ASGN Incorporated

Greetings and welcome to the ASGN Incorporated fourth quarter and full year 2019 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Kimberly Estricant, Investor Relations.

Thank you. Good afternoon, and thank you for joining us today for ASGN's fourth quarter 2019 conference call. With me are Ted Hansen, President and Chief Executive Officer, Fran 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 commentary contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainties. and as such, 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 any 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 at investors.asgn.com. Please also note that on this call, we will be referencing certain non-GAAP financial 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 President and Chief Executive Officer, Ted Hanson.

Thank you, Kimberly. And thank you for joining ASGN's fourth quarter and full year 2019 earnings call. Before we get started, I have a quick housekeeping item to discuss. In the interest of time and efficiency, beginning on today's earnings call, we've decided to streamline our prepared remarks to include myself, along with ASGN's Chief Financial Officer, Ed Pierce. Fran Blazer, President of Apex Systems, and George Wilson, President of ECS, are also on the line and will be available to answer your questions during the Q&A session. So let's turn to the results. 2019 was the year of many accomplishments for ASGN as we continue to pursue our strategy to build an IT services provider of scale in the commercial and government markets via our differentiated resource deployment model. Our customers, including Fortune 1000 Corporation, federal defense and civilian government agencies, look to us to be more consultative than ever before, to proactively anticipate their needs, and employ advanced workforce management and cutting-edge IT solutions to accomplish each of their business objectives. Through continued organic growth, combined with select strategic tuck-in acquisitions, we successfully respond to our clients' most crucial and complex challenges. ASGN's ability to quickly but effectively act on our customers' evolving needs is evidenced by our solid financial performance. We are very pleased with our fourth quarter and full year 2019 results. All numbers reported for the quarter were in line with or exceeded our guidance, with revenues for both Q4 and for the full year 2019 improving double digits year-over-year. Margins also remain solid, with EBITDA margins of 11.3%, and 11.4% for the quarter and full year, respectively. Consolidated revenues for the fourth quarter totaled just over $1 billion, up 10.3% year-over-year and above the high end of our guidance range. I am pleased to note that this is our second consecutive quarter of greater than $1 billion in revenues. APEX, our largest segment, which services clients across multiple commercial and markets, generated revenue of $641.3 million for the quarter, up 6.1% year-over-year on very tough comps in the fourth quarter of 2018, in which segment revenues grew by 13.1%. For the full year, APEX segment revenues improved 9.6%. In terms of in-markets for the APEX segment, in the fourth quarter, business services, financial services, healthcare, and consumer industrial all posted double-digit revenue growth over the prior period. Aerospace and defense posted single-digit growth year-over-year for the quarter, and the communications, media, life sciences, and technology end markets each saw slight revenue declines over the fourth quarter of 2018. Despite the double-digit revenue growth in business and financial services accounts, There was a slowdown in these end markets in the final two weeks of December, which led to a revenue shortfall of approximately $5 to $6 million as compared to the same time period a year ago. This slowdown resulted from higher than expected time off our consultants, along with mandatory furloughs during the holiday period enacted by a small number of our key accounts. Top accounts still achieved high single digit growth rates for the fourth quarter, while retail and branch accounts grew mid-single digits year-over-year. Fortunately, in January, we saw production return to expected levels, and so we believe that this slowdown was isolated to the holiday season. To round out the Apex segment, Creative Circle posted revenue in line with our expectations for the quarter. Gross margins for the Apex segment were 29.7%, consistent with our expectations. Consulting work for the Apex and Oxford segments continued to grow with consulting revenues across both segments totaling $108.1 million for the fourth quarter, up 31.3% year-over-year. On a full year basis, the Apex and Oxford segments reported consulting revenues of $398.7 million, up 28.7% over 2018. Margins for our consulting work continue to outperform overall margin rates. As we continue to grow our consulting revenues organically, we also look to broaden our capabilities through strategic M&A. In the fourth quarter, we made significant progress integrating InterSys Consulting, which we acquired in mid-October 2019. We expect that the full integration of InterSys back to office support functions and systems will be completed in Q1, 2020. The Intersys acquisition has contributed positively to the overall profitability of the APEX segment and their contribution to our shared pipeline and bookings in the fourth quarter, which was above our expectations. With the integration of Intersys, we've been able to bid on an increased amount of work together, including securing new contracts in cloud strategy and DevOps-type engagements for multiple clients by leveraging work with our cloud partners. There's a scarcity of talent to support newer cloud services, as opposed to talent to support the traditional enterprise resource planning software vendors that have been around for decades. The APEC segment is able to provide consultants to assist with the implementation and upgrades of these new technologies within our clients' embedded systems. Most recently, InterSys and Apex Systems jointly won an engagement with a fast-growing fintech account where we will apply our advanced data analytics solution team and cloud expertise to develop operating reports and dashboards for our client customer service team. For this project, a newly acquired Mexican development center will be a critical component of our approach, and we believe this center was a contributing factor for winning this work. We are seeing great traction with InterSys' Near Shore Mexican Development Center, which will be able to serve many of APEX's U.S. clients. Some of our clients have even performed site tours of work being performed on behalf of their account. Now let's turn to our next largest segment, ECS, which provides IT solutions to the federal government, including the Department of Defense intelligence agencies and certain civilian agencies. fourth quarter, ECS reported revenues of $233.5 million, up 34.3% year-over-year, primarily driven by high demand for machine learning services and solutions from our defense customers. ECS's financial growth continues to be ahead of the industry average, and while we expected the segment to outperform for the fourth quarter and full year, performance was even stronger than initially anticipated due to a customer-driven early purchase of software licenses under a cost-reimbursable contract of $34.4 million that we originally expected would come in 2020. CCS's new business pipeline remains strong as we enter 2020. In Q4 2019, CCS received $110.2 million in new contract awards, resulting in a book-to-bill ratio of 0.5 to 1, which ultimately equates to a healthy book-to-bill ratio of 2.1 to 1 for the full year. Some of the key contract awards won by ECS in the fourth quarter included new tasking to provide technical and analytical support services to the U.S. Defense Advanced Research Projects Agency and a programmatic support effort for the National Oceanic and Atmospheric Administration, or NOAA. In the fourth quarter, we also saw a significant expansion of two key technology contracts that we hold with the U.S. Special Service in the areas of cloud deployment and geographic information systems used to optimize delivery routes. At the end of the fourth quarter, ECS had a total contract backlog of $2.6 billion, or a coverage ratio of 3.2 times ECS's trailing 12-months revenue. The Oxford segment, which offers on-demand consulting talent for commercial, IT, healthcare, life sciences, and engineering clients, reported revenues of $150.4 million for the fourth quarter, down slightly from the prior year period as a result of a decrease in per-placement revenue. I'd like to take a moment now to focus on our borrowing capacity and, specifically, the unsecured notes we issued in the fourth quarter. In November, we announced our intention to offer $500 million in senior notes for the market. Through the closing of this offering, we paid down a portion of our term loan fees with a bearable interest rate and established a new loan with a highly competitive fixed rate. This allowed us to secure a longer-term piece of capital while simultaneously lowering our balance sheet risk. I'm pleased to report that our team's execution of the deal was so successful that it was oversubscribed by $50 million for a total of $550 million. Being able to elongate our debt tenor at favorable fixed rates while simultaneously paying off our revolving credit facility and portions of our current term loans, we positioned ASGN to go back to the marketplace in the future to support our strategic needs. At Pierce, our CFO, We'll speak further on the specifics of our high-yield bond deal shortly. Importantly, our strong free cash flow has not only enabled us to pay down our debt, but to also make strategic tuck-in acquisitions that fit with our long-term strategy of providing higher value, higher margin consulting services to our commercial and government clients. Our goal is not just to buy businesses for their intrinsic value, but rather to purposefully add companies to ASGN that create strong revenue synergies with our existing businesses. To accomplish this goal, we maintain a very strong pipeline of future targets so that we can be ready to make opportunistic purchases in the commercial and government spaces that support our long-term strategy. While we are not necessarily shying away from transformative M&A, we are focused now on tuck-ins that enable us to leverage our current pipeline of opportunity, moving us up the value chain to scale our services while leveraging our market position and become even more entrenched with our clients. Case in point, in 2019, we successfully acquired DHA and InterSys as part of our ECS and APEX segments, respectively. Then, just over three weeks ago, we welcomed Blackstone Federal to ECS. It is clear that ASGN is an acquirer of choice in IT services and solutions for the commercial and government markets. We are pleased to welcome Blackstone Federal to ASTN. Their impressive group of technical and functional consultants deliver some of the most complex IT services from agile application development to cloud modernization and cybersecurity to the federal government. Blackstone Federal will be joining ECS's Enterprise Solutions Group. Blackstone Federal has an 18-year-old track record supporting the Department of Homeland Security, DHS, and its sub-agency. Through their addition, we deepen our digital transformation capabilities within our government IT solutions business and also add new prime contract pathways for our DHS customers. This acquisition fits perfectly with our hybrid growth and capital allocation strategy to scale ECS to over a billion dollars in revenues through a combination of organic growth and strategic tuck-ins. We anticipate Blackstone Federal will see 10% revenue growth this year and EBITDA margins in the mid-teens of 2020. With that said, I'll now turn the call over to Ed Pierce to speak in more detail about our fourth quarter financial performance. Ed?