ASGN Incorporated

Greetings and welcome to ASGN Inc.' 's third quarter 2020 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Esherkin, Investor Relations. Thank you. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us today for ASGN's third quarter 2020 conference call. With me are Ted Hansen, President and Chief Executive Officer, 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 commentary contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainty. 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 these statements made on today's 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 measures, such as adjust the EBITDA, adjust the 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 Ted Hampson, President and Chief Executive Officer.

Thank you, Kimberly, and thank you for joining ASTN's third quarter 2020 earnings call. ASTN reported strong results for the third quarter with both revenues and adjusted EBITDA exceeding our expectations. For the quarter, revenues totaled 1.01 billion, up 0.9% from the prior year, and ahead of our guidance of 913 million to 938 million for the quarter. Adjusted EBITDA totaled 113.3 million, or a margin of 11.2% for the third quarter well ahead of our guidance. Performance was broad-based, with each segment outperforming our initial expectations. ECS, in particular, saw better-than-expected results for the third quarter, with revenues up 40% over the prior year. APEX segment revenues, the lower than Q3 of 2019 on tough year-over-year comps, were up sequentially by 3.3%. The improvement was mainly the result of a turnaround in our Apex Systems commercial business. Throughout the quarter, clients continued to request bids on new work in both the commercial and federal government markets. In fact, we witnessed very balanced growth in Q3, with week-over-week revenue improvements across all segments. We believe this steady revenue growth during Q3 is evidence that our commercial business hit trough levels in the second quarter and is now on a solid upward trajectory. Ed Pierce, our CFO, will discuss more on this recovery in our fourth quarter guidance later in today's call. As I've emphasized previously, ASGN's scale, high-end IT service offerings, and large and diverse client base provide us with stability throughout market cycles. These aspects of our business model also provide us with the ability to accelerate as our clients pursue their IT modernization and digital transformation initiatives. M&A continues to be a great way for us to build our capabilities in key solution areas while simultaneously moving higher up in the value chain. In September, we acquired LeapFrog Systems, which is now a part of the Apex segment. Then just post-quarter end, we acquired Skyris as part of ECS. Both companies were purchased with cash on hand. Our free cash flow is our principal source of liquidity and has enabled us to make acquisitions an important part of our capital allocation strategy. without the need to take on additional leverage. Before getting into the specifics of the Leapfrog and Skyris acquisitions, let's first turn to our segment performance for the third quarter. APEX, our largest segment, which includes APEX Systems and Creative Services clients across multiple commercial and markets. For the third quarter of 2020, the APEX segment generated revenue of $596.1 million, down 7.5% year-over-year, but up 3.3% sequentially. For the third quarter, APEX Systems revenues declined 2.7% year-over-year, while Creative Circle revenues declined double digits compared to Q3 2019. Importantly, both APEX Systems and Creative Circle continued to rebound from the COVID-19-related slowdown experienced in the second quarter, with sequential revenue improvements of 3.3% and 3.6% respectively. Apex Systems exited the third quarter at weekly revenue levels above the pre-COVID-19 levels. Creative Circle's weekly revenues, while down double digits from the prior year, continue to move higher with ad, event, and permanent placement revenues seeing steepest declines and digital-related skills and services holding steady. Revenues for Apex Systems demonstrated some notable trends for the third quarter, first Top accounts achieved low single-digit growth rates for Q3, while retail and branch accounts were down. Second, three of our five industry verticals sold revenue improvements, including financial services, health care, and business and government services. Consumer, industrials, and technology, media, and telecom vertical revenues declined year-over-year. Revenues in financial services accounts are largest verticals continued to experience solid double-digit growth across all sectors, including big banks, regional banks, wealth management, insurance, and fintech clients. Our consumer and industrial vertical, while still showing declines year over year, experienced growth within e-commerce, consumer staples, and utility accounts, while retail, energy, hospitality, and transportation, including airlines, were down. Gross margins for the APEX segment were 29% down 80 basis points year-over-year due primarily to the lower permanent placement mix in Creative Circle as a result of COVID-19. Gross margins at APEX systems, however, were up over the prior year period, and both APEX systems and Creative Circle maintained strong EBITDA margins. Importantly, we continued to grow our commercial consulting revenues. Consulting work for the Apex and Oxford segments combined total $110.7 million for the third quarter, up 10.6% year-over-year, returning to double-digit growth rates. Our pipeline for consulting work also remained strong and was up double digits over the prior year period. We expect that our high-end consulting offering will remain an important source of value we provide for our clients. and so we continue to make acquisitions that bolster our consulting capabilities. As noted previously, during the third quarter, we acquired LeapFrog, a specialized consultancy headquartered in Boston, Massachusetts. LeapFrog focuses on providing enterprise-scale digital business transformation services to Fortune 500 clients and expands the APEX segment's proficiencies in digital innovation and enterprise solutions for the financial services, insurance, and healthcare industries. With an accelerating trend toward digital transformation, now is an ideal time to welcome LeapFrog to Apex and ASGN. Under the Apex umbrella, LeapFrog benefits from greater access to industry-leading methodologies and a broader talent pool. At the same time, LeapFrog provides Apex subject matter expertise and long-standing client relationships. While we are just beginning our joint work with LeapFrog, October marks our one-year anniversary of our acquisition of InterSys. With the addition of InterSys, we have been able to bid on an increased amount of work, including securing new contracts in cloud strategy, data and analytics, agile, and DevOps engagements for multiple APEX clients, leveraging InterSys and their work with our cloud partners. We are also seeing great traction with InterSys' near-shore Mexican development center. For one new client this past quarter, the Confined InterSys and APEX team was engaged to provide expertise in cloud data engineering, architecture, and enterprise data governance to expand the client's customer service digitization initiative. We provided a digital roadmap for work execution using both US and Mexican resources to expand our client's cloud data warehouse. We also launched a near-shore engagement with a very large global oil and gas company to develop a mobile fueling app as part of this customer's go-to-market strategy. Our work included design and implementation on an Azure DevOps platform consistent with the client's digital architecture. Let's now turn to ECS, which provides mission-critical solutions to the federal government, including the Department of Defense, intelligence agencies, and other civilian agencies. ECS experienced an exceptional quarter of industry-leading revenue growth, with revenues of $288.6 million, up 40% year-over-year. This growth was primarily driven by the increased demand for artificial intelligence and machine learning, or AIML services. The federal government is rapidly increasing its AIML spend. Bloomberg government is anticipating $2 billion in government-wide contract spending on artificial intelligence and machine learning projects for the current fiscal year, up $500 million from 2019. ECS supports customers across a wide range of domains in the AI ML space, including imagery and video analysis, supply chain and logistics, and sentiment analysis. ECS revenues in the third quarter also benefited from the development and expansion of unclassified networks as well as opportunities presented through previous strategic M&A. ECS's new business pipeline remains strong. The segment was awarded approximately $383.2 million in new business and achieved a book-to-bill of 1.3 to 1 for the third quarter. Backlog improves sequentially to total $2.7 billion at the end of the third quarter, or a healthy coverage ratio of 2.7 times ECS's trailing 12-month revenue. Key contracts won in Q3 include an award to provide the FBI with a full spectrum of cyber and information assurance support across all of their technology systems. Another award to provide data analytics and software development support to the FBI. Several contracts to support cloud DevOps, business intelligence, and data analytics to the Department of Homeland Security, and AI ML support to the government's COVID-19 response and management efforts. Similar to our commercial end markets, we continue to acquire in the government space. Just post-quarter end on October 1st, we announced the acquisition of Skyris. Skyris has joined ECS's Mission Solutions Business Unit, which is focused on a range of cutting-edge and technically complex DOD, intelligence community, and other federal civilian programs and missions. Skyris is one of the largest providers of remote sensing and data science expertise to the National Geospatial Intelligence Agency and is the prime contractor on several significant NGA contract vehicles. Adding Skyris' unique capabilities to ECS further advances the mission-critical solutions we offer our customer and expands ECS' relationship with the NGA. We expect to leverage ECS' past performances and Skyris' capabilities to execute on existing task orders as well as win new geospatial contracts. Turning to our last segment, Oxford. Oxford offers on-demand consulting talent for commercial IT, healthcare, life sciences, and engineering clients, as well as permanent placement talent through our CyberCoders division. The Oxford segment reported revenues of $127.2 million for the third quarter of 2020, down 16.6% from the prior year, but up 5.8% sequentially. Both Oxford and CyberCoders are seeing a solid recovery from their second quarter lows. Across the U.S. and Europe, Oxford's offerings in IT, life sciences, and engineering are trending up as our mid-market accounts gain more confidence in their own business recovery. Although a small part of the business, CyberCoders' permanent placement services also showed strong sequential rebounds. ASTN's business continues to evolve to meet the critical IT needs of our customers. The government market, even with overall market volatility spurred by the impending election, remains insulated from the COVID-19-induced commercial market recession. The commercial market is making a turnaround, and our high-end consulting services and solutions are seeing positive bookings as clients continue to express confidence in our ability to support their needs. I remain bullish on the existing and emerging opportunities for ASGN. We have the right capabilities with the right industry expertise ready to meet the needs of our large and diverse customer account. With that said, I'd now like to turn the call over to Ed Pierce, our CFO, to discuss our third quarter performance and fourth quarter guidance in further detail.