Macquarie Business Services Conference€¦ · Macquarie Business Services Conference May 2, 2019....
Transcript of Macquarie Business Services Conference€¦ · Macquarie Business Services Conference May 2, 2019....
© 2019 ASGN Incorporated. All rights reserved.
Macquarie Business Services Conference
May 2, 2019
1
Safe Harbor
Certain statements made in this news release are “forward-looking statements” within the meaning ofSection 21E of the Securities Exchange Act of 1934, as amended, and involve a high degree of risk anduncertainty. Forward-looking statements include statements regarding our anticipated financial andoperating performance.
All statements in this release, other than those setting forth strictly historical information, are forward-looking statements. Forward-looking statements are not guarantees of future performance, and actualresults might differ materially. In particular, we make no assurances that the estimates of revenues,gross margin, SG&A, amortization, effective tax rate, net income, diluted shares outstanding, contractbacklog, book-to-bill ratio, Adjusted EBITDA, Adjusted Net Income, and related per share amounts (asapplicable) set forth above will be achieved. Factors that could cause or contribute to such differencesinclude actual demand for our services, our ability to attract, train and retain qualified staffingconsultants, our ability to remain competitive in obtaining and retaining clients, the availability ofqualified contract professionals, management of our growth, continued performance and improvementof our enterprise-wide information systems, our ability to manage our litigation matters, the successfulintegration of our acquired subsidiaries, and other risks detailed from time to time in our reports filedwith the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2018, as filedwith the SEC on March 1, 2019. We specifically disclaim any intention or duty to update any forward-looking statements contained in this news release.
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ASGN At a Glance
2
$
Addressable Market of $280B
Favorable Industry and Secular
Trends
Attractive End Markets
TRACK RECORD OF
FINANCIAL EXCELLENCEDEEP RELATIONSHIPS
& TRUSTED RESOURCE
Revenues of $3.5B in 20181
21 Consecutive Quarters Above
Industry Growth
Adjusted EBITDA of $420M in 20181
Free Cash Flow of $258.8M in 2018
~15,000 Customer Relationships
Relationships with 350 Fortune
500 Companies
Averaging over 26,000 Billable
Professionals
PATH TO $5B IN
REVENUE
Leverage Market Position
Scale Value-Added Services
Expand Presence in
Government IT Services
Strategic Acquisitions
1 Pro forma to include acquisitions of ECS and Creative Circle as if these acquisitions occurred at the beginning of 2015. Does not include DHA pre-acquisition.
LARGE ADDRESSABLE
MARKET
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Competitive Differentiators & Growth Drivers
Expand value-added services and increased
adoption of delivery model
Continueabove-industry growth
Maintaingross margins while growing at
above-industry rates
Improve operating leverage through
higher economies of scale
Generatestrong free cash flow as a result
of above-industry growth rates
and improved operating
leverage
Createhigher stockholder value
through a combination of
strategic acquisitions, stock
repurchases and deleveraging
Acquirebusinesses that enhance our value-added
service offerings and delivery model while
being immediately accretive to free cash
flow and Adjusted Net Income
21 Consecutive Quarters of Above Industry Revenue Growth
4
Well-Positioned to Benefit from Market Forces
TOTAL
ADDRESSABLE
MARKET
$151 BillionTAM triples with expansion
into addressable commercial
IT consulting market with
value-added services
$51 BillionIT, digital, engineering,
& scientific staffing
The World of Work is Changing
• More task and project-based work
• Variable human capital cost to improve productivity
• Increased adoption of shared resources delivery model
• Increasing client demand for value-added services
Increasing Technology Adoption & Specialization
• Increasing demand for specialized technical talent
• Specialized in skillsets and specific industry technologies
• Cybersecurity, Analytics, AI, Cloud & Digital are fastest-growing
Favorable Labor and Immigration Legislation
• Increasing risk of worker misclassification
• Ever-changing laws impacting worker usage
• Increasing demand for domestic technical resources
Position
Improving U.S. Government Market
• Federal spending raised by $300B over two years, increasing both military
and non-defense spending
• Large, pent-up demand for modernization of high-visibility IT systems
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Segment Overview
CONSOLIDATED REVENUESQ1 2019 REVENUES
$149.6 Million16.2% of Consolidated Revenues
2.0% Growth Year-Over-Year
APEX SEGMENT OXFORD SEGMENT ECS SEGMENT
SERVICE OFFERINGS
Critical Government IT services and solutionsInfrastructureAgile Software & Cloud SolutionsAdvance Science & Engineering
High-end IT and Engineering skills and solutionsInformation Technology, HCIT, Engineering
Clinical & Scientific skills and solutions in EuropeScience, Clinical Research, Engineering
Permanent Placement solutionsInformation Technology, Engineering, F&A, Healthcare
Mission critical IT skills and solutionsInfrastructure, App Dev., Security, PMO
Clinical and Scientific skills and solutionsScience, Engineering, Clinical Research
Creative/Digital skills and solutionsUX, UI, SEO, Design
POSITION AND MARKETS
• Exposure to large company/high volume segment of the IT, Clinical/Scientific and Creative/Digital contingent labor and professional services markets
• Growth potential in value-added services
• Addressable end market of $143B
• Serves the U.S. and Canadian markets
• Exposure to higher end of the IT, Engineering and Scientific contingent labor and professional services Markets
• Growth potential in value-added services and selective opportunities in Europe
• Serves U.S., Canadian and European markets
• Exposure to large and stable Government IT services market
• Long-term contracts provide significant revenue & profitability visibility
• One of the leading, fastest-growing, mid-tier, government IT contractors
• Addressable end market of $129B
• Serves the U.S. market
$606.1 Million65.6% of Consolidated Revenues
12.5% Growth Year-Over-Year
$168.0 Million1
18.2% of Consolidated Revenues1
12.7% Growth Year-Over-Year2
1 Includes DHA revenues from the date of acquisition of January 25, 2019. 2 Pro forma to include ECS as if the acquisition occurred at the beginning of 2017. Does not include DHA pre-acquisition.
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Delivery Model Client FlexibilityCompetitive
Pricing Policy
Access to Highly
Skilled Labor
Strong Project
Control
Traditional Staffing
Offshore Labor
IT Consulting Firm
Internal Resources
• Talent that meets
specific project needs
• Adaptable resources;
not locked into
predetermined
contracts
• Generally higher
utilization rates
• Lowers fixed costs
without sacrificing
quality
• Removes costs to
repurpose employees
• Reduces recruiting,
onboarding & training
fees
• Deep database of
local candidates
• Access to highly-
skilled, agile labor
pool in high-demand
areas
• Talent selection that
meets secular work
drivers, not economic
cycles
• Greater control over
project visibility &
quality
• Decreased project
ramp-up time
• Prequalified, vetted
resources
Competitive Differentiator Gets the Green Light:
The ASGN Model
KeyColor Category Representation
Fully
Likely
Not Likely
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Proven Track Record of Acquisitions
1992
ASGN Initial
Public Offering
2007
Entered the IT Market
2012
Comprehensive IT Staffing & Services Provider
2015
Entered the Digital/Creative Market
2004
Comprehensive Scientific Staffing Provider
• Peter Dameris Appointed CEO
• Implemented Revitalization Plan
Scientific Staffing
Expanded Professional / IT
Services Focus
2013
Expanded Permanent IT Capabilities
Further Expansion of
Professional IT Services &
Digital Capabilities
1985
ASGN Founded
2018
Entered the
Government IT
Services & Solutions
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5-Year Growth Plan to $5 Billion in 2022
Leverage
Market Position
Expand Presence
in Government IT
Services
Scale Value-
Added Services
• Leverages vast
contingent labor
pool rather than full-
time bench
resources
• Value-added
services have grown
and will continue to
grow faster than
staffing
• Broad contract vehicle
access to facilitate
continued growth
• Capitalize on
improving federal
market dynamics
• Focus efforts on
cybersecurity,
infrastructure, science
& engineering,
NextGen IT
• Geographic
footprint, sales
driven platform
and long-
standing
customer
relationships
$3.2B$4.3B
to
$4.5B $5.0BTargeted CAGR of 6 to 7 percent
(3 to 4 percentage points above industry growth rates)
Acquired Revenues
5-Year CAGR of 9.3 Percent
Pursue Strategic
Acquisitions
• Leverage track
record of successful
integrations
• Acquirer of choice
• Target $500 - $700
million of acquired
revenue through
2022
1 Pro forma to include ECS as if the acquisition occurred at the beginning of 2017.
Financial Review
2015 2016 2017 2018
Gross Profit & MarginUSD in millions
$827
$899
$962
$1,050
31.3% 30.5% 29.9% 29.6%
$99
$172 $172
$259
2015 2016 2017 2018
Free Cash Flow & Margin
2015 2016 2017 2018
Adjusted EBITDA & Margin
$309$341
$379$420
USD in millions
2015 2016 2017 2018
Revenues
$2,640$2,947
$3,214$3,549
USD in millions
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Summary of Pro Forma Financial Results
Consistent above industry growth, stable margins and high free cash flow generation
Note: Results are presented on a pro forma basis, which assumes the acquisitions of Creative Circle and ECS occurred at the beginning of 2015, except Free Cash Flow & Margins, which are presented on a reported basis.
11.7% 11.6% 11.8% 11.8%
4.8%
7.1% 6.6%
7.6%
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Free Cash Flow Allows for Quick Deleveraging
Maintained Strong Credit Rating Throughout Periods of Leveraging & Deleveraging
3.7x
3.1x
2.8x2.6x
3.8x
3.0x
2.7x2.5x
3.7x3.5x
3.2x3.0x
2.8x
2.5x
3.7x
3.2x
2.9x2.7x 2.65x
2.5x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
1Q07 2Q07 3Q07 3Q12 4Q12 1Q13 2Q15 3Q15 4Q15 1Q16 2Q16 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19
2.45x1
2007 2012 2015 2018
Leverage
Ratio
Decreased
1.1x
Leverage
Ratio
Decreased1.3x
Leverage Ratio
Decreased 1.2x
Projected Leverage
Ratio Decrease 1.2x
1 Q2 2019 leverage ratio is projected to be below the Q4 2019 target.
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Summary Comparative Financial ResultsThree Months Ended
March 31,
2019 2018 2018 Y-Y Chg.
($'s in millions) Actual Pro Forma 1 Actual Pro Forma
Revenues 923.7$ 685.2$ 834.2$ 34.8% 10.7%
Gross Profit2 263.9 217.7 244.4 21.2% 8.0%
SG&A Expenses:
Cash SG&A 169.4 143.0 155.8 18.5% 8.7%
Non-Cash SG&A3 16.6 11.7 13.5 41.8% 22.6%
Acquisition-Related Expenses 1.4 9.8 0.4 -85.3% 289.5%
187.5 164.4 169.7 14.0% 10.5%
Amortization of Intangible Assets4 13.7 7.6 13.6 79.7% 0.7%
Interest Expense 14.5 6.5 14.7 121.3% -1.8%
Net Income 34.9$ 29.2$ 34.6$ 19.4% 0.9%
Earnings per Share 0.66$ 0.55$ 0.65$ 18.7% 1.1%
Adjusted EBITDA2 97.1$ 74.8$ 91.2$ 29.9% 6.5%
Adjusted Net Income5,6 49.4$ 44.0$ 48.2$ 12.2% 2.5%
Adjusted EPS5,6 0.93$ 0.83$ 0.90$ 11.9% 2.6%
Margins:
Gross 28.6% 31.8% 29.3% -3.2% -0.7%
Adjusted EBITDA 10.5% 10.9% 10.9% -0.4% -0.4%
SG&A as a % of Revenues 20.3% 24.0% 20.3% -3.7% -0.1%1 Pro forma is presented on the basis that assumes the acquisition of ECS occurred at the beginning of 2017, but does not include DHA. 2 Includes depreciation related to an ECS project that is included in cost of services ($2.5 million in Q1 2018 and $2.6 million in Q1 2019). 3 Depreciation and stock based compensation.4 Includes estimate for DHA, which was acquired in January 2019. Estimated amortization for 2019 is $50.4 million, $38.0 million in 2020, $32.5 million
in 2021, and $24.8 million in 2022, but subject to change during the measurement period. Amortization is "added back" to GAAP Net Income in
the determination of Adjusted Net Income (a non-GAAP measure).5 Difference between GAAP Net Income and Adjusted Net Income (a non-GAAP measure) mainly relates to certain acquisition-related items: such as
amortization of intangible assets (e.g. customer relationships, non-compete agreements, etc.) and acquisition and integration related expenses.
Reconciliation of the GAAP to the non-GAAP measures are included in the SEC filings.6 Does not include the "Cash Tax Savings on Indefinite-lived intangible Assets." These savings total $7.0 million each quarter, or $0.13 per diluted share,
and represent the economic value of the deduction that we receive from the amortization of goodwill and trademarks.
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Selected Cash Flow and Balance Sheet Data
1As reported. Pro forma Adjusted EBITDA was $91.2 million for the quarter ended March 31, 2018, which is presented on the basis that assumes the acquisition of ECS occurred at the beginning of 2017, but does not include DHA.
($'s in millions)
Cash Flows Data: 2019 2018 % Chg
Adjusted EBITDA1 97.1$ 74.8$ 29.9%
Cash Flows Before Changes In Operating
Assets and Liabilities70.6$ 50.9$ 38.7%
Changes in Operating Assets and Liabilities (26.6) 3.8 -800.3%
Cash Flows from Operating Activities 44.0$ 54.7$ -19.7%
Capital Expenditures 7.5 6.2 21.4%
Free Cash Flow 36.5$ 48.5$ -24.9%
Free Cash Flow as a Percent of:
Revenues 3.9% 7.1% -3.1%
Adjusted EBITDA 37.5% 64.9% -27.4%
Debt Repayment -$ 10.0$ -100.0%
Cash Paid to Repurchase Shares -$ -$ N/A
Balance Sheet Data: 2019 2018
Cash and Cash Equivalents 35.6$ 41.8$
Working Capital 377.7 378.1
Long-term Debt 1,107.7$ 1,100.4$
Leverage Ratio (debt to trailing 12-months EBITDA) 2.65x 1.80x
Stockholders' Equity 1,227.5$ 1,182.1$
Quarter Ended March 31,
March 31,
(In millions, except per share amounts) Low High
Revenues 967.0$ 977.0$
Y-Y Growth Rate 10.1% 11.2%
Gross Margin 29.3% 29.7%
SG&A Expenses 190.1$ 191.9$
Amortization of Intangible Assets
Net Income:
GAAP 48.6$ 52.3$
Adjusted 1,2 61.3$ 65.0$
EPS (Diluted):
GAAP 0.91$ 0.98$
Adjusted 1,2 1.15$ 1.22$
Adjusted EBITDA3 113.7$ 118.7$
Adjusted EBITDA Margin 11.8% 12.1%
Diluted Shares
$13.0
53.4
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Financial Estimates for Q2 2019
1 Adjusted Net Income, a non-GAAP financial measure, is defined as net income adjusted for (i) acquisition, integration and strategic planning expenses, (ii) amortization of identifiable intangible assets and (iii) creditfacility amendment expenses.
2 Does not include the “Cash Tax Savings on Indefinite-lived Intangible Assets.” These savings total $7.0 million per quarter ($0.13 per diluted share) and represent the economic value of the tax deduction that we receive from the amortization of goodwill and trademarks.
3 Adjusted EBITDA, a non-GAAP financial measure, is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for, among other things, acquisition, integration, strategic planning expenses and stock based compensation.
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Progress on 5-Year Plan Targets
,
5-Year Plan Financial & Operating Targets (2018 – 2022)
Annual Revenue growth of 6 to 7 percent1
Revenues from acquisitions $0.5 to $0.7 billion2
Maintain Gross Margins3
Increase Adjusted EBITDA margin from 11.8% in 2017 to 12.0% - 12.5% in 2022
2018 Progress Relative to 5-Year Plan
2018 growth rate above the 5-year CAGR to achieve 2022 target
In-line with Year 1 TargetMargin difference related to future improvement in operating leverage
In-line with TargetDoes not include FCF for ECS for Q1 2018 (pre-acquisition period)
1 Adjusted EBITDA and Free Cash Flow amounts and margins are at the mid-point of the 2022 targets.2 2018 FCF and related margins are on an as-reported basis for 2018.
1 Approximately 3 to 4 percentage points above current estimated industry growth rate.2 Estimate necessary to close gap between organic growth and 2022 revenue target of $5.0 billion.3 Before the effects of new Acquisitions.
2
© 2019 ASGN Incorporated. All rights reserved.