Nimble ASGN Thrives Despite Job Market Chaos

A solid first quarter and several major government contracts will help ASGN Inc. weather the Coronavirus storm. The Calabasas company provides highly skilled workers on a contract basis for large corporations and government agencies. It has three major divisions: ECS, which specializes in government contracts; Apex, which handles information technology staffing and services; and Oxford, which provides engineering, technical and life sciences personnel. For the quarter, revenues were $991 million, up 7.2 percent year-over-year. Adjusted EBITDA of $104 million represented an increase of 6.6 percent over the prior year. Shares closed at a recent low on April 3 of $31.26. They closed May 20 at $59.33. On an April 30 conference call, Chief Executive Theodore Hanson credited his 4,300-employee workforce for coming through during the shelter-at-home orders. “Over the last few weeks, I’ve witnessed an enormous sense of community at ASGN,” Hanson said. “We are fortunate to have one of the largest, most skilled contingent workforces available for remote work today. … Their experience provides me with great confidence in ASGN’s ability to navigate this crisis.” Analyst Marc Marcon at Baird Equity Research was impressed by the quarterly results. “ASGN reported very solid Q1 results that exceeded our expectations,” he wrote in a report to investors. “More importantly, overall revenue outlook is relatively stable considering Covid-19 and management enhancing already substantial expense flexibility to preserve margins. FCF naturally increases during periods of contraction as receivables are harvested. We come away from call encouraged and raise our estimates and price target.” ECS, which provides mission-critical solutions for the Department of Defense, intelligence agencies and other civilian agencies, did not see a revenue slowdown in March. The segment reported revenues of $213 million, up 26.6 percent year-over-year, primarily driven by a continued high demand from federal government customers for machine learning and artificial intelligence services, an increased volume of cloud services and solutions and new opportunities presented by strategic acquisition of Blackstone Federal in January. Key contracts within the Department of Defense and the significant expansion of professional services provided to the U.S. Postal Service helped shore up this sector. “ECS will be resilient in a downturn as federal government spending for key defense initiatives is projected to continue growing,” Marcon said in his report. The company’s single largest unit, which represents 54 percent of revenue, is Apex. The segment posted a 3.8 percent revenue increase with gross margins increasing to 29.3 percent, a reflection of an increasing mix of consulting and service work, according to the company. Apex has a track record of stability in downturns. During the Great Recession, the unit was flat in 2008 and only declined slightly in 2009. Oxford’s consultation services reported revenues of $149 million for the first quarter of 2020, down slightly year-over-year, while the segment’s permanent placement revenues were up 1.8 percent over the prior first quarter. Cyclically sensitive units include Oxford; Creative Circle, which has marketing and advertising staffers; and CyberCoders. They aggregate to 24 percent of revenue and were down double digits for the quarter. “Our teams moved quickly to understand and address the individual safety protocols and service requirements of our clients,” Hanson said. “Leveraging our strong technology platforms, we shifted our internal workforce to 100-percent remote. Then, over the month of March and into early April, over 80 percent of our billable consultants transitioned to remote work with just a small portion of essential staff still working on-site in compliance with the required safety protocols.” “Our key takeaway is that margins will prove more resilient than we previously expected, even in a material downturn,” Marcon wrote. On the conference call, Hanson pointed out that since the last major recession, ASGN has reinvented itself through acquisitions. “More than 85 percent of our revenues today, including the mission-critical government business provided by ECS, were not part of our company at the time,” Hanson noted. “The past eight weeks have been challenging, but fortunately for us, over the same time period, we’ve seen the benefits of the strategic initiatives we’ve undertaken to evolve and strengthen ASGN’s business,” Hanson continued. “We’ve become much more IT centric and, in doing so, have expanded our large account portfolio, which now includes over 50 percent of the Fortune 500 as well as key federal defense and civilian government agencies.”