Q2 2020 ASGN Inc Earnings Call
Greetings.
[music].
Welcome to.
He is doing and incorporated second quarter 2020 earnings call.
At this time, all parties were starting to listen on small.
Sure sexual assault formal presentation.
If anyone should require operator since the start accomplish please press star zero when your talks on Pete.
Please note this conference is being recorded.
Now I'll turn the conference over to your own Kimberly actually good congratulations you may begin.
Thank you operator, good afternoon, and thank you for joining us today for <unk> second quarter 2020 conference call.
With me are Ted Hanson, President and Chief Executive Officer, Rand Blazer President of apex systems.
George Wilson President WCS.
<unk> Chief Financial Officer.
Before we get started I would like to remind everyone that our commentary contains forward looking statements.
Although we believe these statements are reasonable they are subject to risks and uncertainties and as such our actual results could differ materially from the state.
There are these risks and uncertainties are described in today's press release I did not see SEC filings.
We do not have seen 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 our web site at investors that asked yet dotcom.
He's also note that on this call we will be referencing 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 measures.
Reconciliations between GAAP and non-GAAP measures are included in today's press release.
I will now turn the call over to Ted Hanson, President and Chief Executive Officer.
Thank you Kimberly and thank you for joining AMC in second quarter 2020 earnings call.
Yes, yes, that's that's demonstrated solid resiliency in the second quarter, our scale high end IP service offerings, and large and diverse client base, including over 60% of the Fortune 500, it's well, it's Keith Federal defense and civilian government agencies provided stability and positioned us well deserved.
Despite the challenges it covered 90.
For the quarter revenues totaled 936.8 million down 3.6% from prior year, our commercial business, which includes our apex and Oxford segment accounted for 74.4% or 697.1 billion of consolidated revenues bargain.
That's that's Rcs said, but accounted for 25.6% or 239.7 billion of consolidated revenues.
Adjusted EBITDA totaled 106.2 million for the second quarter and represented a solid margin of 11.3%.
Although we did not provide formal guidance for the second quarter results came in well ahead of the midpoint of the illustrative scenarios. We provided revenues were 4.1% higher and adjusted EBITDA margins 110 basis points higher.
Looking at the cadence of revenue during the second quarter April proved to be a challenging for weeks for the commercial market.
Our government business remains strong and continue to perform above expectation.
Clients at our commercial business continued through the first half of the quarter.
And then the second half and have remained stable through the first three weeks for the third quarter.
Our government business remain resilient throughout Q2.
Strength in the second quarter was driven largely by industry, leading performance of DCNS segment, which was up 25.8% over the prior year and the strength of apex systems, which only declined 3.4% year over year, you see us in apex systems together comprise roughly 80% of our consolidate.
Revenues.
As I emphasize last quarter ASEAN continues to see the benefits of the strategic initiatives, we've undertaken to evolve and strengthen our business model, we've become much more IP centric and doing so expanded and increased market share or large cap portfolio through you see US segment. We also have significant exposure to the.
The federal government marketplace, a sector that is typically more insulated from economic volatility than commercial industry verticals.
Last but not at least we continue to increase our high end I T solutions capabilities. Each of these strategic developments is positioned to asked you had not only for stability during the current downturn.
But also for strike in the future recovery.
In terms of bidding activity our pipeline of new business remains solid we are witnessing an accelerating trend toward digital transformation as our clients pushed forward strategic initiatives to deepen their customer experience engagement.
Increase their businesses agility and decrease the time needed to get their products to market.
Services related to project matched with eight analytics web development artificial intelligence machine learning.
Cloud in cyber security are increasingly in demand our clients I teach challenges are also becoming much more complex.
We are finding customers awarded more work to firms with multi disciplinary skill sets.
And broad ranges of IP expertise, but characteristics that differentiate asked again from our competitors.
Government contracting remained steady with that's in process continuing to upload.
Like the commercial end markets I T modernization remains important for our government clients.
Federal government is about five to seven years behind the commercial market in IP modernization, including cloud adoption with only a portion of federal agencies have migrated to the cloud.
The increase desire to transition to the cloud along with the mission critical sensitive nature of the information held by the government is creating a strong demand for STN sophisticated cyber security capabilities and managed services.
Importantly, given the market conditions, our clients artist open as ever to remote work.
Asked yet is fortunate to have one of the largest most skilled contingent labor force is available for teleworking today.
We shifted our internal workforce to a 100% remote and then barge and over 80% of our billable consultants also continued to work remotely with just a small portion of the central staff.
Still onsite with required safety protocols.
Along with our solid business pipeline and diverse client base, our flexible cost structure and robust free cash flow continued to provide stability to our business.
Our free cash flow generation as our principal source of liquidity and underpins our strong borrowing capacity.
And the second quarter, we generated 178.8 million in free cash flow up 102.7% year over year.
We also had 207.9 million in cash on the balance sheet as of June Thirtyth.
As of quarter end, we had no outstanding borrowings under our 250 million revolving credit facility and had full availability under that facility.
Nevertheless, a moderate amount of debt has always been part of our balanced capital structure and supports our ability to make strategic acquisition.
Our acquisition pipeline is active and acquisitions remain an important part of our long term growth strategy with the cash we have on hand, what we expect to generate in the second half a year and our borrowing capacity, we have significant capital resources to deploy on M&A or stock repurchases, depending on what makes the most strategic satisfied.
Business at the time.
With that as background lets talk about our segment performance for the second quarter.
Impacts our largest segment, which includes apex systems and creative circle services clients across multiple commercial end markets for the second quarter of 2020, the segment generated revenue of 576.9 million down 8.2% year over year.
As I noted earlier apex systems declined only 3.4% year over year creative circle saw double digit declines with the deepest decline amongst add a debt and permanent placement services.
Digital related skill placements, however, held up during the quarter, Fortunately, but apex systems and creative circle revenues appeared to level mid second quarter in June apex systems revenue started to improve while creator circles revenues held steady without further weekly declines.
Before speaking industry trends for the quarter, a quick house keeping that [noise].
Beginning in the second quarter, we're now classifying apex systems revenue into five industry verticals as compared to the eight verticals previously provided.
These consolidated verticals offer better indication of how we internally view our business.
Life Sciences is now categorized in the health industry healthcare industry vertical Telecom is included in the telco technology media and telecom or TMT vertical in the aerospace and defense as part of business and government services.
Additional information on these verticals can be found in our earnings supplemental presentation for the second quarter, which has been posted on our investor website.
Now back to vertical performance for the quarter two out of the five industry verticals for apex systems, including financial services and business and government services saw revenue growth during the quarter. The remaining three verticals healthcare consumer and industrials and TMT declined year over year the each.
Are these verticals did see some acceleration of business in June.
In the consumer and industrial space as anticipated retail energy hospitality and transportation, including Airlines were all down in the second quarter.
Top accounts achieved low single digit growth rates for Q2, while retail and branch accounts declined low double digits.
Gross margins for the APAC segment were 29.6% down slightly year over year, due primarily to the lower permanent placement mix and creative circle.
Contract gross margins across the segment held steady.
EBITDA margins for the apex segment or flat from a year ago, while apex systems EBITDA margins increased significantly year over year, highlighting the resiliency of its variable cost structure.
Importantly, we also continue to grow our commercial consulting business consulting work for the apex, and Oxford segments combined totaled 96.4 million for the second quarter up 2.8% year over year, although the growth rate and consulting revenue for the quarter with single digits bookings increased.
Each month throughout the quarter with June being the strongest month. Additionally, our pipeline of consulting work continued to increase for the quarter, a double digit rates year over year.
We expect that are high and consulting offering will remain an important source of value we provide our clients going forward.
We are finding more consulting market share being garnered but firms that are positioned around new technologies or next gen processes for the cloud SaaS applications and data analytics in particular, so we continue to ensure that our consulting teams are well first in these offerings.
Throughout the quarter, the apex segment saw new clients and provided AD solutions to existing clients as I noted previously digitalization projects remain in high demand.
For Fortune 500 business services account for example, we updated their ecommerce platform improving user experience and moving their online payment and invoicing features to the cloud.
These types of services are part of our digital roadmap approach in which we support the streamlining and integration of our cloud systems.
Our work for this project was very cost effective as we use both onshore and near shore resources by capitalizing on the capabilities of our Mexican development Center.
As I mentioned on our Q1 call as a result of current market conditions, we are having more discussion for their clients about reassuring their capabilities.
Our near Shore Mexican Development Center provides a great alternative to many of apex, and Oxford U.S. clients when traditional outsourcing to offshore may not be feasible or comes with new found challenges.
Let's now turn to easily yes, which provides mission critical solutions to the federal government, including the department of Defense intelligence agencies and other civilian agencies.
You see us continue to achieve industry, leading growth for the second quarter of 2020 and reported revenues of 239.7 million up 25.8% year over year, driven by the continued high demand from federal government customers from machine learning and artificial intelligence services.
At higher volume of cloud services and solutions, new opportunities presented by our acquisitions and the government space and the contribution from Blackstone Federal which was acquired in the first quarter.
Consistent with the first quarter in Q2, 2020, Dcs did not see any material changes in revenue or backlog as a result, akovaz 19 due in large part to the stability of the government sector business in the CF segment progressed as usual with the exception of them increase number professionals teleworking.
Less than 1% of Vcs employees are working on site.
Dcs is new business pipeline remains robust with no slowdown in customer request for proposal during the second quarter. So we have seen some of the work we anticipated would be put up for recompete pushback or simply extended.
The segment was awarded a 175.7 million in new business.
And achieved a book to Bill.
Seven to one for the second quarter on a trailing 12 months basis. Tcs is book to Bill was a healthy 1.7 to one or contract backlog coverage ratio of 2.9 times.
Key contracts one in Q2 included a significant expansion of the machine learning services under a new contract within the department of defense, along with three contracts awarded by the Department of Homeland Security, One first specialized architecture and engineering services. Another for high end design develop.
And cloud migration of business applications in a third for data modeling business architecture and policy reengineering expertise.
In addition to contracts won in the second quarter EPS was named first among the top 100 vertical market managed service providers for the second year in a row and recognized as part of an elite group of Amazon Web services managed service providers for the six consecutive year.
Turning to our last segment, Oxford, Oxford offers on demand consulting talent for commercial IP healthcare life Sciences, and engineering clients as well as permanent placement talent through our Cybercoders Division. The segment reported revenues of 120.2 million for the second core.
After 2020 down 21.5% year over year.
This decline includes an over 40% reduction and permanent placement services, which on a consolidated that basis now only comprised 2.2% of revenues.
As we entered the third quarter of 2020. It is clear that the coded 19 pandemic will continue to impact our economy. Nevertheless, based on the trends. We're currently seeing along with the staggered reopening of the U.S. economy.
We believe that we now have enough visibility to reinstate quarterly guidance for the third quarter, Ed Pierce, our CFO will speak to our expectation shortly.
I remain confident nasty and long term growth capabilities, where in the REIT industry IP services at the right.
We have a large and diverse client base bolstered by the stability of government sector work and large commission commercial clients our contract deployment model combined with a flexible cost structure provides further stability to our business.
With that said I'd now like to turn the call over to Ed Pierce, our CFO to discuss our second quarter performance and third quarter guidance in further detail Ed.
Thanks Ted.
Afternoon, everyone revenues margins profitability and cash operating cash flows for the quarter were much better.
And our internal expectations, the better than the potential outcomes, we outlined in our illustrative financial scenarios that we provided in lieu of financial guidance for the second quarter.
Revenues for the quarter were down 3.6% year over year revenues from our commercial the divisions were generally in line with our internal expectations were higher than expected for easy yes.
Revenues from apex systems, our largest division, which accounted for 54.3% total revenues were down only 3.4%.
Revenues from SCS, our second largest division, which accounted for 25.6% of total revenues were up 25.8% driven by among other things high growth in its artificial intelligence machine learning solutions.
Contract Awards and the contribution from Blackstone Federal that was acquired in Q1.
Revenues from our other divisions, which in the aggregate accounted for 20.1% a total revenues were down 26.2%.
Gross margin for the quarter was 27.8% down year over year digit due to the decline in permanent placement revenues in the high revenue growth of Vcs.
Permanent placement revenues are essentially 100% gross profit and the gross margin Dcs is lower than our commercial division, although lower easier gross margin compares favorably with other government services contractors and an EBITDA margin is only slightly lower than our consolidated margin.
Our contract gross margin, which excludes permanent placement.
Was 26.2% for the quarter down approximately 30 basis points year over year.
The contract gross margin Park personal division.
Was up 40 basis points to 29% and the gross margin for EPS was 18.3%.
It is Q2 of last year.
DNA expenses for the quarter were 172.2 million or 18.4% of revenues a year over year improvement of approximately 200 basis points in the expense bonds.
This improvement resulted from among other things lower incentive compensation, mainly those incentives tied to growth and revenues or adjusted EBITDA and lower travel and entertainment healthcare and stock based compensation expenses.
Net income was 48.8 million up 13.3% year over year on lower revenues and gross profit.
The increase in net income primarily related to lower EPS DNA and that's just expenses.
Adjusted EBITDA for the quarter totaled 106.2 billion and the adjusted EBITDA margin was 11.3% or 110 basis points above the midpoint of our illustrative scenarios.
This favorable variance was mainly result of lower than expected SGN expenses and a higher than expected contract gross margin for our commercial divisions.
Cash flows from operating activities were 186.1 billion cash flows benefited from lower working capital requirements commensurate with the decline in revenues and gross profit a reduction in accounts receivable the DSO up 3.2 days.
End of deferral in the payment of 30 31.1 million of FICA taxes as provided by the carriers that at quarter end cash cash equivalents were 207.9 billion and there were no outstanding borrowings under our 250 million revolving credit facility.
Our senior secured debt leverage ratio was 1.1 to one.
Well below the maximum.
Allowable ratio a 4.25 to one.
Few comments on recent production data as we mentioned on last quarter's call, we began saying and resolve a pandemic.
Weekly revenue declined that our commercial division.
March which.
Continued through the first half of the second quarter on the second half of that in second half of Q2 weekly revenues Latin and have remained stable through the first three weeks of July over the same period revenues.
Continue to grow double digits.
I had mentioned, we're providing formal financial guidance for the third quarter. These financial estimates, which are set forth in our earnings release and supplemental materials.
Are based on current production trends and assume no significant deterioration in the markets we serve.
The estimates are as as of the dated the earnings release, Consequently, any worsening.
Combet 19 pandemic could adversely affect our results on the remainder of the quarter.
The midpoint of our estimate assumes continuation of the current production transfer commercial divisions and as soon.
Yes, we'll achieve double digit year over year growth in the quarter.
We estimate total revenues for the third quarter will be flat to down sequentially.
Down.
6.5% to 8.9%.
Year over year, because of the effects of cobot 19, and the difficult prior year comps due to the high single digit growth.
Our commercial business in the third quarter of last year.
Thank you for your time I'll now turn the call back over to Ted for some closing remarks Ted.
Thanks, Ed Ftn. This now in a better position to management economic downturn than any other time in our company's history. Despite some uncertainty remaining our visibility has improved.
We now have a better sense of our business is trending as we entered the second half of the year.
We continue to evolve our business as a foremost provider in consulting solutions and services services to the commercial and government industries, our business model remains resilient.
Going forward, we will work to maintain our unique market position, leveraging our longstanding commercial and government client relationships and deploying our in demand IP services, such as cyber security cloud computing and mobility through the organic growth of our business.
We also remain acquisition ready you may have heard me speak about our M&A strategy before but SGN does not look for distressed assets, we seek to add high quality industry specific IP solutions in the commercial and government spaces to our service offerings, we will maintain our smart capital allocation.
Generating strong liquidity and using our free cash flow for M&A or stock repurchases, depending on what is in the best interests of our company and our stockholders in any given time.
Speaking of doing what is in the best interest of our company and our clients. We have officially changed our corporate headquarters address from Calabasas, California to Richmond, Virginia with two of our largest divisions apex systems and Dcs based in Virginia, It makes strategic sense to ever headquarters located.
And the Commonwealth.
This change in address allows us to remain close to our key customers brand and their respective management teams.
Ultimately as we look forward to the second half of the year. This still my belief that the real rate of return of the economy will be based on how fast this healthcare crisis as a result, even.
Even with the President's certainty, we continued to execute against our current contract safely leveraging our contingent labor force to drive profitability and margin stability for our company.
As it relates to inorganic growth, we will continue to push for developing M&A opportunities that expand our capabilities and add key clients and contracts to our business pipeline.
We have an exceptional team in place who is going the extra mile to ensure that our business continues to run smoothly and our clients critical IP need to remain our top priority.
No that we are positioned to emerge from the current situation, even stronger than before and I would like to thank all of our employees for your dedication to ask Ian this past quarter and always.
On behalf of our entire company and our board of directors. We thank you for your continued support we hope you are all safe and staying healthy we will now open up the call to your questions operator.
At this time, we will be conducting a question answer session.
If you like to ask a question. Please press star one on your telephone keypad confirmation Tom when you get your line is in the question Q.
You made quickstart too if you were actually remove your question from the key.
For participants using speaker equipment, it may be necessary to picking up your answer if when prices turnkey.
One moment, please rami pools were questions.
And our first question is from Edward cases from.
From Wells Fargo. Please proceed with your question.
Hi, This is just into not Allen for Ed Thanks for taking my questions.
Really good performance here this quarter with revenue and margin in particular.
Just wondering if you give a little bit more color around the barge in Q3 looks like it maybe a little bit weaker.
What areas are you seeing that might be little bit weaker relative to the other segments.
Hello can you hear me.
Ken.
Thank you.
Ted and add new guidelines.
We lose Ted.
No and therefore.
Okay and area.
Here now and you heard the copper.
But still have you heard the core.
Yes, I would say you heard question I.
I didn't hear the question, yes, so just I think.
We've got two things going on and what an elaborate on but you certainly have an evolution going on here with us as it relates to our business mix and so if you look at it you know relative to past quarters or last year, you're going to see the business mix certainly affect the margin and on a secondary basis. You know, we really we had a surprisingly strong quarter.
In EBITDA margins from apacs related to just the pace of their business flow versus some of the.
Lower costs that we had in the second quarter.
That we think may not continue all the way through that there Ed you want to follow up on that.
Yes, it doesn't have you.
Focus on the sort of the midpoint of the range that we gave for gross margin I mean, it's showing that.
But 10 basis point difference between.
Add on where we actually came out for Q2. So lot of that is going to be mix driven because our expectation is that easeus is going to grow faster than our other units and become a bigger piece of the back so that.
The big driver for that.
And as it relates to the bottom line margin you had that are the EBITDA margin you have that.
Coupled with we did have we did benefit from lower healthcare expenses and.
Q2, and we're anticipating slightly higher healthcare expenses in Q3. So those are the principal reasons as to why you're seeing a sort of differential the margin.
Great. That's really helpful. And then just as a follow up question given the strong bookings that you had in your consulting business right.
When do you see that potentially returning to double digit growth or or maybe even better where it was.
Pre kobin.
Yeah, Randy you want to talk about that.
Yes.
Well.
Look I think there's two parts to this the first is and you were talking about in the commercial units here, just and I assume.
I would say in the apex side, we're close to double digits, and we should be able to get back to double digits. Certainly in this second half of this year and our other units within the commercial sector, the Oxford segment and creative circle.
A little bit more of a guess so it depends on the marketing function and how it begins to respond while we're seeing stability in our business flow into creative circle side.
Hasn't translated out to two consulting yet similar with Oxford and some of the niches. It there and so I would say I certainly hope by the second half the year, we're back, but and I suspect apex part of it will be there. It's the other parts, where we're still having to watch.
Alright, really appreciate it and congrats again.
Okay.
Our next question is from Kevin Mccarthy from Credit Suisse. Please proceed with your question.
Great. Thanks, saying congratulations on the result.
You mentioned M&A couple of times and then the buyback.
Can you folks have really done a nice job over the course, the timing and transformative deals [noise].
[noise] appreciating that you're not looking for anything necessarily distress, but can you help us frame out what.
Kind of the parameters would be on the size and at least here the appetite given how strong the balance sheet is did you buyback and M&A just any thoughts around that it be real helpful, particularly given how strong the results of some of this.
Thanks, Kevin will look I don't think that.
I don't think that acquisitions and share repurchases repurchase necessarily have to be mutually exclusive and it depends on.
At the moment in time, if you will for this quarter, we allow cash to build on the balance sheet versus.
Going further into our buyback plan.
You know we hope is always that we have.
Acquisitions that are developing opportunities that are developing because that's where we show the highest return.
Prove that out over a period of time and you know just based on.
Kind of ours, our current strategy around acquisition, you're looking for these opportunities where we ever.
Ability to add industry specific solution capabilities that we may not have inside of our organic business today, but we have clients and pipeline of business that require these kind of solution naturally those maybe a little smaller and not platform at acquisition, but support apex.
On a commercial space any C S and the government space, though you know that's that's kinda, where our focus is today and.
End of where we're working as hard as we can on pipeline were certainly acquisition ready and feel like we have some holes that we could fill that are going to exist existing up again to fill existing opportunities that are current account portfolio and pipeline.
That helps that house, and then I guess.
You talked about you know and accelerating trend towards.
It will transformation amongst your clients, maybe just flesh that out a little bit and then just if you could maybe reconcile it sounds like creative circle still.
You know, maybe not where you need it to be maybe help help reconcile maybe with some of the gaps aren't great himself well relative.
The strength, you're seeing on the digital transformation side.
Yeah, well look I mean, I think it goes without saying that the correct.
Situation, where all of them because of co bid and the shut down you know of the economy gets pushed our large customers, but on a commercial marketplace and the government marketplace into remote work scenarios and that is accelerated if you will.
The need to be able to have remote capability for security around that.
Enhanced opportunities to to utilize the cloud. It's also started conversations around re shoring certain work that was done offshore. So you know I would say that none of those aren't where new trends. If you will coming into Tobin bad would say just mostly those things have been you know.
Situated if you think about creative circle individually I mean, they basically in their business. You know had traditionally served you know kind of bread and butter marketing and events.
And.
You know also digital skill sets and what they're seeing in their business today, our digital skill sets around you are you acts and other like things are you know in high demand with their clients, but you know the other two buckets of their business have been more flows you go you know something easily.
Turned off by clients when they're worried about their own business. So that will that will flush itself all the way out here as we go in the small and mid market accounts of creative will come back and.
Begin to spend on their services and meantime, it gives them a chance to focus on you know their large account portfolio and develop that further and you know really honing in on opportunities around digital skill sets and digital work that are relate to the creative marketing space.
Oh.
Helpful. Thanks.
In our next question is from Gary Bisbee from Bank of America Securities. Please proceed with your question.
Hey, good afternoon, I guess first question on on the.
Really impressive strength that.
You called out several things that are driving that obviously there was the acquisition in the first quarter that helps but.
Any any any other color you can give and I guess, sometimes when you've had outsized growth in the past you've called out some of the hardware and software.
Supports the contracts as but but may be somewhat more lumpy was was there anything meaningful there or is it really just.
Broad acceleration the business.
Thank you.
Yeah, Gary Thanks for the question go let George speak to this although on the top of it I'll say, we're really excited about.
How you see us is performing and.
While we set your long term.
View of kind of high single digit growth and then a complement of M&A to go with that we'll we'll get higher growth rates. When we can any yes, certainly has been doing that George will talk a little bit about just the components of growth for the quarter.
Yes sure. Thanks.
Thanks, Gary for the question.
Yes, I would I would characterize it as a more broad and not anything particular anything specific.
We have than we do continue to have a strong component of all software and hardware and subcontractors in our solutions, where we approach the customer helping them solve their difficult problems, we're always reaching out and use in subcontractors and the best technology is doing can provide but overall, it's been a cross the.
Board them, a broader execution of our.
Our mission. So that's the idea that provides a little bit more color for young and is that what you're looking for yeah. Yeah. Thanks, and maybe one follow on on.
I know that your contracts are durable.
And sorry, no matter whats going on but.
As you think about you know that the election. This fall is there anything that you think could.
Change.
How you approach to business demand what.
Hi, just as a couple outcomes there, but is there anything we should be thinking about as it relates to.
Essential changes.
In the ministration.
Thanks.
Yes, sure and this is something I'm sure everybody will talk about lot over the next several quarters, but no I like the position that we're in a green works were were buried were spread between defense and federal civilian and in the areas that were in defense. We're in IC modernization cyber cloud are these things are not going away, we're not doing overseas are right.
Patients.
We're not providing a whole bunch of bodies on things.
Technical solutions, which I think both sides of the all agree on are very important and that again on the federal civilian side, which depending on the administration typically some things would slide the other way if it changes.
We feel very very comfortable where we are in terms of some of the federal civilian areas and again, it's in the areas of using.
Very high end solution solving our customers most difficult challenges so.
Yes, I think probably read the authorization.
I asked a both both folks I don't think of we got to see a lot of change in the defense spending at least in the next several years so.
Okay.
Great. Thank you and if I could just sneak one quick one in for Ed.
S DNA given how much better the revenue was yesterday was quite well controlled I guess, how do you think about.
The.
Some of those costs coming back in.
As we look forward I think I heard someone say maybe at apex, you wouldn't have quite.
Not much benefit to the margin in Q3, but any color on how we think about phasing.
How revenue goes obviously the key component.
It would be helpful.
Yes, Gary I think as it relates to a phasing I don't think you're going to see much.
Would it change that will occur in the second half of the year, but clearly as we.
Continued to add to our head count as we see demand in the marketplace.
We're going to see headcount headcount costs go up okay.
But we've spoken many times about the variable nature of our cost base, you have a pretty good sense of that but.
In terms of fixed cost I think headcount would be the big driver.
Yeah and that Ed the only thing I would add to that is.
Gary It's just that you know we've got capacity here in terms of productivity I feel like to push forward and so Ed right in there will will add in on a moderate basis in places, where we where we need to allocate resources to certain accounts or certain opportunities, but but you know well I don't want to leave you with impression that where we have.
Some big hiring going before some kind of surge that's not where we are.
Thank you.
Yes.
Our next question is from Seth Weber from RBC capital markets. Please proceed with your question.
Hi, This is only Mclaughlin on first up Tonight.
First question in the prepared remarks, Ted talked about half accounts growing low single digits in retail branch account download double digits funny. If there's any notable divergence in recent production trends between the two groups.
No I think that's what you've seen from US you know for a couple of quarters here you know and certainly if you may be just think about the parts of the economy that have been most effective obviously small and mid market accounts or what we call retail accounts have been affected more than a large accounts and so while the.
Well the rates of growth or you know are different ethnic relatively it's not too much different than what we've seen.
Okay. Thanks, and are you seeing anything in terms of price concessions on the commercial side I think last quarter. It sounded like some of the smaller accounts were asking for concessions just wondering if that's continued or lessened altitude 18 months ago.
No overall our contract margins.
Have remained very stable and even seen a little tick up but Randy want to talk about client account concessions or commercial side specifically.
No I think you hit it Ted <unk>, our and apex to Chris the account margins are ticking up. So we always have accounts here in there that are looking for one thing or another and generally short for specific targeting certain period of time and.
And we we will adjust depending on the strategic importance to the account what we can do.
And the debt and we'll today, our margins impelled very solidly even ticking up a bit.
[music].
Okay. Thanks, guys.
Our next question is from Tobey Sommer from Suntrust Robinson Humphrey. Please proceed with your question.
Thanks.
I was wondering if you could give us some color.
Why the.
For it in apex businesses are performing differently.
And.
If you see them kind of converging at all.
Over the near term.
Thanks, Toby what I would tell you the to two biggest differences between the apex than the actual business.
Relate to size of account. So you know apex, serving mostly fortune 501000, Oxford, serving mostly not not exclusively but mostly middle market and smaller retail client accounts and so obviously, that's a part and parcel of this the second biggest saying is apexs server.
Every need.
The IP world of the CIO in order to help them get their work done.
At Oxford is serving individual hard to find niche.
You know technical talent and so theres a difference in that as well. So I'd really say those are two of the biggest driver.
Thanks, and on the consulting side.
The rate of growth did slow was the single digit rate of growth is that an organic number or does that include some acquisition from.
Some acquisition contribution and then.
What what drove that was a kind of a slowdown of existing projects cancellations could you speak to the the reasons for the slowdown thanks.
Randy you I'll take that.
Yeah, well, let me start.
Toby first of all that number is all in so the interest. This acquisition is part of that and we don't separated out mostly because enersis, we've taken them and reconfigured them in support of most of the pipeline opportunities. We've had so while there is still some enersis revenue that they brought with them as a business it's not.
The main driver we've been very successful a driving new business.
In consulting.
With them, but it's in pipeline that apex generated so I look we look at as one total.
The other thing I would say Toby is if you remember back in the end of last year Q4, particularly our bookings.
Growth was not as strong I mean, it was still there, but it wasn't growing year over year and remember the comps are astronomical right for us in this consulting business. So.
I think thats slow down the end of last year has affected us in the growth rate this year.
In quarter, one in quarter, two along with Abbvie, obviously, Kobe 19, but I think as Ted pointed out in his remarks, our bookings now are starting to accelerate back up and the growth in the bookings, particularly as we ended Q2 were very strong.
So now the question is why did our bookings slow down the end of last year.
Well some of that is normal year. When you end the year companies are finishing out their budgets and planning to restart budgets in the beginning of the new year. When we got the beginning in the new year, they're a little slow the by February where they're pretty knows budgets in place I think they began to see the tea leaves around the cobot 19 scenario.
Oh and began to slow down a little bit on just what their priorities, where I think they've sorted through that over the period of February through May and we're now beginning to see an acceleration of bookings and and things with our client base. So there are couple of factors at play here that you know I don't want to own.
A replay one factor or another but my thinking our clients were prudent about where they're going to spend their money and redirecting some of the money and and.
I think were.
I feel better about it today than I did three months ago for sure, but I knew and then Ted and I knew in the fourth quarter that bookings slowdown had occurred and and.
Yeah that would affect the somewhere along the line.
Thank you very much.
Okay.
Our next question is from.
Jeff Silber from BMO capital markets. Please proceed with your question.
Thanks, So much wanted to ask more of a philosophical kinda question that clients have been asking me, but let me ask this question. So you talk about the ship terminal work everybody's doing it everybody, saying it.
Do you think if this is a more profound change that we might see clients use their old workforce remotely as opposed to outsourcing to firms like you do we see a shift there.
Oh.
No well look I mean, certainly they're going to be more open with their own internal.
A workforce to allow them to work remotely I'm sure. We all will you know in certain circumstances, but I think that really the driver behind using firms like US is you know you never have the right talent at the right time, when you need it. So I think that most of this if you will is a supporter of demand.
For our services and I think that you know in many different ways clients are going to be as open or no more open to use us either for talent or to get certain solutions and they're going to be more open minded to look beyond you know having someone sitting within their four wall, which.
I will allow us and turning to look.
In different geographies of the country for the right Skillset, you know even at better price points. It sometime you know, which helps them and helps us.
And again, we'll have a support the demand equation of all this so I don't really believe that up.
Working remotely necessarily as it relates to their internal staff is really done.
I have an impact if you will on the demand equation for the services we provide.
Okay. That's helpful. I appreciate that you mentioned pricing and I know a lot of times. It has to do with mix, but I'm specifically focused on your assignments.
Business.
Are you seeing any less pressure from a wage inflation perspective, given what's going on in the labor markets.
Yeah look I think that for high end I T skill sets I mean, there still up there in demand and they weren't demand and so that's not necessarily the group that was furloughed and I think going forward you know that that that the pricing will not only the wage scenario, but the pro.
License in area around all that we'll have good stability to it.
Okay, great. Thanks, so much.
Your next question is from Mark Marcon from Baird. Please proceed with your question.
Good afternoon, let me add my congrats performance here.
Can you talk a little bit about what you're seeing with regards to the apex systems consulting.
Kinda, how that those bookings are going specifically and whether or not for this coming quarter and and as we look out towards even a back half of this or the back end of this year.
Whether you would expect that to grow sequentially or how should we we should think about that.
Sure. So Mark you know, we don't give out that information underneath the segment quantitatively, but I'll, let rand speak qualitatively about it and give you a sense of where it is.
Okay, well, Mark listen I guess I have to respond to ways in the first of all consulting revenue flow and bookings are a function first by the account so in accounts like transportation, and some retail and oil and gas.
Airlines were definitely not seen consulting business. Okay. The same as we're not seeing it in the staffing room. So there is a industry specific impact here in terms of where we're seeing consulting now there are areas, where consulting starting to pick up even more on the government's Thai business services side.
Picking up a little bit in healthcare, a little bit more in banks picking wealth management, and then Fintech and then the regional bank initiatives that we have going on so when you look at it by industry segment, it's a little bit reflective of what's happening in our bookings and revenue a little bit reflective of that industry push in turn.
So I think you really asking the question about that we're kind of work or they are we getting involved then it's really similar to what Ted showed in the remarks.
It's more around what I call the digital roadmap its digitization of businesses, whether linking web development or linking the wed been too you know order processing billing and pain logistics queuing logistics mandates that are put out so linking your logistics systems with your web.
It's all of that we're all in the cloud so I think on the marketing side yet to come is is learning how to use that information to better talk in excite.
Demands from your customer base, which everybody talks about but I think we're still in the early innings of that kind of work. So it's really around the digitization of the business.
And linking customers with the suppliers with your own workforce.
To do things better faster more efficient Lee.
Perfect I appreciate that Randy can can you talk also little bit about like the the trends that you're seeing both in terms of industry verticals.
You mentioned that you know across the commercial side no things stabilized in the second half of the.
Of the quarter and then that stabilization continued through July is that relatively uniform across the various industry verticals or are there. Some that you know we're actually just continuing to grow sequentially and then you know some.
Like consumer and industrials that might even be softening a little bit further and it's if if there is a change along those lines what are the longer term implications or how should we think about that.
Well tend to want me to go ahead and responded yeah.
Yeah. There so there's a lot there mark I mean, I, we're now reporting against five industries. Some course on we're managing inside of our business commercial business units to really 26 segments.
That roll into these five industries. So I think you're asking a question I would say we saw some strength across our five industries in different segments. As I was just mentioning and financial services its with insurance Fintech wealth management.
A little less in the big banks, Okay, and got VIX with state and local small business higher Ed.
A little less and work, we're doing with maybe a large integrators that ebbs and flows a bit and consumer industrial is it's not so much in chemicals gas and energy.
Airline hospitality, but it isn't specialty retail E commerce to tobacco believe it or not and logistics.
Our stronger.
Our telco business is a little bit weak right now diversify telco is good but the wireless in media and not too strong.
In technology, our small business technology footprint and some of the big players like you know clients. It we have our are still.
Relatively strong and hanging in there on health care providers coming back a little bit.
Payors coming back a little bit.
But it's been down for sure over the last few quarters as they've been busy fighting the virus. So I can go through this in more detail, but we're seeing shifts in not so much shifts. It's just certain industries are still up and running and when we talk about stability.
And our consulting our in our assignment revenue, it's really coming from these different industries that still has some strength and they're definitely some industry or segments of the industry that are not quite backup yet.
Does that help.
Mark.
Appreciate that color on and then with regards to just you know the recent resurgence in the virus or you are you hearing any tone from clients, where they're there I know things have been stable for last three weeks, but in terms of.
Like looking out towards the back half of this year are there any.
Any sort of sounds of like we're going to be a little bit more conservative towards the backend or because of the strategic imperative towards digital transformation that that's more than overriding any any sort of doubts or not.
Brand why don't use comment and then George Yeah.
I I would say, we're not hearing I think we're hearing steady steady as we go but the digital side is the emphasis okay and if we're positioned on that side with them. Then we're going to continue to be steady or continue to inch up okay.
Towards Georgia upside.
Yes.
Not seeing any impact to us on the upsurge in things are our customers continue to focus and have an astute things remotely and as Randy said the digital modernization on technologies provide our solutions to being able to do that so we continue to hire the a really great people and provides good solutions.
With customers.
Right and then what are you seeing in terms of acquisition multiples among the.
The good select types of companies that you would typically look at.
So [noise] Submarket think on the upside you know acquisition pace of acquisition has not slowed down so that really seen in no change there commercial side I'm, mostly because of things around credit and.
The stalled private equity and what have you. There just haven't met a lot of transactions so difficult to really discern that but will that will flush itself out here as we go.
Okay, great. Thanks, a lot and congrats.
[noise], we have reached the end of your question and answer session and I will now turn the call over to Tim.
Ted Hanson CEO for closing remarks.
Right well, we thank you for being with US. This afternoon this evening and.
We wish that use they say stay healthy and look forward to speaking with you on our third quarter call. Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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