Greetings. And welcome to the ASGN Incorporated Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the conference over to your host, Kimberly Esterkin, Investor Relations. thank you. You maybe begin..

Thank you, Operator. Good afternoon. And thank you for joining us today for ASGN’s third quarter 2019 conference call. With me are Ted Hanson, President and Chief Executive Officer; Rand Blazer, President of Apex Systems; George Wilson, President of ECS; and Ed Pierce, Chief Financial Officer.

Before we get started, I would like to remind everyone that our commentary contains forward-looking statements. Although, we believe these statements are reasonable, they are subject to certain risks and uncertainties and as such, our actual results could differ materially from those statements.

Certain of these risks and uncertainties are described in today’s press release and in our SEC filings. We do not assume any obligation to update statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations’ section of our website at investors.asgn.com.

Please also note that on this call we will be referencing certain non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between the GAAP and non-GAAP measures are included in today’s press release.

I will now turn the call over to President and Chief Executive Officer, Ted Hanson.

Ted?.

Thank you, Kimberly. And thank you for joining ASGN third quarter conference call. It’s been an exciting time for ASGN as we accelerate into the next phases of our five-year strategic plan.

As we initially outlined at our Analyst Day in May of 2018, by 2022 we anticipate reaching $5 billion in topline revenue, which includes $500 million to $700 million in acquired revenue, and adjusted EBITDA margins of 12% to 12.5%. I am pleased to report that we remain on track to reach each of these targets.

Our ability to attain these targets derives from a combination of ASGN’s deep industry expertise, expanded consultative and solutions capabilities, and a vast talent pool of accomplished professionals who deliver productive and effective solutions to our commercial and government clients.

Our unique deployment model differentiates ASGN from other IT service providers. We are very pleased with our quarterly performance, with all numbers either in-line or exceeding our Q3 guidance ranges.

Ed Pierce, our CFO, will provide further details on our results later during today’s call, so I will focus on a few key highlights for the quarter including revenues and free cash flow.

Consolidated revenues for the third quarter totaled just over $1 billion, an increase of 10.6% year-over-year and at the high end of our guidance range for the quarter.

This growth was mainly driven by strength in our Apex and ECS segments and represents a significant milestone for our company by reaching $1 billion in quarterly revenues for the very first time. Apex, our largest segment which services clients across multiple commercial end markets, generated revenue of $644.1 million, up 9.2% year-over-year.

Growth in the Apex segment was driven by strong performance in our top account portfolio. Rand Blazer will provide more color on Apex’s success later on today’s call.

ECS, which provides IT solutions to the Federal Government including the Department of Defense, intelligence agencies and certain civilian agencies, generated revenue of $206.1 million, up 25.7% year-over-year. George Wilson will speak more on ECS shortly.

Oxford, which offers on-demand consulting talent for commercial IT, healthcare, life sciences and engineering clients, reported revenues of $152.5 million for the third quarter, roughly consistent with the prior-year period when adjusted for both billable days and currency fluctuations.

We also continued to generate strong free cash flow for the quarter, enabling us to pay down $42 million of our long-term debt and repurchase $20 million in common stock. Even after paying down our long-term debt and buying back shares, we saw a decline in our average leverage ratio to 2.26 times our trailing 12 months adjusted EBITDA at quarter-end.

We anticipate a leverage ratio of approximately 2.19 times by the end of 2019. As I noted last quarter, neither the repayment of our debt nor the repurchase of our shares precludes ASGN from making strategic acquisitions.

In fact, just this past week, we announced the acquisition of Intersys Consulting, a leading IT services and solutions provider, for $67 million in cash. Intersys Consulting is now part of Apex Systems and we welcome their team to ASGN.

The acquisition of Intersys Consulting is an important step in our strategic growth plan to deliver increased value to both our customers and our shareholders. Intersys Consulting anticipates generating approximately $31 million in revenues for full year 2019, followed by double-digit revenue growth in 2020.

Their addition deepens and expands our capabilities in digital innovation and systems modernization. We expect to realize revenue synergies by leveraging their robust capabilities within our current Apex Systems and Oxford customer bases to capture an increased portion of our existing pipeline of higher-end consulting opportunities.

While Rand will further discuss Intersys Consulting’s capabilities shortly, I’d like to briefly address our strategy behind this acquisition. When making acquisitions, ASGN looks to acquire companies that continue to evolve our business as a preeminent and differentiated IT services and solutions provider in attractive markets.

Increasing our consultative capabilities and leveraging our existing account relationships and pipeline continues to be our focus. Target acquisitions must fulfill this strategic need, be accretive to growth rates and margin profiles, and possess in-demand consultative and solutions capabilities.

Intersys Consulting checks the box on each of these attributes. Their industry expertise, combined with a deep focus on developing longstanding customer relationships, fits well with ASGN’s own mission to provide high-end technology services across each of the end markets we serve.

Through the acquisition of Intersys Consulting, our most recent prior acquisitions of ECS and DHA, we are scaling our consultative and solutions capabilities, and expanding into key industry segments across the commercial and government sectors.

We are strengthening our vision of merging industry expertise and technology solutions with unparalleled account relationships.

Ultimately, our strategy to execute our long-term business plan, to expand our presence in commercial and government IT services and solutions, and to acquire assets which complement our industry expertise and solution capabilities, will further position ASGN to achieve strong growth today, tomorrow and into the future.

I will now turn the call over to Rand Blazer to speak further about the Apex segment’s third quarter performance.

Rand?.

Great. Thank you, Ted. The Apex segment, which consists of Apex Systems and Creative Circle, again reported solid results for the quarter. As Ted noted, third quarter revenues totaled $644.1 million, up 9.2% year-over-year on a difficult prior year comparable. In the third quarter of 2018, we grew 14%, the highest growth quarter of last year.

Our margins this past quarter were down slightly on lower permanent placement work compared to the third quarter 2018, but remained stable on a sequential basis.

During the third quarter, the Apex segment’s performance was driven by a number of factors, including, first, double-digit overall revenue growth in Apex systems, as well as double-digit revenue growth in five of the eight industry verticals we service, including, Aerospace & Defense, Business Services, Financial Services, Healthcare, and Consumer & Industrial industry accounts.

Our Technology vertical posted mid single-digit revenue growth for the quarter, while Life Sciences and Telecommunications saw revenue decline year-over-year. Top accounts again achieved double-digit revenue growth, outpacing overall topline growth, while retail or branch-centric accounts saw flat revenues year-over-year.

Creative Circle’s revenue improved sequentially, with a revenue growth rate in-line with our internal expectations for the third quarter. Lastly, growth in consulting work across both our Apex and Oxford segments also continued to outpace our internal revenue estimates for the quarter.

Led by Apex systems, total consulting revenue was $100.5 million for the third quarter 2019, up 30.5% year-over-year and now accounts for mid-teens as a percentage of our combined Apex and Oxford segments’ business.

We remain excited about the opportunity to grow our consulting business as we continue to provide solutions that create added value for our clients. While achieving strong organic growth is certainly key to our success, as Ted discussed, we also continue to keep an eye out for ways to enhance ASGN’s growth through strategic acquisitions.

Subsequent to the quarter end, we did just that, welcoming Intersys Consulting to Apex systems. The Apex segment provides a full complement of IT and technology consulting services in workforce mobilization, modern enterprise and digital innovation solutions for the commercial sector.

Intersys Consulting enhances our current capabilities in digital innovation and enterprise solutions with capabilities in data strategy and transformation, machine learning, data analytics, cloud, Agile, and full stack development and DevOps.

The ability to provide these high-end services to our growing client base will assist in our mission to continue to differentiate ASGN from other IT service providers. With the acquisition closing less than one week ago, the Intersys Consulting team is already in the process of fully integrating within Apex systems.

We are excited to begin leveraging Intersys Consulting’s experience to serve our growing pipeline of business opportunities across Apex systems, Oxford and Creative Circle accounts. In summary, I am pleased with the Apex segment’s revenue and margin performance this past quarter.

Given our strong performance in Q3 of 2018, our third quarter 2019 results are all the more noteworthy. As solid as the Q3 results were, we did see a slowdown in Client IT spend in August and September, and in the initial week of October. It’s hard to determine if this trend will continue through the fourth quarter.

However, the additional actions we are taking to better serve our clients with IT staffing and expanded digital innovation and enterprise solutions will be important to continuing our strong growth record. I will now turn the call over to George Wilson to speak about our ECS Segment.

George?.

Thank you, Rand. ECS’ third quarter performance, from the standpoint of financial execution, business operations and new business development was outstanding. We continued to execute our strategy to provide advanced technical solutions, coupled with subject matter expertise, to address our customers’ most pressing needs.

Several key contract awards provided additional large and durable contract vehicles so our customers can expand the use of our technologies, solutions and services. Awards included both re-competes of past contracts, contract expansions, and net new contract awards. These awards reflect positively on our strategy and the quality of our execution.

Our financial growth continues to be significantly ahead of the industry average for peer companies in the federal technology space. Third quarter revenues grew on a reported basis by 25.7% over the prior year along with similar growth in adjusted EBITDA.

Included in this impressive third quarter growth were contributions from our prior acquisition, some one-time technology purchases, and several license renewals that are critical to our advanced solutions, primarily in the Defense and Intelligence market.

We anticipate revenues from technology purchases and license renewals will be lower in the fourth quarter. In Q3, we received a total of $954.5 million in contract awards, which resulted in a book-to-bill ratio of 4.6 times to 1 time for the third quarter, another period of very strong performance on the business development front.

Our book-to-bill ratio for the trailing twelve months ended September 30, 2019 was 2.4 times to 1 time. ECS won several key awards during the third quarter, which contributed to this extraordinary book-to-bill.

I’d like to review a few examples, beginning with two significantly expanded contracts to continue the development, deployment, and maintenance of a secure, unclassified network used by the U.S. and U.S. partners worldwide, as well as an expanded award to develop and deploy software systems and tools on that network.

We were also awarded additional tasks to deliver innovative AI solutions and services to an important Defense customer and a contract to support computer network defense of the DoD’s Defense Health Agency network. We also received an award for the modernization of human resource management applications for the U.S.

Marine Corps, including cloud migration and application of AI to improve processes and deliver maximum value to the end customer. Lastly, we were awarded a multi-year contract to lead IT modernization efforts for the U.S. Mint’s Office of the CIO, including operations, application management, cloud migration and service delivery optimization.

All of these contracts were competitively awarded and all were single awards.

Our cyber capabilities and technology partnerships continue to expand as we continue to invest heavily in our technology partnerships, training and certification of our workforce, and make investments in facilities to include our secure operations center and our advanced AI system integration lab.

Our recent proposal activity has remained strong, and we believe ECS is positioned well within the advanced solutions and services market, which is currently in high demand. At the end of the third quarter, ECS had $2.7 billion in total contract backlog, which was an increase of over $700 million sequentially.

This contract backlog equated to a very healthy coverage ratio of 3.6 times our trailing 12-month revenue. I will now turn the call over to Ed Pierce to discuss ASGN’s consolidated financial results for the quarter.

Ed?.

Thanks, George. As Ted has highlighted, we reported impressive financial results for the quarter. Revenues for the first time exceeded $1 billion and were at the high end of our guidance range. Earnings and adjusted EBITDA were both above the high end of our guidance range driven by high revenue growth and lower-than-expected SG&A expenses.

Revenue growth for the quarter was 10.6% on a reported basis, and 10.1% on a same billable days and constant currency basis. Revenues from our ECS segment were above expectations as a result of higher revenues from license renewals and some one-time technology purchases. We anticipate lower revenues from these type of purchases in the fourth quarter.

Our gross margin was within our guidance range, but down approximately 70 basis points year-over-year.

About half of the compression in margin related to a lower mix of permanent placement revenues and the remainder to lower contract margins, which were mainly the result of a higher mix of revenues from ECS and from high-volume, lower-margin customers.

Although, ECS’ gross margins are lower than our other segments, it generates double-digit adjusted EBITDA margins as a result of its low SG&A expense base. Its margins are at the higher end of its industry peer group.

SG&A expenses were $3.4 million below our guidance range, mainly related to favorable variances in compensation and healthcare expenses.

Our effective tax rate for the quarter was slightly lower than guidance and 9 percentage points higher than Q3 of last year, which had benefited from a number of discrete items, inclusive of -- including reductions to certain provisional tax estimates made under the Tax Reform Act.

Net income, adjusted net income and adjusted EBITDA were all above our guidance range mainly related to the favorable expense variances. Cash flows from operating activities were $91.3 million and free cash flow was $84.4 million or 8.4% of revenues.

During the quarter, as Ted mentioned, we paid down $42 million of our long-term debt and used $20 million to repurchase 324,000 shares of our common stock.

Regarding our financial estimates for the fourth quarter, we are estimating revenues of $995 million to $1,005 million, net income of $51.9 million to $55.6 million, and adjusted EBITDA of $113.2 million to $118.2 million. These estimates include results for Intersys Consulting from the date of its acquisition.

Our estimates are based on estimated billable days of 60.5, which is the same as the fourth quarter of last year. Each billable day is approximately $12.1 million in assignment revenues. On a sequential basis, there are 2.5 fewer billable days than Q3 and the effect on Q4 revenues is approximately $30.2 million.

We are also estimating a sequential increase of approximately 4% in assignment revenues per billable day. Our estimates considered the effect of sequentially fewer billable days and two additional holidays on ECS’ revenues from time and materials contracts.

As previously mentioned, we are also assuming lower revenues from third-party technology purchases than Q3. I will now turn the call back over to Ted for some closing remarks.

Ted?.

Thanks, Ed. I am very pleased with ASGN’s 2019 financial performance to-date. The size, scale and breadth of our services continues to position us well for success.

Through our unique industry insights and sophisticated project delivery, we have developed long, trusted customer relationships with over 300 of the Fortune 500 companies, as well as major defense, intelligence and civilian government agencies.

These relationships enable us to maintain a sustainable business model and margins that can withstand economic cycles. I’d like to thank you again for your time today, for your support of ASGN. These are exciting times for our company and we look forward to continuing to share our progress on future quarterly calls.

We will now open up the call to your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Ed Caso with Wells Fargo Securities. Please proceed with your question..

Hi. Good evening. Congratulations.

The -- just trying to get a sense if there is any cultural issues here if you start the migration from a staffing company towards more consultive solutions company?.

Thanks, Ed. I think our people in the marketplace feel like this is a natural move. Remember, as we have talked about this part of our business, it’s really a client driven activity, we are not pushing our way in, if you will to work.

The client is inviting us and based on our past calls and our capabilities, not just to provide resources, but also to provide certain solutions and so it’s just been a natural evolution, if you will, for our people who are serving the customer.

So I think they feel great about not only performing the activity of providing resources, but also having the opportunity to add more value to the relationship by providing solutions on top of that, and so, I think, from a cultural standpoint, it’s in upper for all of our team..

My other question is on Creative Circle if you could just give us an update there?.

Rand, do you want to talk about Creative Circle?.

Yeah. I think, Creative Circle is doing fine. Their growth rate in the third quarter was higher than their growth rate in the second quarter on a year-over-year basis. We have talked a lot about the not just creative marketing, but digital marketing, and as you -- the marketing will go yearns for digital marketing.

So they are competing with a broader set of people now in that marketplace. They have very good count relationships. They are very good internal processes. So but they are facing the transition to facing a broader set of competition. Competition comes from the normal IT players in that marketplace.

So they are performing well, they typically picked up toward the end of the quarter and I think they are doing the things we think they should be doing. And there’s good synergy between the Apex and Creative team around some of our larger accounts, which is getting healthier and healthier as we go..

Great. Thank you..

Our next question comes from the line of Tobey Sommer with SunTrust. Please proceed you are your question..

Thanks. I was wondering if you could elaborate a little bit, Rand, on your remarks that said, IT spending slowed in -- within the quarter and kind of early October. Any kind of color you could give us on that would be helpful? Thanks..

Okay. Ted, do you want me to go ahead. So, Tobey, yeah, I think, first of all, I think, again, for the IT services we provide, we have seen a little bit of a slowdown in that business flow. We measure that by the amount of assignments or acquisitions and openings that that we are presented with.

So I think I said in Q3 we had two of our industries performance single-digit to negative -- three of our industries single-digit to negative or flat growth year-over-year, technology, telecommunications and our mid-market accounts, our brand centric accounts.

So those three are not keeping up with the other four, if you will, which is, I think, where we have seen most of the slowdown occur. We have gone through this before, Tobey, where you have little what I call pauses in spend by the client as they reset their projects to where they turn the left, to turn right in their own strategies.

So it’s not new to us. But we, I think, Ted and I and Ed all felt it was fair to say, look, we did see a little bit of a slowdown in the spend. We see that reflected, I mean, normally, we have had seven or eight of our industries all in double-digit growth. So that’s the -- that’s what we are seeing..

So would you describe this as a typical oscillation in growth rates and not a significant change?.

Well, I think, it -- as I said, I think, it is an oscillation that occurs. I call it ebb and flow. We use these words before on the earnings calls. I think there’s a little bit of ebb and flow in spending. If you think about technology, they are dealing with their manufacturing base in China and have other investment priorities.

I am just conjecturing this. I don’t want to speak for that industry. But I imagine that’s going on in telecommunications, there’s a continuation of looking for ways to provide more content and different ways of streaming content out there.

So there’s good things to do and I think in point every so often, you look at our history over the last three years or four years. You just do some oscillation in the pattern of businesses presented to us.

So I think that’s what I said in my remarks, I said, we are -- we just think this is a normal ebb and flow and we will see how it goes in the quarter..

Okay. Within the ECS segment, the growth rate, obviously, very strong in part by some driven by some pass-through revenues.

Can you kind of maybe break that out in a little bit more detail and Ted tell us maybe what the services growth was versus these product related things or how we would like to deal with yourself, what size of a contributor the pass-through revenues might have been?.

George, do you want to take that?.

Yes. Sure. Thanks for the question. Now I want to make sure we are differentiating between two things, important differentiator between one-time purchases would be non-recurring. And what we have in recurring purchase licensed hardware, specialized services that are needed to deliver our end solution.

As long as we are delivering those end solutions, those technology purchases are licensed in such a curve and will provide some lumpiness in our quarterly revenues. But over the course of the year, typically these things are semi-annual, annual licenses or hardware refresh and stuff like that.

So on annual basis, those will recur and it will be smoothed out. But on a quarterly basis it will provide a little bit of lumpiness. As far as simple one-time purchases, those are very small relative to the rest of revenue.

So there’s been a growth in both our solutions, as well as our service delivery, which on an annual basis has been as far as direct labor has been a strong growth..

Thank you. That’s helpful. And then, Ted, maybe a good question for you and I will get back in the queue.

The -- your recent acquisition, is this an example of kind of what an acquisition may look like in the future, as opposed to the kind of step-up platform acquisitions that, that we have seen ASGN consummated in the past?.

Well, maybe I will answer that in two ways, Tobey. I mean, I think we are in the end markets we want to be in as it relates to IT services. So thinking about making platform acquisitions that get us outside of IT is probably not on our roadmap or not on our roadmap.

It’s difficult for me to say in the future what we would or wouldn’t acquire because those are as you know opportunistic things.

But if you go back to our Analyst Day in April of 2018, you heard us talk about how we wanted to expand our businesses of Apex and ECS through key acquisitions that give us either expanded capabilities or bring us into a customer set that we may not be in or otherwise enhance the value that we are providing to the customer.

So I think this is in line with that and between that and being placed in the markets that we are now where we are -- where we like, I think, you will see a stick to our knitting there..

Thank you very much..

Our next question comes from the line of Gary Bisbee with Bank of America. Please proceed with your question..

Hey. This is Jay Hanna on for Gary today.

So I guess my first question really is just with regard to your perm business, we have seen some data recently just suggesting the job openings have come down a bit in recent months, just wanted to get your thoughts on with the current market is now and maybe your expectations going forward?.

Well, look our perm revenues were basically flat from the second quarter to the third quarter. It’s going to -- we expected to grow up, but as a percent of our total business, because the other units are growing faster, just the mix of that, it’s actually become a smaller and smaller part.

I think it’s maybe $35 million on our $1 billion revenue this quarter. So I think it’s an important part of our business, but not something that we are going to over emphasize. The -- what you see in the market today, I think, in that piece of the business that’s really a candidate driven marketplace.

Not difficult to find clients with opportunities, but the candidate side of it is very difficult. So I think that’s the major headwind in that market. I can’t comment too much on whether the number of openings is down or not on a macro basis. But that’s a little bit of color what we see inside of our perm business..

Okay. And then just shifting to Apex, and obviously, the growth continues to be nice, despite difficult comps.

I mean, is there anything company specific or macro driven that’s changed here, what’s generally behind this performance?.

Look, I don’t think, I think, you are seeing strong optics in our client on our consultative capabilities inside of Apex. Obviously, they see a great value in using us on product solution in addition to just providing resources.

So I think that that most of what you are seeing there in terms of their continued strong performance is a testament to their account portfolio and it continued expansion of that both in new clients and in terms of share of wallet and that’s really the path that we are on inside of Apex and you should look for that to continue..

Okay.

Then lastly, really quickly, are you willing to comment on the Intersys margin profile?.

We didn’t give information on margins for Intersys. We did give you a sense what the revenue was, expected 2019. What we included in our estimates for the quarter.

You can assume that both their gross margin profile and their EBITDA margin profile is higher than the rest of our business just based on their business, but I think will probably stop there..

Okay. Thank you..

Our next question comes from the line of Surinder Thind with Jefferies. Please proceed with your question..

Hi. As far as a follow up on kind of Apex for a couple of quarters now you have discussed the diversions and growth between the top accounts producing some really good growth? And then the retail branch-centric accounts where maybe not enough strength.

Can you talk about the relative contribution to revenues of each?.

Rand, do you want to take that?.

Sure. We have commented before that’s the top accounts represent about mid-70% of our total revenues and branch-centric accounts are the remaining 27% of our accounts. So it’s pretty weighted towards the top accounts for sure..

Understood.

And what is the growth profile of the branch account at this point?.

Well, I think, we reported in Q3, they were flat year-over-year for the third quarter..

Understood. And then can you provide a little bit more color maybe on the Oxford segment. If I was to take a step back, is it fair to say that most or all the weakness is coming from CyberCoders or how should we think about the Oxford business itself.

Last quarter, I think, you guys talked about it was showing a little bit of growth, maybe any color at this point?.

The growth profile was similar for the third, I think, adjusted for currency and other effects. They are slightly above Eden. The CyberCoders business is performing a little bit better through the quarter.

So they are making some progress on the initiatives that we have discussed with you before and laid out, difficult marketplace for them, but they are making some headway there..

Understood.

And as we make segue through those initiatives, is that something that’s kind of six months project, a year-long project, kind of be some sort of, I will call it, mean normal, all else equal, meaning that the way that you guys are kind of pushing small stuff like California and some of those countries in your space?.

Yeah. I think those are longer term initiatives Surinder. I mean both the adding of staff and giving up to productivity, as well as diversifying our business geographically is a long-term proposition. So those are quarters out, not next month, if you will or next quarter, but we are pleased with the progress we are making..

Understood. And then one final question, your SG&A the variance there was lower than I think or it was positive.

Can you talk a little bit about more color there, was that maybe more variable compensation cost associated with maybe the different mix in revenues you guys had this quarter or is there something maybe a little bit more sustainable that we might be able to see on a go forward basis, how should we think about that delta that you guys talked?.

One thing is there was a one-time benefit that we picked up from $1.2 million that we said out in our release..

The other favorable variance as we indicated was related mainly to compensation and to healthcare expenses. The other thing you have a fair amount of variability and we saw the same thing or almost the same thing in Q4 of last year. We gave estimates for Q4, as you know.

And we are expecting an uptick in sequentially in SG&A of about $2.6 million to $2.5 million. And when you consider that that also includes the SG&A related to Intersys, it’s pretty much in line with what we would expect and I think we had….

Got it. Thank you..

I think the Intersys fee Q4 is about $1.6 million..

$1.6 million. Okay. Thank you..

Yeah..

Our next question comes from the line of Henry Chien with BMO Capital Markets. Please go ahead with your question..

Hey. Good afternoon, guys. I have noticed or maybe if I missed it looks like your disclosure doesn’t have rates anymore. Just curious began to, I don’t know, I guess, for a reason thinking away and if you could just comment on [inaudible]..

No. It’s not taken away. If you go to the supplemental..

Yeah..

We have that disclosed and we are not calling it bill rate, we are calling it average revenue per hour worked, which we think is a barometric, because it includes all the factors they go into cost of the customer. And it’s not really -- it is not a lot of difference between how -- what we reported in the past and what we are reporting today.

This is just a better way of looking at it..

Yeah. T And we said for everybody on the call, we did go back and disclose….

Yeah..

… prior quarters on that so that there was a road map there..

Yeah. If you flip back to the supplemental, you will see that we went back to Q1 of ‘18 by quarter..

Okay. Got it. Thanks for that. Okay. Great. Thank you.

And I guess, just a question on ECS, with -- I guess with the sort of elections coming up, what kind of impact is like election going to have on the business?.

George?.

Yeah. Sure. Thanks. There are two things to really consider. One is the budget and the acquisition process in terms of we are going to go back to having a continuous -- continue resolution versus a budget, government shutdown, those type of thing. The other thing to look at is whether one part or the other part is going to remain in the White House.

Both of those things will have less effect on ECS than other companies that may provide not end solutions supporting critical mission. Our customers said even in the federal civilian space is in the Department of Homeland Security, Department of Justice, with Marshall’s.

These are areas that even though there might be some funding shifts from one part or the other in some of the other fellows and organizations, like EPA, and such like that. The funding streams for the mission-critical customers sets are pretty, pretty even, whether it’s a Democrat or Republican.

So I really don’t expect to see a big change or a big impact to ECS whoever takes the White House..

Got it. Okay. Great. Thank you so much guys..

Our next question comes from the line of Seth Weber with RBC Capital Markets. Please read the question..

Hi. Good afternoon.

I wanted to go back to your comments about the Apex business, the kind of the cadence that you saw through the quarter, August, September, early October, can you just tell us what’s your kind of -- what your assumptions are for that trajectory here into the fourth quarter? Do you expected to kind of continue to slow down? Do you expected to stabilize? Any comment there and so what’s embedded in your fourth quarter guide? Thanks..

I think if you look at that guide, it pretty much implies that we expect to continue to move forward. The guidance rate is roughly the same revenue levels that we did in the third and it’s on less billable days. So we are expecting to grow. We see opportunities where we can grow.

And I thank Rand did a good job of just staying look in the quarter, whether it was the summer or it was a few weeks that kind of -- was a low here and there that we saw a certain trend in the quarter and we are just letting you know what we see and how we see it by industry..

Okay. Thanks. And then just -- your fourth quarter gross margin guidance is pretty strong. It totally suggest you could get closer to prior year-over-year for total company.

So do you think next -- do you think 2020 could be flat to up on an aggregate gross margin basis?.

Well, we are not going to comment on 2020 just yet. And frankly, what -- as it relates to gross margin of what happened this could mainly by businessman and so we will have more to say when we report on Q4..

Okay. I appreciate guys. Thank you..

Our next question comes from the line of Kevin McVeigh with Credit Suisse. Please proceed with your question..

Great. Thank you so much. Hey, I wonder if you could just give a little bit of the context of Intersys relative to the core digital business itself.

I guess just -- where does that fit and what’s incremental opportunity as you leverage that asset?.

Well, look, I mean, the incremental opportunity and then I will let Rand comment is really to come in integrate and engaged on the pipeline of work that we already have developed within our business units under the Apex and Oxford segment. So this is not bringing something to new customers if you will.

These are existing customers needs that we understand, have qualified are in our pipeline and so we believe that there is going to be a pretty immediate uptick if you will on their ability to help us win more work.

Rand, would you add anything to that?.

Yeah. I guess, I agree with Ted, obviously, having said, the first way that they just deliver the revenues that they have projected for themselves and their own client base. But the real way, just what Ted said, our ability to muscle up on more of the pipeline that’s pretty strong inside of Apex and Oxford.

In addition to that, Intersys not only brings solution capability in those areas, but they also have a Near Shore Development Center in Mexico, which we believe is a gold nugget. And it really well I think give us a nice push to providing the kind of services and the scale of services we want to provide to some of our larger accounts.

So these are real revenue opportunity here with this. That is why we did the acquisition..

And Rand or Ed in terms of the $31 million in revenue, is that all new customers or is there any existing overlap with your current customer footprint?.

Yeah. Ted, I will go ahead. There is a very few overlap. There are a couple accounts that they had that we have. One international services, one in the technology sector, but most of the accounts are more smaller accounts, I would say. I mean, by scale there are different skill business.

But not very much customer overlap, I guess, at the end point to you..

Thank you..

Our final question comes from the line of Mark Marcon with Baird. Please proceed with your question..

Good afternoon everybody.

I was wondering if you could talk a little bit more about both the statement of work in terms of hitting roughly $100 million this quarter and growing 30% plus, then we take Intersys and think about that a little bit longer term just in terms of how big could that be and in a couple of years, assuming we have normal economic growth and what are that constrains to continuing that growth rate that you are currently seeing?.

Well, look Mark, I mean, we can’t can give you future numbers on it but....

No.

Just how you are thinking about strategically?.

Yeah..

And how you are envisioning it?.

Look, I think, that we -- this business are inside of Apex and Oxford has been growing at 20% plus rates for many years now organically. We don’t see any headwinds to that and stay for anything in the economy that we don’t see today. And I think that, obviously, as the business gets larger, it’s kind of on a run rate to do about $400 million there.

You could -- large numbers could affect growth rate, but otherwise I don’t see anything in the marketplace. Matter of fact, I would say that wind is in our favor..

Sounds great.

And then can you talk a little bit about near shore facility and how big that can be and what is the -- what’s the key attraction is one through the Intersys website and they had a couple of really cool case studies, but they didn’t go through like specifically, what attracted certain clients to wanting to interact with that particular group and what the actual value-add was to the extent that I would like..

Well, I would say this, and I would turn it over to Rand. The customer doesn’t decide to work with the near shore facility or not, that’s the delivery solution mechanism, if you will and the solution.

So if the solution calls for our capabilities that they have in this near shore facility than they deliver it through their, because obviously there’s a cost advantage to that.

Rand, do you want to say anything else about the near shore?.

Yeah. I mean, agree with what you said, Ted. And so, Mark I say, first of all they are in -- it’s in Guadalajara, Mexico, which is a business center, lot of universities there, as well as a business point of reflection in terms of the workforce and the availability of talent and the technical skills that talent has.

It’s been central time in the U.S., very strong English-speaking. So there’s a lot of attributes to that versus in China or India or some of the Philippines, some of the other areas. And I think companies we have seen more of an interest by companies to think about building capabilities like this or using capabilities like these in different places.

I agree with Ted, it’s mostly a decision that they accept our work and supported of them and we leverage that capability, I would say, is a set of Golden Nugget leverage, and there’s a lot of attributes to it that we see..

Other thing I would add to that Mark is that this was -- that facet of their business was very proactive, all the big consulting companies that you would think of here in the U.S. were involved in this competitive process that Intersys won.

And so I think that -- and if you think about some of the consulting firms that have near shore capabilities down there, everyone that seems to be the hotspot, if you will, for all the reasons that Rand laid out and so we are very pleased to have that as the competitors are offering now..

It sounded like it and I was just wondering if you could mention maybe the cost advantage, the price value relative to onshore? And then also like what is the -- what’s the available supply? How quickly can you scale it? Because it does sound like you have a lot of opportunities resident within the Apex client base that you could lay over to Intersys.

I am just wondering like how much of a constraint do they have in terms of the growth, in terms of resources, et cetera?.

That facility, Mark, has been signed-up in the last two years for that business. And so, although, we don’t give out numbers on headcounts between the U.S. and there, just give you a sense of how scalable it is, if you will. We view that that center could be much larger in the future, serving our U.S.-based clients than it is today.

And there is a pretty significant cost advantage to that, although, we don’t get that out for competitive reasons. But it’s a very nice part of that business. We are very excited to be able to bring that to our clients and we think it’s really going to help in the value proposition..

And that’s great, and then one other question, just with regard to the guidance.

To what extent just -- where the holidays fall this year relative to prior years? Does that impact your thoughts in terms of number of billable days and what the potential impact could be as we take a look at this current quarter?.

So, Mark, we disclosed it in year-over-year basis that there is no change in billable days, it’s 60.5. Sequentially, in terms of holiday, there are two fewer or two more holidays in Q3 or Q4 than Q3 and that probably is going to have more of an effect on EPS and their time and material.

Anyway that’s also included, by the way, the billable days is included in the supplemental information..

Yeah. So, I was just thinking about this the variance in terms of….

[Inaudible].

… holiday fall on a Wednesday..

Yeah. There’s no variance..

Okay. Great. Thank you..

Ladies and gentlemen, this is the end of our question-and-answer session, as well as today’s call. You may now disconnect your lines at this time. We thank you for your participation and have a wonderful day..