IT Staffing Report: March 7, 2019

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US IT staffing 2018/2019: Stocks out like a lamb; revenue growth in like a lion

The US equity markets briefly entered bear market territory in late 2018. The turbulence dragged down stock prices across numerous sectors, including staffing. As you can see in the chart below, the correction was quite harsh to this subset of staffing firms when comparing the low price point of the year with the high that occurred earlier.

Click on chart to enlarge.

Sources: Yahoo! Finance and SIA

This group of US-based staffing companies represents those where we can isolate temporary IT staffing revenue growth. Despite the fact that stock prices got caught in a storm of selling pressure in Q4, the group of staffing firms managed to outperform the broader S&P 500 index in 2018 (up 2.4% group average versus down 6.6%). In fact, the recent round of Q4 earnings reports showed that 2018 proved to be an impressive year in terms of IT staffing revenue growth among these companies. As detailed below, this group’s aggregate 2018 temporary IT staffing revenue growth was approximately 10.7% year over year and almost entirely organic.

Click on chart to enlarge.

1Estimates for Apex Systems and Oxford Core may have slight rounding errors due to the way figures are reported
2Robert Half Technology reporting segment; growth rate in same billing days and constant currency 
Sources: SIA and company reports

ASGN (NASD: ASGN), the largest among the publicly traded firms in the US in terms of IT staffing revenue, has two subdivisions primarily focused on temporary IT staffing: Apex Systems and Oxford Core.

Apex Systems is focused on large-scale mission critical IT skills. It excludes Creative Circle (creative/digital staffing) and Apex Life Sciences, which also fall under the Apex umbrella. Management noted on its earnings call, however, that going forward it plans to merge Apex Life Sciences into Apex Systems for reporting purposes. 

Apex Systems has remarkably managed to achieve double-digit revenue growth every quarter dating back to the third quarter of 2015. We estimate it reached $1.7 billion in 2018 revenue, up 13.8% year over year and growth accelerating in each of the first three quarters last year. Although Apex Systems revenue growth decelerated fractionally in the fourth quarter (up14.0 % in 4Q18 compared to up 14.6% in 4Q17), bill rates (across all of Apex) expanded by 6.6% year over year in the quarter (compared to 3.0% in both 2Q and 3Q), which could provide a tailwind for growth entering 2019. Management noted it achieved double-digit growth within four of its seven industry verticals, including financial services, healthcare, consumer industrial and technology.

ASGN’s Oxford Core division specializes in high-end IT and engineering staffing. It excludes CyberCoders direct hire and ASGN’s Life Sciences Europe businesses, which are both included within the broader Oxford segment. Oxford core rebounded from a string of four consecutive quarters of declining revenue in 2017 to posting four consecutive quarters of revenue growth in 2018. For the year, we estimate Oxford Core achieved approximately $453 million in revenue in 2018, up 2.6% year over year. However, unlike Apex Systems, Oxford Core bill rate growth slipped as the year wore on from 3.5% year-over-year growth in the first quarter to a 2.8% decline in in the fourth quarter.

Kforce’s (NASD: KFRC) Tech Flex (IT temporary staffing) business has seen its share of the company’s overall business swell from 56% in 2011 to 70% in 2018. It is expected to continue this trend in 2019, with the recently announced divestiture of KGS (federal government solutions). With 4Q revenue of $248 million (up 10.8% year over year) and 2018 revenue of $971 million (up 9.4% year over year), Tech Flex has now posted accelerating revenue growth in each of its past six quarters.

Management expects positive momentum to continue in 2019, citing strong demand trends in areas such as big data, artificial intelligence, machine learning, cloud computing, cybersecurity, mobility and digital marketing during its 4Q18 earnings conference call.

Robert Half’s (NYSE: RHI) IT staffing segment, Robert Half Technology, enters 2019 with significant momentum. It swung from a 4.6% year over year revenue decline in 2017 to 8.5% year over year growth ($683 million) in 2018, capped by consecutive quarters of double-digit growth in 3Q (up 12.4% year over year) and 4Q (up 11.4% year over year).

Management’s outlook is constructive for continued IT staffing growth in 2019 noting broadly robust tech demand, while also highlighting strength particularly in cybersecurity, cloud and digital transformation projects. Elevated by 5.2% bill rate growth in 4Q18, Robert Half’s overall bill/pay spreads also currently sit at all-time highs.

Both Computer Task Group (NASD: CTG) and Mastech Digital (NYSE: MHH) achieved double-digit IT staffing growth in 2018 as well. CTG’s staffing revenue of $63 million in 4Q18 and $245 million in 2018 grew 23.5% year over year and 16.6% year over year, respectively. Meanwhile, with revenue of $153 million, Mastech Digital grew revenues 10.6% year over year in 2018 and closed the fourth quarter on a strong note with $39.3 million in staffing revenue, up 11.1% year over year.

Several key themes relating to the 2019 outlook for US temporary IT staffing surface when examining recent results and commentary from this group of publicly traded staffing companies, including:

  • Aggregate 2018 revenue from these six temporary IT staffing divisions is $4.2 billion (heavily weighted to the US), representing an increase of 10.7% year over year. This is well above the SIA estimate for US temporary IT staffing growth in 2018 of 4% year over year and reflects strong execution.
  • Despite increased volatility in the equity markets, IT staffing demand trends remain at elevated levels and secular drivers remain intact heading into 2019.
  • Bill rate growth appears to have accelerated as 2018 progressed, which may serve as a tailwind on 2019 growth.
  • Cybersecurity, cloud and digital transformation projects continue to serve as pockets of strength.

Corporate members have access to SIA’s semiannual US Staffing Industry Forecast, which provides a breakout of various staffing segment sizes and growth estimates, including IT. The next update to our forecast will be released in April.

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