IT Staffing Report: Oct. 4, 2018

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Latest batch of financial results reveals optimism in IT staffing

US real GDP grew at an annual rate of 4.2% in the second quarter, the fastest since the third quarter of 2014. The strength of the US economy in the second quarter was evident in the latest round of financial results of US IT staffing companies.

ASGN (NASD: ASGN), the largest among the publicly traded firms in the US in terms of IT staffing revenue, reported total revenue for the quarter of $878.5 million (up 34.5% year over year). This reflects the acquisition of ECS, a large government services contractor. Removing ECS contributions, total revenue increased 10.1% year over year on a pro forma basis. Apex Systems continued to outpace the broader IT staffing market with $426.3 million in revenue, growing 13.4% year over year in the quarter. As a reminder, Apex Systems is the IT staffing sub-segment of ASGN’s Apex division, which also includes Apex Life Sciences (clinical/scientific staffing) and Creative Circle (creative/digital staffing). Apex average bill rates grew 2.4% year over year. Management noted it achieved double-digit growth within four of its seven verticals, including financial services, healthcare, consumer industrial and technology.

ASGN’s Oxford core division (IT & engineering), which excludes its CyberCoders direct hire and Life Sciences Europe businesses, increased 1.5% to an estimated $114.7 million. This built upon its in return to growth in the prior quarter (up 1.0% year over year). The average bill rate within Oxford increased slightly, up 0.3% year over year.

Kforce’s (NASD: KFRC) 2Q18 revenue of $358.6 million increased 5.4% year over year. Revenue performance was largely driven by strong results from Tech Flex (IT temporary staffing), which grew 9.8% year over year, an acceleration from 6.7% in the first quarter. Perhaps even more impressively, management anticipates further acceleration in Tech Flex revenue growth when it reports third-quarter results.

Adjusted for the divestiture of its Manila business, Tech Flex bill rates grew 3.5% year over year, an acceleration from 3.1% growth in Q1. Management noted its bill/pay spreads have now improved in four of the past five quarters.

Robert Half’s (NYSE: RHI) IT staffing segment, Robert Half Technology, experienced six consecutive quarters of revenue declines from 3Q16 to 4Q17. It returned to growth in 1Q18 (up 1.2% year over year adjusting for billing days and constant currency) and accelerated impressively most recently with 7.5% year-over-year growth in Q2. Management attributed the turnaround in part to higher levels of business confidence among its middle-market clients and cited cybersecurity and cloud as areas of particular strength. Management also conveyed confidence going into Q3. Robert Half’s bill rates increased 3.7% year over year, an acceleration from 2.5% in Q1.

CTG’s (NASD: CTG) Q2 total revenue of $92.7 million, increased 22.7% year over year. We estimate the recent acquisition of Soft Company contributed approximately $7.5 million in the quarter. CTG’s Q2 IT staffing revenue of $63.4 million (up 19.7% year over year) reflects both solid organic growth and contributions from Soft Company. A major driver of its quarterly IT staffing growth was its completed transition of 350-plus employees with IBM, the company’s largest client. Revenue from IBM accounted for 23.6% of the company’s business.

Mastech Digital (NYSE MKT: MHH) reported Q2 total revenue of $44.9 million (up 28.0% year over year), which includes the acquisition of InfoTrellis, the company’s data and analytics services segment. Management cited robust demand for its IT staffing business, which generated $38.8 million (up 10.6% year over year) in organic revenue.

Click on chart to enlarge.

Source: SIA and company reports

Among the larger, more diversified global staffing companies, Adecco’s global IT staffing revenue of €633 million increased 2% year over year in constant currency. However, the company noted it experienced an IT staffing revenue decline in North America. Within Randstad, its US professionals staffing business ticked down 1% year over year, a slight improvement from a 3% decline in Q1. ManpowerGroup’s US Experis revenues declined 6% year over year, marking an improvement from an 11% year-over-year decline in Q1. Management anticipates another step forward in Q3 and noted it is seeing improvements in bill rates. IT skills comprised approximately 70% of Experis revenues.

In summary, recent publicly traded IT staffing results generally convey an improving business environment, fueled by strong demand trends and upward movement in bill rates. Additional details and analysis around the 2Q18 financial results of staffing companies, across all segments, can be found in Staffing Industry Analysts’ report: Financial Results of Staffing Companies: September 2018 Update.

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