ASGN Inc (ASGN) 2015 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon, thank you for standing by, and welcome to the On Assignment fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded.

I would now like to turn the conference over to our host, Chief Financial Officer, Mr. Ed Pierce. Please go ahead.

Good afternoon, and thank you for your time today.

Before we get started, I would like to remind everyone that our presentation contains forward-looking statements representing our current judgment for what the future holds. Although we believe these statements are reasonable, they are subject to risks and uncertainties and our actual results could differ materially from those statements. Some of the risks and uncertainties are described in today's press release and in our SEC filings. We do not assume the obligation to update statements made on this call.

Please note that on this call we will be making reference to pro forma and constant currency information. Pro forma data assume the acquisition of Creative Circle and the small European life sciences business occurred at the beginning of 2014. Constant currency data were calculated using the foreign exchange rates in effect during the fourth quarter of 2014.

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 fourth quarter earnings conference call.

With Ed and me today are Rand Blazer, President of Apex Systems; Mike McGowan, COO of On Assignment and President of Oxford Global Resources; and Ted Hanson, Executive Vice President of On Assignment.

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 results and our estimates for the first quarter of 2016. We will then open the call up for questions.

Now onto the fourth quarter results. Revenues in the fourth quarter were $577.5 million, up 30.9% year-over-year, 31.7% on a constant currency basis. Revenues, excluding the contribution of $77.4 million from acquisitions, were up 13.4% to $500.1 million and up 14% to $502.9 million on a constant currency basis.

Revenues generated outside the United States were $25.1 million, or 4.4% of consolidated revenues for the fourth quarter, versus $20.6 million, or 4.7% in the fourth quarter of 2014. The fourth quarter represents the third consecutive quarter of accelerating revenue growth. Our size and service offerings once again permitted us to grow faster than the published staffing industry growth rate of 6%.

Despite there being 2.3 fewer billable days and the normal holiday seasonal effects on hours worked by our billable consultants, we were able to grow revenue sequentially 4.8% on a same number of billable days basis versus the immediate prior quarter. For the fourth quarter, adjusted income from continuing operations, adjusted EBITDA, and conversion of gross profit to adjusted EBITDA results were above the high end of the guidance range we provided in the third quarter earnings press release.

We were particularly pleased with our higher revenue growth rates, which reflect, among other things, the contribution from our hiring surge of sales and recruiting consultants that began in the latter half of 2014. Adjusted EBITDA was $70.7 million, or 12.2% of revenues, up from $50.6 million, or 11.5% of revenues in the fourth quarter of 2014 on an as-reported basis. The year-over-year improvement in adjusted EBITDA in the fourth quarter includes the impact from higher incentive compensation expense compared to the year ago period due to better performance in our divisions.

All divisions contributed to our strong fourth quarter performance with Apex and Creative Circle accelerating throughout the quarter. Revenue growth came from both our local, mid-market and large accounts with increasing demand in each customer base. We believe, based on current performance, that this solid growth 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, offshoring and consulting.

In addition, we continue to see signs that 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 the secular growth opportunities for the entire professional staffing industry are so attractive.

Exiting the quarter, we feel we are well positioned to continue to generate solid revenue growth. Integration, coordination and cash generation related to our acquisitions continues to be at or above our expectations. Since closing the Creative Circle acquisition, we have repaid $101 million of our debt. Our current leverage ratio is 3.02 times trailing 12-month adjusted EBITDA, and we expect the ratio to be 2.85 times by the end of the first quarter of 2016.

During the quarter, we saw year-over-year growth in our US divisions. Our weekly assignment revenues, which excludes conversion, billable expenses and direct placement revenues, averaged $42.7 million for the last two weeks, up 31.8% over the same period in 2015. Excluding the contribution from Creative Circle, revenues were up 14.9% over the same period in 2015.

While we are sensitive and conscious of the fears of an economic slowdown in the US, to date we have not seen a change in our customers' normal purchasing behavior. We continue to see solid demand from end markets we serve, and we are benefiting from the improved productivity of the additional headcount we added during our hiring surge last year. The productivity levels are also in line with our expectations and we continue to see improvement.

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.

The Apex segment, which consisted of the Apex Systems, Lab Support and Creative Circle business units, reported strong results for the quarter. Revenues for this segment were $433 million, up 17.4% year-over-year on a pro forma basis. Revenues from Apex Systems, which accounts for 74.3% of the segment's revenues, were up 17.5% year-over-year.

This performance reflects, among other things, higher demand in our end markets and improved productivity from our sales consultants, including the contribution from headcount added during the hiring surges of the past year. Lab Support's results were in line with our estimates and up from the growth rates of the previous three quarters. Creative Circle, which was acquired on June 5, 2015, reported revenues of $74.6 million, which exceeded our revenue targets and their revenue levels in the previous three quarters.

On a pro forma basis, Creative Circle's growth rate for the quarter was 22.4%. Our gross margin for this segment was 30.4%, which was in line with our estimates, and down slightly, 20 basis points, from the preceding quarter. Our segment's contribution in terms of divisional EBITDA was very strong, with solid conversion of gross profit to EBITDA in the segment, as Peter has already mentioned.

With respect to Apex Systems, our IT staffing division, revenue growth was propelled by a number of factors including, first, double-digit Q4 revenue growth on a year-over-year basis and our accounts in six of the seven industry verticals we service, and a return to slightly positive growth year-over-year in the seventh industry we service, the government industry set of accounts. Apex local branch mid-market business momentum continued with increasing double-digit revenue growth rates in Q4.

Number three, our sales force productivity grew nicely in the quarter with the surge hires now firmly in their assigned markets and producing sales at higher levels. Growth in our top accounts showed continued revenue acceleration in the quarter, although a number of top accounts continue to lag behind in revenue growth on a year-over-year basis.

Our Lab Support and Creative Circle units are also seeing continued good opportunities for growth with the market for creative marketing skills particularly strong. Our Creative Circle unit is performing well at all levels now, six months into the acquisition.

Overall, the Apex segment had a solid quarter with quarterly revenue continuing its growth acceleration on a year-over-year basis, with each of its business units contributing to revenue growth, to stable gross margins, and strong conversion of gross profit to divisional EBITDA.

I will now turn the call over to Mike McGowan to discuss the results of our Oxford segment. Mike?

Thanks, Rand.

The Oxford segment includes Oxford, CyberCoders, our perm placement business, and Life Sciences Europe. The segment had revenues of $144.5 million for the fourth quarter of 2015, up 8.4% year-over-year. On a constant currency basis, revenues would have been $3.2 million higher and our growth rate would have been 10.8%.

Gross margin for the quarter increased to 42.5%, up from 41.5% in the preceding quarter, and 41% in the year ago period on a pro forma basis. Oxford's revenue for the fourth quarter was $109.3 million, up 3.9% year-over-year, and 5.5% on a constant currency basis. Oxford's gross margin improved in Quarter Four, increasing to 32.9%, up from 32.4% in the preceding quarter. Oxford experienced continued consolidated year-over-year growth throughout 2015.

This improvement was driven by growth in our key accounts, continued sharp focus on assigning consultants within our targeted skilled disciplines, increased demand for EMR implementations, upgrades and optimization projects, and ongoing demand for coding and consulting services. Our segment's permanent placement revenues grew 38.4% year-over-year to $22.2 million, and was driven by increases in recruiting staff and newly implemented training programs for new and experienced staff.

We continue to invest in new technology that will more efficiently identify and match relevant candidates to our open job orders. The Oxford segment's European revenues were $22.7 million in the fourth quarter of 2015, up 13% year-over-year, or 28.9% on a constant currency basis.

Revenues for the fourth quarter of 2015 include $2.8 million in revenues from the second quarter acquisition that Ed mentioned earlier. The segment's consolidated revenue growth was the result of strong year-over-year growth in all of our business units, and based on recent production activity, our expectation is for continued growth throughout the first quarter of 2016.

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

Thank you, Mike.

As Peter mentioned, our operating results for the quarter were above the high end of our previously announced estimates. Revenue for the quarter were $577.5 million, up 14.4% year-over-year on a pro forma basis. If you exclude the contribution of the two businesses that we acquired in the second quarter, our revenues were up 13.4% year-over-year, and up 14% on a constant currency basis.

On a reported basis, our contract revenues were $544.9 million, up from $420.9 million in the fourth quarter of last year. Our direct hire and conversion revenues were $32.6 million and accounted for 5.7% of total revenues, up from 4.6% of total revenues in Q4 last year.

Our gross margin for the quarter was 33.4%, which was above our previously announced financial estimates and slightly down sequentially. SG&A expenses were $138.8 million, or 24% of revenues.

SG&A for the quarter included $5 million in acquisition, integration, and strategic planning expenses, of which $2.1 million related to an increase in the estimated earn-out obligations for our CyberCoders and Creative Circle, and the remainder primarily related to the cost of integrating various divisions onto Oxford's operating and back office platform. SG&A also included $2 million to $2.5 million of expense related to the increase in sales consultants and recruiters added during the second half of 2015. If you exclude Creative Circle, the average number of sales consultants and recruiters for the quarter was 2,058, up from 1,811 in the fourth quarter of 2014.

The effective tax rate was 43.2% for the quarter and 41.4% for the full year. The higher rate for the quarter primarily related to the increase in the earn-out obligations for CyberCoders, which is not deductible for income tax purposes. Adjusted income from continuing operations for the quarter was $40.6 million, or $0.76 per diluted share. The calculation of adjusted earnings per diluted share is set forth in our press release.

Adjusted EBITDA, which is a non-GAAP measure, also defined in our press release, was $70.7 million, or 12.2% of revenues. Income from continuing operations was $19.2 million, and included $5.3 million after tax of acquisition, integration and strategy expenses, which as you know, we do not include in our financial estimates. Excluding those expenses, income from continuing operations would have been above the high end of our financial estimate.

Cash flows from operating activities were $30.2 million and capital expenditures were $6.5 million. During the quarter, as Peter mentioned, we paid down $30 million of our long-term debt, and our leverage ratio at the end of the quarter was 3.02 to 1, down from 3.21 at the end of the third quarter. Turning to our individual operating segments, our Apex segment, which accounts for 75% of total revenues, it's revenues were $433 million, up 40.7% year-over-year.

Excluding Creative Circle, Apex's revenues were up 16.5% year-over-year. Apex's gross margin for the year, for the quarter, was 30.4%, an expansion of 1.9 percentage points from Q4 of last year, mainly due to the inclusion of Creative Circle. Apex's gross margin was in line with our estimates and down slightly sequentially.

Our Oxford segment accounted for 25% of total revenues. Oxford's revenues for the quarter were $144.5 million, up 8.4% year-over-year on a reported basis, and up 10.8% on a constant currency basis. Excluding the revenue contribution of the acquired business, Oxford's revenues were $144.6 million on a constant currency basis, up 8.5% year-over-year. Oxford's gross margin for the quarter was 42.5% which was above our estimates and 100 basis points higher than the preceding quarter.

Now turning to our financial estimates for the first quarter of 2016, we estimate revenues of $550 million to $555 million, adjusted income per diluted share of $0.58 to $0.61, and adjusted EBITDA of $56.5 million to $59 million. These estimates do not include any acquisition, integration, or strategic planning costs. Our estimates assume pro forma year-over-year revenue growth of approximately 12%, and billable days of 62.8, or one more billing day than the first quarter of 2015.

Our revenue estimates also assume approximately $2.5 million to $3.5 million for the effects of inclement weather in the quarter. And, finally, our estimates include the effect of the payroll tax reset that occurs at the beginning of every year. We estimate that this reset will result in a sequential increase in payroll taxes of approximately $8.5 million, of which $5 million relates to cost of services and the remainder to SG&A expenses.

I will now turn the call back over to Peter for some closing remarks. Peter?

Thank you, Ed.

We continue to believe that we are well positioned to take advantage of what we believe will be historic secular growth for the staffing industry and dynamic changes in the technology world as it moves more into the digital world. While the entire On Assignment team is very proud of our performance, we remain focused on continuing to profitably grow our business and increase our rate of growth. 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?

(Operator Instructions)

Kevin McVeigh with Macquarie.

Great, thanks. Hey, congratulations on the results.

Peter, it looks like you've really been outpacing the industry in terms of revenue growth relative to where the industry is in Q4. How much of that is related to the hiring surge? And are all of those new hires -- are they scaled now, or would you expect continued momentum as we work our way through Q1?

Thank you. First of all, they are not all productive or to maximum productivity. We are working to that level. But we still have a lot of opportunity within the base of the new hires, and our existing hires, for that matter, as we provide them greater productivity tools, new wins of large accounts that we can penetrate and get greater market share -- our customer dollar spend.

I think what is really driving it, Kevin, is that we are the second largest in the industry. Adoption of staff augmentation is healthy and good. And there are only so many companies that can really respond to certain scale and size projects, and we are one of them.

We're lucky that we were probably the first to scale up on employees that are facing customers, and recruiters that can fill those orders quickly. And we are benefiting from that, and we continue to believe that we will benefit from that going into 2016.

We are lucky that our EBITDA margin's 12%. We're growing our EBITDA twice as fast as the industry growth rates; industry revenue growth rate is 6%.

But more importantly, we have been able to get ahead of the pack on hiring. And I just think it is going to be harder for people to try to keep up with the hiring pace that we have, as their revenues decline, or their revenue growth rate declines. So, we think we're in a competitive position right now to continue to gain market share.

Got it. And then just real quick, Peter, the revenue, the adjusted EBITDA looks really strong relative to the Street. EPS -- is there anything in the EPS line, in the tax rate, or any other nuances that -- because EPS relative to where the Street was -- we may have just mis-modeled it, but the revenue beat, the EBITDA beat, anything below that, that would impact the earnings?

I can't respond to that off the cuff. I would say reach out to Ed, and you all can check your model.

But the truest measurement of profitability, in my mind, is EBITDA. And you have the normal decline in the EBITDA margin because of the payroll tax reset. But all in all -- which is about $5 million -- all in all, we feel pretty solid about what is going on.

One second; Ed wanted to correct something I may have said.

I was just going to mention that if you look at it -- it depends on how you are looking at EPS, whether you're looking at it on a GAAP or an adjusted income basis. And on a GAAP basis, as we mentioned in the script, we had $5 million of acquisition-related expenses which we don't -- we do not include in the estimates that we give at the beginning of the quarter. If you take that into account, I think that would probably explain the gap that you are talking about.

That was more, Ed, for Q1, but I will follow up with you offline. I'm sure it is just reconciling items. Thanks again.

(Operator Instructions)

Gary Bisbee with RBC Capital Markets.

Hey, guys, congratulations on the results. It is nice to see some results that show the staffing world is not ending like it seemed like investors have felt like.

At any rate, a couple of questions -- obviously, the hiring has been greatly helpful. Are you seeing any signs at all within any pockets of business of either deceleration or slower decision-making from customers, or a sense that projects are being consolidated or pushed off? Or has it really been not much change other than your internal -- how you have executed in those hires in the last few months? Thanks.

Gary, I will start with just an overarching response, and then allow Rand and Mike to add any color that they want to. Look, we're not predicting that the economy is not going to face a recession in 2016. What we're trying to do is give our shareholders a view of what we are seeing in our Business, and how we are facing the marketplace. And outside of normal ebbs and flows, the purchasing behavior of our customers is still good, and good enough to permit us to grow an estimated 12% in the first quarter, which is pretty -- on the size of revenues we have -- pretty solid performance considering what the market -- the stock market has been doing, and what some people believe the economy may be doing.

Our assignments tend to last anywhere from 8 to 13 months. Our business model gives us a view of the real-time -- meaning orders we get today we will be filling in 5 to 6 days. And we have not seen a slowdown in that order book.

And then we have longer, extended orders where it may be 2 to 4 weeks before the order starts. So, that gives us a further outlook into the future, and we haven't seen that order book change a lot.

But with that said, we're giving you a measurement of how the Business is doing. And it feels as if, under the current conditions, that there hasn't been a wholesale change with regard to utilization of contract labor.

Rand, why don't you go first, and then Mike follow up with anything you would like to add.

Well, I think what you said is great. Gary, listen, I know there is an emphasis here on the hiring surge we went through -- putting more feet on the street, if you will. But the real root of growth comes from our accounts and the portfolio of accounts that we have cultivated in the industry verticals that we have selected and targeted.

So, it just so happens that our set of accounts, or portfolio of accounts, is performing pretty well. And we said that a couple of quarters ago when there was a different trend, if you will, going on. But I think building that right portfolio of accounts, and providing resources and the skills that are in demand, is a key part of this.

By the way, we have also added feet on the street to attack and continue to build that portfolio of accounts. So far, it is steady as we go.

And I would agree with -- Gary -- with what Rand has said, and also what Peter has said. The difference being is, for the Oxford side of the Business, is the skill.

As Rand talked about the portfolio of accounts, we have our portfolio of skills. And we have chosen, as of right now, those skills that are still in demand. And we are still seeing, as Peter mentioned, that same demand and same fill ratios and all that kind of thing that we have been seeing now for quite some time. Other than that, not much more to say.

And then just one last quick one -- I guess an update on pricing. It looks like bill rate and bill pay spread softened a bit. Is that more mix than anything else?

That is. Gary, that is exactly it. It is mix. We put a -- you will note that we put a new footnote on that page because that data is not as relevant because of -- we're reporting it on a consolidated basis. But as you can tell from our gross margins, which is a more pertinent measurement, things may be moving around with pricing on skill sets and maybe scarcity of resource, but for the most part, we're not seeing margin compression.

Great, thank you.

Edward Caso with Wells Fargo.

Hi, good afternoon, and congrats on the numbers.

On a recent trip I had in India, I saw an uptick in use of the captive operations of the big clients, and particularly for the more newer innovation work. And I was wondering if you were seeing any of that, as opposed to using, say, Oxford resources?

No, to be honest with you, Ed. What we are seeing is actually Oxford's older adoption technologies are the ones that are growing the slowest. And that is what is causing their growth rate not to keep pace with -- like a Creative Circle, to be honest with you. So, the newer adoption technologies, the digital technologies, the regulatory affairs, the health information management, healthcare IT -- those are growing faster than some of the legacy skill sets.

Curious on the tax rate guide -- seems to be lower than -- it's at 39.5%. It was 40% and change this year. Any reason for the lower estimated tax rate, and should we assume that 39.5% is the run rate for next year?

I think you should assume the 39.5% for 2016. Just a couple things, Ed: One is, we had some non-recurring items, [permanent] differences that flowed through, some in Q4 and some earlier in the year. That caused an artificial spike in the effective tax rate.

So, if you take those things out, normalize the rate, on an ongoing basis it should be pretty close to 39.5%. We've done a lot of work over the last year or so trying, through reorganizations and the like, to try to reduce our effective tax rate, and I think we're going to see the benefits of that in this coming year.

Great, thank you.

Paul Ginocchio with Deutsche Bank.

Paul?

Mr. Ginocchio, can you hear us?

Oh, sorry, that's on me. This is Ato Garrett on for Paul Ginocchio.

Please go ahead.

It looked like SG&A -- when we look at SG&A as a percent of rev, it looks like there's a little bit of an uptick in the fourth quarter, and along with the guidance, so, just curious if you are making further investments along the lines of that hiring surge, or if there is something else happening?

A couple of explanations -- one is, we continue to hire throughout the quarter because our results were strong and we saw good forward demand. But also, our bonus accruals were higher because of higher performance, and our commissions were higher because of higher performance.

Okay, great, thank you.

You bet.

Tobey Sommer representing SunTrust.

Thank you. Peter, when you look at the Life Sciences business, that has -- can give you insight into cyclical trends. Is that telling you that things are status quo -- that the beat goes on?

It does, Tobey, because we have accelerated that growth rate, and it is growing. If you look at SIA -- kind of doubled the SIA growth rate. It is not flashing any sort of early indicator.

Now, maybe that is because of the hard work that Ted and Rand and David Lee and the whole Apex team has done to get them into a more large customer account base. But the revenue growth trends are not flashing any indicators to us yet.

Okay. I wanted to ask you about the lower tax rate. Is that a function of various integration efforts? It seems like, over the last couple of years, you have stitched together the segments, and done some heavy lifting on the back office as well. Are there any other tangible effects that we should look for, above the tax line, in 2016 from those efforts?

No, I think most of what you are talking about, the restructuring things that have occurred, really were done to effectuate a reduction in the effective tax rate. The other thing that we're benefiting from is the WOTC credit, which we're now able to factor in on the front end, in terms of the estimated rate for the full-year 2016.

I would just add, Tobey, I don't know if we have the numbers; it's not real significant. But that was something that we were not pursuing as aggressively and as successfully as someone like a Robert Half, and we put more attention to it, and we're getting a bigger net tax credit on that.

Okay. And then, you talked about the effect of the mix of skills on some of the metrics. When you look at your orders in the areas where you are seeing growth, does that give you any indication as to whether the mix is forecasted to stay the same or is it changing based on your order flow?

No, the book is getting constructed pretty much the same as it has been. The healthcare IT business -- we have seen, as Mike said in his prepared remarks, some nice projects to bid on, and continued optimization. We have not seen a healthy dose of integration work from M&A activity. It has been steady state business, to be honest with you.

Okay. And then my last question is on the DHMSM contract with the Defense Department. At what point do you think you participate in that? I guess, the prime contractor is putting together a pilot now, and then it gets tested, but when do you start to participate more fully?

Rand, would you like to advise on that?

We're participating in a very small way now, more around education services to the DoD facilities. You are correct, there is a pilot that will be getting started here.

But I think once they get past the pilot, which probably will be 2017, maybe late 2016, then we will see heavier lifting. And that is what we have been saying. It will take a while to ramp up, but this is going to go on for quite a while.

Terrific, thanks for your help.

George Tong with Piper Jaffray.

Hi, thanks, good afternoon. I would like to explore the growth performance of Creative Circle. Can you talk about the drivers of upside versus your expectations this quarter, and how sustainable 20%-plus growth is for the segment?

We are not going to guide to that, but what I can tell you is they are the largest in the industry. They have got a dominant franchise. Their days are organized where people know exactly what they are doing every day. And they have a very vibrant market where priority is placed on that type of spend.

The first quarter looks good, and we continue to be able to thoughtfully open new offices and add additional new employees. So, like I said, we're not going to guide to that, but we will report it. But things are steady state.

Got it. You've talked about some of the high-growth skill areas such as healthcare IT, digital, and regulatory. Can you discuss which skill areas are lagging, and how much of the Business these slower growth areas represent?

Little bit of custom app development, software engineering, but that is really -- anything that is kind of later stage adoption -- but mobility, security, digitization, data warehousing, all of that is continuing apace.

Got it. Lastly, can you talk about the likelihood that you will hire sales and recruiters at an elevated rate this year to chase after the demand you are seeing?

Well, we've loaded our gun pretty well in 2015. With that said, we will probably continue to hire at our normal growth rate, which is typically higher than the industry. And we will see how the year unfolds. If there is more opportunity, then we will look at it.

I think we have been pretty adept at reading the market, and placing our bets early and correctly. But right now, I think we're in an absorption and normal growth rate, which is still higher than the industry growth rate for new hires.

Great. Very helpful, thank you.

Tim McHugh with William Blair.

Yes, thanks. On Oxford, the gross margin there, is that just the impact of the perm trends, and how sustainable is the margin trend?

It is sustainable, and you are correct. Tim, the perm grew 38%. But Oxford's contract margins were expanded a little bit, and they were very stable.

Okay. And is that just bill pay spread, or mix, that drove the expansion for the core Oxford?

We were able to price a little bit firmer than we had in previous quarters.

Okay. And then let me just ask: You gave the revenue growth rate for the last two weeks of, I think it was 14%, 15% on a pro forma basis. And that was, I think, excluding perm, which is growing faster, and Creative Circle, which has been growing faster than that.

I recognize in this environment the guidance you gave for low-teens growth is still very good. But I guess it is slower than you would even describe seeing lately, I guess, relative to that.

That's correct.

How would you -- what is the thinking on that? You said you are not seeing a slowdown, but the guidance would imply you would expect slower, or you did see slower earlier in the year. Can you just talk about that?

Tim, I'm saying it in a way really for the investors to understand; I'm not being cocky. It is just -- don't confuse actual growth rates with guidance growth rates.

If the actual growth rate is higher in the first quarter, you'll make a determination whether there has been a deceleration or not in the Business. But we gave you a guidance number; it is 100% faster than the industry.

Okay, thanks.

Mark Marcon with Robert W. Baird.

Good afternoon. Let me add my congratulations; this is a terrific performance this quarter.

Rand, you mentioned, in answering one of the first questions, something about client wins. And I was wondering if you could expand on that? It sounds like you may have had some good ones that came up?

Yes, I think I was commenting that the portfolio of accounts. And we look at our penetration in the Fortune 500, the Fortune 1000, and other mid-market accounts, and for us it's always expanding that number. We have secured a few additional accounts, as we always do during the course of the year, but I think also -- and in different sectors.

In other words, as I pointed out, all of our industries, our accounts in the industry sectors are growing double-digit except for one. And the one has at least gotten back to a very low positive, which has been sort of on its back -- the government sector -- for a while. It is a matter of penetrating our existing accounts, and continuing to add to the portfolio, and we do so with resources and focus around all seven of these industries.

Did I answer your question, Mark?

You did. I was wondering if you could talk a little bit to the magnitude of some of those account wins. Were they sizable?

Well, look, as you know, it takes years to win the right to be on the account, and then it takes performance to get a dominant share of the spend. And in many instances, new awards are not exclusive.

So, it is hard to predict the size. What you should measure and ask as we go forward is how we are doing with getting a greater percentage of the total spend under these new account wins.

Just judging by the numbers, you are clearly gaining more.

With regards to the verticals that you are seeing, the double-digit growth rates in everything other than government -- so, in energy you are seeing double-digit growth rates right now?

No, but relatively speaking, I don't think it even represents 3% of Oxford's -- excuse me, Apex's [consolidated] revenues, and it probably doesn't represent 3% of our consolidated revenues.

And, Peter, energy is within our consumer industrials vertical, which did grow double digit. So, it is other parts of consumer industrial that is picking up the slack.

That's great. What are you seeing out of the financial services vertical?

It is solid. As everyone knows, people -- I guess it is a negative if interest rates don't go up. But it is the same environment we have experienced the last 6 to 8 months, which is slightly improved from what we experienced in the latter half of 2014 and the first part of 2015 -- no improvement, no deterioration, just the same as what we had been experiencing.

That's good to hear. What are you thinking about for CapEx for this coming year?

Our target is what it has been in the past, and that is to be about 1% of total revenues.

Okay, great, terrific. Thank you.

(Operator Instructions)

Randy Reece with Avondale Partners.

Good afternoon -- excellent performance. When I look at the recruiting world, companies are spending more and more on recruiting to get less and less returns; this even in a market where hiring seems to maybe be choppy. How is the employment environment affecting your internal spend on -- not only on recruiting people, but also in processes?

If I am interpreting the question correctly, Randy, we are continuing to spend money on tools to enhance the productivity of our internal recruiters. I will tell you that it is not just a net incremental increase; there are winners and losers amongst our vendors, where we are focusing our spend in the tools that have proven, over the last year, to be the most effective, and some [sighting] historical tools that aren't as productive and leading edge as they used to be.

We are spending more; it has improved. Predictive analytics -- pre-screening raw data and then funneling that screen data to our talented recruiters has increased productivity.

So, all in all, if you are looking for a read-through for HR solutions and tools, I think it continues to be productive. And it is embedded in our models going forward, and I think for the industry it is.

I think, like anything -- Monster used to get a premium pricing on their database, but their database is not as proprietary. That holds true for any vendor who is selling data. I think that is a net positive for the industry, that pricing will get better for us on some of this data that we purchase.

You had quite a robust year-over-year growth in staffing consultants. Did you succeed in hiring as quickly as you wanted to?

We did.

Rolling into the first quarter, have you made any modification of your plans for growth of internal staff?

No, I think we had guided you, on the third-quarter conference call, that we had pre-loaded the 2016 because we saw what we just reported. We are a little bit ahead of the game, so now it is what we budgeted.

Very good. Thank you very much.

Sara Gubins with Bank of America.

Hi, this is Brent calling in for Sara. Just want to talk about incremental margin expectations for 2016. And recognizing that the environment is uncertain, how should we think about what your margins might look like under weaker or stronger revenue growth trends for the year?

I think you should use the guidance that we gave you for the first quarter, and then we will refresh that for the second quarter. But we have always guided longer term, if you look at our investor presentations, to stable gross margins, and we've stated what we think -- what that margin is.

Okay, great. And just to follow up on an earlier question on financial services, we've been hearing from a number of companies that touch IT that banks are being incrementally more cautious in their spend to start the year. And you seem like it was more of status quo. And I am just curious: Why do you think you are not seeing similar trends in the business, and maybe a little bit more color on how financial services are tracking?

Rand?

Well, first of all, our financial services unit and its portfolio of accounts has been tracking very well over the last two or three quarters. So, it is growing now double digits, where it didn't do that in the previous quarters.

We get that growth first by expanding the number of accounts we have in the portfolio, number one. Number two, by penetrating the accounts we have and taking more market share, which, generally speaking, we are one of the tier 1 players in our accounts, and sometimes they want to consolidate spending with fewer people and they will do that. And, third, it is a little bit about being at the right place at the right time, and having our people on the street, and listening and reacting to the needs that our individual clients have.

So, it's all three are contributing to that growth. It is hard for us to react, Brent, to any one account and say -- hey, that account, they are saying they are not going to spend as much money. Well, there are some accounts that are saying that, but there are a lot of accounts that are new accounts that we can begin to penetrate, and we are.

Great, thank you very much.

Fran Okoniewski, with Friess.

Yes, thanks for taking my question. You mentioned that weather impact for Q1; I'm kind of new to the story, but could you explain that a little bit? Would it just be a reduction in billable days or assignments or something like that? But I thought I heard you say that there might be a little bit of a weather headwind in Q1?

Yes, exactly. First of all, it's de minimus; it is $2.5 million. But it is exactly what you said: people cannot travel to the location to perform the work and bill the time. It is just a deferral.

Okay.

So, instead of billing -- I'm making it up -- but instead of billing 40 hours in a week, they bill 30.

Okay, great. Thank you.

Jeff Silber with BMO.

Thanks so much. Just one more question about your internal hiring: I know you ramped up toward the end of the year. Did you have difficulty finding people? Did wages and/or packages have to increase accordingly?

We are lucky right now that we have momentum in our Business, and our scale and size. If someone wants to be in human capital, we have got a great chance of persuading them to be with us versus someone else.

We really didn't see that much wage inflation, to be honest with you, and we're sticking to our guns. And as you know, our model is lower basis and higher percentage commissions. And for people who are competitive and want to grow their income capacity fast, that is a winning combination for them. We were able to identify and attract people, and close a lot of offers that we presented.

Okay, great. And then you mentioned on the call the $30 million that you paid down in debt, and expectations to continue to do that going forward. How do you decide how much to pay down in debt relative to your income and cash flow?

Well, look, we know what our working capital needs are, and we are positive cash flow every week. Even as low as our interest rate is, it is accretive to pay it down. And if we had to re-lever, we have a sizable revolver. And we have said we want to get to 2.5 times as quickly as possible, and we will get there sometime, hopefully, by the second half of the year.

And is there a minimum of cash that you need on your balance sheet to run your Business?

Maybe $20 million, $30 million.

Okay, great, All right, thanks so much.

And there are no other participants -- excuse me, we just had one queue up. Gary Bisbee with RBC.

Yes, just one last follow-up: The Oxford gross margin strength -- what in particular drove that, and any guidance on how to think about that trending next quarter? I guess you will have more payroll taxes, like you cited, but outside of that, is there anything in particular going on? Thank you.

They were successful after a couple of quarters of a decline, and their contract gross margin pricing better, but then there was a bigger contribution from their higher-margin businesses on the segment. But when we talk about the Oxford core business, which is predominantly the contract business, it had a nice recovery from a couple of quarters of decline in gross margin. It was just hard fought, disciplined, thoughtful conversations with customers explaining the scarcity issue and the value of the skill.

Okay, great, thank you.

Bryan Sekino with Brant Point.

(Technical difficulty) in here. Just wanted to ask if you would consider buying back stock, looking at the market and where the stock is, and deferring debt paydown in the near term?

We always balance what is best with our shareholders' capital, and so that is not a thought that hasn't been debated. As we move forward, it is not a hard, fast rule that we have to get to 2.5 times to buy stock.

Jim Brill is here, but our covenants and our bank agreement currently allow us to buy up to, what, $80 million right now? We have authorization to buy $80 million based on our bank covenants right now. We balance the best utilization of your capital every day, and we will see.

Okay, thanks.

Gentlemen, there are no other participants queuing up at this time.

Well, we appreciate your time and attention, and look forward to reporting our first-quarter results. Thank you for your attention.

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