Q4 2019 Earnings Call
Greetings and welcome to the I.S.G.N. incorporated fourth quarter and full year 2019 earnings call.
At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
I'll now turn the conference over to your hosts Kimberly Esterkin Investor Relations.
Thank you good afternoon, and thank you for joining us today for S. T adds fourth quarter 2019 conference call with me are Ted Hanson, President and Chief Executive Officer, Rand Blazer President of apex systems.
George Welfare precedent, Debbie Yeah, and add appear Chief financial Officer.
Before we get started I would like to remind everyone that our commentary. It contains forward looking statement. Although we believe these statements are reasonable they are subject to risks and uncertainties and as such our actual results could differ materially from the state that.
Fair enough. 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 any investor relations section of our website at Investor got asked yet dotcom.
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 supply that 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 to President and Chief Executive Officer, Ted Hanson.
Thank you Kimberly and thank you for joining ASV and fourth quarter and full year 2019 earnings call.
Before we get started I have a quick housekeeping item to discuss the interests of time inefficiency beginning on today's earnings call. We've decided to streamline our prepared remarks to include myself, along with SGN Chief financial officer at peers.
Rand Blazer President of Apex systems, George Wilson, President Vcs are also on the line will be available to answer your questions during today's session.
So, let's turn to the results.
2019 was a year many accomplishments greatest yet as we continue to pursue our strategy to build an IP services provider of scale in the commercial and government markets the or are.
Differentiated resource deployment model.
Our customers, including Fortune 1000 Corporation in Federal Defense and civilian government agencies look to us to be more consultative than ever before you proactively anticipate their need it employs advance workforce management and cutting edge IP 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 that's crucial and complex challenges.
Yes, yes, its ability to quickly, but effectively act on our customers evolving needs as evidenced by our solid financial performance.
We're very pleased with our fourth quarter and full year 2019 result.
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 remained 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'm pleased to note that this is our second consecutive quarter of greater than 1 billion in revenue.
Hey, Pat our largest segment, which surface as clients across multiple commercial end 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, which fit segment revenues grew by 13 point.
1%.
For the full year apex segment revenues improved 9.6%.
In terms of end 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 declined 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 million to $6 million just compare to the same time period a year ago.
The slowdown resulted from higher than expected time off our consultants along with mandatory for lows during the holiday period and acted 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 returned to expected levels and so we believed that this flow down with isolated to the holiday season.
To round out the apex segment creative circle posted revenue inline with our expectations for the quarter.
Gross margin for the Tech segment were 29.7% consistent with our expectation.
Consulting work for the apex, and Oxford segment continued to grow with consulting revenues across those segments totaling $108.1 billion for the fourth quarter.
Up 31.3% year over year.
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 right.
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've made significant progress integrating enersis consulting, which we acquired a mid October 2019.
We expect that the full integration a better since back office support functions and systems will be completed in Q1 2012.
Yes. This acquisition has contributed positively to the overall profitability the apex segment.
And their contribution to our share pipeline and bookings in the fourth quarter, which was above our expectations.
With the integration of Enersis, we've been able to bid on increased amount of work together, including securing new contract in cloud strategy and Dev ops type engagements for multiple clients by leveraging work with our club 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 had been around for decades.
The apex segment is able to provide consultants to assist with the implementation and upgrade to these new technologies with at our clients embedded systems.
Most recently Enersis in apex systems drilling wasn't engagement with a fast growing fintech account.
Where we will apply or advanced data analytic solution team and cloud expertise to develop operating reports and dashboard for our clients customer service teams for this project newly acquired Mexican Development Center will be a critical component of our approach and we believe this center with a contributing factor for.
Turning this work.
We're seeing great traction within our system near shore developed Mexican development center, which will be able to serve many of Apexs U.S. client.
For our clients have even perform psych tours of work being performed on behalf of their accounts.
Now, let's turn to our next largest segment you see a.
Which provides I T solutions to the federal government, including the Department of Defense intelligence agencies in certain civilian agencies for the fourth fourth quarter, you see us 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.
Yes, its financial growth continues to be ahead of the industry average and while we expected the segment outperformed 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 billion that we originally expected would come in 2012.
You see yeses, new business pipeline remains strong as we enter 2020 in Q4 2019, yes received $110.2 million in new contract awards, resulting in a book to Bill ratio of <unk> 0.5 to one which ultimately equates to a healthy book to Bill ratio.
Of 2.1 to one for the full year.
Some of the key contract awards, one bite you see us in the fourth quarter included new tasking to provide technical and analytical support services to the U.S. Defense Advanced Research project agency and a programmatic support effort for the National Oceanic and atmospheric administration or Noah.
In the fourth quarter. We also saw a significant expansion of two key technology contracts that we hold with U.S. postal service in the areas of cloud deployment and geographic information systems used to optimize delivery route.
At the end of the fourth quarter, you see has had a total contract backlog of $2.6 billion or a coverage ratio of 3.2 times you see us is trailing 12 months revenue.
The Oxford segment, which offers on demand consulting talent for commercial I T healthcare life Sciences, and engineering client 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 at work.
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 a $500 million and senior notes to the market.
Through the closing of this offering.
We paid down portion of our term loan b with a variable 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. The deal was so successful that was oversubscribed by $50 million for a total of $550 million.
Yeah, well to elongate our debt tender at favorable fixed rate, while simultaneously paying off our revolving credit facility and portions of our current term loans, we position to ask GE and to get back to the marketplace in the future to support our strategic needs.
Pierce, our CFO will 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, providing higher value higher margin consulting services to our commercial and government clients.
Our goal is not just about businesses for the intrinsic value, but rather to purposefully add companies to ask again that create strong revenue synergies with our existing businesses.
To accomplish this goal we maintain a very strong pipeline of future targets 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 opportunities maybe got up to value chain scale, our services, while leveraging our market position and become even more entrenched with our clients.
Case in point in 2019, we successfully acquired Tha and Enersis as part of our SCS in apex segment, respectively.
Then just over three weeks ago, we welcome Blackstone Federal Tcs.
It is clear that asked GNS and acquire of choice and IP services and solutions for the commercial and government markets.
We're pleased to welcome Blackstone Federal test yet they are impressive group of technical and functional.
Consultant deliver some of the most complex IP services from agile application development to cloud modernization and cyber security to the federal government Blackstone Federal will be joining easy asses Enterprise solutions group.
Blackstone Federal has an 18 year old track record supporting the department of Homeland Security DHS and it's sub agencies.
Through their addition, we deepen our digital transformation capabilities within our government I T solutions business and also add new prime contract pathways, Bart DHS customers. This acquisition fits perfectly with our hybrid growth and capital allocation strategy to scale, you see asked to over $1 billion in revenue.
<unk> combination of organic growth and strategic tuck it.
We anticipate Blackstone Federal we'll see 10% revenue growth this year and EBITDA margins in the mid teens from 2020.
With that said I'll now turn the call over to Ed Pierce speak in more detail about our fourth quarter financial performance Ed.
Thanks Ted.
Ted has highlighted we reported solid financial results for the quarter.
And for the full year 2019 revenues net income and adjusted net income were all above the high end of our guidance estimates.
After excluding the onetime write off of deferred loan costs and acquisition and integration expenses, which were not in our guidance estimates.
Revenue growth for the quarter was 10.3% and included 34.4 million from the purchase of third party software licenses under cost Reimbursable contracts would be so yes.
These purchases, which were expected to occur at various states. In 2020 were made in December 2019 that the direction to the customer to take advantage of favorable pricing and terms.
Revenues from the other divisions were generally in line with expectations, except as Ted mentioned earlier revenues at apex systems were lower than expected in the last two weeks of December as the result of higher than expected time off by consultants and mandatory furloughs at a few large accounts.
Gross profit for the quarter was inline with our expectations gross margin was however below our guidance estimate mainly as a result of pastor growth at apex systems and lease yes.
In our higher margin divisions, and a year over year decline and permanent placement revenues.
As she and I expenses were above our guidance estimates and included 3.9 million an acquisition and integration expenses.
Which were not in our estimates.
Excluding those expenses as she and I was slightly lower than our guidance estimate.
In November AOCF issued 550 million senior notes due 2028 and use of proceeds to pay down borrowings on other senior debt.
Concurrent with that issuance, we completed the restructuring of our senior credit facilities, our term loan b and revolving credit facilities, resulting in a one quarter point reduction in the interest rate and then and an increase in the borrowing capacity under the revolving.
Facility to 250 million.
Connection with the restructuring we took a onetime write off of 80.9 million in deferred loan costs.
The tax rate for the quarter was lower than our guidance estimate due to certain favorable discrete items in the quarter, including excess tax benefits from stock based compensation, a onetime benefit related to stay state tax planning initiatives.
And the true up of state tax expense following the completion and filing of the 2018 state tax returns.
Our full year effective tax rate for 29 T was 26.2%.
We expect our effective tax rate for 2020 before.
Any excess tax benefits from stock based compensation to be approximately 27%.
Net income for the quarter was 39.3 million, which included onetime write off have deferred loan costs of 18.9 million or 13.9 billion after income taxes.
In acquisition and integration expenses of 3.9 billion or 2.9 million after income taxes. Excluding these two items net income was approximately 56.1 million and slightly above our guidance estimates cash flow from operating activities were 81.4 million of free cash flow was 71.5 million.
Or 6.6% of revenues for the quarter accounts receivable Dsos were 57.6 days or 2.5 fewer days in Q4 last year.
E D. ASO day is approximately 11 million.
Adjusted EBITDA was 116.2 million and was above the midpoint of our guidance estimate.
For the full year 2019 cash flows from operating activities were 313.2 million or free cash flow was 280.5 million.
During 2019, we used 160.4 million of our capital resources for acquisitions.
The 3.2 million to pay down debt 20 million to repurchase stock and 53.4 million to increase our cash on hand during 2019, our leverage ratio.
Debt to trailing 12 months adjusted EBITDA declined from 2.69 times at the beginning of the year to 2.3 times it at the end of year.
Regarding our financial estimates for the first quarter of 2020 were estimating revenues of 990 million to 1 billion net income of 42.3 to 45.9 million and adjusted EBITDA of 100 to 105 million.
These estimates include the results from Blackstone Tutterow from the date of its acquisition on January 24 2020.
I'll now turn the call back over to Ted for some closing remarks Ted.
Thanks, Ed.
Doesn't 19 was a year of solid financial and operational execution for last year as we enter 2020 I feel confident that this year is also starting off on a positive note with the successful close of yet another strategic acquisition Blackstone Federal.
Well it is certainly important to discuss our historical track record. It is also it's important to review the go forward opportunities.
In 2020, IP staffing market is expected to total approximately 33 billion with SGN. The number two player in the space.
Psyche services market, where we are quickly gaining market share several times larger than it staffing counterpart at approximately 252 billion in size with asked against total addressable market account for roughly a 120 billion.
As I mentioned, when we began todays call assay and continues to differentiate itself rather unique resource deployment model. Unlike others that are industry were able to leverage the same candidate pool of staff augmentation, but then Taylor our consultants selection for the project individual needs.
This makes our offering much more customized competitive and profitable for our clients.
It also enables us to provide advanced high end technical solutions. In addition to traditional staffing resources. The original foundation of back that of our company.
Our continued success on IP solutions engagement has resulted in longstanding relationships with fortune 1000 companies and federal government and civilian agencies that noted that can really rely on asked again to provide the most advanced workforce technologies and consultants available.
Digital transformation as quickly changing company's business processes from finance and procurement to inventory management.
Enterprise resource planning or ERP in particular is expected to dramatically change with the introduction and acceptance of cognitive computing automation AI machine learning and block chain technologies.
The best service our customers in light of these evolving needs. We continue to invest in the training and certification of our workforce as well as the our facilities, including Apexs Development Center.
In Mexico, Apexs gaming and digital innovation Center in Seattle, and Dcs is secure operation Center and advanced AI systems integration lab in the Virginia area.
Our commitment to investing in areas of growth for our client is evident in the awards. We received during the fourth quarter. For example, Dcs was named and a T. boat that works platinum technology partner in cyber security area, four and a top 200 public cloud MSP for 2019.
With a strengthening economy and a tighter labor supply HD and we'll continue to find ways to grow and evolve our offerings to meet our commercial and government clients best critical need.
This will come from a balanced approach of organic growth combined with strategic tuck in acquisitions.
That expand enhance our IP service solutions.
Thank you all for your time today and for your continued support of asked yet.
Four to continue into share progress on future quarterly calls, we will now open up the call to your questions operator.
Thank you at this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
Our first set of questions come from the line of Kevin Mccarthy of Credit Suisse. Please proceed with your question.
Great. Thanks, so much he it sounds like E folks is kind of giving a little bit more context around attended the transition of the fortune 500, more federal government procurement things like that any sense of the revenue mix around that longer term from a contribution perspective and what that.
Can ultimately mean to the margin profile that business and then just within the context of that any sense of the pace of M&A. This year given he just any thoughts as we kind of remix the business a little bit.
So Kevin Thanks for real on the call for the question Yeah for sure. Thanks Robin.
If you think about.
You know whether we'd have a target if you will for our mix of business between commercial and federal government were really don't.
You can see by the numbers that Dcs is growing much faster.
There are other two segments.
So naturally that's going to increase there, but as they now approach 800 million or basically 25% does as you can get a sense of the mix versus a commercial marketplace that we don't we don't have a specified targeted fuel.
And then is it relates to the question on acquisitions that May I think you could see our posture is going to be what it's been here over the last.
12 to 24 months, which is opportunistic I think that.
We look at capital allocation very carefully it's one of the most important things that we do.
If there is a acquisition out there that we think really is going to increase.
Our value proposition.
As it relates to the customer contracts that we may obtain with it or the solution set and that's really the the marriage that we're looking for and at that point, where like why is likely to make an opportunistic acquisition, but we don't have a target for a certain number of acquisitions during the year.
That's helpful. And then just real quick on kind of the Q4 guidance.
So if you just heard that third party license sale seems like you may come in a little bit below the low end was that primarily the furloughs coming in there and then it just within the context of that did that pull some of the revenue out of the Q1 guidance as it related to that third party software license sale.
No. If you think about maybe those are two separate things.
Okay. So definitely the the furloughs and the awkward timing of the holidays in the last two weeks a year, where both Christmas and new year's day on Wednesday definitely have an impact on those two weeks as we mentioned to the tune of about $5 million to $6 million, we've seen now those spin up.
As customers in January come back up to levels that we would expect.
I think that that's kind of a onetime and then if you will at the ended the year.
On the.
On the commercial side of the business, specifically with our apex scrip circle, and Oxford units. They naturally have a reset coming out of the pre holiday period and into the first of January you have budgets that are spent through.
They don't restart immediately on January one and so we made typically lose 4% to 5% of volume. If you will in those business units as you come from the end of December into the first week in January So I think those two things are not related but those are too that the latter that I mentioned is something that happens every year.
It relates to the easiest software license.
That is not going to be a problem for us on the pull through in Q1.
Because several most of those licenses would have been renewed in the second half of 2020. So it may be a little bit of a headwind then but not here in the first quarter.
Super helpful. Thank you.
Your next question comes from the line of Gary Bisbee of Bank of America. Please proceed with your question.
Hey, guys. Good afternoon, I guess the first question on.
On a pacsun, even adjusting for the five to 6 million, which sounds like it was basically due to the holiday timing.
The growth in the business slowed quite a bit from from Q3, and I think total revenue you've guided to slowing a bit more in Q1, a quarter ago you talked about.
Sort of normal ebb and flow of business coming and going in in a pause in demand debt at apex in some of those end markets is that still how you'd characterize this or are you seeing.
Any impact from.
Just some of the macro uncertainties slowing growth trade whatever it is you know maybe having a more more prolonged impact on growth in the business.
Gary I'll, let him know that ran talk to that because a portion of this is.
Industry late related if you will in terms of apex business at a portion of this is just a natural byproduct of strategy. If we've got going on.
Well so.
Go back Gary you're correct that the ended the third quarter, we reported that our requisition flow requirement flow was slowing down and we reported that to you all at that time that continued into the fourth quarter, having said that the fourth quarter drop off at the yen ended the holiday period was probably the biggest soon.
Tries to us that last holiday falling on Wednesday happen in 2014, and we looked at the numbers way back then when we did our forecast and Didnt expect furloughs or some of the other excess increased paid time off that's probably a little bit of the nature of American work Society today, having said that or are we.
See you know we believes that our comps are obviously very tough in Q1 in Q2 from a year ago. If you look at Q1 in Q2 in 2019, we're over 14 and over 12% growth and the apex systems. So tough comps you know the normal reset the beginning the year, which Ted mentioned a few minutes ago.
Are things that we have to make sure we anticipate and overcome.
Well Rex begin to pick up is budgets get solidified for the year I don't know you know that will unfold as the quarter goes on but there's two industries, where we definitely saw slowdown technology and telecommunications industry. So the other industries are still holding and double digit range to fourth quarter.
I would say also we're continuing to higher we believe the opportunities there and our consulting business is doing very well as you can tell from the numbers Ted gain so.
It's a matter of all these moving pieces and see how it shakes out in the quarter.
Okay. Thanks in in the first follow up on the consulting business. Obviously that was quite strong as you said D is it is the right way to think about this that a lot of this is incremental demand because you're offering something new into the customer or is it fair to say that a portion of that revenue.
It's just a better fit then sort of a traditional assignment revenue that you have in that some of its coming out of that and the reason I ask is if you back that consulting out the growth you know in the non consulting part.
I think it's slowed even more sharply, but maybe that's not a fair way to think about it. Thanks.
Right well 10, I'll go head to respond yeah, I I think the second thing you said is more correct. There is definitely incremental new business coming to us because we're entering into areas, where we're providing new solutions doing different kind of work than we've ever done before I think to some extent some of our past staffing work is being three.
Reshuffled, if you will or redefined into consulting work, whereby we pick up more accountability and responsibility for driving the outcome and the performance for our clients as opposed to just providing the bodies. So it's it's a little bit of both but I think definitely we see it as we're moving into new frontier.
New solutions and certainly taking on some accountability, while controlling the risk associated with that.
Thank you helpful color.
And Gary I was going to add to that you know as you see us drive up to the value change.
These are natural byproducts of what you're going to see there so.
It's a positive thing.
The value proposition to decline this is a higher our stickiness with that client will be come that much more sticky and then ultimately this is up.
If you will better business in terms of rate in terms of margins and in terms of board prospects for the business. So I think that this is the right strategy, if you will and they'll be ebb and flow here as we as we migrate up the value chain.
Yeah I appreciate that thank you.
Our next question comes from the line of Edward Caso of Wells Fargo Securities. Please proceed with your question.
Ed.
And is your phone on mute.
Yeah, sorry about that thank you for taking my questions. It's just Justin Bennati on Fred.
The first question I had was on your your margin outlook for Q1.
It looks like not only gross margins are down but also EBITDA margin. So just wondering if you could walk through some led drivers hand, you know how you're planning to offset some of these mix issues.
Justin actually question you know the one thing that you're going to see here as it relates to gross margins is that easy, yes becomes a much bigger part of the mix you're going to see our gross margin profile kind of react to that probably mix standpoint.
If you look at margins within the business units.
We're doing a very good job, maintaining and even increasing gross margin in certain ways in the naturally I'll, let ed handled this when you come across the year yours loose a certain amount of EBITDA margin in the first quarter as.
Yeah, if you're talking about a decline sequentially.
That is mainly due to the payroll tax reset and historically that's been in terms of effect on EBITDA margin about.
Hundred 30 250 basis points.
And you know as it relates to the effect on gross margin at least on the assignment business, it's roughly 90 basis points.
If you look at it year over year, the margins really haven't moved that much. If you if you compare it with our midpoint.
And Ted's right I mean movement, you that you're saying, it's going to be mainly the result of sort of mix of business changing and the other thing is.
Well, the a lower mix a permanent placement revenues too so.
So to answer your question.
Oh yeah.
Appreciate the color there.
Then just one last one in your conversations with customers have you been hearing anything about a slow down and in healthcare life Sciences, I know, it's weaker this quarter, but in health care.
Leading up to the elections.
No I wouldn't characterize it that way I think what you see from US in life Sciences is just.
A refocus if you will serving the scientific and clinical market and really drilling down harder on t.. So little de emphasis there. If you will on our part and so I think that's what's underneath that I would say in the health care market, you know relating to the reelect election.
And that's not too much of what you hear however, you do you do naturally see you know healthcare providers.
Being.
In the past they were really focused on implementation of you charge systems now that they have these systems. They are really focused on the integration of those systems to their other enterprise systems as well as security and everything else that comes with that you know and so thats about most of the color that we hear from a healthcare clients.
Alright, thank you.
Your next question, it's come from the line of Jeff Silber BMO capital markets. Please proceed with your question.
Thanks, So much one of the focus on Oxford, a little I know, it's a small piece of the business, but excluding the decline in Perm that you called out it looks like the assignment revenue did start to increase year over year, I know, you're not giving specific annual guidance for next year, but do you think you'd be able to.
Grow the Oxford business next year, even if perm continues to go down.
We do right I think that you did see a little bit of growth and the Oxford business.
They're doing a really good job on the EBITDA margin side of things and now we've gotten a little bit of growth.
We have prospects for it to grow you know kind of at market rates. If you will for the.
2020 years, so that would be kind of.
Lower single digit rates.
Obviously, if we can do a little bit better we will.
Okay. That's helpful. In editor is it possible to parse out the impact on four key revenues of the D.A.J. acquisition as well the inner since acquisition just helps us kind of model organic growth in each segment. Thanks.
Yeah, we're not separately disclosing DHS is you know and we gave a commentary on that earlier in the year as it relates as it relates to.
Enersis, we said last quarter that we expected interest as to contribute about 7.6 million and revenues at about 1.4 million and adjusted EBITDA and.
They were pretty much in line with those projections.
Okay, Great and then embedded in guidance for the first quarter can you give us what you're looking for in terms of Blackstone.
Yes that we also included that in our earnings release, and so we're expecting a contribution of about 8.5 million in revenues and a 1.4 million and adjusted EBITDA.
Okay. Thanks, I must admit that I appreciate that thanks, so much okay sure.
Our next question, it's come from the line of Seth Weber of RBC capital markets. Please proceed with your question.
Hey, guys good afternoon.
So maybe maybe George.
The book to Bill and and easy has 0.5, just anything you'd call out there as or just some timing issues is.
Do you feel like that you're you know your win rate or close rate has has changed here. It just any kind of color you right around the the step down and book to Bill. Thanks.
George I'm not sure thing said and appreciate the question no nothing to call out that I'm concerned with in terms of our win rates or any of those type of things it primarily timing, but the industry as well as we've got several things that are hanging out on protests and Wayne protested awards. So I do expect it to pick up in Q1.
We've already seen several awards it.
That support.
That that forecast.
Okay and then.
Hey, Seth I think two I'll add to that if we didnt over celebrate four and a half to one in the third quarter [laughter] and we don't want to get that Theres not a problem to point out around 0.5 to one like George said, it's kind of the cyclical nature of your will seasonal nature. If you will have government contracting if you look at a LTM, it's a real.
The healthy to 2.1 to one so that we're very pleased there like George said I mean, we've we've got a lot of great prospects here and problems.
Yeah, No I understood. Thanks, Thanks, and then just I just want to make sure im understanding the.
The built the software license to 34 million of revenue can you just how does that impact margin in the quarter.
Because gross margin came in a little bit light you know even with the revenue even with the big revenue. So I'm just trying to make sure. We're calibrating for they beat the impact on that revenue on margin. Thanks.
Ed.
Well that was lower margin business Oh, you see US is other revenues. So if you were to normalize or exclude that particular item.
It probably you would see an improvement of about 130 basis points and easy S is Q4 gross margin.
And on a consolidated basis.
Our margins would have gone up about six or would have been 66 basis points higher. So it does have it did have an effect.
Perfect. That's very helpful. Appreciate guys. Thank you.
Our next set of questions from from a line of Tobey Sommer Suntrust Robinson Humphrey. Please proceed with your question.
Thank you.
Hey, Doug can you describe the <unk> long term EBITDA margin implications and.
And and also on Capex spending of moving to higher margin I teach services.
Well Toby I think that this is like a are if you go back to our analyst day in 2018, where we laid out our five year strategy and the in the five year targets. We we incorporated the idea that we were gonna be moving up the value chain.
Now with easy, yes, now what they see it apex systems, having more consultative capabilities that would be one of the drivers to help us move to the target, we set which was 12% to 12.5% EBITDA margins at the end of the five year period, and so while we have little up and down here in EBITDA March.
And.
As we deal with what's going on in the marketplace and the strategic evolution of our business still feel like those are good targets for us over the five year plan.
And then the Capex.
I told you many times in the past that we typically set a target and come in right around 1.1% of revenues that we were right at it for the fourth quarter and I think our stance on that remains the same.
Saying subs.
So I got some background and sell the styles.
Thank you.
Thanks Debbie.
Our next questions come from the line of Tim Mulrooney of William Blair. Please proceed with your question.
Good afternoon, Thanks for taking my questions.
[noise]. So it looks like bill rates were up pretty strong in the fourth quarter, whereas volumes were down a little bit at apex and Oxford is this just reflective of an extremely tight labor market and as it is this the type of mix that you would expect for the next several quarters [noise].
I think Tim like we said you know you've got certainly the biggest contributor this was a falloff in the last two weeks for from some of our large customers here as they had furloughs, which eventually they work through and are now back here.
In January so that was the number one contributor and then you know second to that we we expect our bill rates will continue to rise as we go after our value higher margin work and so I think you should expect to see that I think to an important distinction I would make is pricing is not necessarily.
The changing in our large account portfolio. So you know we're not.
Driving a higher price.
Every day and that work because those are typically set for a year and then they reset at other times. So the increase in rates that you see that our commercial.
Units is definitely driving higher up the value and doing higher and more complex work.
All right [noise].
Very helpful. Thank you and then on Dcs. This week the White house release their budget proposal and I was wondering you know it's early in the process. If you add any thoughts as to how this might impact dcs over the coming year. Thank you.
George.
Yeah sure actually was.
Yeah I looked at the Washington Post article is showed the federal civilian organizations that were being decreased and I was very happy to report to my wife, do we had very few customers in that list.
Customer I mean, we we've been very focused on making sure that our customer set is very.
Mission oriented customer set and that's where the budget moneys are going and that's where we're putting our capital investments and so I.
And I'm not too concerned about the way that the budget was proposed we'll see how it all ends up but I wasn't very concerned about how was proposed.
All right. Thank you.
Our final questions come from the line of Mark Marcon of Baird. Please proceed with your question.
Good afternoon, and thanks for taking my questions.
In regards to the consulting portion of the business.
How much your Dennis is in Oxford versus a parks.
Mark Thanks for the question, we I don't think have separately disclose that I mean, I will say just by just naturally it's a larger chunk in apex and it is in Oxford, but I would say that the growth rates and the margin profiles are very similar in both units.
And the revenue is is generally proportional.
Okay and.
I mean just.
What are we saying like 80%, 90% of <unk> [laughter] and what's the difference in terms of the go to market.
I would say, it's generally proportional and the difference in the go to market is I think consistent with what each one of those businesses focuses on if you think about Oxford not only as they serving iced tea, but they're also serving health care I T.
The life Sciences, and regulatory marketplaces, as well as engineering and so their work in consulting services falls across all of those different offerings, where in apex is very highly focused IP within fortune 500, and fortune 1000 accounts.
In specific industries. The solutions there are more tailored to the profile of those costs.
Got it and then with regards to color labor market, obviously, it's quite tight.
What are you seeing just in terms of any sort of elevation with regards to conversions.
And and then how do we reconciled with tight labor market with good trends in Perm.
So we haven't seen I real change and conversions I mean, I think we spoke to what we saw at the end of the year, but didnt necessarily create or a great anything that we saw around conversions.
I will tell you that ends up in the direct hire permanent placement marketplace. Because it's so candidate driven today that it's definitely causing a bottleneck. If you will in the ability to grow revenues at a faster rate and so while our revenues in permanent placement are down year over year they didn't grow.
Sequentially Q1 to two to two Q3 and then in Q4, we saw a we solved the normal a slowdown that we saw because candidates are less likely to leave a job at the end of the year, when they're waiting out a bonus or something like that.
At the ended the year. So those are kind of the trends, we would say, but overall I would tell you that definitely because candidate supply so tight.
That is causing a more difficult environment to grow revenues in the permanent placements phase.
Got it and then any comments with regards to 85.
No it doesn't really affect our business. If you will like it may some others if anything it's a help because I would think it.
Yeah, it's a help to us I mean, that's.
It's the value proposition, if you will to our large customers I mean, we're bringing talent in a compliant way and so that avoids.
The risk that they have in the gig economy world. So I think in that way you know it I would say, it's a slight help I would not call. It out as an industry trend in 90, that's going to make a meaningful different. It if you will in terms of growth rates, but it's certainly not hurting.
Great and then in financial services, you were up double digits.
Terrific, how do you think about.
From services as the year unfolds eliminate one more.
And you want take that went on financial services.
Well I think we have a broad approach mark to it meaning we're not only focused on the big banks that regional banks Fintech, a wealth management insurance. So we do see some ebb and flow among all of those players the banks continue to show some pretty good earnings results. So.
Our anticipation is we'll continue to grow you know, we have a big footprint and financial services, but if we're not broadening out our portfolio you know, we're not going to sustain the growth. We're certainly trying to broaden out the portfolio.
Great and then Enersis it sounds like you're seeing some early signs of success. There can you just provide a little bit more color in terms of how the cross sales have gone into introductions into your existing client base.
Right.
Yeah, Mark I think I think we've mentioned before we have a pretty large pipeline across our apex, and Oxford units and creative circle units with our account base for value services. So our pipeline is large enough that when we acquired enersis, while we wanted them to deliver on their their legacy occur.
Yes, if you will we needed to cross purpose them. So we have insight. We don't report this number but the amount of pursuits. We're doing jointly now is astronomical considering we've only been at this for two months two and a half months.
We are really leveraging them across our entire client base.
To the point, where probably wearing themselves and so.
We have to watch that but we're certainly picking and choosing areas and I think we are focused on trying to get at that larger pipeline as opposed to just delivering on enersis his legacy accounts.
Have you ever really important obviously okay.
Absolutely. Thanks.
This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation have a great night.
Alright.
Pretty up the middle affair.