ASGN Inc

NYSE:ASGN

Earnings Call Transcript 2020-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the ASGN Inc. First Quarter 2020 Earnings Call. [Operator Instructions] and the conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Kimberly Esterkin, Investor Relations. Please go ahead.

[Kimberly Esterkin]

Thank you, operator. Good afternoon, and thank you for joining us today for ASGN's First quarter 2020 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 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 measures, such as adjusted EBITDA, adjusted net income and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measure. 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.

[Theodore Hanson, executive]

Thank you, Kim, and thank you for joining ASGN's First Quarter 2020 Earnings Call. We hope that everyone listening today is staying safe and healthy.

ASGN had a very solid Q1, with revenues and adjusted EBITDA, both falling within our guidance ranges for the quarter. First quarter 2020 revenues of $990.5 million were up 7.2% year-over-year. Adjusted EBITDA of $103.5 million increased 6.6% over the prior year. This growth was led by continued above-market performance in our ECS segment, which generated industry-leading year-over-year growth and revenues of $212.7 million, up 26.6% over the prior year, and by our Apex segment, where despite the impact in March from COVID-19 crisis, revenues of $629.1 million improved 3.8%, with Apex Systems growing 4.4% on top double-digit year-over-year comps.

Through February, we continued to see growth across our business at or above our expectations for the 2 months. As we entered March and the onset of the public health crisis took hold, our businesses serving commercial market accounts leveled off and, in some cases, saw slight retractions, while our federal government business continued to see strong growth.

During late February and early March, I met, albeit virtually, with ASGN's Board of Directors and our senior leadership to execute our business continuity plans as well as to deploy the necessary measures to ensure the safety and well-being of each of our employees. Our teams moved quickly to understand and address the individual safety protocols and service requirements of our clients. Leveraging our strong technology platforms, we shifted our internal workforce to 100% remote. Then, over the month of March and into early April, over 80% 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.

The past 8 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. We've become much more IT centric and, in doing so, have expanded our large account portfolio, which now includes over 50% of the Fortune 500 as well as key federal defense and civilian government agencies.

We've increased our high-end IT solution capabilities. And as a result, our customers continue to rely on us, not only to fulfill existing contracts, but also to bring innovative ideas in cloud computing, networking and mobility to enable their employees to work safely and efficiently off-site.

Lastly, but certainly not least, we've gained significant exposure to the federal government marketplace, an industry that is often more insulated from economic volatility than commercial industry segments. And we are now the prime contractor on many mission-critical assignments for the federal government. Each of these strategic developments has positioned us not only for stability during the current downturn, but also for strength in the future recovery.

Our flexible cost structure and solid free cash flow generation provide further stability to our business. In the first quarter of 2020, we generated $48.8 million in free cash flow, up 33.9% year-over-year. At the end of Q1, we also had modest borrowings under our $250 million revolving credit facility, mainly due to our acquisition of Blackstone Federal in January, along with share repurchases, which we have since ceased.

A moderate amount of debt has always been part of ASGN's balanced capital allocation strategy and supported our ability to make acquisitions. I'm pleased to note, however, that as a result of our strong free cash flow, we paid for our most recent acquisitions, Intersys Consulting and Blackstone Federal, essentially with cash and did not need to take on any additional leverage. Even in the current market conditions, our acquisition pipeline is active, and acquisitions remain a part of ASGN's long-term growth strategy.

Continuing on with strong -- our strong financial position, as you may recall, in the fourth quarter of 2019, we improved our capital structure, issuing $550 million in senior unsecured notes due 2028, and amending our senior credit facility due 2025. As a result of these actions, we fixed the interest rate on half of our indebtedness, we lengthened our debt tenor by 2.3 years, and we increased our borrowing capacity under our revolving credit facility by $50 million to $250 million. These efforts could not have been timelier as they provided us with increased flexibility to direct funds in the best interest of our employees, our clients and our stockholders. Importantly, we have no principal payments due on any of these borrowings until they reach maturity.

With that as background, let's now talk about our performance in the first quarter. Apex, our largest segment, which includes Apex Systems and Creative Circle, services clients across multiple commercial end markets. For the first quarter of 2020, the Apex segment generated revenues of $629.1 million, up 3.8% year-over-year on a very difficult double-digit comp. As you may recall, the Apex segment grew 12.5% year-over-year in the first quarter of 2019, with Apex Systems leading the way at 14.1% growth over the prior year period.

Creative Circle posted very slight growth for the quarter. Early growth levels slowed in March, attributable mostly to the crisis-driven reduction in ad, event and permanent placement revenues. Only digital-related skill placements held steady through the quarter.

Apex Systems revenue grew 4.4% year-over-year. Revenue for Apex Systems, while holding steady in March, demonstrated some notable trends for the final month of the quarter. Revenues in Financial Services, Business Services, Consumer Industrial, despite weakness in retail, energy, hospitality and transportation, specifically airlines, and Aerospace, Defense and Life Sciences were all up in March year-over-year. Keep in mind that Apex has a limited exposure to the airline, oil and gas and hospitality industries.

Revenues in healthcare, telecommunications and technology accounts were down in March year-over-year.

Revenues in skill areas, such as cloud, digital, software engineering, project management, software maintenance support, Java and mobile development performed the best, while electronic health records modernization, information security, scientific, QA, and business intelligence were down in March compared to the prior year.

We are seeing some green shoots being created in Financial Services. As stimulus funding pushes through the commercial banks, it is creating a heightened need for our clients to implement new IT measures. Apex Systems' large exposure to the financial services industry should provide both growth opportunities and stability to our business going forward.

Apex segment top accounts achieved high single-digit growth rates for Q1, while branch-centric accounts declined low single digits.

Apex segment gross margin totaled 29.3% for Q1, consistent with our expectations. Importantly, segment margins remained steady throughout March.

Consulting work for the Apex and Oxford segments totaled $104.1 million for the first quarter, up 22.2% year-over-year. Margins for our consulting work outperformed overall margin rates for both the Apex and Oxford segments. We expect that our high-end consulting offering will continue to be an important source of the value we provide our clients going forward.

As we continue to grow our consulting revenues organically, we also broadened our capabilities through new opportunities presented by Intersys Consulting, which we acquired in the fourth quarter of 2019. With the integration of Intersys, we've been able to bid on an increased amount of work together. Most recently as a joint effort, Apex Systems and Intersys supported a large consumer production company with their transformation efforts to cloud computing and more modern data capabilities. Apex Systems and Intersys also led a large consumer services provider in their journey to modernize their IT product set and fully integrate this system with the client's CRM.

We are also seeing great traction with Intersys' near-shore Mexican Development Center, which is well positioned to serve many of the Apex and Oxford's U.S. clients. Interestingly, under current market conditions, we've witnessed a growing number of clients looking to reshore their capabilities as the outsourcing companies are finding it difficult to transition their offshore staff to remote work. Our near-shore Mexican Development Center provides a great alternative when traditional outsourcing to offshore may not be feasible or come with newfound risks.

Let's now turn to ECS, which provides mission-critical solutions for the federal government, including the Department of Defense, intelligence agencies and other civilian agencies. ECS continued to achieve industry-leading revenue growth for the first quarter of 2020 and reported revenues of $212.7 million, up 26.6% 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 M&A.

ECS did not see a slowdown in revenue in March. In fact, this segment saw a slight pickup in revenues in the final month of the quarter as is consistent with ECS's March performance. We are fortunate to have seen no material changes to revenue or backlog in ECS in the first quarter of 2020 as a result of the COVID-19. In an economic downturn, government work tends to be more stable and, thus, ECS provides a nice safety net to our business.

We also often see the federal government spend more money during recessionary times to stimulate the economy. ECS's new business pipeline remained robust with no slowdown in customer requests for proposal during the first quarter. The segment achieved a strong book-to-bill of 1.4:1 and received $294 million in new contract awards. Key contracts won in Q1 include: high-end technical solutions for our global public safety network within the Department of Defense; a significant expansion of machine learning services under a new contract, also within the Department of Defense; and the significant expansion of professional services provided to the U.S. Postal Service.

This strength in the first quarter awards increased contract backlog to $2.7 billion at the end of Q1, or a healthy coverage ratio of 3x ECS's trailing 12-month revenue.

As it relates to M&A, we've continued to be acquisitive in the government market. In January, we welcomed Blackstone Federal to ECS, adding new prime contract pathways with the Department of Homeland Security. Blackstone has now been fully integrated into ECS, and both ECS and Blackstone's customers are seeing the benefits of the combined companies.

In times of global crisis, the work ECS performs for our federal government becomes even more vital. Towards the end of March, ECS was tasked with aiding the U.S. Navy's COVID-19 relief efforts on the West Coast. Members of the ECS team are now serving as the IT mission lead as well as the Division Officer for automated data processing and communication on the U.S. Navy Ship Mercy, a ship equipped to provide rapid, flexible and mobile acute medical and surgical services. We are proud to support our government in meeting critical challenges during such a trying time for our nation.

Turning to our last segment, Oxford. Oxford offers on-demand consulting talent for commercial, IT, healthcare, life sciences and engineering clients. Oxford reported revenues of $148.7 million for the first quarter of 2020, down slightly year-over-year, while the segment's permanent placement revenues were up 1.8% over the prior first quarter. Keep in mind, however, the permanent placement work comprises only 3.4% of our consolidated ASGN revenues.

As we entered the second quarter of 2020, we know that the effects of COVID-19 will last well beyond the impact ASGN first began to experience in mid-March. Given this uncertainty, we will not be providing our typical quarterly guidance for the second quarter. Instead, we will offer several revenue scenarios in our supplemental materials, which you can find on our investor relations website. Ed Pierce, our CFO, will provide additional details on these scenarios.

Even without our typical near-term visibility, our scale, high-end service offerings and large and diverse client base, including a significant portion of business that relates to the stable federal government work, position us well to not only address the immediate challenges related to COVID-19, but also to drive longer-term value. Our flexible cost structure provides further stability to our business.

As a reminder, ASGN carries little, if no, bench. As a result, when our assignment revenues decline, our cost of sales fall proportionately. Our cash SG&A expenses are also variable with 1/3 of these expenses comprised of incentive-based compensation tied directly to gross profit or adjusted EBITDA. With that said, when our revenues decline, we see a higher conversion of our free cash flow to adjusted EBITDA due to lower working capital requirements.

I will now turn the call over to Ed Pierce to speak more about these revenue scenarios and discuss our first quarter financial performance in further detail. Ed?

[Edward Pierce, executive]

Thanks, Ted. Good afternoon, everyone. As Ted mentioned, our financial results for the quarter were in line with our guidance estimates despite experiencing some softening in the last couple of weeks of March related to the effects of COVID-19.

Operating cash flows were also in line with our expectations. As most of you know, operating and free cash flow tend to be seasonally lower in the first quarter, mainly related to the payment of annual incentive compensation pertaining to the preceding year.

Revenues for the quarter were up 7.2% year-over-year, reflecting double-digit growth at ECS, which included a $9.1 million contribution from Blackstone Federal and single-digit growth at Apex segment. Permanent placement revenues were slightly down year-over-year.

Gross margin for the quarter was 28.4% and at the high end of our guidance range, but down approximately 20 basis points year-over-year, mainly related to the high growth of our ECS segment, which carries a lower gross margin than our other operating units. Although ECS has a lower gross margin than our other divisions, its gross margin compares favorably with similarly-situated federal government contractors, and its adjusted EBITDA margin is only slightly below our consolidated margin.

SG&A expenses were slightly above our guidance range because of acquisition and integration expenses of $2.5 million, which were not included in our guidance. Excluding those expenses, SG&A came in below our guidance, mainly as a result of lower-than-expected branch compensation expense and healthcare costs.

Our effective tax rate of 26.5% was slightly lower than guidance as a result of excess tax benefits on stock-based compensation, which we do not include in our guidance estimates.

Net income, adjusted net income and adjusted EBITDA were all within our guidance ranges and benefited from gross margin coming in at the high end of our range and favorable operating expense variances.

Cash flows from operating activities were $64.1 million and free cash flow was $48.8 million. Capital expenditures for the quarter were $15.3 million, which included costs related to a major front and back office systems upgrade project.

At quarter end, our secured -- senior secured debt leverage ratio was 1.14:1 and we had $213.1 million available under our $250 million revolving credit facility. Subsequent to the end of the quarter, we repaid all borrowings under the revolver and now have full availability.

Because of the uncertainty caused by the COVID-19 pandemic, as Ted mentioned, we're not providing financial guidance for the second quarter of 2020. We plan to resume providing forward guidance once the effects of the pandemic on our business become more predictable.

In place of our traditional guidance, we included in our supplemental earnings materials, certain scenarios that illustrate possible financial outcomes at various revenue levels. While these scenarios considered production trends over the last few weeks, it is not possible, with any degree of precision, to predict trough level revenues, when a trough will occur or what the rate of recovery will be. Having said that, these scenarios do illustrate the benefits of our federal government services business, which we expect will be up year-over-year, the breadth of our commercial account portfolio and the benefits of our highly variable cost structure as well as other actions we are taking to manage our adjusted EBITDA and free cash flow generation.

We assumed for all the scenarios that our permanent placement revenues would be down more than 50% year-over-year and that our ECS segment would grow high single digits. As illustrated by these scenarios, as revenues decline, we would see some compression in our gross and adjusted EBITDA margin.

Our adjusted SG&A expense margin, which excludes depreciation and stock-based compensation, would improve or flatten relative to the same period of last year. The compression in gross and adjusted EBITDA margins would be mainly attributable to the assumed higher decline in permanent placement and creative marketing revenues, which are our highest margin revenue streams.

And we would also expect a high conversion rate of adjusted EBITDA into free cash flow due to lower working capital requirements and the benefit of the deferral of the employer portion of the FICA taxes allowed by the recently enacted CARES Act. Our free cash flow is expected to be sufficient to meet our operating and capital requirements, and we expect to have full availability under our $250 million revolving credit facility.

In closing, just a few comments on our recent production data. On a consolidated basis, preliminary revenues for the first 3 weeks of April are down low single digits year-over-year. Our largest operating unit, Apex Systems, which accounts for over 54% of revenues, was flat year-over-year. And ECS, our federal government services business, which accounts for approximately 22% of our revenues, was up low double digits. Our other units, Creative Circle, Oxford and CyberCoders, which in the aggregate, account for approximately 24% of revenues, were down double digits, with the highest declines occurring in permanent placement and creative marketing revenues. These recent production trends were considered in the development of the financial scenarios included in our supplemental earnings materials.

I will now turn the call back over to Ted for some closing remarks. Ted?

[Theodore Hanson, executive]

Thanks, Ed. Although we may not be providing formal guidance at this time, we are confident in our business model, and ASGN is now in a better position to manage an economic downturn than any other time in our company's history. We do not know if we've hit the bottom, but the revenue rate of decline in April as of today has lessened across the affected units of our business.

Ultimately, the real rate of return of the economy will be based on how fast the health crisis is resolved. We cannot expect businesses to open their doors on day 1, nor can we expect that each of our accounts will be back to pre COVID-19 levels immediately. Recovery will be gradual, and it will vary from client to client based on local, state and federal policies for reopening the economy.

With over 3 decades since our founding, ASGN has been through several economic downturns, Y2K, the recession of the early 2000, the Great Recession of 2008 and 2009 and several government shutdowns and continuing resolutions. Most recently, in the Great Recession of '08 and '09, we saw the overall staffing industry pulled back more than 25%. Apex Systems, for example, experienced a reduction in demand for their services, though not nearly to the extent of the industry as a whole.

Government contracting revenues for ECS grew as their market tends to be countercyclical. Permanent placement work saw the largest declines. And as I mentioned earlier, perm work has become a much smaller piece of our revenue mix as we increasingly focus on higher-margin IT consulting services and solutions.

Today's ASGN is not the on assignment of the Great Recession. More than 85% of our revenues today, including the mission-critical government business provided by ECS, were not part of our company at the time. We have since evolved to focus even more on higher-end, higher-margin IT services and solutions. In the past year alone, our IT Consulting and Solutions business grew to be over 30% of our consolidated revenues, with 2/3 of this representing the longer-term projects performed by ECS for the federal government and 1/3 associated with IT consulting and statement-of-work projects performed by Apex and Oxford for our commercial clients.

In the coming weeks and months, we will continue to evolve our business as the foremost provider of IT consulting solutions and services to the commercial and government industries. We will maintain our unique market position by leveraging our long-standing client relationships to grow our IT services business organically. And when the time is right, make additional tuck-in acquisitions that expand our capabilities and add key clients and contracts to our business pipeline.

We will continue to serve our clients and execute against our current contracts, safely leveraging our contingent labor force to drive profitability and margin stability for our company. And we will maintain our focus on smart capital deployment, generating strong liquidity and using our free cash flow in the best interest of our company and our stockholders.

Over the last few weeks, I've witnessed an enormous sense of community at ASGN. We are fortunate to have one of the largest, most skilled contingent workforces available for remote work today. In addition, each of our business segments, Apex, Oxford and ECS, is led by deeply experienced and capable individuals who have successfully served clients and managed our business units during positive and negative market cycles. Their experience provides me with great confidence in ASGN's ability to navigate this crisis. I am thankful for all of our employees who together have gone the extra mile to ensure that our business continues to run smoothly and our clients' critical IT needs remains a top priority.

On behalf of our entire company and Board of Directors, thank you for your continued support of ASGN. We look forward to emerging from today's challenges even stronger than we entered them.

We will now open up the call to your questions.

[Operator]

[Operator Instructions] The first question comes from Edward Caso with Wells Fargo.

[Edward Caso, analyst]

Can you talk a little bit about what your clients are asking you for as far as price -- any price or payment term concessions?

[Theodore Hanson, executive]

Ed, thanks for being on the call. I'm going to let -- I'm going to let Randy answer that one. Obviously, in the commercial space, our work is -- excuse me, in the government space, our work is already contracted for from a price standpoint. So really not as relevant there. But Randy, why don't you talk about what you're seeing in the commercial marketplace in large accounts?

[Randolph Blazer, executive]

Sure. And I think we have had some where our accounts have come to us and asked for price concessions. They recognize that those price concessions may be borne somewhat by us but also passed on to contract employees who -- when you see the broader market, the amount of unemployment, they kind of understand and get it and generally are supporting and staying with the account.

I would say, in our big top accounts, not much of it, Ed, but in other accounts, we've had a little bit. I wouldn't say it's overly material at this point.

[Edward Caso, analyst]

Right. And my other question is around help us differentiate with the impacts with the Fortune 500 clients versus maybe some of your more middle or branch accounts. How are they behaving as far as turning off business, not turning off business, concession request and so forth?

[Theodore Hanson, executive]

Rand?

[Randolph Blazer, executive]

Well, Ed, I think, look, by our numbers, you can see our top accounts are growing still very positively, and our smaller accounts are not. They are in slight negative territory. So I think it varies by industry.

For example, hospital chains. Hospital chains have big chains, and they have small onesie, twosie hospital accounts. What we've seen is the smaller -- most of healthcare has tried to hunker down and just fight the virus as opposed to doing new IT initiatives. So you have that trend going on.

Smaller technology accounts, we have definitely seen have pulled back their work, where the larger technology accounts have not. Amazon, Microsoft, you can read the ones in the paper are still hiring today or are looking to expand or pursue certain initiatives. So it varies by industry a little bit. It definitely is hitting the smaller guys more than the bigger guys who I believe since the beginning of March, have, I think, tried to keep the economy flowing. At least that's what our belief is, my belief is.

[Theodore Hanson, executive]

Ed, the only thing I would add to that -- and I agree with everything Rand has said, was there's a difference in how we serve large accounts. I mean we're such an important part of the fabric of how the CIO operates their technology shop. And while we're working at home and doing these different things, all of those needs continue. In smaller accounts, I mean, we provide very important resources, but they don't play the same role, if you will, for those organizations.

So I mean, I think that's part of the differentiation here as well.

[Operator]

The next question comes from Seth Weber with RBC Capital Markets.

[Seth Weber, analyst]

I hope everybody is well. Following up on that last question. Is there anything that you're potentially seeing from like a collections perspective from your smaller accounts that could potentially derail, which should otherwise be a pretty strong free cash flow set up here for this year?

[Theodore Hanson, executive]

Seth, although we're definitely weary that, that could be an issue, we're not seeing anything significant to this point. I think our DSOs continue to perform well. And you would expect that maybe in some smaller accounts that could be an issue in the future. Again, I think that's a benefit, both of the large account strategy that we have in the business on the commercial side of things and on the government side, it's a nonissue. They continue to operate and execute that part of the world as they always have.

[Seth Weber, analyst]

Okay. And then maybe just a follow-up for George. Just kind of your confidence in the unfunded backlog portion of the ECS business, I think there were some comments in the prepared remarks about how government can sometimes increase business activity here during slowdown of the economies? Is that your feel for what's going on here? And do you feel your level of confidence in that unfunded backlog? Can you just sort of handicap that for us?

[George Wilson, executive]

Yes, sure. We're feel very confident in our unfund -- yes, Ed. We feel very confident in our unfunded backlog, and that's just the way we track it, regardless of what's going on with COVID. But with COVID and the way that the government is moving forward, we feel very strongly about being able to capture our unfunded backlog as well.

[Operator]

The next question comes from Tobey Sommer with SunTrust.

[Tobey Sommer, analyst]

Ted, in your closing remarks, you mentioned that the revenue rate of decline in April as of today has lessened. Is that to say sort of this last week of April is not as steep a decline as some earlier week within the month?

[Theodore Hanson, executive]

Yes. I would say that, that's true, Tobey. I mean, we saw our largest rate of decline beginning in those first 2 weeks of April. And it seems to have lessened here and in some cases, kind of flattened out, but it's week-to-week, obviously. And something that we'll have to continue to watch and will be dependent on these other factors outside of our control around the health crisis and the economy.

[Tobey Sommer, analyst]

Okay. And from a strategic perspective, are -- you've had an active pipeline and executed on some small, but strategic acquisitions in the consulting space. Is this crisis going to afford the company, its balance sheet and cash flow some more interestingly valued opportunities over the next couple of quarters? And can you describe your kind of appetite amid uncertainty to continue to execute on those?

[Theodore Hanson, executive]

Yes. I think that's a good question. I mean, we certainly continue to evaluate opportunities. And I think, like you said, the pipeline is -- we see it good and robust. And I think, in some ways, that this could afford certain opportunities. Maybe not so much in -- obviously, in the government space, most of these businesses are less affected, so things could -- maybe not from a valuation standpoint, changes much there, but the commercial marketplace, they certainly could in some ways.

So we'll have to see how all this settles out. But, yes, we feel really good about where our balance sheet is, our ability to step in and make acquisitions. We certainly feel, and I know that the targets we acquired in the past have feel that we're an acquirer of choice and we have a really good situation here. So we think all that stuff in earnest to our benefit, and we'll be well positioned as opportunities arrive -- arise.

And I think in situations like this, surely, things become opportunities that may not otherwise have been so. So we'll stay diligent working through this.

[Tobey Sommer, analyst]

What's the firm's posture -- it's last question for me. What's the firm's posture on sustaining and perhaps growing its internal sales-generating headcount to be able to slingshot out of this a little bit faster than the market?

[Theodore Hanson, executive]

Yes. Well, I think -- look, the first -- always, first and foremost, we need to continue to invest in ourselves. So we'll stay close to our accounts. Our go-to-market approach, both from a geography standpoint, an industry standpoint, a top account standpoint, I think positions us well to stick with these clients, to be there in tough times like these, even if they don't need it as much and to be there as they slingshot forward, to use your words, coming out of this. That's -- we've certainly been through this a few times. And so, in all those ways, we're going to stay close to our clients because they are big opportunities for us on the other side of this, for sure.

[Operator]

The next question comes from Surinder Thind with Jefferies.

[Surinder Thind, analyst]

Just one follow-up on the April trends. In terms of the declines that you guys are seeing, is that clients putting projects on hold? Or is that simply like new clients or projects not -- new projects not taking off? You did mention that with some of the larger clients. Obviously, there was continued interest in onboarding staff. But can you talk a little bit about that mix of what's causing those trends?

[Theodore Hanson, executive]

Yes. Rand, do you want to take that from an account perspective?

[Randolph Blazer, executive]

Yes. I think there are some natural projects that come to a natural end. And I would say some clients have been a little reticent to start a new project until they see where the bottom is, I presume, in the economy and in their own business. So it's a combination of the 2 things, but it's not an outright shutdown things. We haven't seen that. What we've seen is projects coming to a natural end, as I said, and that -- and some are being delayed to start. But I would expect that a little bit from the clients.

[Surinder Thind, analyst]

That sounds fair. Can you provide any color on the number of, perhaps, new projects that are starting at this point? Or any color there that you can provide? Or appetite in terms of the...

[Randolph Blazer, executive]

Well -- yes. We haven't given that. Go ahead, Ted, do you want to -- yes.

[Theodore Hanson, executive]

I was going to say, we don't give out that information, Surinder, on these type of calls. Obviously, that's a competitive information. But client -- we've seen clients, as Rand said, be willing to continue things in this environment. They start some things, they defer some things. And I think it's kind of client by client, industry by industry.

[Surinder Thind, analyst]

Fair enough. That's helpful. And then in terms of the scenarios that you guys did provide, very helpful. What was the consideration? Was it simply April trends, I guess, for using the range of minus 5% to minus 10% in revenues? Why not stress, let's say, minus 15% in revenues or can you help me provide some color on what the range that was employed?

[Theodore Hanson, executive]

Ed, do you want to take that?

[Edward Pierce, executive]

We wanted, Surinder, mainly to show enough information in these scenarios to where you could kind of get a sense directionally of what happened in the event that these declines in revenues would occur. I mean we could have stressed it quite a lot, but I think we've given you enough information to where you can take what we've given you. And if you want to take it out another 2.5 points or 5 points, you're able to do it.

[Surinder Thind, analyst]

And then in terms of the overall revenues, what was the contribution from acquisitions in terms of the dollar amount? And then what does that translate into an organic growth rate for Q1?

[Theodore Hanson, executive]

Ed?

[Edward Pierce, executive]

Well, there's really 2 main acquisitions. We acquired Blackstone in January, and that contributed, as we said in our press release, or -- that it contributed $9.1 million. And the other was Intersys, and it's been integrated into Apex. And so we're not going to give specific information on that any longer. But I'm trying to remember, probably the rule of thumb for them would be, I don't know, maybe $10 million, $11 million. Does that sound reasonable, Rand? I mean, given what the contribution was in Q4?

[Randolph Blazer, executive]

Well, for the quarter? Are you talking about revenue for a quarter?

[Edward Pierce, executive]

Yes.

[Randolph Blazer, executive]

I think a little less than that number is -- was their run rate prior. But as Ed said, we have -- they provide a great technology base for us, and we've really applied them on our pipeline of opportunities around the business. So they've been pretty much disassembled and farmed out. But they were running at slightly below $10 million. So closer to probably $8.5 million, $9 million prior to the end of the last fiscal year.

[Surinder Thind, analyst]

Understood. And there should still be some benefit from DHA from last year, correct? Because I believe that, that didn't close at the beginning of the year. So there should be some contribution from that as well.

[Theodore Hanson, executive]

Yes, but not a lot. I mean, we -- that was -- you had 2 months in 2019 in Q1. So -- it wasn't -- January of 2019 would not have been a significant revenue number.

[Surinder Thind, analyst]

Understood. And then perhaps just a final quick question. You did talk about having some willingness or the pipeline for deals in terms of M&A. Obviously, you focused a bit more on the federal side of the -- government side of the space. As you mentioned that, obviously, valuations haven't changed there much. But I assume on the commercial side, there would probably be little appetite given more depressed values at this point.

[Theodore Hanson, executive]

Well, I think it's situational. I think it depends on -- I think it depends on their offerings, how high or low they are in the digital spectrum, what industries they serve, how big the business is. So I don't know that you could paint a broad brush over it. I would say it's situational.

[Randolph Blazer, executive]

Ted, can I add something to that?

[Theodore Hanson, executive]

Sure. Yes.

[Randolph Blazer, executive]

And Ted, I think you would agree, situational also meaning, where is the bottom? When we feel a little more comfortable that we've seen a bottom and where any particular company we're interested in, whether they have a bottom where they're declining or in their revenue stream. I think that's part of that situational analysis, right?

[Operator]

The next question comes from Gary Bisbee with Bank of America Securities.

[Gary Bisbee, analyst]

So earlier, you commented, I think it was about Apex mostly that some of the projects come to a natural end and may not be renewed, some are delayed in starting, others, you get -- the follow-on business continues to come through. Can you give us some sense like how much of the portfolio have you gone through that? And what I'm really trying to get at is, is there some risk that a bunch of projects due to the duration haven't yet gone through that, and you could see a step down as more of them hit that sort of end of the engagement? Or is it -- is the cadence of that such that you would have already seen a lot of that impact if it's happened in the last 6, 8 weeks?

[Theodore Hanson, executive]

Rand?

[Randolph Blazer, executive]

Yes. So let me respond to that in a slightly different tilt. If you have -- if we had projects that were in the airlines, hospitality, oil and gas, those came to natural ends or quick ends, mostly because of what those clients are going through, okay? I think Ted pointed out earlier, that's a small percentage of our revenue base. But we definitely have seen more brisk movement on those projects in terms of taking them to a natural end. When do they start up again? Depends.

When you look at the rest of our business base, I think you have to get away from just projects into -- there is a certain percentage of our work that's supporting the infrastructure of our client base. And that work doesn't have a natural end, it has ongoing support. We found this in '08 and '09 when we went down, Apex went down very little in those 2 years, 0 in very small negative numbers because so much of our business was in supporting the infrastructure of our client base.

So we have a lot of infrastructure work that gives us a cushion as well on the commercial side of the business, say, within Apex. So I think you have to look at it not so much by project mentality, but what's the segment of the industry that we're looking at, what -- how much infrastructure work is it. In terms of new consulting projects like you're probably thinking of, that may vary, but it will vary by the industry. We have not seen a slowdown, as Ted reported to you, in financial institutions or in other parts of Consumer & Industrial, aerospace, defense client base or that sort of thing.

So does that help give you some insight about that? And definitely, the oil gas, we have seen that hit already, okay?

[Gary Bisbee, analyst]

Okay. That's helpful. The obvious follow-on is, if you could give us some sense how much of the book of business is that "ongoing infrastructure" support work, but maybe that -- maybe I'm getting greedy trying to ask that.

[Randolph Blazer, executive]

Ted, do you want me to go on here?

[Theodore Hanson, executive]

We don't -- Yes. We don't disclose that, Gary. So, yes. I think the right way to think about it is the way Rand lays it out. I mean, we're -- and again, I think there are several different things in our comments, both in the trend in April, what we saw in industries for March, I mean that you can kind of piece that together.

[Gary Bisbee, analyst]

Yes. Fair enough. And then just one more for me. I guess, a question on ECS. The growth there, even adjusting for the acquisition was quite robust. Last quarter -- and we've seen occasionally this concept of technology pass-through, low-margin revenue, was there any of that of scale that you call out? And I guess what I'm really trying to get at is the high single-digit year-over-year ECS revenue growth in the scenarios you provided is significant slowdown from Q4, Q1. And so is that the reason or there's some other reasons? Maybe it's just conservatism visibility, but any color?

[Theodore Hanson, executive]

Ed, can you help him unpack the growth rate there?

[Edward Pierce, executive]

Yes. I mean, you recall, in Q4, we made mention of large transaction that happened at the end of the year. It was $34.1 million, I think, in license -- or early purchase of license that would have otherwise renewed in 2020. In Q1, we had some of that, but not to that degree. I think if you look year-over-year in terms of those type of transactions, that may have been up $10 million or so.

But what's important, I think, about the numbers -- and George can comment on that, is that we had a very high-growth rate in our direct labor that drives high margins in that business.

[George Wilson, executive]

Yes, sure. I'd like to comment. What we saw last Q4 of last year, as Ed pointed out, $34 million of what was moved forward from licenses we would have procured in this fiscal year. So overcoming that and still seeing a strong growth in Q1 is pretty spectacular. And the other thing is these licenses and the things that we acquire are part of the solution that we're delivering in end-customer solutions as opposed to a simple pass-through. So they will continue to occur as we continue to advance our solutions.

And some of them are lower margins, but others are part of the solution, if it's a fixed price delivery and stuff like that, then it's typically a higher margin in government solutions. But thanks for the question.

[Operator]

The next question comes from Henry Chien with BMO.

[Sou Chien, analyst]

I wanted to ask about the comment you made about the positioning of ASGN on assignment relative to the last recession and being more on Apex. I was wondering if you could just comment a little bit more about that. Are you referring to that based on what you're seeing in, say, like the branch business? Or like the resiliency. And just kind of just want to understand how the positioning works here.

[Theodore Hanson, executive]

Yes. I think if you think about on assignment in 2008 and '09, right, Henry. That's the time period you're referring to, I think, it was a collection of different staffing units, healthcare, scientific and also Oxford, which was partly IT and partly engineering and some other things, and mostly focused on smaller and mid-market accounts, by nature, just of those offerings. And while that, I just think, by nature, caused that business to pull back with the rest of the industry, if you will, during that '08 and '09 recession and especially with Oxford that was serving big enterprise ERP-type of implementations and the added credit crisis. And that, obviously, in that '08, '09 time period, the CapEx around that really got turned off. I think the difference with who we are today is, one, we're fully IT centric, IT digital centric. Number two is, we're predominantly a large account business, more than 75%, slightly more than 75% of our business is through large accounts or federal government accounts. And so we're just -- and these are accounts that we've been a part of and have relationships with, not just for months and a year, but for years and decades. And so we're really an important part of how they keep their technology running and get things done. And what we have found through different economic recessions and certainly through '08 and '09 is that's where you want to be because you're that much more important to the client. Your business has that much more stability to it.

So there's a real difference in who we are today versus who we were during that time period.

[Randolph Blazer, executive]

Ted, can I -- this is Rand. Can I comment real quickly? It may not be clear from the text, but Apex and ECS were not part of on assignment in '08 and '09. So while Ted said everything absolutely right, if you look at it organizationally, 70-some percent of our revenues were not in the business back then, okay? So just to make sure you see that, understand that.

[Theodore Hanson, executive]

Yes, actually, yes more than maybe. Okay?

[Operator]

The next question is from Tim Mulrooney with William Blair.

[Timothy Mulrooney, analyst]

Just taking a step back and looking at the long term, do you think COVID-19 will ultimately spur additional demand as companies scramble to bolster their digital capabilities and shift more towards remote working?

[Theodore Hanson, executive]

Yes, Tim, I think, obviously -- and this is in all parts of our business, it's not specific to industry or size of account, but digital transformation doesn't become less important because of all this. It's just as important or even more so. And I think coming out of this crisis that we're in and this economic downturn, clients are going to have to continue to develop their systems even at a faster pace. And eyes have been opened up in certain ways around the fact that we need to be ready to handle remote or different types of work that we need to continue to have technology systems where we can engage in an electronic way with all of our constituents. That having work done offshore needs to be considered carefully because there are certain risks that come with it. I think that's a learning coming out of this.

So I think in a lot of different ways, this -- certainly, none of this changes the need for digital transformation, it remains, and it's even enhanced.

[Timothy Mulrooney, analyst]

Got it. And can you also just talk about any difficulties or types of adjustments that you've had to make or are making with regard to onboarding new consultants and temps on assignment recently? I'm curious how your processes have had to change during the quarantine.

[Theodore Hanson, executive]

Yes. Look, I think I'm really, really proud of our teams. I mean, we obviously have tested having to go to some amount of remote work either with our consultants or with our internal staff. But to go nearly 100% like that in 2 weeks, our teams did great. Our systems proved up, and that was -- that went very, very well.

We've been able to stand up projects and resources in a remote fashion. The government, as it relates to I-9s and other administrative issues that need to be done have been flexible about allowing for that to happen. And then our clients have been really engaged in all of this, and they've been a big help in all of it.

So I think that's not really turned out to be a problem, thankfully so. And it's taken the engagement of everybody in it to make that happen smoothly.

[Operator]

The next question comes from Kevin McVeigh with Crédit Suisse.

[Kevin McVeigh, analyst]

Great. What are you folks doing internally to prepare for kind of COVID-19? And just can you remind us, not only operationally, but also how you're thinking about capital allocation within the context of buyback dividend and things like that?

[Theodore Hanson, executive]

Yes. Well, maybe 2 separate things there. So we've kind of fully gone to work-from-home staff -- or work-from-home status internally. And so as we begin to get further down the road on the health crisis and the state governments begin to bring -- allow us to come back to work in certain geographies and we're starting to develop our plans to do that, frankly, on a positive note, we don't have to rush into that. So we'll be able to be very methodical about how we come back to on-site work within our company. And so it will be an issue for our business and we'll take our time just so that we don't have a misstep in all of that.

And then on the capital allocation side, I mean our general thesis around how we think about capital allocation doesn't change, Kevin. We, like many others, stopped our buyback program when we got into the beginning of March only because there was just not good visibility to what was coming down the road over the next few weeks or longer. So I think that, that was a prudent thing to do. But as we always say, we're going to invest in ourselves, first. We're going to always be developing acquisitive opportunities that we think advance our business.

If there's nothing at the lip of the cup on that front, we're certainly adept and have proven in the past that we're going to buy back our own stock. And we can now, at this size and scale, do all those things at one time. It doesn't have to be all or nothing. So I don't think any of this has changed our view on capital allocation, and we feel good about where we are from a balance sheet strength and a liquidity standpoint, based on where we stand today.

[Kevin McVeigh, analyst]

Great. And then I guess just given how abrupt the kind of shutdown has been, what are you looking for in terms of -- it seems like things are starting to stabilize, but for us to come out of it, you get a lot of internal data. Is it from the client? Like what do you can in on, Ted, in terms of that you feel confident that starting to kind of reaccelerate a little bit? What would be the metrics you're most focused on?

[Theodore Hanson, executive]

Yes. Well, look, I mean, we've got internal metrics that give us visibility to where we think the business is going. Obviously, we watch our pipeline, project and consulting work. We see rev flow from our big accounts. We look at our business from an industry standpoint, so we can rack and stack the world from that. But I think, at the end of the day, just even whether our clients are doing a little with us or a lot, we stick close to them. We talk to them about what their needs are. We understand where they are. And we have such good, durable, important relationships with these clients over such a long period of time that, that's our best insight.

So we have internal metrics. We have great insights for our clients, and we'll watch the business like that. It's too early to tell. We need a little bit of time under our belt here to kind of keep marching forward, but it feels like over the last few weeks that things have lessened in terms of the declines, heavier declines we saw in the first couple, and we'll have to watch it week-to-week to make sure that, that trend continues.

[Operator]

The next question comes from Mark Marcon with Baird.

[Mark Marcon, analyst]

I was wondering, can you just talk a little bit about the opportunities that you're seeing in terms of on shoring and near shoring? What's the scope and magnitude of the projects that you're seeing there?

[Theodore Hanson, executive]

Well, I think it's a developing story, Mark. I mean, anecdotally, I can tell you about a project here or there where a client got surprised by the fact that they're -- something important to them was being offshored and it couldn't be executed because of their operations offshored didn't switch very adeptly to remote work. So we've been able to step into a few things here just on an anecdotal basis early on. I think the bigger wave of that is to come in the future. I believe that there was a little bit of a move for things to be reshored, onshored, roll sourced here in the U.S. that might have been done in an offshore fashion in the past.

And I think the experience here over the last couple of weeks certainly supports that. If anything, maybe it gives them a little bit more fire as we go forward. So it's something to watch, I'd say that's a developing opportunity.

[Mark Marcon, analyst]

When do you think that would actually end up hitting and becoming material?

[Theodore Hanson, executive]

Well, I wouldn't go so far as to say when that is. Obviously, those things have to be -- they have to be scoped, and we have to be able to win those opportunities, and then we have to set them up and be able to execute them. So it's a developing opportunity in the future, like anything else.

[Mark Marcon, analyst]

Okay. And then with regards to productivity levels, can you talk a little bit about what you're experiencing? Specifically, if we think about your recruiters and the amount of talent that's currently out there. Has it become materially easier to source candidates to place into the open racks? Or how are you seeing that?

[Theodore Hanson, executive]

I wouldn't necessarily say that on the technology side, Mark. I mean, look, I think we'll -- the preponderance of unemployment right now is not in the IT space, I don't believe. It's in other places, for sure. And I think IT talent still remains scarce and so I don't think we'll be dealing with a materially different situation as it relates to all that as we go forward.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Ted Hanson, CEO, for any closing remarks.

[Theodore Hanson, executive]

Great. Thank you, operator, and thank all of you for your time today. Hopefully, the next time we convene for Q2 earnings where we'll be in a much more stable place. Stay safe, healthy, and thank you again for your support of ASGN.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.