ASGN Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2019 earnings call. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. Instructions will be given at that time. If you should require assistance any time during the conference call, please press star then zero. And as a reminder, this conference is being recorded. I would now like to turn the call over to your host. Ms. Kimberly Esterkin from Investor Relations. Please go ahead.

Thank you, Lori. Good afternoon, and thank you for joining us today. With me today are Peter Damaris, Chief Executive Officer, Ted Hansen, President, Rand Blazer, President of APEC Systems, George Wilson, President of ECS, and Ed Pierce, Chief Financial Officer. Before we get started, I would like to remind everyone that our presentation contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks 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 and supplemental materials 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, adjusted net income, and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between the GAAP and non-GAAP measures are included in today's press release. I will now turn the call over to Peter Demarest. Peter?

Thank you, Kimberly. Welcome to the On Assignment First Quarter 2019 Earnings Conference Call. Joining me today are Ted Hansen, Rand Blazer, and George Wilson, who will review our performance for the quarter, and Ed Pierce, who will review ASGN's financial results for the first quarter and our estimates for the second quarter of 2019. Before we walk through the results of the quarter, I want to discuss my decision to step down from my role as CEO of ASGN. Some of you know my youngest son has been battling acute myeloid leukemia for 14 months. After successful stem cell transplant in August of 2018, his leukemia has returned, and he will require additional treatment, including a second stem cell transplant. Therefore, at this time, I must step back so that I can devote my time and energy to what is most important, my children's health and my family's welfare. It's been an honor to serve this company for the past 15 years, and I have full confidence that it will continue to thrive under Ted's leadership. And many of you have seen this in action. The board and I have been preparing Ted for this transition for over two years. Ted has not only been intimately involved in the development and execution of our business strategy, but he's also spent considerable time over the past couple of years representing ASTN at investor roadshows and conference presentations. I think you will all agree Ted has full command of ASTN strategies and financial planning given he has been the primary has had the primary responsibility for their development over these past years. ASGN is in very good hands with Ted and the rest of the senior management team. As for me, I will remain on ASGN's board of directors and also be an advisor to the company. As such, we'll be able to help complete the management transition, contribute my institutional knowledge and expertise as needed, and help the company with M&A activities, which is something I've done many times in the past. As I enter my new role at the company, I want to thank every employee, client, and shareholder who has had the confidence in all of us to participate in building this great company. And on a personal note, I want to thank everyone who's allowed me to make family my first priority. Our best years are ahead of ASGN because of our positioning, Cy's senior management team, and most importantly, how work is performed in today's economy. With that, I would like to turn it over to

I'll call over to Ted to discuss this quarter's results. Ted? Thank you, Peter. I'll begin today's discussion by commenting at a high level on the markets we serve, as well as some of the key financial highlights for the quarter. Revenues for the quarter were $923.7 million, up 34.8% year-over-year on a reported basis, or 10.7% on a pro forma basis. This improvement was driven by a number of factors, including our IT business, which continues to see high demand from customers to impart to greater adoption of staff augmentation as a viable alternative to outsourcing, offshoring, and consulting services. We believe that we are well positioned to continue to service our customers' IT needs as technology rapidly evolves and is adopted. In fact, our size and service offerings allow us to grow faster than published IT services industry growth rates and we believe that we are well positioned to generate solid above-market revenue growth in the future. Adjusted EBITDA was $97.1 million, and our cash generation continues to be at or above our expectations. Free cash flow was $36.5 million, and our leverage ratio was 2.65 times trailing 12-month adjusted EBITDA at quarter end. We are estimating that our leverage ratio will be approximately 2.45 times at the end of the second quarter and approximately two times at the end of the year. With respect to recent production at our Apex and Oxford segments, our weekly assignment revenues, which exclude conversion, billable expenses, and direct placement revenues, averaged $56 million for the last two weeks of the quarter, up 12.9% over the same period in 2018. Our federal IT services and solutions business continues to see new long-term contract awards, robust spending against existing contracts, and the positive benefits of increased funding for and visibility of defense, intelligence, and federal civilian agency budgets, particularly in the areas of artificial intelligence and machine learning. During the quarter, ECS secured 255.7 million in new awards. George will speak in more detail regarding these recent awards shortly. For the first quarter, All three of our segments continued to contribute to ASGN's growth. The APEX segment grew 12.5% year-over-year, and the Oxford segment grew 2% year-over-year. The growth rate for both segments was on one fewer billable day, and revenues at Oxford in Q1 of 2018 benefited from favorable currency exchange rates. The APEX and Oxford markets we serve in IT, digital creative marketing, life sciences and engineering, all remain stable and productive during and exiting the quarter. Shifts in the way our customers are supporting their business needs and completing projects remain in our favor. While our staffing services continue to grow and we take market share with greater than market growth rates, our value-added service offerings or consultative work are growing at an even faster pace. I would like to make a few comments on the performance of the Oxford segment. and then turn the call over to Rand, who will discuss the performance of the APEX segment. Revenues for the segment were $149.6 million, up 2% year-over-year. On a same billable day and constant currency basis, the growth rate for the segment would have been 3.5 percentage points higher than reported. Growth was from assignment revenues as permanent placement was down from the first quarter of 2018. The growth in assignment revenues was driven by high growth in our European operations and certain of our domestic practices. The gross margin for the segment was down year-over-year due mainly to a lower mix of permanent placement revenues in the quarter and, to a lesser extent, lower assignment margins related to changes in business mix. We continue to see better productivity and solid year-over-year improvement in the conversion of gross profit into EBITDA. I will now turn the call over to Rand Blazer. Rand?

All right, thanks, Ted. The APEX segment, which consists of APEX Systems and Creative Circle business units, again reported solid results for the quarter. Revenue for the segment were $606.1 million, up 12.5% year-over-year on one fewer billable day than the first quarter of 2018. APEX, which now includes results of APEX Systems and Life Sciences, accounted for 83.7% of the segment's revenues in the quarter, and grew 14.1% year over year. A Creative Circle unit posted year over year growth of 5.3%. Growth at both units was on one fewer billable day in the quarter compared to Q1 2018. Gross margin for the segment was down from the first quarter of 2018, mainly related to a lower mix of PERM placement revenue and a lower assignment gross margin driven by the higher growth in our top accounts relative to our retail accounts in the quarter. Our top accounts generally carry, as you know, lower gross margins. The segment's conversion rate of gross profit into adjusted EBITDA after considering the $1.4 million one-time adjustment referenced in our press release was slightly lower than the Q1 of 2018. Overall for the quarter, the APEX segment's performance was driven by a number of factors, double-digit revenue growth in five of the eight industry verticals we service, including aerospace defense, financial services, healthcare, consumer industrial, and technology industry accounts. Please note that of the remaining three industry verticals, life sciences accounts grew mid-single digits, while telecommunications accounts were flat year-over-year, and business services accounts contracted year-over-year. We posted double-digit growth in both the segment's top and retailer branch-centric accounts, with top accounts growing at a higher rate. Growth in statement of work or consultative-type work also continued to outpace our expectations and our overall revenue growth rate. And lastly, Creative Circle's revenue growth was propelled by growth in our top accounts. As such, we remained focused on realigning our Creative Circle sales team to the changing demand of the client base, including additional focus on selected top accounts. To summarize, the APEX segment posted strong results for the quarter. APEX growth continues to outpace the growth rate of the overall IT staffing industry, and the segment continues to gain market share, as Ted noted earlier. I will now turn the call over to George Wilson to speak about our ECS segment.

George? Thank you, Rand. ECS posted very good performance in the first quarter of 2019, both from a financial and operational standpoint. ECS revenues were $168 million, up 12.7% year-over-year, including a $10 million contribution from DHA. Excluding the contribution from DHA, the ECS segment year-over-year growth rate was 6%. This growth remains ahead of the pure industry average in the federal technology space. EBITDA margin for the quarter was up over the fourth quarter, but down from the first quarter of 2018. During the quarter, we secured a total of $255.7 million in contract awards across a wide range of customers, which resulted in a very healthy book-to-bill ratio of 1.5 to 1. We continue to see strong proposal activity and therefore have made additional investments in our solution architects and proposal teams to leverage these opportunities. We currently have a backlog of proposals submitted and awaiting award of over 1.5 billion, an all-time high for ECS. Some recent awards contributing to our growth include our project to support the U.S. Postal Service in both cybersecurity and digital transformation. We also began work during the first quarter under a key cybersecurity effort with the FBI. At the end of the first quarter, ECS had $1.8 billion in total contract backlog, which equates to a healthy coverage ratio of 2.5 times our trailing 12-month revenues, adjusted to include DHA. In the first quarter, ECS continued to strengthen its technical skills and business partnerships with commercial providers in the cloud, cyber, risk management, and artificial intelligence end markets. To summarize, we are pleased with ECS results for the quarter, and we look forward to sharing our successes in the future. I will now turn the call over to Ed Pierce to discuss ASGN's consolidated financial results for the quarter. Ed?

Thanks, George. As Ted mentioned earlier, revenues for the quarter were up 10.7% year-over-year on a pro forma basis. Pro Forum amounts assume the acquisition of ECS occurred at the beginning of 2017, but do not include the pre-acquisition results of DHA, which was acquired on January 25th of this year. For the quarter, DHA contributed approximately $10 million to our consolidated revenues. If you exclude DHA, our growth rate for the quarter was 9.5%. and adjusting for year-over-year differences in billable days and changes in currency exchange rates, the growth rate for the quarter would have been two percentage points higher. Gross margin for the quarter was 28.6% compared with 29.3% in Q1 of last year on a pro forma basis. Approximately half of the year-over-year decline resulted from the lower mix of permanent placement revenues, and the remainder was split between lower assignment gross margin mainly related to changes in business mix, and the inclusion of DHA, which has a lower gross margin than ECS as a whole. SG&A expenses for the quarter were $187.4 million, or 20.3% of revenues. SG&A included acquisition and integration expenses of $1.4 million, mainly related to the DHA acquisition. As a reminder, we do not include these types of expenses in our guidance estimates. SG&A also included expense of $1.4 million related to the resolution of a pay rate dispute on services provided in prior periods by Apex Systems to a large systems integrator. Interest expense for the quarter was $14.5 million, up from $14.3 million in Q4. Sequential increase in interest expense primarily related to a slightly higher interest rate. Our effective income tax for the quarter was 27.7%. which was above our guidance estimate of 26.5%. This rate variance primarily related to changes in estimates for the effects of tax reform on income taxes for 2018. It was partially offset by excess tax benefits on stock-based compensation, which we do not include in our guidance estimates. Net income of the quarter was 34.9 million, up from 29.1 million in the first quarter of 2018. In adjusting for acquisition and integration expenses of 1.4 million, net income was within our previously announced guidance estimates. Adjusted net income, a non-GAAP measure, was 49.4 million, up from 44 million in the first quarter of 2018. Adjusted EBITDA for the quarter was 97.1 million, up from 74.8 million in the first quarter of 2018 on a reported basis. Cash flows from operating activities were $44 million and free cash flow was $36.5 million. Note that seasonally, free cash flows are lower in the first quarter than the other three quarters, mainly due to the payroll tax reset that occurs at the beginning of the year and the payment of annual incentive compensation that was earned and accrued in the preceding year. For Q1 of this year, pre-cash flow was also affected by higher than normal accounts receivable days sales outstanding. DSOs for the quarter were 61 days, up approximately one day sequentially, and two days year over year. Each DSO day is approximately 10 million. I would now like to make a few comments on our guidance estimates for the second quarter of 2019. For Q2, we estimate revenues will range from $967 to $977 million. This implies revenue growth of 10.1 to 11.2% on a reported basis. Estimated billable days for Q2 are 64, which is the same number as the second quarter of 2018. And we also estimate the mix of permanent placement revenues will improve sequentially, but would be down year over year from the second quarter last year. We estimate gross margin will range from 29.3 to 29.7. This range considers, among other things, the mix of permanent placement revenues, other changes in our business mix, and the addition of DHA, which has lower gross margins than ECS as a whole. We estimate net income will range from 48.6 million to 52.3 million. and that our adjusted EBITDA will range from 113.7 to 118.7 or 11.8 to 12.1% of revenues. I will now turn the call back over to Peter for some closing remarks. Peter.

Thanks, Ed. As our quarterly results continue to prove out, our scale, size, and breadth of services has us positioned well to benefit during a period of historic secular growth for the services industry. Without a doubt, the world of work is changing. Accelerating digital transformation coupled with favorable labor and immigration legislation in an improving U.S. government market are all market forces occurring in our space. We're optimistic that ASGN is well-situated to continue experiencing strong results into the foreseeable future. The entire ASGN team was pleased with our first quarter performance We have a healthy tailwind in all of our segments that should drive strong performance over the remainder of the year. To conclude our prepared remarks, I want to take a moment to again thank our employees, stockholders, and board of directors for having given me the privilege to lead this company over the last 15 years. Thank you for your time, and I would like to now open the call up to participants for questions. Operator.

And ladies and gentlemen, if you would like to ask a question at this time, please press star 1 on your touchtone phone. And our first question comes from Gary Disty. Please go ahead.

Yeah, hi. Good afternoon. Pete, I just want to start by saying it's been a real pleasure. You've done a terrific job. And sorry to see you go under the circumstances, but my best wishes certainly to you and your family. Questions on the business, a couple. Ed, if I could first just clarify, you called out three items that weren't in your guidance. One, the acquisition and integration charges you've historically added back, and it looked like you did. Were the other two items not added back to the adjusted earnings that you represented in the press release? They were not.

The only thing that we add back in the adjusted earnings are the integration and acquisition expenses. So the other two items, the resolution and the income tax matter, were not.

And how much on an after-tax basis would that have been?

It would have been $1.8 million for those two items.

Per cent on an adjusted EPS basis?

It would have added another three or so cents.

A couple more cents? Yeah. Okay, great. And then, you know, you continue to talk about within APEX, the consulting engagement growing faster. Can you give us any color? Should we think of any major differences? I know the profitability is a little better, but are the length of those engagements or the scale of those engagements or any other major things different relative to the traditional assignment engagements in that business?

So Gary's Ted. I'll say a couple things about it and let Rand finish it off. But within that work, obviously, because it's project-related work, the scale of the engagement is larger than any one let's say, placement in the staff-owned business might be for sure. As you noted, the gross margins are slightly better in that area than they are in our staff-owned business. And as we've said in the past, it's growing at a greater rate than our staff-owned business. So, you know, just to give you some color around all of that. Rand, anything else you would add?

No, I think you responded to his question correctly.

And then just one last one, if I could. From a high level, there's been some softening in some of the economic data. It doesn't look like from your quarter or the guidance you're seeing much of that. Any change in tone from your clients, or is it pretty much as you've described it in the last few quarters? Thank you.

Yeah, I would describe it as steady. I mean, I don't think we're having client conversations that are any different than we've had in prior quarters. As Rand noted, certain industries are are up or down more than others, but I think that's the natural ebb and flow of the industries, and so we view it as a steady marketplace. Great. Thank you.

And our next question comes from Kevin McFay. Please go ahead.

Great. Peter, let me pass along my thanks to you and best wishes to your family. It's been great working with you as well. Hey, I just want to talk about the backlog. It seems like the backlog rose by about $330 million to $1.8 billion, so real good visibility there. Is there any way to think about how that comes in? Would there be any nuances to the DHA versus just kind of generic contract that wins that you're winning kind of in the normal course of business?

Yeah, George, why don't you go first, please?

Yeah, sure. Well, the contract backlog did come from a wide range of awards that we recently got. And some of them are on extended periods, like a five-year contract, which is driving that. But it is normal course. And we have had several quarters now where we've posted above one, which is driving the increase.

Got it. And then just, Peter, or whomever is best out, With Epsilon being acquired by Publicis and more on the creative side, as the demand changes there, does that impact on the creative from a sourcing perspective or just increase the value proposition amongst their clients? Just any thoughts? It seems like there's just a lot more M&A within that sector overall.

Yeah, well, two points. One, I think that the ad agencies are having to become more technology-based. Than they were in the past and that's what the sapient deal and this last one Epsilon were to do is to be able to I'm being kind of you know light-hearted, but instead of drawing pretty pictures being able to create the technology that enables the solution It's it's hand-to-hand warfare for anybody who has certain types of technology skills and These companies like Sapient and Epsilon work on a salary bench model versus a W-2 hourly model like we do. So I don't think it has increased the competition for billable staff. I think it has changed the customer base a little bit where they're now more of a competitor than they were in the past. And we have intentionally tried to change our customer mix to be more reliant on corporations than agencies where we would be a subcontractor. So I think that's the response to your question.

No, it sounds like overall it's definitely more demand as opposed to less, which is a great outcome. Thank you.

And our next question comes from Edward Caso. Please go ahead.

Hi. I'll pass along my thoughts, and we will miss you, Peter. My question's around capital deployment here. What's the focus here? You haven't bought back stock in a while. Is it more M&A focused, and what type of M&A? Thanks.

Yeah, so we do have a change of the helm, but as you know, Ted has been a primary partner of mine in building our financial and strategic plan, and our response to your question really hasn't changed. Our available capital competes internally for whatever's best long-term for shareholders, whether it's share repurchase, repayment of debt, or acquisitions, and our focus on acquisitions remains to get One, ECS to a billion dollars in revenue in the next three to four years. And two, to see if we can find, which is much more difficult, but see if we can find a good partner for Apex to help them as they continue to build out their SOW business.

Can you talk a little bit about your perm, which has generally been trending down? Is there... Is it, have we found bottom yet in the percentage, or is there still sort of further movement downward? Thanks.

Well, Ed, I think the good thing about our business model, if you will, is that it's not a PERM-driven model. So, you know, you've seen it come from, you know, nearly 5% of revenues now down to a little over 3%. Our PERM and our looking forward is going to be a little bit better in the second quarter, but you know, it's a, you know, the majority of our perm comes within the IT market. And right now, the way that market is behaving, and this has been historically, it's not always the place where you get the largest growth in perm placement. And so it's a business that we, our perm is certainly a part of our business, but it's not the dominant part. And so you'll see it kind of stay within this range of three to four percent of revenues.

You know, and I would add that what said is the durability of our profit margin is based on the fact of how we run our business. One, on a same number billable day basis, we grew, what was it, 12.5%, and that was based on volume growth. That wasn't based on bill rate expansion. That's always a much more durable model than just constantly raising your pricing. The second thing is our EBITDA margin will not fluctuate nearly as much as a company that is highly dependent on perm placement because it's just not that big a contributor to our business, and it's by design. We want them to have healthy growth, and we want to support them, but we've also told those teams we want, even though it's the most economically sensitive, we want you focused on the business that even in slower economic times has a chance to still be in demand. Great. Thank you.

And our next question comes from Jeff Silber. Please go ahead.

Thanks so much. And Peter, I just wanted to say that our thoughts and prayers are with you as well. In terms of my question, I think I asked this last quarter. I'm going to ask this again. When I look at the supplemental materials, there's a lot of information. I think this is the second consecutive quarter. We've seen a decline in staffing consultants at Oxford. Is there something more going on there? I'm just curious why we're continuing to see this. Thanks.

You know, remember that Oxford number that we report there encompasses both our Oxford core as well as our cyber coders business. And, you know, we're steady, I would say, on the Oxford side, and we're adding to headcount there where we think we have opportunities. And the headcount is up and down a little bit at cyber coders based on just, you know, how we're looking at that business from a strategic standpoint. But I wouldn't say there's anything more than that within those numbers.

Okay. Okay. And in terms of trying to get some improvements or getting that business moving in the right direction again, any thoughts you can share on the strategy of how to do that for Oxford?

Yeah, for Oxford, I mean, I think we're still on the same path that we've talked about in the prior quarters. And we continue to see that the sales strategies that we're putting in place are providing growth for that business. You can see that the growth is a little bit more steady now, quarter to quarter. It's not at the same rate as maybe one of our other units because they're not serving as big a marketplace, if you will, but we can see their growth rates in a good spot. And most importantly, this quarter, we saw an increase in their productivity, which we mentioned in the scripts. Our conversion of gross profit to EBITDA is improving, and that tells you that our EBITDA percentage within that unit is, from a margin standpoint, improving.

Okay, that's good. I appreciate you pointing that out. And just a quick numbers question for you. What should we be modeling for interest expense in the current quarter? 14. 14, great. Okay, thanks so much.

Tim, your line is open. Please go ahead.

Yes, thanks. I just want to follow up on margins, I guess. Just to be clear, in terms of the gross margin spread for Apex in particular and a little bit Oxford, is there anything besides the business mix, I guess, if you normalize for that in terms of pricing or client pressure on the bill price beds, pay spreads that surprised you, or is it simply the mix as it came in?

Yeah, thanks, Tim. So on the Oxford side, it is truly business mix. You know, our units that are growing the fastest are coming at a slightly lower gross margin. And Rand, on the Apex side?

It's pure mix. Our top accounts are growing so fast, and the retail accounts can hardly keep up. And the top accounts definitely have a slightly gross margin. And our top accounts' gross margin, if you looked at it over periods of time, has been very steady. So it's just the mix, totally the mix.

And then, Tim, one more thing to add to that. If you look at both of those units together, obviously PERM on both sides is affecting that just a hair.

Right. Okay. And then on creative, I guess even normalizing for the same day basis, it wasn't quite as strong we saw the last couple quarters. Is there anything that was different in terms of the client engagement or demand levels in that part of the marketplace?

Rand? I think you're correct. The last three quarters of last year we did quite well. In the first quarter, not as well. So typically first quarter is our slowest quarter. We saw that again so far in the first quarter, but it's the lower rate. We didn't come out of the year. If you noticed last year we were 10% growth in Q2 and Q3 and fell just underneath that number in Q4. So we didn't come out of the shoot strong as we got into Q1. And I think some of that is just you know, the demand. The creative marketing world is a digital marketing world, and as you were talking earlier with Peter, there's, you know, churn going on in this marketplace, and we're adjusting the model a bit to wean off of ad agencies and really get into corporate accounts, as Peter said. So I think we're on the right track, right progress. Unfortunately, it's a little lumpy, but I think other than that, it's just the churn in the marketplace.

Okay, great. Thank you.

And our next question comes from Toby Summer. Please go ahead.

Thank you. Peter, it's been a privilege to watch you curate the growth of the business. Good luck. I wanted to ask a question about the statement of work business. Could you describe the competitive moat that you may have around your business in terms how you try to get an edge over the few players who compete at scale?

Yeah, Toby, let me start by saying we have two major classifications of services, workforce management, where we take on some responsibility for service centers, centers of excellence. That work has really been propelling our growth because we can get more out of the workforce and the productivity of the workforce than others that are just providing bodies or are just putting a template out there. In the enterprise solutions area, we're getting stronger and stronger, and I think the CIO, our ultimate client, sees a price advantage with our work. We've talked, Toby, about the five circles, right, and the difference between consulting and staffing, and there's a hybrid in between those two. And we have a price advantage, and as long as we can show quality in our work, and in quals and experience and methodologies, we're having a good time with it. So I think it's just, it's a good sweet spot for us. We don't need to be the architects. We don't need to be the McKinsey's, but there's an awful lot of good IT work to be had.

You know, Toby, I would add, you know, Robert Half reported yesterday and their productivity business is doing quite well and they made a point, which we passionately agree to. if either in their case they have subject matter experts, we do too, but not nearly as many, or if the customer is willing to retain a certain amount of responsibility in architecture and project management, by working with us, they truly get the exact resource they want and they don't have to compromise on Mr. or Mrs. most available versus Mr. or Mrs. most appropriate. So when you talk about a moat, The ability to deliver the exact resource the customer wants versus the customer not having any say into the team that works on their project is appealing. And I think that appeal will continue to grow. Peter, I think you call that our deployment model, which is a real advantage.

Thanks.

Thank you. In the ECS business, There was a slight mixed shift over the last year or so in favor of work. Is that a broad-based change, or is there kind of a single contract win that's been ramping, that's been driving that?

George?

Yeah, hi, Toby, it's George. No, it's not any in particular contractor, no single contract. Just overall, we have had several contracts that have moved, and some of the contracts that we have cost plus, and some of our solutions delivery, they've been growing at a faster pace than some of the rest of the company, which drives that shift. You know, one of the things I would point out is the DHA acquisition. They're 100% fixed price in T&M, so we do believe that the contract mix is going to move back toward our historical highs in terms of T&M and fixed price. Perfect.

Thanks for adding that. Toby, I would point out also, if you were asking about the shift in the type of work that's performed, the thing that appealed to us most about ECS was George's vision that having successfully built Stanley from $2 million to $1 billion, he didn't want to rebuild a company that was just a broad-based government service contractor. He wanted to build a large IT solutions government solutions provider. So we're really not chasing large contracts that is outsourced passport renewal for the State Department or language translation for the State Department or document production for the U.S. Department of Justice. We're really focused on these higher-end IT solutions and then operating some of the solutions we've built. And that has been a very strategic decision George made five, six years ago that we continue to execute on.

Thank you. Last question also for George, I think. Do you happen to have a view on the fiscal 20 budget trajectory?

Yeah, sure I do, but nothing better than you're going to read in the papers and such like that. Right now, I would say that it's better than it's been in a long time, and the pipeline of opportunities that we're seeing and the In the conversation we're having with our customers, we feel very good about the remainder 19 and moving into 20.

Okay. I'll get back to you. Thank you.

And our next question comes from Mark. Mark Han, please go ahead.

Hey, Peter. First of all, I want to pass along my best wishes and sympathy to you and your family and also to express, you know, not only how I'm going to miss working with you, but just the admiration for what you've built over the last 15 years at ASGN with the entire team. And then even before that, what you did with core staff and then more it's, it's just been, Fantastic to see and not sure everybody fully appreciates it, but it's been it's been tremendous. I also want to pass along my best wishes to Ted, Ed, Rand and George, you know, in terms of continuing the legacy of success with regards to. The business questions seem a little bit pedestrian at this point, but one thing that came up in several calls recently is this has been basically around the tightness of the labor market. And, Rand, I'm wondering if you can talk a little bit about, you know, what you're seeing in terms of fill rates and also pay rates within APEX systems.

I'm sorry. Go ahead. Ted, do you want me to respond? Yeah, please. Well, listen, over the past year and a half, we've seen bill rates rise a little faster than pay rates. In this last quarter, we saw it a little bit different, but I don't know that it's a trend yet of anything. Are we able to find quality candidates to submit to our clients? Yes. Our fill ratios are steady, if not up. I know for Q1, it's up year over year over Q1 of last year. So I'd say steady, as Ted said earlier, it's steady as we go. You know, we're very mindful of these metrics, and we're watching closely. But you'll have to remember, too, we have these large contracts, and you don't change the bill rate overnight. It's not day-to-day. It is based on contract. And so there sometimes is a pay rate blip that will cause by the tightness of the labor market, then we'll get bill rate adjustments. So I think we're pretty much in steady, as Ted said, steady position here, and so far it's very balanced.

So, Mark, that's the margin part of the answer, and I would just say if you think about the picture of can we find talent to put to work, we certainly can. If you look at our consultant headcounts, they're up. Our bill rates are up a little bit, and that's certainly a little bit part of the revenue story. But the real part of our revenue story is putting more people to work either, you know, through our staff org business or on our statement of work business. And so, you know, I think that that underlies the fact that we're still able to identify and find the talent and put them to work at our customers.

On the staff log business, are you seeing any sort of change in terms of the behavior of the contractors in terms of how long they're staying on assignments or if they're getting posted assignments or anything along those lines?

Yeah, I don't believe there's any material change there, Mark. I mean, obviously, it's a more active marketplace, so we have to be more attentive to that and If we feel like there's an issue there, we have to proactively go to our customer and think, well, what does that mean on the pay and the bill side and kind of work through that. So I think the burden is on us with our customer and consultant to be more active and aware around that. But I don't think that we see something there that's too much different than what we've seen in past economic times.

Ted, if I could, I agree with Ted 100%. But what I will say is the bigger accounts, the Fortune 500, they are willing to go longer with assignments because they don't want to go through the flux of a tight labor market. So we're seeing a slight inch up in the duration of staffing assignments, particularly in those top accounts, which is good.

That is great. Absolutely. Absolutely. And then, George, on ECS, are you seeing, in other words, discussion during the prior quarter about the pass-through revenue coming through? And obviously, that's a greater portion with regards to some of the AI and ML-type contracts. How should we think about that over the next year or so in terms of how that ends up changing?

Yeah, sure. I think it's going to be a constant part of our business because delivering some of these complex solutions that we are requires us to work with commercial and other government vendors of some pretty unique software and hardware as we deliver these things, particularly in AIML. What we have learned is that, and what we're seeing, is that there's a little bit of seasonality associated with the licenses, purchases, and such, and we did see that last quarter of last year. We'll probably see that again the final quarter of this year, and also some other purchases maybe in the third quarter of this year. So we're trying to get a little bit better handle on when and how we do these purchases and how we can forecast them for you all. But they will be a constant part of our business moving forward as long as we're delivering some of these complex systems.

Yeah, and to kind of quantify it for you, we told you on the fourth quarter call that the pass-throughs were higher than normal on a quarterly basis, but I think we gave you that it typically runs somewhere between 11 and 22% of revenue. Is that about right, George? And this quarter would have been on the lower end of that number, right?

Yeah, this quarter is definitely a lower end of that number. Q4 was a watermark for us. Yeah.

Thank you. I appreciate the color. Again, Peter, best wishes. Thank you, Mark.

And our next question comes from Cliff Greenberg. Please go ahead.

Yeah, hi, Peter and team. Peter, on behalf of Barron Capital and the shareholders in my mutual fund, I want to say thank you very much. It's been a great privilege to be your shareholder over the last six years. We've made three and a half times our money, which is a great return. I view you as one of the top executives I've ever had the privilege to invest with. You built a tremendous business that has a great future. been highly strategic and skilled in assembling these assets and also in grooming great executives. I look forward to Ted's taking us from here, and I wish the best health for your family and your son. And we'll stay in touch.

Thank you, Cliff.

Yeah, yeah.

Bye, guys. Our next question comes from Seth Weber. Please go ahead.

Hi, good evening, Peter. I just wanted to echo best wishes as well. Question, I guess, for either George or the team, just any early success in cross-selling the ECS platform with Apex with any of the bigger commercial customers yet, or is that still kind of still in the early stages?

So, Seth, this is Peter, and then I'll let George respond. Unfortunately, it's a good thing. But both of these companies have more than they can say grace over. Apex was faster growth than the same billable day basis on a consolidated basis. And as you know, it's a tight labor market. And ECS is growing above its own industry growth rate. And so we're measured and will continue to be measured about how we try to cross-sell one another's services, because the worst thing you can do is over-promise and under-deliver. So those conversations are being had. We're trying to coordinate. I would tell you more of the conversations are around where ECS used a lookalike APEX company as a subcontractor to themselves prior to the acquisition that we're trying to default to APEX. And then the second is ECS's built a little bit of revenue outside the federal intelligence space with commercial companies, young brands, Hilton Hotel, Grand Vacations. And to the extent that we don't overstretch ourselves, maybe addressing some of Apex's customers on some cybersecurity needs. But some people could fault us for this, but it's measured and it's market opportunity, but it's being done thoughtfully so that we don't over-promise and under-deliver because of the real reality of a tight labor market and be able to staff these projects appropriately.

That makes sense. Thanks, Peter. Maybe just a quick follow-up. I know it's not a big end market exposure for you, but any comments on Europe? I know you have a little bit of exposure there with the Oxford business. There's been some kind of mixed messaging around Europe lately. Just wondering if you had any particular views.

Yeah, we have not our biggest business, but we have a business in Europe, which you correctly stated is Oxford. I'd say that marketplace to us, we see it steady. I know there's news over there that there are certain things going on, and we certainly are watchful of all that, but our customers continue to need our IT services that Oxford provides and

they're doing just fine.

It continues to, when we talk about business mix inside of Oxford, it's growing a little bit faster than the U.S. business, and so that's a little bit of what you're seeing within the margin.

Good to hear. Thank you very much, guys.

And there are no further questions at this time. Please proceed.

All right. Well, we thank you for your time and attention, and Ted looks forward to reporting our second quarter results shortly. So all the best, everyone, and thank you again for the privilege of being able to work with each and every one of you.

And 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.