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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 000-20540
 
ASGN Inc orporated
(Exact name of registrant as specified in its charter)
Delaware
 
95-4023433
 
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
26745 Malibu Hills Road, Calabasas, CA
 
91301
 
(Address of principal executive offices)
 
(Zip Code)
 
(818) 878-7900
(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock
 
ASGN
 
NYSE


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes  o No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   x Yes o No 
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  o Yes x No 
 
At May 2, 2019 , the total number of outstanding shares of the Common Stock of ASGN Incorporated (the "Company") ($0.01 par value) was 52.8 million .

1


ASGN INCORPORATED AND SUBSIDIARIES

INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 



2


PART I - FINANCIAL INFORMATION


Item 1 — Condensed Consolidated Financial Statements (Unaudited)


ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except par value per share)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
35.6

 
$
41.8

Accounts receivable, net
618.7

 
613.8

Prepaid expenses and income taxes
16.9

 
11.4

Workers' compensation receivable
15.2

 
15.0

Other current assets
5.0

 
4.3

Total current assets
691.4

 
686.3

Property and equipment, net
77.0

 
79.1

Operating lease right of use assets
91.4

 
—

Identifiable intangible assets, net
493.4

 
488.7

Goodwill
1,445.5

 
1,421.1

Other non-current assets
15.9

 
12.6

Total assets
$
2,814.6

 
$
2,687.8

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
27.8

 
$
43.1

Accrued payroll and contract professional pay
188.2

 
194.8

Workers’ compensation loss reserves
17.3

 
17.4

Operating lease liabilities
26.3

 
—

Income taxes payable
15.7

 
3.4

Other current liabilities
38.4

 
49.5

Total current liabilities
313.7

 
308.2

Long-term debt
1,107.7

 
1,100.4

Operating lease liabilities
70.6

 
—

Deferred income tax liabilities
79.7

 
79.8

Other long-term liabilities
15.6

 
17.3

Total liabilities
1,587.3

 
1,505.7

Commitments and contingencies (Note 7)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 1 million shares authorized; no shares issued
—

 
—

Common stock, $0.01 par value; 75 million shares authorized; 52.8 million
 and 52.5 million shares issued, respectively
0.5

 
0.5

Paid-in capital
613.2

 
601.8

Retained earnings
621.0

 
586.1

Accumulated other comprehensive loss
(7.4
)
 
(6.3
)
Total stockholders’ equity
1,227.3

 
1,182.1

Total liabilities and stockholders’ equity
$
2,814.6

 
$
2,687.8

 

See notes to condensed consolidated financial statements.


3


ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(In millions, except per share amounts)
 
 
Three Months Ended,
March 31,
 
 
2019
 
2018
Revenues
 
$
923.7

 
$
685.2

Costs of services
 
659.8

 
467.5

Gross profit
 
263.9

 
217.7

Selling, general and administrative expenses
 
187.4

 
164.4

Amortization of intangible assets
 
13.8

 
7.6

Operating income
 
62.7

 
45.7

Interest expense
 
(14.5
)
 
(6.6
)
Income before income taxes
 
48.2

 
39.1

Provision for income taxes
 
13.3

 
9.9

Income from continuing operations
 
34.9

 
29.2

Loss from discontinued operations, net of income taxes
 
—

 
(0.1
)
Net income
 
$
34.9

 
$
29.1

 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
0.66

 
$
0.56

Diluted
 
$
0.66

 
$
0.55

 
 
 
 
 
Number of shares and share equivalents used to calculate earnings per share:
 
 
 
 
Basic
 
52.6

 
52.2

Diluted
 
53.2

 
52.8

 
 
 
 
 
Reconciliation of net income to comprehensive income:
 
 
 
 
Net income
 
$
34.9

 
$
29.1

Foreign currency translation adjustment
 
(1.1
)
 
1.5

Comprehensive income
 
$
33.8

 
$
30.6



 See notes to condensed consolidated financial statements.
 
 

 


4


ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)

 
 
Common Stock
 
Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
 
Shares
 
Par Value
 
 
 
 
Three Months Ended March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
52.5

 
$
0.5

 
$
601.8

 
$
586.1

 
$
(6.3
)
 
$
1,182.1

Vesting of restricted stock units
 
0.2

 
—

 
(5.5
)
 
—

 
—

 
(5.5
)
Employee stock purchase plan
 
0.1

 
—

 
6.9

 
—

 
—

 
6.9

Stock-based compensation expense
 
—

 
—

 
10.0

 
—

 
—

 
10.0

Translation adjustments
 
—

 
—

 
—

 
—

 
(1.1
)
 
(1.1
)
Net income
 
—

 
—

 
—

 
34.9

 
—

 
34.9

Balance at March 31, 2019
 
52.8

 
$
0.5

 
$
613.2

 
$
621.0

 
$
(7.4
)
 
$
1,227.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
52.2

 
$
0.5

 
$
566.1

 
$
428.4

 
$
(3.6
)
 
$
991.4

Vesting of restricted stock units
 
—

 
—

 
(1.0
)
 
—

 
—

 
(1.0
)
Employee stock purchase plan
 
0.1

 
—

 
4.3

 
—

 
—

 
4.3

Exercise of stock options
 
—

 
—

 
0.1

 
—

 
—

 
0.1

Stock-based compensation expense
 
—

 
—

 
4.9

 
—

 
—

 
4.9

Translation adjustments
 
—

 
—

 
—

 
—

 
1.5

 
1.5

Net income
 
—

 
—

 
—

 
29.1

 
—

 
29.1

Balance at March 31, 2018
 
52.3

 
$
0.5

 
$
574.4

 
$
457.5

 
$
(2.1
)
 
$
1,030.3


See notes to condensed consolidated financial statements.


5


ASGN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 
Three Months Ended
March 31,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net income
$
34.9

 
$
29.1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
23.5

 
14.4

Stock-based compensation
9.5

 
4.9

Allowance for doubtful accounts
0.6

 
0.5

Workers’ compensation provision
0.6

 
0.8

Other
1.5

 
1.2

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
4.6

 
(13.5
)
Prepaid expenses and income taxes
(6.9
)
 
8.2

Accounts payable
(17.3
)
 
5.8

Accrued payroll and contract professional pay
(7.8
)
 
6.5

Income taxes payable
12.3

 
(0.4
)
Workers’ compensation loss reserves
(0.9
)
 
(0.7
)
Operating lease right of use assets
6.8

 
—

Operating lease liabilities
(6.8
)
 
—

Other
(10.6
)
 
(2.1
)
Net cash provided by operating activities
44.0

 
54.7

Cash Flows from Investing Activities:
 
 
 
Cash paid for property and equipment
(7.5
)
 
(6.2
)
Cash paid for acquisitions, net of cash acquired
(48.8
)
 
—

Other
(0.7
)
 
—

Net cash used in investing activities
(57.0
)
 
(6.2
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long-term debt
44.0

 
—

Principal payments of long-term debt
(38.0
)
 
(10.0
)
Proceeds from option exercises and employee stock purchase plan
6.9

 
4.4

Payment of employment taxes related to release of restricted stock awards
(5.5
)
 
(2.1
)
Net cash provided by (used in) financing activities
7.4

 
(7.7
)
Effect of exchange rate changes on cash and cash equivalents
(0.6
)
 
0.4

Net Increase (Decrease) in Cash and Cash Equivalents
(6.2
)
 
41.2

Cash and Cash Equivalents at Beginning of Year
41.8

 
36.7

Cash and Cash Equivalents at End of Period
$
35.6

 
$
77.9

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for:
 
 
 
Income taxes
$
1.6

 
$
1.1

Interest
$
12.8

 
$
5.3

Supplemental Disclosure of Non-Cash Transactions
 
 
 
Unpaid portion of additions to property and equipment
$
1.2

 
$
2.0



See notes to condensed consolidated financial statements.


6


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, 2018 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, 2018 ("2018 10-K").

2. Leases

Effective January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02 Leases (Accounting Standards Codification Topic "ASC" 842) , which requires lessees to recognize most operating leases on the balance sheet as a right of use ("ROU") asset and lease liability. The Company adopted this standard using the optional transition method measuring and recognizing the ROU asset and lease liability from operating leases on the condensed consolidated balance sheet without comparative period information or disclosures. The adoption of the standard did not have an effect on the Company’s results of operations, stockholders' equity or cash flows.

The Company elected the package of practical expedients which specifies entities do not need to reassess expired or existing contracts as of the adoption date for the following items: (i) determination of whether a contract is or contains a lease, (ii) revising classification of leases and (iii) assessment of initial direct costs. For existing or expired contracts as of the adoption date, the determinations made for these items under the previous accounting standard (ASC 840) were retained at transition, as allowed by this package of practical expedients.

The Company has operating leases for corporate offices, branch offices and data centers. At the transition date, the operating lease ROU asset and operating lease liability were $93.9 million and $99.4 million , respectively. The difference between the operating lease ROU asset and operating lease liability is due to pre-existing deferred rent and prepaid rent balances that were reclassified as a component of the ROU asset at the transition date.

The Company's leases have remaining lease terms of one month to eight years . At the inception of a contract, the Company determines if the contract contains a lease. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date, based on the present value of the future minimum lease payments. Since most of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate (“IBR”) in determining the present value of lease payments. In determining the IBR, the Company considers its credit rating and the current market interest rates. The IBR approximates the interest rate the Company would pay on collateralized debt with similar terms and payments as the lease agreements and in a similar economic environment where the leased assets are located. Leases with an initial term of 12 months or less ("short-term leases") are not recorded on the balance sheet. The Company does not have finance leases.

Lease expense is recognized on a straight-line basis over the lease term and is primarily included in selling, general and administrative expenses. Some lease agreements offer renewal options which are assessed against relevant economic factors to determine whether it is reasonably certain that these renewal options will be exercised. As a result of this assessment, for most leases, renewal options were excluded from the minimum lease payments when calculating the operating lease ROU assets and operating lease liabilities, as the Company does not consider the exercise of such options to be reasonably certain.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all underlying asset classes. Some leases require variable payments for common area maintenance, property taxes, parking, insurance and other variable costs. The variable portion of lease payments is not included in operating lease ROU assets or operating lease liabilities. Variable lease costs are expensed when incurred. Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining term of the lease.

Components of lease expense for the three months ended March 31, 2019 (in millions):
Operating lease expense
 
$
7.9

Short-term lease expense
 
0.4

Variable lease expense
 
1.1

Total lease expense
 
$
9.4



Total rent expense for the three months ended March 31, 2018 was $6.9 million . The Company leases two properties owned indirectly by certain board members and an executive of the Company. Rent expense for these two properties was $0.3 million for the three months ended March 31, 2019 and 2018.


7


Supplemental cash flow information related to leases for the three months ended March 31, 2019 (in millions):
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
7.9

Operating lease right of use assets obtained in exchange for new operating lease liabilities
 
$
4.4

Weighted-average remaining lease term of operating leases
 
4.3 years

Weighted-average discount rate of operating leases
 
4.6
%


Maturities of operating lease liabilities as of March 31, 2019 (in millions):
Remainder of 2019
 
$
23.6

2020
 
26.1

2021
 
21.8

2022
 
16.4

2023
 
11.1

Thereafter
 
8.6

Total future minimum lease payments
 
107.6

Less imputed interest
 
(10.7
)
Total operating lease liabilities
 
$
96.9



As of March 31, 2019 , we have additional operating leases that have not yet commenced with total future lease payments of approximately $1.5 million . These operating leases will commence in 2019 with lease terms of approximately 5 years .


3. Acquisitions

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 was primarily determined using a discounted cash flow method (a non-recurring fair value measurement based on Level 3 inputs). Goodwill represents the acquired assembled workforce, potential new customers and future cash flows after the acquisition.

DHA Acquisition

On January 25, 2019 , the Company acquired all of the outstanding shares of DHA Group, Inc. ("DHA"), headquartered in Washington, D.C. , for $48.8 million , which included $2.8 million for excess working capital. DHA is a provider of IT services mainly to the FBI as well as other federal customers. The purchase accounting for the acquisition of DHA remains incomplete and any measurement period adjustments will be recognized prospectively over a period not to exceed 12 months from the date of acquisition. The results of operations for this acquisition have been combined with those of the Company from the acquisition date and are included within the ECS Segment (see Note 10. Segment Reporting ).

ECS Acquisition

On April 2, 2018 , the Company acquired all of the outstanding equity interests of ECS Federal, LLC ("ECS") for $775.0 million . ECS, which is headquartered in Fairfax, Virginia , is a leading provider of government IT services and solutions. The ECS acquisition allows the Company to compete in the Federal IT and professional services sector. The purchase accounting for this acquisition was finalized as of December 31, 2018. Goodwill related to this acquisition totaled $528.2 million , of which $514.2 million is deductible for income tax purposes. Identifiable intangible assets related to this acquisition totaled $195.0 million . The weighted-average amortization period for identifiable intangible assets, excluding trademark, is 11 years . The results of operations for this acquisition have been combined with those of the Company from the acquisition date and are included within the ECS Segment.

The summary below (in millions, except for per share data) presents pro forma unaudited condensed consolidated results of operations for the three months ended March 31, 2018 as if the acquisition of ECS by the Company and the acquisition of a business by ECS in April 2017, both occurred on January 1, 2017. The pro forma unaudited condensed consolidated results give effect to, among other things: (i) amortization of intangible assets, (ii) stock-based compensation expense and the related dilution for restricted stock units granted to ECS employees, (iii) interest expense on acquisition-related debt and (iv) the exclusion of nonrecurring expenses incurred by ECS prior to its acquisition by the Company for ECS’ acquisition-related activities and costs incurred in the sale of ECS to the Company. The pro forma results do not include pre-acquisition results of DHA due to its size. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

8


 
 
 
Revenues
 
$
834.2

Income from continuing operations
 
$
34.6

Net income
 
$
34.5

 
 
 
Earnings per share:
 
 
Basic
 
$
0.66

Diluted
 
$
0.65

 
 
 
Number of shares and share equivalents used to calculate earnings per share:
 
 
Basic
 
52.2

Diluted
 
52.9




9


4. Goodwill and Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2019 and the year ended December 31, 2018 were as follows (in millions):
 
Apex Segment
 
Oxford Segment
 
ECS Segment
 
Total
Balance as of December 31, 2017
$
662.1

 
$
232.0

 
$
—

 
$
894.1

ECS acquisition
—

 
—

 
528.2

 
528.2

Translation adjustment
—

 
(1.2
)
 
—

 
(1.2
)
Balance as of December 31, 2018
662.1

 
230.8

 
528.2

 
1,421.1

DHA acquisition
—

 
—

 
24.8

 
24.8

Translation adjustment
—

 
(0.4
)
 
—

 
(0.4
)
Balance as of March 31, 2019
$
662.1

 
$
230.4

 
$
553.0

 
$
1,445.5




Acquired intangible assets consisted of the following (in millions):
 
 
 
March 31, 2019
 
December 31, 2018
 
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 - 12.75 years
 
$
362.4

 
$
153.8

 
$
208.6

 
$
346.9

 
$
145.4

 
$
201.5

Contractor relationships
2 - 5 years
 
71.1

 
69.0

 
2.1

 
71.1

 
67.1

 
4.0

Backlog
1 - 2.75 years
 
25.0

 
19.2

 
5.8

 
23.1

 
17.7

 
5.4

Non-compete agreements
2 - 7 years
 
23.6

 
10.9

 
12.7

 
22.1

 
9.9

 
12.2

In-use software
6 years
 
18.9

 
16.8

 
2.1

 
18.9

 
16.0

 
2.9

Favorable contracts
5 years
 
—

 
—

 
—

 
1.4

 
0.9

 
0.5

 
 
 
501.0

 
269.7

 
231.3

 
483.5

 
257.0

 
226.5

Not subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
 
 
262.1

 
—

 
262.1

 
262.2

 
—

 
262.2

Total
 
 
$
763.1

 
$
269.7

 
$
493.4

 
$
745.7

 
$
257.0

 
$
488.7




Estimated future amortization expense is as follows (in millions): 
Remainder of 2019
$
36.8

2020
38.1

2021
32.6

2022
24.9

2023
21.7

Thereafter
77.2

 
$
231.3




10


5. Long-Term Debt

Long-term debt consisted of the following (in millions):
 
March 31,
2019
 
December 31,
2018
$200 million revolving credit facility, due March 31, 2023
$
6.0

 
$
—

Term B loan facility, due June 5, 2022
337.0

 
337.0

Term B loan facility, due April 2, 2025
787.0

 
787.0

 
1,130.0

 
1,124.0

Unamortized deferred loan costs
(22.3
)
 
(23.6
)
 
$
1,107.7

 
$
1,100.4



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. At March 31, 2019 , the weighted average interest rate was 4.5 percent .

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 March 31, 2019 , the first required minimum quarterly payment of $2.1 million is not due until 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 certain exceptions. The credit facility is secured by substantially all of our assets and has various restrictive covenants, including the maximum ratio of consolidated secured debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA"). The maximum permitted ratio of consolidated secured debt to consolidated EBITDA was 4.75 to 1.00 as of March 31, 2019 , and steps down at regular intervals 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 March 31, 2019 , the Company was in compliance with its debt covenants; its ratio of consolidated secured debt to consolidated EBITDA was 2.65 to 1.00, and it had $190.1 million of available borrowing capacity under its revolving credit facility.

6. Commitments and Contingencies

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 $2.1 million and $2.4 million , at March 31, 2019 and December 31, 2018 , net of anticipated insurance and indemnification recoveries of $15.2 million and $15.0 million , at March 31, 2019 and December 31, 2018 , respectively. We have undrawn stand-by letters of credit outstanding to secure obligations for workers’ compensation claims with various insurance carriers. These stand-by letters of credit at March 31, 2019 and December 31, 2018 were $3.9 million and $4.4 million , respectively.

The Company’s deferred compensation plan liability was $10.2 million and $6.2 million at March 31, 2019 and December 31, 2018 and was included in other long-term liabilities. The Company established a rabbi trust to fund the deferred compensation plan (see Note 11. Fair Value Measurements ).
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.


11


7. Revenues

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.

The Company’s contracts have termination for convenience provisions and do not have substantive termination penalties; therefore, the contract duration for accounting purposes may be less than the stated terms. For accounting purposes, the Company's contracts with customers are considered to be of a short-term nature (one year or less). The Company does not disclose the value of remaining performance obligations for short-term contracts.

The Company has contract liabilities for payments received in advance of providing services under certain contracts. Contract liabilities for advance payments were $3.8 million and $9.8 million at March 31, 2019 and December 31, 2018 , respectively. Contract liabilities are included in other current liabilities on the condensed consolidated balance sheets. During the three months ended March 31, 2019 , the Company recognized revenues of $8.8 million relating to amounts that were included in contract liabilities as of December 31, 2018 .

The allowance for doubtful accounts was $4.6 million at March 31, 2019 and $4.8 million at December 31, 2018 .

8. 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.

9. Earnings per Share  

The following is a reconciliation of the shares used to compute basic and diluted earnings per share (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Weighted average number of common shares outstanding used to compute basic earnings per share
 
52.6

 
52.2

Dilutive effect of stock-based awards
 
0.6

 
0.6

Number of shares used to compute diluted earnings per share
 
53.2

 
52.8



There were 0.3 million share equivalents outstanding during the three months ended March 31, 2019 that were anti-dilutive when applying the treasury stock method and thus were excluded from the number of shares used to compute diluted earnings per share. The number of anti-dilutive share equivalents outstanding during the three months ended March 31, 2018 was insignificant.


12


10. Segment Reporting  

ASGN provides IT and professional staffing services in the technology, digital, creative, engineering and life sciences fields across commercial and government sectors. ASGN operates through its Apex, Oxford and ECS segments. The Apex Segment provides technology, scientific, engineering, digital and creative resources and services to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems and Creative Circle. The Oxford Segment provides hard-to-find technical, digital, engineering and life sciences resources in select skill and geographic markets, along with consulting services. The businesses in this segment include Oxford Global Resources, CyberCoders and Life Sciences Europe. The ECS Segment provides advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization and science and engineering to customers across the U.S. public sector, defense, intelligence and commercial industries. 

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 millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Apex:
 
 
 
 
Revenues
 
$
606.1

 
$
538.5

Gross profit
 
175.4

 
158.6

Operating income
 
61.0

 
56.3

Amortization
 
6.0

 
6.5

Oxford:
 
 
 
 
Revenues
 
$
149.6

 
$
146.7

Gross profit
 
58.9

 
59.1

Operating income
 
11.7

 
9.8

Amortization
 
1.0

 
1.1

ECS:
 
 
 
 
Revenues
 
$
168.0

 
$
—

Gross profit
 
29.6

 
—

Operating income
 
6.9

 
—

Amortization
 
6.8

 
—

Corporate:
 
 
 
 
Operating loss (1)
 
$
(16.9
)
 
$
(20.4
)
Consolidated:
 
 
 
 
Revenues
 
$
923.7

 
$
685.2

Gross profit
 
263.9

 
217.7

Operating income
 
62.7

 
45.7

Amortization
 
13.8

 
7.6


_____________
(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.


13


The following table presents our revenues disaggregated by type (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Apex:
 
 
 
 
Assignment
 
$
592.2

 
$
524.9

Permanent placement
 
13.9

 
13.6

 
 
$
606.1

 
$
538.5

Oxford:
 
 
 
 
Assignment
 
$
129.4

 
$
125.4

Permanent placement
 
20.2

 
21.3

 
 
$
149.6

 
$
146.7

ECS:
 
 
 
 
Firm-fixed-price
 
$
43.3

 
$
—

Time and materials
 
61.4

 
—

Cost-plus-fixed-fee
 
63.3

 
—

 
 
$
168.0

 
$
—

Consolidated
 
$
923.7

 
$
685.2



The Company operates internationally, with operations mainly in the United States. The following table presents revenues by geographic location (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
%
 
2018
 
%
Revenues:
 
 
 
 
 
 
 
 
Domestic
 
$
881.1

 
95.4
%
 
$
647.3

 
94.5
%
Foreign
 
42.6

 
4.6
%
 
37.9

 
5.5
%
 
 
$
923.7

 
100.0
%
 
$
685.2

 
100.0
%


The following table presents the ECS segment revenues by customer type (in millions):
 
 
Three Months Ended
 
 
March 31, 2019
Department of Defense and Intelligence Agencies
 
$
96.0

Federal Civilian
 
60.2

Commercial and Other
 
11.8

 
 
$
168.0






14


11. Fair Value Measurements

The carrying amounts 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. The carrying value of the revolving credit facility approximates its fair value. The fair value of the term B loans was $1.1 billion as of March 31, 2019 , excluding the $22.3 million of unamortized deferred loan costs (see Note 5. Long-Term Debt ) 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 $10.1 million and $6.2 million at March 31, 2019 and December 31, 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 three months ended March 31, 2019 and 2018 , no fair value adjustments were required for non-financial assets or liabilities.


15


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) the availability of qualified contract professionals and our ability to attract, train and retain them; (3) our ability to remain competitive in obtaining and retaining clients; (4) management of our growth; (5) continued performance and integration of our enterprise-wide information systems; (6) our ability to manage our litigation matters; (7) the successful integration of our acquired subsidiaries; (8) maintenance of our ECS Segment contract backlog; and the factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 10-K”) under the section titled “Risk Factors.” 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 operates through its Apex, Oxford and ECS segments. The Apex Segment provides technology, scientific, engineering, digital and creative resources and services to Fortune 1000 and mid-market clients across the United States and Canada. The businesses in this segment include Apex Systems and Creative Circle. The Oxford Segment provides hard-to-find technical, digital, engineering and life sciences resources in select skill and geographic markets, along with consulting services. The businesses in this segment include Oxford Global Resources, CyberCoders and Life Sciences Europe. The ECS Segment provides advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization and science and engineering to customers across the U.S. public sector, defense, intelligence and commercial industries. 

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 (see Note 3. Acquisitions ). Pro forma results do not include the pre-acquisition results of DHA due to its size. 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.

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 revenues per billable day, multiplied by the number of billable days from the same period in the prior year.

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. 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 Same Billable Days basis calculation.


16


Results of Operations

CHANGES IN RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2019
COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 2018
(Dollars in millions)

 
 
Reported
 
Pro Forma
 
Three Months Ended March 31,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
 
Revenues by segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
$
592.2

 
$
524.9

 
12.8
 %
 
$
592.2

 
$
524.9

 
12.8
 %
 
Permanent placement
 
13.9

 
13.6

 
2.0
 %
 
13.9

 
13.6

 
2.0
 %
 
 
 
606.1

 
538.5

 
12.5
 %
 
606.1

 
538.5

 
12.5
 %
 
Oxford:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
129.4

 
125.4

 
3.2
 %
 
129.4

 
125.4

 
3.2
 %
 
Permanent placement
 
20.2

 
21.3

 
(4.9
)%
 
20.2

 
21.3

 
(4.9
)%
 
 
 
149.6

 
146.7

 
2.0
 %
 
149.6

 
146.7

 
2.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ECS
 
168.0

 
—

 
—

 
168.0

 
149.1

 
12.7
 %
 
 
 


 


 
 
 


 


 
 
 
Consolidated:
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
721.6

 
650.3

 
11.0
 %
 
721.6

 
650.3

 
11.0
 %
 
Permanent placement
 
34.1

 
34.9

 
(2.2
)%
 
34.1

 
34.9

 
(2.2
)%
 
ECS
 
168.0

 
—

 
—

 
168.0

 
149.1

 
12.7
 %
 
 
 
$
923.7

 
$
685.2

 
34.8
 %
 
$
923.7

 
$
834.3

 
10.7
 %
 
Percentage of total revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
65.6
%
 
78.6
%
 
 
 
65.6
%
 
64.5
%
 
 
 
Oxford
 
16.2
%
 
21.4
%
 
 
 
16.2
%
 
17.6
%
 
 
 
ECS
 
18.2
%
 
—

 
 
 
18.2
%
 
17.9
%
 
 
 
 
 
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assignment
 
78.1
%
 
94.9
%
 
 
 
78.1
%
 
77.9
%
 
 
 
Permanent placement
 
3.7
%
 
5.1
%
 
 
 
3.7
%
 
4.2
%
 
 
 
ECS
 
18.2
%
 
—

 
 
 
18.2
%
 
17.9
%
 
 
 
 
 
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domestic
 
95.4
%
 
94.5
%
 
 
 
95.4
%
 
95.5
%
 
 
 
Foreign
 
4.6
%
 
5.5
%
 
 
 
4.6
%
 
4.5
%
 
 
 
 
 
100.0
%
 
100.0
%
 
 
 
100.0
%
 
100.0
%
 
 
 


Revenues on a reported basis increased $238.5 million , or 34.8 percent year-over-year, as a result of (i) the contribution of $168.0 million of revenues from ECS, which was acquired on April 2, 2018 and (ii) year-over-year growth of $70.5 million of revenues, or 10.3 percent from our other operating divisions. On a pro forma basis, revenues were up $89.4 million , or 10.7 percent , year-over-year and included $10.0 million from DHA, from the date of its acquisition on January 25, 2019.

Revenues from the Apex Segment, which accounted for 65.6 percent of consolidated revenues for the quarter , were $606.1 million , up 12.5 percent year-over-year. Assignment revenues, which accounted for 97.7 percent of the segment's revenues for the quarter , grew 12.8 percent year-over-year. Growth in assignment revenues was mainly driven by an increase in the number of hours billed and a 5.8 percent increase in average bill rates. Apex Systems, which accounted for approximately 83.7 percent of the Apex Segment's total revenues, grew 14.1 percent year-over-year primarily due to double-digit revenue growth in (i) five of the eight industry verticals it services, (ii) top accounts (large-volume accounts) and (iii) light deliverables-based IT services. Creative/digital services revenues, which accounted for 16.3 percent of the segment's revenues, grew 5.3 percent year-over-year mainly related to growth in top accounts.

Revenues from the Oxford Segment, which accounted for 16.2 percent of consolidated revenues for the quarter , were $149.6 million , up 2.0 percent year-over-year on one fewer "Billable Day" and the strengthening of the U.S. dollar relative to the Euro. Adjusting for year-over-year differences in "Billable Days" and foreign exchange rates, the growth rate for the segment would have been three and one-half percentage points higher than reported. The growth in assignment revenues related to an increase in the number of hours billed driven by high growth in our European operations and certain domestic practices.

Revenues from the ECS Segment, which accounted for 18.2 percent of consolidated revenues for the quarter , were $168.0 million , on an as reported basis. On a pro forma basis, revenues were up 12.7 percent , including the $10.0 million contribution from DHA in the quarter. Excluding the contribution from DHA, the ECS Segment year-over-year growth rate was 6.0 percent .

Gross Profit and Gross Margins
 
 
Reported
 
Pro Forma
 
Three Months Ended March 31,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
 
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
$
175.4

 
$
158.6

 
10.6
 %
 
$
175.4

 
$
158.6

 
10.6
 %
 
Oxford
 
58.9

 
59.1

 
(0.3
)%
 
58.9

 
59.1

 
(0.3
)%
 
ECS
 
29.6

 
—

 
—

 
29.6

 
26.7

 
10.8
 %
 
Consolidated
 
$
263.9

 
$
217.7

 
21.2
 %
 
$
263.9

 
$
244.4

 
8.0
 %
 
Gross margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
Apex
 
28.9
%
 
29.5
%
 
 
 
28.9
%
 
29.5
%
 
 
 
Oxford
 
39.4
%
 
40.3
%
 
 
 
39.4
%
 
40.3
%
 
 
 
ECS
 
17.6
%
 
—

 
 
 
17.6
%
 
17.9
%
 
 
 
Consolidated
 
28.6
%
 
31.8
%
 
 
 
28.6
%
 
29.3
%
 
 
 

On a reported basis, gross profit was up 21.2 percent year-over-year primarily related to the inclusion of ECS and growth at the Apex Segment. On a pro forma basis, gross profit was up 8.0 percent mainly related to revenue growth at the Apex and ECS segments. Gross margin on a reported basis was down from the first quarter of last year as a result of the (i) the inclusion of ECS, which has a lower gross margin than our other segments, (ii) decline in permanent placement revenues and (iii) higher relative growth from large-volume, lower-margin accounts mainly at Apex Systems. Gross margin on a pro forma basis was down approximately 70 basis points due to (i) a lower mix of permanent placement revenues ( 3.7 percent of consolidated revenues, down from 5.1 percent in the first quarter of 2018), (ii) a slightly lower assignment gross margin mainly related to changes in business mix and (iii) the inclusion of DHA, which lowered the consolidated gross margin by approximately 17 basis points.

The Apex Segment accounted for 66.5 percent of consolidated gross profit for the current quarter. Its gross profit was $175.4 million , up 10.6 percent year-over-year. Gross margin for the segment was 28.9 percent , a compression of 60 basis points year-over-year, primarily related to a lower mix of permanent placement revenues and lower assignment gross margin driven by higher growth in top accounts (high-volume, lower-margin accounts) relative to other accounts.

The Oxford Segment accounted for 22.3 percent of consolidated gross profit for the current quarter. Its gross profit was $58.9 million , down 0.3 percent year-over-year. Gross margin for the segment was 39.4 percent , a compression of 90 basis points year-over-year, primarily related to a lower mix of permanent placement revenues and lower assignment gross margin related to changes in business mix.

The ECS Segment accounted for 11.2 percent of consolidated gross profit for the current quarter. Its gross profit was $29.6 million , up 10.8 percent year-over-year on a pro forma basis. Gross margin was 17.6 percent , down from 17.9 percent gross margin in the first quarter of last year. The decline in gross margin related to the inclusion of DHA, which has a lower gross margin that ECS as a whole, and a higher mix of revenues from cost-plus-fixed-fee contracts, which generally have lower gross margins than other contract types.

Selling, General and Administrative Expenses
 
Selling, general and administrative ("SG&A") expenses were $187.4 million ( 20.3 percent of revenues) for the current quarter, up from $164.4 million ( 24.0 percent of revenues) in the first quarter of last year, primarily due to the inclusion of ECS and DHA in the current quarter, which have lower gross margins than our other segments, but lower SG&A expense relative to revenues. SG&A expenses for the quarter included $1.4 million in acquisition, integration and strategic planning expenses, down from $9.8 million in the first quarter of last year , which included the acquisition expenses related to the ECS acquisition. SG&A expenses also included expense of $1.4 million related to the resolution of a pay rate dispute on services provided in prior periods by Apex Systems to a large systems integrator. Excluding (i) acquisition, integration and strategic planning expenses, (ii) stock-based compensation expense and (iii) depreciation expense, SG&A expenses as a percentage of revenues were 18.3 percent in the current quarter, or 2.5 percentage points lower than in the first quarter of last year , primarily due to the inclusion of ECS and DHA in the current quarter.

Amortization of Intangible Assets

Amortization of intangible assets was $13.8 million for the current quarter, compared with $7.6 million in the first quarter of last year . The increase is related to the identifiable intangible assets from the ECS and DHA acquisitions.

Interest Expense

Interest expense was $14.5 million for the current quarter, compared with $6.6 million in the first quarter of last year. The year-over-year increase in interest expense related to borrowings used to fund the ECS acquisition in April 2018. Interest expense for the quarter was comprised of interest on the credit facility of $13.0 million and amortization of deferred loan costs of $1.5 million . Average borrowings outstanding during the quarter were $1.1 billion, up from $583.0 million in the first quarter of last year. Average interest rate in the current quarter was 4.5 percent, up from 3.6 percent in the first quarter of last year, due to year-over-year increase in LIBOR.

Provision for Income Taxes

The provision for income taxes was $13.3 million for the current quarter, compared with $9.9 million in the first quarter of last year . The effective tax rate for the quarter was 27.7 percent and included $0.8 million related to changes in estimates for the effects of tax reform on income taxes for 2018, which were partially offset by $0.3 million in excess tax benefits related to stock-based compensation.

Net Income

Net income was $34.9 million for the current quarter, up from $29.1 million in the first quarter 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 that 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 indefinite delivery, indefinite quantity ("IDIQ") contracts or U.S. General Services Administration ("GSA") schedules. Contract backlog is segregated into funded contract backlog and negotiated unfunded contract backlog, which together make up total contract backlog.

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 yet been awarded or authorized and from unexercised priced contract options.

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. Changes in the funded contract backlog are also affected by the funding cycles of the government.

(in millions)
 
March 31, 2019 (1)
 
December 31, 2018
Funded Contract Backlog
 
$
458.6

 
$
350.0

Negotiated Unfunded Contract Backlog
 
1,317.9

 
1,096.6

Contract Backlog
 
$
1,776.5

 
$
1,446.6

______
(1) Includes $244.0 million related to DHA acquisition.
 
ECS Segment Book-to-Bill Ratio

The book-to-bill ratio for the first quarter of 2019 for our ECS segment was 1.5 to 1. The book-to-bill ratio was calculated as the sum of the change in total contract backlog during the quarter (excluding the acquired DHA backlog) plus revenues for the quarter, divided by revenues for the quarter.

17


Liquidity and Capital Resources
 
Our working capital (current assets less current liabilities) at March 31, 2019 was $377.7 million , and our cash and cash equivalents were $35.6 million , of which $20.9 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 at this time. 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 $44.0 million for the current quarter, compared with $54.7 million in the first quarter of last year. Net cash provided by operating activities before changes in operating assets and liabilities, was $70.6 million , up from $50.9 million in the same period of last year mainly due to the inclusion of ECS in the current quarter. Changes in operating assets and liabilities resulted in cash usage of $26.6 million for the current quarter, compared with cash generation of $3.8 million in the first quarter of last year. The year-over-year changes mainly related to (i) an increase in accounts receivable days sales outstanding, (ii) lower annual incentive compensation payments in the first quarter of last year due to acceleration of payment into December 2017 for tax planning purposes and (iii) the inclusion of ECS in the current quarter.

Net cash used in investing activities was $57.0 million for the current quarter, compared with $6.2 million in the first quarter of last year. Net cash used in investing activities for the current quarter was comprised of $48.8 million for the acquisition of DHA and $7.5 million in capital expenditures.

Net cash provided by financing activities was $7.4 million for the current quarter, compared with net cash used in financing activities of $7.7 million in the first quarter of last year. Net cash provided by financing activities for the current quarter consisted primarily of $6.0 million in net borrowings. Net cash used in financing activities in the first quarter of last year consisted primarily of $10.0 million in principal payments of long-term debt.

At March 31, 2019 , borrowings under our credit facility totaled $1.1 billion (see Note 5. 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 March 31, 2019 , the first required minimum quarterly payment of $2.1 million is not due until 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 March 31, 2019 , 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 March 31, 2019 , the Company was in compliance with all of its debt covenants, its ratio of consolidated secured debt to consolidated EBITDA was 2.65 to 1.00 and the Company had $190.1 million of available borrowing capacity under its revolving credit facility.

Recent Accounting Pronouncements

The Company's accounting policies were revised in connection with the implementation of ASC 842. Refer to Note 2. Leases in the notes to the condensed consolidated financial statements in Part I, Item 1.

Critical Accounting Policies
 
There have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2019 compared with those disclosed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2018 10-K.


18


Commitments

We have not made any material changes to the significant commitments or contractual obligations that were disclosed in our 2018 10-K, nor have we entered into any new ones.

Item 3 - Quantitative and Qualitative Disclosures about Market Risks
 
With respect to our quantitative and qualitative disclosures about foreign currency risks and interest rates risks, there have been no material changes to the information included in our 2018 10-K.

Foreign Currency Fluctuations. Our exposure to fluctuations in foreign currency exchange rates relates primarily to our foreign subsidiaries. Exchange rates impact the U.S. dollar value of our reported earnings, investments in our foreign subsidiaries and intercompany transactions with our foreign subsidiaries. Fluctuations in currency exchange rates impact the U.S. dollar amount of our stockholders’ equity. The assets and liabilities of our non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at period end. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss). Based on the relative size and nature of our foreign operations, we do not believe that a 10 percent change in the value of foreign currencies relative to the U.S. dollar would have a material impact on our financial statements.

Interest Rate Risk. Our exposure to interest rate risk is associated with our debt instruments (refer to Note 5. Long-Term Debt in the condensed consolidated financial statements for a further description of our debt instruments). A hypothetical 100 basis point change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately $11.3 million based on $1.1 billion of debt outstanding for any 12-month period. We have not entered into any market risk sensitive instruments for hedging or trading purposes.

Item 4 - Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. The term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. We have established disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting that occurred during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.



19


  PART II – OTHER INFORMATION

Item 1 – Legal Proceedings
 
We are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the facts currently available, we do not believe that the disposition of matters that are pending or asserted will have a material effect on our financial position, results of operations or cash flows.

Item 1A – Risk Factors
 
Information regarding risk factors affecting our business is discussed in our 2018 10-K.

Item 2 - Unregistered Sales of Securities and Use of Proceeds

None.

Item 3 - Defaults Upon Senior Notes

None.

Item 4 - Mine Safety Disclosures

Not applicable.

Item 5 - Other Information

None.


20


Item 6 - Exhibits

INDEX TO EXHIBITS
Number
 
Footnote
 
Description
 
(1)
 
 
(2)
 
 
(3)
 
4.1
 
(4)
 
Specimen Common Stock Certificate
 
*
 
 
*
 
 
*
 
 
*
 
101.INS
 
*
 
XBRL Instance Document
101.SCH
 
*
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
*
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
*
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
*
Filed herewith.
(1)
Incorporated by reference from an exhibit to our Current Report on Form 8-K filed with the SEC on June 25, 2014.
(2)
Incorporated by reference from an exhibit to our Current Report on Form 8-K filed with the SEC on March 16, 2018.
(3)
Incorporated by reference from an exhibit to our Current Report on Form 8-K filed with the SEC on April 2, 2018.
(4)
Incorporated by reference from an exhibit to our Registration Statement on Form S-1 (File No. 33-50646) declared effective by the SEC on September 21, 1992.
 
 

 

21



 
  SIGNATURE
 
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ASGN Incorporated
 
 
 
May 9, 2019
By:
/s/ Edward L. Pierce
 
 
Edward L. Pierce
 
 
Executive Vice President and Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
 


 


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