Edward L. Pierce - Chief Financial Officer & Executive Vice President Peter T. Dameris - President, Chief Executive Officer & Director Randolph C. Blazer - President, Apex Systems, Inc. Michael J. McGowan - Chief Operating Officer; President, Oxford Global Resources.

Kevin D. McVeigh - Macquarie Capital (USA), Inc. Gary E. Bisbee - RBC Capital Markets LLC Sara R. Gubins - Bank of America Merrill Lynch George K. F. Tong - Piper Jaffray & Co (Broker) Paul L. Ginocchio - Deutsche Bank Securities, Inc. Jeff M. Silber - BMO Capital Markets (United States) Dan Dolev - Jefferies LLC Mark S. Marcon - Robert W. Baird & Co., Inc.

(Broker) Randle G. Reece - Avondale Partners LLC Tim J. McHugh - William Blair & Co. LLC Tobey Sommer - SunTrust Robinson Humphrey, Inc..

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter Earnings Call. At this time, all lines are in a listen-only mode and, later, we will conduct a question-and-answer session with instructions being given at that time. As a reminder, today's conference is being recorded.

I would now like to turn the conference over to our host, CFO, Mr. Ed Pierce. Please go ahead, sir..

Thank you. 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 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 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.

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 first quarter earnings conference call. With Ed and me today are Rand Blazer, President of Apex Systems, and Mike McGowan, COO of On Assignment and President of Oxford Global Resources.

During our call today, I will give a review of the markets we serve and our operational highlights, followed by a discussion of the performance of our operating segments by Rand and Mike. We'll then turn the call over to Ed for a more detailed review, discussion of the first quarter results and our estimates for the second quarter.

We'll then open up the call for questions. Now onto our first quarter results. Revenues from continuing operations in the first quarter were $430 million, up 6.7% year-over-year on a constant currency basis.

For the first quarter, adjusted income from continuing operations, adjusted EBITDA and conversion of gross profit to adjusted EBITDA results were within the guidance range we provided in the fourth quarter earnings press release.

Revenues generated outside of the United States were $19.3 million or 4.5% of consolidated revenues in the first quarter versus $19.9 million or 4.9% in the first quarter of 2014. Adjusted EBITDA from continuing operations was $38.7 million or 9% of revenues, up from $38.2 million or 9.4% of revenues in the first quarter of 2014.

As a reminder, on February the 1st, 2015, we completed the sale of our Physician Staffing business. Accordingly, we will not be commenting that segment's results. Later in the call, Ed will walk you through the restated financial statements included in our press release that exclude the Physician Staffing segment for comparative purposes.

Revenues in our local mid-market accounts grew double digits with our larger account base growing at a slower rate. With that said, we believe going forward that we can grow faster by expanding the percentage of business we derive from mid-market account and benefiting from the return to normality in the spending in our larger banking customers.

As we disclosed on our fourth quarter conference call, in order to support this initiative without causing a loss to focus and appropriately serving our large customers, we hired over 150 new recruiter salespeople during the fourth quarter of 2014 and in the first quarter of 2015.

This accelerated hiring increased first quarter 2015 branch expenses by approximately $2 million over the first quarter of 2014 results. The number of internal recruiters and sales personnel increased 14.6% year-over-year in the first quarter.

Exiting the quarter, we feel we are well-positioned to accelerate our revenue growth and pursue strategic acquisitions. Integration, coordination and cash generation related to our previous acquisitions continues to be at or above our expectations. Our current leverage ratio is 1.77 times trailing 12-month adjusted EBITDA.

Despite the April jobs report, we currently believe the broader U.S. economy is stable. As for IT, our business continues to grow above published industry growth rate, albeit at a slower rate than we previously have had.

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. During the quarter, we saw year-over-year growth in the U.S. division.

Our weekly assignment revenues, which exclude conversion, billable expenses, direct placement revenues, averaged $32.3 million for the last two weeks, up 5.2% over the same period in 2014.

As you will recall from our fourth quarter conference call, we also disclosed that the board of directors approved the establishment of a second $100 million share repurchase program. The plan expires on February 23, 2017 and will be funded with cash on hand and permitted borrowings under our credit facility.

During the quarter, we purchased 43,000 shares at an average price of $38.26. We intend to execute on our share repurchase program based on share price and market conditions. I will now turn the call over to Rand Blazer, President of Apex, who will review the operations of his segment.

Rand?.

Great. Thanks, Peter. The Apex segment, consisting of the Apex and U.S. Lab Support business units grew revenues by 5.7% in the first quarter of 2015 over the first quarter of 2014. Revenue was $294.3 million. Gross profit for the quarter grew 5.5% on a year-over-year basis.

While the Apex gross margins grew year-over-year, the Lab Support gross margin declined with the overall segment gross margin down 6 basis points to 27.1% compared to the first quarter of 2014. The decline in Lab gross margin is mostly attributable to less current placements in the quarter than the previous year's quarter.

Overall, Apex segment contribution in terms of divisional EBITDA grew slightly for the quarter, again, on a year-over-year basis despite the surge in field head count added by the end of 2014 as alluded to by Peter.

Apex's segment growth was strongest in our business services, healthcare, technology and retail or local branch mid-market accounts, all growing revenues double digits year-over-year in Q1 2015 over Q1 2014.

Growth in our financial and particularly our major money center banks accounts, government services and oil and gas accounts posted negative growth in revenue over those same periods, Q1 2015 versus Q1 2014.

Given that our accounts in these sectors, these last sectors, the financial government services and oil and gas accounts, represent almost 50% of our revenues. Their lack of growth impacted our overall segment performance, and have done so over the past few quarters.

Nonetheless, we expect to see improvement in the IT spend in these accounts in the future as bank earnings improve, government budgets, particularly in Defense and Homeland Security increase, and oil prices rebound. Additionally, the Apex segment completed our initiative of adding to our field team's head count for the beginning of 2015.

These staff additions are now servicing target accounts. As Peter said many times, we expect productivity from this head count surge to impact our performance in Q3 and Q4 of 2015. I'll now turn the call over to Mike McGowan to discuss the results of Oxford segment.

Mike?.

Thanks, Rand.

The Oxford segment consisting of Oxford International, Oxford Healthcare Technology, formerly referred to as Oxford Healthcare IT and CyberCoders business units had revenue of $127.5 million for the first quarter of 2015, an 8.5% increase over the first quarter of 2014, or a 10.4% increase on a constant currency basis, and 2.9% sequential growth over the fourth quarter of 2014, or a 3.8% increase on a constant currency basis.

Gross margin for the quarter was 42% compared to 41.7% for the first quarter of 2014. Revenue for the combined Oxford International and Oxford Healthcare Technology business units was $104.9 million in the first quarter of 2015, an increase of 5.7% over the same period of 2014. First quarter gross margin for both was 32.1%.

Oxford International, which comprises all of our national recruiting centers in the United States and Europe, as well as our U.S. local office operations accounts for almost 80% of the revenue of these combined business units and had first quarter revenue of $83 million, an increase of 12.3% over the same period of 2014.

On a constant currency basis, with consideration for the strengthening U.S. dollar against the euro, year-over-year growth would have been 15.4%. Oxford Healthcare Technology realized first quarter revenue of $21.9 million, up sequentially by 6.8% over the fourth quarter, but down 13.6% compared to the same period last year.

This division had a strong December 2014 which continued into the first quarter of this year based on increasing demand for new EMR implementations and optimization activities as well as new ICD10 related work. We have also experienced positive results from our diversified skill set offerings and our expanded sales force.

We expect this demand to continue into the second quarter, resulting in sequential growth from quarter one to quarter two. Turning now to CyberCoders, I am pleased to report that they had their best quarter on record with total revenues of $22.5 million, 23.5% greater than the first quarter of 2014.

Perm placement activity continues to outpace job creation and CyberCoders reported another quarter of strong perm placement growth with a 32.7% year-over-year increase. The momentum in this business unit is strong as we continue to invest in incremental staff.

And finally, Life Sciences Europe, only 1.9% of On Assignment's overall revenue, experienced a reduction in revenue by 8.1% or €645,000 year-over-year.

As I mentioned on a previous conference call, this reduction is attributed to the overall sluggish European economy, legacy clients decline in annual spend and a reduction in the length of assignments from 20 weeks to 14 weeks within the Lab Support business unit. Ed, now over to you..

Thanks, Mike. Before reviewing the results from continuing operations, please note that we closed the sale of the Physician segment on February 1 as Peter mentioned previously. As a result, operating results of this segment are excluded from continuing operations and are now included in discontinued operations.

As you may remember, we provided tables in last quarter's earnings release that restated historical results to include results of this segment in discontinued operations. Now turning to financial results for the quarter, first quarter revenues were $430 million, up 5.7% year-over-year and up 6.7% on a constant currency basis.

Our reported revenues were 0.5 percentage point below the low end of our revenue estimates for the quarter, mainly due to the effects of inclement weather and foreign currency translation. As we mentioned on our Q4 earnings call, we estimated inclement weather would adversely affect revenues $2.5 million to $3.5 million in Q1.

The actual effect was approximately $2 million higher. The adverse effect of foreign currency translation was approximately $0.9 million more than expected. Most of our foreign revenues are denominated in euros. The effect on Q1 revenues of the decline in the average exchange rate from Q1 of last year was approximately $4 million.

On a constant currency basis, our revenues for Q1 were $434 million and our growth rate was 6.7%, a full percentage point above our reported growth rate. Despite the unfavorable variances related to weather and currency translation, our adjusted EBITDA and adjusted income from continuing operations were within our financial estimates.

Our GAAP income was also within our estimates after adjusting for acquisition, strategy and integration expenses which consistent with our past practice we do not include in our financial estimate. During the quarter, we incurred $1.3 million in acquisition, strategy and integration expenses or $0.8 million after taxes.

Contract revenues for the quarter were $406.1 million, up from $387.9 million in Q1 of last year. Direct hire and conversion revenues for the quarter were $23.9 million, up from $19 million in Q1 of last year. Direct hire and conversion revenues accounted for 5.6% of total revenues, up from 4.7% of total revenues in Q1 of last year.

CyberCoders accounted for $18.7 million of perm revenues, or 78.3% of the total. Our gross margin for the quarter was 31.6%, up 10 basis points year-over-year. The expansion in gross margin was a result of the higher mix of direct hire and conversion revenue.

As you know, our gross margin in Q1 is lower than other quarters because of the reset of payroll taxes. We estimate this reset resulted in a $3.6 million increase in our cost of services and a related 85 basis points reduction in our gross margin.

SG&A expenses were $105.9 million or 24.6% of revenues compared with $96.1 million or 23.6% of revenues in Q1 of last year. SG&A for the quarter included $1.3 million in acquisition, integration and strategic planning expenses and $2 million in expense related to the hiring surge.

The average number of sales consultants and recruiters for the quarter was 1,887, an increase of 14.6% year-over-year. We do not expect a noticeable lift in revenues from this investment until late third quarter that typically takes on average nine months to 12 months for new staffs to achieve meaningful levels of productivity.

Our adjusted income from continuing operations was $21.6 million or $0.41 per diluted share compared with $21.8 million or $0.40 per diluted share in Q1 of last year. Our adjusted income from continuing operations included the after-tax effects of the expense associated with the hiring surge.

Please note that the calculation of adjusted earnings per diluted share can be found in our press release. Income from discontinued operations was $26.1 million or $0.51 per diluted share. Discontinued operations included the after-tax gain on the sale of the Physician segment of $25.7 million.

The after-tax cash proceeds from the sale were approximately $108 million. Since June 30 of last year, to-date, we have repurchased 3.4 million shares of our common stock at an average price of $29.89. These repurchases increased our earnings per share approximately $0.011 for the quarter. Now turning to our individual operating segments.

Our Apex segment accounted for 68.4% of total revenues. Apex's revenues for the quarter were $294.3 million, up 5.7% year-over-year. Apex's gross margin for the quarter was 27.1%, which is the same as Q1 of last year. Our Oxford segment accounted for 29.6% of total revenues. Oxford's revenues for the quarter were $127.5 million, up 8.5% year-over-year.

On a constant currency basis, Oxford's revenues were $2.2 million, higher than reported revenues, and the corresponding year-over-year growth rate was 10.4%, the highest quarterly growth rate for Oxford since 2013. Oxford's gross margin for the quarter was 42%, and an expansion of 26 basis points year-over-year.

The expansion resulted from the higher mix of perm revenues. Our Life Sciences Europe segment accounted for 1.9% of total revenues. Revenues from this segment were down 24.3% year-over-year on a reported basis.

On a constant currency basis, revenues were $1.8 million, higher than reported revenues, and the corresponding year-over-year growth rate was 16 percentage points higher. At quarter end, our bank indebtedness was $335 million, down $80 million from the end of last year.

Our leverage ratio, which is total indebtedness to trailing 12-month adjusted EBITDA was 1.77, down from 2.06 to 1 at the end of 2014. Now turning to our financial estimates for the second quarter of 2015. We estimate revenues of $454 million to $459 million.

Adjusted income per diluted share of $0.53 to $0.56 and adjusted EBITDA of $49 million to $52 million. These estimates are based on recent foreign exchange rates and do not include any acquisition, integration or strategic planning costs.

The midpoint of our revenue estimates for Q2 implies year-over-year growth of approximately 5.1% and 6.4% on a constant currency basis. As with all other estimates on this call, they are subject to the risks mentioned in our press release and SEC filings. I will now turn the call back over to Peter for some closing remarks.

Peter?.

Thank you, Ed. We believe that we're 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 era. 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?.

Thank you. And first to line of Kevin McVeigh. Please go ahead..

Great. Thanks. Hey, Peter, can you give us a sense, it seems like in the salespeople, I thought it was 140 last quarter, we step that up a little bit to 150.

Just generally, where do they stack in terms of how many of them are kind of in the nine-month to 12-month bucket versus nowhere? Just trying to get a sense of as they ramp and kind of scale in Q3 to Q4, how should we think about the growth because you've got pretty easy comp.

So I'd expect pretty nice reacceleration in the back-half of the year just trying to get a sense, how much of that will be the sales force investment? And, if you could, how much of that is the small to medium-size business versus larger clients in terms of where the efforts are?.

Right. Kevin, I won't to be able to answer all those questions because it's not that precise. But what I can tell you is the hiring probably splits 50-50, fourth into the first. The split of – the 150, generally speaking, is a 100 at Apex, 20 at Lab and 30 at Oxford. And pretty much SKUs, 70% sales, 30% fulfillment.

And the fulfillment people are more towards larger counts and the salespeople are more towards the local mid-size business..

That's super helpful.

And then was the $2 million in terms of incremental step-up in – it sounds like occupancy costs, was that factored in or was that something incremental beyond the expense associated with the hires?.

That was basically within our guidance that we gave you for the first quarter on cash SG&A..

Okay, great. Thank you. I'll get back in the queue..

Thank you. And now to line of Gary Bisbee. Please go ahead, sir..

Hi, guys. Good afternoon. I guess I want to know what really happened in Apex? Halfway, actually it was couple of days longer than halfway through the quarter. You sort of said 9% to 10%, it was trending there and then it obviously ended up being a lot worse than that.

Does that imply it didn't really grow in March and how – sort of what happened there? Thanks..

Yeah. Gary, what happened is a continuation of the slow spending on the financial services side. And I think that we may have seen a kind of a peak in the constraint of spending on the money major center banks kind of in the first quarter.

And while we did make good progress in other accounts, it's just they didn't grow fast enough to offset the flatness or the negative spend in some of those larger accounts. Look, so March wasn't an inflection point.

And with regards specifically to spending in some of those major money center banks and government customers, and that's reflective in our second quarter guidance.

With that said, our growth rate compared to what others have reported, which was good, is more reflective of our mix of customers and industries than the overall health of the IT staffing market.

And let's not forget that our mix of customers benefited us much more than others in the third and fourth quarter of 2013 and the first quarter and second quarter of 2014 more so than others because our banking customers were spending. We're just unfortunately seeing the backside of that customer mix today.

So while we have growth, it's not the growth that we would expect from a dynamic business like Apex. And it's taken a long time to build some meaningful lasting relationships.

And those – we've actually increased our percentage of spend within customers and some of these important customers, but their overall spend with everybody is down, and that is affecting our growth rate at Apex on a reported basis..

So what gives you confidence that the large banks will come back? The comment in the prepared remarks said as their earnings growth doesn't inspire a whole lot of confidence and, yes, a second ago I believe you said you think you may have seen the – I can't remember what you said, the peak of the resistance to spender of a down cycle or something?.

Yeah. So we're not calling a bottom because we're not in the boardroom with regard to the comments that people are making about controlling spend.

But what I can tell you is the conversations that we're hearing say that for the first time in six years they feel like there's no $1 billion penalty or government fine that's left in the closet and that on a go-forward basis, there might be a couple of hundred million dollar problem here or there from a state attorney general, but most of the stuff may finally be behind them.

So that's something of a positive for the overall banking spending marketplace. And the other confidence that we have for those that have serviced the banking customer industry for a long term is it's the single largest spender on IT staffing, they are the earliest adopters of new technology, but they also turn on and off the fastest.

And we've been through these cycles before, and while I can't tell you when the cycle is over with, I can't tell you that their stall on spending has been lengthy and it can't go on forever. That's the best I can really give you..

Okay. Thank you..

Thank you. And now to line of Sara Gubins. Please go ahead..

Yeah. Thank you. The negative trend in bill/pay spread, it's being by Apex. I'm hoping we can get some more color there? And what conversations have been with clients around adjusting bill rates higher? Thanks..

Yeah, I'll make a opening comment and then Rand and Ted if you would address that, I'd appreciate it. But remember, when we talk about Apex as an SEC reporting segment, it has the Lab Support business in it as well. So the segment's numbers move around because of contribution from Lab Support.

If you're – want to zone in just as to Apex, I think we can make some general comments.

Rand and Ted?.

Yeah. I mean I'll start. We've always said our bill rate, pay rates are really a function more of the skill types that our clients are using from us. So when we have more of one skill type versus another, you'll see the bill rate fluctuate a little bit.

Overall, our bill rates in the first quarter did fluctuate, up and down I think $1 variance, Ted, if I recall, on the Apex side. But again, it's more a reflection of the skills that are being procured, if you will, through us or by us in our business.

Ted, any other comments you'd make?.

Yeah, I think that's it, Rand..

So on a kind of a more like-for-like basis?.

I'm sorry, Sara, I didn't hear that question..

If you were looking at any individual role or skill set, are you seeing an improvement in bill/pay spreads?.

Well, I think what happens is not within any one skill, but for example if more infrastructure people are procured or are used to us, then you're going to see bill rate migrate down a little bit. And then we have more Java, mobility, architects, ERP, it migrates up a bit. So that slows throughout the course of the period.

There's still a lot of both kinds of work out there. If you looked at our skill sets that are growing in the quarter, there was infrastructure growth for sure, network engineering, there was also a lot of Java. So there's a dichotomy. And then similarly on the Lab side, I can go through similar kind of skill sets.

But as I said, it fluctuated quite a bit in the quarter. I think if you look probably where we ended the quarter, we ended up where we started, but within the quarter it moved up and down, just again based on the flow of the placements we made..

So Sara, the actual spread was up at Apex year-over-year, the bill/pay spread..

Yeah..

Even though the bill rate may have compressed a little bit, and that has to do with what Rand was saying, skill mix as well as the contribution of the Lab Support business. But the bill/pay spread margin was actually up quarter-over-quarter..

Yeah. Again, Apex gross margin did grow year-over-year basis, 20 basis points, on Apex..

Okay, thanks. And then just separately on capital deployment, share repurchases weren't outsized in the first quarter.

So I guess I'm wondering how are you thinking about share repurchase? Should we expect to see that go up during the rest of the year assuming no acquisitions?.

Yeah. Well, if there are no acquisitions, you would see it go up..

Thank you..

And, Sara, we're very disciplined. I think we have a track record of being able to do thoughtful things and we've been working hard and we feel like we're closer to doing some meaningful things today than we have been in the last six months or so.

But it's too early to say that anything's going to get completed, but we're balancing deployment of capital now while we're thinking about some things..

Okay, thanks..

Thank you. And now to the line of George Tong. Please go ahead, sir..

Hi, thanks. Good afternoon.

Within your Oxford segment, can you discuss your outlook for just the further recovery in the ERP spend cycle and Healthcare IT spend and how that outlook has evolved over the past three months?.

Yeah. So I'll make one comment and then turn it over to Mike for a more detailed explanation.

We've said on the fourth quarter conference call that the "nuclear winter" in Healthcare IT spending was starting to thaw and that thaw was not going to be quick enough to allow us to report year-over-year growth rates, but that we thought that we had hit the bottom in the fourth quarter and that we could start showing sequential growth quarter-over-quarter every 90 days.

And the first quarter substantiated that, at least in the short run.

Mike, will you answer the rest of his question?.

Sure. And again, I would just reiterate on the Oxford Healthcare Technology. That was not only – again, we saw increase in spend for the EMR implementations, but also some of the ICD10 work. So that's also increased from the fourth quarter into the first quarter and we basically expect the same kind of increase into the second quarter.

And as far as the other disciplines of Oxford, which is 80% of our business, ERP saw a slight increase from the fourth quarter to the first quarter as well as all of our other disciplines. Basically, it was pretty equal across all of them. So one wasn't carrying it more than the other..

That's helpful. And as far as supply is concerned, I've heard supply being described as the most constrained in the tech segment of temp staffing.

Can you discuss whether you're seeing supply constraints and if your hiring plans have evolved in light of supply dynamics?.

Yeah, no. I mean, that's why we didn't put all these incremental hires into sales. Some of it is put into recruiting fulfillment, but our revenue growth isn't because the labor markets are so tight. It's reflective of our customer mix and the spending patterns at some specific industries.

And if you look at the growth rate at Oxford or at some of our peers, that aren't tethered to larger customers or to money center banks, you'll see that the labor markets aren't so tight that you cannot grow, George. So you're having to work a little bit harder, but that's not a prohibitive condition to growth..

Right.

And as you look at Apex, can you provide us with an update on what mix of Apex is tied to large financial money center banks? And sort of talk about trends that you're seeing in other verticals within Apex including some of the smaller accounts where you're putting some of your sales investments?.

Yeah. So Rand's prepared remarks stated that the financial industry and government entity customers were flat to negative year-over-year and that local mid-size accounts, retail, technology, were up mid-teens.

And I don't – Rand, do have the number? But I do know that the high watermark for contribution from financial services was 29% of Apex IT staffing revenues alone, and it's down closer to the 21%, 22% today..

Yeah, it's actually 24% number for financial services. And, George, just again, business services accounts, healthcare, technology and the local branch midmarket accounts all grew double digits in the quarter over year-over-year.

Financial, government services and oil and gas accounts and those accounts represent about 50% of our business with financial services portion of that being about 24%, or half of that 50% were negative growth..

All right. Thank you..

Okay..

Thank you. And now to the line of Paul Ginocchio. Please go ahead..

Yeah. I just want to follow-up on that last one. Are government and oil and gas roughly evenly sized? What's the difference there? And of the three that are weak right now, is one still decelerating? Which is the worst of the three? It sounds like maybe you think financial services might be the best of the bad three.

And then, finally, I was just doing some calcs on that, you get 1% greater exposure to direct hire and perm year-on-year, and I would have thought on the back of the envelope calculations that would add about 70 bps to your gross margin, but your gross margin is only up 10 bps.

What is holding back gross margins as your perm exposure rises quite significantly year-on-year? Thanks..

Why don't you to talk about the margin first?.

Yeah, as it relates to margins, you can – and even from the press release, you can basically do a back of the envelope to determine what's going on with our contract margins. But generally speaking, contract margins are flat year-over-year as it relates to Apex and down at Oxford.

And main reason at Oxford is that they're going after some – they've changed their business plan to some degree and they're going after higher volume, lower margin accounts to spur their growth rate. So that's probably the big contributor for you not seeing the lift or pickup from the increase in the perm mix..

Thanks, Ed..

Okay..

And then, Rand, with regard to oil and gas, banks and government?.

Yeah. So Paul, in those three industries or accounts in those industries, financial services is the largest of those three industries. Government is in the middle and oil and gas is the smallest. It's about 24% in financial; about 17%, 18% government; about 4% oil and gas.

In terms of which were more negative, government and oil and gas were more negative than the financial services, in the quarter..

And are those two still getting weaker, or you've seen some stability recently or -?.

Well, I don't know how forward projecting I should be. But for one, I'm encouraged by the Federal government passing the budget and adding $50 billion to Defense and Homeland Security, which most of our accounts in the government services sector are in the Defense and Homeland Security side. So I think that's a good sign.

Oil and gas price – oil and gas spend probably tends to correlate with the price of oil. So we can all attract the price of oil. I'm not -I'm just saying that's kind of what I look at it in a macro sense. In the financial services, it's – I think Peter hit it, you watch the earnings reports and you watch what they're doing.

We're obviously also continuing to diversify our portfolio business and continue to grow our smaller accounts, even the small pop accounts into bigger accounts, but that's the rack and stack.

Does that help at all?.

That's perfect, Rand. Thanks..

All right. Thank you. And now to line of Jeff Silber. Please go ahead, sir..

Thanks so much. I hate to go back to these end market verticals. But you mentioned your financial, government and oil and gas exposure in Apex. Can we get similar figures for Oxford? And I'm just wondering how those units are doing in Oxford as well..

Yeah. So virtually zero for financial services. And on oil and gas and government, Rand? Excuse me, Mike, do you have that number? But I can....

I don't have it, but very little. I mean, we do very little with, obviously, in both of those areas, a little bit more in defense in some of the suppliers, but not certainly to the amount that Apex does..

So it would be under 6%, 7% for those two those segments, right?.

Absolutely..

Okay, great. Yeah, probably another reason for the diverging trends. Also, can you give us a break down between, I guess, what you call your middle market and your larger accounts, both for Oxford and Apex? Rough numbers are fine..

Yeah. Jeff, I don't know if we can do that to be honest with you. What I can tell you is, we specifically said that the mid-market accounts growth rate was about mid-teens. We can't break it down. What we've said publicly in the past is I think the mid-market accounts represent somewhere between 20% and 30% of Apex's total revenue..

Okay. That's helpful.

And then finally on share repurchase, when does the window open up again? When can the company be out buying shares?.

Two days..

Two days..

From the announcement of earnings..

All right. Thanks so much..

Thank you. And now to line of Dan Dolev. Please go ahead..

Thanks. Hey, Peter. Can you – last time you provided detail on the kind of the expectation by segment.

I want to make sure I didn't miss that on what you expect in terms of growth for Apex versus Oxford into 2Q?.

Yeah, it's....

It's in the earnings release..

It's in the earnings release supporting that..

And, Dan, at the bottom of the financial estimates, if you can go to that page, you can see that first sentence of the second paragraph under the table, that the estimates imply year-over-year growth of – I'm sorry second sentence, mid-single-digit for Apex, mid-to-high single-digit growth at Oxford..

Got it. Okay. Thank you. Sorry, I missed it..

Thank you. And now to the line of Mark Marcon. Please go ahead..

With regards to the staff additions, I didn't fully catch the prepared remarks with regards to what percentage are going to be deployed to Apex relative to Oxford?.

As far as the hiring surge?.

Yes..

About 100 people at Apex, 20 at Life Sciences and about 30 or so at Oxford, Mark..

And would they all have kind of that roughly that 70%-30% split in terms of sales to recruiting?.

That's a good enough rule of thumb..

Okay, great. And then, can you – they would start becoming more productive as we get towards the backend of the third quarter.

Are they going to be all dedicated to the areas that are growing? Or are some of them going to come into some of that 50% of Apex's verticals that are still challenged?.

I don't mean that sarcastically, but we are trying to be a little more longer range thinking than just the quarter out or what's hot today. And I think strategically, we're saying that there's some local mid-market business that we can service without being distracted from our important major customers.

And there are some emerging technologies that take time to develop credibility and expertise and that are a longer sales cycle that we want to just get started on. But they're being deployed thoughtfully for a longer term basis versus a quick pop, and it's where we see demand geographically as well as industry wise..

Great. And then with regards to CyberCoders, I mean, they're doing extremely well.

Any constraints on their growth going forward? How much capacity do you have there?.

Well, we've actually really hired significantly, actually ahead of budgeted head count numbers within their 2015 budget because they're beating budget.

And we see the opportunity to grow faster and that business really does have a direct correlation to the number of people in cubicles and the growth of revenue and how long it takes them to get productive.

So we're still hiring, and we're not allowing the budget to be a constraint to that hiring process because they're beating the revenue side of it..

And how large would you ideally allow the perm part to become as part of the overall business?.

Yeah, I mean, what we've said publicly was kind of 5% or 6% or kind of around that, and it may feel a little bit larger than that if their revenues are growing faster than contract revenue, but that'll correct itself sooner than later. But I still think 5%, 6%, 7% is still the right number..

Great. And then with regards to the Lab Support margins, you mentioned that those gross margins were coming down.

Is that just because of the pursuit of some of the larger clients?.

Exactly..

Okay, great. Thank you..

Thank you. And now to line of Randy Reece. Please go ahead..

Afternoon. Looking – if I break down Apex between top 10 customers in everything else, you have pretty significant sequential decline in revenue in the top 10 customers.

Does that correlate exactly with your commentary about verticals? Or was there anything else going on there?.

Randy, it correlates to the spend in those verticals and we didn't lose customers (44:10). In fact in one of our most important customers, we actually increased in the ranking.

It's just – I'm not going to give you names, but we have one bank that spend $1.5 billion last year and they've announced they're going to spend $1.1 billion this year against all their IT service vendors. So you're correct in your analysis that it's the industry vertical, nothing else..

Trying to get to your number for the second quarter, it looks like if I grow both the large and the small customer segments in both Apex and Oxford, similar to what they did in the second quarter of last year, then I get into your range. If you just have the same kind of seasonality as you had a year ago.

I don't know what you're actually – if you're expecting a difference on the large customer side versus small customer side? That's the way it just looks with the math.

Do you expect the big customers to rebound in the second quarter?.

That's not what we're guiding to. Our guidance is for Apex, which has the largest contribution for major customers that it assumes mid-single-digit revenue growth..

Yeah. Sequentially, that is still pretty decent increase, but that's also pretty normal seasonality as well. Okay. Thank you very much..

Thank you. And now to the line of Tim McHugh. Please go ahead..

Yes. I apologize I miss some of the remarks, but the government sector weakness, can you talk about what changed there? I know we've talked about financial services and I get that the budget environment has been weak for a few years, but I guess you haven't seen the weakness in that sector until now.

So I'm trying to understand kind of why it's become more challenging for you in the last quarter or couple quarters?.

Rand, you want to -?.

Yeah. It's, Tim, actually not true if you look at our earnings discussions the last couple quarters. We have not highlighted government as a fast growing, I think we performed better than the market in the government side, but it's been coming down for a number of quarters now and not double-digit growth.

So I think that's what we reflected in our earnings call. But it's – I think if you go back and look at budgets in the government sector, same sectors, Defense and Homeland Security, you can see a pretty tight correlation..

Okay. But if anything, it sounds like some government contractors are – I mean, maybe they're just optimistic, but there's more optimism coming out of those companies at least as they look forward in terms of contract wins and things like that that they saw at the tail end of last year..

Well, Tim, I watch Northrop, General Dynamics and Lockheed Martin earnings calls and while their revenue numbers are not well, good in Q1, they were optimistic. And I hope they are right and I trust they will because those would be examples of opportunities for us.

But it has to flow from the government to them and then them to their vendors that support them. So I think there's a feeling of optimism out there in the government defense sector, but it has to unfold..

So I think that's an important point that Rand made as, Tim, most of our business in the government services is through a government contractor versus direct to the government..

Okay. Fair enough. And I guess as you think – you've talked about adding resources to spur growth.

Are you at a point where you're shifting resources away from some of the financial services or government or oil and gas, I guess, the weaker areas? If there's enough demand in the other opportunities, why not shift the resources out of those sectors?.

Rand, you and Mike might want to address that in terms of how we allocate our resources among areas where we see opportunities which I know we're doing, but you can probably provide better color on it than we can..

Well, let me start. This is Rand. So in the Apex side, Tim, for sure. And I think it's happened long before this discussion right now. We have certain areas that are not growing as fast and we have shifted resources toward mid-market accounts or technology accounts or other possible accounts. So some of that has been going on.

There are other accounts among our top accounts particularly where there's still flow, you have to be there. I mean, when you're supporting these accounts, you have to support whatever flow of reqs (49:11) they do show, it may be negative because in many of these accounts, we're the number one or number two vendor.

So you still have to support them, it's just negative growth when look at it year-over-year. When you look at our comps from a year ago, it varies. But yes, we are shifting resources within these sectors. At the same token, there are still some of these areas when we look forward we think are good growth opportunities.

So we're going to still put our best foot forward.

Mike?.

Okay. That's helpful..

And, Tim, on the Oxford side, I mean, we do the same thing. We're constantly deploying the resources where we need them. What's the fastest growing? We train people differently on different skill sets and all that kind of thing. Obviously, we're organized more than discipline versus industry.

But at the same time, as Ed mentioned, we have changed our strategy a little bit, we're going after some larger accounts. So we've moved some of our resources, specifically some of the sales resources into those functions. But overall, it's an ongoing basis and we always do it..

Maybe just one follow-up to that, Mike, the lower margin work that you just alluded to, I guess the larger accounts, can you – is that healthcare, or is there, I mean, what type of work is that that you're pursuing more (50:26)?.

It's really across all of our disciplines. So it's across the Healthcare Technology area as well as some of the ERP stuff and some of the other disciplines we do. So instead of a onesie-twosie, we may be able to sign three or four consultants to a specific project..

But, Tim, to make sure that we ring-fence this, excluding the Healthcare IT business, which you know does carry a lower margin, the IT staffing business that Oxford's doing is still well above a 32.5% gross margin. So....

Right..

...it's not like things are being heavily discounted, it's just things may be moving. I think the peak at Oxford in 2007 may have been a 35% gross margin. And I don't know if we're getting what the gross margin is for Oxford International, but it's still well above 30%..

Absolutely..

Okay. Thank you..

Thank you. And now to the line of Tobey Sommer. Please go ahead..

Thank you.

My first question, Peter, are there areas that you're targeting perhaps new technologies that you're targeting for organic growth to build business and kind of create value, maybe similar to I guess HIT several years ago? You don't have to name them by name, but I'm just curious if some of the investments are dedicated towards that kind of effort?.

We are and we're seeing lines blurred in certain areas and I'd rather wait a little bit to talk about that with you. But our job is to constantly look for emerging technologies or changing and changes in customers' buying behavior and who's controlling spend.

And so as you know, we've spent a lot of time thinking about it strategically and a lot of our marketing dollars are spent on understanding the marketplace versus just brochures; and we have some thoughts about that that we hope to share at some point with you..

Okay..

Peter, could I add for a minute, Tobey?.

Yeah..

An example of that, Tobey, is we talk about serving 13 major skill areas within IT, but in the last year – certainly in the last half of last year, we've expanded to fourteenth and fifteenth skill areas, mobility and cyber security, which we've invested in as part of this buildup, okay? So Peter, I think that supports what you're saying..

Okay. Turning to CyberCoders, how should we think about the incremental margin associated with revenue growth? And I understand from your comment that you're kind of reinvesting because the business is exceeding plan.

But maybe over a broader period of time, what sort of profitability could you derive from that?.

Well, you hit the nail on the head, Tobey. It's still very profitable EBITDA margin but it's not nearly – the incremental EBITDA margin is not nearly as high because we're investing aggressively in internal head count.

If we hadn't done that, we could have had an enormous incremental EBITDA margin, it probably wouldn't have shown up in the revenues in a quarter or so, but we would have felt it later on. And we're in a cycle, we want to support the growth and get as much as we can.

And so we're not going to be overly piggish and, as you know, our EBITDA margin on perm is north of kind of 22%. So, I'd rather grow that overall revenue than scrape another 10 percentage points on incremental EBITDA margins by holding the SG&A constant..

Okay.

And I just wanted to ask you, when do to the comps get easier for the financial services piece within Apex? When did that really grip last year?.

Well, if my memory serves me correct, Apex's gross growth rate was 16.5% year-over-year in the first quarter of 2014, 13.8% in the second quarter of 2014; 10.1% in the third quarter of 2014 and 9.5% in the fourth quarter. So the growth rates came down in the third and fourth quarter.

So it should get a little bit easier on a comparison basis in the latter half of the year just because of the growth rates coming down and hopefully because these new hires start to become productive..

Okay..

Just to make sure that we're clear, Peter was referring to the Apex piece of the Apex segment..

That's right..

Not the segment as a whole..

Apex IT, not Lab..

Understand, the business not the segment.

And my last question is just within the financial, government and oil, the slower areas, is there some room for – on kind of a targeted basis for you to maneuver and get access to a new client or just kind of that approach? Or is it kind of a situation where you're not able to nudge out a little bit of growth within those areas at this point because of what's going on in the marketplace?.

Yeah. So I mean, Tobey, I want to be clear, we're not blaming the market and we're not saying that others aren't growing faster. We just think that that particular construct or mix of our customers within these industry verticals has restrained the normal growth rate.

With that said, we tend to take a longer-term perspective and we're just – we're not ruin the natural purchasing rhythm with our customers by overreacting and starting to work on stuff that we just don't think is high quality business on a longer term basis.

Look, maybe people are going to criticize us for this, but we clearly could have gone faster if at Apex we wanted to start dropping the gross margin and betting on work that is not as sticky or meaningful, and we've elected not to do that.

And we don't think that there has been a wholesale shift in the end markets that are causing our revenue to slow. Quite the contrary because when we do our customer satisfaction and we look at our ranking within these major customers, we're not dropping, we're staying the same and/or we come up a little bit.

So it's not like we've gone from third to 10th and someone else has gone from 10th to third at our expense. This is mostly a complete across-the-board decline in spending. And one staffing firm may have a bigger pigeonhole in a bank than we do or vice versa. So we're not being hardheaded.

We are definite – trust me, there's plenty of focus, passion and focus on where we can expand in a sustainable thoughtful fashion, and the market still remains relatively productive.

All we're saying is it's much more productive in certain verticals than others and our construct of mix leans today more heavily in the unproductive industry verticals than the productive industry verticals and has served us well in the past and it's hurting is now and it'll serve us well again in the future..

Thank you very much..

Thank you. And now to line of Mark Marcon. Please go ahead..

Just a follow-up, with regards to Lab Support, what was that growth rate again?.

I don't know, Mark, if we gave you the Lab Support business growth rate. Ed, can give it to you..

Mark, for the Apex segment, it was 5.7% in total, okay?.

Right..

And Lab was 5.2%..

Okay.

And how are you thinking about that segment going forward? Do you think with going after some of the larger clients, should we start seeing an acceleration as the comps get a little bit easier?.

Yeah. I mean, they had a pretty good 2014 and we always say they're the most directly correlated..

That's why I'm asking..

The GDP growth. And we just got some GDP growth numbers that were pretty anemic. But we feel the prospects there are good, both because of the market and what the customers that Apex can share with it and the focus on being easier to do business with on a larger account scale basis..

Great. And then, if I recall correctly, CyberCoders was about $22.5 million.

Is that right?.

Yeah, I think that's what the prepared remarks is..

It's still in the contract..

Yeah. $22.5 million, yeah..

Okay, great. Thank you..

Thank you. We have no more questions in queue..

All right. Well, we appreciate your time and we look forward to visiting with you again in the near future..

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