Item 1 — Condensed Consolidated Financial Statements (Unaudited)
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
44,657
|
|
|
$
|
36,667
|
|
Accounts receivable, net
|
558,040
|
|
|
428,536
|
|
Prepaid expenses and income taxes
|
15,291
|
|
|
18,592
|
|
Workers' compensation receivable
|
15,117
|
|
|
12,702
|
|
Other current assets
|
4,200
|
|
|
3,026
|
|
Total current assets
|
637,305
|
|
|
499,523
|
|
Property and equipment, net
|
83,986
|
|
|
57,996
|
|
Identifiable intangible assets, net
|
521,198
|
|
|
352,766
|
|
Goodwill
|
1,420,012
|
|
|
894,095
|
|
Other non-current assets
|
12,533
|
|
|
5,749
|
|
Total assets
|
$
|
2,675,034
|
|
|
$
|
1,810,129
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
26,983
|
|
|
$
|
6,870
|
|
Accrued payroll and contract professional pay
|
179,830
|
|
|
114,832
|
|
Workers’ compensation loss reserves
|
17,077
|
|
|
14,777
|
|
Income taxes payable
|
5,180
|
|
|
1,229
|
|
Other current liabilities
|
50,050
|
|
|
29,009
|
|
Total current liabilities
|
279,120
|
|
|
166,717
|
|
Long-term debt
|
1,240,886
|
|
|
575,213
|
|
Deferred income tax liabilities
|
68,755
|
|
|
69,436
|
|
Other long-term liabilities
|
17,531
|
|
|
7,372
|
|
Total liabilities
|
1,606,292
|
|
|
818,738
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued
|
—
|
|
|
—
|
|
Common stock, $0.01 par value, 75,000,000 shares authorized, 52,317,645
and 52,151,538 issued and outstanding, respectively
|
523
|
|
|
521
|
|
Paid-in capital
|
581,946
|
|
|
566,090
|
|
Retained earnings
|
491,072
|
|
|
428,419
|
|
Accumulated other comprehensive loss
|
(4,799
|
)
|
|
(3,639
|
)
|
Total stockholders’ equity
|
1,068,742
|
|
|
991,391
|
|
Total liabilities and stockholders’ equity
|
$
|
2,675,034
|
|
|
$
|
1,810,129
|
|
See notes to condensed consolidated financial statements.
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
June 30,
|
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
$
|
878,509
|
|
|
$
|
653,313
|
|
|
$
|
1,563,682
|
|
|
$
|
1,279,841
|
|
Costs of services
|
614,663
|
|
|
440,376
|
|
|
1,082,099
|
|
|
868,760
|
|
Gross profit
|
263,846
|
|
|
212,937
|
|
|
481,583
|
|
|
411,081
|
|
Selling, general and administrative expenses
|
179,616
|
|
|
145,177
|
|
|
344,060
|
|
|
291,249
|
|
Amortization of intangible assets
|
18,548
|
|
|
8,299
|
|
|
26,149
|
|
|
16,763
|
|
Operating income
|
65,682
|
|
|
59,461
|
|
|
111,374
|
|
|
103,069
|
|
Interest expense
|
(20,573
|
)
|
|
(6,067
|
)
|
|
(27,118
|
)
|
|
(14,568
|
)
|
Income before income taxes
|
45,109
|
|
|
53,394
|
|
|
84,256
|
|
|
88,501
|
|
Provision for income taxes
|
11,508
|
|
|
20,158
|
|
|
21,415
|
|
|
32,883
|
|
Income from continuing operations
|
33,601
|
|
|
33,236
|
|
|
62,841
|
|
|
55,618
|
|
Loss from discontinued operations, net of income taxes
|
(40
|
)
|
|
(139
|
)
|
|
(188
|
)
|
|
(130
|
)
|
Net income
|
$
|
33,561
|
|
|
$
|
33,097
|
|
|
$
|
62,653
|
|
|
$
|
55,488
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.64
|
|
|
$
|
0.63
|
|
|
$
|
1.20
|
|
|
$
|
1.05
|
|
Diluted
|
$
|
0.63
|
|
|
$
|
0.62
|
|
|
$
|
1.19
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
Number of shares and share equivalents used to calculate earnings per share:
|
|
|
|
|
|
|
|
Basic
|
52,305
|
|
|
52,823
|
|
|
52,242
|
|
|
52,741
|
|
Diluted
|
53,010
|
|
|
53,473
|
|
|
52,920
|
|
|
53,375
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to comprehensive income:
|
|
|
|
|
|
|
|
Net income
|
$
|
33,561
|
|
|
$
|
33,097
|
|
|
$
|
62,653
|
|
|
$
|
55,488
|
|
Foreign currency translation adjustment
|
(2,635
|
)
|
|
3,143
|
|
|
(1,160
|
)
|
|
3,845
|
|
Comprehensive income
|
$
|
30,926
|
|
|
$
|
36,240
|
|
|
$
|
61,493
|
|
|
$
|
59,333
|
|
See notes to condensed consolidated financial statements.
ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
June 30,
|
|
2018
|
|
2017
|
Cash Flows from Operating Activities:
|
|
|
|
Net income
|
$
|
62,653
|
|
|
$
|
55,488
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
42,999
|
|
|
28,842
|
|
Stock-based compensation
|
13,761
|
|
|
11,561
|
|
Provision for accounts receivable allowances
|
1,315
|
|
|
5,744
|
|
Workers’ compensation provision
|
1,401
|
|
|
1,682
|
|
Other
|
8,471
|
|
|
3,791
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable
|
(32,009
|
)
|
|
(35,222
|
)
|
Prepaid expenses and income taxes
|
12,002
|
|
|
(2,343
|
)
|
Accounts payable
|
(3,242
|
)
|
|
42
|
|
Accrued payroll and contract professional pay
|
22,222
|
|
|
6,302
|
|
Income taxes payable
|
4,913
|
|
|
11,679
|
|
Workers’ compensation loss reserves
|
(1,516
|
)
|
|
(1,351
|
)
|
Other
|
(1,491
|
)
|
|
(2,622
|
)
|
Net cash provided by operating activities
|
131,479
|
|
|
83,593
|
|
Cash Flows from Investing Activities:
|
|
|
|
Cash paid for property and equipment
|
(14,593
|
)
|
|
(13,208
|
)
|
Cash paid for acquisitions, net of cash acquired
|
(760,517
|
)
|
|
—
|
|
Other
|
(120
|
)
|
|
(148
|
)
|
Net cash used in investing activities
|
(775,230
|
)
|
|
(13,356
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
Principal payments of long-term debt
|
(143,000
|
)
|
|
(64,000
|
)
|
Proceeds from long-term debt
|
822,000
|
|
|
2,000
|
|
Debt issuance and amendment costs
|
(22,451
|
)
|
|
(2,441
|
)
|
Proceeds from option exercises and employee stock purchase plan
|
4,419
|
|
|
4,148
|
|
Payment of employment taxes related to release of restricted stock awards
|
(3,199
|
)
|
|
(6,863
|
)
|
Repurchase of common stock
|
—
|
|
|
(12,136
|
)
|
Other
|
(5,286
|
)
|
|
—
|
|
Net cash provided by (used in) financing activities
|
652,483
|
|
|
(79,292
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
(742)
|
|
|
974
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
7,990
|
|
|
(8,081
|
)
|
Cash and Cash Equivalents at Beginning of Year
|
36,667
|
|
|
27,044
|
|
Cash and Cash Equivalents at End of Period
|
$
|
44,657
|
|
|
$
|
18,963
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
Cash paid for:
|
|
|
|
Income taxes
|
$
|
4,600
|
|
|
$
|
20,789
|
|
Interest
|
$
|
24,714
|
|
|
$
|
12,799
|
|
Supplemental Disclosure of Non-Cash Transactions
|
|
|
|
Unpaid portion of additions to property and equipment
|
$
|
1,713
|
|
|
$
|
2,149
|
|
See notes to condensed consolidated financial statements.
ASGN INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The
December 31, 2017
condensed consolidated balance sheet was derived from audited financial statements. The financial statements include adjustments consisting of normal recurring items, which, in the opinion of management, are necessary for a fair presentation of the financial position of ASGN Incorporated and its subsidiaries ("ASGN" or the "Company") and its results of operations for the interim dates and periods set forth herein. The results for any of the interim periods are not necessarily indicative of the results to be expected for the full year or any other period. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
.
2. Accounting Standards Update
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, using the modified retrospective method. This update outlined a comprehensive new revenue recognition model designed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also required additional quantitative and qualitative disclosures, see "Note
3. Revenues
."
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which is intended to improve financial reporting about leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. The Company is required to adopt this standard effective January 1, 2019. The Company commenced its assessment of the new standard during the fourth quarter of 2017, developed a project plan to guide the implementation, which it expects to complete in the fourth quarter of 2018. The Company has selected its leasing software solution and is in the process of identifying changes to its business processes, systems and controls to support adoption of the new standard. While the Company is currently evaluating the impact the new guidance will have on its financial position and results of operations, the Company expects to recognize lease liabilities and right of use assets. The extent of the increase to assets and liabilities associated with these amounts remains to be determined pending the Company’s review of its existing lease contracts and service contracts which may contain embedded leases. The Company does not expect the standard will have a material impact on its results of operations or cash flows.
3. Revenues
Adoption of ASC Topic 606, Revenue from Contracts with Customers (ASC 606)
Effective January 1, 2018, the Company adopted ASC 606 using the modified retrospective method, which allows companies to apply the new revenue standard to reporting periods beginning in the year the standard is first implemented, while prior periods continue to be reported in accordance with previous accounting guidance. The adoption of ASC 606 did not have a significant impact on the recognition of revenues; therefore, the Company did not have an opening retained earnings adjustment.
Revenue Recognition
Revenues are recognized as control of the promised service is transferred to customers, in an amount that reflects the consideration expected in exchange for the services. For the Apex and Oxford segments, revenues from assignment contracts are recognized over time, based on hours worked by the Company’s contract professionals. The performance of the requested service over time is the single performance obligation for assignment revenues. Certain customers may receive discounts (e.g., volume discounts, rebates, prompt-pay discounts) and adjustments to the amounts billed. These discounts, rebates and adjustments are considered variable consideration. Volume discounts are the largest component of variable consideration and are estimated using the most likely amount method prescribed by ASC 606, contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods.
Permanent placement revenues are recognized at a point in time when employment candidates begin permanent employment. Finding a qualified candidate that the client hires as a permanent employee is a single performance obligation for the Company’s permanent placement contracts. Revenues recognized from permanent placement services are based upon a percentage of the candidates' base salary. The Company records a liability for permanent placement candidates that do not remain with the client through the contingency period, which is typically 90 days or less ("fallouts"). When a fallout occurs, the Company will generally find a replacement candidate at no additional cost to the client. Prior to the adoption of ASC 606, the estimate for permanent placement fallouts was recorded as accounts receivable allowances and effective January 1, 2018 this estimate is considered a contract liability and was
$1.5 million
.
On April 2, 2018, the Company acquired ECS Federal, LLC ("ECS"), which delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities, see “Note
4. Acquisitions
." ECS Segment customer contracts generally contain a single performance obligation involving a significant integration of various activities that are performed together to deliver a combined service or solution. Performance obligations may involve a series of recurring services, such as network operations and maintenance, operation and program support services, IT outsourcing services and other IT arrangements where the Company is standing ready to provide support, when-and-if needed. Performance obligations are satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s performance as services are provided.
The ECS Segment provides services under the following types of contracts:
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. To the extent actual direct labor and associated costs vary in relation to the agreed upon billing rates, the generated profit may vary.
Cost-plus-fixed-fee ("CPFF") contracts provide for reimbursement of direct contract costs and allowable and allocable indirect costs, plus a negotiated profit margin or fee. CPFF contracts are usually subject to lower risk and tend to have lower margins.
Firm-fixed-price ("FFP") contracts provide for a fixed price for specified services and solutions. If actual costs vary from planned costs on an FFP contract, the Company generates more or less than the planned amount of profit.
Revenues for T&M contracts are recognized over time, based on hours worked. Revenues for CPFF, contracts under which the Company bills the customer per labor hour and per material costs incurred, and FFP contracts are recognized over time, generally based on the amount invoiced as those amounts directly correspond with the value received by a customer. From time to time, the Company may have FFP contracts in which revenues are recognized using a cost-to-cost measurement method.
See Note "
12. Segment Reporting
," for disaggregated revenue disclosures by segment.
The Company recognizes revenues on a gross basis as it acts as a principal for all of its revenue transactions. The Company has direct contractual relationships with its customers, bears the risks and rewards of its arrangements, has the discretion to select the contract professionals and establish the price for the services to be provided. The Company includes billable expenses (allowable material costs and out-of-pocket reimbursable expenses) in revenues and the associated expenses are included in costs of services.
The Company’s contracts generally have termination for convenience provisions and do not have substantive termination penalties. For these contracts, the contract term for accounting purposes may be less than the contract’s stated term. The Company does not disclose the value of remaining performance obligations for contracts if the contract term for accounting purposes is one year or less.
Payment Terms
Payment terms vary and the time between invoicing and when payment is due is not significant. There are no financing components to the Company’s arrangements.
Contract Liabilities for Advance Payments
The Company has contract liabilities for payments received in advance of providing services under certain contracts. Contract liabilities for advance payments were
$0.6 million
at January 1, 2018 and
$9.1 million
at June 30, 2018. The increase in contract liabilities was due to ECS, which had a provisional contract liabilities balance of
$11.7 million
as of the acquisition date. Acquisition date balances are subject to change during the measurement period. Contract liabilities are included in other current liabilities on the condensed consolidated balance sheet. During the three and
six months ended June 30, 2018
the Company recognized revenues of
$10.9 million
relating to amounts that were previously included in contract liabilities.
Contract Costs
There are no incremental costs to obtain contracts. Contract fulfillment costs include, but are not limited to, direct labor for both employees and subcontractors, allowable materials such as third-party hardware and software that are integrated as part of the overall services and solutions provided to customers and out-of-pocket reimbursable expenses. Contract fulfillment costs are expensed as incurred, except for certain set-up costs for an ECS project, which were capitalized and are being amortized over the expected period of benefit.
Accounts Receivable Allowances
The Company estimates its credit losses (the inability of customers to make required payments) based on (i) a combination of past experience and current trends, (ii) consideration of the current aging of receivables and (iii) a specific review for potential bad debts. The resulting bad debt expense is included in selling, general and administrative ("SG&A") expenses. The accounts receivable allowance was
$4.9 million
at
June 30, 2018
and
$9.9 million
at
December 31, 2017
. The
December 31, 2017
accounts receivable allowance balance included estimates of
$3.1 million
of permanent placement fallouts and other revenue adjustments, which prior to the adoption of ASC 606 were presented in the balance sheet as accounts receivable allowances. The presentation of these items in the condensed consolidated statement of cash flows for the current period have been conformed to their presentation in the balance sheet.
4. Acquisitions
On
April 2, 2018
, the Company acquired all of the outstanding equity interests of
ECS, headquartered in Fairfax, Virginia
for
$775.0 million
, resulting in ECS becoming a wholly-owned subsidiary of the Company. Acquisition expenses were approximately
$12.0 million
and were expensed in 2018 in SG&A expenses. ECS delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities. ECS
was purchased to complement and elevate our offerings and strengthen our position as a premium IT and professional services provider by entering the government services space
. ECS is reported as a separate segment of the Company.
The results of operations of ECS have been included in the consolidated results of the Company from the date of acquisition. The condensed consolidated statement of operations and comprehensive income for the three and six months ended
June 30, 2018
includes ECS revenues and operating income of
$155.1 million
and
$3.7 million
, respectively.
Assets and liabilities of all acquired companies are recorded at their estimated fair values at the dates of acquisition. The fair value assigned to identifiable intangible assets is determined primarily by using a discounted cash flow method (a non-recurring fair value measurement based on Level 3 inputs). Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition. Goodwill related to this acquisition totaled
$526.6 million
, of which
$491.7 million
is estimated to be deductible for income tax purposes.
The purchase accounting for the acquisition of ECS remains incomplete with respect to opening tangible assets, intangible assets, liabilities and taxes, as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the date of acquisition.
The
following table summarizes the consider
ation paid and the provisional fair value of assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
|
Cash
|
|
$
|
12,400
|
|
Accounts receivable
|
|
97,683
|
|
Prepaid expenses and other current assets
|
|
9,648
|
|
Property and equipment
|
|
28,977
|
|
Identifiable intangible assets
|
|
194,850
|
|
Goodwill
|
|
526,565
|
|
Other non-current assets
|
|
1,078
|
|
Total assets acquired
|
|
$
|
871,201
|
|
|
|
|
Current liabilities
|
|
$
|
94,184
|
|
Long-term liabilities
|
|
4,100
|
|
Total liabilities assumed
|
|
$
|
98,284
|
|
|
|
|
Total purchase price
(1)
|
|
$
|
772,917
|
|
_________
(1)
This amount represents the
$775.0 million
in purchase consideration as set forth in the purchase agreement, plus
$12.4 million
paid for cash acquired and
$1.2 million
paid for working capital delivered in excess of target working capital, less
$15.7 million
indebtedness assumed.
The following table summarizes the acquired identifiable intangible assets of ECS (in thousands):
|
|
|
|
|
|
|
|
Useful life
|
|
|
Contractual customer relationships
|
13 years
|
|
$
|
141,400
|
|
Backlog
|
1 year
|
|
26,100
|
|
Non-compete agreements
|
4 to 7 years
|
|
10,350
|
|
Favorable contracts
|
5 years
|
|
500
|
|
Trademarks
|
indefinite
|
|
16,500
|
|
Total identifiable intangible assets acquired
|
|
|
$
|
194,850
|
|
The weighted-average amortization period for identifiable intangible assets, excluding trademarks, is
10.5 years
.
The summary below (in thousands, except for per share data) presents pro forma unaudited consolidated results of operations for the three and six months ended
June 30, 2018
and 2017 as if the acquisition of ECS occurred on January 1, 2017. The pro forma financial information gives effect to certain adjustments, including amortization of intangible assets, acquisition expenses, stock-based compensation expense for restricted stock units granted to ECS employees, interest expense on acquisition-related debt, one-time debt amendment costs and the related income tax effects. The pro forma financial information also includes the effect of dilutive weighted average shares for restricted stock units granted to ECS employees.
The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisitions had been consummated as of the date indicated, nor are they necessarily indicative of future operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
878,509
|
|
|
$
|
798,163
|
|
|
$
|
1,712,721
|
|
|
$
|
1,561,687
|
|
Income from continuing operations
|
|
$
|
39,852
|
|
|
$
|
9,031
|
|
|
$
|
71,826
|
|
|
$
|
14,061
|
|
Net income
|
|
$
|
39,810
|
|
|
$
|
8,894
|
|
|
$
|
71,637
|
|
|
$
|
13,933
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.76
|
|
|
$
|
0.17
|
|
|
$
|
1.37
|
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.75
|
|
|
$
|
0.17
|
|
|
$
|
1.36
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
52,310
|
|
|
52,823
|
|
|
52,253
|
|
|
52,741
|
|
Weighted average number of shares and dilutive shares outstanding
|
|
53,095
|
|
|
53,505
|
|
|
53,007
|
|
|
53,398
|
|
5. Goodwill and Identifiable Intangible Assets
The changes in the carrying amount of goodwill for the
six months ended
June 30, 2018
and the year ended
December 31, 2017
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apex Segment
|
|
Oxford Segment
|
|
ECS Segment
|
|
Total
|
Balance as of December 31, 2016
|
$
|
644,617
|
|
|
$
|
228,896
|
|
|
$
|
—
|
|
|
$
|
873,513
|
|
Stratacuity acquisition
|
17,467
|
|
|
—
|
|
|
—
|
|
|
17,467
|
|
Translation adjustment
|
—
|
|
|
3,115
|
|
|
—
|
|
|
3,115
|
|
Balance as of December 31, 2017
|
662,084
|
|
|
232,011
|
|
|
—
|
|
|
894,095
|
|
ECS acquisition
|
—
|
|
|
—
|
|
|
526,565
|
|
|
526,565
|
|
Translation adjustment
|
—
|
|
|
(648
|
)
|
|
—
|
|
|
(648
|
)
|
Balance as of June 30, 2018
|
$
|
662,084
|
|
|
$
|
231,363
|
|
|
$
|
526,565
|
|
|
$
|
1,420,012
|
|
Acquired intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Estimated Useful Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer and contractual relationships
|
2 - 13 years
|
|
$
|
343,762
|
|
|
$
|
129,680
|
|
|
$
|
214,082
|
|
|
$
|
202,588
|
|
|
$
|
119,272
|
|
|
$
|
83,316
|
|
Contractor relationships
|
2 - 5 years
|
|
71,130
|
|
|
63,123
|
|
|
8,007
|
|
|
71,121
|
|
|
59,174
|
|
|
11,947
|
|
Backlog
|
1 year
|
|
26,100
|
|
|
8,700
|
|
|
17,400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-compete agreements
|
2 - 7 years
|
|
22,236
|
|
|
7,972
|
|
|
14,264
|
|
|
11,850
|
|
|
6,600
|
|
|
5,250
|
|
In-use software
|
6 years
|
|
18,900
|
|
|
14,391
|
|
|
4,509
|
|
|
18,900
|
|
|
12,816
|
|
|
6,084
|
|
Favorable contracts
|
5 years
|
|
1,400
|
|
|
755
|
|
|
645
|
|
|
900
|
|
|
673
|
|
|
227
|
|
|
|
|
483,528
|
|
|
224,621
|
|
|
258,907
|
|
|
305,359
|
|
|
198,535
|
|
|
106,824
|
|
Not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
262,291
|
|
|
—
|
|
|
262,291
|
|
|
245,942
|
|
|
—
|
|
|
245,942
|
|
Total
|
|
|
$
|
745,819
|
|
|
$
|
224,621
|
|
|
$
|
521,198
|
|
|
$
|
551,301
|
|
|
$
|
198,535
|
|
|
$
|
352,766
|
|
Estimated future amortization expense is as follows (in thousands):
|
|
|
|
|
Remainder of 2018
|
$
|
37,100
|
|
2019
|
51,310
|
|
2020
|
40,298
|
|
2021
|
35,482
|
|
2022
|
24,445
|
|
Thereafter
|
70,272
|
|
|
$
|
258,907
|
|
6. Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
$200 million revolving credit facility, due March 31, 2023
|
$
|
—
|
|
|
$
|
—
|
|
Term B loan facility, due June 5, 2022
|
480,000
|
|
|
588,000
|
|
Term B loan facility, due April 2, 2025
|
787,000
|
|
|
—
|
|
|
1,267,000
|
|
|
588,000
|
|
Unamortized deferred loan costs
|
(26,114
|
)
|
|
(12,787
|
)
|
|
$
|
1,240,886
|
|
|
$
|
575,213
|
|
On April 2, 2018, in connection with the acquisition of ECS, the Company amended its credit facility mainly to add an
$822.0 million
tranche to the term B loan facility that matures on April 2, 2025. The amendment also provided for the ability to increase the loan facilities by an amount not to exceed the sum of (i)
$300.0 million
, (ii) the aggregate principal of voluntary prepayments of the term B loans and permanent reductions of the revolving commitments and (iii) additional amounts so long as the pro forma consolidated secured leverage ratio is no greater than
3.25
to 1.00. The revolving credit facility was also amended to extend the maturity date to March 31, 2023. The Company incurred
$22.5 million
of debt issuance and amendment costs, of which
$15.3 million
are presented on the condensed consolidated balance sheet as a reduction of outstanding debt and are being amortized over the term of credit facility,
$6.2 million
were expensed as incurred and were included in interest expense in the
six months ended
June 30, 2018
, and the remaining fees were presented in other current assets and other non-current assets and are being amortized over the term of the credit facility.
Borrowings under the term B loans bear interest at LIBOR, plus
2.00 percent
. Borrowings under the revolving credit facility bear interest at LIBOR plus
1.25
to
2.25 percent
, or the bank’s base rate plus
0.25
to
1.25 percent
, depending on leverage levels. A commitment fee of
0.20
to
0.35 percent
is payable on the undrawn portion of the revolving credit facility.
For the term B loan that matures on June 5, 2022, there are no required minimum payments until its maturity date. For the term B loan that matures on April 2, 2025, the Company is required to make minimum quarterly payments of
$2.1 million
; however, as a result of principal payments made through
June 30, 2018
, the first required minimum quarterly payment of
$2.1 million
is due on September 30, 2022. The Company is also required to make mandatory prepayments on its term loans from excess cash flow and with the proceeds of asset sales, debt issuances and specified other events, subject to specified exceptions. The credit facility includes various restrictive covenants including the maximum ratio of consolidated secured debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA"), which steps down at regular intervals from
4.75
to 1.00 as of
June 30, 2018
, to
3.75
to 1.00 as of
September 30, 2021
and thereafter. The credit facility also contains certain customary limitations including, among other terms and conditions, the Company's ability to incur additional indebtedness, engage in mergers and acquisitions and declare dividends.
At
June 30, 2018
, the Company was in compliance with its debt covenants, its ratio of consolidated secured debt to consolidated EBITDA was
3.20
to 1.00 and it had
$195.6 million
available borrowing capacity under its revolving credit facility.
7. Commitments and Contingencies
The Company h
as entered into various non-cancelable operating leases, primarily related to its facilities and certain office equipment used in the ordinary course of business. The Company leases
two
properties owned by related parties. Rent expense for these two properties was
$0.3 million
for the
three months ended June 30, 2018
and
2017
, and
$0.6 million
for the
six months ended June 30, 2018
and
2017
.
As a result, of the acquisition of ECS, see “Note
4. Acquisitions
," the Company assumed various operating lease commitments, for which total future payments are approximately
$27.7 million
as of
June 30, 2018
, with the last payment scheduled to be in February 2027.
The Company carries retention policies for its workers’ compensation liability exposures. The workers' compensation loss reserves are based upon an actuarial study conducted by a third-party specialist. Changes in estimates and differences between estimates and the actual payments for claims are recognized in the period that the estimates change or the payments are made. The workers' compensation loss reserves were approximately
$1.9 million
and
$2.1 million
at
June 30, 2018
and
December 31, 2017
, net of anticipated insurance and indemnification recoveries of
$15.1 million
and
$12.7 million
, at
June 30, 2018
and
December 31, 2017
, respectively. We have unused stand-by letters of credit outstanding to secure obligations for workers’ compensation claims with various insurance carriers. The unused stand-by letters of credit at
June 30, 2018
and
December 31, 2017
were
$4.4 million
.
The Company’s deferred compensation plan liability was
$6.1 million
at June 30, 2018, and was included in other long-term liabilities. The Company established a rabbi trust to fund the deferred compensation plan, see "Note
8. Fair Value Measurements
."
Certain employees participate in the Company’s Amended and Restated Change in Control Severance Plan, or have separate agreements that provide for certain benefits in the event of termination at the Company's convenience or following a change in control, as defined by the plan or agreement. Generally, these benefits are based on the employee’s position with the Company and include severance, continuation of health insurance and a pro rata bonus.
Legal Proceedings
The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its condensed consolidated financial statements.
8. Fair Value Measurements
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued payroll and contractor professional pay approximate their fair value based on their short-term nature. Long-term debt recorded in the Company’s condensed consolidated balance sheet at
June 30, 2018
was
$1.3 billion
, excluding the
$26.1 million
of unamortized deferred loan costs, see "Note
6. Long-Term Debt
". The fair value of the term B loans was
$1.3 billion
as of
June 30, 2018
and was determined using Level 1 inputs (quoted prices in active markets for identical assets and liabilities) from the fair value hierarchy.
The Company had investments, primarily mutual funds, of
$6.1 million
at
June 30, 2018
, held in a rabbi trust restricted to fund the Company's deferred compensation plan. The fair value of these investments was determined using Level 1 inputs from the fair value hierarchy. These assets are included in other non-current assets.
Certain assets and liabilities, such as goodwill and trademarks, are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). For the
six months ended June 30, 2018
and
2017
, no fair value adjustments were required for non-financial assets or liabilities.
9. Stockholders' Equity
There were
36,593
and
166,107
shares issued upon the vesting of restricted stock units, exercise of stock options and purchases of stock under the Employee Stock Purchase Plan for the
three and six months ended
June 30, 2018
, respectively.
The accumulated other comprehensive loss balance at
June 30, 2018
and December 31, 2017, and other comprehensive income during the
six months ended
June 30, 2018
, consists of foreign currency translation adjustments.
10. Earnings per Share
The following is a reconciliation of the shares used to compute basic and diluted earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Weighted average number of common shares outstanding used to compute basic earnings per share
|
52,305
|
|
|
52,823
|
|
|
52,242
|
|
|
52,741
|
|
Dilutive effect of stock-based awards
|
705
|
|
|
650
|
|
|
678
|
|
|
634
|
|
Number of shares used to compute diluted earnings per share
|
53,010
|
|
|
53,473
|
|
|
52,920
|
|
|
53,375
|
|
The number of anti-dilutive share equivalents outstanding during the
three and six months ended
June 30, 2018
and
2017
was insignificant.
11. Income Taxes
For interim reporting periods, the Company’s provision for income taxes is calculated using its annualized estimated effective tax rate for the year. This rate is based on its estimated full-year income and the related income tax expense for each jurisdiction in which the Company operates. Changes in the geographical mix, permanent differences or the estimated level of annual pre-tax income can affect the effective tax rate. This rate is adjusted for the effects of discrete items occurring in the period. The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017. The TCJA reduced the U.S. federal corporate income tax rate from
35.0 percent
to
21.0 percent
, effective January 1, 2018. The Company has made reasonable estimates of the transitional tax liability on accumulated foreign earnings and the effects of changes in treatment of executive compensation and meals and entertainment. These estimates are provisional and subject to change.
12. Segment Reporting
ASGN Incorporated is a leading provider of IT and professional services in the technology, creative/digital, engineering and life sciences fields across commercial and government sectors. ASGN operates through its Apex, Oxford and ECS segments. The Apex Segment provides technical, scientific, digital and creative services and solutions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, Apex Life Sciences and Creative Circle. The Oxford Segment provides "hard to find" technical, digital, engineering and life sciences resources and consulting services in select skill and geographic markets. The businesses in this segment include Oxford, CyberCoders and Life Sciences Europe. The ECS Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities. ECS was acquired on April 2, 2018, see "Note
4. Acquisitions
."
The Company’s management evaluates the performance of each segment primarily based on revenues, gross profit and operating income. The information in the following tables is derived directly from the segments’ internal financial reporting used for corporate management purposes.
The following tables present revenues, gross profit, operating income and amortization by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Apex:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
567,507
|
|
|
$
|
502,455
|
|
|
$
|
1,106,011
|
|
|
$
|
984,970
|
|
Gross profit
|
|
169,667
|
|
|
150,223
|
|
|
328,315
|
|
|
290,142
|
|
Operating income
|
|
64,903
|
|
|
56,770
|
|
|
121,167
|
|
|
103,663
|
|
Amortization
|
|
6,546
|
|
|
7,262
|
|
|
13,092
|
|
|
14,789
|
|
Oxford:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
155,852
|
|
|
$
|
150,858
|
|
|
$
|
302,521
|
|
|
$
|
294,871
|
|
Gross profit
|
|
65,520
|
|
|
62,714
|
|
|
124,609
|
|
|
120,939
|
|
Operating income
|
|
14,812
|
|
|
14,774
|
|
|
24,638
|
|
|
23,437
|
|
Amortization
|
|
1,048
|
|
|
1,037
|
|
|
2,103
|
|
|
1,974
|
|
ECS:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
155,150
|
|
|
$
|
—
|
|
|
$
|
155,150
|
|
|
$
|
—
|
|
Gross profit
|
|
28,659
|
|
|
—
|
|
|
28,659
|
|
|
—
|
|
Operating income
|
|
3,698
|
|
|
—
|
|
|
3,698
|
|
|
—
|
|
Amortization
|
|
10,954
|
|
|
—
|
|
|
10,954
|
|
|
—
|
|
Corporate:
|
|
|
|
|
|
|
|
|
Operating income
(1)
|
|
$
|
(17,731
|
)
|
|
$
|
(12,083
|
)
|
|
$
|
(38,129
|
)
|
|
$
|
(24,031
|
)
|
Consolidated:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
878,509
|
|
|
$
|
653,313
|
|
|
$
|
1,563,682
|
|
|
$
|
1,279,841
|
|
Gross profit
|
|
263,846
|
|
|
212,937
|
|
|
481,583
|
|
|
411,081
|
|
Operating income
|
|
65,682
|
|
|
59,461
|
|
|
111,374
|
|
|
103,069
|
|
Amortization
|
|
18,548
|
|
|
8,299
|
|
|
26,149
|
|
|
16,763
|
|
_____________
|
|
(1)
|
Corporate expenses primarily consist of consolidated stock-based compensation expense, compensation for corporate employees, acquisition, integration and strategic planning expenses, public company expenses and depreciation expense for corporate assets.
|
The following table presents our revenues disaggregated by type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Apex
|
|
|
|
|
|
|
|
|
Assignment
|
|
$
|
553,672
|
|
|
$
|
491,334
|
|
|
$
|
1,078,526
|
|
|
$
|
962,600
|
|
Permanent placement
|
|
13,835
|
|
|
11,121
|
|
|
27,485
|
|
|
22,370
|
|
|
|
$
|
567,507
|
|
|
$
|
502,455
|
|
|
$
|
1,106,011
|
|
|
$
|
984,970
|
|
Oxford
|
|
|
|
|
|
|
|
|
Assignment
|
|
$
|
130,301
|
|
|
$
|
128,680
|
|
|
$
|
255,703
|
|
|
$
|
251,929
|
|
Permanent placement
|
|
25,551
|
|
|
22,178
|
|
|
46,818
|
|
|
42,942
|
|
|
|
$
|
155,852
|
|
|
$
|
150,858
|
|
|
$
|
302,521
|
|
|
$
|
294,871
|
|
ECS
|
|
|
|
|
|
|
|
|
Firm-fixed-price
|
|
$
|
44,762
|
|
|
$
|
—
|
|
|
$
|
44,762
|
|
|
$
|
—
|
|
Time and materials
|
|
48,995
|
|
|
—
|
|
|
48,995
|
|
|
—
|
|
Cost-plus-fixed-fee
|
|
61,393
|
|
|
—
|
|
|
61,393
|
|
|
—
|
|
|
|
$
|
155,150
|
|
|
$
|
—
|
|
|
$
|
155,150
|
|
|
$
|
—
|
|
Consolidated
|
|
$
|
878,509
|
|
|
$
|
653,313
|
|
|
$
|
1,563,682
|
|
|
$
|
1,279,841
|
|
The Company operates internationally, with operations mainly in the United States. The following table presents revenues by geographic location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
%
|
|
2017
|
|
%
|
|
2018
|
|
%
|
|
2017
|
|
%
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
837,972
|
|
|
95.4
|
%
|
|
$
|
620,682
|
|
|
95.0
|
%
|
|
$
|
1,485,239
|
|
|
95.0
|
%
|
|
$
|
1,216,983
|
|
|
95.1
|
%
|
Foreign
|
|
40,537
|
|
|
4.6
|
%
|
|
32,631
|
|
|
5.0
|
%
|
|
78,443
|
|
|
5.0
|
%
|
|
62,858
|
|
|
4.9
|
%
|
|
|
$
|
878,509
|
|
|
100.0
|
%
|
|
$
|
653,313
|
|
|
100.0
|
%
|
|
$
|
1,563,682
|
|
|
100.0
|
%
|
|
$
|
1,279,841
|
|
|
100.0
|
%
|
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements are based upon current expectations, as well as management's beliefs and assumptions and involve a high degree of risk and uncertainty. Any
statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Statements that include the words “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Forward-looking statements include statements regarding our anticipated financial and operating performance for future periods. Our actual results could differ materially from those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to such differences include, but are not limited to, the following: (1) actual demand for our services; (2) our ability to attract, train and retain qualified staffing consultants; (3) our ability to remain competitive in obtaining and retaining clients; (4) the availability of qualified contract professionals; (5) management of our growth; (6) continued performance and integration of our enterprise-wide information systems; (7) our ability to manage our litigation matters; (8) the successful integration of our acquired subsidiaries; (9) maintenance of our ECS Segment backlog; and the factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 10-K”) under the section titled “Risk Factors” and those updated Risk Factors in this Quarterly Report on Form 10-Q, for the quarter ended June 30, 2018. Other factors also may contribute to the differences between our forward-looking statements and our actual results. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements in this document are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q and we assume no obligation to update any forward-looking statements or the reasons why our actual results may differ.
OVERVIEW
ASGN Incorporated is a leading provider of IT and professional services in the technology, creative/digital, engineering and life sciences fields across commercial and government sectors. ASGN operates through its Apex, Oxford and ECS segments. The Apex Segment provides technical, scientific, digital and creative services and solutions to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems, Apex Life Sciences and Creative Circle. The Oxford Segment provides "hard to find" technical, digital, engineering and life sciences resources and consulting services in select skill and geographic markets. The businesses in this segment include Oxford, CyberCoders and Life Sciences Europe. The ECS Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, software development, IT modernization and science and engineering and is primarily focused on federal government activities. ECS was acquired on April 2, 2018, see "Note
4. Acquisitions
."
Pro forma revenues and gross profit by segment are presented in the tables and discussion below to provide a more consistent basis for comparison among periods. Pro forma data were prepared as if the acquisition of ECS occurred 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.
Results of Operations
CHANGES IN RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 2018
COMPARED WITH THE
THREE MONTHS ENDED JUNE 30, 2017
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
Pro Forma
|
|
Three Months Ended June 30,
|
|
2018
|
|
2017
|
|
% Change
|
|
2018
|
|
2017
|
|
% Change
|
|
Revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apex:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assignment
|
|
$
|
553.7
|
|
|
$
|
491.3
|
|
|
12.7
|
%
|
|
$
|
553.7
|
|
|
$
|
491.3
|
|
|
12.7
|
%
|
|
Permanent placement
|
|
13.9
|
|
|
11.2
|
|
|
24.4
|
%
|
|
13.9
|
|
|
11.2
|
|
|
24.4
|
%
|
|
|
|
567.6
|
|
|
502.5
|
|
|
12.9
|
%
|
|
567.6
|
|
|
502.5
|
|
|
12.9
|
%
|
|
Oxford:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assignment
|
|
130.3
|
|
|
128.7
|
|
|
1.3
|
%
|
|
130.3
|
|
|
128.7
|
|
|
1.3
|
%
|
|
Permanent placement
|
|
25.5
|
|
|
22.1
|
|
|
15.2
|
%
|
|
25.5
|
|
|
22.1
|
|
|
15.2
|
%
|
|
|
|
155.8
|
|
|
150.8
|
|
|
3.3
|
%
|
|
155.8
|
|
|
150.8
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECS
|
|
155.1
|
|
|
—
|
|
|
—
|
|
|
155.1
|
|
|
144.9
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assignment
|
|
684.0
|
|
|
620.0
|
|
|
10.3
|
%
|
|
684.0
|
|
|
620.0
|
|
|
10.3
|
%
|
|
Permanent placement
|
|
39.4
|
|
|
33.3
|
|
|
18.3
|
%
|
|
39.4
|
|
|
33.3
|
|
|
18.3
|
%
|
|
ECS
|
|
155.1
|
|
|
—
|
|
|
—
|
|
|
155.1
|
|
|
144.9
|
|
|
7.1
|
%
|
|
|
|
$
|
878.5
|
|
|
$
|
653.3
|
|
|
34.5
|
%
|
|
$
|
878.5
|
|
|
$
|
798.2
|
|
|
10.1
|
%
|
|
Percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apex
|
|
64.6
|
%
|
|
76.9
|
%
|
|
|
|
64.6
|
%
|
|
63.0
|
%
|
|
|
|
Oxford
|
|
17.7
|
%
|
|
23.1
|
%
|
|
|
|
17.7
|
%
|
|
18.9
|
%
|
|
|
|
ECS
|
|
17.7
|
%
|
|
—
|
%
|
|
|
|
17.7
|
%
|
|
18.1
|
%
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assignment
|
|
77.9
|
%
|
|
94.9
|
%
|
|
|
|
77.9
|
%
|
|
77.7
|
%
|
|
|
|
Permanent placement
|
|
4.5
|
%
|
|
5.1
|
%
|
|
|
|
4.5
|
%
|
|
4.2
|
%
|
|
|
|
ECS
|
|
17.6
|
%
|
|
—
|
%
|
|
|
|
17.6
|
%
|
|
18.1
|
%
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
95.4
|
%
|
|
95.0
|
%
|
|
|
|
95.4
|
%
|
|
95.9
|
%
|
|
|
|
Foreign
|
|
4.6
|
%
|
|
5.0
|
%
|
|
|
|
4.6
|
%
|
|
4.1
|
%
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
Revenues on a reported basis
increased
$225.2 million
, or
34.5 percent
year-over-year, as a result of (i) the contribution of
$155.1 million
of revenues from ECS, which was acquired on April 2, 2018; and (ii) year-over-year growth of
$70.1 million
of revenues, or
10.7 percent
, from our other operating divisions. On a pro forma basis, revenues were up
$80.3 million
, or
10.1 percent
, year-over-year.
Revenues from the Apex Segment, which accounted for
64.6 percent
of consolidated revenues for the
second quarter
of
2018
, were
$567.6 million
,
up
12.9 percent
year-over-year. Assignment revenues, which accounted for
97.6 percent
of the segment's revenues for the quarter, grew
12.7 percent
year-over-year, reflecting high growth in hours billed and approximately
3.0 percent
growth in average bill rates.
IT services, which accounted for
75.1 percent
of the Apex Segment's total revenues, grew
13.4 percent
year-over-year with all seven industry verticals reporting growth, four of which (financial services, healthcare, consumer industrial and technology) grew double-digits. Creative/digital services revenues, which accounted for
17.2 percent
of the segment's revenues, grew
10.3 percent
year-over-year mainly as a result of growth in corporate business accounts and from improvements in operational effectiveness, including more focus on large account opportunities. Our life sciences revenues, which accounted for
7.7 percent
of the segment's revenues, were up
15.0 percent
year-over-year, primarily related to the
$5.9 million
contribution from Stratacuity, which was acquired in August 2017.
Revenues from the Oxford Segment, which accounted for
17.7 percent
of consolidated revenues for the
second quarter
of
2018
, were
$155.8 million
,
up
3.3 percent
year-over-year. Growth in permanent placement revenues accounted for approximately
67.5 percent
of the segment's year-over-year revenue growth, driven by higher customer demand and a higher mix of non-IT placements. Assignment revenues were
$130.3 million
up modestly year-over-year. Growth in Assignment revenues mainly related to growth from European operations, partially caused by favorable foreign exchange rates, and modest growth in average bill rates.
Revenues from the ECS Segment, which accounted for
17.7 percent
of consolidated revenues for the
second quarter
of
2018
, were
$155.1 million
, up
7.1 percent
year-over-year on a pro forma basis. This growth was largely driven by revenues from recent federal contract awards including services related to delivering next generation enterprise applications, DevOps and artificial intelligence and machine learning ("AI/ML") solutions. Federal spending is expected to improve in the near term, particularly in the high-end areas of AI/ML, cybersecurity, and cloud solutions areas in which ECS has extensive expertise.
Gross Profit and Gross Margins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
Pro Forma
|
|
Three Months Ended June 30,
|
|
2018
|
|
2017
|
|
% Change
|
|
2018
|
|
2017
|
|
% Change
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apex
|
|
$
|
169.7
|
|
|
$
|
150.3
|
|
|
12.9
|
%
|
|
$
|
169.7
|
|
|
$
|
150.3
|
|
|
12.9
|
%
|
|
Oxford
|
|
65.5
|
|
|
62.7
|
|
|
4.5
|
%
|
|
65.5
|
|
|
62.7
|
|
|
4.5
|
%
|
|
ECS
|
|
28.7
|
|
|
—
|
|
|
—
|
|
|
28.7
|
|
|
28.7
|
|
|
(0.2
|
)%
|
|
Consolidated
|
|
$
|
263.9
|
|
|
$
|
213.0
|
|
|
23.9
|
%
|
|
$
|
263.9
|
|
|
$
|
241.7
|
|
|
9.2
|
%
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apex
|
|
29.9
|
%
|
|
29.9
|
%
|
|
|
|
29.9
|
%
|
|
29.9
|
%
|
|
|
|
Oxford
|
|
42.0
|
%
|
|
41.6
|
%
|
|
|
|
42.0
|
%
|
|
41.6
|
%
|
|
|
|
ECS
|
|
18.5
|
%
|
|
—
|
%
|
|
|
|
18.5
|
%
|
|
19.8
|
%
|
|
|
|
Consolidated
|
|
30.0
|
%
|
|
32.6
|
%
|
|
|
|
30.0
|
%
|
|
30.3
|
%
|
|
|
|
Gross profit is comprised of revenues less costs of services, which consist primarily of compensation for our contract professionals, allowable materials and reimbursable out-of-pocket expenses. Gross profit for the
second quarter
of
2018
was
$263.9 million
,
up
23.9 percent
year-over-year on a reported basis, primarily as a result of the contribution from ECS. Gross margin was
30.0 percent
, a
compression
of
260
basis points year-over-year on a reported basis, primarily due to the inclusion of ECS, which has lower margins than our other segments. On a pro forma basis, our gross margin compressed approximately
30
basis points year-over-year mainly related to a change in business and contract mix.
The Apex Segment accounted for
64.3 percent
of consolidated gross profit for the
second quarter
of
2018
. Its gross profit was
$169.7 million
,
up
12.9 percent
year-over-year. Gross margin for the segment was
29.9 percent
, which was in-line with the second quarter of last year, reflecting stable pricing in our end markets.
The Oxford Segment accounted for
24.8 percent
of consolidated gross profit for the
second quarter
of
2018
. Its gross profit was
$65.5 million
,
up
4.5 percent
year-over-year. Gross margin for the segment was
42.0 percent
, an
expansion
of
40
basis points year-over-year, primarily related to its higher mix of permanent placement revenues (
16.4 percent
of the segment's revenues, up from
14.7 percent
in the second quarter of last year). Assignment gross margins were down year-over-year, as a result of a change in business mix, including higher mix of revenues from European operations, which have lower gross margins.
The ECS Segment accounted for
10.9 percent
of consolidated gross profit for the
second quarter
of
2018
. Its gross profit was
$28.7 million
, down
0.2 percent
year-over-year on a pro forma basis. Gross margin for the segment was
18.5 percent
, a compression of
130
basis points year-over-year on a pro forma basis, largely related to the increase in revenues from cost-plus-fixed-fee contracts, which generally have lower gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of compensation expense for our field operations and corporate staff, rent, information systems, marketing, telecommunications, public company expenses and other general and administrative expenses. 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 last year. Increase in SG&A expenses is primarily due to (i) increase in compensation expenses commensurate with growth in the business, (ii) the inclusion of ECS which had
$14.0 million
of SG&A expenses in the quarter, and (iii) higher acquisition, integration and strategic planning expenses. SG&A expenses as a percentage of revenues decreased as ECS has lower SG&A expenses to revenues ratio compared with our other segments. SG&A expenses for the
second quarter
of
2018
included
$3.5 million
in acquisition, integration and strategic planning expenses. SG&A expenses in the
second quarter
of 2017 included
$0.7 million
in acquisition, integration and strategic planning expenses.
Amortization of Intangible Assets
Amortization of intangible assets for the
second quarter
of
2018
was
$18.5 million
, compared with
$8.3 million
in the same period of last year. The increase is related to the intangible assets from the ECS acquisition.
Interest Expense
Interest expense was
$20.6 million
, compared with
$6.1 million
in the second quarter of last year. The increase in interest expense was due to interest on the new $822.0 million term B loan, the proceeds from which were used to fund the acquisition of ECS and debt amendment fees incurred in the quarter. 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 to our credit facility in conjunction with the acquisition of ECS and (iii)
$1.5 million
of amortization of deferred loan costs.
Provision for Income Taxes
The provision for income taxes was
$11.5 million
for the
second quarter
of
2018
, compared with
$20.2 million
in the same period of last year. The effective tax rate for the quarter was
25.5 percent
, which reflected the lower federal corporate tax rate related to the recently enacted TCJA, as well as a
$0.7 million
reduction in income taxes for excess tax benefits on stock-based compensation.
Net Income
Net income was
$33.6 million
for the
second quarter
of
2018
,
up
from
$33.1 million
in the same period of last year.
Results of Operations
CHANGES IN RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 2018
COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 2017
(Dollars in millions)
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Reported
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Pro Forma
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Six Months Ended June 30,
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2018
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2017
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% Change
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2018
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2017
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% Change
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Revenues by segment:
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Apex:
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Assignment
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$
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1,078.6
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$
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962.6
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12.0
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%
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$
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1,078.6
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$
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962.6
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12.0
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%
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Permanent placement
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27.5
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22.4
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22.9
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%
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27.5
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22.4
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22.9
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%
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1,106.1
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985.0
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12.3
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%
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1,106.1
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985.0
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12.3
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%
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Oxford:
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Assignment
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255.7
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251.9
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1.5
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%
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255.7
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251.9
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1.5
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%
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Permanent placement
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46.8
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42.9
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9.0
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%
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46.8
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42.9
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9.0
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%
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302.5
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294.8
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2.6
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%
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302.5
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294.8
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2.6
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%
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ECS
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155.1
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—
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—
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304.2
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281.8
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7.9
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%
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Consolidated:
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Assignment
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1,334.3
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1,214.5
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9.9
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%
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1,334.3
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1,214.5
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9.9
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%
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Permanent placement
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74.3
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65.3
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13.8
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%
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74.3
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65.3
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13.8
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%
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ECS
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155.1
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—
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—
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304.2
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281.8
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7.9
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%
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$
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1,563.7
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$
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1,279.8
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22.2
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%
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$
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1,712.8
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$
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1,561.6
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9.7
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%
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Percentage of total revenues:
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Apex
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70.7
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%
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77.0
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%
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64.6
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%
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63.1
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%
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Oxford
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19.3
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%
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23.0
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%
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17.7
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%
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18.9
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%
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ECS
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10.0
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%
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—
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%
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17.7
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%
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18.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Assignment
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85.3
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%
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94.9
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%
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77.9
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%
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77.8
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%
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Permanent placement
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4.8
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%
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5.1
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%
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4.3
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%
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4.2
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%
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ECS
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9.9
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%
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—
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%
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17.8
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%
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18.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Domestic
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95.0
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%
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95.1
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%
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95.4
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%
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96.0
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%
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Foreign
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5.0
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%
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4.9
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%
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4.6
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%
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4.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Revenues on a reported basis
increased
$283.9 million
, or
22.2 percent
year-over-year, as a result of (i) the contribution of revenues from ECS, which was acquired on April 2, 2018 and (ii) year-over-year growth of
$128.8 million
of revenues, or
10.1 percent
from our other operating divisions. On a pro forma basis, revenues were up
$151.2 million
, or
9.7 percent
, year-over-year.
Revenues from the Apex Segment, which accounted for
70.7 percent
of consolidated revenues for the
first six months of 2018
, were
$1.1 billion
,
up
12.3 percent
year-over-year. Assignment revenues, which accounted for
97.5 percent
of the segment's revenues for the
first six months of 2018
, grew
12.0 percent
year-over-year, reflecting high growth in hours billed and approximately
2.1 percent
growth in average bill rates.
IT services, which accounted for approximately
75.0 percent
of the Apex Segment's total revenues, grew
12.9 percent
year-over-year with all seven industry verticals reporting growth, four of which (aerospace and defense/government, financial services, consumer industrial and technology) grew double-digits. Creative/digital services revenues, which accounted for
17.3 percent
of the segment's revenues, grew
9.1 percent
year-over-year mainly as a result of growth in corporate business accounts and from improvements in operational effectiveness, including more focus on large account opportunities. Our life sciences revenues, which accounted for
7.7 percent
of the segment's revenues, were up
13.3 percent
year-over-year, primarily related to the
$11.2 million
contribution from Stratacuity, which was acquired in August 2017.
Revenues from the Oxford Segment, which accounted for
19.3 percent
of consolidated revenues for the
first six months of 2018
, were
$302.5 million
,
up
2.6 percent
year-over-year. Growth in permanent placement revenues accounted for approximately
50.7 percent
of the segment's year-over-year revenue growth, driven by higher customer demand and a higher mix of non-IT placements. Assignment revenues were
$255.7 million
for the
first six months of 2018
, up from
$251.9 million
in the same period of last year. Growth in Assignment revenues mainly related to growth from European operations, partially caused by favorable foreign exchange rates, and modest growth in average bill rates.
Revenues from the ECS Segment, which accounted for
10.0 percent
of consolidated revenues for the
first six months of 2018
, were
$155.1 million
, on an as reported basis. On a pro forma basis, revenues were up
7.9 percent
for the
first six months of 2018
. This growth was largely driven by revenues from recent federal contract awards including services related to delivering next generation enterprise applications, DevOps and artificial intelligence and machine learning ("AI/ML") solutions. Federal spending is expected to improve in the near term, particularly in the high-end areas of AI/ML, cybersecurity, and cloud solutions areas in which ECS has extensive expertise.
Gross Profit and Gross Margins
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Reported
|
|
Pro Forma
|
|
Six Months Ended June 30,
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2018
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2017
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% Change
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2018
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2017
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% Change
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Gross profit:
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Apex
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$
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328.3
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$
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290.2
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13.2
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%
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$
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328.3
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$
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290.2
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13.2
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%
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Oxford
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124.6
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120.9
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3.0
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%
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124.6
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120.9
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3.0
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%
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ECS
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28.7
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—
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—
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55.4
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56.9
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(2.7
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)%
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Consolidated
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$
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481.6
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$
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411.1
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17.2
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%
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$
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508.3
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$
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468.0
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8.6
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%
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Gross margin:
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Apex
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29.7
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%
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29.5
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%
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29.7
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%
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29.5
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%
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Oxford
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41.2
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%
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41.0
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%
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41.2
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%
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41.0
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%
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ECS
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18.5
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%
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—
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%
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|
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18.2
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%
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20.2
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%
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Consolidated
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30.8
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%
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32.1
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%
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29.7
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%
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30.0
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%
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Gross profit for the
first six months of 2018
was
$481.6 million
,
up
17.2 percent
year-over-year on a reported basis, primarily as a result of the contribution from ECS. Gross margin was
30.8 percent
, a
compression
of
130
basis points year-over-year on a reported basis, primarily due to the inclusion of ECS, which has lower margins than our other segments. On a pro forma basis, our gross margin compressed approximately
30
basis points year-over-year, mainly related to a change in business and contract mix.
The Apex Segment accounted for
68.2 percent
of consolidated gross profit for the
first six months of 2018
. Its gross profit was
$328.3 million
,
up
13.2 percent
year-over-year. Gross margin for the segment was
29.7 percent
, an
expansion
of
20
basis points year-over-year, primarily related to a higher mix of permanent placement revenues.
The Oxford Segment accounted for
25.9 percent
of consolidated gross profit for the
first six months of 2018
. Its gross profit was
$124.6 million
,
up
3.0 percent
year-over-year. Gross margin for the segment was
41.2 percent
, an
expansion
of
20
basis points year-over-year, primarily related to a higher mix of permanent placement revenues (
15.5 percent
of the segment's revenues, up from
14.6 percent
in the same period of last year). Assignment gross margins were down year-over-year, as a result of a change in business mix, including higher mix of revenues from European operations, which have lower gross margins.
The ECS Segment accounted for
5.9 percent
of consolidated gross profit for the
first six months of 2018
. Its gross profit was
$28.7 million
, down
2.7 percent
year-over-year on a pro forma basis. Gross margin was
18.2 percent
, a compression of
200
basis points year-over-year on a pro forma basis, largely related to the increase in revenues from cost-plus-fixed-fee contracts, which generally have lower gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were
$344.1 million
(
22.0 percent
of revenues) for the
first six months of 2018
, up from
$291.2 million
(
22.8 percent
of revenues) in the same period of last year. Increase in SG&A expenses is primarily due to (i) increase in compensation expenses commensurate with growth in the business, (ii) the inclusion of ECS which had
$14.0 million
of SG&A expenses from the date of acquisition, and (iii) higher acquisition, integration and strategic planning expenses. SG&A expenses for the
first six months of 2018
included
$13.2 million
in acquisition, integration and strategic planning expenses compared with
$1.6 million
in acquisition, integration and strategic planning expenses in the same period of last year.
Amortization of Intangible Assets
Amortization of intangible assets was
$26.1 million
for the
first six months of 2018
, compared with
$16.8 million
in the same period of last year. The increase is related to the intangible assets from the ECS acquisition.
Interest Expense
Interest expense was
$27.1 million
for the
first six months of 2018
, compared with
$14.6 million
in the same period of last year. The increase in interest expense was due to interest on the new $822.0 million term B loan, the proceeds from which were used to fund the acquisition of ECS and debt amendment fees incurred in the
first six months of 2018
. Interest expense for the
first six months of 2018
was comprised of (i) interest on the credit facility of
$18.6 million
, (ii)
$6.2 million
of costs related to the amendment to our credit facility in conjunction with the acquisition of ECS and (iii) amortization of deferred loan costs of
$2.3 million
.
Provision for Income Taxes
The provision for income taxes was
$21.4 million
for the
first six months of 2018
, compared with
$32.9 million
in the same period of last year. The effective tax rate for the
first six months of 2018
was
25.4 percent
, which reflected the lower federal corporate tax rate related to the recently enacted TCJA, as well as a
$1.2 million
reduction in income taxes for excess tax benefits on stock-based compensation.
Net Income
Net income was
$62.7 million
for the
first six months of 2018
,
up
from
$55.5 million
in the same period of last year.
ECS Segment Contract Backlog
Contract backlog is a useful measure of potential future revenues for our ECS Segment. Contract backlog represents the estimated amount of future revenues to be recognized under awarded contracts including task orders and options. Contract backlog does not include potential value from contract awards which have been protested by competitors until the protest is resolved in our favor. Contract backlog does not include any estimate of future work expected under multiple award indefinite delivery, indefinite quantity (IDIQ) contracts or U.S. General Services Administration (GSA) schedules. ECS segregates contract backlog into funded contract backlog and negotiated unfunded contract backlog, which together make up total contract backlog. Contract backlog estimates are subject to change and may be affected by the execution of new contracts, the extension or early termination of existing contracts, the non-renewal or completion of current contracts and adjustments to estimates for previously included contracts.
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 revenue previously recognized on these contracts.
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 from unexercised priced contract options.
Backlog estimates are subject to change and may be affected by the execution of new contracts, the extension or early termination of existing contracts, the non-renewal or completion of current contracts and adjustments to estimates for previously included contracts. Changes in the funded contract backlog are also affected by the funding cycles of the government.
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June 30, 2018
|
|
March 31, 2018
|
Funded Contract Backlog
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|
$
|
278.7
|
|
|
$
|
310.0
|
|
Negotiated Unfunded Contract Backlog
|
|
1,151.5
|
|
|
1,166.5
|
|
Contract Backlog
|
|
$
|
1,430.2
|
|
|
$
|
1,476.5
|
|
Liquidity and Capital Resources
Our working capital (current assets less current liabilities) at
June 30, 2018
was
$358.2 million
and our cash and cash equivalents were
$44.7 million
, of which
$20.6 million
was held in foreign countries and not available to fund domestic operations unless repatriated. We do not intend to repatriate cash held in foreign countries. Our cash flows from operating activities have been our primary source of liquidity and have been sufficient to fund our working capital and capital expenditure needs. Our working capital requirements are primarily driven by the overall growth in our business and debt service requirements. We believe that our expected operating cash flows and availability under our revolving credit facility will be sufficient to meet our obligations, working capital requirements and capital expenditures for the next 12 months.
Net cash provided by operating activities was
$131.5 million
for the
first six months of 2018
, compared with
$83.6 million
in the first half of last year. Net cash provided by operating activities before changes in operating assets and liabilities, was
$130.6 million
, up from
$107.1 million
in the first half of last year. Changes in operating assets and liabilities (mainly changes in working capital) resulted in cash generation of
$0.9 million
for the
first six months of 2018
, compared with the use of cash of
$23.5 million
in the first half of last year.
Net cash used in investing activities was
$775.2 million
for the
first six months of 2018
, compared with
$13.4 million
in the first half of last year. Net cash used in investing activities in
2018
was comprised of a
$760.5 million
payment for the acquisition of ECS on April 2, 2018 and
$14.6 million
used to purchase property and equipment. Net cash used in investing activities in the first half of last year was comprised primarily of
$13.2 million
used to purchase property and equipment.
Net cash provided by financing activities was
$652.5 million
for the
first six months of 2018
, compared with net cash used in financing activities of
$79.3 million
in the first half of last year. Net cash provided by financing activities for the
first six months of 2018
consisted primarily of
$822.0 million
of proceeds from the credit facility, partially offset by
$143.0 million
in principal payments of long-term debt and
$22.5 million
of debt issuance and amendment costs. Financing activities in 2018 also included
$5.3 million
in payments made during the current quarter for liabilities assumed in the ECS acquisition. Net cash used in financing activities in the first half of last year consisted primarily of
$64.0 million
in principal payments of long-term debt and
$12.1 million
used for repurchases of our common stock.
On April 2, 2018, in conjunction with the acquisition of ECS, the Company amended its credit facility to, among other things, add an $822.0 million term B loan tranche that matures on April 2, 2025. The amended credit facility also provided the ability to increase the loan facilities by an amount not to exceed the sum of (i) $300.0 million, (ii) the aggregate principal of voluntary prepayments of the term B loans and permanent reductions of the revolving commitments and (iii) additional amounts so long as the pro forma consolidated secured leverage ratio is no greater than 3.25 to 1.00. The revolving credit facility was also amended to extend the maturity date to March 31, 2023. The Company incurred
$22.5 million
of debt issuance and amendment costs, of which
$15.3 million
are presented on the condensed consolidated balance sheet as a reduction of outstanding debt and are being amortized over the term of credit facility,
$6.2 million
were expensed as incurred and were included in interest expense in the
six months ended
June 30, 2018
, and the remaining fees were presented in other current assets and other non-current assets and are being amortized over the term of the credit facility.
At
June 30, 2018
, borrowings under our credit facility totaled
$1.3 billion
(refer to "Note
6. Long-Term Debt
"). For the term B loan that matures on June 5, 2022, there are no required minimum payments until its maturity date. For the term B loan that matures on April 2, 2025, the Company is required to make minimum quarterly payments of
$2.1 million
; however, as a result of principal payments made through
June 30, 2018
, the first required minimum quarterly payment of
$2.1 million
is due on September 30, 2022. The Company is also required to make mandatory prepayments on its term loans from excess cash flow and with the proceeds of asset sales, debt issuances and specified other events, subject to specified exceptions. The credit facility is secured by substantially all of our assets and includes various restrictive covenants including the maximum ratio of consolidated secured debt to consolidated EBITDA, which steps down at regular intervals from
4.75
to 1.00 as of
June 30, 2018
, to
3.75
to 1.00 as of
September 30, 2021
and thereafter. The credit facility also contains customary limitations including, among other terms and conditions, the Company's ability to incur additional indebtedness, engage in mergers and acquisitions and declare dividends. At
June 30, 2018
, the Company was in compliance with all of its debt covenants, its ratio of consolidated secured debt to consolidated EBITDA was
3.20
to 1.00 and the Company had
$195.6 million
available borrowing capacity under its revolving credit facility.
Recent Accounting Pronouncements
Refer to “Note
2. Accounting Standards Update
” in the notes to the condensed consolidated financial statements in Part I, Item 1.
Critical Accounting Policies
The Company's accounting policies were revised in connection with the implementation of ASC 606. Refer to "Note
2. Accounting Standards Update
" in Part I, Item 1, of this Quarterly Report on Form 10-Q.
There have been no significant changes to our critical accounting policies and estimates during the
six months ended
June 30, 2018
compared with those disclosed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our
2017
10-K.
Commitments
We have not made any material changes to the significant commitments or contractual obligations that were disclosed in our
2017
10-K, nor have we entered into any new ones.
With the acquisition of ECS, the Company assumed various operating lease commitments, refer to "Note
7. Commitments and Contingencies
" in the condensed consolidated financial statements.