ASGN Inc (ASGN) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2016 Earnings 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.)

I would now like to turn the conference over to Ed Pierce. Please go ahead sir.

Thank you. Good afternoon and thank you for joining us today. Before we get started, I'd 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 risk and uncertainties 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 filings. We do not assume the obligation to update statements made on this call.

Please note that on this call we'll be making reference to pro forma information. Pro forma data assume the acquisition of Creative Circle and a small European Life Sciences business occurred at the beginning of 2015. For your convenience our prepared remarks can be found in the Investor Relations section of our Web site.

I will now turn the call over to 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 you to the On Assignment 2016 First Quarter 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 first quarter results and our estimates for the second quarter of 2016. We will then open the call up for questions.

Now on to our first quarter results. Our results for the quarter exceeded the high end of our previously announced financial estimates for revenues, gross profit, earnings and adjusted EBITDA. Revenues for the quarter were $582 million, up 35.3% year-over-year on a reported basis and up 17.7% on a pro forma basis. This marks the fourth consecutive quarter of accelerating revenue growth. Our growth rate reflected, among other things, the contribution from our hiring surge of sales and recruiting consultants that began in the second half of 2014 and higher over productivity.

Virtually all of our divisions contributed to our strong first quarter performance. Our size and service offerings enable us to grow faster than the published staffing industry growth rate of 6% and we believe that we are well positioned to generate solid above market revenue growth rates in the future. Revenue growth came from both our local, mid-market and large national accounts reflecting strong customer demand. We believe based on current performance that this solid growth will continue. Our IT business continues to see high demand from our customers, driven in part by a greater adoption of staff augmentation as a viable alternative to outsourcing, off-shoring and consulting. With respect to recent production our weekly assignment revenues, which exclude conversion, billable expenses and direct placement revenues averaged $44 million for the last two weeks, up 18.1% over the same period in 2015.

Adjusted EBITDA for the quarter was $62.4 million or 10.7% of revenues, up from $38.7 million or 9% of revenues in the first quarter of 2015 on an as reported basis. As a reminder, our gross and adjusted EBITDA margins are lower in the first quarter of every year due to payroll tax resets. Integration and cash generation related to our acquisitions continues to be at or above our expectation.

Since the closing of the Creative Circle acquisition we have repaid $134 million of our debt, our current leverage ratio is 2.80 times trailing 12-month adjusted EBITDA. We estimate our leverage ratio to be approximately 2.65 times by the end of the second quarter of 2016. We continue to see signs of the ongoing debate regarding the on-demand workforce or gig economy is accelerating the usage of contract labor. Rationalization of human capital by using a staffing industry services is truly the only way to 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.

We also believe that we are well positioned to service our customers needs as technology rapidly evolves and is adopted. While we are sensitive to and conscious of the fears of an economic slowdown in the U.S., to date, we have not seen a significant change in our customers normal purchasing behavior for our contract assignment services. We continue to see solid demand from the end markets we serve and continue to benefit from improved productivity of the additional headcount that we added during our hiring surge in the second half of 2014 and 2015. Those productivity levels are in line with our expectation.

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

Thank you Peter. The Apex segment which consists of the Apex Systems, Lab Support, the Creative Circle business units reported strong results for the quarter. Revenues for the segment were $433.2 million, up 20.8% year-over-year on a pro forma basis. Revenues from Apex Systems, which accounts for 73.6% of the segments revenues were up 21.5% year-over-year. This performance reflects among other things, higher demand in our end-markets and continue to improve contribution from our field sales teams. Lab Support's revenue growth was also strong with growth rates higher than the previous four quarters, Creative Circle which was acquired, as you all know, in June of 2015 reported revenues above our expectations. This unit continues to perform well with year-over-year pro forma growth rate for the quarter at a high rate.

Our gross margin for the segment was 29.1% which was slightly lower than our expectations and estimates. Increased growth from Apex's top accounts, which revenue typically carries a lower gross margin, was the biggest contributor to the short-fall. Our segments contributions in terms of EBITDA continued with strong performance and increased conversion of gross profit to EBITDA on a year-over-year basis.

With respect to Apex Systems, the IT staffing division, revenue growth was propelled by a number of factors including the following; double digit Q1 revenue growth on year-over-year basis in all of our accounts and all seven industry verticals we serviced. Number two, growth in our top accounts led the way with continued revenue acceleration. Third, Apex local branch or mid-market business contributed with high single digit growth rates in Q1 and lastly, our sales force productivity also grew nicely in the quarter which I referenced before supporting both our revenue performance and the productivity needed to drive our conversion rates. Our Lab Support and Creative Circle units are seeing continued good opportunities for growth as well with the market for Creative Marketing remain solid. Overall, the divisions that make up Apex Systems each had a strong performance in the quarter. With that I'll turn it over to Mike McGowan to discuss Oxford Segment results.

Thanks Rand. The Oxford Segment includes Oxford, CyberCoders, our perm placement business and Life Sciences Europe. The segment had revenues of $148.9 million for the first quarter of 2016, up 11% year-over-year. Gross margin for the quarter was 41.4% down 20 basis points year-over-year primarily due to our business mix. Oxford's revenue for the first quarter was $114 million which comprises 76.6% of the segments revenues which were up 10.4% year-over-year. Oxford's gross margin for the period was 32.3% slightly higher than the 32.1% reported in the first quarter of 2015.

Oxford has had continued consolidated year-over-year growth throughout 2015 and into 2016 primarily driven by growth in our larger key accounts, continued sharp focus on assigning consultants within our targeted skill disciplines, increased demand for EMR implementations, upgrades and optimization projects and ongoing demand for coding and consulting services.

Our segments permanent placement revenues, virtually all from CyberCoders, were $21.5 million up 9.1% year-over-year on a pro forma basis. While our growth rate was above published industry growth rates for the quarter, it was lower than previous quarters. We believe that the slower growth, which we started seeing at the beginning of the year, is related to uncertainties surrounding the health of the U.S. and global economy and customers having less urgency in filling their permanent employee needs. We do believe, however, that we will grow our permanent placement revenues at or above industry growth rates for the rest of 2016. Moreover, we will continue to invest in new technology, it will more efficiently identify and match relevant candidates to our open job orders.

Our European revenues grew $25.2 million in the first quarter, up 21.2% year-over-year on a pro forma basis. The segments consolidated revenue growth was the result of varying degrees of year-over-year growth in all of our disciplines and all of our business units. Finally, throughout the first quarter and into the second quarter, we have made investments in head count to focus on the high-end digital needs of our clients.

I'll now turn the call over to Ed Pierce. Ed?

Thank you Mike. Before I begin, before I review our financial results for the quarter, please note that we have revised certain of the supplemental information tables in our earnings release. As you can see, we added pro forma and constant currency data by segment. Because of the immaterial effect on the quarter of the year-over-year fluctuations in foreign exchange rates, we will not be making any further references to constant currency on this call.

As Peter mentioned earlier, our financial results for the quarter were above the high end of our previously announced estimates, our pro forma revenue growth for the quarter was 17.7% excluding the contribution from the two businesses acquired in the second quarter of last year, revenues were up 16.9% year-over-year. Our assignment revenues were $549.6 million, up 18.1% year-over-year on a pro forma basis. The year-over-year growth rate for the quarter was over four percentage points higher than the preceding quarter.

The higher growth rate in part benefited from one additional billing day during the quarter and then easier prior year comparison is Q1 of last year was the lowest growth rate quarter of 2015.

Our permanent placement revenues were $32.5 million, up 11.3% year-over-year on a pro forma basis which was significantly lower than the preceding quarters. The lower growth rate reflects the market conditions that Mike discussed earlier as well as an easier year-over-year comparison for Q4 of last year. Our gross margin for the quarter was 32.3% which was slightly below our previously announced financial estimates. The slight compression in margin was primarily mixed driven as Apex System reported higher than expected revenue growth and there was a lower mix of permanent placement revenues. As we have stated before, Apex Systems has a lower gross margin than certain of our other units but a higher conversion of gross profit into adjusted EBITDA due to a scale in operating efficiency.

SG&A expenses were $139.9 million or 24% of revenues. Our adjusted SG&A expenses, which exclude the $2.3 million in acquisition, integration and strategic planning expenses, which we do not include in our financial estimates, and non-cash expenses of $12.2 million were $125.3 million or 21.5% of revenues. Our adjusted SG&A expenses were $1.8 million or 1.5% above the high end of our previously announced estimates for SG&A expenses which was primarily due to commissions on higher than estimated gross profit, higher bonus accruals and investments in some new digital practice areas.

The adjusted SG&A expense margin of 21.5% for the quarter was 1.1 percentage points lower than Q1 of last year as a result of improved operating efficiencies. This year-over-year improvement was achieved despite the incremental cost of the hiring surge in the second half of 2015 of $1 million to $1.5 million, higher incentive bonus accruals as operating performance in the current quarter was in-line with, or above, our incentive targets whereas operating performance in Q1 of last year was generally below our target and the cost of investments in new practice areas.

Non-cash SG&A expenses were in line with our previously announced estimates regarding the $2.3 million in acquisition integration and strategic planning expenses; virtually all related to the integration of certain operating units onto Oxford's front and back office systems. Most of this work has been completed and beginning next quarter we expect to see lower integration costs. Adjusted income from continuing operations for the quarter was $35.4 million or $0.66 per share. The calculation of adjusted earnings per diluted share is set forth in our press release.

Adjusted EBITDA, a non-GAAP measure, also defined in our press release was $62.4 million or 10.7% of revenues. Cash flows from operating activities were $37.3 million and capital expenditures were $7.3 million. During the quarter we paid down $33 million of our long-term debt.

Now turning to the financial estimates for the second quarter of 2016, we're estimating revenues of $592 to $602 million. Adjusted income per diluted share of $0.76 to $0.79 and adjusted EBITDA of $71 to $74 million. These estimates do not include any acquisition integration or strategic planning costs. Our revenue estimates imply pro forma year-over-year growth of approximately 12% which is about two times higher than the published industry growth rate.

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

Thank you Ed. We continue to believe our scale, size and breadth of services has us well positioned to take advantage of what we believe will be a historic secular growth for the staffing industry and dynamic changes in the technology world as it moves more into the digital one.

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. I'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.) One moment please for our first question. We'll go to the line of Tobey Sommer with SunTrust. Please go ahead.

Hi, this is actually Kwan Kim on for Tobey. Thanks for taking my questions. First off, what are the trends that you're seeing in your larger accounts? I guess, what drove the higher growth for Oxford and Apex?

You know, it's what we said in our prepared remarks that we're well positioned within the accounts because of our size and breadth of services that many other competitors just can't respond to. We've worked with a lot of these customers for long-term and this particular period they were active in executing against their technology needs and shifting IT service spend between the different deployment models of outsourcing, off-shoring, staff augmentation, internal execution and project consulting. So it was a productive market for us to compete in.

Okay, and what is the constant currency organic growth rate implied in guidance?

It's about the same as what it is currently and there was no material affect as we mentioned earlier as it relates to the year-over-year change and so Q2 pretty much implies the same thing.

Got it and could you talk about the trends you're seeing in bill rates across your competitive landscape?

Yeah, they're consistent with what we were seeing in the first quarter, so there's stability.

Next we'll go to the line of Kevin McVeigh with Macquarie, please go ahead.

Great, thanks so much. Hey, just a tremendous, tremendous job. Hey Peter, can you just help us understand a little bit the success you folks are having sourcing candidates because I almost feel like with IT where it is, we're in a candidate recession and off of that, have you had to shift some of the sales folks into sourcing or just given the numbers that you show outpace in the industry. I just want to understand that a little bit more. And just again, tremendous, tremendous job.

Yeah, I mean Kevin, each company has their own business model and strengths and weaknesses. What I would tell you is the tightness of the marketplace really hasn't changed significantly in the last couple of quarters. We really do benefit with regard to our scale and size and years of servicing some of our larger customers. We really don't compete head-to-head on a regular basis with some of the other companies that have reported. I mean, we are taking market share from some of the large diversified commercial staffing companies when you compare our growth rate and that of other companies to their IT staffing growth rates.

And we do turn the rheostats. I mean, sometimes we focus more on recruitment than we do sales but all in all, it hasn't been a quantum shift because there's some new dynamic in the marketplace. I would tell you that the marketplace, at least for our business model and for our customers has been pretty consistent with what we saw the last two quarters. As far as demand, supply, tightness, if we've seen anything I think on a permanent placement basis that the candidate has gotten a little pickier and is willing to wait a little bit longer to accept a position.

That's helpful and then just in terms of sales force investment, is it fair to say that about two-thirds of those folks are at kind of where you'd want them to be from a productivity perspective or are we pretty much through that at this point?

No, I mean we're still gaining productivity. I don't have that number in front of me; whether it's 50% or two-thirds, but we're not at full contribution and productivity and we continue to add people. We've added a number of people to really have a focused effort in some of the higher end early adoption skillsets for Oxford and those people just hit the ground in the last 45 days.

Got it, congrats again, nice job.

George Tong with Piper Jaffray. Please go ahead.

Hi, thanks. In both your Apex and Oxford segments, can you discuss whether you're seeing elongating sales cycles and whether you're seeing evidence that the candidate supply dynamic is, in any way, constraining your growth?

For our business, for our customers, no. The only place that we've told you that we've seen any sort of elongation is on the perm side.

Great.

On the contract side, no.

That's helpful. Within Creative Circle, can you walk through how much of the growth in the quarter was driven by new store growth versus same-store growth and provide us with an update on cross-selling efforts?

Yeah, so the vast majority was same-store sales. We are opening two to three offices this year but it will be deminimis compared to their total revenue. And, you know, we continue to thoughtfully plan and design how we want to help customers from creation to monetization. So, it's business as usual, it's the strength of their existing customer relationships that's driven their 20% growth.

Got it. And then lastly, a large part of growth in Apex this quarter came from top accounts which carry a lower gross margin. Can you discuss how you expect top accounts to contribute to growth going forward and if outsized growth there could cause EBITDA margin pressure acknowledging the higher flow through from gross margin to EBITDA.

Yeah, no, I mean Rand, you can follow-up but first of all, top accounts are very, very important to us. They're deep relationships that we've had multiple years of experience and credibility with and as we said in our prepared remarks, even though the margin may be less, the EBITDA margin is not. We have great leverage and operating efficiency so we're generating comparable EBITDA margins on that than we are on our midmarket business because of the efficiencies we have on how we service those accounts. And, Rand, do you want to add anything?

No, I think that's it. We trade off a little bit of gross margin, but we know we can productively implement the greater volume of business that they give us which converts to EBITDA so it actually if you look at our performance, our EBITDA goes up and has been trending up around conversion and percent of revenue. So what you said, Peter, is right.

Great, thank you.

We'll go to the line of Gary with RBC Capital Markets. Please go ahead.

Hey, it's Gary Bisbee, how you doing guys? I -- and I guess I'll add my congratulations too, it's great to see someone defy the malaise of the staffing rule, hopefully you'll get credit for it (inaudible). Let me just ask one more question about the large accounts. You know, obviously it sounds like things have gotten better. Can you help us understand some of the drivers of that? I mean, how much of it, practically speaking, is just you had it easy come because this was a pretty poor quarter a year ago relative to, you know, over the last few quarters having gained momentum and in particular what are you seeing from bank customers and energy and a few of the places, struggles, you know, at some point. Is it broad, is it new areas picking up or is it sort of all of the above? Thank you.

I mean, Gary, what I would share with you is we've had four consecutive quarters of accelerating growth. We try to give you as much information so that our investors can make a long-term investment. There was a temporary ebb in the first and second quarter of 2015 but these aren't little customers that have 50 internal employees. These are Fortune 400 companies that may have some financial challenges because of regulation or fines but they have a technology plan that has to be executed and it may move around quarter to quarter but in the long-term they're spending hundreds and hundreds of millions of dollars annually with us. So, collectively it's large accounts.

So it's not -- I wouldn't say there's anything that, for the industry itself has been a huge shift to the positive side, it's just a little more back to normality and spending and people executing against their plans for technology and new product development. Rand, do you want to add?

No, no, I think that's good. There's lots of work to be done in companies and in all of our industries and we've broadened the number of accounts we service over the year and we always do that year in and year out plus deeper penetration in the accounts that we have serviced, as Peter said, for a long time. So it starts with the fact that, just like Peter said, they have project needs and IT needs and, you know, they're spending on that ebbs and flows and we're there to capture it and right now we're in the capturing phase.

Okay and then can you provide us an example or context around the comment that Peter, you made, and I've heard from you in the past that your scale and breadth of offerings is helping you, you know, gain share or grow more quickly than some others in the market. Is that just the concept of getting on the preferred list and then being able to drive volumes at big accounts or are there other practical ways if that's really driving you to outperform?

I mean, Gary, when there -- when you have large spend programs at major Fortune 400 companies and they come out with requests for proposals there's only a handful of companies that really have the scale, the breadth and the size to credibly respond to it and post winning credibly service it. And so Bill and Ted's Excellent Staffing Firm cannot bid on something that's going to have a thousand placements over a year.

And so we've seen business driven to the larger players who have multi-years of experience in servicing large accounts playing to our benefit. And as you see whether it was the Navy shipyard or whether you see cyber breaches at certain consumer stores and things like that, people worry about who touches their data and who enters their premise. So, then again, size and sophistication and risk management matters and because of our size, we spend more time and money on things like that then a little $150 million staffing company does and that's what's driving our competiveness in those major accounts.

Yep, fair enough. And then just one last one from me, any other thoughts on, you know, just the balance sheet and at what levels you'd look to do something else. Obviously you're bringing the levers down very quickly.

Yeah, I mean we're very pleased with our cash generation and, you know, we've had the privilege of leveraging three times to about 3.8 times and rapidly delevering and we have good credibility with our credit rating agencies, our banks and with our investors that they know what we're going to do with our excess cash. And, we kind of gave guidance unless there was an extraordinary deal that we try to demonstrate how quickly we can deleverage and get to about 2.5 times and then we would reconsider. So, we gave you a forecast of where we think we're going to be at the end of the second quarter so we're rapidly getting to the point where we'll be considering alternative uses for our free cash flow. It's not that we don't feel comfortable levering up, it's just that we made a commitment and we want to demonstrate how rapidly we can delever because we will be back on the market someday to lever up to acquire something.

I guess I was just --

-- to be consistent.

No, I guess I was thinking more from the perspective of the stocks been weak, it's absurdly cheap given your performance and if you pause on the delevering potentially to think about buying stock, this report doesn't get it moving meaningfully in the other direction but I appreciate the commentary, yeah.

We love our stock, we will do it, we will return capital efficiently to our shareholders and we're in value creation for more than just 30 days. So we're excited about the flexibility that we have.

Fair enough, thanks.

Operator?

We'll go to the line of Sara with Bank of America. Please go ahead.

Hi, it's Sara Gubins. It looks like growth accelerated during the quarter and into the first two weeks of this quarter, is that fair? And also I want to just check if I'm comparing the right things, does the 12% pro forma growth guidance for the second quarter that you mentioned compare to the 18% that you've seen in the last two weeks?

I don't understand what you mean by compare?

No it does not because it does not include perm for the two weeks --

The 18% does not include perm but the 12% does?

Yes.

Got it. So, could you just help us understand the conservatism in the -- whether or not there's conservatism in the guidance baked in versus what you saw in the last couple of weeks?

You know I would just repeat the comment in made on the first quarter conference call Sara, which is if we can do better then we'll report it but what good does it do to get over your skis in this market? We got taken down 8% today because of an inaccurate read-through of the trends in our business versus the trends in another very good business and it happened a week ago because of a commercial staffing business. So, we're focused on delivering the best results we can and giving you numbers that are 100% faster growth than the industry and you all figure out how you want to value it.

Okay, and then turning to perm, in your prepared remarks you mentioned that CyberCoders revenue growth of 9% saw some slowing because of hesitancy around the health of the economy but you're not seeing that in temp and so first I'm curious about why you think that is and then second, could you talk to us about how perm has been trending in April and what you're assuming for perm trends in the guidance?

Yeah, so a couple of things. The drivers for utilization of staff aug are much different than the drivers of permanent placement. And the whole rationalization of human capital and turning a fixed cost into a variable cost. And on the perm side beyond the obvious that we had a very, very strong 2015 and the growth rates were hard year-over-year, that -- whether it's a trend, we don't know yet, but it is growing slower than it did last year. But it's less -- our total perm and conversion fees are like 5.9% of total revenue. So, it's -- you know, we're watching it but we're not prepared to claim that there's been a permanent slow down. There has been a change in the mindset of the candidates and a little less kind of velocity in the execution from the customer.

Great. And then in the guidance, what are you expecting for perm? Are you assuming a greater slowdown?

We don't break that out.

Okay. Great, well thank you very much and also thank you for putting the prepared remarks up in advance, that's incredibly helpful.

Yeah, my Texas twang doesn't get transcribed well.

We'll go to the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much and let me echo the sentiment about having the prepared remarks, it really helps a lot. Peter, you had mentioned the fact that you didn't want to get out over your skis and I do understand that, but maybe we can step back and compare where you are now to where you were three months ago. What really drove the sizable upside surprise in the quarter?

Well, it was just continued execution on the part of some of our teams with some major accounts. We worked very hard last year on some new accounts and once we won them and started servicing them we were getting a good share of the business that was available there.

The people that we've hired over the past year are gaining productivity. Oxford had a particularly strong quarter in healthcare IT and ERP so it was just -- it was a healthy market and good execution.

Okay, fair enough. I know you broke out the Creative Circle revenues in the quarter and forgive me even though I loved your prepared remarks, did you state what the Creative Circle business grew on a pro forma basis?

I did verbally but we didn't in the prepared remarks. It was about 20%.

20% and are you seeing faster growth in that business because of the election cycles or something going on specifically in that vertical?

No, it's just -- it's a good marketplace, there's real value add. We do not do a lot in the political cycle and they're the largest in the industry and they're getting their fair share of capture business.

Okay, great. Appreciate the color, thanks so much.

Edward Caso with Wells Fargo. Your line is open.

Hi, just maybe that sort of segue from the last comment. In your history Peter, what happens around presidential cycles? Do you see your business pause at all either before or after elections?

You know Ed, I'm embarrassed to tell you, I really haven't thought about that or reflected. I guess thinking on my feet, you know, I don't think it really affects the spend cycle. I guess people think that one particular candidate is going to lower the boom on tax credits or amortization then people may want to accelerate spend and get things completed. I think people probably spend more time surfing the Internet and seeing a story about what someone said but all in all, if I was to draw something from it, I think if someone was fearful that a benefit or a privilege was going to be taken away, they would try to execute before it's getting taken away.

But we really haven't factored that into the guidance that we gave you.

My other question is assuming it's a calendar year client, they generally finish up their budgets early in the year and then start to ramp as the March quarter moves along and if they're nervous about the economy sometimes they ramp slower. Are you seeing -- what are you seeing this year say relative to the last few years as far as the embracing of the budget, the clients budget?

Yeah, I mean that's why in our prepared remark that we said that we haven't seen any significant change into our customers normal purchasing behavior.

Right, thank you. Congrats.

Yep.

We'll go to the line of Mark Marcon with R.W. Baird. Please go ahead.

Hello, I'll add my congratulations and also my appreciation of the prepared remarks and providing that in advance. I wish every company in the industry did that.

With regards to Creative Circle, can you talk a little bit about the gross margins that you're seeing there? How are they comparing relative to a year ago, how do you think they're going to unfold?

Yeah, they're good. They're stable. As we made comments several times Mark, when we did our underwriting work one of the takeaways or conclusions that we came to was that we thought the margin for the next couple of years would be stable. Now, on a reported basis, as you know, they get 5%, 6% of their revenue from perm and then the rest is contract and the contract margin is good and it's been stable.

If there was to be -- we haven't seen a big falloff there in particular but if you were to see a big falloff in perm then the reported gross margin for Creative would go down just because of mix but we're not seeing pressure on the contract assignment gross margin.

Great, and can you talk a little bit about, you know, the prospects for cross-selling with Apex and Oxford and how -- now that it's been part of the portfolio for a while, you know, what sort of cooperation you're seeing between the different groups?

It's good. I mean, I -- we prefer not to go into it in detail right now but when you're growing as fast as we're growing right now, we're -- we've got some low hanging fruit that we're not picking because we're just trying to keep up with our own internal growth. But we are spending time. You've heard me use the phrase creation demonetization. Apex is known more for heavy tech in Oxford for heavy technology, Creative is known more for the creative user experience and customers need to be able to do it all. So we're trying to stand in front of the customer and say no one can provide that suite of service like we can.

Great, and then with regards to Apex, just in terms of the Apex Systems, when we take a look at that growth with some of the larger accounts, appreciating that some of those larger accounts have other large players that they also work with and that may also have a large breadth of services. Do you feel like you were gaining share relative to some of those other ones for the specific accounts that you ended up gaining some incremental work on?

I mean it's account by account by I would make this generic comment. There are three other companies that have reported and their IT North American growth rates were substantially lower than ours. So if we're in the same accounts then I assume we're getting a little bigger share of the spend than they are.

I mean, some of them, you know, are very different in terms of a company that reported yesterday, it's a great company, but it plays in a completely different space.

We really do not compete with them.

Right, so when we think about the companies that are comparable to you, both public and private, do you feel like you're gaining more relative to those true comps?

No, I would say that, and Rand I'll let you pick up, but the two that are maybe closest comps to Apex are both private.

Right.

I think one of them is growing comparable to us, the other one is probably less than us but better than what you see from some of the broad-line staffing firms. Rand, do you want to add anything?

No, I agree. I would say if you look at the -- in the earnings release, you'll see the concentration of our top ten customers for Apex. It's come down over the course of a year or so, it's been going through the growth spurt which implies that we're gaining new accounts, we're growing in more accounts and I think there's no question we're taking some market share in some of the accounts that we're in. But -- and customers are also spending. In some sectors of the economy, customers are spending more on IT because that's a path to helping get more efficient as businesses. So I think all are contributing to the growth that we're seeing now.

Great, and then with regards to -- just to go back to Sara's question just with regards to fully appreciate, no need getting over your skis but did you see acceleration of the quarter unfolded? I know April was up but as the quarter unfolded, and outside of perm just on the core staffing, did it seem like it was pretty stable in terms of the month-to-month trends or was there any discernable pattern?

Yes, I mean we -- remember the comment we made Mark, I think it was to your specific question on the first quarter, I mean this -- we knew what our business was doing when we did the fourth quarter conference call and gave the first quarter guidance.

Got it. And so then when we just take a look at the guidance that you've provided and, again, no sense getting over skis fully appreciate that. There's also the factor of there are the comps do get more difficult by month as the year unfolds.

That's correct.

Is that part of the reason for the -- I mean, if we were just looking at mathematically, would that be another factor just to say, okay, we're --

Yeah, that's a very good observation and that is correct. I think Apex by itself grew about 280 basis points faster in the second of 2015 than the first of 2015.

Okay, great. Thank you.

Tim McHugh with Williams Blair. Please go ahead.

Ah yes, thanks guys. Just a few -- I guess on the sales force I think you talked about adding some people in Oxford and obviously you added a lot in two chunks over the last two years. When you look at how they're ramping up productivity and the yield, I guess, you're getting from it, what's the perspective at this point on needing to add another big chunk or are we at a point where we'll kind of grow gradually or how are you thinking about kind of sales force additions, I recognize probably more o as you get to later in the year but what's the latest thinking there?

Consistent with what we've said in the past which was that we think normal kind of 6% growth in our headcount allows us to grow attractive growth rate and if the hiring we're doing now is not so much "a surge" as it is tactical and strategic to try to get an early sizable position and some attractive skillsets that others aren't servicing.

Okay, and you talked about large accounts and I apologize if I missed it, but financial services vertical, I guess, what are you seeing there and given the kind of capital markets volatility I think people are cautious but I know you've got easier comps that have been seen improving gross so, talk about it more?

Rand?

Well, Tim you're asking where we've seen financial services growing double digit year-over-year on a quarter basis and it's accelerated from the last couple of quarters. So, we're gaining more accounts and we're also getting more penetration to some of the accounts we have, is that the question you're asking or are you asking --

Yeah, well I was looking for color I guess why. I mean, are you not sensing any sensitivity to spending? Is it just some sort of project activity that you're picking up or market share gains?

Well I think historically national institutions have spent a healthy percent of revenues on IT and I think in the past couple of years it's been a little lower than like a normal 4% of revenues and so they're probably migrating back up to the 4% of revenues or slightly higher, number one, and number two, because they always have IT projects to do whether it's supporting their customer base or consolidation of activities, they also have to grind out efficiency. So, collapsing and combining centers or building a center of excellence in certain technologies are all things they have to do and when they do that, that's opportunity for us. So I think that's kind of what's going on in that market.

Okay. And then on Oxford Healthcare IT, you talked about it was strong this quarter. That can be lumpy, I guess, so I mean does it feel like you've hit a better growth curve or is this -- is there any sense of that that's kind of project nature or that it's still hard to predict?

Mike do you want to go first?

Yeah, again Tim, as Peter said, we had a very good quarter and we're very optimistic for the next quarter as well but you are right, it is lumpy, if you will, in terms of trying to forecast what's coming. Our pipeline looks good but in terms of what's really going to close is a big question mark. But, overall we still see growth in that area. Some of the coding stuff has flattened out a little bit because of the ICD 10 issues but overall, you know, we still see growth in that area.

And Tim, I just don't think it's going to be as lumpy as it was at the end of 2014 because we're not facing, you know, the end of meaningful use. So, we're going to have the constant common issues of implementation fatigue or budget constraint but we're not going to have a use it or lose it stimulus dollar, you know, sunsetting. So, that caused a lot of early spend and then kind of freezing towards the end because people didn't have enough time to start projects and get to meaningful use.

So now it's more steady state and normal lumpiness attributable to internal aspects of the person who's doing the implementation, the company that's doing the implementation.

Great, thanks.

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

If you were to compare your IT staffing mix by vertical markets with your read on the market as a whole, do you have industry verticals where you have under penetrated and have the potential to gain share?

It's a good question. Where we think we have a [pole] position that has helped us but also hurt us at times Randy is in the financial services market because you've heard me state at industry events that the financial service industry is the earliest adopter, the biggest spender on technology. So, in good times and also in bad times we feel very good about having that [pole] position in the financial services world.

We are not as big as I think we would like to be based on the experience of -- Rand used to run the government services for SAP and has deep experience in some of the federal government work and we think there's going to be more and more of that work coming down the pipeline. So we think that's an area where we're not as competitive as maybe somebody else. We do think we're very competitive in the technology world and then on kind of the manufacturing and consumer products, we hold our own but I don't think we have a [pole] position.

Rand do you want to -- Mike, do you all want to add anything to that?

No, I agree with you Peter; consumer, industrial and government are places where we can get more penetration. I think when you take Oxford and Apex's healthcare business units you put a lot of emphasis into that in the last two or three years so we're pretty strong there now but that strength gets more business. So -- and I think Peter's right, national institutions we have a very strong penetration but there's other sectors. If financial services businesses, the businesses, the vendors that support the banks, they're all opportunities for us so there's plenty of markets still to go after.

And on the Oxford side Randy, as you know, it's, again, we're more skill or discipline placed but there's -- as Rand just said even from sectors if you will, describing it the same way, we still certainly have opportunities to go after.

All right and another question regarding direct hire and conversion fees, is there an implied assumption for how that revenue stream is going to behave in the second quarter?

I think it's lower growth and that's a conservative position on our part. This might be a one quarter, two quarter phenomenon but I just think we can provide a good value proposition for our investors without having to try to defend a higher growth rate because we're just not seeing that right now. And some of it is the comps are difficult and some of it is just what we're seeing with regard to behavior from the candidates and the customers.

Would you expect the amount of direct hire conversion fee revenue in the second quarter to be comparable with the first quarter or slightly, moderately, higher?

We didn't break that out Randy, it's going to be a non-event as it relates to revenue. It would have more of an impact on GDP and EBITDA but it's just a non-event on revenue.

All right, thank you very much.

There are no additional questions at this time.

Well, thank you for your attention and we appreciate it and we look forward to reporting our second quarter results. Thank you.

Thank you ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.