ASGN Inc (ASGN) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the On Assignment second quarter 2015 earnings call. (Operator Instructions). As a reminder, today's conference is being recorded. At this time, I'll turn the conference over to Company CFO, Ed Pierce. Please go ahead.

Thank you. Good afternoon and thank you for your time today. Before we get started I'd like to remind everyone that our presentation today includes forward-looking statements representing our current judgment of what the future holds.

Although we believe these statements are reasonable, they're suggest to risks and unseens and our actual results could differ materially from those statements. Some of these risks and uncertainties are described in today's press release and in our SEC fillings. We do not assume the obligation to update statements made on this call.

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, I would like to welcome everyone to the On Assignment 2015 second quarter earnings call. With Ed and me today are Rand Blazer, President of Apex Systems, Ted Hanson, President of Lab Support and Mike McGowan, Chief Operating Officer 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, folded by a discussion of our performance of our operating segments by Rand and Mike. We'll then turn the call over to Ed for a more detailed review and discussion of our second quarter results and our estimates for the third quarter of 2015. We'll then open the call up for questions.

Now, on to the second quarter results. Revenues from continuing operations in the second quarter were $485.3 million, up 11.7% year-over-year, 12.8% on a constant currency basis. Revenues, excluding the contribution of $21.8 million from acquisitions, were up 6.7% to $463.5 million and up 7.8% to $468.1 million on a constant currency basis. For the second quarter, adjusted income from continuing operations, adjusted EBITDA, and conversion of gross profit to adjusted EBITDA results were within the guidance range that we provided in the first quarter earnings press release.

Revenues generated outside of the United States were $22.3 million or 4.6% of consolidated revenues in the second quarter versus $19.8 million or 4.6% in the second quarter of 2014. Adjusted EBITDA from continuing operations was $56 million or 11.5% of revenues, up from $51.2 million or 11.8% of revenues in the second quarter of 2014 on an as reported basis. Adjusted EBITDA, excluding the contribution of $4.9 million from Creative Circle, was $51.1 million and within the previous announced financial estimates.

Excluding the contribution from Creative Circle, our results, adjusted mainly for acquisition related costs and the write-off of loan costs from the old credit facility, were at or above the high end of the previously announced financial estimates for the quarter. As a reminder, on June 5, 2015, we completed the purchase of Creative Circle, one of the largest digital creative staffing firms in North America. Creative Circle contributed $19.6 million in revenue and $4.9 million of adjusted EBITDA to our reported second quarter results. This contribution was not originally contemplated in our second quarter guidance.

Ed will walk you through the financial contribution included in our earnings press release that pertains to Creative Circle for comparative purposes later in the call. Revenues in our local mid market accounts grew double digits with the large customer account base growing at a slower rate. After several quarters of declining growth rates, the second quarter marked the return of accelerating growth rates for our Company.

We believe, based on current performance, that this growth trend will continue. Our IT business continues to grow above published industry growth rates and we continue to see positive demand from our customers and a continuing adoption of staff augmentation as a viable alternative to outsourcing, off shoring and consulting. In addition, we believe the ongoing debate regarding the on demand workforce or gig economy is accelerating the usage of contract labor. Fractionalization of human capital by using the staffing industry services is the only way to truly avoid the risk of misclassification of employees as independent contractors.

Our customers have and are realizing this and that is why we believe that secular growth opportunities for the entire professional staffing industry are so attractive. Exiting the quarter, we feel we are well positioned to continue to accelerated our revenue growth, integration, coordination and cash generation related to acquisitions continues to be at or above our expectations. Our current leverage ration is 3.51 times trailing 12 month adjusted EBITDA.

Since the closing of the Creative Circle acquisition, we have voluntarily prepaid $25 million of our debt and we expect to voluntary pay down an additional $25 million by the end of this month, July. During the quarter, we saw year-over-year growth in our US divisions, our weekly assignment revenues, which exclude conversion, gullible expenses and direct placement revenues, averaged $39.9 million for the last two weeks, up 26% over the same period in 2014, excluding the contribution from Creative Circle, revenues were up 10.2% over the same period in 2014.

In closing, as you all know, we successfully closed the Creative Circle acquisition on June 5th. This was about four weeks earlier than we originally expected. Coordination and education of offering awareness is proceeding nicely. I will now turn the call over to Rand, President of Apex Systems, who will review the operations in his segment. Rand?

Great, thank you, Peter. The Apex segment now consists of the Apex US Lab Support and Creative Circle business units.

The segment grew revenues to $338.7 million for the 13.7% growth rate in growth rate in Q2 of 2015 over Q2 in 2014 on as reported basis. Creative circle, which was acquired on June 5, 2015 added $19.6 million to Q2's segment revenues, which Peter has mentioned already, since the effective date of the acquisition and will be included in our reported segment results going forward.

Excluding contributions from Creative Circle, the segment posted revenues of $319.1 million with a 7.1% growth rate for Q2 2015 over Q2 of 2014, which is an acceleration of our growth rate over the first quarter of 2015. (Inaudible) gross margin for the quarter was 28.8%, excluding Creative Circle, Apex and Lab Support reported gross margin of 27.9%, down 56 basis points on a year-over-year basis, but up 80 basis points from Q1 of 2015.

Apex segment contributions, in terms of divisional EBITDA, remain strong with solid conversion in this segment despite the surge in our field head count added in the business. Apex's segment growth was strongest in our business services, telecommunications, technology, digital creative, and local branching accounts with double digit revenue growth year-over-year in Q2 of 2015 versus Q2 of 2014 for accounts, in those areas.

Growth in our financial, and particularly our major money center bank accounts, and government service accounts continue to post negative revenue growth over the same period of Q2 2014, nonetheless, despite the lack of growth from these accounts in these markets our overall year-over-year growth rate did show reaccelerating over the last quarter as I previously mentioned.

This improvement in revenue growth was achieved by ongoing work to continue services to a broader set of accounts as we expand our overall account portfolio, as we see improvement in IT spend and select top accounts, particularly in the financial and government services industries, we expect to see further increase in our revenue growth prospects. With that, I'll turn it over to Mike to discuss Oxford's segment.

Thanks, Rand. The Oxford includes Oxford International, Oxford Health Care Technology, (inaudible) and, starting this quarter, Life Sciences Europe. The Oxford segment had revenues of $146.6 million for the second quarter of 2015, a 7.4% increase over the second quarter of 2014 and an 8.0% sequential increase over the first quarter of 2015. On a constant currency basis, with consideration for the strengthening US dollar against the Euro, the year-over-year growth was 10.7%.

Second quarter results include revenue contribution of $2.2 million from a small life sciences staffing business in the Netherlands, which was acquired during the quarter. Revenues, excluding the contribution of this acquisition, were up 5.8% over the second quarter of 2014 to $144.8 million and up 9.1% to $140 million on a constant currency basis. Gross margin for the quarter was 41.5% compared to 41.9% for the second quarter of 2014, decreasing only slightly due to competitive pressures, business mix issues and our ongoing focus on larger accounts.

Our temp staffing service revenues for the second quarter of 2015 were $124.2 million, a 4.3% increase over the second quarter of 2014 and 8.2% on a constant currency basis. Excluding the contribution was $2.2 million from the acquisition I just mentioned, revenues were $122.2 million, a 2.5% increase over last year and 6.3% on a constant currency basis. Our permanent placement service revenues grew 28.4% year-over-year to $22.4 million.

Cyber Coders accounted for 93% of the total and was up 28% year-over-year for their best quarter on record. Oxford's European revenues accounted for $21.2 million or 14.5% of segment revenues in the second quarter versus $19.4 million or 14.2% in the quarter of 2014. European revenues were up 32.8% year-over-year on a constant currency basis.

Our revenue growth for the second quarter was the result of growth in our key accounts, our focus on assigning individual consultants with our targeted skills disciplines, increased for demand for EMR implementation and optimization projects and strong firm placement activities.

We anticipated this growth to continue into the third quarter, although somewhat tempered by summer vacations and holiday schedules across the US and Europe. Ed, now over to you.

Thanks, Mike. Before reviewing the financial results for the quarter, I'd like to bring four items to your attention. First, we acquired two businesses during the quarter, Creative Circle and a small life sciences business in Europe. The operative results of those businesses are included in our consolidate results from the date of acquisition through the end of quarter. The revenue contributions from these acquisitions totaled $21.8 million.

Secondly, our previously announced financial estimates did not include Creative Circle. Consequently, in order to see how we performed to our previously announced financial estimates, I'm going to also comment or on results that have been adjusted to exclude Creative Circle. Thirdly, we configured our operational segments as a result of operational changes that occurred during the quarter.

Instead of three operating segments, we now have two, Apex and Oxford, our Life Sciences Europe business, which previously was a separate operating segment is now included in our Oxford segment. We restated our historical operating and statistical data to reflect this change and that data is included in tables in our press release. With respect to Creative Circle, It's included in our Apex segment.

Fourthly, we referenced constant currency revenues and growth rates in our press release and our prepared remarks. Constant currency amounts for the quarter were calculated using the foreign exchange rates for the second quarter of last year.

Now on to the review of the financial results for the quarter. On a reported basis revenues for the quarter were $485.3 million. up 11.7% year-over-year. On a constant currency basis, revenues were $4.6 million higher than reported revenues and totaled $489.9 million. On a constant currency basis revenues were up 12.8% year-over-year.

Excluding the contribution from the two acquisitions, two businesses acquired during the quarter, revenues were $463.5 million, up 6.7% year over year and above the high end of our estimates for the quarter. On a constant currency and excluding, the contribution of acquisitions during the quarter, revenues were $468.1 million, up 7.8% year-over-year.

On a reported basis our contract revenues were $456.6 million, up from $413 million in the second quarter of last year, our direct hire and conversion revenues were $28.7 million, up from $21.5 million in the second quarter of 2014. Our direct hire and conversion revenues accounted for 5.9% of total revenues, up from 4.9% of total revenues in Q2 of last year.

CyberCoders accounted for 27.9 of our (inaudible) revenues or 72.6% of the total and Creative Circle accounted for $1.5 million. Our gross margin for the quarter was 32.7%, same for the second quarter of 2014 Excluding the contribution from Creative Circle, our gross margin was 32.2%, down 50 basis points year-over-year. The compression in margin was primarily related to the change in business mix and higher growth and pay rates relative to bill rates. SG&A expenses were $118.9 million or 24.5% of revenues compared with $99.6 million or 22.9% of revenues in the second quarter of 2014.

SG&A for the quarter included 6$.9 million in acquisition, integration and strategic planning expenses, most of which related to the Creative Circle acquisition, $4 million in SG&A from Creative Circle, and $0.5 million related to the write-off of an IT application.

SG&A also included the expense related to our hiring surge. Excluding Creative Circle, the average number of self consultants and recruiters for the quarter was 1,190 up from 1,670 in the second quarter of 2014. Adjusted income from continuing operations for the quarter was $32.3 million or $0.61 per diluted share, excluding the contribution from Creative Circle, adjusted income from continuing operations was $28.8 million or $0.55 per diluted share and close to the high end of our financial estimates. Please note that the calculation of adjusted earnings per diluted share can be found in our press release.

Adjusted EBITDA on a reported basis was $56 million or 11.5% of revenues, excluding the $4.9 million contribution from Creative, adjusted EBITDA was $51.1 million, which was also close to the high end of our financial estimates. Our income from continuing operations was also within our financial estimates after considering the acquisition and integration expenses of $6.9 million and the $3.8 million write-off of loan cost related to our debt refinancing. Cash flows from operating activities were $32.5 million and capital expenditures were $5.3 million. Free cash flow for the quarter was $27.2 million.

Turning to our individual operating segments. Our Apex segment accounted for 69.8% of total revenues, Apex's revenues which includes Creative Circle were $338.7 million, up 13.7% year-over-year, excluding Creative Circle Apex's revenues were up 7.1% year-over-year. Apex's gross margin for the quarter was 28.8%, up 40 basis points from Q2 of last year, excluding creative, Apex's gross margin was 27.9%, compared with 28.4% in the second quarter last year.

Our Oxford segment accounted for 32.2% of total revenues. Oxford's revenues for the quarter were $146.6 million, up 7.4% year-over-year and up 10.7% on a constant currency basis. Excluding the revenue contribution of the acquired business, Oxford's revenues were $144.4 million, up 9.1% on a constant currency basis. Oxford's gross margin for the quarter was 41.5%, down 40 basis points year-over-year.

The closing of the Creative Circle acquisition our funded debt was $875 million and subsequent to closing, we voluntarily paid $25 million. At quarter end, our bank indebtedness was $850 million, and our leverage ratio, which is total indebtedness to trailing 12-month adjusted EBITDA was 3.51.

Now turning to our financial estimates for the third quarter of 2015. We estimate revenues of $550 million to $555 million, adjusted income per diluted share of $0.74 to $0.77, and adjusted EBITDA of $69 million to $71.5 million.

These estimates do not include any acquisition, integration or strategic planning costs. Our estimates assume consolidated revenue growth of approximately 8.5%, before the contribution from our two-two acquisitions, and a 9.4% growth on a pro forma basis. Pro forma growth rates assumes the acquisitions occur at the beginning of 2014.

The operating segment, we are estimating pro forma growth of approximately 9.5% for Apex and 8.9% for Oxford. These growth rates are higher than the year-over-year growth rates for the preceding quarter. Let's turn it back over to Peter.

Thank you, Ed. We continue to believe we are well positioned to take advantage of what we believe will be historical secular growth rates for the entire staffing industry and dynamic changes in the technology world as we move forward into a more digital one. While the entire On Assignment team is very proud of our performance, we remain focus to continue to profitably grow our business and increase our growth rates.

I would like to, once again, thank our many loyal, dedicated and talented employees whose efforts have allowed us to progress where we are today. I would like to now open the call to participants for questions. Operator?

Thank you. (Operator Instructions). Our first question today will come from the line of Tobey Sommer. Please go ahead.

Thank you. I want to ask a question about the reacelerated top line. To what extend do you ascribe that to, increase in market demand or perhaps conversely the ramping of productivity of the new hires, both recruiters and sales people that you've made in recent quarters?

Yes, so speaking broadly, both for Apex and Oxford, Tobey, it's just really hard work and broadening our customer base, taking advantage where there's accelerated spend, as Rand spoke of in some of our non-major money bank customers. And, really, was held back by the fact that we still are seeing slightly negative growth year-over-year from the big banks and from government services, and we believe that will change as it always does, and we're closer to that inflection point, but we still haven't seen it.

As you can see from the numbers we recorded tonight, we've hired a number of people. The end of the third quarter is really the defining point to see what kind of return we're going to get from those people. We are starting to see some early signs because we've seen a reaccelerating of revenue.

Right. In terms of the pricing environment, I was wondering what you're seeing for bill rates and bill pay spreads.

Yes. You know, we made a conscious decision in the first six months of the year that we were going to be a little more receptive to certain pricing discussions than we had in the past, while some of our customers have been frozen in their spending, and it was reflected in the numbers, all the though they're above industry standards.

They were a little bit of a compression year-over-year, that was a conscious decision, a controlled decision, and we think as we get to anniversaries on rate cards that some of the bill pay compression we've seen in certain select accounts will dissipate, but the market is the market right now. It's not bad. It's not rip roaring good with regard to pricing conversations, and it's competitive, and we're kind of weaving ourselves in there strategically and thoughtfully and we think that, that wind should lessen a little bit as we move through the year.

Okay. And my last question, I'll get back in the queue, is if I were to look at staffing gross margins from 2Q into your guidance for 3Q, what might those look like? Would there be a little bit of compression sequentially or would they be relatively stable?

Q3 to Q2?

Q2 to Q3. Just wondering what underneath-.

They're pretty stable. And we broke out I think what happened in the quarter. But we are starting, especially on the Oxford side, we are starting to see the bill pay spread move back up and that's where we would expect to see it occur first for a variety of reasons. There's a lot more pricing discussions that occur everyday and they work as much off of a rate card.

Is there an area, Mike, in which you're kind of seeing your heat map pick up, if you can mention it? I understand that you might not want to competitive reasons.

I think, as Peter said, It's been across the board. I think, as you know, we opened the door last year to be a little bit more flexible in terms of our market percentage and we're starting to tighten that down a little bit across all of our disciplines and we're seeing positive response across all of our disciplines from our clients.

Okay, thank you very much.

Next we'll go to the line of [Edward Kussle].

Hi, thank you. I'm curious, you sort of rolled everything up into two groups here, but are you really manage them in far more groups than that? Is this just torturous from a model perspective having to change it? How are you actually running the business? Thanks.

Yes, I mean we get granular detail, but this is how the business going to be managed on a go forward basis.

And just sort of understanding your commitment to Europe, I thought you were sort of bias to the US and sort of surprised that you did a European acquisition.

So, it's, as we say in Texas, it's small, it's very small, but it was an ability to become dominant scientific staffing firm in the Netherlands, which is a very socialistic, regulated labor environment, which makes it very productive staffing market to serve, and we were able to fold the two together and get scale and further consolidation and it was dominiums. I mean it was $10 million in total revenue?

Less than that.

Less than $10 million in total revenue for the little acquisition. So it was thoughtful. I don't think, Ed, you should feel like we have switched from what we said at our analyst day, that we're primarily focused domestically that there's so much opportunity on tap for us, that this was just a thoughtful, easy thing to do to strengthen the positioning of our scientific staffing group in the Netherlands.

Okay, thank you.

Thank you. Our next questions comes from the line of Sara Gubins. Please go ahead.

Hi, thanks, good afternoon. What was the timing of when you started to get a little bit more aggressive on pricing?

Yes, it was late. It was kind of late 2014 and kind of the first part of 2015, Sara, and it has to do some with rate card on the Oxford side, on the onesy twosy business, as spending levels were a little bit compressed to be a little more receptive. But it wasn't wholesale change, it was just more strategically reactive account by account.

Okay. And it wasn't Apex, it was more Oxford?

It was both.

Okay. Could you talk about the kinds of products where you're seeing strengths or weakens in Oxford and Apex as opposed to type of client?

Well, beyond what we said in our prepared remarks, the industries we're seeing, of course, on the local mid market accounts we're seeing pretty robust growth, in our major money center banks and government services, we're seeing kind of a small year-over-year negative growth rate, and then, where we're seeing the best spend is in business services, telecommunications, digital, creative, and then for Oxford we're continuing to see their core business kind of higher end business analytics regulatory, regulatory affairs, and then ERP implementation do well.

Great. Just last, could you help us think about what you're expecting for Creative Circle in the third quarter? Will you continue to break that out for a bit until we lap the acquisition?

I don't think we're breaking out the revenues. Are we, Ed, outside the segment?

No. Going forward we won't, but as it relates just to the near-term, Q3, it will probably be approximately $70 million contribution from Creative.

Okay, thank you.

We'll go to the line of George Tong. Please go ahead.

Hi, good afternoon. Can you discuss what indications help give you confidence for a closer to an inflection point in money center IT spending and what expectations you have Incorporated into your guide dabs?

Well, Rand, let me just make a generic comment and then you can add. I don't think we really have embedded anything in our expectations unless the work has been rewarded and released, but we are having a lot more conversations about projects that they're contemplating and closer to releasing than we had previously. And Rand has visited with the key decision makers of the two of the larger banks and can give you some color. Rand?

I think it's what you said, Peter. I think it's really when do they intend to spend and they have their own earnings numbers to hit and certain initiatives, and I think we've said on this call, in previous quarters, that some of these banks went through major mergers that work has kind of passed, now they have to consolidate infrastructure, and with that comes opportunities.

When the bank decides to let go or move forward on those initiatives is their decision, of course.. We want them to know we'll be right there with them to help them.

Got it. And can you elaborate on the gross margins this quarter, down slightly in Oxford and Apex, if you exclude Creative Circle and why you think margins will continue to tick back up as you move forward throughout 2015?

Yes, George, as we previously said, some is just anniversarying some rate cards, some of it is a conscious decision on the kind of a onesy twosy business, to just go ahead and start pricing it differently and the receptiveness we've received from the customers in through those conversations.

Got it. And then, I guess, last question for me. How do you think about potential cost synergies that Creative Circle might contribute to the business?

So, you know, as we've said when we announced the transaction, accretiveness of the transaction, the strategy of doing the deal were not based on cost synergies. And we'll be thoughtful about it, but that's not the primary focus of why we came together.

Thank you.

Next we'll go to the line of Jeff Silber. Please go ahead.

Thank you so much. When you announced the Creative Circle acquisition, I believe in May, you had a slide in your presentation with estimated pro forma results for the current year and I'm just wondering if you're still comfortable with that outlook.

For the second half of the year?

Second half of the year, correct.

Yes, I think so.

Okay.

You know, I think the guidance implies, you know, sequential growth in the fourth quarter and we're fine with it, Jeff.

Okay, good to hear. And then this, I apologize, this may be a stupid question but I'm asking about the segmentation because you had mentioned, to a previous question, that you're running your business based on these segments.

Why is the Creative Circle division now apart of Apex? Why not apart of Oxford? Are you going to be trying to sell it with Apex? And the same thing with the sciences business, you've got the Life Sciences European business in Oxford, I think you have the US Lab Support business in Apex? I'm trying to understand the rationale between the different segments.

Right, so the cross selling an the sharing of customers is probably greatest between Apex and Creative and trying to get on one another's vendor customer list. Apex, because they tend to do more large number of placements per account, can help more there and they're seeing it in their business as they speak and they've been subcontracting some of that work to Creative Circle competitors.

As it relates to why Lab Support Europe, the gentleman who runs our Oxford European operation is overseeing the Lab Support Europe business and the vast majority of our revenues, almost all of our revenues at this point in Europe, are under his supervision and control, and they tend to be more broad spread and smaller penetration per account, and it fits well with their business model.

Okay, got it. Thanks so much.

We'll go to the line of Gary Bisbee. Please go ahead.

Hi, guys, good afternoon. I heard all of the comments on pricing. What about the pay rate side of it? Has that changed much or is the gross margin compression more of a factor of pricing than any escalating pay rate?

You know, what I would say to that, Gary, is it's been more kind of resistance from the customer at this point. On some of the larger customers, there's a sensitivity and an awareness that there's wage inflation, but as you've heard us say time and time again, if they're close to an anniversary, they say we understand the pressure you're under, but just let's wait a bit and do it in connection with the renewal of the rate card.

Right.

So I think some of it is just looking at work that we would've ordinarily maybe not have accepted and it is move in the right direction. Go ahead, Rand.

Peter, can I add something to this? Gary, listen. There are pricing pressures both on the bill rate and, of course, when we have that, we move it to the pay rate and we move the pay rates down where we can. And it really is a function of the skill types we're looking at and the availability of that skill, as well as the different kinds of clients an accounts in different markets.

So, we've said, on this call before, that certain skill types have higher gross margin, have higher markups and higher bill rate, pay rate differentials in certain accounts in certain industries, mid market versus a large account, have different kinds of profiles. So depending on the portfolio of business and the kind of work we're doing for those clients, there can be movement in our markups and our gross margin rate that has nothing to do with the price pressure it has do with the nature of the work that we're supporting and that's what you see going on, I'm sure, both in Oxford and Apex.

Okay, great. To continue on that theme. Are you having more difficulty finding qualified people to fill the jobs with the right skills as the labor market tightens or has that not been an issue at all to date?

That's not, it's always an inhibitor to growth but I don't think it's any more forceful than it has been and as you've seen we accelerated our growth rate so that would argue that we can handle the tightness.

Okay, then, Peter, you said it your prepared remarks at the beginning, that based on trends to date, or something like that, you expected the accelerating growth or the better growth in Q1 would continue. Any other color you could give us on the confidence in that statement and maybe, other than what you've said today? Thanks.

No, I mean, I would just refer you back to our prepared remarks where one, we gave you the two-week average of contract revenue growth year-over-year. And two, Ed' s comments about what the implicit growth rate is on a constant currency basis that's embedded in the third quarter guidance, and I think that's enough.

Okay, fair enough. Thank you.

Thank you. We'll go to the line of Randy Reece. Please go ahead.

Hi. One technical question here. Was there any alteration in of calculation of adjusted EPS after the recent acquisitions?

Well, two things, Randy. One is that we at one time had a line item where we took out the excess of CapEx over depreciation tax effected and that became such a dominiums amount and difficult to project out, we just dropped it from the calculation. I think that had a penny a quarter affect.

And we stopped doing that when, Ed?

Just recently.

Recently meaning?

This quarter. And, Randy, the other thing is we did update our numbers for the affects of the two acquisitions, the Life Sciences and Creative Circle, and so the second half of the year on a quarterly basis, there's about a $32 million add-back to get to adjusted earnings (inaudible) I think roughly $0.16, $0.17 a share.

Okay. And on the second hand, when it comes to recruiting internal staff, I was wondering, what kind of an environment it has been like for you. Have you been able to hire people quickly for your internaling jobs as you want to?

Yes, you know, it is getting tougher to hire, but you know what, we've made that kind of, job one here, is to make sure we're doing as good of a job internally as we do externally, and you can see from the reported numbers that we've hired lot of people on a net basis.

Very good. Thank you very much.

So, Randy, I want to clarify something just so that everybody understands. I know you're very familiar with the sort of the reconciliation of GAAP income to adjusted income, but we do have a table in our earnings release that shows the components and the numbers I had gave you, or the components, those add-backs related to the third quarter and the fourth quarter, so they're going to be a little different than what's presented in the earnings release because they're going up because we're going have a full quarter of creative as opposed to just one month.

All right.

But It's the same kinds of stuff, the amortization of the intangibles, the cash tax savings.

The same calculation, Randy, except for that one item that was diminimus.

Yes, it was annoying anyway. Thank you.

Thank you. We'll go now to the line of Paul Ginocchio. Please go ahead.

Thanks. Just some questions on Creative Circle, if I could. In that $70 million you've given us for the second quarter, what's the pro forma growth rate versus the same quarter a year ago? Also, what the pro forma underlying growth rate for Creative Circle in the first quarter? And then, finally, if I do my calculations right, looks like there was a 25% EBITDA margin for Creative Circle in the second quarter, that's obviously higher than the 21% it averaged, I think, from 2012 to 2014. Why the spike in EBITDA margins? Thanks. I've got one follow-up.

As it relates to the growth rates, implied growth rate for Q3, It's roughly, it's going to be mid to high teens, and I think as it relates to Q2, it's probably slightly higher than that, and we're not going to comment on the adjusted EBITDA margin, but I will say It's pretty much inline with what we had disclosed as far as the historical trend.

And the only other thing that you should train your eye to, Paul, is that in the creative word, less so the digital world, but in the creative world, there tends to be a little bit of seasonality in the summertime. Some of our large agency clients take Fridays off or have half day Fridays, so the spending pattern is slightly different than in the IT world, not necessarily for the digital, but for the pure creative, which is a percentage of their total revenue.

And are you guiding to a slowdown because you're seeing a slowdown, or is that just trying to be conservative, or it's got less visibility? Why the slight slowdown in the third quarter? Thanks.

It's just as reflected of what we expected for the quarters, for the remainder of 2015.

It's inline with the second half of the year guidance that we've all ready given.

Okay. Maybe lastly, Pete. You've historically made a lot of acquisitions. I think they've been good. I think if you want to get credit for the good acquisitions, you probably should at least give us one year forward data on Creative Circle. Just my two cents. Thanks.

Okay, duly noted.

Thank you. (Operator Instructions). we'll go to the line of Mark Marcon.

Just a follow-up on Creative Circle. Was the rate of growth last year 30% or 29% in terms of Creative Circle?

Oh, no, Mark. I don't have it on the top of my head, but it was more like 22%, 21%.

22%, 21%?

Correct.

And this last quarter was in the 20% range?

Correct.

Okay. And this, the mid to high teens, that's?

No surprise.

Just law of larger numbers or how do we think about that?

How they planned on a quarterly basis and what we planned for the business to do as we acquired it.

Okay. And how would you think about it, you know, going forward beyond this year? What are their potential for headcount additions internally? What sort of gross margin did they end up seeing on a year-over-year basis?

Pretty traditional to what we told you when we did the deal, and they are impressively hiring just like the rest of the division, and I don't know the exact number, and it's tight.

Okay. With regards to, going to Apex, the Lab Support business. How is that doing?

Good. Yes, it had a slightly higher growth rate than the Apex segment growth rate excluding creative.

Was it up more than 7%, up 8%, 9%, 10%?

Yes, if you look at the numbers, that would be correct.

Okay, great. And then, how is Oxford doing outside of CyberCoders and outside of the European Lab Support? Just the old traditional Oxford.

If you look at the prepared comments, it says Oxford's segments, temporary staffing revenues, so that's excluding firm, were up 8% on a constant currency basis.

And that's a slight pick up, right?

Correct.

Okay.

And probably was a little bit better in the US.

All right. And with regards to, just going back to the traditional Apex, how big is finance and government at this point, and you didn't mention energy, which you mentioned last quarter, so I'm wonder if there's any color there?

Yes, energy was only 4% or 5%, but finance at the peak was 29 Rand, at 22%, 23%, 24% now?

Correct, and government's in the high teens, so together, those two were in, say, the low to mid 40s percent of the business.

Right. Have you soon a pick up in terms of retail accounts?

Yes. We said in our prepared remarks, Mark, we've seen double digit growth in our local market accounts, mid-markets.

I mean, how big is that now?

Still, what, 20% to 30% of the total revenues of Apex.

Right.

Great. And then lastly, as we go forward in the year, how are you thinking about where the debt level would probably end up being? What would you anticipate for the second half of the year in terms of cash conversion?

All I would tell you is that we demonstrated in the first 45 days of ownership of Creative as of tomorrow, we will have paid off $50 million of debt. We're into generating as much cash and pay off as much debt as we can quickly.

All right, great. I'll follow-up offline. Thanks.

We'll go now to the line of Kevin McVeigh. Please go ahead.

Great, thanks. Can you give us an update on the sales portion initiative in terms of the percentage of hires, how many are hitting scale and how many are still on the come, and will they be selling into Creative Circle as well or will that be a dedicated sales force?

I can give you more clarity about the selling of the Creative. Creative will continue to main continue their dedicated sales force. We're putting together strategies, clearinghouses and cross selling initiatives to show the customers and, as to give you productivity, Kevin, I apologize, but other than what we give you in the supplemental financial information, which really is skewed because if you change the denominator and numerator, it affects the gross profit per staffing consultant. We just don't have that data in a cleaned up fashion and on a consistent basis across segments for you to draw some clear conclusions from.

Understood. And then, Peter, if you said this, I apologize, about you what would be the rate for the third quarter?

40.9%.

40.9%. Great, thank you.

We'll go to the line of Tim McHugh. Please go ahead.

Yes, thanks. I just want to ask, I guess, how kind of, I guess, cadence of the quarter progress? It sounds like the growth rate, obviously, got better and looks better even here in the last two weeks data, in terms of the 10% that you quoted. Is this something that you steadily seeing some improvement or was there a more pronounced kinds of step up in the growth rate more recently or early in the quarter, just any color on how it kind of progressed.

It was more June and the phenomena that we're seeing now is, whereas we were struggling to have accelerating revenue growth in the quarter and maybe last month of the quarter would come if light, now we're seeing the last month of the quarter come in better than what we expected.

Okay. And was that true across or particular to Apex?

Yes, pretty much across.

Okay. You talked, I think you got asked about financial services, but government's been the other weaker area. Are there any signs of life or actual improvement I guess that you're seeing as you look to Q3 here in that part of the Apex business?

One more time, please, Tim, I'm sorry.

The government vertical or channel, I guess, any signs of improvement yet?

We're hoping that we're starting to see early signs of thawing. I think that LeTOS and Accenture are going to be announcing something tonight on a major award that we've partnered with. So that's a sign of good things to come, we think. But, yes, it kind of feels a little more rationale today than it did six months ago.

Okay. And, I apologize, I jumped between some calls here, but the new sales staff in Apex, in particular, that you added in the last year, how are they ramping relative to the typical ramp? Is it inline and we're just starting to see that influction point here in Q3 where they're productive or are they better or worse than you would expect?

Well, you know, Rand, why don't you take a stab at that. We were talking about that before the call and you have to break it out between existing and new hires and also major accounts versus small accounts. But, Rand, why don't you address that.

Yes, we do track, Tim, the preformance of the new hires, the surge. Most of them now are nine months into the business, six or nine months in. They are tracking very consistently with what our normal ramp up is for normal account managers, plus our existing account manager force, which is the bigger force, is also trending up as we go through the quarter. So, everything is inline is what I would say.

Okay, thank you.

Thank you. speakers, at this time, there are no further questions in queue.

Great. We appreciate your time and attention and if you have any follow-up questions, please contact us. Thanks.

Thank you. With that, larks, that concludes our conference for today. You may now disconnect.