Q3 2019 Earnings Call
Greetings and welcome to the U.S.G.N. incorporate.
Third quarter 2019 earnings call at this time, all participants are in listen only mode.
A question and that's a session will follow the formal presentation. If any what's your acquire operator assistance during the conference. Please press Star zero on your telephone keypad. Please note. This conference is being recorded.
Now, let's turn the conference over to your host Kimberly Esterkin Investor Relations. Thank you you may begin.
Operator, good afternoon. Thank you for joining us today for.
Third quarter 2019 conference call with me are Ted Hanson, President and Chief Executive Officer ran Blazer President Texas.
George Wilson, President of easy I and appear Chief Financial Officer.
Before we get started I would like to remind everyone that our commentary contains forward looking statement.
Although we believe these statements are reasonable they are subject to certain risks and uncertainties and outside our actual results could differ materially from the state.
Certain of these risks and uncertainties are described in today's press release and in our FCC filings, we do not assume any obligation to update statements made on this call.
For your convenience, our prepared remarks, and supplemental materials can beat out any investor relations section of our website.
Investors got asked yet dot com.
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 measure.
Reconciliations between GAAP and non-GAAP measures are included in today's press release.
I will now turn the call over <unk>, President and Chief Executive Officer, Ted Hanson <unk>.
Thank you Kimberly and thank you for joining S.P. and third quarter conference call.
It's been exciting temporary S.T.N.S., we accelerate into the next phases of our five year strategic plan as we initially outlined at our analyst day in May of 2018.
2022, we anticipate reaching.
In in top line revenue, which includes 500 million to 700 million at acquired revenue and adjusted EBITDA margins of 12, 12, and a half or so.
I'm pleased to report that we remain on track to reach each of these targets.
Our ability to attain these targets derives from a combination of assay and deep industry expertise.
Expanded consultative in solutions capabilities, and a best talent pool of accomplish professionals, who deliver productive.
Active solutions to our commercial and government clients.
Our unique deployment model differentiates asked yet from other IP service providers.
We're very pleased with a quarterly performance with all numbers either in line or exceeding our Q3 guidance ranges.
Pierce our CFO will provide further details on our results later during today's call. So I will focus on a few key highlights for the quarter, including revenues and free cash flow.
So they revenues for the third quarter totaled just over $1 billion, an increase of 10.6% year over year and at the high end of our guidance range for the quarter.
This growth was mainly driven by strength in our apex any Si es segment and represents a significant milestone for our company by reaching a billion in quarterly revenues for the very first dog.
Hey tax our largest segment, which services clients across multiple commercial end markets.
Generated revenue of 644.1 million.
Up 9.2% year over year.
Right and the apex segment was driven by strong performance our top account portfolio Rand Blazer will provide more color on Apexs success later on today's call.
Yes, which provides IP solutions to the federal government, including the department of Defense intelligence agencies, and certain civilian agencies generated revenue of 206.1 million up 25.7% year over year, George Wilson will speak more on you see a shortly.
Oxford, which offers on demand consulting talent for commercial I T healthcare life Sciences in engineering clients reported revenues of 152.5 million for the third quarter roughly consistent with the prior year period, when adjusted for but billable days and currency fluctuations.
We also continued to generate strong free cash flow for the quarter.
Labeling us to pay down 42 million over a long term debt every purchase 20 million in common stock.
Even after paying down our long term debt buying back shares we saw declined at our average leverage ratio.
2.26 times, our trailing 12 months adjusted EBITDA at quarter end, we anticipate a leverage ratio of approximately 2.19 by the end of 2019.
As I noted last quarter, neither the repayment of our debt nor the repurchase of our shares.
It's a STM for making strategic acquisitions.
In fact, just this past week, we announced the acquisition of Enersis consulting, a leading IP services and solutions provider or 67 million in cash.
And our says consulting is now part of apex systems and we welcome their team to asked yet.
The acquisition a better says consulting is an important step in our strategic growth plan to deliver increased value to both our customers and our shareholders Enersis consulting anticipates generating approximately 31 million in revenues for full year 2019, followed by double digit revenue growth in 2000.
20.
In addition, deepens and expands our capabilities in digital innovation and systems modernization, we expect to realize revenue synergies by leveraging their robust capabilities within our current apex systems, and Oxford customer bases to capture an increase portion of our existing pipeline.
Higher and consulting opportunities, while ran will further discuss enersis consulting capabilities shortly.
I'd like to briefly address our strategy behind this acquisition.
We're making acquisitions is to get it looks to acquire companies continue to evolve our business as a preeminent a differentiated IP services and solutions provider in attractive markets, increasing our consultative capabilities and leveraging our existing account relationships and pipeline continues to be our focus.
Target acquisitions bus fulfill the strategic need be accretive to growth rates, a margin profiles and per bit possessed and demand consultative and solutions capabilities.
Enersis consulting checks the box on each of these attributes their industry expertise combined with a deep focus on developing longstanding customer relationships fits well within a sdns admission to provide high in technology services across each of the end markets we serve.
Through the acquisition of interfaces consulting.
Most recent prior acquisitions of Vcs, India, Jay we're scaling our consultative and solutions capabilities and expanding it to key industry segments across commercial and government sector.
We're strengthening our vision of merging industry expertise and technology solutions with unparalleled account relationships ultimately our strategy to execute our long term business plan to expand our presence in commercial and government IP services and solutions and to acquire assets, which complement our industry expert.
Teas and solution capabilities will further position assay and to achieve strong growth today tomorrow and into the future.
I'll now turn the call over to ramp laser to speak brother about the apex segment third quarter performance Rand.
Great. Thank you Ted.
Hi Tech segment, which consists of apex systems and creative Circle again reported solid results for the quarter as Ted noted third quarter revenues totaled $644.1 million.
922% year over year on a difficult prior year comparable.
In the third quarter 2018, we grew 14% hi script quarter of last year.
Our margins this past quarter were down slightly on lower Perm placement work compared to the third quarter 2018, but remained stable on a sequential basis.
During the third quarter, the apex segment's performance, which was driven by a number of factors including.
First double digit overall revenue growth in a Texas and as well as double digit revenue growth in five in the eight industry verticals, we service, including Aerospace defense business services financial services healthcare and consumer industrial industry accounts.
Our technology vertical posted mid single digit revenue growth for the quarter well life Sciences in telecommunications saw revenue declines year over year.
Top accounts again achieved double digit revenue growth outpacing our overall topline growth, while retail or branch centric accounts, so flat revenues year over year.
Greatest circles revenue improved sequentially with your revenue growth rate in line with our internal expectations for the third quarter.
Lastly growth and consulting work across both our apex and Oxford segment also continued to outpace our internal revenue estimates for the quarter led by Techsystems total consulting revenue was 100.5 million for the third quarter 2019.
30.5% year over year, and now accounts for mid teens as percentage of our combined apex and Oxford segment business.
We remain excited about the opportunity to grow our consulting business as we continue to provide solutions that create added value for our clients.
While achieving strong organic growth is certainly key to our success. It's 10 discussed we also continue to keep an eye out for ways to enhance SGN scroll through strategic acquisitions subsequent to the quarter and we did just that welcoming interest consulting to apex systems.
The apex segment provides a full compliment of IP in technology consulting services.
Workforce mobilization modern enterprise and digital innovation solutions for the commercial sector.
Interest its consulting enhances our current capabilities and digital innovation and enterprise solutions with capabilities and data strategy and transformation machine learning data analytics cloud agile and full stack development endeavor.
The ability to provide these high end services to our growing client base will assist in our mission to continue to differentiate SGN and other IP service providers.
With the acquisition closing less than one week ago. The interest that's consulting team is already in the process a fully integrating within apex systems. We're excited to begin leveraging enersis consulting to experience to serve our growing pipeline of business opportunities across apex systems, Oxford and creative circle accounts.
In summary.
I'm pleased with the attack segments revenue and margin performance this past quarter.
Given our strong performance in Q3 2018, our third quarter 2019 results for all the more noteworthy.
The solid its Q3 results, where we did see a slowdown in client I T spend in August and September and an initial week of October .
It's hard to determine if this trend will continue through the fourth quarter. However, the additional actions, we're taking to better serve our clients with I.T. staffing and expanded digital innovation and enterprise solutions will be important to continuing our strong growth record.
I'll now turn the call every George Wilson to speak about our E. C. S segment George.
Thank you ran.
Yes, this third quarter performance from the standpoint, a financial execution business operations and new business development was outstanding.
We continued to execute our strategy to provide advanced technical solutions, coupled with subject matter expertise to address our customers. Most pressing needs. Several key contract awards provided additional large and durable contract vehicles. So our customers can expand the use of our technologies solutions and services.
Awards included both Recompetes of past contracts contract expansions and net new contract Awards. These awards reflect positively on our strategy and the quality of our execution.
Our financial growth continues to be significantly ahead of the industry average for pure companies in the federal technology space.
Third quarter revenues grew on a reported basis by 25.7% over the prior year, along with similar growth in adjusted EBITDA.
Included in this impressive third port third quarter growth, we're contributions from our prior acquisition. Some one time technology purchases and several license renewals that are critical to our dance solutions, primarily in the defense and intelligence market.
We anticipate revenues from technology purchases and license renewals will be lower in the fourth quarter.
In Q3, we received a total of 954.5 million in contract awards.
Which resulted in a book to Bill ratio 4.6 times to one for the third quarter. Another period of very strong performance on the business development front.
Our book to Bill ratio for the trailing 12 months ended September Thirtyth 2019 was 2.4 times to one.
Yes, one several key awards during the third quarter, which contributed to this extraordinary book to Bill I'd like to Refuel review a few examples beginning with to significantly expanded contracts to continue the development deployment and maintenance obscure unclassified network used by the U.S.U.S. partners worldwide.
As well as an expanded award to develop and deploy software systems and tools on that network. We're also awarded additional task to deliver innovative solutions and services to an important defense customer.
And the contract to support computer network defense of the de Odcs Defense Health Agency network.
We also received an award for the modernization of human resource management applications for the U.S. Marine Corps, including cloud migration applications, they I to improve processes and deliver maximum value to the end customer lastly, we are awarded a multiyear contract to lead I T modernization efforts for the U.S. mens office of the CIO.
Including operations application management.
Cloud migration and service delivery optimization.
All these contracts were competitively awarded and all were single awards.
Our cyber capabilities and technology partnerships continues to expand as we continue to invest heavily in partnerships training and certification of our workforce and it facilities to include our secure operation Center and our advanced AI system integration line.
Our recent proposal activity has remained strong and we believe vcs is positioned well within the advanced solutions and services market, which is currently in high demand.
At the end of third quarter, SCS had $2.7 billion total contract backlog, which was an increase of over 700 million sequentially. This contract backlog equates to a very healthy coverage ratio or 3.6 times, our trailing 12 month revenue.
Ill now turn the call or would it appears to discuss this chance consolidated financial results for the quarter Ed.
Thanks George.
As Ted as highlighted we reported impressive financial results for the quarter.
Revenues for the first time exceeded 1 billion and where the high end of our guidance range earnings and adjusted EBITDA were both above the high end of our guidance range driven by high revenue growth and lower than expected SGN expenses.
Revenue growth at the quarter was 10.6% on a reported basis and pinpoint 1% all the same billable day in constant currency basis.
Revenues from our E. C. S segment were above expectations as a result of higher revenues from license renewals and some one time technology purchases.
We anticipate lower revenues from these type purchases in the fourth quarter.
Gross margin was within our guidance range, but down approximately 70 basis points year over year.
About half of the compression in margin related to a lower mix a permanent placement revenues and the remainder to lower contract margins.
Which are mainly the result of a higher mix of revenues from easy, yes, and from a high volume low margin customers.
Although easy asses gross margins are lower than our other segments it generates double digit.
Adjusted EBITDA margins as a result of its low SGN a expense base.
Its margins are at the higher end of its industry peer group a actually in a expenses were 3.4 million below our guidance range, mainly related to favorable variances in compensation and healthcare expenses.
Our effective tax rate for the quarter was slightly lower than guidance and nine percentage points higher than Q3 last year, which had benefited from a number of discrete items included the including reductions to certain provisional tax estimates made under the tax Reform Act.
Net income adjusted net income and adjusted EBITDA were all above our guidance range, mainly related to favorable expense variances.
Cash flows from operating activities were 91.3 million and free cash flow was 84.4 billion or or 8.4% of revenues.
During the quarter as Ted mentioned, we paid down 42 million of our long term debt and use 20 million to repurchase 324000 shares of our common stock regarding our financial estimates for the fourth quarter were estimating revenues of 995 million to 1.005 billion net income of 50.
1.92, 55.6 million and adjusted EBITDA of 113.2 218.2 million. These estimates include results for Enersis consulting firm to date of its acquisition.
Our estimates are based on estimated billable days of 60.5, which is the same as the fourth quarter last year.
Each billable day is approximately 12.1 billion in assignment revenues.
On a sequential basis, there are 2.5 fewer billable days in Q3 and the effect on Q4 revenues as approximately 30.2 million Oh, We're also estimating a sequential increase of approximately 4% and assignment revenues per billable day.
Our estimates considered the effect of sequentially fewer billable days and two additional holidays Hot E. C. S is revenues from time and material contracts.
As previously mentioned, we're also assuming lower revenues from third party technology purchases. Thank you three [noise].
I'll now turn the call back over to Tad for some closing remarks, Ted thanks.
Thanks, Ed.
I'm very pleased with they see into 2019 financial performance to date, the size scale and breadth of our services continues to position us well for success.
We are unique industry insights and sophisticated project delivery were developed long trusted customer relationships with over 300, the fortune 500 companies as well as major defense intelligence and civilian government agencies.
These relationships enable us to maintain a sustainable business model and margins that can withstand economic cycles.
I'd like to thank you again for your time today for your support they asked yet.
These are exciting times for our company and we look forward to continuing to share our progress on future quarterly calls we will now open the call to your questions operator.
Thank you at this time will be conducting a question and answer session. If he would like to ask questions. Please press star one on your telephone keypad.
A confirmation so indicate your line is in the question Q you me first start to fuel the term of your question from the Q.
For participants easy speaker equipment, it may be necessary to pick up your handset before person Starkey one moment. Please one pull for questions.
Our first question comes to line up at Castle with Wells Fargo Securities. Please proceed with your question.
Hi, good evening congratulations.
The just trying to get a sense, if there's any cultural issues here as you Oh start the migration from us staffing company towards a more consultative solutions company [laughter].
Thanks, Ed you know.
I think our people in the marketplace feel like this is a natural move.
Remember as we've talked about this part of our business, it's really a client driven activity, we're not pushing our way in if you will to work the client is inviting us and based on our past calls at our capabilities not just to provide resources, but also to provide a certain solutions and so its just.
Then a a natural evolution if you will for our people who are serving the customer.
So I think they feel great about not only performing you know the activity of providing resources, but also happy having.
The opportunity to add more value to the relationships not providing solutions on top of that and so I think from a cultural standpoint, it's a it's an upper for all of our teams.
[noise] My other question is on creative Circle, if you could just give us an update there.
Randy will talk about creative circle.
Yeah, I think greatest circles doing fine their growth rate in the third quarter was higher than their growth rate in the second quarter on a year over year basis. You know we've talked a lot about the not just create marketing, but digital marketing and as you the marketing world or go yearns for digital marketing so.
They're competing with a broader set of people now in that marketplace.
They have very good count relationships that very good internal processes, so [laughter] up but they're facing the transition to facing a broader set of UBS competition competition comes from the normal I T players in that marketplace. So they're performing well there they typically ticked up towards the ended the quarter and.
I think they're doing the things we think they should be doing and there's good synergy between the apex in creative team around some of our larger accounts, which is getting healthier and healthier as we go.
Right. Thank you.
Our next question comes a lot of Tobey Sommer with Suntrust. Please proceed with your question.
Thanks [noise].
I was wondering if you could elaborate a little bit.
Rand on your remarks, it said I P spending slowed in within the quarter and kind of early October any kind of color you could give us on that would be helpful. Thanks.
Okay. Ted you want me to go ahead.
So to the yeah I see first of all I think again for the Yaki services, we provide we've seen a little bit of a slow down in that business flow.
We measure that by the amount of assignments are requisitions and and openings that that we are presented with so I think I said in Q3, we had two of our industry's reform in single digit to negative three of our industry single digit two negatives are flat growth year over year technology Telecom.
The occasions and are light and our Midmarket accounts or branch centric accounts. So those three are not keeping up with the other force you will which is I think where we've seen most of the slowdown occur.
No we've gone through this before Toby where you have little what I call pauses in spend by the clients as they reset their projects or they turn left or turn like right in their own strategies. So it's not new to us up but we think Ted nine Ed All felt it was fair to say look we did see little bit of a slow.
Down in spend you see that reflected I mean normally we had seven or eight of our industries all in double digit growth. So that's the that's what we're seeing.
So we would you describe this is a.
Typical oscillation growth rates and and not a not as significant change.
Well I think it it as I said I think it is an isolation that occurs I call. It had been slow weve use those words before on the earnings calls I think there's a little bit of ebb and flow in spending if you think about technology, they're dealing with their manufacturing base in China and have other investment priorities.
I'm just conjecturing this I don't want to speak for that industry.
But I imagine that's going on and telecommunications, there's a continuation of looking for ways to provide more content in different ways. Its streaming content out there. So there's there's good things to do and I think some point. Thanks every so often if you looked at our history over the last three or four years, you do see some oscillation Andy.
ER pattern of business, that's presented to us. So I think that's what I said and then my my remark I said I, you know, where we just increases in normal ebb and flow, we'll see how it goes in the quarter.
Okay.
[noise] within the easy yes segment the growth rate, obviously, a very strong in part by you said some driven by some pass through revenues could you kinda.
[noise] maybe break that.
Out in a little bit more detail that chart tell us maybe what the services growth was versus these product related things or you know how are you you'd like to do it yourself what size a contributor to the a pass through revenues might have been.
George will take that.
Yes sure yeah. Thanks, a quick question.
Right.
No I want to come next year, we're differentiating between two things that's important differentiate between onetime purchases will be nonrecurring and what we haven't recurring purchases license hardware specialized services that are needed to deliver our in solutions as long as we're delivering those end solutions those technology purchases, our license and such occur.
And we'll provide some lumpiness in our quarterly revenues, but over the course of the year typically these things or semi annual or annual licenses or hardware refresh and stuff like that so on annual basis, those were weaker and it'll be smoothed out.
But on a quarterly basis will provide a little bit of lumpiness as far as simple one time purchases those are very small relative to the rested revenue.
So there's been a growth in both our solutions as well as our services delivery, which on an annual basis has been as far as direct labor can a strong gross.
Thank you that's helpful and then a.
Maybe a question for you and I'll get back into queue.
The <unk> your recent acquisition is this.
An example of kind of.
What an acquisition may look like.
In the future as opposed to the kind of step out a platform.
Positions that are that we've seen a SGN consummated in the past.
Well, maybe I'll answer that to waste Tobey I mean.
I think where in the end markets, we want to be and as it relates to IP services, so thinking about making platform acquisitions that get us outside of IP is probably not on our roadmap or not on our roadmap you know it's difficult for me to say in the future, what we would or wouldn't acquire because those are.
As you know opportunistic things, but if you go back to our analyst day in.
April up to 18, you heard us talk about how we wanted to expand our our businesses of apex and they see us through key acquisitions that give us either you know a expanded capabilities or bring us into a customer set that we may not be oh or otherwise enhance the value.
That we're providing to the customer. So I think this is in line with that and you know between that and being placed in the markets that we are now wherever we are where we like I think you'll see a stick to our knitting there.
Thank you very much.
Our next question comes on line of Gary busy with Bank of America. Please see what's your question.
Hey, this is Jay Hanna on for Gary Today [noise].
So I guess my my first question really is just with regard to your Perm business and we've seen some data recently, just suggesting a job openings have come down a bit in recent months just wanted to get your thoughts on what the current market is now and maybe your expectations going forward.
Well look our Perm revenues were basically flat from the second quarter to the third.
You know, it's gotten a we expected to grow the it's as a percent of our total business.
Because the other units are growing faster just some mix of that it's actually going to become a smaller and smaller part I think it's maybe 35 million on a billion in revenues this quarter. So.
I had some <unk>, it's an important part of our business, but not something that we're going to overemphasize. The you know what you see in the market today, I think it up and that piece of the business, it's really a candidate driven marketplace.
Not difficult to find you know clients with opportunities, but the candidate side of it is very difficult. So I think that's a major headwind in that market.
I can't comment too much on you know whether the number of openings is down or not you know on it on a macro basis, but you know that's a little bit of color, what we see inside of our per per business.
Okay, and then just shifting to a pack I mean, obviously the growth continues to be nice despite.
Difficult comps I mean is there anything company specific or or macro driven that's that's changed here, what's generally behind this performance.
Look I don't think I think you're seeing strong strong uptake by our clients on our consulting capabilities inside of apex, obviously, they see a they see a great value and using us on a certain solutions.
In addition to just providing resources. So you know I think that that most of what you're seeing there in terms of their continued strong performance is you know a testament to their account portfolio and the continued expansion of that both in new clients and in terms of share of wallet and.
That's really the past that were on inside of it pets and you know you should look for that to continue.
Okay. Then lastly, really quickly are you willing to comment on the Enersis margin profile.
You know we didn't give information on a margin for assets, we did give us that's what the revenue was.
Expected for 219, what we included our estimates for the quarter you can assume that both their gross margin profile in there you've done margin profile is is higher than you know the rest of our business just based on their business, but I think we'll probably stop there.
Okay. Thank you.
Our next question comes the line I'm certain that then with Jefferies. Please see with your question.
Hi.
Just wanted to follow up and kind of apex for a couple of quarters now Youve discussed the divergence in growth between my top accounts, where you're seeing some really good growth and then the retail branch centric accounts, where maybe not as much strength.
Can you talk about the relative contribution to revenues of each.
Randy do I take that.
Sure we have kinda before that the top accounts represent about.
Mid 70% of our total revenues and branch centric accounts are the remaining.
20, some percent of our accounts, so it's pretty weighted toward the top accounts for sure.
Understood and what is the growth profile of the the French accounts at this point.
Well I think we reported in Q3 and they were flat.
Year over year for the third quarter.
Understood and then can you provide a little bit more color maybe on the Oxford segment.
If I was to take a step back is it fair to say that most or all the weakness is coming from cybercoders or how should we think about the Oxford business itself last quarter. I think you guys talked about it you is showing a little bit growth.
Maybe any color at this point.
You know the growth profile was similar for the third I think adjusted for currency and.
Other effects there slightly above he then.
The Cybercoders business.
It is is performing a little bit better through the quarter.
So they're making some progress on initiatives that we have discussed with you before laid out a difficult marketplace for them, but they are making some headway there.
Understood and as you make headway three those initiatives he is that something that.
It's kind of a six month project to your long project to kind of see some sort of.
I'll call it new normal all else equal.
Meaning that the way that you guys are kind of pushing some office outside of California, and some of those other kinds of things that you guys are doing.
I think those are longer term initiatives surrender I mean.
But the adding of staff and getting them up to productivity as well as diversifying our business geographically is a long term proposition so.
Those are quarters out or not not next month, if you will or next quarter, but we're pleased with the progress we're making.
Understood and then one final question you rest DNA to variance there was was lower than I think or was it was positive.
Can you talk a little bit about more color there was that maybe lower variable compensation costs associated with maybe the different mixing revenues you guys had this quarter or is there something maybe a little bit more.
Sustainable that we might be able to see on a go forward basis, how should we think about that delta that you guys saw this.
One thing is there was a onetime benefit we picked up about 1.2 million that we set out in the earnings release.
You know the other favorable variances, we indicated it was related mainly to compensation and to healthcare expenses.
They're going to have a fair amount of variability and we saw the same thing or almost the same thing in Q4 last year.
We gave estimates for Q4 as you know and a you know, we're expecting an uptick and sequentially and a asked DNA.
About 2.6 to 10.5 million and when you consider that that also includes the S. You know it related to a enersis is pretty much in line with what we would expect.
I think I think if he a anticipate piece in Q4 is about 1.6 million.
1.6.
Okay. Thank you.
Uh huh.
Our next question comes the line of Henry Chen with BMO Capital markets. Please proceed with your question.
Hey, good afternoon, guys I I noticed in maybe I missed it looks like.
The disclosure doesn't have a bill rates anymore, just just curious.
You can just comment.
I guess.
Reason, that's taken away in it and if you could just comment on sort of build rate in the quarter.
No it's not taken away if you're going to supplemental yes, we have that disclosed and we're not calling it bill rate, we're calling it a average revenue per hour work, which we think is a better metric because it includes all the factors.
We go in to a you know paulson customer <unk> <unk>.
And there's not really.
There's not a lot in deference to trade, how or what we reported pass on what reporting today. This is just a better way of looking at it yeah definitely do you have for everybody in the call. We did go back into that flows prior quarters on that so that there was a road map there if you flip back to the supplemental you'll see them. We went back to Q1 of 85 corridor.
Okay got it right.
That okay, great. Thank you and and I guess, just a question on yes.
With that I guess with that sort of elections coming up.
You know what kind of impact is like an election cycle have in the business typically.
George.
Yeah sure. Thanks.
Two things are really consider one is the the budget in the acquisition process in terms of we going to go back to having continuous fragile continuing resolutions burst say versus a budget government shutdowns those type of things.
The other thing to look at is Oh, whether you know one party or the other parties is going to remain in note in the White House.
Both both of those things.
We'll have less effect on E C S than other companies that may provide or not.
Solutions supporting critical missions.
Our customers that even in the federal civilian space is in a department of Homeland Security Department of Justice with marshals and these are areas that even though there might be some funding shifts from one part of the other in some of the other federal civilian organizations like like EPA and such like that.
The funding streams for the mission critical.
Customer sets are pretty pretty even whether it's a democrat or Republican so.
I really don't expect to see a big big change or a big impact to ease yes.
Whoever takes the takes the white house <unk>.
Got it okay, great. Thank so much good.
Our next question comes the line of Seth Weber with RBC capital markets. Please see with your question.
Hi, good afternoon.
I wanted to go back to your comments about the apex business the kind of the cadence that you saw through the quarter. You know our August September early October in can you just tell us what's your kind of a base you know what your assumptions are for that.
For that trajectory here into the fourth quarter do you expect it to kind of continue to to slow down do you expect it to stabilize.
Any comments, there or what sort of what's embedded in your fourth quarter guide. Thanks.
Well I think if you look at that guide.
It's a pretty much implies that we expect to continue to move forward.
You know the gotten trades is roughly the.
The.
You know same revenue levels that we did in the third and it's on less billable days. So we're expecting to grow we see opportunities, where we can grow and that that grand did a good job of just saying look in the in the quarter, whether it was a summer or it was a few weeks that kind of you know was a little here and there that we saw a certain trend in a quarter.
And.
We're just letting you know what we see in how we see a by industry.
Okay. Thanks, and then just your fourth quarter gross margin guidance is pretty strong you know it's sort of suggest you could get close to par year over year for total company. So do you think next to do you think 2020, you could be flat to up on an aggregate gross margin basis.
Well, we're not going to comment on 2020, just yet.
And frankly what.
As it relates to gross margin or what happens is can be driven mainly by business mix.
And so we'll have more to say when we report on Q4.
Okay I appreciate it guys. Thank you.
Our next question comes a lot of Kevin Mcveigh with Credit Suisse. Please proceed with your question.
Great. Thank you so much hey, I Wonder if you could just.
Hey, can you give a little bit of you know the context of Enersis relative to the court digital business itself, I guess, just or where does that sit and what's the incremental opportunity as you leverage that asset.
Well look I mean, the incremental opportunity and outlet Radcom. It is really two two and to come in integrate and engaged on engage on a pipeline of work that we already have developed within our business units under the apex and Oxford segment. So this is not bringing us something to new customer.
Yes, if you will.
These are existing customers needs that we understand qualified or in our pipeline and so you know we believe that there's going to be a pretty immediate uptake. If you will and their ability to help us when more work red with you had anything to that.
Yeah, I guess I agree Ted obviously I think he said there's first wave is they just deliver the revenues that they have projected for themselves and their own client base, but the real way, there's just what Ted said, our ability to muscle up on more of the pipeline, that's pretty strong inside of apex and Oxford.
In addition to that and it's just not only brings solution capability in those areas, but they also have the near shore development Center in Mexico, which we believe is a gold nugget and it it really will I think.
Give us a nice push to providing the kind of services and the scale of services, we want to provide to some of our larger accounts. So there's a real revenue opportunity here with this which is why we did the acquisition.
And ran or are in <unk> in terms of that the the 31 million and revenue is that all new customers or is there any existing overlap with your current.
Customer footprint.
Yeah, Ted I'll go ahead, there there's very few overlap there are couple of accounts that they had that we have [noise].
One and fast service is one of the technology sector, but most of their accounts or more.
Smaller accounts I would say I mean by scale, there different scale business, but not very much customer overlap I guess did yen and.
Point to you.
<unk>.
Thank you.
Our final question comes the line of Mark Mark home with their PC with a question.
Good afternoon, everybody I was wondering if you could talk a little bit more about both statement of work in terms of.
You know hitting roughly $100 million this quarter and growing 30% plus then we take enersis and think about kind of little bit longer term just in terms of you know how how big could not be in a couple of years, assuming we have normal economic growth and.
And what are the constraints to two continuing that growth rate.
You're currently see.
Well look Mark I mean, we can't give you feature numbers on it but you know not just how you're thinking about it strategically and how you're envisioning it.
Well look I think that Weve this business our inside of apex, and Oxford has been growing you know at a 20% plus rates for many years now organically, we don't see any headwinds to that and you never say for anything in the economy that we don't see today and.
I think that obviously is the business gets larger you know it's kinda on a run rate to do about 400 million. There you could law of large numbers could affect growth rates, but otherwise I don't see anything you know in the marketplace matter of fact, I would say that wind is in our sales.
That's great and then can you talk little bit about.
Near shore facility, and how big that can be and what is the what the key attraction is went through the.
You know the intersect Enersis website at <unk>. They had a couple of really cool case studies, but they didn't go through like specifically what attracted you know certain clients to two wanting to you know interact with that particular group and what what are what the actual value.
It was to the extent that I would like.
Well I'll say this and I'll turn it over Iran. The customer doesn't decided to work with the near shore facility or not that's a delivery mechanism. If you will in the solution. So if the solution calls for capabilities that they have in this near shore facility then they deliberate through there because obviously, there's a there's a cost advantage.
To that Randy want to say anything else about the near shore.
Well, yeah, I mean, I agree with what you said, Ted and so Mark I'd say first of all there and it's in Guadalajara, Mexico, which is a business center a lot of universities, there as well as a business point out of the selection in terms of the workforce and the availability of talent and the technical skills.
With that talent has its in central time in the U.S., a very strong English speaking so there's a lot of attributes to that versus you know far and China or or India or some of the Philippines. Some of the other areas and I think companies. We've seen them you know more of an interest by companies too.
Think about building capabilities like this are using keep those like this in different places I agree with Ted it's mostly a decision that they accept our work in supported them and we leveraged that capability, but it's a it's a set of gold nugget leverage and there's a lot of attributes to it that we see.
[laughter] Kartik the other thing that other data would add to that market. This was a that that facet of their business was very attractive all the big consulting companies that you would pick up here in the U.S. We're involved in this competitive process that enersis one.
And so you know I think that and if you think about some of the consulting firms that have near shore capabilities down there everyone that seems to be hotspot. If you will for all the reasons that ran laid out and so we're we're very pleased to have that as a component of our offering though.
It sounded like it in <unk> or just wondering if you could dimensionalize, maybe the cost advantage the price value you know relative to.
Onshore and then and then also like what is the would be available supply how quickly.
When you scale it because it does sound like you have a lot of opportunities resident within the apex, a client base that you could you could.
You know.
Right over to to inertia and just wondering like how how much of a constraint today have in terms of the growth in terms of.
Resources et cetera.
That facility market's been spot up in the last two years for that business and so although we don't give out numbers on headcounts between the U.S. and there you just give you a sense of how scalable. It is if you will we view that that said our could be much larger.
In the future serving our U.S. phase clients. It is today and there's a pretty significant cost advantage to that although we don't give that out for competitive reasons, but you know it's a it's a it's a very nice part of that business. We're very excited to be able to bring that to our clients and.
We think it's really going to help in the value proposition.
That's great and then one other question just with regards to the guidance to what extent did this where the holidays fall you know just this year relative to prior years could that impact you know your your thoughts in terms of.
Numbered billable days and what the potential impact could be as we take a look at this current quarter.
Mark you may we disclose it on a year over year basis.
There's no change in billable days is 60.5.
No sequentially in terms of holiday, there too fewer or two more holidays in Q3 or Q4 than Q3.
And that probably is going to have more of an effect on a is yes, and their time and materials business.
Anyway. That's also included by the way the billable days is included in the supplemental information.
Yeah, I was just thinking about just the variance in terms of.
Well they follow on on Wednesday.
Yeah, there I know very.
Okay, great. Thank you.
Ladies and gentlemen, this is the end of our question and answer session as well as today's call. You may now disconnect. Your lines at this time, we thank you for your participation and have a wonderful day.