Market Overview

ASGN Incorporated Reports Second Quarter 2018 Results

Share:

Financial Results above previously-announced estimates

ASGN Incorporated (NYSE:ASGN), a leading provider of IT and
professional services in the technology, creative/digital, engineering,
life sciences fields across commercial and government sectors, today
reported financial results for the quarter ended June 30, 2018.

Highlights

  • Revenues were $878.5 million, up 34.5 percent (10.1 percent on a pro
    forma basis) over the second quarter of 2017. Pro forma assumes the
    acquisition of ECS occurred at the beginning of 2017.
  • Net income was $33.6 million ($0.63 per diluted share), up from $33.1
    million ($0.62 per diluted share) in the second quarter of 2017.
  • Adjusted Net Income (a non-GAAP measure) was $58.7 million ($1.11 per
    diluted share), up from $41.5 million ($0.78 per diluted share) in the
    second quarter of 2017.
  • Adjusted EBITDA (a non-GAAP measure) was $106.6 million (12.1 percent
    of revenues), up from $80.5 million (12.3 percent of revenues) in the
    second quarter of 2017.
  • Cash flows from operating activities were $76.7 million, up from $39.8
    million in the second quarter of 2017.
  • Free cash flow (a non-GAAP measure) was $68.4 million, or 7.8 percent
    of revenues.
  • Effective April 2, 2018, acquired ECS Federal, LLC ("ECS") for $775.0
    million in cash and amended the credit facility. Operating results of
    ECS were included in ASGN's consolidated results for the full quarter
    and were accretive to ASGN's Adjusted Net Income and Adjusted Earnings
    per Share.
  • During the quarter, paid down $133.0 million of debt and the leverage
    ratio (a non-GAAP measure) was 3.2 to 1 at June 30, 2018, down from
    3.7 to 1, which was the leverage ratio after completion of the ECS
    acquisition on April 2, 2018.
  • During the quarter, ECS secured $162.4 million in new awards, which
    are included in its $1.4 billion contract backlog as of June 30, 2018.

Management Commentary

"The U.S. economy is performing well and across our customer base of
commercial and government organizations, we are seeing investment in
advancing their businesses and services," commented Peter Dameris, CEO
of ASGN. "Against this positive economic backdrop, ASGN executed well
and we were able to grow substantially faster than the published
industry growth rates for the 18th consecutive quarter. We
expect our size and service offerings will continue to position ASGN to
generate solid above-market growth in the quarters ahead."

Second Quarter 2018 Financial Results

Revenues were $878.5 million, up 34.5 percent year-over-year (10.1
percent on a pro forma basis). Pro forma results assume the acquisition
of ECS occurred at the beginning of 2017.

Assignment revenues for our Apex and Oxford segments totaled $684.0
million, up 10.3 percent year-over-year and permanent placement revenues
were $39.4 million (4.5 percent of revenues) compared with $33.3 million
(5.1 percent of revenues) in the second quarter of 2017. Revenues for
the quarter included $155.1 million in revenues from ECS, which was
acquired on April 2, 2018. ECS is being reported as a separate operating
segment.

Our largest segment, Apex, accounted for 64.6 percent of total revenues
and grew 12.9 percent year-over-year. Our Oxford Segment accounted for
17.7 percent of total revenues and was up 3.3 percent year-over-year.
Our ECS Segment accounted for 17.7 percent of total revenues and was up
7.1 percent year-over-year on a pro forma basis.

Gross profit was $263.9 million, up $50.9 million, or 23.9 percent
year-over-year. Gross margin was 30.0 percent, compared with 32.6
percent in the second quarter of 2017. The compression in gross margin
was primarily due to the inclusion of ECS which has lower margins than
our other segments. On a pro forma basis, gross margin was 30.0 percent
compared with 30.3 percent in the second quarter of 2017. Pro forma
assumes the acquisition of ECS occurred at the beginning of 2017.

Selling, general and administrative ("SG&A") expenses were $179.6
million (20.4 percent of revenues), compared with $145.2 million (22.2
percent of revenues) in the second quarter of 2017. SG&A expenses for
the quarter included acquisition, integration and strategic planning
expenses of $3.5 million, compared with $0.7 million in the second
quarter of 2017.

Amortization of intangible assets was $18.5 million, up from $8.3
million in the second quarter of 2017. The increase is related to the
intangible assets from the ECS acquisition.

Interest expense was $20.6 million compared with $6.1 million in the
second quarter of 2017. Interest expense for the quarter was comprised
of (i) $13.3 million of interest on the credit facility, (ii) $5.8
million of costs related to the amendment of our credit facility in
conjunction with the acquisition of ECS and (iii) $1.5 million of
amortization of deferred loan costs.

The effective tax rate for the quarter was 25.5 percent, which reflected
the lower federal corporate tax rate related to the recently enacted Tax
Cuts and Jobs Act, as well as a $0.7 million reduction in income taxes
for excess tax benefits on stock-based compensation.

Net income was $33.6 million ($0.63 per diluted share), up from $33.1
million ($0.62 per diluted share) in the second quarter of 2017.
Adjusted Net Income (a non-GAAP measure) was $58.7 million ($1.11 per
diluted share), up from $41.5 million ($0.78 per diluted share) in the
second quarter of 2017. Adjusted EBITDA (a non-GAAP measure) was $106.6
million (12.1 percent of revenues), up from $80.5 million (12.3 percent
of revenues) in the second quarter of 2017. Reconciliations between GAAP
and non-GAAP measures are included in this release.

Cash flows from operating activities were $76.7 million and free cash
flow (a non-GAAP measure) was $68.4 million. At June 30, 2018, our
leverage ratio (a non-GAAP measure) was 3.2 to 1, down from 3.7 to 1,
which was the leverage ratio after completion of the ECS acquisition.

Third Quarter 2018 Financial Estimates

ASGN is providing financial estimates for the third quarter of 2018.
These estimates do not include any acquisition, integration or strategic
planning expenses and assume no deterioration in the markets that ASGN
serves. These estimates also assume no significant change in foreign
exchange rates. Reconciliations of estimated net income to the estimated
non-GAAP measures are included in this release.

  • Revenues of $888.0 million to $898.0 million
  • Gross margin of 29.8 percent to 30.3 percent
  • SG&A expenses (excludes amortization of intangible assets) of $180.2
    million to $182.6 million (includes $7.0 million in depreciation and
    $8.9 million in stock-based compensation expense)
  • Amortization of intangible assets of $18.6 million
  • Effective tax rate of 26.5 percent (before any excess tax benefits
    related to stock-based compensation)
  • Net income of $37.9 million to $41.6 million
  • Earnings per diluted share of $0.71 to $0.78
  • Diluted shares outstanding of 53.1 million
  • Adjusted EBITDA(1) (a non-GAAP measure) of $103.0 million
    to $108.0 million
  • Adjusted Net Income (a non-GAAP measure) of $56.2 million to $59.8
    million
  • Adjusted Net Income per diluted share(2) (a non-GAAP
    measure) of $1.06 to $1.13

_______________

(1)

   

Depreciation of $2.6 million included in costs of services
related to an ECS project and depreciation of $7.0 million
included in SG&A expenses are added back in the determination of
Adjusted EBITDA.

(2)

Does not include the "Cash Tax Savings on Indefinite-lived
Intangible Assets." These savings total $6.8 million each quarter,
or $0.13 per diluted share, and represent the economic value of
the tax deduction that we receive from the amortization of
goodwill and trademarks.

Our financial estimates above are based on our estimate of "Billable
Days" which are Business Days (calendar days for the period less
weekends and holidays) adjusted for other factors, such as the day of
the week a holiday occurs, additional time taken off around holidays,
year-end client furloughs and inclement weather. For the third quarter,
we estimate Billable Days of 62.4 (for our Apex and Oxford segments),
which is 0.2 fewer than the third quarter of 2017 and 1.3 fewer than the
second quarter of 2018. Each Billable Day is approximately $11.5 million
in revenues. On a pro forma basis, which assumes the acquisition of ECS
occurred at the beginning of 2017, our revenue estimates imply
year-over-year growth of 8.3 to 9.5 percent.

Conference Call

ASGN will hold a conference call today at 5:00 p.m. EDT to review its
financial results for the second quarter. The dial-in number is
800-230-1093 (+1-612-234-9959 for callers outside the United States) and
the conference ID number is 450933. Participants should dial in ten
minutes before the call. The prepared remarks, supplemental materials,
and the webcast for this call can be accessed at asgn.com.

A replay of the conference call will be available beginning Wednesday,
July 25, 2018 at 7:00 p.m. EDT until midnight on Wednesday, August 8,
2018. The access number for the replay is 800-475-6701 (+1-320-365-3844
outside the United States) and the conference ID number is 450933.

About ASGN Incorporated

ASGN Incorporated (NYSE:ASGN) is a leading provider of IT and
professional services in the technology, creative/digital, engineering
and life sciences fields across commercial and government sectors.
Operating through its Apex, Oxford and ECS segments, ASGN helps leading
corporate enterprises and government organizations develop, implement
and operate critical IT and business solutions through its integrated
offering of professional staffing and IT solutions.

Our mission as an organization is to be the most trusted partner for
companies seeking highly skilled human capital and integrated solutions
to fulfill their strategic and operational needs. ASGN was founded in
1985 and is headquartered in Calabasas, California. For more
information, visit us at asgn.com.

Reasons for Presentation of Non-GAAP Financial Measures

Statements in this release and the accompanying financial information
include non-GAAP financial measures. Such information is provided as
additional information, not as an alternative to our consolidated
financial statements presented in accordance with accounting principles
generally accepted in the United States ("GAAP"), and is intended to
enhance an overall understanding of our current financial performance.
These terms might not be calculated in the same manner as, and thus
might not be comparable to, similarly titled measures reported by other
companies. The financial statement tables that accompany this press
release include a reconciliation of each non-GAAP financial measure to
the most directly comparable GAAP financial measure. Below is a
discussion of our non-GAAP financial measures.

Pro forma revenues and gross profit by segment are presented to provide
a more consistent basis for comparison between quarters. Pro forma was
prepared as if the acquisition of ECS was consummated at the beginning
of 2017. Although the pro forma segment data are considered non-GAAP
measures, they were calculated in the same manner as the consolidated
pro forma data, which are GAAP measures.

EBITDA (earnings before interest, taxes, depreciation and amortization
of intangible assets) and Adjusted EBITDA (EBITDA plus stock-based
compensation expense and, as applicable, acquisition, integration and
strategic planning expenses, write-off of loan costs and impairment
charges) are used to determine a portion of the compensation for some of
our executives and employees. Stock-based compensation expense is added
to arrive at Adjusted EBITDA because it is a non-cash expense. Write-off
of loan costs, acquisition, integration and strategic planning expenses
and impairment charges are added, as applicable, to arrive at Adjusted
EBITDA as they are not indicative of the performance of our core
business on an ongoing basis.

Non-GAAP net income (net income, less income (loss) from discontinued
operations, net of tax, plus, as applicable, credit facility amendment
expenses, acquisition, integration and strategic planning expenses,
accretion of fair value discount on contingent consideration, impairment
charges, and the tax effect of these items) provides a method for
assessing our operating results in a manner that is focused on the
performance of our core business on an ongoing basis. Adjusted Net
Income (Non-GAAP net income plus amortization of intangible assets, less
income taxes on amortization for financial reporting purposes not
deductible for income tax purposes) provides a method for assessing our
operating results in a manner that is focused on the performance of our
core business on an ongoing basis, adjusted for some of the cash flows
associated with amortization of intangible assets to more fully present
the performance of our acquisitions.

Constant currency information removes the effect of year-over-year
changes in foreign currency exchange rates. Constant currency
information is calculated using the foreign currency exchange rates from
the same period in the prior year.

Billable Days are Business Days (calendar days for the period less
weekends and holidays) adjusted for other factors, such as the day of
the week a holiday occurs, additional time taken off around holidays,
year-end client furloughs and inclement weather. In order to remove the
fluctuations caused by comparable periods having different billable
days, revenues on a Same Billable Days basis are calculated by taking
the current period average revenue per billable day, multiplied by the
number of billable days from the same period in the prior year.

The term Same Billable Days and Constant Currency basis means that the
impact of year-over-year changes in foreign currency exchange rates has
been removed from the Same Billable Days basis calculation.

Free cash flow is defined as net cash provided by (used in) operating
activities, less capital expenditures. Management believes this provides
useful information to investors about the amount of cash generated by
the business that can be used for strategic opportunities. Our leverage
ratio provides information about our compliance with loan covenants and
is calculated in accordance with our credit agreement, as filed with the
Securities and Exchange Commission ("SEC"), by dividing our total
indebtedness by trailing 12 months Adjusted EBITDA.

Reasons for Presentation of Operating Metrics and Supplemental
Information

Operating metrics are intended to enhance the overall understanding of
our business and our current financial performance. These operating
metrics might not be calculated in the same manner as, and thus might
not be comparable to, similarly titled metrics reported by other
companies. Contract backlog for our ECS segment represents the estimated
amount of future revenues to be recognized under negotiated contracts
and task orders. The operating metrics for the Apex and Oxford segments
presented on this release are calculated as follows: average number of
staffing consultants are full time equivalent staffing consultant
headcount in the quarter; average number of contract professionals and
average number of customers are the number of contract professionals
employed each week and the number of customers served each week,
averaged for the quarter, respectively (average is weighted by total
number of hours billed per week); top 10 customers as a percentage of
revenue are the 10 largest clients defined by the revenue generated in
the quarter, divided by total revenues in the quarter; gross profit per
staffing consultant is gross profit for the quarter divided by the
average number of staffing consultants; average bill rate is total
assignment revenue client billings in the quarter divided by total hours
billed in the quarter.

Safe Harbor

Certain statements made in this news release are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and involve a high degree of risk and
uncertainty. Forward-looking statements include statements regarding the
Company's anticipated financial and operating performance.

All statements in this release, other than those setting forth strictly
historical information, are forward-looking statements. Forward-looking
statements are not guarantees of future performance, and actual results
might differ materially. In particular, the Company makes no assurances
that the estimates of revenues, gross margin, SG&A, amortization,
effective tax rate, net income, diluted shares outstanding, contract
backlog, Adjusted EBITDA, Adjusted Net Income, and related per share
amounts (as applicable) set forth above will be achieved. Factors that
could cause or contribute to such differences include actual demand for
our services, our ability to attract, train and retain qualified
staffing consultants, our ability to remain competitive in obtaining and
retaining clients, the availability of qualified contract professionals,
management of our growth, continued performance and improvement of our
enterprise-wide information systems, our ability to manage our
litigation matters, the successful integration of our acquired
subsidiaries, and other risks detailed from time to time in our reports
filed with the SEC, including our Annual Report on Form 10-K for the
year ended December 31, 2017, as filed with the SEC on March 1, 2018 and
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018,
as filed with the SEC on May 10, 2018. We specifically disclaim any
intention or duty to update any forward-looking statements contained in
this news release.

           

SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)

 
Three Months Ended Six Months Ended
June 30,       March 31, June 30,
2018       2017 2018 2018       2017
 
Revenues $ 878,509 $ 653,313 $ 685,173 $ 1,563,682 $ 1,279,841
Costs of services 614,663   440,376   467,436   1,082,099   868,760  
Gross profit 263,846 212,937 217,737 481,583 411,081
Selling, general and administrative expenses 179,616 145,177 164,444 344,060 291,249
Amortization of intangible assets 18,548   8,299   7,601   26,149   16,763  
Operating income 65,682 59,461 45,692 111,374 103,069
Interest expense (20,573 ) (6,067 ) (6,545 ) (27,118 ) (14,568 )
Income before income taxes 45,109 53,394 39,147 84,256 88,501
Provision for income taxes 11,508   20,158   9,907   21,415   32,883  
Income from continuing operations 33,601 33,236 29,240 62,841 55,618
Loss from discontinued operations,

net of tax

(40 ) (139 ) (148 ) (188 ) (130 )
Net income $ 33,561   $ 33,097   $ 29,092   $ 62,653   $ 55,488  
 
Per share income from continuing operations and net income:
Basic $ 0.64   $ 0.63   $ 0.56   $ 1.20   $ 1.05  
Diluted $ 0.63   $ 0.62   $ 0.55   $ 1.19   $ 1.04  
 
Number of shares and share equivalents

used to calculate earnings per share:

Basic 52,305   52,823   52,178   52,242   52,741  
Diluted 53,010   53,473   52,831   52,920   53,375  
           

SEGMENT FINANCIAL INFORMATION (Unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(Dollars in millions)

 
Reported Pro Forma
Three Months Ended       Six Months Ended Three Months Ended       Six Months Ended
June 30, June 30, June 30, June 30,
2018       2017 2018       2017 2018       2017 2018       2017
Revenues:
Apex:
Assignment $ 553.7 $ 491.3 $ 1,078.6 $ 962.6 $ 553.7 $ 491.3 $ 1,078.6 $ 962.6
Permanent placement 13.9   11.2   27.5   22.4   13.9   11.2   27.5   22.4  
567.6 502.5 1,106.1 985.0 567.6 502.5 1,106.1 985.0
Oxford:
Assignment 130.3 128.7 255.7 251.9 130.3 128.7 255.7 251.9
Permanent placement 25.5   22.1   46.8   42.9   25.5   22.1   46.8   42.9  
155.8 150.8 302.5 294.8 155.8 150.8 302.5 294.8
 
ECS 155.1 155.1 155.1 144.9 304.2 281.8
 
Consolidated:
Assignment 684.0 620.0 1,334.3 1,214.5 684.0 620.0 1,334.3 1,214.5
Permanent placement 39.4 33.3 74.3 65.3 39.4 33.3 74.3 65.3
ECS 155.1     155.1     155.1   144.9   304.2   281.8  
$ 878.5   $ 653.3   $ 1,563.7   $ 1,279.8   $ 878.5   $ 798.2   $ 1,712.8   $ 1,561.6  
Percentage of total revenues:
Apex 64.6 % 76.9 % 70.7 % 77.0 % 64.6 % 63.0 % 64.6 % 63.1 %
Oxford 17.7 % 23.1 % 19.3 % 23.0 % 17.7 % 18.9 % 17.7 % 18.9 %
ECS 17.7 % % 10.0 % % 17.7 % 18.1 % 17.7 % 18.0 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Assignment 77.9 % 94.9 % 85.3 % 94.9 % 77.9 % 77.7 % 77.9 % 77.8 %
Permanent placement 4.5 % 5.1 % 4.8 % 5.1 % 4.5 % 4.2 % 4.3 % 4.2 %
ECS 17.6 % % 9.9 % % 17.6 % 18.1 % 17.8 % 18.0 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Domestic 95.4 % 95.0 % 95.0 % 95.1 % 95.4 % 95.9 % 95.4 % 96.0 %
Foreign 4.6 % 5.0 % 5.0 % 4.9 % 4.6 % 4.1 % 4.6 % 4.0 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit:
Apex $ 169.7 $ 150.3 $ 328.3 $ 290.2 $ 169.7 $ 150.3 $ 328.3 $ 290.2
Oxford 65.5 62.7 124.6 120.9 65.5 62.7 124.6 120.9
ECS 28.7     28.7     28.7   28.7   55.4   56.9  
Consolidated $ 263.9   $ 213.0   $ 481.6   $ 411.1   $ 263.9   $ 241.7   $ 508.3   $ 468.0  
Gross margin:
Apex 29.9 % 29.9 % 29.7 % 29.5 % 29.9 % 29.9 % 29.7 % 29.5 %
Oxford 42.0 % 41.6 % 41.2 % 41.0 % 42.0 % 41.6 % 41.2 % 41.0 %
ECS 18.5 % % 18.5 % % 18.5 % 19.8 % 18.2 % 20.2 %
Consolidated 30.0 % 32.6 % 30.8 % 32.1 % 30.0 % 30.3 % 29.7 % 30.0 %

 

SELECTED CASH FLOW INFORMATION (Unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(In thousands)

             
Three Months Ended Six Months Ended
2018         2017 2018         2017
Cash provided by operating activities $ 76,746 $ 39,793 $ 131,479 $ 83,593
Capital expenditures (8,395 ) (6,416 ) (14,593 ) (13,208 )
Free cash flow (non-GAAP measure) $ 68,351   $ 33,377   $ 116,886   $ 70,385  
 
Cash used in investing activities(1) $ (769,012 ) $ (6,581 ) $ (775,230 ) $ (13,356 )
Cash provided by (used in) financing activities(1) $ 660,150 $ (39,077 ) $ 652,483 $ (79,292 )
 

(1)

Investing and financing activities in 2018 included the ECS
acquisition and related financing.

           

SELECTED CONSOLIDATED BALANCE SHEET DATA

AS OF JUNE 30, 2018 AND DECEMBER 31, 2017

(In thousands)

 
2018 2017
(Unaudited)
Cash and cash equivalents $ 44,657 $ 36,667
Accounts receivable, net 558,040 428,536
Total current assets 637,305 499,523
Goodwill and intangible assets, net 1,941,210 1,246,861
Total assets 2,675,034 1,810,129
Total current liabilities 279,120 166,717
Working capital 358,185 332,806
Long-term debt 1,240,886 575,213
Other long-term liabilities 86,286 76,808
Stockholders' equity 1,068,742 991,391
           

RECONCILIATION OF NET INCOME TO EBITDA (NON-GAAP MEASURE) AND

ADJUSTED EBITDA (NON-GAAP MEASURE) (Unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(In thousands)

 
Three Months Ended Six Months Ended
2018       2017 2018       2017
Net income $ 33,561 $ 33,097 $ 62,653 $ 55,488
Loss from discontinued operations,

net of tax

40 139 188 130
Interest expense 20,573 6,067 27,118 14,568
Provision for income taxes 11,508 20,158 21,415 32,883
Depreciation 10,038 6,068 16,850 12,079
Amortization of intangible assets 18,548   8,299   26,149   16,763
EBITDA (non-GAAP measure) 94,268 73,828 154,373 131,911
Stock-based compensation 8,870 5,991 13,761 11,561
Acquisition, integration and strategic planning expenses 3,465   725   13,230   1,635
Adjusted EBITDA (non-GAAP measure) $ 106,603   $ 80,544   $ 181,364   $ 145,107
           

RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME AND

ADJUSTED NET INCOME (NON-GAAP MEASURE) (Unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(In thousands, except per share amounts)

 
Three Months Ended Six Months Ended
2018       2017 2018       2017
Net income $ 33,561 $ 33,097 $ 62,653 $ 55,488
Loss from discontinued operations, net of tax 40 139 188 130
Credit facility amendment expenses(1) 5,811 (104 ) 6,159 1,924
Acquisition, integration and strategic planning expenses 3,465 725 13,230 1,635
Tax effect on adjustments (2,421 ) (242 ) (5,060 ) (1,388 )
Non-GAAP net income 40,456 33,615 77,170 57,789
Amortization of intangible assets 18,548 8,299 26,149 16,763
Income taxes on amortization for financial reporting purposes not
deductible for income tax purposes
(269 ) (406 ) (538 ) (812 )
Adjusted Net Income (non-GAAP measure)(2) $ 58,735   $ 41,508   $ 102,781   $ 73,740  
 
Per diluted share:
Net income $ 0.63 $ 0.62 $ 1.19 $ 1.04
Adjustments 0.48   0.16   0.75   0.34  
Adjusted Net Income (non-GAAP measure)(2) $ 1.11   $ 0.78   $ 1.94   $ 1.38  
 
Weighted average common and common equivalent shares outstanding
(diluted)
53,010   53,473   52,920   53,375  

(1)

During the six months ended June 30, 2018 we incurred $22.5
million in fees related to the amendment to our credit facility to
fund the acquisition of ECS, of which $6.2 million were expensed
as incurred and included in interest expense. The remaining $16.3
million fees were capitalized and are being amortized over the
term of the credit facility. During the six months ended June 30,
2017 we amended our credit facility and incurred $2.5 million in
fees, of which $1.9 million were expensed as incurred and included
in interest expense, while the remaining were capitalized and are
being amortized over the term of the credit facility.

(2)

Does not include the "Cash Tax Savings on Indefinite-lived
Intangible Assets." These savings total $6.8 million per quarter
(approximately $0.13 per diluted share) and represent the economic
value of the tax deduction that we receive from the amortization
of goodwill and trademarks.

                     

OPERATING METRICS (Unaudited)

APEX AND OXFORD SEGMENTS

 
Q2 2018 Q1 2018 Q2 2017
Average number of staffing consultants:
Apex 1,532 1,526 1,441
Oxford 929 916 925
Average number of customers:
Apex 3,666 3,630 3,502
Oxford 1,002 1,004 1,063
Average number of contract professionals(1):
Apex 19,536 18,720 17,525
Oxford 2,913 2,743 2,818
Top 10 customers as a percentage of revenues:
Apex 23.9 % 25.2 % 26.9 %
Oxford 11.9 % 12.8 % 10.1 %
Average bill rate:
Apex $ 59.53 $ 58.16 $ 57.81
Oxford $ 101.51 $ 101.23 $ 100.14
Gross profit per staffing consultant:
Apex $ 111,000 $ 104,000 $ 104,000
Oxford $ 71,000 $ 65,000 $ 68,000

(1)

Average number of contract professionals placed on assignment
each week that are considered our employees; this number does not
include employees of our subcontractors.

 

ECS SEGMENT SUPPLEMENTAL INFORMATION (Unaudited)

                 

MIX OF REVENUES BY CONTRACT TYPE(1)

 

Q2 2018

Q1 2018 Q2 2017
Firm-fixed-price 28.8 % 30.1 % 39.8 %
Time and materials 31.6 % 33.0 % 31.9 %
Cost-plus-fixed-fee 39.6 % 36.9 % 28.3 %
                 

MIX OF REVENUES BY CUSTOMER

 
Q2 2018 Q1 2018 Q2 2017
Department of Defense and Intelligence Agencies 61.6 % 59.3 % 59.5 %
Federal Civilian 32.9 % 34.5 % 33.8 %
Commercial and Other 5.5 % 6.2 % 6.7 %
                 

CONTRACT BACKLOG(2) (In millions)

 

June 30,
2018

March 31,
2018

June 30,
2017

Funded Contract Backlog(3) $

298.1

$

331.5

$ 224.2
Negotiated Unfunded Contract Backlog(4)

1,137.0

 

1,180.1

  1,250.6
Contract Backlog $

1,435.1

  $

1,511.6

  $ 1,474.8
Information for the periods prior to the ECS acquisition date of
April 2, 2018 is presented on a pro forma basis.

(1)

Firm-fixed-price ("FFP") contracts provide for a fixed price
for specified products, systems and/or services. Time and
materials ("T&M") contracts provide for payments based on fixed
hourly rates for each direct labor hour expended and
reimbursements for allowable material costs and out-of-pocket
expenses. Cost-plus-fixed-fee ("CPFF") contracts provide for
reimbursement of our direct contract costs and allowable and
allocable indirect costs, plus the negotiated profit margin or fee.

(2)

Contract backlog represents the estimated amount of future
revenues to be recognized under negotiated contracts and task
orders as work is performed. Contract backlog excludes awards
which have been protested by competitors until the protest is
resolved in our favor. ECS segregates contract backlog into two
categories, funded contract backlog and negotiated unfunded
contract backlog.

(3)

Funded contract backlog for contracts with U.S. government
agencies primarily represents contracts for which funding has been
formally awarded less revenues previously recognized on these
contracts, and does not include the unfunded portion of contracts
where funding is incrementally awarded or authorized by the U.S.
government even though the contract may call for performance over
a number of years. Funded contract backlog for contracts with
non-government agencies represents the estimated value of
contracts which may cover multiple future years, less revenues
previously recognized on these contracts.

(4)

Negotiated unfunded contract backlog represents the estimated
future revenues to be earned from negotiated contract awards for
which funding has not been awarded or authorized, and unexercised
priced contract options. Negotiated unfunded contract backlog does
not include any estimate of future potential task orders expected
to be awarded under indefinite delivery, indefinite quantity
(IDIQ), U.S. General Services Administration (GSA) schedules or
other master agreement contract vehicles.

           

FINANCIAL ESTIMATES FOR Q3 2018

RECONCILIATION OF ESTIMATED NET INCOME TO ESTIMATED NON-GAAP
MEASURES

(In millions, except per share data)

 
Low High
Net income(1)(2) $ 37.9 $ 41.6
Interest expense 14.4 14.4
Provision for income taxes(2) 13.6 14.9
Depreciation(3) 9.6 9.6
Amortization of intangible assets 18.6   18.6
EBITDA (non-GAAP measure) 94.1 99.1
Stock-based compensation 8.9   8.9
Adjusted EBITDA (non-GAAP measure) $ 103.0   $ 108.0
           
Low High
Net income(1)(2) $ 37.9 $ 41.6
Amortization of intangible assets 18.6 18.6
Income taxes on amortization for financial reporting purposes not
deductible for income tax purposes
(0.3 ) (0.3 )
Other   (0.1 )
Adjusted Net Income (non-GAAP measure)(4) $ 56.2   $ 59.8  
 
Per diluted share:
Net income $ 0.71 $ 0.78
Adjustments 0.35   0.35  
Adjusted Net Income (non-GAAP measure)(4) $ 1.06   $ 1.13  
 
Weighted average common and common equivalent shares outstanding
(diluted)
53.1   53.1  

(1)

   

These estimates do not include acquisition, integration, or
strategic planning expenses.

(2)

These estimates do not include excess tax benefits related to
stock-based compensation.

(3)

Composed of $2.6 million of depreciation included in costs of
services related to an ECS project and $7.0 million of
depreciation included in SG&A expenses.

(4)

Does not include the "Cash Tax Savings on Indefinite-lived
Intangible Assets." These savings total $6.8 million per quarter
($0.13 per diluted share) and represent the economic value of the
tax deduction that we receive from the amortization of goodwill
and trademarks.

View Comments and Join the Discussion!