ASGN Inc (ASGN) 2014 Q1 法說會逐字稿

Welcome to the On Assignment Q1 2014 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). Also as a reminder, today's teleconference is being recorded. And at this time we will turn the conference call over to your 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 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 the risks and uncertainties in today's press release and in our filings with the Securities and Exchange Commission.

I would 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 2014 first-quarter earnings conference call. With Ed and me today are Rand Blazer, President of Apex 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 of our discussion -- and discussion of our first quarter and our estimates for the second quarter of 2014. We will then open the call up for questions.

Now on to our first-quarter results. Revenues from continuing operations in the first quarter were $439.3 million, up 15.9% year over year. First-quarter results were somewhat negatively impacted by severe weather in the East and Midwest. Income from continuing operations was $14 million or $0.26 per diluted share of from $10.2 million or $0.19 per diluted share in Q1 of 2013.

Revenues generated outside the United States were $20.6 million or 4.7% of consolidated revenues in the first quarter versus $20.4 million or 5.4% of first quarter 2013 revenues.

Adjusted EBITDA from continuing operations was $40.2 million or 9.2% of revenues, up from $33.2 million or 8.8% of revenues in the first quarter of 2013.

On March 26, 2014 we hosted our first analyst day meeting where we discussed our latest five-year strategic plan. During our year-long planning process we determined the most effective way to position the Company for continued success as to -- one, continue to specialize in the large and growing professional staffing markets of technology, life sciences and healthcare.

Two, be a dominant competitor in each of these markets.

Three, realign our scientific staffing business with Apex and our clinical research and health information management businesses with Oxford.

Four, refocus non-physician healthcare staffing expertise on business and technology opportunities in the healthcare industry and away from clinical skills.

Five, focus on domestic markets which provide significant growth opportunities over more fragmented and complex international markets.

And six, leverage fixed cost to continue expanding our industry high adjusted EBITDA margins.

The rationale for realignment is to match the operating units by business model to leverage our scale and expertise. In addition, improving our reach into the entire addressable market for each operating unit. With this strategy we can further accelerate revenue growth in our slower growing operating units, create deeper management bench strength, share customer relationships and simplify our infrastructure to open capacity to integrate future acquisitions.

Our realignment is well underway and progressing as planned. During this call we will present to you our results for the first quarter and comparisons to prior periods based on the post realignment reporting structure of our operating units. All markets we serve remain productive and stable during and exiting the quarter and up all our divisions including physician staffing showed positive momentum exiting the first quarter.

Apex now includes US Lab Support, the legacy scientific staffing business. For the first quarter of 2014, the Apex segment grew 16.1% year over year and down 90 basis points sequentially. We've seen an increase in demand in all geographies despite the severe weather in the Northeast.

Oxford now includes our high-end clinical research business, health information management practice and our CyberCoders business. The segment grew 14.4% year over year on a reported basis in the first quarter including the results of CyberCoders which was acquired on December 5, 2013. Excluding the results of CyberCoders, the Oxford segment contracted 2.5% year over year and was flat sequentially with the fourth quarter.

As we mentioned on our fourth-quarter conference call, Oxford had a significant project at one of their largest clients included in their results for the first half of 2013 which is now negatively impacting the year-over-year comparisons. Having said that, we see demand picking up in all disciplines, consultant counts increasing back to the levels of the third quarter of 2013 and quarter comparisons getting easier in the second half of 2014.

The physician segment excluding the results of Whitaker, which was acquired on December 2, 2013, contracted by 6.8% year over year but flat sequentially. Volume is stable but we were still experiencing softness and demand from our government sector. Our demand in the commercial sector is slightly improving. While demand still remains challenging in the physician staffing market, our teams are working hard to gain market share.

Exiting the quarter our high-volume IT and scientific businesses in the Apex segment and our high end staffing business at Oxford, 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 stepping business is the most directly correlated to GDP growth and our best internal predicting tool of strength of the broader US economy. Based on the demand in that division, exiting the quarter and our actual first-quarter results we believe the broader US economy is gaining momentum. As for the IT group, we continue to see positive demand and the continued adoption of staff augmentation as a viable alternative to outsourcing, offshoring and consulting.

Consolidate Chris margin of 31.3% was up from 29% in the first quarter of 2013 and up from 30.6% in the preceding fourth quarter. The year-over-year expansion was primarily due to the higher mix of revenue from the permanent placement business.

The sequential expansion in the gross margin was also primarily due to a higher mix of permanent placement and conversion fees which were 4.6% of revenue for this quarter, up from 2.1% in the fourth quarter of 2013. This is due to the inclusion of CyberCoders for the full quarter versus only one month of results in the fourth quarter.

Regarding our operating efficiency, the percentage of gross profit converted into adjusted EBITDA was 29.2% during the quarter compared with 30.2% in the first quarter of 2013. This quarter and going forward these conversion rates will be lower than prior periods DUE to the contribution of permanent placement revenues from CyberCoders.

Although CyberCoders' EBITDA margin is higher than our historical EBITDA margins, conversions of gross profit into EBITDA is lower due to the over 90% gross margin on perm revenue. We believe our conversion rates are among the highest in the staffing industry despite a lower contribution of revenues from perm and conversion fees. Our adjusted EBITDA margin was 9.2% in the quarter compared with an 8.8% margin in the first quarter of 2013.

For those of you who are not familiar with our business, we see a seasonal impact from the fourth quarter to the first quarter due to the payroll tax reset. Because of our lack of dependence on perm and conversion fees for profitability, we believe that as we increase our contributions in those services as a percentage of our total revenues, we will expand our profit margins from the levels that exist today.

Regarding industry dynamics -- during and exiting the first quarter secular trends continue to permit temporary labor to see greater growth prospects than full-time labor. As we previously mentioned, we believe the macroeconomic environment in North America, where we derive 95% of our total revenues, has continued to improve in the beginning of 2014 and we continue to see a classic cyclical recovery in professional staffing.

Ed will provide you our second-quarter financial estimates later in the 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 first quarter of 2014 and our estimates for the second 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 remained stable in all divisions. Our weekly assignment revenues, which excludes conversion, cullable expenses and direct placement revenues averaged $33.3 million for the last two weeks, up 13% over the same period of 2013.

Integration, coordination and cash generation related to our acquisitions continues to be at or above our expectations. Ed will walk you through specifics later in this call. Our leverage ratio is now 2.1 times trailing 12-month adjusted EBITDA.

We also received notification today that Standard & Poor's upgraded their rating on our debt to BB+ up from BB- as a result of lower debt leverage driven by our debt payment and growth in our EBITDA. I will now turn the call over to Rand Blazer, President of Apex Systems, who will review the operations of his segment. Rand?

Great, thanks, Peter. You will recall from our analyst meeting in late March, which Peter alluded to, that the Apex business unit consists of the Apex and US Lab Support divisions of On Assignment. For Q1 these units grew revenues by a combined 16.1% year over year, as Peter previously indicated, with Apex posting 16.7% growth and Lab Support 11.8% growth.

We estimated that the unusually snowy winter in the East and Midwest did in fact impact our combined growth rate by an estimated $2 million in revenues or an estimated 80 basis points in our top-line growth percentage. For the combined businesses gross profit grew 18% with gross margin up 44 basis points year over year.

We continue to see broad-based growth in our counts across the businesses with our top accounts in all industry verticals growing. Of particular note was our growth in our counts in the healthcare, financial services and telecommunications verticals which continue to perform well for us.

Our conversion of revenue and gross margin to operating margins continued strong in the quarter and, again, of particular note is our Apex division's contribution for the quarter remained strong on a year-over-year basis driven by an increase in the productivity of our sales, recruiting and back-office teams.

We continue to see a solid market environment for both Apex and Lab Support businesses in Q2, 2014 as Peter as indicated, and expect that our revenues and operating performance will continue to grow on a year-over-year and sequential basis. I will now turn the call over to Mike McGowan to discuss oxfords results and the performance of our other legacy On Assignment divisions. Mike?

Thanks, Rand. As a result of the operational realignment that we discussed in New York last month, and as Peter just mentioned, the Oxford business unit is now comprised of Oxford IT, CyberCoders, our health management information unit and our clinical research unit.

Revenues for the Oxford segment were $117.5 million in quarter one, up 14.4% year over year. We estimate the inclement weather in the East and Midwest adversely affected revenues by approximately $1 million.

Quarter one results included $17.4 million in revenues from CyberCoders, they realized record revenues and were up 17.9% year over year on a pro forma basis which was slightly higher than our expectations. Excluding the contribution from CyberCoders, Oxford's revenues were down approximately 2.5% year-over-year, flat sequentially from quarter four and in line with our expectations.

Our Oxford IT business has again started growing in 2014 and the number of contract professionals on billing since quarter four has increased. In 2013 we achieved a high water mark in quarter three with 1,875 contract professionals on billing, which dropped to 1,740 at the end of December. We exited quarter one with 1,814 on billing and we expect to continue to make steady progress in growing the number of consultants On Assignment throughout quarter two and the rest of the year.

Our gross margin for the quarter was 41.7%, up from 33.9% in quarter one of 2013. This expansion was due to the contribution from CyberCoders whose revenues are predominantly perm fees with an actual gross margin of over 80%.

Now moving to VISTA, our physician staffing segment. Revenues for the quarter were $31.8 million, up 20.9% year over year. This increase was due to the inclusion of Whitaker Medical, which accounted for $7.3 million of VISTA's revenues in the quarter.

Whitaker grew 17.4% year over year on a pro forma basis and its performance was slightly higher than our expectations. Excluding the contribution from Whitaker, revenues were down 6.8% year over year. This decline was primarily a result of softness in our government practice and lower demand from several long-term plans related to overall budget decreases.

While government demand continues to be lower year-over-year, demand from our commercial clients is improving, as Peter mentioned earlier. Average bill rates were flat compared to the prior year period. The segments gross margin was down 65 basis points year-over-year due to a lower mix of perm revenues.

Looking forward to quarter two, we expect to be up over 20% year-over-year on a reported basis and up low-single-digits sequentially. The improvement sequentially is reflective of typical seasonality and increases in demand from our commercial client segment.

As reported over the last several quarters, the overall physician staffing marketplace is experiencing choppy growth in the near-term, but the macroeconomics that drive supply and demand in the segment remain viable.

And finally, our life science unit in Europe, which we report now as other, revenues for this segment were $11.6 million in the quarter, a 12.5% increase year over year. Key drivers of growth for this segment included an improved operating environment across all core industries, new project awards within targeted accounts with biotech and pharmaceuticals leading demand for contract and direct hire services.

Gross margin for the segment was 36.4%, down from 37.2% in the first quarter of 2013. The year-over-year compression in gross margin was primarily a result of business mix and competitive pricing pressures.

Demand for contract contingent and retained search services remained steady in the second quarter of 2014 and we are encouraged with the number of weekly contract assignments and permanent placement activity. I will now turn the call over to Ed Pierce. Eddie?

Thanks, Mike. Before reviewing our financial results, please note that our reporting segments have change a result of the operational realignment that we overviewed at our Analyst Day meeting last month. We have restated our quarterly historical and statistical data for 2012 and 2013 to conform to our new segment reporting configuration. The restated data are included in an appendix to our Analyst Day presentation that appeared on our website.

Also please note that I will be making references to pro forma results. Our pro forma results assume the acquisitions of Whitaker Medical and CyberCoders occurred at the beginning of 2013. As Peter mentioned, our key financial metrics for the quarter were above the high end of our previously announced estimate. Revenues for the quarter were $439.3 million, up 15.9% year over year and 9.8% on a pro forma basis.

Our two largest segments, Apex and Oxford, which comprise 90% of our total revenues grew 15.6% year over year and 10.8% on a pro forma basis. Our two other segments, physician and other, grew 18.5% year over year and 1.3% on a pro forma basis.

Conversion and direct hire revenues for the quarter were $20.3 million or 4.6% of revenues, up from $7.2 million or 1.9% of revenues in Q1 of last year. This increase was due to $13.3 million in perm revenues from CyberCoders which was acquired in December 2013.

Gross margin for the quarter was 31.3%, up from 29% in Q1 of last year. The year-over-year expansion in gross margin was attributable to the higher mix of perm revenues resulting from the acquisition of CyberCoders.

SG&A expenses for the quarter were $104.1 million or 23.7% of revenues compared with $81.9 million or 21.6% of revenues in Q1 of last year. The year-over-year increase in the expense margins primarily related to [including] in the CyberCoders in the current quarter, which has a higher SG&A expense margin than our other business units.

Amortization of intangible assets for the quarter was $6.2 million, up from $5.4 million in Q1 of last year. The year-over-year increase related to amortization of intangibles of the two businesses that we acquired in December 2013.

Interest expense was $3.3 million, down from $5.1 million in Q1 of last year. This decrease was primarily due to lower interest rates from the debt refinancings in May of 2013 and February of this year. The February refinancing resulted in an interest expense savings of approximately $1 million on an annual basis.

At the end of Q1 our effective interest rate, which includes amortization of deferred loan costs, was 3.2% and our effective cash interest rate was 2.85%. Our effective income tax rate for the quarter was 41.4% which was slightly lower than the effective rate for 2013 of 41.6%.

Income from continuing operations was $14 million or $0.26 per share compared with $10.2 million or $0.19 per diluted share for Q1 of last year. Income from continuing operations included $0.5 million in acquisition, integration and strategic planning expenses after income taxes, which are not included in our previously announced estimates.

Excluding these expenses income from continuing operations was $14.5 million or $0.27 per diluted share. Our adjusted income from continuing operations was $23.1 million or $0.43 per diluted share, up from $18.8 million or $0.35 per diluted share in Q1 of last year. In the appendix to our Analyst Day presentation we included the quarterly calculations of adjusted EPS for 2012 in 2013.

Adjusted EBITDA for the quarter was $40.2 million, up from $33.2 million in Q4 of last year. Now turning to our financial estimates for the second quarter of 2014.

We estimate revenues of $469 million to $472 million, gross margin of 31.9% to 32.1%, income from continuing operations of $19.6 million to $20.5 million, income per diluted share of $0.35 to $0.37, adjusted EBITDA of $50.5 million to $52 million, adjusted income from continuing operations of $28.2 million to $29.1 million, and adjusted income per diluted share of $0.51 to $0.52.

These estimates do not include any acquisition, integration or strategic planning costs. Now I will turn it back to Peter for some closing comments. Peter?

Thank you, Ed. We continue to believe that we are well-positioned to take advantage of what we believe will be historic secular and cyclical growth for the staffing industry over the next many years. While the entire On Assignment team is very proud of our performance to date, we remain focused on continuing to profitably grow our business.

We would 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?

(Operator Instructions). A.J. Rice, UBS.

Just a couple of questions if I might. It sounds like you are saying that the CyberCoders contribution was a little bit better than you were expecting -- I guess I should ask, did I hear you right on that at $13 million? And can you just comment on the underlying trend you are seeing in that perm placement business there and the prospects for the rest of the year for CyberCoders from your perspective?

Good afternoon, A.J. They beat the top-line revenue by several hundreds of thousands of dollars, not millions of dollars. So that is why we described it as a slight beat to our expectations. They had a great quarter, 17.9% organic growth year over year. And we find the permanent placement market to be stable and productive. So we have a lot of confidence in the team and believe that if we stay focused that it is a profitable place to remain focused and growing.

Okay. If I look at your -- in the physician business just specific question, it looks like the average staffing consultants were up about 40% both sequentially and year-to-year. If I am reading it right the bill rate was down about 7%. Is something going on there with the type of specialties you are placing or what is behind that?

Yes. Yes, so I think with -- Ed, just a yes or no, does that include Whitaker, the supplemental information?

Only for the period that we have owned the business.

Right. For the full first quarter of 2014.

And December of last year.

And December of last year. So a couple of things. One is we have seen a shift of more work in kind of primary care emergency medicine, which does have lower bill rate. And strategically one of the attractive features of the Whitaker acquisition is they do have about 30% of their revenue coming from advanced practices. So nurse practitioners, etc., which also carry a slightly lower bill rate.

But as we get further into this new world of provisioning of healthcare in the United States, I think physician extenders are going to be in huge demand.

Right, right, okay. And then maybe just a last question and then I will pass it to someone else. But broadly you guys in the -- obviously had a flurry of acquisitions there toward the end of the last year. What are you seeing in the pipeline, any characterization as to whether we are likely to see further deals this year or not?

You know, we really, A.J., don't have any additional comments over and above what we said at our Analyst Day. We think we can get to $3 billion in revenue in the next four to five years. And implicit in that revenue goal is 10% organic growth and then a plug of about $240 million of acquired revenue.

So we are constantly developing a pipeline and visiting to make sure that we can partner with the right management teams and that is part of our D&A. And we do it when it is right and we are disciplined and because of the growth that we have in our business we don't feel any sort of burning need to have to do anything. But you should expect us to do something in the future.

Okay. All right, thanks a lot.

Edward Caso, Wells Fargo Securities.

Congrats on the numbers. Are you giving full-year guidance? You gave it last quarter but I didn't see it in the release and you didn't mention it.

Yes. So, Ed, the guidance that we gave last quarter for the full year remains the same. We haven't adjusted it. And we have kind of just adjusted one quarter out. So if there needs to be something done to the full year guidance we will tell you, but back guidance still stands and it is still good.

Okay, terrific. Can you talk on the -- when you talked about margin expansion you talked about productivity scale and back office integration, sort of where are you with each of those pieces in the process? And I am particularly interested in the operations and systems consolidation.

Let me pass that off to both either Rand or Ed and then to Mike. And we will talk more on an operational basis if some of the coordination we are doing and some of the early wins we are getting on cross-selling of customers and some of the coordination with regard to back office tools. Rand, do you want to go first?

Sure. Ed, listen, I think we have mentioned that as we put these segments together there is an opportunity for consolidation of our back-office. So in the Lab Support Apex area Ted Hanson has taken the lead for us to look at where those opportunities lie.

There are 10 or 11 different -- 12 areas and we have started to move on all of them. And it is natural it is not really forced because our businesses, as Peter said, are very aligned. We go to market in a very similar way and while we provide different skill sets to a client base it is a very similar business model.

So, aligning our systems is underway. I think we are looking at everything from our applicant tracking systems all the way back to how our financials integrate and how our productivity tools and our people work in workflow and business intelligence tools. So does that give you a sense?

Great, thanks.

And then Mike on the HIM and the clinical, please.

Desk, Ed, I mean we have got a lot of things going on. As we mentioned, we and integrated the HIM group, the Healh Information Management group in with our Healthcare IT group so we can present to our clients and prospective clients a full package and that has actually gone very well after only a month at it.

We have also integrated the high-end clinical research business in with Oxford which focuses on the high-end critical hard to find skills which is in sync with the strategy that we talked about in New York. And then on CyberCoders we have actually started a lead generation pilot between a few of the segments within Oxford directly to CyberCoders and that is also proceeding well.

We are actually going to open that to the rest of Oxford over the next 30 days because of the early success in our pilot. So, everything that we discussed in New York we are moving further along.

The CyberCoders you said is extending into the rest of Oxford. Is there going to be a parallel at Apex?

It is. And we are figuring out the best way to handle that whether it is just a direct referral of the contingent search opportunity without any sort of involvement by Apex or whether it is Apex controls the presentations of the candidate to the customer because of the deep customer relationship.

But we are not -- we are trying to do it in a thoughtful way and not overwhelm the recruiting system and make sure that we are really quantifying the opportunity to build these sales channels. So it is on a step-by-step basis versus a big bang theory.

Great, thank you.

Gary Bisbee, RBC Capital Markets.

In thinking back on the Analyst Day a bit more in a M&A target. It seems to me one of the reasons you have had such success in M&A is you've done businesses that you didn't have to integrate into the business since there wasn't a lot of overlap, sales force disruption and all of that.

As we think forward to what you will need to do to achieve the five year plan, are you confident that there are other niches in areas that would be complementary but not highly disruptive such that you could do several things within IT in areas around that to hit that target?

We do. We think between business analytics, cyber security, healthcare IT. Remember, Gary, that we stated that the model that we presented to you in New York said that to hit that $3 billion if we hit the 10% compounded annual growth only requires $240 million of acquired revenues over five years. So that is not a tall task over a five-year period defined niche businesses that we can support and complement.

Okay. And how do those -- is there a group within Oxford and Apex that is looking at other ancillary areas you get into? And is there likely to be conflict there? Or are you confident that there is just a broad enough set of opportunities you could look at that would fit well in the portfolio?

Well, we are constantly looking at whether the early adoption technologies in the big spend for the four periods and trying to develop some of those practices organically. And if we can do it organically that is our preference.

But as we do it organically we can find a dominant niche player that could be the platform for our practices than that is what we will do. But we think -- we feel confident that we can remain disciplined and not acquire something that is going to overwhelm our vote with regard to sales channel conflict.

Okay. And then just one clean up one. I think I heard you say $20 million in revenues overseas, that is roughly twice what is in the new other segment. Where else is the overseas revenue?

Oxford has some revenue as well.

Okay, great. And then lastly, I just wanted to say thank you for the historical pro forma -- or I'm sorry, adjusted EPS because I had asked for that at investor day, I was glad to see you put that out there.

Yes, the whole purpose of this realignment of the divisions into different reporting segments is to realign the sales and go-to-market strategy, not to confuse the numbers. So we tried to lay it out as clearly as possible so that you can do like-on-like comparisons.

Appreciate it, thanks.

Sara Gubins, Bank of America.

Could you help us understand a bit more about your revenue growth expectations in the second quarter by segment?

Say it again, Sara, please?

Yes, within the expectations for the second quarter I'm wondering how you are thinking about trends by the various segments.

Yes, so, let me see -- let's just refer to the press release again. So I think at the end of that press release it says these estimates assume year-over-year revenue growth in the mid-teens for Apex and Oxford, over 20% for the physician and low teens for others. So that is on and as reported basis.

And then this final sentences, pro forma basis we assume the acquisition of Whitaker and CyberCoders occurred at the beginning of 2013. The estimated growth rate of four Oxford is low-single-digits -- the Oxford SEC reporting segment is low single digits and for physicians it is low single-digit decline. And then for Apex it is -- there is no acquisition there so it is the number we gave you for Apex is mid-teens. Does that answer the question?

It does, yes. Could you talk about over time how you are thinking about your ability to move bill rates up?

Well, wage inflation over the long-term is a staffing company's friend, not foe. And if you had rapid wage inflation there could be a disconnect between the customer's beliefs and real-world realities.

But we are in a labor constrained segment of the economy and our customers are mostly realistic about what they have to pay in order to attract talent at their company versus their competitors. So we see that as an ability to grow revenues without even having to grow headcount.

Okay. We haven't seen those trends recently, do you think that we should expect that to change in the relatively near term?

Yes, I think recent reports show that there has been modest wage inflation, so it is starting to pick up.

Great. And then just last, how was the Healthcare IT segment in the first quarter and how are you thinking about that over the rest of the year?

I will make a brief generic comment and then turn it over to Mike. But we saw, as we had expected, a reacceleration. And, Mike, do you want to add color to that?

No, the only thing I can is, again, we saw the decrease in the fourth quarter. But since January 1 we have seen increasing consultants On Assignment and we have actually reached an all-time high within the last couple weeks. So it is continuing to increase as we expected and we also anticipate that will continue into the rest of the year.

Thank you.

Paul Ginocchio, Deutsche Bank.

I think you answered my first question which is we probably haven't seen almost any kind of benefit yet from putting CyberCoders together On Assignment, right? There has been very little cross sell to this point, it is all still to come, is that correct?

That is correct.

And then second, back to Sara's question about the bill rates. Maybe we are seeing wage inflation in the US start to pick up, but your bill rate is basically still flat to slightly down year on year. And I guess maybe the question is when do you think your bill rate starts to increase year on year?

Yes, I mean, what I would tell you is there -- it is so hard to draw an absolute conclusion about wage inflation off of our published bill rates because, remember, the skill mix can skew that.

So for instance at Apex if in a particular quarter we have a surge in demand for lower end-user support at critical clients that we have to support, that is a lower bill rate than a lot of the architectural work that we do in the ERP space. So what I would tell you is the tilt is towards wage inflation versus stagnation at this point in the economic recovery.

Great, thank you.

Tobey Sommer, SunTrust.

I wanted to get your perspective on a comment you made, we are poised for slightly better economic growth based on what you are seeing in your businesses. How would that faster GDP growth impact Oxford versus Apex? Thanks.

Okay, so, the first is the division that is the most directly correlated to US GDP growth is our scientific staffing group, Lab Support. Now I will answer the question, Tobey, but -- so for instance we do work with BASF Automotive Paint or Corning Glass or PPG. As the economy grows and more production occurs then they use more scientists and chemists.

As it relates to Oxford, to date we really believe that the majority of demand has been driven by secular changes and technological changes. And if the economy heats up and more and more people start engaging in technology projects and labor gets even tighter, then Oxford's business model is rapid response, the right resource when you need it right now, which is typically the work we work on today at Oxford will start generating revenue typically five business days from that date.

So as the markets tighten, Oxford should benefit slightly disproportionate to maybe a different type of IT staffing model because people are prepared to move swiftly.

Thank you, that makes sense. And relative to CyberCoders, you haven't owned it very long, first complete quarter as part of the firm. When is a reasonable timeline where the influence of On Assignment's ownership should be felt and seen in the growth rate?

Yes, so that can always be good or bad, right, Tobey, but so far it has been good. But we are taking the back office over and that should be completed in the next month.

As it relates to accelerating their growth rates, that will just unfold as the realities of the marketplace and the dynamics of Oxford and Apex's sales channels unfold and prove themselves out. So they grew 17.9% in the quarter. We honestly believe that we can at a minimum increase the quality of the orders that our recruiters at CyberCoders work on and also supplement and augment the orders that they generate on their own.

So as we said, step one is Oxford has started a referral program. In certain practices within Oxford, not all the practices, Mike is broadening that out in the ensuing weeks and months. At Apex we have taken a designated member of prequalified orders and thrown that over the transom so to speak to allow CyberCoders to work on discrete orders, but we haven't opened up the entire sales channel of Apex to CyberCoders.

So, as I said, this is not going to be a big bang theory, we are going to turn it on slowly and absorb it gradually. And it will show up in the numbers whether we are successful in building the sales channels or not.

Thanks. Just last one quick question. Did you say that at Oxford in the recent weeks you are at an all-time high in terms of consultants on assignment?

No. What we said is the third quarter, the high watermark was 1,857 and I think we are --.

1,875.

1,875 and I think we are now at what, Mike?

It was 1,875, we finished the year at 1,740 and we finished quarter one at 1,814. So we are not quite back up to the high water mark.

We've made good progress and I think what to watch with regard to Oxford is really the weekly, monthly, quarterly sequential growth. And we are making good progress and it is growing again.

Tobey, the one comment I made actually to the question about Healthcare IT, we actually set a record high in Healthcare IT for consultants on assignment.

Thanks. And is the Oxford Index showing good signs for the next couple months and quarters?

Yes, for the next quarter it is showing improvement.

Thank you very much.

Tim McHugh, William Blair.

Hi, this is actually Stephen Sheldon in for Tim. Thanks for taking my questions. So first just on the second quarter, the guidance you provided, it looks like you are assuming roughly 30% growth in core SG&A versus roughly 15% revenue growth. I know a lot of that is due to the acquisitions, but is that spending -- yet assumed spending hitting any segment and more than the other segments?

Actually, the increase is modest sequentially. We reported $104.1 million in SG&A in Q1, and our range for Q2 is $106.7 million to $107.7 million. So it is a modest increase, and that is predominantly driven by the increase in -- the sequential increase in gross profit, and the commissions and the incentives related to that.

Okay, that is helpful. And then you have talked in the past about your strong ability to attract quality IT talent, even in a market with tight supply. So what do you attribute that to, and has the way that you've attracted talent had a change over the last few years?

Well, you know, I just think that our -- you look at our business models, our focus, our consistent gross margins and how we consistently try to recognize and compensate people, that professional recruiters feel confident that they can build their career with us. And our higher growth rate, our market share gains and our comp programs all lead to stability, and I think that will continue.

Okay, thanks.

Jeff Silber, BMO Capital Markets.

Hi, this is actually Henry Chien calling in for Jeff Silber. I just had a quick question from a high-level perspective looking at the secular trend in IT staffing. As the economy recovers and accelerates, do you see any change of where you see the most demand for IT staffing in terms of industry verticals?

Rand, do you want to take a stab at that, and then Mike and I can follow up?

Henry, we reported in our statement that we fuel teams and accounts in 7 industry verticals, and all 7 are growing. The 3 that were growing the most are financial services, healthcare; and by the way, we are the other big part of healthcare, our offerings to the healthcare market, which we are seeing very strong performance; and then telecommunications industry verticals. But the other verticals we operate in -- government, business services, consumer industrials, for example, are all very positive and certainly growing as well.

It is nice to see financial services continue to grow because as you all know in the call, we have all talked a lot about they tend to be a major user of IT services. So, Mike?

Yes, I would agree with everything Rand said. The only thing I would add and really, Peter, and answer, I think first or second question was part of the issue going forward is technology. So, for instance, if there is more technology enhancements, if there is more widgets developed and created, that creates more jobs, more opportunities, et cetera.

So especially from an Oxford perspective, we are more project based. So the more the technology is adopted and developed, you would see an increase in our kind of service needs.

And I would just wrap up by saying that as the economy improves, we see the demand, the high-growth demand broadening beyond just the financial services and telecommunications industry.

Got it. Thank you.

(Operator Instructions) Randle Reece, Avondale Partners.

Just wondering if you felt any different about the HCIT end market this year. We are hearing some mixed messages once again about the spending levels of the end customers and how they are affected by continual movement of ACA deadlines.

Not really, Randy. I mean we had the deferral of the ICD-9 to ICD-10. But I can tell you that HIM practice of ours, which is granted small; it is kind of $25 million, $26 million, had enormous growth. And our Healthcare IT practices continued to kind of really reaccelerate from the lull they had in the fourth quarter.

So I think -- I know that a smaller public company reported a decline. I think that may have to do with the type of healthcare IT services they may be doing, the code they are implementing, the amount of training that may be embedded in their projects; and as you know, we don't do any training. But we are seeing it as a productive market.

Very good, thank you very much.

Mark Marcon, Robert W Baird.

Good afternoon and congratulations on the strong results. I was wondering if you could talk a little bit about the reaction internally, if there was any, to the Analyst Day presentation and some of the reorganization. I know it is still relatively early in terms of the changes, but just how would you describe the feel at the ground level?

Right. So, Mark, as you can imagine, the communication path and the actual rollout and implementation occurred internally sooner then we disclosed it externally. So we do have more data points and information under our belt than just March 26, and it has gone very well.

I mean the whole purpose of the realignment wasn't cost savings; it was to be able to allow the divisions to more forcefully address the entire market, not just the retail market but the large volume market, to provide greater tools and coordination, to share some deep customer contracts and to increase the esprit de corps by having larger branch offices on the scientific side. And it has gone very well.

I mean when people's jobs get easier and they have the opportunity to make more money, that is a good thing. So the major focus was really on growth and coordination and offering of tools than it was cost-cutting. So we are not cutting recruiters or salespeople. To the contrary, we are adding, and we have similar cultures.

The last support group is very similar to Aerotech, and Aerotech is a twin sister to TEKsystems. And Apex's business model is very similar to the TEKsystems model. So those two blend hand in glove very well.

On the Clinical Research side, as you know most of those are very high bill rate assignments that are typically long-line delivery, meaning we find someone in Princeton, New Jersey that ends up doing a travel assignment in Raleigh or San Francisco. And that is what Oxford excels at is high skill, high bill rate, long-line focused recruiting.

So with their tools and management, we feel that we can accelerate the Clinical Research growth. So it has been well accepted. I think the management team, Rand's group and Mike's group has done a great job of communicating and coordinating. So I mean, this was all going on as we were producing the first quarter results.

And this is all going on and we have given you second-quarter results, which are an acceleration from the first. So it is going as well as we had hoped for, and it is because we thought about the people first, and I think that everyone is aligned.

Great. Can you talk -- and I apologize if I missed this, so I will come back offline if it was already asked. But on the financial services vertical, can you talk a little bit about some of the trends that you are seeing in terms of IT, and particularly all the things that we have talked about in the past with regards to the heightened emphasis on cyber security, and particularly now that we have had the Heartbleed scare that has been out there?

Right. I would just reiterate what Rand has said first, that demand continues to be robust, that spending has -- the spending levels which are already high in the financial services space remain elevated, and that the influences of sophistication and concern by our customers about cyber securities is pushing consolidation of purchasing into the larger more sophisticated IT staffing companies, at the expense of the small and medium-size companies.

Great, thank you.

Thank you. At this time, there is no additional questions in queue. Please continue.

So we thank you for your time and attention and look forward to visiting with you again for our second-quarter conference call. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T's Executive Teleconference. You may now disconnect.