Circle8 Group’s second-quarter revenue more than tripled after it acquired European technology staffing platform Circle8 Group B.V., but the expansion came with significantly lower consolidated gross margins.
Second-quarter service revenue reached $319.8 million, compared with $102.9 million a year earlier, representing growth of approximately 211%.
Gross profit increased 108.5% to $23.8 million from $11.4 million.
Because revenue grew substantially faster than gross profit, gross margin contracted to approximately 7.4% from 11.1%, a decline of roughly 370 basis points.
Circle8 attributed much of the margin pressure to the addition of international operations, including European jurisdictions where margins are lower than in its domestic business.
The company’s January acquisition of Circle8 Group B.V. was responsible for the vast majority of the expansion.
The acquisition accounted for approximately $192.2 million of the $204.5 million year-over-year increase in quarterly cost of revenue and approximately $13.8 million of the $12.4 million increase in consolidated gross profit.
That means gross profit from Circle8’s historical business actually declined by approximately $1.4 million year-over-year.
The acquired European business generated $351.2 million of revenue from the January 23 acquisition date through June 30, along with a net loss of approximately $13.5 million.
Operating expenses also increased sharply following the acquisition.
Quarterly SG&A expenses rose 84.2% to $34.8 million from $18.9 million. The Circle8 acquisition accounted for approximately $12 million of that increase, while other factors included transaction expenses, a $2.9 million valuation allowance and approximately $730,000 of bad-debt expense.
Circle8 Group B.V. gives the combined company a significantly larger technology staffing presence in Europe. The business manages more than 8,300 technology professionals and focuses on areas including software development, data analytics, cybersecurity, project management and emerging technologies.
Circle8’s U.S. operation has more than 100 locations and provides staffing across industries including accounting, finance, IT, legal, light industrial and medical markets.
Management’s acquisition strategy is designed to move the company toward higher-growth outsourced services and workforce solutions while expanding multinational customer coverage and building greater revenue visibility through government and enterprise customers.
KEY QUOTES:
“Circle8 plans to integrate companies and maximize synergies and economics to improve sales and lower operating costs, while, at the same time, continuing to focus and expand on its acquisition strategy of high-margin profitable outsourced services and workforce solution providers.”
Circle8 Group statement
