Q4 2020 ASGN Inc Earnings Call
Greetings and welcome to the Angi and incorporated fourth quarter and for year 2020 earnings call. At this time all participants are in a listen only mode. The question and answer session will follow the phone the presentation and if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
This conference is being recorded.
I will now turn the conference over to your host Kimberly <unk> of Investor Relations you may begin.
Thank you operator, good afternoon, and thank you for joining us today for a S P and fourth quarter 'twenty and 'twenty Conference call with me are Ted Hanson, President and Chief Executive Officer, Rand Blazer President of apex systems.
George Wilson, President of ECS, and Ed Pierce Chief Financial Officer.
Before we get started and 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.
Certain of these risks and uncertainties are described in today's press release, and and our SEC filings, we do not assume any obligation to update statements made on this call.
For your convenience and prepared remarks, and supplemental materials can be found in the Investor Relations section of our website at investors start Asti and dotcom.
Please also note that on this call we will be referencing certain non-GAAP measures such as the adjusted EBITDA adjusted net income and free cash flow.
These non-GAAP measures are intended to supplement the comparable GAAP measures reconciliations between the GAAP and non-GAAP measures are included in today's press release.
I will now turn the call over to Ted Hanson, President and Chief Executive Officer.
Thank you Kimberly and thank you for joining S T and fourth quarter 2020 earnings call.
<unk> reported very strong results for the fourth quarter with revenues adjusted EBITDA and EPS all exceeding the high end of our guidance ranges.
The strength and Q4 has continued into the new calendar year, and we are seeing positive business trends and early 'twenty 'twenty one.
We look to accelerate both organic and inorganic investments into our business in the coming year to ensure that we stay relevant with our clients as well as continued to capture increased market share.
For the quarter revenues totalled approximately one point of the 1 billion well ahead of our guidance of.
968 to 988 million.
And as a result of our strong fourth quarter performance full year, 'twenty and 'twenty revenues improved year over year and reached nearly 4 billion a true Testament to the resiliency of our business.
S T and success in 'twenty and 'twenty can be attributed to several key factors, including focusing on it services and solutions with the industry expertise targeting large strategic accounts and the commercial and government and markets and utilizing our unique contract deployment model that enables our variable.
Cost structure together the S. T N team never lost focus on our operations or execution and I want to thank all of our employees, who remain committed to our clients during these difficult times.
As I mentioned on our Q1 call with over three decades since our founding the current global pandemic is not the first economic downturn a S T and his experience and.
As a result, we entered the COVID-19 with a good sense of power of business might perform and and you can now economic downturn, even if we cannot predict the type of disruption of global pandemic would have on the overall business environment first we expect that our revenues and gross profit with ebb and flow with the market second given our.
And as an it services and consulting firm to the commercial and government markets, we anticipated we'd be able to maintain our EBITDA margins and generate solid free cash flow.
And we did exactly that adjusted EBITDA margins of 11, 5% for the fourth quarter were well above the high end of our guidance range for Q4 for the full year adjusted EBITDA margins were $11 one per cent.
Free cash flow totaled $82 7 million for the quarter and $392 2 million for the full year average as a result of our solid free cash flow. This past year, we successfully closed for acquisitions without taking on additional leverage.
And when the cash we have on the balance sheet, our strong free cash flow and our very modest leverage we remain acquisition ready in 2021.
As we execute against our capital allocation strategy with the marketplace strengthening we will reintroduce start and costs back into the business in 'twenty and 'twenty one to accommodate the increased demand for our services.
<unk> segment and that's a great example of this increased demand.
The segment of display of considerable strength throughout Q4, including and the final two weeks of the year something we have not traditionally experience to discuss this in further detail, let's now turn to our segment results beginning with apex.
Apex, our largest segment, which includes the apex systems and creative circle services clients across multiple commercial and markets for the fourth quarter. The apex segment generated revenues of $619 1 million or 61, two per cent of total revenues down three and 5% year over year.
Sequentially revenues for the segment were up three nine per cent and nine 9% adjusted for the three and a half fewer billable days and the quarter.
Apex systems, and Q4 achieved slight positive growth year over year, while of creative circle declined double digits.
Importantly, the apex systems and creative circle continued to rebound for the slowdown and the second and third quarters of 2020.
Apex systems exited the fourth quarter at weekly volumes above pre COVID-19 levels seen in early March 'twenty and 'twenty.
Creative circle's revenues, while down from the prior year continued to move higher with digital related skill placements driving this growth.
Revenues for apex systems demonstrated some note of notable trends and the fourth quarter three of our five reported industries, except the positive growth year over year financial services accounts maintained their double digit growth rate and health care accounts accelerated to mid single digit growth rates.
And services, which includes government and business accounts and <unk>.
And <unk> single digit growth rate.
The two industry verticals that were down year over year of consumer and industrial and PMT were up sequentially within consumer and industrials consumer Staples E Commerce and utilities performed solidly.
While retail energy hospitality and transportation remain and decline within TMT technology customer accounts increased year over year and.
And sequentially.
Yeah.
Top accounts of cheap low single digit growth rates for Q4, while retail and branch accounts the.
Clay and mid single digits as compared to the prior year.
The gross margins for the apex segment were 29, 5% down just slightly from the prior year period due to lower permanent placement business attributable to COVID-19.
Importantly, we continue to grow our commercial consulting revenues consulting revenues for the commercial business totaled a $127 6 million up 19% year over year.
Gross margin for our consulting work is higher than the overall gross margin and commercial.
Additionally, our pipeline of consulting work grew again for the quarter at double digit rates over the prior period.
S T and tie and consulting offering remains an important source of value. We provide our clients. So we continue to make acquisitions that expand our consulting capabilities and September of 2020, we across the acquired leapfrog.
Our specialized consultancy that focuses on the enterprise scale business transformation and services to Fortune 500 clients and the financial services insurance and health care industries under the apex umbrella leapfrog has continued to benefit from greater access to industry, leading methodologies as well as the broader.
Talent pool.
At the same time leapfrog has provided the apex subject matter expertise and longstanding client relationships.
Yeah.
We are also seeing traction with our previous acquisition Enersys, where we have secured new contracts and cloud strategy and Dev ops engagements.
Other project areas that are driving revenues include those and application and project management skill areas, such as job of digital ERP and cloud.
Let's now turn to ECS, which provides mission critical solutions to the federal government, including the department of defense and intelligence agencies and other civilian agencies E.
<unk> recorded another quarter of strong revenue growth with Q4, 'twenty and 'twenty revenues of $263 2 million or 26 per cent of total revenues up $12 seven per cent year over year.
As you May recall in Q4, 2019, Ucs's performance was stronger than we had initially anticipated.
Due to a customer driven early purchase of software licenses.
And with this headwind ECS outperformed our initial expectations of 10% growth year over year, primarily due to the continued high demand from our federal government customers for artificial intelligence and machine learning services and increased volume of cloud services and solutions provided and new opportunities per center.
And through recent acquisitions.
Yeah.
For the full year ECS revenues topped 1 billion for the first time since its acquisition in 2018. It was our goal when acquiring ECS and we would reach 1 billion of revenues within five years of the acquisition with the ECS as continued outperformance, including higher organic growth the growth through M&A.
I am pleased to report that we accomplished this goal well ahead of schedule.
We've seen minimal impact on ECS as business as a result of COVID-19, and ECS, It's new business pipeline remains robust the.
The segment was awarded approximately $119 2 million of new business and the fourth quarter and maintained a book to Bill of 121 on a trailing 12 months basis same as the end of the preceding quarter.
The contract backlog totaled 2.65 billion at the end of the fourth quarter or of healthy coverage ratio of 2.6 times ECS as trailing 12 month revenues.
We do not see our pipeline of ECS work slowing early indications show that the buy and the administration will make it modernization and cyber security. Both key services ECS provides its clients major focus areas early and president of items term.
The contracts won in Q4, 'twenty and 'twenty included providing IP solutions to the defense information systems Agency.
Supporting the department of Health services home and community based services programs and.
And offering I T technology and services to the U S. The United States Marine Corps Department of the manpower and reserve of Affairs.
Similar to our commercial and market, we continue to acquire and the government space and October we welcomed scours the ECS.
The <unk> team is focused on cutting edge and technically compelled plex D O D intelligence community and other federal civilian programs and mission.
Scott. This is one of the largest providers of remote sensing data and scientific expertise to the national Geospatial Intelligence agency.
In December we acquired I S M, which offers industry, leading expertise and the internet of things services and operations management.
And it's one of the very small number of elite service now partners and the government space.
Both Scott and I S and had been fully integrated into ECS. This business and are actively partnering on projects with the ECS.
As we continue to build and strengthen our ECS segment, just one month ago, We announced several news leadership positions within the segment, including John and again as ECS as Chief operating officer.
John This is a veteran of the ECS team since 2017 was ECS as senior Vice President of Enterprise solutions, John has been instrumental and not only driving the ECS is organic growth, but also of integrating the acquisitions, we just discussed.
John has two decades of experience and product development digital transformation and emerging technologies and I'm excited to welcome him into this newly expanded role.
Turning to our last segment, Oxford, Oxford offers on demand consulting talent for commercial health care life Sciences, and engineer and clients as well as permanent placement of talent through our cyber cutters Division.
The Oxford segment reported revenues of $129 1 million and for the fourth quarter of 2020.
And while down year over year was up one 5% sequentially driven by revenue per billable day growth of nine 2% for Oxford core services and solutions business.
I'm very pleased with the S T and performance this past year between the organic growth of our commercial and government and markets and the addition of several strategic acquisition, we position our company well for success in 'twenty and 'twenty, one and beyond.
Importantly, the marketplace, the strengthening and our pipeline of opportunities remains robust.
But for speaking about future opportunities and our goals for 2021, and I'll turn the call over to Ed Pierce, our CFO to discuss our Q4, 'twenty and 'twenty performance and our Q1, 'twenty and 'twenty, one guidance and further detail.
Ed.
Thanks, Ted and good afternoon, everyone as Ted mentioned, our financial performance for the quarter was well above our guidance estimates.
Driven by strong sequential growth of our commercial divisions and the double digit growth of our federal government business on.
The second consecutive quarter revenues were about 1 billion, reflecting only a slight decline year over year.
Net income and adjusted EBITDA for the quarter were up both year over year and sequentially. Our adjusted EBITDA margin of 11, 5% was the highest quarterly margin since the third quarter of 2019.
Commercial revenues for the quarter were $748 2 million, although down mid single digits year over year quarterly revenues for the.
The increase sequentially since the second quarter.
Commercial revenues for the fourth quarter and were up three 4% sequentially. Despite three point by fewer billable days.
Reflecting the nine 4% sequential increase in revenues per billable day, both commercial segments and all five of our industry verticals were up sequentially.
Permanent placement revenues for the full year were approximately 2.6% of total revenues and on ROE.
And longer significant to our consolidated results for disclosure purposes.
Sequentially, we will not present, the revenue separately and instead, we'll include them in the assignment revenues all prior periods will be recast for this change and presentation.
The federal government revenues for the quarter were $263 2 million and increase of 12, 7% year over year, Despite a challenging Q for 2019 comparable.
The strong double digit year over year growth was driven by a number of factors, including increased volume on certain existing programs and new contract awards and the contribution from the businesses acquired ECS as the revenues were down sequentially due to the surge and revenues in Q3 under to government programs.
Coincided with the end of the federal government the school year.
Gross margin for the quarter was above the high end of our guidance estimates.
And our commercial and federal businesses were both up sequentially.
On a year over year basis, our gross margin was down related to changes in business. Ex. These changes included the lower mix of revenues from our high margin and creative marketing and permanent placement services.
And a higher mix of revenues from our federal government business carries a lower gross margin and our commercial book.
SG&A expenses were $17 eight per cent of revenues of year over year of reduction of approximately of how does the 30 basis points the.
The improvement and the SG&A margin and reflected among other things effective expense management by our operating units and lower incentive compensation expense, we anticipate our expense margin will increase over the course of this year as COVID-19 related restrictions are relaxed and we make the necessary investments and.
Our operating divisions to support growth.
Net income for the quarter was 55 4 million of 41% year over year.
As a reminder, net income for.
For Q4 of last year included a one time charge of $18 9 billion of 14 million after income taxes related to the write off of deferred loan costs and all of our senior secured credit facility.
This write off resulted from a debt restructuring and November.
On the 19th and included the which included the issuance of $550 million and.
Senior unsecured notes and the pay down of our senior secured credit facility.
EBITDA and adjusted EBITDA for the quarter for boats a year over year and as previously noted our adjusted EBITDA margin was above our guidance estimates and up 20 basis points year over year.
Even though for the full year was $400 1 million up slightly from 2019.
Adjusted EBITDA was down two two per cent related to the lower stock based compensation expense.
Each of free cash flow for the quarter was $82 7 million, which benefited from the deferral of payroll taxes of $24 9 billion under the cares Act.
The conversion rate of adjusted EBITDA and free cash flow was 71, 1% cash used for investing activities included $34 7 billion for acquisitions and $4 3 million for capital expenditures.
At quarter end cash and cash equivalents were 274 4 million up 19, 4% from the end of the preceding quarter.
No outstanding borrowings under our 250 million revolving credit facility.
The senior secured debt leverage ratio was one point and one point of one well below the maximum allowable ratio of four to one.
Our financial guidance estimates for the first quarter, but this year are set forth and our earnings release and supplemental materials.
These estimates are based on current.
Production trends and assume no significant deterioration and the markets we serve.
These estimates are as of the date of our earnings release, and consequently, any worsening of the pandemic.
Could have been adversely affect the results for the quarter.
For the first quarter of 2021, we estimate revenues of 1 billion to 1.02 billion.
Net income of $42 6 million to 46 point to note of it.
And adjusted EBITDA of 101 book to 106 months for.
For our commercial business and we expect revenues for the first quarter to be in line with or slightly up from the fourth quarter of 2020.
Which considers the typical latency and spending at the beginning of the year on the recently improved accrued capital projects for the federal government revenue.
Business.
Revenues are expected to be up double digits year over year, but down low single digits sequentially.
Our estimates include the effects of the payroll tax reset which occurs at the beginning of each each year.
And the resets result, and lower gross and adjusted EBITDA margins of the first quarter.
SG&A expenses include sequential increases for additional head count investments to support the expected growth of our commercial business as well as increases and other expenses that were curtailed due to COVID-19, and certain of those expenses such as travel and entertainment.
And we gradually reintroduced back into the business and weighted more to the second half of the year of COVID-19 restrictions are relaxed.
Thank you for your time and I'll now turn the call back over to Ted for some closing remarks.
Thanks, Ed 20.
2020 was unprecedented and while the challenges to our global economy may have been unparalleled to anything we've experienced before.
Our gross and resiliency as the company this past year of something for which I cannot be prouder.
S T N and Theres 'twenty and 'twenty, one on solid footing and ready to face our customers greatest the I T needs.
Since the end of the third quarter of 2020, our customers have been increasingly confident and continue to invest and their technology Roadmaps supporting our clients digital transformation efforts in 'twenty and 'twenty, one will remain the core part of our service offering.
Mark capital deployment. It's also the cornerstone of our overall business model, so while we invest and our organic growth, we will remain active and M&A.
In 'twenty and 'twenty, we invested a total of $186 2 million and M&A. We believe that M&A is the best use of our free cash flow at this time and in 'twenty and 'twenty, one we plan to bring strategic acquisitions and <unk>.
Both the commercial and government end markets and to our business and an even higher pace and scale them before our M&A pipeline remains active and we will look to execute acquisitions and the commercial and government and markets that provide us with new solution capabilities and industry expertise or contract vehicles.
Consistent with our previous acquisitions, we will be disciplined on our purchase price acquiring with cash on hand, whenever possible and ensuring that the companies. We acquire are accretive to growth EBITDA and margin.
While none of the world or market events of this past year. It could have been expected when it came to ASC and performance and in particular, our solid EBITDA margins and strong free cash flow generation those results for something I did anticipate.
And believe this because we've positioned our business well so that we could consistently execute even in the of debt of a global economic downturn, we focused on the mission critical IP and eight of our long standing clients, we emphasize smart capital deployment generating strong liquidity and using our free cash flow and the best interest of <unk>.
Our company and our stockholders.
And most importantly, we prioritized, our employees' health and wellbeing, ensuring our professionals could work efficiently and safely and a remote environment the day.
And the mix of the working world of change.
And while I anticipate that Ashley and will continue to work remotely through at least the first half of this year as is the case with our clients and I expect our business will remain on a solid growth trajectory.
Like the focus of the projects, we execute for our clients a S. T and has positioned its business for the future of work and we look forward to continuing to share of success along the way.
That concludes our prepared remarks on the.
Of half of our entire company and board of directors and we thank you for your continued support of the SDN. We will now open up the call to your questions operator.
And at this time and we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up on your handset before pressing the star.
Yes.
One moment, please while we pull for questions.
And our first question is from share.
Sam customer and with William Blair. Please proceed with your question.
Hey, guys stomach on material.
The unclear.
Perfect.
Question relates to Ecs's market opportunity and believe the administration for the $10 billion on the one point not try and seamless plan to modernize and part of our I T to protect against cyber attacks.
And the startup of the modernization of or how much more market growth. We see here just trying to get the sense of how much additional market opportunity of us could create for you guys.
So the Sam Thanks for the question I mean, obviously, we feel like we're positioned and the right places and the federal government space, both from a customer standpoint, and a solution capability cyber security obviously is one.
Where we have a lot of expertise and and are doing good work there George do you want to.
Spot on to Sam's question there.
Yes sure. Thank you. Thank you said, yes, and we see it as the growth opportunity for US. It's one of our major centers of excellence and it's a big part of our company. We're excited about what's going to be going on with the federal government and the CMC and we do see that's the growth area for us.
And we know we've got a strong pipeline, but I wouldn't try to characterize it as any particular percentage, but we do see it as a big growth area for us.
Great. That's helpful. Maybe switching gears to the commercial consulting business that are there any specific types of projects are claimed by the coals that are really driving the increase here.
Brian.
Well I think the answer is it's a little different for each industry. So for example on health care.
Particularly and the provider space there is a renewed interest and building systems to keep track of the Covid testing registration of of the population and then follow up for the second dose and that sort of thing. So there has been all of a sudden just in the fourth quarter of great swell for that kind of work.
In addition to that Theres still a lot of work to be done and healthcare and financial services.
And what I call digitization of their business and making it a little bit more user friendly and making it easier for people to make transactions, particularly less and less.
Less knowledgeable.
Tumors, if you will of financial transactions, where health care that rely on simple one stroke kinds of of of systems. So a lot of work around the website and lot of work around user interface, a lot of work and behind that and bridging systems together, so that your correlating systems and dropping them into business into.
<unk> files for consumer evaluation.
I mean, it's.
You know, we've all talked about the digitization of our systems and the numbers that are being supported again I. We mentioned the last quarter, 31% of financial transactions and 2019 were done online and.
And $2 20 of that number of jumped I'm sure and when it's reported into the Eighty's. So it's just the further digitization of business and the way in which they interact with consumer.
And then there are of particular things like what I described and healthcare just created by the vaccine and the Cros you know there's about 3005 hundred hospitals in this country and half two.
Support that.
So that gives you a flavor.
Yeah definitely I appreciate the color there.
[laughter].
Okay.
And our next question is from Gary Bisbee with Bank of America Securities. Please proceed with your question.
Hey, guys. Good afternoon, another and another really strong result.
So I guess I wanted to ask a couple of questions on the on the consulting effort and as you know.
And I've I've written about that recently and I heard a couple of questions back from a lot of a lot of your investor base and I thought would be helpful. The posed to you and this and this for them. So.
First.
He is the right way to think about the consulting projects you're taking on debt. This is really all incremental or is the part of that debt could be cannibalizing some of the the.
Traditional assignment revenues. So in other words, you went with the assignment now you are you finding the consulting opportunities, but they are doing.
Doing the the one delivery method as opposed to the other or is it for incremental.
Yes, so Gary and I'll, let Brian comment as well, but I think that this is this is work we're winning of clients deciding to use us other.
And other alternatives right to get this particular worked on it.
Our deployment model to provide contract staff that kind of enables our ability to do that so we have consulting expertise and capability to scope of frame bid.
Bid and win and then project manage work to a final solution and then we also and house have Dar of legacy capability to provide technical resources and so that's really where our advantages.
And I wouldn't think about this is work that we that was staffing work that we've turned it into something else because we're actually have some kind of solution oriented the outcome here.
Which the client is pulling us into and asking us to provide so rand anything to add to that.
Yeah, I agree with what Ted said and Gary maybe put it and some some numbers the staffing world is traditionally of $40 billion marketplace and the U S. It staffing the.
The it services consulting and World is a $2 billion to $300 billion world.
You know I can't say, there isn't some staffing and speed cannibalized and put into consulting, but I think it's a minor piece I think what's happening is we've stepped up and we are competing in the consulting world for the work that would traditionally go to the consultants, where you take as Ted said you'd take on accountability and responsibility and you have defined outcomes.
Design solutions that can meet the client needs. So I think we're swimming and a different bucket and that work and we're having some success.
And by the way, Gary Hey, Gerry one important thing to add there just the.
And it really wanted the very best price point, they would be taking that and driving it down into just traditional staff awkward right, which is not what's happening here I mean, we're giving of higher bill rate and the higher margin to perform the solution oriented work and so I think that too is just another data point here the kind of supports what we're saying yes.
No doubt and the fact that it grew through the pandemic certainly points points of the attractiveness of the market opportunity. So two other ones that I heard a lot from people, which is just who.
Who are you competing with as you're moving into that who are you taking share from what types of firms and then could you give a couple of examples of types of projects and when you say you're taking on some deliverables of our accountability.
Could you give an example, or two just to help me and some of your investors really frame what youre doing thanks, a lot sure. Let me take the first part of that and I'll, let <unk> take the other.
Remember, what I said earlier, which is the client has.
Multiple places to go they could have they could hire fixed internal staff. They can use traditional consulting firms that could go offshore and could outsource something the BPI where they could.
Use us and so what's happening here is they're making a decision of purposeful decision. If you will in many cases to use us.
For some of this work as we come up the stack. If you will and then what they're asking some of the larger traditional consulting firms and I won't go through all of them, but they're asking them to to play and the top part of the pyramid around strategy architecture and design, but they realize they are more efficient ways to get the work done.
And once they define what that roadmap is.
And then ran some examples.
Yeah.
Look the errors examples and every different industry that are different but for example, the client may say I want to build a new agile development center and I wanted and the U S non overseas.
And near shore since the scenario and we're going to assign lines of code and responsibility to you and you have to achieve those lines and other cases, it could be a a center where your ship directly supporting one of our clients and clients. If you will serve as the technology business, you're supporting the on client will take over the center of risk.
Sponsor book for responding to the trouble of reports and the issues that that they bring and the systems that they're using and we have accountability for.
We're working through those type of reports and finalizing and we're getting a a correction.
In other cases, it's purely redesigning from the bottom up putting teams together to help them work through their business processes and look at the Digitization of those processes and we take direct responsibility for that.
Hum.
And when are we using the example of health care, just a minute ago, they turn to US and said Oh My gosh.
We've got all of this and we have certain accountability and reporting requirements to meet.
On the vaccine distribution and not to mention our follow up with the individual patient.
So bill the system for us, we here's generally our requirements and here's what we think the throughput will be and can you go build a system.
It's the combination of all of these things of that that come from different clients at different times, we're trying as Ted said, we're trying not to be the architect necessarily lend accenture be the architect for example, there.
And obviously have some experience, but has said when it comes to the execution of this were with the migration of data and the and the business and the quality control of that data flow re free connecting the connectivity of systems.
You can use of different set of players to do that work and and.
And we're being asked to okay give us the bid and we're winning obviously some of those bids.
That's really helpful. If I could sneak one and quickly for Ed just just incentive comp you called out throughout 2020 as being somewhat lower.
Is that the kind of thing we should think resets right away Jan one whether that's merit raises or incentive comp for the executive team or whatever and is that going to be one of the factors driving SG&A higher this year, if it's significant and could you give us a sense of the order of magnitude. Thanks a lot.
Well it is being Gary as you mentioned.
And it's being paid and then at the very beginning right and some others are going to be phased and over the course of the over.
Over the course of the year.
It's in terms of the expenses that were curtailed.
And was probably not as large of some of the others, but.
It was signet significant callout.
Okay, but it is in the SG&A with that Q1 guidance I guess that is true. It is okay alright, great. Thanks, guys.
Sure.
Yes.
Our next question is from Jeff Silber with BMO capital markets. Please proceed with your question.
Thanks, so much and wanted to focus on the supply side of the picture. If you can tell us are you having more difficulty finding folks.
I know the unemployment rates are still high but the unemployment rates for the folks that you seem to be placing and are fairly low and if you can also comment on the bill pay spreads accordingly, and that would be great.
Sure So Jeff the adult I mean, we've talked about this in prior quarters I'll just say it again. It's this this unemployment picture, it's really not about technology skill set so.
They remain.
And demand.
That being said, where we're able to find people as we win new work or obviously, we wouldn't be able to bill since most of our work is on the time and material basis. So you know, it's it's difficult fine and it's kind of skill set that skill set but it's something we've been able to accomplish.
And then I'm sorry, the second part of your question was.
The bill pay spreads.
Yes, Bill pay spreads Jeff had been pretty consistent I mean, our bill rates are increasing part of that's the supply demand equation part of that is higher level of consulting work.
But we've been able to both accomplished getting higher bill rates and keeping that spread intact.
I'm here as we get.
Okay. That's helpful and and then Ed and I think you had mentioned.
The SG&A margin to go up and 2021 or at least early in 2021 for some of the internal investments I think you called out commercial head count and.
The thing else, we should be aware of it is coming down the pike.
Yeah, Jeff it's the number of factors.
We commented earlier on the incentive compensation.
Travel and entertainment is another.
So those some of those are going to be coming on and gradually over the course of the year, but if you look at the full year as a whole okay.
You can expect our cash the expense margin to be let's say slightly up over 'twenty and 'twenty, but down below 2019 levels.
And another thing Thats pretty important and that is that our gross and adjusted EBITDA margins.
For the full year.
We're expecting to be in line with the margins.
We had in 2020, so that'll give you some perspective in terms of what we're expecting over the course of the year.
That's actually extremely helpful. Thank you so much.
Youre welcome.
Okay.
Okay.
Our next question is from Tobey Sommer with two of Securities. Please proceed with your question.
Thank you were about three years into the most recent five year strategic plan.
How do you how do you think you are positioned relative to your goals for 2022, and maybe just comment to whatever extent of the pandemic and 2020 may of <unk>.
Impeded your ability to hit those goals.
Yeah. Thank Toby factual question I mean, it's I'd say overall I think were progressing on on course, as we wanted to against our strategic play and we had.
Objectives to grow you know off of our current scale within the marketplaces that we serve we wanted to be of much more.
The powerful provider of it services within the government space and and that has gone well here M&A was certainly a part of that plan and we've stayed on course there.
And maintaining these EBITDA margins and beginning to move our way to something that's within 12 and of 12 and a half was something that we were progressing towards before.
Got into the Covid, 'twenty, and 'twenty situations, but but I would say I'm much fronts. You know the firm has evolved to really and IP services provider at scale and the commercial and the government marketplace and that was really the piece of the rest of where we're going and so where we're midstream on that whether 'twenty and 'twenty call.
And I just us.
You know not to be able to get to those prior targets adult.
You know I don't believe that's necessarily the case, yet I mean, we may have to do a little bit more M&A.
And then we had planned.
Which was basically of plug graphic of you'll remember we told you that we have to do 6% to 7% organic growth rates.
And about what was about little over 500 million and revenue M&A over the time period and in order to get to that 5 billion target. So maybe we do a little bit more M&A. It's very possible. We certainly are acquisition ready and we have the cash on the balance sheet and the wherewithal.
And do that so we'll have to watch it here as we go and see how things go.
Get started here in 2021, and how things progress from there.
Okay. Thank you.
Weighing and the M&A when we look at where you've applied capital in recent years, it's been either on the ECS side or or in the consulting one of the.
The.
Financial tradeoffs and between those buckets with respect to you know kind of which one of which one grows more quickly, which one yields a better margin and a better return on the capital how do you how.
How do you compare and contrast, those two kind of buckets.
Well you know every acquisition here fights for the best use of the next dollar of capital, but I have to tell you.
Maybe unique to our firm because of the areas that we focus on within the government space that the the opportunity to make acquisitions, there and get a return or art or the just as equal to some of the opportunities and the commercial marketplace. So I don't put one above or below the other.
That's not typical for all firms, but because of how highly specialized ECS is here the growth rates, they're able to get the margin rates.
Pretty comparable to what's going on and the commercial consulting space and the accounts and areas that we traffic. So they are both highly desirable and we're pursuing both for developing pipeline in both areas.
And we'll have to watch and see how that develops here.
As we get into the.
The first half of this year.
Does the ECS and that side generally have more sizeable targets certainly recent history.
The acquired consulting businesses, but relatively small.
I don't know the size is really the differentiator.
And what we're trying to do is be disciplined too.
The solution capabilities that really strategically fit with where we're headed.
And many times those are not baked Dorothy firms that do a lot of everything we're trying to be fairly targeted whether it's bringing solutia and expertise within a particular area.
And the contract vehicle that we didn't have that accretive to what we're trying to do or if and the commercial marketplace, we see clients coming to us for certain solutions and certain industries and we see if we could find an acquisition that we could.
The begin to win more of that work since we're already on the right to do business with that customer I mean, those of the things that were really strong and stay focused on if we can find them and more scale great.
But we're gonna stay was certainly going to stay on the path we're on here.
Okay. Thank you and then just one last question for me on ECS.
Could you describe the competitors that you typically come up against in that market and also.
Maybe speak to the gross trajectory for the business because.
And because of recent quarters of the book to Bills then.
One and maybe there are some other factors that give you confidence and a different kind of growth rate than flat.
George do you want to talk about competitors and the book to Bill.
Sure well I mean.
Won't listening and particular bettors, but.
All of the ones that we usually compete with we also team with as well. So it's all of the big tier one type of contractors that are out there.
And for the government solutions business area and the digital modernization, so a long list of them.
As far as book to Bill, Yes, it's been a little bit.
A little slower over the last couple of quarters, but we've had a couple of recent wins.
Not included in Q4, but we'll be prudent and Q1 and we've got a couple of contracts that are as you understand we typically get five year contracts and they come up for Recompete and these are some of the areas that we're very very competitive and they have got.
Strong customer base. So those will also help continue to accelerate our growth and moving forward.
Thank you.
Yeah.
And our next question is from Kevin Mcveigh with Credit Suisse. Please proceed with your question.
Great.
Congratulations on the results.
And I wanted to circle back on.
And of the consulting versus the <unk>.
S and Inc.
Just the Delta there it seems like the revenue is pretty sure on the consulting side, it's been outpacing a span of little bit.
Does the consulting business act as of feed for a S N and at all in terms of are you sourcing teams from ASI and into those consulting assignments and then.
Along those lines you know I've always thought.
Looking at more of a.
Bench type model to it are you taking more on the full timers on and that and that.
As it scales.
Just any thoughts around that and then.
If you could help us frame what the mortgage adult day is across those two segments.
Sure well look that was a lot I mean, I'll start and I'll, let range kind of judge.
And here, but obviously the consulting work is a lead for technical resources right. So and that is one of the advantages that we have here is that is the <unk>.
Red and butter of who we've grown up and as apex, and Oxford and so when we can capture more work because we have a consultative capabilities. Then then there is something too that we don't reported in two places because obviously that's that would not be the proper accounting, but they do work synergistically together and that.
Wei.
You asked about are we taking on a bench model. That's predominantly that's that's what differentiate us from the big traditional consulting firms and we don't carry a bit.
We may have certain subject matter expertise.
Around the.
Industry expertise and solutions.
But when we.
And we have work to be done, it's mostly on the time and material basis, and we're deploying the talent on a contract basis and again, that's the reason that we're able to be competitive and win here.
Ran.
Yes.
Okay.
The thing to add.
Okay.
I'm, sorry, I was on mute, yeah, and I think you said everything correctly Ted.
We actually think the client appreciates the deployment model that we use where REIT, we leveraged the good part of the team and each and every consulting team with contract labor.
Part of the reason for that is.
They don't want somebody who had yesterday skills. They want somebody who is today's skills, particularly the industry specific so we can because we have a great search engine for the skills and those people of that we've built historically over the last two decades, we're able to come up with great teams and we put them together with our methodologies we have to provide the league.
And your ship, but by not carrying the big bench, that's carrying a and appropriate bench, we're also cushing and ourselves and.
And and.
And the bottom line, if you will making sure we can control not just the execution of the work, but also the financial impact on our business.
And they haven't got that.
Your last piece of your question was about the March and I believe the differential and like we've said, we'd get two to 300 basis points more and gross margin and that falls down to EBITDA margin.
And as well so it's the.
Because of there because of the the work that we're taking on here the value add for the customer and they're willing to allow us to reflect that and the ended March and that would bill.
That's super helpful and and.
You May mentioned and if you did I apologize for the repeat but if you're sourcing someone on the consulting side the source from.
The the staff fog does that get recorded in ESG and or it gets recorded in the consulting business.
And those are consulting revenues.
Alright awesome. Thank you all.
Okay.
Yeah.
And our next question is from Surinder <unk> with Jefferies. Please proceed with your question.
Hi, guys.
And I'd like to share with the Big picture question.
I guess when I take a step back and I think about the assignment business or more specifically the staff augmentation piece.
It can be argued the prior to COVID-19 that maybe the staffing cycle had peaked.
Now I think it can be argued that the cycle has been kind of reset and so would you agree with that statement and and how do you view the opportunity for staff augmentation of the next few years as we can and now think about it in terms of the macro part of the cycle.
Yeah, I think generally characterize the I agree with that surrender and I would say.
You know one of the things I appreciate so much about this business as we are of where the technology needs of our meaning.
We're not beholden to any one skill set so I believe there's going to be growth on the staff all of the side of the business.
The skill sets may be different and they were in the past, but thats our.
Our natural capabilities to be able to skate to where we need to be and that way and build pipeline and provide.
Of the talents of our customer that needs to be.
Provisioned and so that's.
Just you know, that's just who we need to be and who we've always been.
And then related to that any color that you can provide on the the way that youre thinking about the the type of growth for the the approximate level of growth that you may be able to generate or the opportunity out. There is this kind of an opportunity where we should think about it as mid single digits or how should we think on a longer term basis not quarter to quarter.
So over the next few years.
And I guess I'm not I can't look exactly into a crystal ball I think because because the last year of some of the some of just the.
Staffing and especially the middle market and retail accounts and Covid affected industries was down so much that you may see a higher growth rate. This year over that I think over the long haul it's been kind of a.
Mid single digit kind of growth rate and at apex.
And we've been able to get more of that because our large customer focus and and also because of our ability to provide value added services by way of consulting so.
No I think that our target is of higher growth rates and that.
But I think that if you just look back traditionally over some of the data points. It S. I and others reported some kind of a gain of three to five kind of percent growth rate within the.
30% to $40 billion industry here and the U S at Rand referred to earlier.
Understood and then one follow up this is for you Ed.
Question about the guidance.
Can you maybe walk us through the process for generating guidance at this point and maybe the visibility that you have it seems like the last few quarters that you've come and actually well above the top end of your range.
Has there been just kind of this macro uncertainty that's kind of resulted in a process, where maybe you're a little bit more conservative in your guidance.
And how should we just kind of think about the guidance <unk> given it now in terms of you and your ability to.
So again and up above or near the top end of that guidance.
Well, it's the run dry as it relates to the guidance other than this past quarter the.
The two preceding quarters before.
On the D was mainly related to sort of surges and revenues that we saw.
ECS right.
And this past quarter. It was more driven by the the commercial business and frankly are coming in.
Cana and well above our original expectations, particularly as it relates to revenue per billable day, which you saw was up nine 4%.
Look it's the very disciplined process you're on.
He's going to have things that for.
You're always going to have from time to time searches and though we do have that but you take those out I think of our forecast is our guidance forecast is it's fairly accurate and the good thing is we're very disciplined and.
It involves our field personnel RFP and eight great.
And.
The methodology is.
He has worked well over the years and.
Anyway, I think what you should expect on the go forward basis Youre going to have these things occur from time to time, the surge of but I think for the most part.
We're pretty much.
And sort of in line with what we thought except for that.
Okay. That's very helpful. Thank you guys and congratulations on the floor.
Sure.
Okay.
And our next question is from Andre Childress with Baird. Please proceed with your question.
Hey, guys. Thank you for taking my question I was just curious if you could provide some more color on what kind of capacity do you currently have and how do you think about that progressing through 2021, and how you think about adding head count and what rate of that will come in through 'twenty and 'twenty one.
Great Andre Thanks for the question I mean look we would tell you that we certainly have more capacity from a productivity standpoint within the business.
I don't think we're tapped out if you will.
There is a lot of opportunity and the marketplace right now so.
And that's kind of behind our our comment that we're investing and head count and here to meet that opportunity they'll likely contribute more and the back half of the year and.
And in the meantime, I think that we have like I said further to go from a productivity standpoint.
And if you Andre if you thought about like what does that mean visa of do you. How much are we going to invest versus topline growth. I mean, we've kind of consistently tell you that we're always investing on a general basis, it's likely to be just a little bit less than.
And then the growth on the top line because we're always looking.
To get a little bit more productivity out of our teams in terms of what they produce and how much we put to the bottom line.
Yes that makes sense of and with some of the productivity gains that you've seen.
Do you think that you know that.
And the historic rate of growth in terms of head count might differ on going forward or do you think that pace is going to kind of be the same.
Yeah, I think well, it's what I said expect us to add investments headcount investments and their business, it's typically a little less and that the rate of growth.
Because we're always looking for productivity from our from our sales team from our consulting team from our back office team. So that we can make advances and our EBITDA margin.
Thank you and and so on the acquisition side.
What are you guys seeing in terms of multiples and how is it competing for those deals.
Yes, so it's a it's it's certainly an active market both on the commercial side and on the government side.
I would say there hasnt been a whole lot of movement up or down in and multiples.
There's a lot of competition out there of private equity strategics.
And now now Spacs and all kinds of other things but.
I think the thing that gives me comfort is we're not most of the time, we're not the high bidder.
Uh huh.
Our acquisition targets in the and are deciding to come and play and our team because they.
And they liked the opportunity.
They know theyre going to be of foundational part of what we're doing.
And while we have to be competitive with our with our bids and these processes.
And we don't always have to be the one with the highest bid.
That's great. Thank you.
Yeah.
We have reached the end of the question and answer session and I will now turn the call over to CEO, Ted Hanson for closing remarks.
Great well. Thank you operator, I want to thank everyone for being on the call today and for your interest in ESG and and we look forward to sharing our Q1 results with you and the second half of April and be well.
Okay.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yeah.
Yeah.