operations only for the period from the date of acquisition through the end of the quarter.

In the segment data, included in our press release, please note that Whitaker is included in our physician segment and CyberCoders is included in our Oxford segment. The health care information management practice that was formally part of the Allied Healthcare segment is now included in the Oxford segment. As Peter mentioned, our key financial measurements for the quarter were above the high end of our estimates after adjusting for acquisition and strategic planning expenses, which we did not include in our estimates.

Revenues for the quarter were $423.6 million, up 14.7% year-over-year and 0.5% sequentially. Excluding the revenues of the acquired businesses, revenues were up 13.1% year-over-year.

Our technology segments, Apex Systems and Oxford, which comprised of 83% of our total revenues, grew 16% year-over-year and 14.9% excluding CyberCoders. Our non-technology segment, life sciences and physicians, which accounted for approximately 17% of total revenues, grew 8.3% year-over-year, and 4.9% excluding the revenues from Whitaker.

As Peter mentioned earlier, life sciences reported year-over-year growth in the quarter of 11.8%, and our physician segment was up 2.9%, which included $2.3 million in revenues from Whitaker. Conversion and direct hire revenues for the quarter were $8.9 million or 2.1% of revenues, compared with $6.6 million or 1.8% of total revenues in Q4 2012. The improvement in mix was due to the $2.7 million in perm revenues from CyberCoders.

Gross margin for the quarter was 30.6%, up from 30.3% in Q4 of last year, and 30.2% in the preceding quarter. The year-over-year improvement on gross margin was attributable to the higher mix of perm revenues and slightly higher gross margins on our contract business.

SG&A expenses for the quarter were $90.2 million, or 21.3% of revenues, compared with $77.9 million, or 21.1% of revenues in Q4 of last year. SG&A expenses for the quarter included acquisition and strategic planning expenses of $2.6 million, and a $1.6 million benefit from the reduction in an earn-out obligation.

SG&A expenses from the two acquired businesses totaled $2.8 million, or 0.7% of consolidated revenues. CyberCoders accounted for $2.4 million of that amount. While CyberCoders has higher gross margins, its SG&A expense margin is higher than our other businesses.

Amortization of intangible assets for the quarter was $5.9 million, up from $5.2 million in the preceding quarter. The increase related to amortization of intangibles of the two businesses that we acquired in December.

Interest expense was $3.4 million, down from $5.4 million in Q4 of last year. The effective interest rate at the end of the quarter was 3.7%; the effective income tax rate was 42.4% for the quarter and 41.6% for the full year. The effective rates for the quarter and full year were higher than our estimates, as a portion of the acquisition expenses incurred in Q4 were not deductible for tax purposes.

Income from continuing operations was $17.4 million, or $0.32 per diluted share, compared with $12 million, or $0.22 per diluted share for Q4 of 2012. Income from continuing operations included $1.5 million in acquisition and strategic planning expenses after tax, and a $1 million benefit, after tax on the settlement of an earn-out obligation. Our adjusted income from continuing operations was $27.5 million, or $0.50 per diluted share.

Adjusted EBITDA for the quarter was $48.4 million, up from $39.4 million in Q4 of 2012. Our conversion of gross profit into adjusted EBITDA was 37.3%, or about the same as Q3. Our conversion rates, which are a measurement of our operating efficiency, are among the highest in the industry.

Free cash flow, which is operating cash flow less capital expenditures, was $32.3 million, up from $22.6 million in Q4 of 2012. Accounts receivable DSOs, excluding the two acquisitions, were 54.4 days at the end of the quarter, an improvement of 1.8 days from the end of the preceding quarter.

Turning to our estimates for Q1 of 2014, we estimate revenues of $434.0 million to $438 million; gross margin of 30.6% to 30.9%; income from continuing operations of $12.1 million to $13 million; income per diluted share of $0.22 to $0.24; adjusted EBITDA of $37 million to $38.5 million; adjusted income from continuing operations of $20.8 million to $21.6 million; and adjusted income per diluted share of $0.38 to $0.39. These estimates do not include any acquisition, integration, or strategic planning costs.

These estimates assume billable days of 61.9 in the quarter, compared with 62.4 in Q1 of 2013 and 61.4 in the preceding quarter. The estimates also consider the loss in revenues from the inclement weather, which we estimate to be between $3 million and $5 million.

These estimates reflect a slight sequential decline from our pro forma Q4 revenues of $438.7 million, due to the weather. We're also estimating a sequential decline from our pro forma Q4 gross profit of $140.7 million, mainly due to the effects of the sequential decline in revenues and higher cost of services, related to the reset of payroll taxes.

The payroll tax reset, which occurs in the first quarter of every year, results in an estimated increase in cost of services of $4 million to $5 million. We also estimate our SG&A expenses will be up over our Q4 pro forma expenses of $98.6 million. Most of this increase relates to the sequential increase in payroll taxes of $2.5 million due to the payroll tax reset, investments in our branch offices to support revenue growth, and higher professional fees mainly related to our year-end audit and [stock] compliance efforts.

Amortization of intangible assets is estimated to be $6.2 million, and reflects the inclusion of the two recently acquired businesses, partially offset by the drop in amortization from Apex Systems. In our press release, we also included estimates for the full year.

I will now turn it back to Peter for some closing comments. Peter?

Thank you, Ed. We believe we are well positioned to take advantage of what we believe will be an historic secular and cyclical growth for the staffing industry over the next three to five years. While the entire On Assignment team is very proud of our performance, we remain focused on continuing to profitably grow our business. We'd like to once again thank our many loyal, dedicated and talented employees, whose efforts have allowed us to progress to where we are today.

I would like to now open the call up to participants for questions. Operator?

Thank you, sir. (Operator Instructions) We go to the line of A.J. Rice of UBS. Please go ahead.

Hello, everybody. Thanks.

Just a couple of questions, if I might. First of all, let's drill a lit bit more on Oxford.

In the Q1, it says, I guess, that you're assuming it'll be flat year over year, excluding the acquisitions. And I'm assuming that's basically the continued runoff of the one large customer, as well as some health care IT choppiness.

Can you comment on what your assumption is for the rest of the year on Oxford?

Yes, I'll go first and then I will pass it on to Mike McGowan.

A.J., we had a decline in revenue growth in the second half of the year for the reasons we've discussed several times. We think we're through most of that, and we're starting to hit an inflection point.

We think that March probably is really where the inflection point is. But we're not trying to call the bottom. But we are seeing a growth in head count. We're seeing our order book return to normality.

And this wasn't because of lack of execution, but more so just some vagaries in the market of health care IT spending -- you're very familiar with the health care world -- in the second half of the year, and also just the grow-over problem of a major project at a major account winding down.

So all that is left really is we had real high revenues in the early part of 2013 from that major account and from health care IT, so that will skew some of the growth. I think sequential growth will probably, for the first two quarters of 2014, be more indicative of the trend and the momentum than the year over year.

Mike, do you want to add something?

Not really, Peter.

I think that really addresses, A.J., what the issue is. And again, we're optimistic and feel good based upon what we've seen so far in the first quarter.

Okay. And I remember when you guys announced the sale on the Allied Health business, you guys were retaining the working capital.

Any update on how that's progressed? Were you able to collect everything you thought you were? Is there still something to be done there?

We'll, we're collecting the receivables; and DSOs went down 1.8 days. So, yes, and we know all of the present analysis in establishing those client relationships. So we fully expect to collect all the working capital.

Okay. And then maybe just last, I know -- and you took a charge, I guess, in the fourth quarter for this -- the strategic planning process you've been through. I know you've got an upcoming Investor Day.

Any early preview of your thoughts on that whole strategic planning process you went through and some of the conclusions?

Yes, I mean one, I am just going to tease you. I think it's software logical stuff, nothing that's disruptive or would be alarming. I think we tried to hint at we got some things that we think we can do to expand our already-large adjusted EBITDA margins.

And, Ed, correct me if I'm wrong. We didn't take a charge. All we did was expense it through the P&L and then point it out to you that it's an add-back to adjusted income.

That is correct.

Sorry, yes. Of course. All right. Thanks a lot.

And next we go to the line of Edward Caso, Wells Fargo. Please go ahead.

Thanks. I was wondering if Rand could talk about the various verticals within his world, particularly capital markets, what trends he might be seeing?

Rand?

Well, I think as we've pointed out, we had good growth in the fourth quarter across all seven of our industry verticals, including government which was, as I said, all double-digit growth.

We've always said financial services is sort of a bellwether. It kind of leads the economy up and it leads the economy down.

So the fact that we are seeing it across the board -- not just financial services, which we saw pick up toward the second half of last year -- and government staying strong, I think everything is ticking along from our point of view.

Does that --

That helps.

My other question is, how involved is On Assignment with the Affordable Care Act? And are we going to hit some pause here, both for that and the upcoming deadline for the ICD-9 to ICD-10, if we go into a testing phase? And if so, are there some health care IT pauses here that we might have to chew on for a couple of quarters?

So there are a couple of questions imbedded in that, Ed.

One, I'm proud to say we aren't doing anything to support the Government in the creation of the website. You used the word participation in the Affordable Care Act. We have exposure to the potential greater demand, but the mandates of ICD-10 were separate and apart from ObamaCare. One.

Two, ObamaCare, and just Medicare reimbursements, and the overall kind of sloppiness in health care spending and admissions and the for-profit hospital chains grappling with what their responsibilities are under ACA, I think will continue to make the waters choppy.

We're fortunate that we have pretty good distribution of customers and skills, and the skills that we provide are not as commoditized as nursing or some of the other clinical skills. And we're mostly on the technology side or, on the highest end, the physician side.

But the irony of it is, health care has a lot less visibility as to confidence in spend and the flow of spend than Biotech or IT or engineering does at this point.

Great. Thank you.

And next, we go to the line of Gary Bisbee of RBC Capital. Please go ahead.

Hi, guys. Good afternoon.

I guess a couple of questions on my end. So the health IT that you've cited in the past as being somewhat choppy, can we get an update on how that's trending and how the outlook for 2014 is?

Mike, you want to go first and then I'll follow up?

Yes, as I mentioned, we saw a little slowdown in the second half of 2013. And primarily it's because of a lot of the hospitals who have little doubts about their reimbursement practices, if you will, of what the Government was going to do.

And that's somewhat subsided with the new fiscal year for them in January. So we're starting to see an uplift in spending here in the first quarter, and we anticipate that'll continue throughout the year.

And just more on a generic basis, as we see our headcount of new consultants going on billing, Gary, specifically at Oxford, a nice percentage of it is coming from health care IT.

Okay, great. And then within IT demand, just at a high level, any changes?

I assume that the commentary that everything remains on track and the guidance seems to imply no real change in demand, and yet you're calling for quite a bit slower growth. Is that just conservatism and comping against what's been two really terrific years at Apex, or is there anything else going on?

Well, I mean granted, maybe projected slower growth, we'll see what happens. But it is still double-digit growth.

What I would really state is that as we look at the different verticals, whether it's cyber security, business analytics, data warehousing, ERP, I'd say ERP is probably still the most muted growth. And that may just be the number of ERP systems that are imbedded and how much optimization work has been completed to date.

We still think it is a very important, valuable area and that there will be innovation cycles. But at this point, if you compared it to some of the spend in other areas, it's a little more muted.

And then just sticking on that last comment, as we see more and more companies adopting and implementing some of these cloud-based software-to-service models, is there -- I guess not as much work as a huge ERP implementation -- but is there work for you there?

We see the continued migration to newer technologies. Are you getting the same level of work from that?

That's why we get the bill rates and the margins. We try to stay on early adoption technologies.

And in our view, the cloud, if anything, it's just intermediating or disrupting the need for infrastructure housed at the customer versus work needed to write interfaces and to customize cloud-based products.

Okay. And then just how much of the gross margin improvement in the guidance for 2014 is CyberCoders?

I assume that's the largest driver of that? But is there an underlying expectation of moderate improvement ex that?

It is mainly driven by CyberCoders. In fact, our mix of perm revenues should increase to, say, roughly 4.3%, up from 1.8%, which was what it was in 2013. So that's the biggest driver.

Okay. Thank you.

Thank you.

Next we go to the line of Paul Ginocchio of Deutsche Bank. Please go ahead.

Thanks. Just looking at your 2014 guidance, the only thing that kind of stood out was your SG&A growth.

Could you just comment on your pro forma SG&A growth? Because that was a little bit low, and I just wondered what it looks like on a pro forma basis for 2014 versus 2013.

Right. Paul, a couple of things.

If you tick down the P&L, I think when you look at consensus and everything -- our revenue, our GP dollars, our adjusted EBITDA -- all of that, I think, is above consensus.

But a lot of analysts had models that had an SG&A number that was substantially below the guidance we gave. And in some instances, actually assumed that there would be a cut in the actual SG&A 2013, meaning that we'd spend less in 2014 than we did in 2013. And when you're growing, that's just really not feasible.

What I think the disconnect came from is some people may have annualized our fourth quarter run rate of SG&A that had some one-time savings that were larger than normal, medical malpractice and then we had this reversal of this earnout to the tune that we disclosed of $1.4 million. And that may be part of the disconnect.

But we're not dramatically increasing the SG&A. Another thing is, as you know, we only owned CyberCoders for three weeks and Whitaker for a month. And some people may have only picked up the expense for that period owned versus on a pro forma basis with the SG&A expenses for a full quarter.

But we're not growing SG&A faster than we are our revenues or profits.

Ed, what else would you add?

Well, on a pro forma basis, Paul, pro forma 2013, when you include CyberCoders and Whitaker for the full year, SG&A is roughly $415 million. So relative to the guidance or the estimates that we're giving for SG&A in 2014, it's about say 8.5% to 9% increase year over year.

Great. And is that -- how much variability? Is that already spent? Is that because of your --

No, no --

8% to 9% growth in recruitment and sales, or is there some wiggle room in that?

There's wiggle room in that. There's wiggle room to the extent that if we're at the lower end of the revenue range, then the bonuses with commissions would be less. There's wiggle room in the fact that if we going at the lower end of revenues, then we probably don't hire as many sales consultants.

So, yes, that's a variable cost number. And to be honest with you, the vast majority of that hasn't been spent. It takes time to hire and recruit beyond what we are normally doing.

And just one minor qualitative comment.

If you look at SG&A, the increase is going to be weighted more towards branch expenses and the investments that we're talking about relative to sales consultants and recruiters.

Maybe just to ask it a different way.

8.5% to 9% SG&A growth, sort of 10% revenue growth, so SG&A growing at 85% to 90% of revenue, that seems a little high relative to your history.

Well, it's yet to be determined if all of that 8.5% gets spent.

Okay. And just one more on Oxford since it seems to be a focus the last half of the year.

Any way you could just give us what it's looking like year-to-date? On a year-on-year gross growth basis?

Mike, I'll let you answer.

But again, Paul, I think the more informative comparison is going to be the sequential. Because remember, the first quarter of 2013 had a fair amount of revenue from that major biotech company or medical device company.

So what we can tell you, qualitatively and quantitatively, is we're starting to see the headcount recover and the number of consultants ongoing exceed what it was in the fourth quarter.

But what we've said is it's going to take a quarter, quarter and a half, to really prove up that inflection point and to continue to grow.

I guess I was trying to just ask, how much does it have to accelerate from January to get to your sort of pro forma flat for the first quarter?

You know, I don't have that calculation off the top of my head. Why don't you call back, and we will see if with public data we can piece that together for you.

Thank you. Thanks, Peter.

And next we go to the line of Tobey Sommer of SunTrust. Please go ahead.

This is Frank in for Toby. In your prepared remarks, you talked about some positive trends in Physician. Can you give us a little more color on that and what gives you confidence that Physician is seeing some nice signs of growth?

Well, Frank, we don't have real high growth rates early in the year. We know how important the service is that is provided.

And remember, the Physician Staffing business, any work that we work on today, we don't generate a revenue, a dollar revenue for three months. So we have kind of forward visibility in that. The forward visibility looks stronger than what we were seeing historically.

So that's in the number, as we said in our prepared remark, the number of intra-quarter cancellations are down. So that's giving us the confidence to think that although it's still sloppy, it's still variable quarter to quarter, that we may be moving into a more stable period of purchasing.

Okay. And a quick numbers question. Do you have a CapEx estimate for 2014?

We're estimating $19.5 million, and roughly $7.5 million in Q1.

Okay. Great. And then as you look at both Apex and Oxford, and as we get into a tighter environment of labor, we're hearing more anecdotes of just how difficult it is to get quality talent.

Are you seeing any changes in terms of the supply side of those equations?

It's been tight. And we tend to excel on recruitment as much as sales. And Oxford, specifically, they probably excel more on recruitment than sales.

I just read something today that I think Bloomberg had a survey that estimates that wages are going to go up 2.1% in 2014. So I think that the real pressure, Frank, is going to be more on customers realizing not only is the market tight, but wage expectations are going to be moving quicker than maybe they hope.

Great. Thank you very much.

Next, we go to Tim McHugh of William Blair. Please go ahead.

Hi, this is Stephen Sheldon in for Tim.

First I just want to ask, I think you talked a little bit about the new facility in your prepared remarks. Is there any interest expense savings factored into your guidance?

No.

Okay. And then also I want to ask about Apex a little bit.

The growth there remained really strong in the quarter. It ticked down just slightly and then is expected to moderate some in 2014, still remain really strong, but moderate.

Is there anything in particular there, is it just tougher comps? And also, what are you seeing in the first month or two of the quarter?

They're seeing continued momentum. They had a great 2013. What was it? 19.7% for the full year.

And we will put up as high a numbers as are constructive and prudent, but we budgeted for a market the way we see it currently.

Okay. Great. Thanks.

The budgeting has nothing to do with any sort of downward trend that we're seeing in the business.

And next we go to the line of Jeff Silber of BMO Capital Markets. Please go ahead.

Thanks, I just wanted to follow on a supply related question. Are you having any difficulty finding and retaining your staff and consultants?

Our IT people -- I mean our internal staff?

Your internal staff and consultants, correct.

Yes, I mean the more we put numbers up like this, the more we have creditors coming after us. And we have some lawsuits that are pending.

But all in all, we've got a good team and esprit de corps. And we're holding onto our people because we treat them right and they make more money with us because of the stability of our business versus the promises others make to them that tend not to hold true.

But it's more and more hand-to-hand warfare. And I'd say 9 out of 10 times we're winning the battle because we treated people well in good times as well as the bad times.

Are you are seeing any material change in turnover rates?

No.

No. Okay, good.

And then you mention in the press release the impact of bad weather on revenues. And I know this is more of an art than a science, but I was wondering if you could give us some kind of impact on the impact of bad weather on adjusted EBITDA.

We really can't. All we did publicly state was we thinking it'll be around $3 million to $5 million in the quarter of revenue.

Okay. And just couple of quick numbers questions.

You went through a few of I guess what we'll call one-time charges -- the acquisition-related costs, the strategic planning and the benefit from the reduction in the earnout. Do you have what those are on an after-tax basis, preferably on a per-share basis?

Jeff, I think the easiest way to calculate that is just assume a marginal tax rate of 39%.

Okay, great. That's helpful.

And then you also mentioned the favorable adjustment for the Physician medical malpractice. Could you quantify that?

Yes, it's $770,000.

Okay, good. You were anticipating my questions, Ed. I appreciate it.

Thanks.

We go to the line of Mark Marcon, R. W. Baird. Please go ahead.

Good afternoon. Thanks for taking my question.

With regards to the earnout reduction, what was that related to?

It was the Valesta which is the clinical research company in Belgium. We set some very high targets for them, for the outward years, to get a second earnout; and they didn't achieve them.

Okay. And with regards to Physician perm, what are you seeing there in terms of areas that should get better?

You said limit the comments just to Physician permanent placement?

Right.

You know, that's less than 2%, 3% of our total revenue in that division. So we're not the dominant player there.

What I will tell you is I think it has gotten tougher, Mark, because you got hospital systems, like HCA, that have really ramped up their internal recruiting departments for permanent placement. And they're more self-fulfilling the work than they had in the past.

I think it's a stable market. But I think that there are some just kind of market headwinds.

But we're not the most dominant player in that space. Somebody like CHG or maybe AMM would have a different take than we do.

Okay. Did Whitaker meet your expectations?

They did.

Okay. So that is tracking. Would you expect them to grow or to basically stay flat?

No, no, I think we said high single, low teens for the full year 2014, is what we hoped, based on our analysis when we had did the deal.

Okay. And can you tell us, you can give us an update with regards to CyberCoders, just in terms of how it's been tracking and how you're planning to thoughtfully integrate them? I know you are very careful about that.

Yes, our focus is more on building sales bridges between the companies. Because they really provide a service that we didn't really dominate in the past, which was contingent search on the IT side. So we've actually had quite a few meetings and have launched some referral programs and are continuing to refine the sales program.

I think, as you know, Mark, you have to look at perm more on a kind of a longer-term basis than just a 90-day basis because you can have delays in starts which cause delays in revenue recognition. But on a revenue side, it's meeting, I think, the majority of our expectations.

And on an EBITDA side, I think some expense is front-loaded in the first half of the year. We're trying to hire, I think, up to 50 additional people in that group in hopes that we're going to be able to accelerate the sales channel.

So all in all, it has been 45 days. We are pleased.

Great. And then with regards to the consultant headcount, both in terms of Apex and Oxford, where are you relative to year end just in terms of how quickly that ramped back up?

Internal or billable headcount?

Billable.

I think things are progressing the way we expect.

And continued momentum at Apex at the levels that they've experienced. And a reacceleration over at Oxford from their second half and, specifically, their fourth-quarter growth rates.

I was just wondering. You had one competitor who mentioned that they had seen a rebound relative to project year end, project terminations comeback, a little bit faster than they had experienced in past years.

We really didn't have any year-end project cancellations or terminations. I guess trying to answer your question directly, we're seeing the classic normal spends.

We didn't see any sort of disruptions, except for really in health care IT. And other than that, it's just a healthy market.

And the ones that are growing faster are maybe taking a little bit of market share. And the ones that are shrinking maybe have a customer-specific issue or are losing market share.

And then last question. Then I will jump back in the queue.

Is your internal capacity, with regards to Apex and Oxford, how is that relative to the current run rates? Do you need to add a lot in terms of headcount in order to continue the growth, or how should we think about that?

I think we still have capacity because of the hiring we did ahead of the curve in 2012 and 2013. But if we want it continue to grow, we have to always stay ahead of the curve, and that's what we budgeted for.

So what I'm telling you is, a lot of the hiring, or a portion of the hiring that we need for 2014 growth, was done in 2013. And a lot of the hiring we're doing in 2014 is for 2015.

Thank you.

And next we go to Randy Reese, Avondale Partners. Please go ahead.

Good afternoon.

I really didn't flow what to think about the seasonality when it came to trying to model CyberCoders. And I probably fouled that up. But I'm just wondering what approach you took in your guidance to balancing out expectations for CyberCoders through the year?

Well, Randy, as I said, it's 45 days in consultation with management, who has run the business for a long time. We built and refined the budget. There is seasonality to perm placement.

A lot of people don't want to leave their jobs in the fourth quarter for fear of losing their Christmas or year-end bonus, and the same can hold true in the first quarter if the bonus isn't paid until March. So those type of things have been taken into consideration.

Now, whether we smoothed it or polarized it the right way is yet to be determined. But what I can tell you, is we took that into consideration. And whether we did it right, we'll see. But that was taken into consideration.

Right.

The way they do the business, are they as affected by any of the weather effects as some of our businesses are? They seem to be a little more distributed.

Well, remember, what really dictates the revenue that we report to you is the a start. My belief is, Randy, the only way bad weather would affect the revenue is if the person couldn't travel for the interview with us or with the customer.

So you're correct. They shouldn't be as weather impacted as someone has to travel to a customer five days a week to perform the work.

Very good. Thank you.

Next we go to the line of Brian Davis, Bank of America. Please go ahead.

Hi, guys. This is Brian filling in for Sara. Thanks for taking my question.

In looking at the SIA's expectations for IT staffing growth in 2014, they're forecasting 7% growth, which is on par with what they had in the forecast for 2013.

That's obviously below your growth expectations for growth in 2014. So I'm wondering how you characterize your outperformance in the IT segment. Thanks.

I'll go first, and then I will let Mike and Rand go if they want.

But I really think it has to do, one, with the amount of investment that we made in 2011, 2012, and 2013.

Two, our size, we're the second largest. So we're able to bid and deliver much more reliably on large projects with major sophisticated customers than the broad group of competitors that make up the survey for SIA.

And finally, it has to do with our focus on skill mix.

Mike or Rand, do you want to add anything to that?

The only thing I would add, because I agree, especially on the skill mix issue. And that's what we go after, are those leading-edge allergies, if you will.

But the other piece, and one of the other analysts mentioned or asked the question in terms of recruiting, on the offshore side, we like a tight market. Because of our recruiting expertise, we're actually able to fill more than what we normally do in another less-favorable environment.

So I think you add up what Peter said and you add in our recruiting expertise, we can beat then the market.

Rand, anything else?

No, I think you guys captured it. At the end of the day, we want to outperform SIA every day, every year. So that's our goal.

Perfect. Thank you, guys.

And next, we go back to the line of Paul Ginocchio of Deutsche Bank. Please go ahead.

Thanks. Two questions.

I see your headcount is up 8.4% year on year, at the end of the year. What does that look like on a pro-forma basis?

And then second, Peter, sorry if I missed it. Did you give a growth rate for CyberCoders, either in the fourth quarter or for 2013? If you didn't, could you do that? Thanks.

We did give a growth rate in the December 2, 2013 press release. I think we said approximately 19% topline.

High teens

High teens, okay. So that answers your first question. On the pro forma, I don't think we have that, Paul.

No problem. I'll follow up. Thank you.

And there is no one else in queue at this time. Please continue.

Great. Well, we appreciate your time and attention. And we hope to see many of you at our Analyst Day on March 26, 2014. Thank you very much.

That does conclude our conference call for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.