Q1 2020 Earnings Call
[music].
Thank you for a standby.
That's a conference operator.
Welcome to the U.S.G.N. incorporated first quarter 2020 always call.
As a reminder.
Dispenser listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
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Operator, I think store in zero.
I'd now like to turn the conference over Kimberly Esterkin Investor Relations. Please go ahead.
Thank you operator good afternoon. Thank you for joining us today <unk> first quarter 2020.
With me are caught Hanson, President and Chief Executive Officer, Rand Blazer, President apex systems drugs Wilson President.
And appear Chief financial Officer.
Before we get started I would like to remind everyone that our commentary can export talking state.
Although we believe these statements are reasonable they are subject to risks.
And I.
Actual results could differ materially from the state.
These risks and uncertainties are described in today's press release and in RCC filing 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.
Aster Dot dot.
Dot com.
Please also note that on this call we will be reference certain non-GAAP measures such as adjusted EBITDA adjusted net income and free cash flow.
These non-GAAP measures are intended to supplement the comparable GAAP measure.
Conciliations between the gap 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 can't get you for joining asked against first quarter 2020 earnings call. We hope that everyone listening today is staying safe and healthy.
He asked you haven't had a very solid Q1 with revenues adjusted EBITDA, that's falling within our guidance ranges for the quarter.
First quarter 2020 revenues of 990.5 million.
Were up 7.2% year over year.
Adjusted EBITDA up on a 3.5 million increased 6.6% over the prior year.
This growth was led by continued above market performance area, Yeah segment, which generated industry, leading yearoveryear growth in revenues of 212.7 million up 26.6% over the prior year in Bahrain Tech segment, where despite the impact in March 'cause it 19 price.
Revenues of 629.1 billion improved 3.8% with apex systems growing 4.4% on top double digit year over year talk.
Through February we continue to see growth across our business at or above our expectations for the two month.
That's what your March and the onset of the public health crisis took hold our businesses serving commercial market accounts leveled off and in some cases saw slight retraction.
While our federal government business continued to see strong growth.
During late February in early March and that albeit virtually with S. Yens board of directors at our senior leadership to execute our business continuity plan as well as to deploy the necessary measures to ensure the safety and well being of each of our employees. Our teams could quickly to understand to address the individual safety.
Protocols and service requirements of our clients.
Leveraging our strong technology platforms, we shifted our total workforce to 100% remote.
Then over the month of March and into early April over 80% of our billable consultants to transition to remote work with just a small portion of the central staff still working on site in compliance with required safety protocols.
The past eight weeks I've been challenging, but fortunately for us over the same time period, we've seen the benefits of the strategic initiatives, we've undertaken to evolve and strikes and ask you guys business.
We've become much more IP centric and in doing so have expanded our large account portfolio, which now includes over 50% of the fortune 500, it's well keep federal defense and civilian government agencies.
We've increased our high end I T solution capabilities and that's a result, our customers continue to rely on us not only to fulfill existing contract, but also bring innovative ideas in cloud computing networking and mobility to enable their employees to work safely and efficiently off site.
Lastly, but certainly not least we've gained significant exposure to the federal government marketplace, an industry that is often more insulated from economic volatility than commercial industry segment, where now the prime contractor on many mission critical assignments for the federal government.
Each of these strategic developments has positioned us not only for stability during the current downturn, but also for strength in the future recovery.
Our flexible cost structure and solid free cash flow generation provide further stability to our business in the first quarter of 2020, we generated $48.8 million of free cash flow.
Up 33.9% year over year at the end of Q1, we also had modest borrowings under our 250 million revolving credit facility, mainly due to our acquisition of Blackstone Federal in January along with share repurchases, which we have set fees.
A moderate amount of debt has always been part of they asked against balanced capital allocation strategy and supported our ability to make acquisitions.
Please do note however that as a result of our strong free cash flow we pay for our most recent acquisitions that are sits consulting and Blackstone federal essentially with cash and did not need to take on any additional leverage.
Even in the current market conditions, our acquisition pipeline is active and acquisitions remain a part of they asked against long term growth strategy.
Continuing on with strong our strong financial position as you may recall in the fourth quarter up 2019, we improved our capital structure issuing 550 million in senior unsecured notes due 2028 and amending our senior credit facility do 2025.
As a result of these actions we fix the interest rate on half of our indebtedness.
Lengthened our debt tender about 2.3 years, and we increased our borrowing capacity under our revolving credit facility by 50 million to 250 million.
These efforts could not have been timelier as they provided us with increased flexibility to direct on to the best interest of our employees our clients that our stockholders.
Currently we have no principal payments due on any of these borrowings until they reach maturity.
With that his background lets now talk about our performance in the first quarter.
Apex, our largest segment, which includes apex systems that creative circle services clients across multiple commercial end markets for the first quarter of 2020 detect segment generated.
Revenues of 629.1 million up 3.8% year over year on a very difficult double digit comp as you may recall detect segment grew 12.5% year over year in the first quarter up to 19, they pick systems, leading away at 14.1% growth over the prior year period.
Great Circle posted very slight growth for the quarter.
Early growth level slowed in March attributable mostly to the crisis driven a reduction in add at that time per placement revenues only digital related skill place that's held steady through the quarter.
Tech systems revenue grew 4.4% year over year revenue for apex systems, while holding steady March demonstrated some notable trends for the bottom up to the quarter.
Revenues in financial services business services consumer industrial despite weakness in retail energy hospitality and transportation specifically airlines.
In aerospace the beds at life Sciences were all up in March year over year keep in mind. The apex has a limited exposure to the airline oil and gas and hospitality industries.
Revenues in health care telecommunications hadn't technology accounts were down in March you every year.
Revenues of skill areas, such as cloud digital software Engineering project management software maintenance support Java and mobile development performed the best while electronic Health Records modernization information security side, typically Q, a and business intelligence were down in March.
Fair to the prior year.
We're seeing some green shoots being created and financial services as stimulus funding pushes through commercial banks. It is creating a heightened need for our clients and put that new I T measures apex systems, a large exposure to the financial services industry should provide but growth opportunities and stability to our business.
Going forward.
Apex segment top accounts achieved high single digit growth rates for Q1, well branch centric accounts declined low single digits.
Apex segment gross margin totaled 29.3% for Q1, consistent with our expectation importantly segment margins remained steady throughout March.
Consulting work for the apex, and Oxford segments totaled 104.1 billion for the first quarter up 22.2% year over year.
Margins for our consulting work outperformed overall margin rates for both the apex and Oxford segment.
We expect that are high and consulting offering will continue to be an important source of the value we provide our clients going forward.
As we continue to grow our consulting revenues organically, we also broadened our capabilities through new opportunities presented by Enersis consulting, which we acquired in the fourth quarter 219.
With the integration of Enersis, we've been able to bid on increased amount of work together most recently as a joint effort apex systems and Enersis supported a large consumer production company.
With their transformation efforts to cloud computing and more modern data capabilities.
Tech systems that Enersis also led to a large consumer services provider in their journey to modernize their eye to product set and fully integrate this system with the client CR it.
We're also seeing great traction with Enersis near shore, Mexican don't develop et cetera, which is well positioned to serve many of the apex and Oxford U.S. Clive.
Interestingly under current market conditions, we've witnessed a growing number of clients looking to reashure their capabilities.
As the outsourcing companies are finding it difficult to transition there offshore staff to remote work.
Our near Shore Mexican Development Center provides a great alternative when traditional outsourcing to offshore may not be feasible or come with new found risk.
Let's now turn to East, Yes, which provides mission critical solutions for the federal government, including the department that that's intelligence agencies and other civilian agencies.
Yes continued to achieved industry, leading revenue growth for the first quarter of 2020 and reported revenues of 2000 12.7 million up 26.6% year over year, primarily driven by continued high demand from federal government customers for machine learning and artificial intelligence services.
The increase volume of cloud services and solutions and new opportunities presented by strategic M&A.
Yes did not see a slowdown in revenue in March in fact, this segment saw slight pickup in revenues in the final month of the quarter as is consistent with these yes. Its march performance.
We are fortunate to have seen no material changes to revenue or backlog and yes in the first quarter 2020, as a result of decoded 19.
And economic downturn government work tends to be more stable and that's Dcs provides a nice safety net to our business.
We also often see the federal government spend more money during recessionary times to stimulate the economy.
Yes, this new business pipeline remains robust with no slowdown in customer request for proposal during the first quarter. The segment achieved a strong book to Bill up 1.4 to one and received 294 million in new contract Awards.
Contracts one in Q1 include high and technical solutions for our global public safety network within the Department of Defense, a significant expansion of machine learning services under a new contract also within the department of defense and the significant expansion of professional services provided to the U.S. postal service.
This strength in the first quarter awards increased contract backlog to 2.7 billion at the end of Q1 or a healthy coverage ratio of three times is yes. This trailing 12 month revenue.
As it relates to M&A, we've continued to be acquisitive and the government market in January we welcome Blackstone Federal Tcs, adding new prime contract pathways with the department of Homeland Security.
Baxter has now been fully integrated and Tcs and but he's yes in blackstone's customers are seeing the benefits of the combined companies.
In terms of global crisis. The work you see has performed for our federal government becomes even more vital towards the end of March you see us with tests with eight in the U.S. navies coveted 19 relief efforts on the West coast.
Members of the easiest team are now serving as the 18 mission lead as well as the Division officer for automated data processing and communication.
On the U.S. Navy ship Mercy, a ship equipped to provide rapid flexible and mobile acute medical and surgical services.
We're proud to support our government and beating critical challenges during such a trying time for our nation.
Turning to our last segment, Oxford, Oxford offers on demand consulting talent for commercial 80, healthcare life Sciences, and engineering client, Oxford reported revenues of 148.7 million for the first quarter of 2020 down slightly year over year, while the segment permanent placement revenues.
Were up 1.8% over the prior first quarter keep in mind. However at the permanent placement work comprises only 3.4% of our consolidated ASV and revenues.
As we entered the second quarter of 2020, we know that the effects of Kevin Knight team will last well beyond the impact asked again first began to experience in mid March.
Given this sort of certainty we will not be providing our typical quarterly guidance for the second quarter.
Dead, we will offer several revenues scenarios in our supplemental materials, which you can find on our Investor Relations website at Pierce, our CFO will provide additional detail some of these scenarios.
Even with that our typical near term visibility our scale hired service offerings, and large and diverse client base, including a significant portion of business that relates to the stable federal government work position us well to not only address immediate challenges related to pivot 19, but also to drive longer.
Termed out.
Flexible cost structure provides further stability to our business.
As a reminder, SGN carries a little it from a bench as a result, what our assignment revenues decline our cost of sales fall proportionately.
Our cash SGN expenses are also variable with one third of these expenses comprised of incentive based compensation tied directly to gross profit or adjusted EBITDA with that said when our revenues decline, we see a higher conversion of our free cash flow to adjusted EBITDA due to lower working capital work.
Wireless.
Ill now turn the call over to Ed Pierce to speak more about these revenue scenarios and discuss our first quarter financial performance in further detail Ed.
Thanks, Ted Good afternoon, everyone. Ted mentioned, our financial results for the quarter were in line with our guidance estimate.
Despite experiencing some softening in the last couple of weeks of March related to the effects of cobot 19.
Operating cash flows were also in line with our expectations.
Mostly you know operating and free cash flow tend to be.
You are mainly related to the high growth of our easy S. I've been.
Which carries a lower gross margin than our other operating units. Although easy has has a little gross margin than or other divisions. It's gross margin compares favorably with similarly, situated federal government contractors.
And it's adjusted even a margin is slight only slightly below our consolidated margin.
S.U.N.A. expenses for slightly above our guidance range, because else acquisition and integration expenses 2.5 million, which were not included in our guidance. Excluding those expenses S.G.N.A. came in below our guidance, mainly as a result of lower than expected branch compensation expenses.
Healthcare costs.
Are effective tax rate, 26.5% was slightly lower than guidance as a result of excess tax benefits on stock based compensation, which we do not include in our guidance estimates a net income adjusted that income and adjusted EBITDA. We're all within our guidance ranges in benefited from gross margin.
<unk> margin coming in at the high end of our range and favorable operating expense there variances.
Cash flows from operating activities were 60, <unk> 1 million in pre cash flow was 48.8 million.
Ah capital expenditures for the quarter were 15.3 million, which which included cost.
Related to a major front and back office systems upgrade project a quarter in our secured senior secured debt leverage ratio was 1.14 to one and we had 213.1 million available under our 250 million revolving credit facility subsequent to the end of the corridor.
We paid all borrowings.
Under the revolver now had full availability.
Because of the uncertainty caused by the Cohmad 19, <unk> 10 mention we're not providing financial guidance.
For the second quarter of 2020, we plan to resume providing board guidance. Once you get packs of the pandemic on our business become more predictable.
In place of our traditional guidance. We included in our supplemental earnings material certain scenarios that illustrate possible financial outcomes at various revenue levels.
Scenarios consider production trends over the.
Last few weeks and it's not possible would they need degree of position to protect.
Level revenues, when a trough will occur or what the rate of recovery will be having said that these scenarios do illustrate the benefits of our federal government government services business, which we expect it will be up you what would be year, the Brett of our commercial account portfolio and the benefits of are highly Vera.
It will cost structure as well as other actions, we are taking to manage our adjusted EBITDA.
Pre cash flow generation, we assume for all the scenarios that are permanent placement revenues would be down more than 50 per cent your year over year.
And that our easiest segment would grow high single digits is illustrated by these scenarios as revenues decline, we would see some compression in our gross and adjusted EBITDA margins are adjusted S.G.N.A. expense margin, which excludes depreciation stockbased caught compensation would improve or flat and.
Relative to the same period of last year.
I should in gross and adjusted even on margins would be mainly attributable to the assumed higher decline and permanent placement and create a marketing revenues.
<unk>, our our highest margin revenue streams.
We would also expect a high conversion rate of adjusted even a into free cash flow due to lower working capital requirements and the benefit of the <unk>. The import portion of the pica taxes allowed by the recently enacted cares that.
Are pretty cash flow is expected to be sufficient to me, they're operating and capital requirements and we expect to have full availability under 250 million revolving credit facility.
The closing just a few comments on a recent production data on a consolidated basis eliminated revenues for the first three weeks April or download single digits year over year.
Our largest operating in it.
Systems, which accounts for over 54% of revenues was flat year over year and easy S.R. Federal government.
Services business, which accounts for approximately 22% or revenues was low doubled it or other units created circle, Oxford and Cybercoders.
The aggregate account for approximately 24% of revenues were down double digit with the highest declines occurring in permanent placement and create a marketing revenues <unk>.
These recent productions grants were considered in the development of the financial scenarios included in our supplemental already materials.
I will not now turn to call back over to 10 for some closing remarks Ted.
<unk> said.
Although we may or may not be providing formal guidance at this time, we are confident in our business model.
Last year in this now in a better position to manage an economic downturn than any other time in our company's history. We do not know if we've hit the bottom, but the revenue rate of decline in April as of today has lessened across the affected units of our business Oh.
Ultimately the real rate.
Return of the economy will be based on how fast the health crisis is resolved we cannot expect businesses to open their doors on day, one nor can we expect that each of our accounts will be back to pre coded 19 levels immediately.
Coverage will be gradual and it will vary from clients o'clock based on local state and federal policies for reopening the economy.
With over three decades since our founding S.G.N., it's been through several economic downturns Y. two k. the recession of the early 2000, great recession of 2008 in 2009.
And several government shutdown continuing resolutions, most recently and a great recession ago eight nine we saw the overall staffing industry pulled back more than 25%.
Systems for example experience should reduction in demand for their services.
Nearly to the extent the industry as a whole.
Government contracting revenues free C.S. grew as their market tends to be counter cyclical.
<unk> place, but works all the largest declines but as I mentioned earlier from work has become a much smaller piece of our revenue mix as we increasingly focus on higher margin I.T. consulting services solutions.
Today's S.G.N. is not the on assignment of the great recession more than 80 for five per cent of our revenues today, including the mission critical government business provided by U.C.S., we're not part of our company at the time.
<unk> sets a ball to focus even more on higher and higher margin I.T. services and solutions.
The past year alone or I.T. consulting solutions business grew to be over 30 per cent of our consolidated revenues.
Thirds of this representing the longer term projects performed by U.C.S. for the federal government and one third associated with I.T. consulting in statement of work projects performed by apex in Oxford for our commercial quiet.
In the coming weeks and months, we will continue to evolve our business as a foremost provider of I.T. consulting solutions and services to the commercial a government industries, we will maintain our unique market position by leveraging our longstanding client relationships to grow or I.T. services business organically.
And when the time is right make additional tuck in acquisitions that expand our capabilities and add keyed clients and contracts to our business pipeline.
We will continue to serve our clients and execute against our car contracts.
Please leveraging our contention labor force to drive profitability in March instability for our company.
And we will maintain our focus on smart capital deployment generating strong liquidity and using our free cash flow in the best interests of our company.
Any and our stockholders.
Over the last few weeks I've witnessed an enormous sense of community at A.S.G. and we're fortunate to have one of the largest skilled contend ship workforces available for remote work today.
In addition, each of our business segments apex, Oxford and D.C.S. is led by deeply experienced incapable individuals. So successfully serve clients and manage our business unit story positive and negative market cycles.
Experience provides me with great confidence in there she has the ability to navigate this crisis I'm thankful for all of our employees, who together have gone the extra mile to ensure that our business continues to run smoothly and our clients critical I teenage remain a top priority.
On behalf of our entire company board of directors.
Thank you for your continued support of A.S.G.N.
Forward to emerging from today's challenges even stronger than we entered.
We will now open up the call to your question.
Oh.
We will not be getting the question and answer session.
And the question to you May press toward Enron on <unk>.
You will hear a town apology request.
Using the speaker phone these pick up your handset or pressing a key.
What are your question please press turned into.
So paused for a moment is called a strong too.
The first question.
<unk> <unk> <unk> with Wells Fargo.
Go ahead.
Hi, Hi, good good evening. Thank you for the greater detail here [noise] can you talk a little bit about what your clients are asking you for as far as a price any price or a payment term concessions. Thank you.
Oh, thanks for being on the call Oh, I'm gonna less.
No less Ah Randy so that when obviously in a commercial space our work is.
Excuse me the government space at work is already contracted for for a price standpoint, so really not as relevant there, but Randy you want to talk about what you're seeing a commercial market place.
<unk> [noise].
Sure and I think we have had some where our accounts have come to us and ask for price concessions. They recognize it as price concessions maybe born somewhat by I spent also passed onto contract employees, who you when you see the broader market the amount of unemployment they kind of understand it get it and.
And generally are supporting and stay with the account I would say in our big top accounts not much of it and but in other accounts, we've had a little bit I wouldn't say oh really material at this point.
Right and my other other question is around helpless differentiate but the impacts with the fortune 500 to clients versus maybe some of your more middle or branch accounts, how would they behaving as far as turning off business not turning off business.
Concession request and so forth.
Yeah.
Well and I think look by our numbers you can see our top accounts are growing still very positively in our smaller accounts are not very negative slight negative territory. So I think it varies by industry. You know for example hospital change hospital chains have big change then they have small ones you choosy.
A hospital account, what we've seen as the smaller most of health care has tried to hunker down and just like the virus as opposed to doing not new I.T. and then she did so you have that trend going on smaller technology accounts, we've definitely seen have pulled back their work where the larger technology accounts have not.
On Microsoft You know you you can read the ones in the paper are still hiring today or looking to expand or pursue certain initiatives. So it varies by industry a little bit. It definitely is hitting the smaller guys more than the bigger guys, who I believe since the beginning of March have I think tried to keep the economy.
Flowing at least that's when our beliefs. It's my belief is.
And the only thing I would add to that that that's always say I would add to that I don't agree with everything right and said was you know there. It's a a difference in how we serve parts account somebody were such an important part of the fabric of how the C.I.O. operates our technology shop and while [noise].
We're working at home and doing these different things all of those needs continue in smaller accounts I mean, we provide very important resources, but they they don't play the same rolling through well for those organizations. So I may I think that's part of the differentiation here as well.
Great. Thank you.
Oh.
The next question 'cause sort of stuff web with RBC capital markets. Please go ahead.
Hey, good afternoon, everybody hope everybody's well.
Following up on that last question is there anything that you're potentially seeing from a from a liquor collections perspective from your smaller accounts that could potentially be rail.
Which otherwise be pretty pretty strong free cash flow set up here for this year.
You know sites, although we're we're definitely in wary that that could be an issue. We're not seeing anything significant to this point you know I think R.D.F. says continued to perform well and you know you would expect that may be on some smaller accounts that could be an issue in the future again I think that's better.
Both of the large count strategy that we have in the business, how the commercial side of things and and all the government side. It's a non issue you know that continued to top rating execute that part of the world as they always had.
Okay. Thanks, <unk>, maybe just to follow up for George just you know it kinda your your confidence in.
In the unfunded backlog portion of the C.S. business, you know I think I think there were some comments from the prepared remarks about how his government can sometimes.
You know increase business activity here very low economies is your field for what's going on here and so you feel you know your level with confidence and that unfunded backlog is is sort of handicap that for us.
Yeah sure vary.
Very competent or on fun.
<unk>, we feel very confident unfunded backlog, that's just the way we tracking you regardless of what's going on with code, but with cobin in the way that the government is moving forward. We yeah, we feel very strongly about being able to capture on condit backlog as well.
[noise], Okay. So how did you very much guys <unk> yep, okay. Thank you okay.
The next question.
Toby Summer with Suntrust. These go ahead.
Thank you Ted in your closing remarks, or you you mentioned that the revenue rate of decline in April as of today is lesson is that to say sort of this this last week of April is not as steep decline is some earlier week within a month.
Yeah, I would say that that's true Toby I mean, we saw our largest rates a decline.
You know the beginning of those first two weeks of April and Okay. It seems it seems to have lessened here of in some cases kind of flattened out but it's you know it's week to week, obviously something that will have to you know contended watch a movie depending on you know these other.
Actors outside of our controller M.L. crisis in the economy.
Okay.
And from.
<unk> perspective.
<unk> or.
You've had an active pipeline and executed on so.
Small, but strategic acquisitions in the consulting space. There is this crisis going to afford the company.
Balance sheet your cash flow some more interestingly valued opportunities over the next couple of quarters and can you describe your your kinda.
Appetite amid uncertainty to continue to execute on those.
Yeah.
I should I mean, we certainly continued to evaluate opportunities and I think.
You know like you said the pipeline is is we see is good and robust and I think in in some ways that this could afford certain opportunities maybe not so much.
And you know obviously in the government's space most of these businesses are less affected so.
Dependent things could maybe not for evaluation standpoint changes bus there about the commercial market place I certainly could in some ways. So we'll have to see how all this settles out but yeah. We feel really good about where balance sheet is our ability to step in and make our positions Ah, we certainly feel and and that does.
The targets, we acquire in the past though.
Wearing acquire of choice.
And we have really good situation here, so we've been called that stuff or star benefit and we'll be well position you know it's opportunities arrive at or arrives and I think in situations like this surely things you know become opportunities that may not otherwise have been been so so we'll we'll stay village you know working through the.
<unk>.
<unk>, what's the firm's postures last question for me what's firms posture on.
Sustaining in perhaps growing it's internal sales generating head count to be able to sling shot out of this a little bit faster than the market.
Thanks.
Yeah, but let's say look the purse for always first and foremost we need to continue invested ourselves so.
We'll stay close to our house are are good to market approach both from geography standpoint industry standpoint top account standpoint, you know at 10 positions us well to stick with these clients to be there and top times like these even if they don't need as much.
And to be the arrows day, some shop for sure words coming out of this that's you know we've we've certainly been through this a few times and so and all those ways, we're going to stay close to our clients because they're big opportunities for US you know on the other side of this for sure.
The next question comes from three Windows and.
Jefferies. Please go ahead.
Oh. Thank you for taking my question was just one for up on the April trends in terms of to the declines that you guys are seeing is that clients putting projects on holes.
<unk> is that it's simply like new clients or projects not new projects not taking off you did mention that with some larger clients.
Obviously, there was continued interest in in Onboarding staff, but can you talk a little bit about that mix of of what's causing those trends.
Yeah, maybe you want to take that from account perspective, yeah [noise].
Yeah, I think there are some natural projects to come to a natural n.
And I would say some clients have been a little ready to send to start a new project until they see where the bottom is I presume in the economy in in their own business. So it's a combination of the two things, but it's not an outright shut down things.
We haven't seen that what we've seen as projects coming to a natural n. as I said and that [noise].
And some are being delayed to start.
But I I would expect that a little bit from the clients.
That sounds fair.
Can you provide any color on the number perhaps new projects that are starting at this point or any color, though that you can provide.
<unk>.
Yeah, we we haven't given that go ahead tend to want to yeah. I was going to say, we don't give out that information surrender on these type of calls obviously, that's competitive information, but you know client we've seen classes raise that'd be willing to to continue things in this environment. They start some things.
They differ some things you know I think it's got a climate client industry by industry.
Fair enough. That's helpful. And then in terms of these scenarios that you guys did provide very helpful.
What was the consideration what's it simply April trends I guess for using the range of minus five per cent the minus 10% of revenues.
Why not stress, let's say minus 50 per cent in revenues or.
Can you help me provide some color on what the the range that was employed.
And you want to take that.
Mm mm.
We wanted surrender their family to show enough information in these scenarios to where you could kind of get a sense directly what what happened in the event that these are declining revenues would occur and we could stressed it quite a lot, but I think we've given you enough information to where you can take what.
Given you and if you want to take it out another two and a half points or five points, you're able to do it.
Thank you [laughter] and then in terms of the.
Overall revenues what was the contribution from acquisitions in terms of the the dollar amount and then what does that translate into an organic growth rate for coupons.
Well, there's really two main acquisitions you know we acquired a Blackstone in January and that contributed as we said in our press release or.
And then it contributed 9.1 million.
And the other was Enersis and you know there's been integrated into apacs, and so we're not going to get specific information on that any longer but.
I'm trying to remember.
Yeah, probably or the rule of thumb for them would be I don't know, maybe and 10.011 billion does that sound reasonable random and give them what are the contribution was in q. for.
Well for a quarter you talking about revenue first quarter.
Yeah, I think a little less than that number is was there runrate. Prior but is that said we have they provide a great technology base for us and we've really apply them on our pipeline <unk> I'm not opportunities around the business, so they've been pretty much disassembled and farmed out but they were running at.
Slightly below 10 million, so closer to probably eight and a half nine.
Prior to the end of the last fiscal year.
<unk>.
Be some benefit from D.H.A. from last year correct.
Cause I believe that that didn't close at the beginning of the year. So there should be some contribution from that as well.
Yeah, but nonetheless.
Yeah, we that was you had two buttons and.
2019 Q1.
So.
Okay, I think it wasn't nothing.
January 2019 was would not have been a significant revenue number.
[noise] understood and then perhaps just a final quick question you did talk about having some willingness for the the pipeline for deals in terms of having a obviously focused a bit more on that the federal side of the the government side of the space.
Oh, you <unk> as you mentioned that obviously evaluations have changed their much but I assume on the commercial side.
There would probably be little appetite given more depressed valleys at this point.
Well I think it's situational you know.
You know it think it depends on.
Depends on their offerings, you know how high the high or low they are on the digitals back from.
But industry you say sir.
This is though I don't know that you could pay a broad brush over it I would say situation.
Okay, Hey, Ted.
<unk> excuse me <unk> can I add add something to that and 10 or I think you would agree situational also meaning whereas the bottom you know when we feel a little more comfortable that we've seen a bottom and where any particular company where is she didn't whether they have a bottom where are they are declining or in their revenue stream I think that's part it.
<unk>.
Right.
Mm.
That's cool I think that settings for guys.
That's the question <unk> very busy with Bank of America Securities. Please go ahead.
Hey, guys. Good afternoon. So earlier you you come in and I think it was about eight backs, mostly that that you know some other projects come to a natural and and may not be renewed summer starting others you get the the following business continues to to come through.
Some sense like you know how much of the portfolio of you've gone through that and and what I'm really trying to get at is is there some risk that.
Bunch of projects.
The duration haven't yet gone through that and you could see a step down is is more of them.
That sort of end of the engagement or or is it.
The Kate into that such that you would have already seen a lot of that impact if it's happened in the last.
<unk>.
Right.
Yeah. So so let me respond to that in a slightly different till if you have if we had projects that were in the airlines hospitality whale and gas.
Came to natural ends are quick ends mostly because of let those clients are going through okay. I think Ted pointed out earlier, that's a small percentage of our revenue base, but we definitely have seen more brisk movement on those projects in in terms of taking them to <unk> natural and when did they start up again.
Depends what do you look at the rest of our business base I think you have to get away from just projects into there's a certain percentage of I work at supporting the infrastructure of our client base and that work doesn't have a natural n. It has ongoing support we found this to no wait no nine when we went down apacs went.
Down very little in those two years zero and might very small negative numbers because so much of our business was in supporting the infrastructure of our client base. So we have a lot of infrastructure work that gives us a cushion as well on the commercial side of the business say within a tax. So I think you have to look at it not too much by project.
<unk>, what's the <unk>, what's the segment of the industry that we're looking at what how much infrastructure work is it in terms of yeah.
Consulting projects like you're probably thinking of that may vary, but it will vary by the industry. We have not seen a slow down is Ted reported to you you know in in financial institutions or in other parts of consumer industrial Aerospace defense, the client base or that sort of thing. So does that help give you some insight.
About that and definitely the <unk>, we have seen the hit.
We have seen that hit already okay. Okay that that's helpful. The obvious follow on is is if you could give us some sense, how how much of the book a business is that quote unquote ongoing infrastructure support work, but but maybe that's maybe maybe I'm getting greedy trying to ask that.
[noise] Ted.
Yeah, well, we don't disclose that Gary So yeah, I think the right way to think about it is the way. We ran later, though I mean, where.
And again I think there are several different things that are comments about it than the trends in April what we saw in industries for March I mean that you can kind of piece it together.
Yep Fair enough and then just one more for me I guess a question on on the U.C.S.D.
The you know the growth there even adjusting for for the acquisition was quite robust last quarter and and we've seen occasionally this concept of technology pass through low margin revenue was there any of that of of.
Allowed and I I guess, what I'm really trying to get at is the hi single digit your every year.
Revenue growth in the in the the scenarios you provided.
Is significant slow down from two four Q1, and so is that the reason or some other reason, maybe it's just conservatism visibility, but any color. Thank you.
Can you help him unpack the growth rate there.
Mm.
[laughter].
Yeah, I mean, you would call in a keyboard we made mention.
A large transaction that happened at the end of the year was 34.1 million I think and.
License and or or early purchase sublicensing, otherwise renewed and 2020, you know and Q1, we had some of that but not to that degree I think if you look year over year in terms of those type of transactions and may have been up you know 10 billion or so [noise].
But what's important I think.
About the numbers and George can comment on that is that we had a very high growth rate in our direct labor that drives a high margins in that business.
Mm mm.
Yeah sure I'd I'd like to comment <unk>, what we saw last two poor last year, and then pointed out three or 4 million of what was move cord from licensing we would've procured in this fiscal year, so overcoming that still seeing a strong growth into one is pretty spectacular.
The thing is you know.
These licenses and the things that we acquired pardon switching over delivering and and customer solution as opposed to simple pass through so they know they they will continue to occur as you continue to advance for solutions and some of them are lower margins, but the others are part of the solution. If it's a fixed price deliberating.
Stuff like that then you know, it's it's typically a higher margin in government solutions sounds good. Thanks for the question.
Thank you.
The next question customer hemorrhaging with B.M.L. Please go ahead.
Hey, guys evening, I I wouldn't ask about.
The comment you made about.
Positioning S.P.N. on assignment.
Two to the last recession and being more on on apex as one of you could just a comment a little bit more about that.
Referring to that.
Based on what you're seeing and and say like the branch business or like the resiliency and just kinda just want to understand how how the positioning what's here.
Yeah, I think if you think about on assignment in 2008 and nine.
<unk> referred to a day yep. It was a collection of different staffing units.
Help tear scientific.
And also Oxford.
Which was partly I.T. and partly engineering and some other things and mostly focused on a smaller mid market accounts by nature just of those offerings.
And.
Oh Wow you know.
That I, just say by nature cause that business to pull back with the rest of the industry. If you will turn to that <unk> no nine recession, especially with Oxford that was serving big enterprise U.R.P. type of implementation and he had a credit crisis.
You know that obviously in that.
Time period that cutbacks around that really got turned off yeah, I think that difference with who we are today is one where we're fully I.P. centric I.T. digital <unk> number two is were predominantly a larger <unk> more than 75 per cent slightly more than 75%.
[noise] or business isn't very large accounts or federal government accounts and so we're just and these are accounts that we are a bit a part of it have relationships with not just for months at a year, but for years in decades, and so we're really important part of how they keep their technology running again.
Things done and what we have found through the different economic recessions and sort of like throw eight no. Nine is that's where you want to be because you're that much more important to the client in your business has that much more stability to it. So you know there's a there's a real difference [laughter], who we are today versus who we were doing what time period.
Hey, Ted can I. This is ran can I comment real quickly it may not be clear from the text may not be clear from the tax but apex in D.C.S. were not part of on assignment and no way to know nine so while Ted sent everything absolutely right if you'd look at it organizationally, 77% of our revenues were.
Not in the business back then.
Okay. So just to make sure you see that understand that.
Yeah, I actually got Ya.
For the baby.
Mm yeah, Okay. Okay. Yeah, that's that's the grapple. Thank thank you.
Mm.
The next question is from Tim are running.
<unk>.
<unk>.
[noise] Yeah. Good afternoon, just taking a step back and.
Looking at the long term.
You think covert 19 will ultimately spur additional demand us companies scrambled to bolster their digital capabilities and shift more towards the remote working.
Yeah, 10 by saying you know obviously and this is an all parts of our business, it's not specific to industry [noise] or size that account, but digital transformation does it become less important because of all this it's just as important or even more so nothing coming out of.
You know this crisis that we're in this economic downturn.
Clients are going to have to continue to.
To develop their system, even at a faster pace.
And I was a bit opened up in certain ways around the fact that we need to be ready to handle remote or different types of work that we need to continue to have technology systems, where we can engage so electronic way with all of our constituents.
You know that having having work you know done offshore needs to be considered carefully because there are certain risks that come with it I think that's a learning coming out of this so I think it a lot of different ways. You know this you know certainly know this changes the need for digital transformation. It remains.
And it's even enhanced.
Got it thanks and can you also just talk about any difficulties or types of adjustments that you've had to make her are making with regard to onboarding, new consultants and times on assignment recently I'm curious how your processes have had to change during the quarantine.
Yeah look I think I'm really I'm really.
Really proud of our teams I mean, we obviously hip tested having to go to some some amount of remote work either either with our consultants or with our internal staff, but to go nearly 100% like that in two weeks our teams degrade our systems improved.
And that was that with very very well, we've we've been able to stand up projects resources that are remote fashion.
The the government as it relates to I. nines, another kind of administrative issues that need to be done and a flexible about allowing for that to happen and that our clients have been really engaged all in all this and they've been a big help and all of it. So I think you know that's not really turned out to.
Be a problem thankfully, so and it's taken engagement of everybody in it to make that happens visible.
That's helpful. Thank you.
The next question because I'm Kevin quickly.
With credit Suisse.
Go ahead.
[noise], great. Thanks, say think role that color. He what you folks doing internally to prepare for kinda cool, but 19 and just can your mind is not only operationally, but also <unk>.
So you're thinking about <unk> capital allocation within the context to buyback dividend and and things like that.
Yeah.
Yeah, well, maybe two two separate things there. So you know we've we've kind of Foley gone to work from home staff or work from a status internally is so you know as as we begin to get further down the road on the health crisis of a state governments, you know get into brain.
Allow us to come back to work as certain geography, Easton wished oriented but develop our plants do that frankly on a positive no. We don't have to rush into that so we'll be able to be very methodical about how we come back to on site work was that our company and so it it won't be.
Issue for our business, we'll take our time, just so that we don't you know haven't missed out that all that.
Then on the capital allocation sign them in our our general thesis around that we think about capital allocation doesn't change cabin.
You know, we we like many other stopped our buyback program you know where we got into beginning of March only because there was just not good visibility to what was coming down the road over the next few weeks.
Or longer so you know I pick that that was a prudent thing to do but.
You know, we always say, we're going to invest in ourselves first where got always be developing you know acquisitive opportunities that we think advance our business.
If there's nothing that deliver the cup on that front.
We're certainly adept in have proven in the past that were.
Go to buy back our own stock and you know we can now with this size and scale do all those things at one child doesn't have to be all or nothing so.
You know I don't think any of this has changed your view on capital allocation. Then we feel good about where we are from.
Balance sheet stray fill equipment standpoint, you know based on where we stand today.
No great and then I guess just.
You know given how <unk>.
You know that kind of shut downs Ben what are you looking for in terms of you know it seemed like things are starting to stabilize but for us to come out of it you know you hit a lot of internal data is it <unk>.
The client like what do U.T.N.N. on Ted in terms, you know that you feel confident that it you know starting to kind of freak celery, it a little bit what would be the the the the metric sure you're folk most focused on.
Yeah, well I mean, we've got an internal metrics would give us visibility to to where we get the business is going obviously, we watch or pipeline you know project in consulting work, we see rock flow from our big accounts.
Look at our business from industry standpoint, so we can rack and stock the world from that but you know I think at the end of the dangerous you know, we've even with our clients do in a little with us or a lot. We stayed close to them we talk to them about what their needs are we understand where they are and we have such good durable you know and.
Relationships with these clients are such a long period of time, that's our best inside so we have internal metrics, we have great insight for our clients and you know we'll watch the business like that it's you know it's too early to tell we need a little bit of time under our belt here to kind of keep arch import but you know.
It feels like over the last few weeks that that things have less than in terms of the decline heavier to cause we saw the first couple that we'll have to watch a week to week to make sure that that trend continues.
Thank you.
Yeah.
The next question comes from <unk> <unk> <unk> <unk> go ahead.
Good afternoon. Thanks for all the detail I was wondering can you just talk a little bit about the opportunities that you're seeing in terms of onshoring and and near shoring, how what's the scoping magnitude of the project so you're sitting there.
Well I think it's a developing story Mark I mean anecdotally you know I can tell you about project here or there were quite got surprised.
By the fact that they're something important to them was being off shored and it couldn't be executed.
Because their operations off short and switched very definitely took them at work. So we've been able to step into a few things here just started anecdotal basis.
Early on.
The bigger wave of that has to come in the future believe that you know there was a little bit of move for things to be reassured on short role source here in the U.S. that might have been done.
Offshore fashion in the past and I think the experience here of the last couple of weeks certainly support is that if anything maybe it gives it a little bit more a little bit more virus would go for it. So it's something to watch I'd say, that's a developing opportunity.
When do you think that would would actually ended up hitting and becoming material.
Yeah, well I I wouldn't go so far as to say whether that is obviously those things have to be good they have to be scope and and you know we have to be able to win those opportunities that we have to set them up and be able to execute them. So it's developing opportunity in the future like.
Like anything else.
Okay, and then with regards to productivity levels can you talk a little bit about what you're what you're experiencing specifically you know if we think about your recruiters and the amount of talent. It's currently out there.
<unk> <unk> material easier to to source candidates to place into the open racks or how are you seeing that.
I wouldn't necessarily stated that on the technology size Mark I mean look I think will you know the preponderance of.
Unemployment right now is not in the I.T. space I don't believe it's in other places for sure.
And I think I I T talent still remains scarce.
And so I don't think we'll be dealing with that materially different situation as it relates to all that.
You know as would go for it.
Yeah.
Okay great.
I'll follow up off line blanket.
Great.
This concludes the question then huh.
I would like to turn the copy that covers that Hansen C.O. point closing remarks.
Great. Thank you operator and take all of you for your time today.
Timely convened Ricky to earnings where it would be in a much more stable place they say healthy and thank you give them for your support of S.G.N.
This country's today's conference call. You mean, just next caroline's. Thank you for participating and have a present day.
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