Ed Pierce - CFO, EVP Peter Dameris - CEO Ted Hanson - President Rand Blazer - President of Apex Systems.

Tobey Sommer - SunTrust Kevin McVeigh - Deutsche Bank Jeff Silber - BMO Capital Markets Mark Marcon - RW Baird Gary Bisbee - RBC Capital Markets Tim McHugh - William Blair.

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2017 Earnings Call. At this time, all lines are in a listen-only mode. Later, we’ll have a question-and-answer and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference is being recorded.

I’ll now turn the conference over to Ed Pierce. Please go ahead..

Thank you and 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. Although we believe these statements are reasonable, they are subject to risk and uncertainties, and our actual results could differ materially from those statements.

Certain 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. For your convenience, our prepared remarks can be found in the Investor Relations section of our website.

Please note that, on this call, we will be referencing certain non-GAAP measures, such as adjusted EBITDA and adjusted net income. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between the GAAP and the non-GAAP measures are included in today's press release.

I will now turn the call over to Peter Dameris, our CEO, who will provide an overview of our results for the quarter..

Thank you Ed, I would like to welcome everyone to the On Assignment 2017 third quarter earnings conference call. With Ed and me today are Ted Hanson, President of On Assignment and Rand Blazer, President of Apex Systems.

During our call today, I will give a review of the markets we serve and our financial highlights, followed by a discussion of the performance of our operating segments by Ted and Rand. I will then turn the call over to Ed for a more detailed review and discussion of our third quarter results and our estimates for the fourth quarter of 2017.

We will then open the call up for questions. Now onto the third quarter results. Our results for the third quarter exceeded the high-end of our previously announced financial estimates for adjusted EBITDA and earnings per share and were within the range of our estimates for revenues and gross margins.

Revenues for the quarter were $667.1 million, up 6% year-over-year, or 6.6% on a same billable day and constant currency basis. This marked the 15th consecutive quarter that our company grew above the IT staffing industry's projected annual growth rate.

Our growth rate reflected, among other things, the continued deepening of many larger new customer relationships that we have established over the last four years, the continuing increase in the rate of adoption of our delivery model, an improvement of the operating performance of Oxford and CyberCoders and continuing expansion of our Statement of Work business.

Third quarter year-over-year revenue growth was negatively affected approximately $1.0 million from Hurricanes Harvey and Irma and $5.3 million from 0.5 fewer billable days basis in the third quarter of 2017 versus the third quarter of 2016. The acquisition of StratAcuity added $3.0 million in revenue during the third quarter.

Adjusted EBITDA for the quarter was $83.4 million or 12.5% of revenues, compared with $77.8 million or 12.4% of revenues in the third quarter of 2016. Cash generation continues to be at or above our expectations. Financial performance in the quarter was driven by strong revenue growth at Apex Systems, Creative Circle and CyberCoders.

Revenue growth came from our local, mid-market, and large national accounts, reflecting strong customer demand. Our size and service offerings allow us to grow faster than published staffing industry growth rates and we believe that we are well positioned to generate solid above-market revenue growth into the future.

Our IT business continues to see high demand from its customers, driven in part by greater adoption of staff augmentation as a viable alternative to outsourcing, offshoring and consulting. Wage inflation continues to be manageable.

With respect to recent production, our weekly assignment revenues, which excludes conversion, billable expenses, and direct placement revenues averaged $49.5 million for the last two weeks, up 5.5% over the same period in 2016. Since closing the Creative Circle acquisition on June 5, 2015, we have repaid $286.5 million of our debt.

Our leverage ratio was 2.08 times trailing 12 months adjusted EBITDA as of September 30, 2017. We estimate our leverage ratio will be approximately 1.91 times by the end of the fourth quarter of 2017. As you will recall, we announced on June 13, 2016 that our Board of Directors authorized a new $150 million share repurchase program.

Since the inception, we have repurchased approximately 2.4 million shares at an average price of $42.81. During this third quarter, we repurchased 999,618 shares at an average price of $47.90. We intend to continue to execute our share repurchase program based on share price and market conditions.

During the quarter, we repriced our term loan and revolver facilities resulting in a 25 basis point reduction in each facility in the interest rate. We believe that based on our current outstanding debt balances these repricings will save us approximately $1.6 million annually, assuming no further repricing.

We continue to see signs that the ongoing debate regarding the on demand workforce or gig-economy is accelerating the usage of contract labor. Fractionalization of human capital by using the staffing industry’s services is the only way to avoid the risk of misclassifications 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' IT needs as technology rapidly evolves and is adopted.

Throughout this year, we continue to benefit from the ongoing debate regarding H-1B Visa reform and further adoption of our development and deployment model i.e. staff augmentation. Recently signed executive orders have only further solidified the trend towards adoption of our model versus offshoring.

I would now like to turn the call over to Ted Hanson, who will review the operations of the segments and then over to Rand.

Ted?.

Thanks Peter. Revenues from our Apex and Oxford Segments grew collectively 6% year-over-year. Both segments performed about as we expected coming into the quarter. Apex Systems, our largest division, continued to achieve growth rates above the market growth rate and led the performance of their segment which Rand will discuss in a few minutes.

Creative Circle performed slightly better than our initial expectations and Life Sciences performed slightly below our expectations coming into the quarter. In the Oxford Segment, CyberCoders and our Life Sciences Europe divisions both grew nicely above their respective market growth rates.

Demand in the end markets we serve, IT, Creative/Digital/Marketing, Engineering and Life Sciences remains steady. Now on to the results of the Oxford Segment. The Oxford Segment is comprised of Oxford Core, CyberCoders, our permanent placement business, and Life Sciences Europe.

For the third quarter of 2017, Oxford Segment revenues were $149.6 million, down 4% year-over-year and down 3.3% on a same billable day basis. Revenues decreased 0.9% for the segment on a sequential basis and increased 1% based on same billable days.

The impact of the hurricanes in Houston and Florida had a negligible effect on third quarter revenues, however, we do expect that Hurricane Irma, which caused our Oxford Palm Beach Gardens national recruiting center to close for nearly one production week, will have a larger impact on revenues in the fourth quarter of 2017.

Oxford Core revenues, which account for 74.8% of the segment revenues, were down mid-single digits year-over-year but were slightly better than our initial forecast. The decline in revenue is attributable to the successful completion of two large projects in the fourth quarter of last year which we have mentioned on this call in prior quarters.

Despite the difficulty in growing over these significant projects on a year-over-year basis, Oxford Core revenues are growing sequentially, on an adjusted per billable day basis. We continue our hard work in this unit to improve growth rates and profitability levels which I will address in a few moments.

CyberCoders, our permanent placement service offering, which accounts for 95.8% of the segment's permanent placement revenues, was up low-single digits year-over-year. CyberCoders momentum was positive throughout the quarter.

Our Life Sciences offerings in Europe, the smallest contributor to total segment revenue, were up year-over-year high-single digits primarily due to a favorable foreign exchange rate or 2.2% on a constant currency basis and were solidly above our initial forecast. Demand for life sciences skillsets in their Benelux geographic markets remains strong.

Gross margin for the segment was 41.8%, up 110 basis points year-over-year which was slightly ahead of our initial expectations for the quarter. Improvement in gross margin was primarily driven by higher contribution of revenue from CyberCoders and improving pay to bill margin within the Oxford Core business.

Based on the above, and better expense management within the Oxford Core unit specifically, the segment's adjusted EBITDA results exceeded both our expectations and the prior year, as well as coming in above the second quarter of 2017.

Much of the hard work pointed at improving lost EBITDA margin at Oxford Core is now beginning to show itself in this quarter’s results. During the third quarter and moving into the fourth, we are squarely focused on re-positioning our go-to-market strategy and installing a more progressive sales strategy in order to find better growth on the topline.

While we expect to finish these activities in the coming weeks, we do not expect to see the fruits of those activities until mid-year 2018. I will now turn the call over to Rand Blazer.

Rand?.

Great, thanks Ted, thanks for the summary. On the Apex segment side, which consists of Apex Systems, Apex Life Sciences and Creative Circle business units, these units reported solid revenue results for the quarter.

Revenues for the segment were $517.5 million that’s up 9.3% year-over-year on a reported basis and up 10.2% on a same billable day basis as Peter and Ted both mentioned earlier. And again there was 0.5 fewer billing days in the quarter compared to same third quarter of last year.

Apex Systems, which accounts for 74.8% of the segment’s revenues, reported double-digit revenue growth once again. Our Creative Circle unit was up mid-single digits, and the Life Sciences’ unit, including the impact of the StratAcuity acquisition, was up low-single digits in the third quarter on a same billable day, year-over-year basis.

It should be noted that the Apex Segment’s revenue growth remained strong despite the hurricanes experienced in this quarter.

While there has certainly been some impact to revenues in the quarter, the full impact of the hurricanes may include some impact in future quarters as our client continue to rebuild and get back to normal conditions and I think Ted mentioned that just a few minutes ago.

Gross Margin for the segment was 30.1%, which was 20 basis points lower than the third quarter of 2016, due mostly to a lower mix of permanent placement revenues across the segment. Pricing otherwise, that is bill rate and pay rate differentials, remained stable to slight increase in our end markets.

Our segment's EBITDA contribution continues to reflect very high conversion of gross profit to EBITDA across all three segment units. This performance continues to be driven by continued improvement in the productivity of our sales, delivery and infrastructure teams.

Now as we usually do on these calls, we will give you some insights with respect to factors driving Apex Systems’, which is our IT staffing division’s revenue.

Apex Systems’ revenue growth was the highest in our Segment and is propelled by a number of factors including first, continued high growth in our accounts in four of the seven industry verticals we service, with double-digit revenue growth in Aerospace and Defense, Technology, Consumer Industrial and Financial Services Industry accounts.

Business Services, Telecommunications, and Healthcare industry accounts also exhibited positive growth year-over-year. Our top accounts continue to lead the way with double-digit year-over-year growth while retail accounts showed improved performance with low single-digit growth year-over-year.

Our bookings in SOW type work remains strong in the quarter and continue to exceed our expectations as I think Peter noted earlier. Finally, as mentioned, field productivity continued strong in the quarter as I mentioned supporting Apex Systems revenue and unit EBITDA performance.

Now turning to our other units, Creative Circle grew its revenues at mid-single digit levels in the quarter and continues to post lower results in permanent placement revenues versus our expectations.

We also saw some up and down in job order flow for assignment revenues in the quarter impacting overall revenue performance particularly in late July and August. Our Life Sciences business was up 3.8% including the impact of StratAcuity acquisition, but down slightly organically in revenue growth for the quarter.

Overall, as I said, the Apex Segment had another solid quarter with double-digit same billing day adjusted revenue growth with each of its business units contributing steady margins. With that I will turn it over to Ed Pierce.

Ed?.

Thanks Rand. Our reported revenue growth rate for the quarter was 6%, which was in line with our previously-announced estimates. After adjusting for year-over-year differences in billable day and foreign exchange rates, our growth rate for the quarter was approximately 6.6%.

Revenues for the quarter as mentioned earlier were adversely affected approximately $1.0 million from the hurricanes and related flooding in Texas and Florida and also included a $3.0 million contribution from StratAcuity, which was acquired in August. Assignment revenues for the quarter were $634.4 million, up 6.4% year-over-year.

Permanent placement revenues were $32.7 million, down 0.8% year-over-year. CyberCoders, which accounts approximately 63.2% of our consolidated permanent placement revenues, grew 2.3% year-over-year, while permanent placement revenues at our other divisions were down.

Our Apex Segment, which accounted for 77.6% of consolidated revenues, grew 9.3% year-over-year. Our Oxford Segment, which accounted for 22.3% of revenues, was down 4% year-over-year mainly as Ted mentioned earlier related to lower revenues from two large projects that were largely completed last year.

If you exclude the revenues in these two projects, revenues for the segment were flat year-over-year. Gross margin for the quarter was 32.7%, which was in line - actually at the high-end of our previously-announced estimates.

And gross margin was down 20 basis points year-over-year due to a lower mix of permanent placement revenues, which was 4.9% of revenues down from 5.2% in the third quarter of last year. SG&A expenses were $149.2 million or 22.4% of revenues.

After adjusting for $1.5 million in acquisition, integration and strategic planning expenses, which were not in our financial estimates, our SG&A expenses were below our previously announced financial estimates.

This favorable variance was primarily due to lower compensation expense as average staffing consultant headcount for the quarter was below forecasted levels. Based on our current hiring and turnover estimates, our average headcount levels should be more in line with our targets for the fourth quarter.

Interest expense for the quarter was $7.1 million, down from $8.3 million in the third quarter of last year. Interest expense for the quarter included $0.8 million in costs related to the two amendments to our credit facility that lowered our interest rate 25 basis points.

The year-over-year decrease in interest expense reflected a lower outstanding borrowings due to debt repayments and lower interest rates as a result of the amendments to the facility. Our effective tax rate for the quarter was 35.1%, down from 37.8% in the preceding quarter.

The sequential improvement primarily related to an increase in our hiring-related tax credits. The provision also benefited from $0.4 million in excess tax credits related to stock-based compensation. The additional hiring-related tax credits and excess tax benefits on stock-based compensation were not included in our financial results.

For the fourth quarter, we estimate that our effective tax will be approximately 38.5% before any benefit we might derive from excess tax credits. Net Income for the quarter was $34.9 million or $0.66 per diluted share that’s up from $29.8 million or $0.55 per diluted share in the third quarter last year.

Adjusted EBITDA as Peter mentioned for the quarter was $83.4 million. Cash flows from operating activities were $53.7 million. And free cash flow, a non-GAAP measure, was $48.9 million. During the quarter, we used cash of $47.9 million to repurchase approximately 1.0 million shares of our common stock.

During the 12 months ended September 30, 2017, we generated free cash flow of 169.1 million, of which we used 78.5 million to repurchase stock, 51.5 million to pay down our debt and 25.9 million to acquire StratAcuity. Subsequent to the end of the quarter, we paid down our debt by an additional $14 million.

Now turning to our financial estimates for the fourth quarter. We are estimating revenues of 658 to 668 million; Net Income of 30.9 to 32.7 million, or $0.59 to $0.62 per diluted share. Adjusted EBITDA of 77.5 to 80.5 million.

As in the past, these estimates do not include any acquisition, strategy or integration expenses or do they include the effects of excess tax benefits related to stock-based compensation. Our estimates assume that growth in Creative Circle will be mid-single digits and that StratAcuity will generate approximately $5 million in revenues.

Our revenue estimates assume 60 billable days, which is 0.2 fewer than the fourth quarter of last year and 2.6 fewer than the preceding quarter. You may note that each billable day is approximately $11 million in revenues.

Looking on the same billable day basis, our implied year-over-year growth rate for the fourth quarter ranges from 6.3% to 7.9%, or 5.5% to 7.1%, excluding the estimated contribution from StratAcuity. 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 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. We would 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] Our first question will come from the line of Tobey Sommer with SunTrust. Please go ahead..

Peter, I wanted to ask you a question on the H-1B Visa reform, do you have an expectation over the medium to long term as to what that can do to the industry's growth rate and perhaps your growth rate with exposure to SOW work? Thanks..

I can't put an absolute number on it, but based on the conversations and the flow of work, we're seeing that customers as we've said previously are default into our development deployment model versus the offshore model for a variety of reasons, certainty, quality, political flowback, and so things that may have previously gone offshore or now being done with domestic labor.

And we see that continuing. I know that there's been some published data with regard to the usage of H-1B and L-1B visas and it down. And we think that that will continue to be spotlighted and highlighted and that that will drive people to our delivery model versus the offshore model. .

Could you update us on what you’re plans are to increase your internal sales generating headcount. You talked about a more normalized rate in the fourth quarter kind of how should we think about that going forward. Thanks..

It’s no more, there's been no change throughout 2017. We said it's more of a normal hiring year for us which is kind of 6% to 8%. And it ebbs and flows at times, where based on ability and bandwidth.

Sometimes we’re better at onboarding people on a particular quarter; sometimes we get backed up, but it's just a normal hiring year and we continue to expand our talented team..

Last question from me and I'll get in the queue. From an Oxford perspective, I think you described sequential growth and we grow over of the two large projects here in the fourth quarter.

Is there anything else to think about in terms of comparisons as we enter ’18 or do we have a little bit of sequential momentum, so that the easier comparisons will flow through into growth?.

Well, I’m going to turn that over to Ted, but I think the real takeaway of this quarter is that, we’ve previously told you beyond the flatness of the growth, although [indiscernible] grew about 6% year over year in calendar year 2016, the EBITDA margin had eroded.

And Ted and the team at Oxford did a good job of recovering a fair amount of that EBITDA margin in this third quarter. Ted, please answer that..

Tobey, the only probably thing I would add is you’re right, the comps might be a little bit easier in 2018 for sure, we also know it’s going to take us a couple of quarters to really get our sales strategy institutionalized and get that sales culture going in the direction that we wanted. So I think the organization is ready, they’re excited.

But we're patient if you will to make sure that that gets done the right way..

Next, we have a question from Kevin McVeigh with Deutsche Bank..

Peter, I wanted to spend a minute on the cycle in terms of, and the reason I say that is we're kind of 8 years into this recovery and it seems like we’re starting to finally see some real meaningful growth that’s kind of eluded us throughout this recovery.

Is that just more optimism across CEOs and any thoughts on whether or not that continues, independent of the tax bill or just sentiment out there, because it -- I mean it clearly seems like the revenue is starting to reaccelerate, given where the guidance is in Q4 relative to the number you just put up in Q3..

Yeah. I mean, Kevin, the way I would respond to it is, clearly, all businesses are economically sensitive.

But what's really been driving our business when we've had unnatural burdens to natural growth, because of legislation or sequestration has been the greater adoption of our delivery model and we're not only seeing it on a staff aug basis, we're really seeing our statement of work, our SOW business grow because when you combine the control and the quality of working on an SOW basis versus offshore project consulting, the customers like that as one more arrow in their quiver so to speak.

And we're seeing continued adoption of technology. We’re continuing to see build out of digital strategies. We are starting to see much more productive activity in the defense base. We're seeing budgets getting approved.

And so, all the economic data points to higher GDP growth, but what I just went through has really been what’s been driving the business and we haven't seen any pull back with regard to rate of adoption of our service offering and that's what we continue to be most excited about.

Rand, why don’t you give him a little bit of more color on the SOW space and how that is growing compared to delivery models..

Well, I think you've hit all the key points here, Peter, but CIOS across corporate America are recognizing in the IT world that there's many -- we've talked about this with many of you before, they have different sources of talent to support their IT projects.

And what we see is, they see, what I call, some of the best in breed staffing firms has been able to step into other roles, consultative roles, take on managed services, bring some offshore stuff onshore. I think part and parcel to that goes to the fact that they want more than just butts in seats, which is traditional staffing model.

They're looking for us to, in some cases, take on a certain amount of accountability for building a workforce for them, manage the workforce for productivity, while they focus on other mainstream pieces of their business. So, it goes back to the initial premise and I think Peter was sitting on this.

Look, I think we -- maybe the economy is picking up a little bit, but the other side is technology is a real enabler of many companies, both on the revenue growth side and the improvement of performance. So, all these things are happening all at one time for us and it's good. We’re obviously taking advantage of it..

Yeah. For sure.

Is there any way to frame the SOW, how much that's kind of across the organization at this point in terms of kind of where we are in that face of the growth?.

Well, we're not breaking that out specifically, but it’s in the multiple of hundreds of millions of dollars..

Next question comes from the line of Jeff Silber, BMO Capital Markets. Please go ahead..

Just wanted to go back to the discussion you had earlier about the growth in staffing consultants.

I know it's choppy, but was there something specifically going on, it looks like the decline was at Oxford, was it an issue in terms of finding and onboarding people, did you have more turnover than usual, any color would be great?.

Yes. I am going to go first and then really turn it over to Ted for the detail, but the reduction in headcount in Oxford was a conscious decision. We had tried some things in 2017 that really didn't pan out the way we had penned in on paper and we saved some of that SG&A and redirected some of it and some of it is to come.

Ted, do you want to further flush that out?.

Yeah. And I think we're poised like the rest of the organization, we'd like to grow our headcount within the parameters that Peter laid out before and what we've been focused on here in the first two quarters of the year is productivity and I think now we're ready to add to our team and to get back to more normal levels of headcount..

Switching gears to the StratAcuity acquisition, life sciences, I know used to be a much bigger component of this company. It's relatively small now. So it's interesting that you made an acquisition in that vertical this past quarter.

Is that any area that we're going to expect to see more acquisitions that you're going to be focusing on expanding?.

Well, the reason we did the StratAcuity deal Jeff is, one, they had a great position in the New England market, which is probably the most important in the clinical research base.

Their average bill rate is close to 90 bucks an hour and they did interesting work in the medical device, regulatory, engineering space, clinical research space and because of it being a high skill, high bill rate space, it helped nicely for that core unit.

So you could expect us to want to continue to build out our clinical research, our engineering, regulatory affairs space in the life sciences world. We will organically continue to grow our scientific business, but this was really a clinical regulatory business that we acquired..

And then just one question for you, Ed, can you give us what we should expect for interest expense in the fourth quarter..

I'll tell you what, let me, we gave you what the debt was as of the end of the third quarter. We told you that we’re paying an additional 14 million down and then the interest rate is approximately LIBOR plus I think 175..

I think we gave you the number it was, 7.1 and that included amortization, okay of -- it included 800 grands related to the amendment. So you could assume that interest is going to come in somewhere around 6.2 or so..

Next question comes from the line of Mark Marcon, RW Baird. Please go ahead..

I was wondering if you could talk just a little bit about what you're seeing on the Apex side, it sounds like things are going really well with a number of the verticals doing particularly well, but you also mentioned in the commentary a little bit about fluctuations in July and August.

Could you just elaborate a little bit there and how we should think about it?.

Yeah. So I’ll let Rand address most of it, but just I know we were speaking quickly, but the fluctuations in July and August was just a simple commentary about job order flow of Creative Circle. It wasn't as to Apex systems and while Creative is still growing less than we want, it has definitely moved positively from what we saw in June.

I mean, as you just saw, I think this week, IPP, they're still seeing some challenges worldwide. North America, little bit better. But with all that said, it’s a great business, it’s a great market and the team is working to restore the growth rates.

As it relates to Apex, Rand, do you want to add color to that system?.

Mark, think we've been reporting for a lot of quarters now that Apex systems are doing well and it's really across all of our accounts in all seven industries. Now, most of the seven industries, we've seen double digit growth through most of the quarters in the last year, year and a half.

You saw we listed out the industries that we still have double digit growth. Aerospace, defense, you'd expect, Mark, right, it's kind of a little bit on an uptick.

Technology accounts, consumer industrial, getting more into the technology spend I think with the growth of the economy and the financial services industry continues to be a market leading industry for technology adoption and continued improvement in their operations and business.

But the other three industries are great; healthcare has been a great growing business for us for a long time. They've got to be a pretty substantial part of our business, but they’re still growing strong single digit numbers as we said in the text here.

So, does that give you some sense, Mark? Does that answer your question?.

Got it. I appreciate it. And then just going back to just the Creative Circle, so basically in September, it sounds like maybe things actually stabilized and you didn't as much of an order fluctuation, is that correct or –.

Yeah. Mark, that’s exactly right. I think we reported at the end of last quarter that our April, May months were very strong in Creative Circle, June dropped off and we used that as a basis for the forecast for our Q3.

When we saw July and August a little choppy, definitely down in perm revenues and then September stabilizing and moving up a little more nicely. So that's, but it's a little bit of an up and down world and Peter mentioned some of our big competitors are on negative growth territory.

And of course we're in good positive mid-single digit growth territory. So all things, as Peter said, we're not getting the growth we want, but we're obviously still growing strong and it's a little jagged, but you're right, September was a little better than we saw late July and August..

Great. And it sounds like you’re basically gaining some share relative to the overall market, because if you take a look at all the large public agencies with basic leases, things are more choppy. It also sounds like maybe Accenture is doing a little bit more in the space.

How are you thinking about expanding in that space, because it sounds like there's a lot of interesting dynamics?.

Well, Accenture is definitely expanding and is a dominant player. It seems like they're buying one agency a week, digital agency a week. And they have a different model.

And they're a very, very good relevant player in the space, but the market's big enough and people come to us versus Accenture because of the difference in the model and the flexibility.

We still have, I think, so much opportunity to grow that business organically that throwing SG&A at it versus trying to acquire $20 million, $30 million division and then dealing with the integration of it is probably not what we would do in that particular group. It’s still not in the maturity level where it can't grow double digits.

It's still a lot of Greenfield opportunity when we acquired the business. I forget Rand what we said, did we say there were 22 additional markets that we thought we could open into and I think we've opened 11? So we still have some Greenfield opportunities. So that's where you should see us moving, Mark..

Great. And then just as a segue to that, you've done a great job in terms of paying down the debt, that load is quite manageable.

Can you talk a little bit about the environment in terms of the types of properties that you might be looking at or should we think about more tuck-ins like Stratacuity or could it be something a little bit more strategic expanding what you're doing in SOW, et cetera..

Well, we’re patient disciplined acquirers. We feel that we're acquisition ready based on a debt basis and on an operational basis, some of the hard work that Ted’s done over at the Oxford segment has started to pay some early dividends. And it's just planning the right match and we're out there doing it, but we're not sitting idle either.

I mean we've bought $47 million of our own stock in the last 90 days. So we felt pretty good about being able to do that, pay down debt and have multiple conversations about future acquisition..

[Operator Instructions] Our next question comes from the line of Gary Bisbee with RBC Capital Markets..

I guess the first question is on perm. I’m seeing from some of the other large players, some improvements there and I guess what’s holding the business back. I mean, good to see CyberCoders return to positive growth, but it’s still fairly unique overall.

Is there any particular factor you point to and what would you look for to think that might get better more broadly?.

Yeah. Gary, what I would tell you is, we’re predominantly a staff augmentation firm and we're seeing in the division, CyberCoders, whose primary business model is contingent search, doing well, I mean, they have some go over issues at time. There's clearly a short, a tightness with regard to qualified labor. But they grew year-over-year.

We saw some fall-off on year-over-year growth as it relates to conversion fees in perm and the other divisions, lab support, Creative, Apex, which -- that's not their primary focus and we do it willingly and we try to do it, and have focus on it, but it’s predominantly done to support the customer.

What I would tell you which is going to sound like a backhanded compliment is, we just reported a 12.5% EBITDA margin, which is up from 12.4% in the third order of ’16 and our total contribution from perm and conversion fees went down to 4.9% from 5.2%.

So the durability of our EBITDA margin actually increased, because the contribution from perm decreased. So, we feel pretty good about the profit generation of the business, despite the perm being relatively flat..

One area that there was upside, it looked like it was somewhat lower growth in SG&A. Is that just the cadence of headcount on the sales side or was there anything else that stands out there..

That it, it's just identification, attraction on boarding and that comes and goes sometimes, but our forecast for the four quarter assumes that we're going to hire a slightly faster pace than we did in the third quarter.

You see that there are 2.6 fewer billable days in the fourth versus the third of ’17 which basically is about $29 million of revenue. So we feel pretty good entering the fourth quarter and our SG&A that we estimated for you assumes slightly faster hiring..

And then just on Oxford, as we think about the fourth quarter, so you said you begin to lap those two losses. You also commented that the hurricane impact in your recruiting center in Florida there.

Should Oxford [indiscernible] out or would it be right to assume adding it all up, it’s down again, but maybe less space, any thoughts on that?.

Well, Ted why don't you answer that first and then I’ll go second..

Yeah I would say in our national recruiting center in Palm Beach Gardens is one of our biggest for Oxford. And so in their shut down they have lost workdays and obviously that there's a bill to that.

And so we can't quite quantify what the impact of that be, but there could be - we feel like there could be a lost work week at the end of the third quarter, towards the end of third quarter that affects the fourth quarter.

As you think about the fourth quarter for Oxford, as we begin the lap those two projects, we've seen a trend where our growth rate has been down less year-over-year for the last couple of quarters and they got projections or that trend will continue.

Whether we get to positive growth or not it will be another question, but I think the momentum is there in the trend that we've seen for the last two quarters..

I really don't have anything really to add to that..

Just one last question Peter, you've outgrown the industry for an extended period, you continue to look terrific on the topline versus everyone else.

And so I asked the question totally acknowledging that, but GDP growth does pick up and we start to see business animal spirits increasing a little bit, what if any are the gating factors to delivering faster revenue growth at this point.

I mean, would you expect if we have a year of 2.5% GDP relative to 1.5 last year, that next year that business would accelerate from that perspective or there are some other factors that play other than your story about your model continuing to win in the marketplace..

Look we’re reporting those above market growth rate and we're not firing on all cylinders. We had a deceleration of even though it's above market, a deceleration in topline growth at Creative.

We’ve had a negative year-over-year growth at Oxford and we think we've done some solid work to improve those and there has been flatness at the small unit life sciences. And if we have factored GDP growth with the hard work of the management team is done, we should be able to grow faster because we’re firing on more cylinders than we are right now.

There's always the supply demand imbalance and growing faster is going to put even more pressure on the supply that’s out there. But we tend to do a pretty good job of recruiting.

So even in a tighter supply environment because of our order flow and the attractiveness of our orders versus someone else's we think we will get more than our fair share of people to work with us. I mean we're putting over 21,000 people, IT professions, clinical research, digital creative people to work every day.

So we really do have a brand and an awareness in the marketplace as it relates to customers and technical resources. And we think that we will continue to have that advantage..

Next question comes from line of Tim McHugh with William Blair. Please go ahead..

Just to clarify on Creative, I think you made the comment basically trends improved versus July and August, but in the kind of mid-single digit growth you're guiding to for the next quarter still, the same as you were talking about I guess you had seen in June.

So it is that conservatism or did things get worse in July and August and you've improved from there. Can you just kind of clarifying that..

What we said was July and August was a little choppy. September was more of a traditional upward trend that we've seen reflective of what that business can do. There's normal fourth quarter seasonality, and no, we're not back to mid teens growth. But we’re pointing in a different direction than we were in June..

I think on Oxford, you got asked about kind of the SG&A and you talked about some of the initiatives. On the gross margin side that was also really strong.

Is there anything besides perm strength that kind of changed?.

I’ll let Ted address that, but it was hard work to build [indiscernible] expanded.

Ted?.

Since bill pay work is hand and hand combat every day, so I think that's just good management by the teams. There's very little perm in that business and so all the margin expansion in the Oxford core piece was related to bill pay and then the pickup we noted from the CyberCoders contribution. .

And the last question we have in queue comes from the line of Mark Marcon with RW Baird. Please go ahead..

A follow-up, with regards to the guidance that you provided in terms of revenue, can you talk just a little bit about how we should think about the core Apex, are you assuming that the trends continue there in terms of what we ended up seeing during the third quarter or is there any variation?.

Yeah, Mark, we've gotten ourselves a little bit end of this cycle of giving you so much data and we specifically broke out the creative group because there has been a deceleration. But you should assume for our silence that there's no reason for us to discuss specific growth rates for Apex..

And we have no further questions in queue..

All right, we thank you for your attention and look forward to reporting our results for the fourth quarter. Thank you very much..

Ladies and gentlemen it does conclude today's conference. I want to thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect..