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ASGN Incorporated (ASGN) Q1 2019 Earnings Call Transcript

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ASGN Incorporated  (NYSE: ASGN)
Q1 2019 Earnings Call
April 24, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later we will be conducting a question-and-answer session, instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Ms. Kimberly Esterkin from Investor Relations. Please go ahead.

Kimberly Esterkin -- Investor Relations

Thank you, Laurie. Good afternoon and thank you for joining us today. With me today are Peter Dameris, Chief Executive Officer; Ted Hanson, President; 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 presentation contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainties, and 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 the 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.

Please 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 measures. Reconciliations between the GAAP and non-GAAP measures are included in today's press release.

I will now turn the call over to Peter Dameris. Peter?

Peter T. Dameris -- Chief Executive Officer

Thank you, Kimberly. Welcome to On Assignment first quarter 2019 earnings earnings conference call.

Joining me today are Ted Hanson, Rand Blazer and George Wilson, who will review our performance for the quarter. And Ed Pierce who will review ASGN's financial results for the first quarter and our estimates for the second quarter of '19.

Before we talk through the results of the quarter, I want to discuss my decision to step down from my role as CEO of ASGN. As some of you know, my eldest -- my youngest son has been battling acute myeloid leukemia for 14 months. After a successful stem cell transplant in August of 2018, his leukemia has returned and he will require additional treatment, including a second stem cell transplant. Therefore, at this time, I must step back so that I can devote my time and energy to what is most important, my children's health and my family's welfare.

It has been my honor to serve this Company for the past 15 years and I have full confidence that it will continue to thrive under Ted's leadership. In fact, and many of you have seen this in action, the Board and I have been preparing Ted for this transition for over two years. Ted has not only been intimately involved in the development and execution of our business strategy, but he's also spent considerable time over the past couple of years, representing ASGN at investor road shows and conference presentations.

I think you will all agree Ted has full command of ASGN's strategies and financial planning given he has been the primary -- has has the primary responsibility for their development over these past years. ASGN is in very good hands with Ted and the rest of the senior management team. As for me, I will remain on ASGN's board of directors and also be an advisor to the Company, and as such will be able to help complete the management transition, contribute my institutional knowledge and expertise as needed, and help the company with M&A activity, which is something I've done many times in the past.

As I enter my new role at the Company, I want to thank every employee, client and shareholder who has had the confidence in all of us to participate in building this great Company. And on a personal note, I want to thank everyone who has allowed me to make family my first priority. Our best years are ahead of ASGN because of our positioning, size, senior management team, and most importantly, how work is performed in today's economy.

With that, I would now like to turn it over to -- the call over to Ted to discuss this quarter's results. Ted?

Theodore S. Hanson -- President

Thank you, Peter. I'll begin today's discussion by commenting at a high level on the markets we serve, as well as some of the key financial highlights for the quarter. Revenues for the quarter were $923.7 million, up 34.8% year-over-year on a reported basis or 10.7% on a pro forma basis. This improvement was driven by a number of factors, including our IT business, which continues to see high demand from customers, due in part to greater adoption of staff augmentation as a viable alternative to outsourcing, offshoring and consulting services. We believe that we are well positioned to continue to service our customers' IT needs as technology rapidly evolves and is adopted. In fact, our size and service offerings allow us to grow faster than published IT services industry growth rates, and we believe that we are well positioned to generate solid above-market revenue growth in the future.

Adjusted EBITDA was $97.1 million and our cash generation continues to be at or above our expectations. Free cash flow was $36.5 million and our leverage ratio was 2.65 times trailing 12 months adjusted EBITDA at quarter-end. We are estimating that our leverage ratio will be approximately 2.45 times at the end of the second quarter and approximately 2 times at the end of the year.

With respect to recent production at our Apex and Oxford segments, our weekly assignment revenues, which exclude conversion, billable expenses and direct placement revenues, averaged $56.0 million for the last two weeks of the quarter, up 12.9% over the same period in 2018.

Our Federal IT services and solutions business continues to see new long-term contract awards, robust spending against existing contracts, and the positive benefits of increased funding for and visibility of defense, intelligence, and federal civilian agency budgets, particularly in the areas of artificial intelligence and machine learning. During the quarter, ECS secured $255.7 million in new awards. George will speak in more detail regarding these recent awards shortly.

For the first quarter, all three of our segments continued to contribute to ASGN's growth. The Apex segment grew 12.5% year-over-year and the Oxford segment grew 2% year-over-year. The growth rate for both segments was on one fewer billable day and revenues at Oxford in Q1 of 2018 benefited from favorable currency exchange rates.

The Apex and Oxford markets we serve in IT, Digital/Creative Marketing, Life Sciences and Engineering all remained stable and productive during and exiting the quarter. Shifts in the way our customers are supporting their business needs and completing projects remain in our favor. While our staffing services continue to grow, and we take share with greater than market growth rates, our value added service offerings or consultative work are growing at an even faster pace.

I would like to make a few comments on the performance of the Oxford segment and then turn the call over to Rand who will discuss the performance of the Apex segment. Revenues for the segment were $149.6 million, up 2% year-over-year. On a same billable day and constant currency basis, the growth rate for the segment would have been 3 and one-half percentage points higher than reported. Growth was from assignment revenues as permanent placement was down from the first quarter of 2018. The growth in assignment revenues was driven by high growth in our European operations and certain of our domestic practices.

Gross margin for the segment was down year-over-year due mainly to a lower mix of permanent placement revenues in the quarter and to a lesser extent, lower assignment margins related to changes in business mix. We continue to see better productivity and solid year-over-year improvement in the conversion of gross profit into EBITDA.

I will now turn the call over to Rand Blazer. Rand?

Randolph C. Blazer -- President, Apex Systems, LLC

Hi. Thanks, Ted. The Apex segment, which consists of Apex Systems and Creative Circle business units, again reported solid results for the quarter. Revenues for the segment were $606.1 million, up 12.5% year-over-year on one fewer billable day than the first quarter of 2018.

Apex, which now includes the results of Apex Systems and Life Sciences, accounted for 83.7% of the segment's revenues in the quarter, and grew 14.1% year-over-year. Our Creative Circle unit posted year-over-year growth of 5.3%. Growth at both units was on one fewer billable day in the quarter compared to Q1 2018.

Gross margin for the segment was down from the first quarter of 2018, mainly related to a lower mix in perm placement revenue and a lower assignment gross margin driven by the higher growth in our top accounts relative to our retail accounts in the quarter. Our top accounts generally carry as you know lower gross margins. The segment's conversion rate of gross profit into adjusted EBITDA after considering the $1.4 million one-time adjustment referenced in our press release was slightly lower than the Q1 of 2018.

Overall, for the quarter, the Apex segment's performance was driven by a number of factors, including: double-digit revenue growth in five of the eight industry verticals we service, including: Aerospace & Defense, Financial Services, Healthcare, Consumer Industrial, and Technology industry accounts. Please note that of the remaining three industry verticals, Life Sciences accounts grew mid-single digits, while Telecommunications accounts were flat year-over-year and Business Services accounts contracted year-over-year. We posted double-digit growth in both the segment's top and retailer branch centric accounts, with top accounts continuing at a higher rate. Growth in statement of work or consultative type work also continued to outpace our expectations and our overall revenue growth rate. And lastly, Creative Circles revenue growth was propelled by growth in our top accounts. As such, we remain focused on realigning our Creative Circle sales team to the changing demand of the client base, including additional focus on selected top accounts.

To summarize, the Apex segment posted strong results for the quarter. Apex's growth continues to outpace the growth rate of the overall IT staffing industry, and the segment continues to gain market share as Ted noted earlier.

I will now call the -- turn the call over to George Wilson to speak about our ECS Segment. George?

George Wilson -- President, ECS Federal, LLC

Thank you, Rand. ECS posted very good performance in the first quarter of 2019, both from a financial and operational standpoint. ECS revenues were $168.0 million, up 12.7% year-over-year including a $10 million contribution from DHA. Excluding the contribution from DHA, the ECS segment year-over-year growth rate was 6%. This growth remains ahead of the peer industry average in the federal technology space. EBITDA margin for the quarter was up over the fourth quarter, but down from the first quarter of 2018.

During the quarter, we secured a total of $255.7 million in contract awards across a wide range of customers, which resulted in a very healthy book-to-bill ratio of 1.5 to 1. We continue to see strong proposal activity and therefore have made additional investments in our solution architects and proposal teams to leverage these opportunities. We currently have a backlog of proposals submitted and awaiting award of over $1.5 billion, an all-time high for ECS.

Some recent awards contributing to our growth include our project to support the US Postal Service in both cybersecurity and digital transformation. We also began work during the first quarter under a key cybersecurity effort with the FBI. At the end of the first quarter, ECS had $1.8 billion in total contract backlog, which equates to a healthy coverage ratio of 2.5 times our trailing 12 month revenues, adjusted to include DHA.

In the first quarter, ECS continued to strengthen its technical skills and business partnerships with commercial providers in the cloud, cyber, risk management and artificial intelligence end markets. To summarize, we are pleased with ECS results for the quarter and we look forward to sharing our successes in the future.

I will now turn the call over to Ed Pierce to discuss ASGN's consolidated financial results for the quarter. Ed?

Edward L. Pierce -- Executive Vice President and Chief Financial Officer

Excuse me, thanks George. Ted mentioned earlier, revenues for the quarter were up 10.7% year-over-year on a pro forma basis. Pro forma amounts assume the acquisition of ECS occurred at the beginning of 2017, but do not include the pre-acquisition results of DHA which was acquired on January 25th of this year.

For the quarter, DHA contributed approximately $10.0 million to our consolidated revenues. If you exclude DHA, our growth rate for the quarter was 9.5% and adjusting for year-over-year check differences in billable days and changes in currency exchange rates, the growth rate for the quarter would have been 2 percentage points higher.

Gross margin for the quarter was 28.6% compared with 29.3% in Q1 of last year on a pro forma basis. Approximately half of the year-over-year decline resulted from the lower mix of permanent placement revenues and the remainder was split between lower assignment gross margin, mainly related to changes in business mix, and the inclusion of DHA, which has a lower gross margin than ECS as a whole.

SG&A expenses for the quarter were $187.4 million, or 20.3% of revenues. SG&A included acquisition and integration expenses of $1.4 million, mainly related to the DHA acquisition. As a reminder, we do not include these types of expenses in our guidance estimates. SG&A also included expense of $1.4 million related to the resolution of a pay rate dispute on services provided in prior periods by Apex Systems to a large systems integrator.

Interest expense for the quarter was $14.5 million, up from $14.3 million in Q4. The sequential increase in interest expense primarily related to a slightly higher interest rate. Our effective income tax for the quarter was 27.7%, which was above our guidance estimate of 26.5%. This rate variance primarily related to changes in estimates for the effects of tax reform on income taxes for 2018, that was partially offset by excess tax benefits on stock-based compensation which we do not include in our guidance estimates.

Net Income for the quarter was $34.9 million, up from $29.1 million in the first quarter of 2018. In adjusting for acquisition and integration expenses of $1.4 million, net income was within our previously announced guidance estimates. Adjusted net income, a non-GAAP measure, was $49.4 million, up from $44 million in the first quarter of 2018. Adjusted EBITDA for the quarter was $97.1 million, up from $74.8 million in the first quarter of 2018 on a reported basis.

Cash flows from operating activities were $44.0 million and free cash flow was $36.5 million. Note that seasonally free cash flows are lower in the first quarter than the other three quarters mainly due to the payroll tax reset that occurs at the beginning of the year and the payment of annual incentive compensation that was earned and accrued in the preceding year. For Q1 of this year, free cash flow was also affected by higher than normal accounts receivable day's sales outstanding. DSOs for the quarter were 61 days, up approximately one day sequentially and two days year-over-year. Each DSO day is approximately $10 million.

I'd would now like to make a few comments on our guidance estimates for the second quarter of 2019. For Q2, we estimate revenues will range from $967 million to $977 million. This implies revenue growth of 10.1% to 11.2% on a reported basis. Estimated billable days for Q2 are 64, which is the same number as the second quarter of 2018, and we also estimate the mix of permanent placement revenues will improve sequentially, but would be down year-over-year from the second quarter of last year.

We estimate gross margin will range from 29.3% to 29.7%. This range considers, among other things, the mix of permanent placement revenues, other changes in our business mix and the addition of DHA, which has lower gross margins than ECS as a whole. We estimate net income will range from $48.6 million to $52.3 million and that our adjusted EBITDA will range from $113.7 million to $118.7 million or 11.8% to 12.1% of revenues.

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

Peter T. Dameris -- Chief Executive Officer

Thanks, Ed. As our quarterly results continue to prove out, our scale, size and breadth of services has positioned us well to benefit during a period of historic secular growth for the services industry. Without a doubt, the world of work is changing. Accelerating digital transformation, coupled with favorable labor and immigration legislation and an improving US government market are all market forces occurring in our space. We are optimistic that ASGN is well situated to continue experiencing strong results into the foreseeable future. The entire ASGN team was pleased with our first quarter performance. We have a healthy tailwind in all of our segments that should drive strong performance over the remainder of the year.

To conclude, our prepared remarks, I want to take a moment to again thank our employees, stockholders and Board of Directors for having given me the privilege to lead this Company over the last 15 years.

Thank you for your time, and I would like to now open the call up to participants for questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from Gary Bisbee. Please go ahead.

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

Yeah, hi, good afternoon. Pete, I just wanted to start by saying, it's been a real pleasure. You've done a terrific job and sorry to see you go into the circumstances, but my best wishes certainly to you and your family. Questions on the business a couple, Ed, if I could first just clarify, you called out three items that weren't in your guidance. One, the acquisition in integration charges, you've historically added back and it looked like you did, were the other two items not added back to the adjusted earnings that you represented in the press release?

Edward L. Pierce -- Executive Vice President and Chief Financial Officer

They were not. The only thing that we add back in the adjusted earnings or the integration in acquisition expenses. So the other two items of resolution in the income tax matter were not.

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

And how much on an after-tax basis would that...

Edward L. Pierce -- Executive Vice President and Chief Financial Officer

It would have been $1.8 million for those two items.

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

And on -- on an adjusted EPS basis?

Edward L. Pierce -- Executive Vice President and Chief Financial Officer

It will be about -- it would add another three years.

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

Yeah. Okay, great. And then you continue to talk about, within Apex, the consulting engagements growing faster. Can you give us any color like, should we think of any major differences. I know the profitability is a little better, but are the length of those engagements or the scale of those engagements or any other major things different relative to the traditional assignment engagements in that business?

Theodore S. Hanson -- President

Gary, it's Ted. I'll say a couple of things about and then Rand finish it off. But within that work obviously because it's project related work, the scale of the engagement is larger than any one, let's say, placement in the staff of business might be for sure. As you noted, the gross margins are slightly better in that area than they are in our staff of business. And as we've said in the past, it's growing at a greater rate than our staff of business. So just to give you some color around all of that. Rand, anything else you would add?

Randolph C. Blazer -- President, Apex Systems, LLC

No, I think you responded to his question.

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

And then just one last one if I could. From a high level, there's been some softening in some of the economic data. It doesn't look like from your quarter or the guidance you're seeing much of that, any change in tone from your clients or is it pretty much as you've described it in the last few quarters? Thank you.

Peter T. Dameris -- Chief Executive Officer

Yeah, I would describe it as steady. Let me, I don't think we have a client conversations that are any different than we've had in prior quarters. As Rand noted, certain industries are up or down more than others, but I think that's the natural ebb and flow of the industries and so we view it as a steady marketplace.

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

Great, thank you.

Operator

And our next question comes from Kevin McVeigh. Please go ahead.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. Peter, let me pass along my thanks to you and best wishes to your family for the great work over the years as well. I just -- I want to talk about the backlog, it seems like the backlog grew by about $330 million to $1.8 billion, so real good visibility there. Is there any way to think about how that comes in and would there be any nuances to the DHA versus just kind of generic contract wins that you're winning kind of in the normal course of business?

Peter T. Dameris -- Chief Executive Officer

Yeah, George, why don't you go first, please.

George Wilson -- President, ECS Federal, LLC

Yeah, sure. The contract backlog did come from a wide range of awards that we've recently got and some of them are on extended periods like a five-year contract, (inaudible), which is driving that. But it is normal course and we have had several quarters now where we've posted above one, which is driving the increase.

Kevin McVeigh -- Credit Suisse -- Analyst

Got it. And then just, Peter or whomever is best. With Epsilon being acquired by Publicis and more on the creative side as the demand changes there, does that impact on the creative from a sourcing perspective or just increase the value proposition among their clients. Just any thoughts, it seems like there's just a lot more M&A within that sector overall?

Peter T. Dameris -- Chief Executive Officer

Well, two points, one, I think that the ad agencies are having to become more technology based than they were in the past and that's what the Sapient deal on this last one, Epsilon, what to do, is to be able to -- I'm being kind of light-hearted, but instead of drawing pretty pictures, being able to create the technology that enables the solution. It's hand-to-hand warfare for anybody who has certain type of technology skills. These companies like Sapient and Epsilon work on a salary bench model versus a W2 hourly model like we do. So I don't think it has increased the competition for billable staff. I think it has changed the customer base a little bit, where they're now more of a competitor than they were in the past and we have intentionally tried to change our customer mix to be more reliant on corporations than agencies where we would be a subcontractor. So I think that's the response to your question.

Kevin McVeigh -- Credit Suisse -- Analyst

No, it sounds like overall, it definitely more demand as opposed to less which is just a great outcome. Thank you.

Operator

And our next question comes from Edward Caso. Please go ahead.

Edward Caso -- Wells Fargo Securities. -- Analyst

Hi. I'll pass along my thoughts and -- but we will miss you Peter. My question is around capital deployment here, sort of, what's the focus here. You haven't bought back stock in a while. Is it more M&A focused and then and what type of M&A? Thanks.

Peter T. Dameris -- Chief Executive Officer

Yeah. So we do have a change of the home, but as you know, Ed, Ted has been a primary partner of mine in building our financial and strategic plan. And our response to your question really hasn't changed. Our available capital competes internally for whatever is best long-term for shareholders, whether it's share repurchase, repayment of debt or acquisitions, and our focus on acquisitions remains to get: one, ECS to billion dollars in revenue in the next three to two years; and two, to see if we can find which is much more difficult but see if we can find a good partner for Apex to help them as they continue to build out their SOW business.

Edward Caso -- Wells Fargo Securities. -- Analyst

Can you talk a little bit about your perm, which has generally been trending down at zero, is it -- have we found bottom yet in the percentage or is there still sort of further movement downward? Thanks.

Randolph C. Blazer -- President, Apex Systems, LLC

Ed, I think the good thing about our business model if you will is that it's not a perm driven model. So you've seen it come from nearly 5% of revenues, now down to a little over 3%. Our perm in our looking forward is going to be a little bit better in the second quarter, but it's a -- the majority of our perm comes within the IT market and right now the way that market is behaving as that has been historically. It's not always the place where you get the largest growth in perm placement. And so it's a business that we -- our perm is certainly a part of our business, but it's not the dominant part. And so, you'll see it kind of stay within this range of 3% to 4% of revenues.

Peter T. Dameris -- Chief Executive Officer

Ed, I would add that what -- that is the durability of our profit margin is based on the fact of how we run our business. One, our -- on a same number of billable day basis, we grew what was a 12.5% and that was based on volume growth, that wasn't based on bill rate expansion. So you can always -- that's always a much more durable model than just constantly raising your pricing.

The second thing is, our EBITDA margin will not fluctuate nearly as much as a company that is highly dependent on perm placement, because it's just not that bigger contributor to our business by design. We want them to have healthy growth, and we want to support them. But we've also told those teams, we want -- even though it's the most economically sensitive, we want you focused on the business that even in slower economic times has a chance to still be in demand.

Edward Caso -- Wells Fargo Securities. -- Analyst

Great. Thank you.

Operator

And our next question comes from Jeff Silber. Please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thank you so much. And Peter. I just wanted to say that our thoughts and prayers are with you as well. In terms of -- my question, I think I asked this last quarter on M&A, I asked this again. When I look at the supplemental materials, there is a lot of information, I think this is the second consecutive quarter we've seen a decline in staffing consultant at Oxford. Is there something more going on there. I'm just curious why we're continuing to see this? Thanks.

Peter T. Dameris -- Chief Executive Officer

Remember that that Oxford number that we report there encompasses both our Oxford Core, as well as CyberCoders business. And we are steady, I would say, on the Oxford side and we're adding to headcount there where we think we have opportunities and the headcount is up and down a little bit at CyberCoders based on just how we're looking at that business from a strategic standpoint, but I wouldn't say there is anything more than that within those numbers.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. In terms of trying to get some improvements in getting that business moving in the right direction again, any thoughts you can share on the strategy out of the Oxford?

Peter T. Dameris -- Chief Executive Officer

Yeah, for Oxford, we are still on the same path that we've talked about in the prior quarters and we're -- we continue to see that the sales strategies that we're putting in place are providing growth for that business. You can see that the growth is a little bit more steady now quarter-to-quarter. It's not the same rate as maybe one of our other units, because they're not serving as big marketplace, if you will, but we can see the growth rates in a good spot. And most importantly, this quarter, we saw an increase in their productivity, which we mentioned in the script. So our conversion of gross profit to EBITDA is improving and that tells you that our EBITDA percentage within that unit is from a margin standpoint improvement.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. That's good. I appreciate you pointing that out. And just a quick numbers question for you. What should we be modeling for interest expense in the current quarter?

Peter T. Dameris -- Chief Executive Officer

$14 million.

Jeff Silber -- BMO Capital Markets -- Analyst

$14 million. Great. Okay. Thank you so much.

Operator

Tim, your line is open. Please go ahead.

Tim McHugh -- William Blair & Company. -- Analyst

Yeah, thanks. Just want to follow-up on margins, I guess just to be clear, in terms of the gross margin spread for Apex, in particular and a little bit Oxford. Is there anything besides the business mix, I guess, if you normalize for that in terms of pricing or client pressure on the bill price spreads -- pay spreads that surprised you or is it simply the mix that -- as it came in?

Peter T. Dameris -- Chief Executive Officer

Yeah, thanks Tim. So on the Oxford side, it is truly business mix. Our units that are growing the fastest are coming slightly lower gross margin. And Rand on the Apex side?

Randolph C. Blazer -- President, Apex Systems, LLC

It's pure mix. Our top accounts are growing so fast and the retail accounts can hardly keep up. And top accounts definitely have a steady gross margin. And our top accounts gross margin if you looked at it over periods of time, it's been very steady. So it's just the mix, purely the mix.

Tim McHugh -- William Blair & Company. -- Analyst

Okay.

Peter T. Dameris -- Chief Executive Officer

And then if -- Tim if you look -- Tim one more thing to add to that. If you look at both of those units together obviously perm on both sides is affecting that just there.

Tim McHugh -- William Blair & Company. -- Analyst

All right. Okay. And then on Creative, I guess, even normalizing for the same day basis. It wasn't quite as strong we saw the last couple of quarters. Is there anything that was different in terms of the client engagement or demand levels in that part of the marketplace?

Peter T. Dameris -- Chief Executive Officer

Rand?

Randolph C. Blazer -- President, Apex Systems, LLC

I think, you're correct, in the last three quarters of last year, we did quite well in the first quarter not as well. So typically, first quarter is our slowest quarter. We saw that again so far in the first quarter, but it's the lower rate. We didn't come out of the year. If you noticed in last year, we were 10% growth in Q2 and Q3 and fell just underneath that number in Q4. So we didn't come out of the astute (ph) strong as we got into Q1, and I think some of that is just the demand. The creative marketing world is a digital marketing world and as you were talking earlier with Peter, there's no churn going on in this marketplace and we are adjusting the model a bit to wean off of that agencies and really get into corporate accounts as Peter said. So I think we're on the right track, right progress. Unfortunately, it's a little lumpy, but I think other than that, it's just the churn in the marketplace.

Tim McHugh -- William Blair & Company. -- Analyst

Great. Thank you.

Operator

And our next question comes from Tobey Sommer. Please go ahead.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you. Peter, it's my privilege to watch you generate the growth of the business. Good luck. I wanted to ask a question about the statement of work business. Could you describe the competitive mode that you may have around your business and how will you try to get an edge over the few players who compete at scale?

Peter T. Dameris -- Chief Executive Officer

Rand?

Randolph C. Blazer -- President, Apex Systems, LLC

Yeah, Tobey, let me start by saying, we had two major classifications of services. Workforce management, where we take on some responsibility for service centers and center of excellence. That work has really been propelling our growth, because we can get more out of the workforce and productivity to workforce. And then others that are just providing bodies or who just putting a template out there.

In the Enterprise Solutions area, we're getting stronger and stronger. And I think the CIO are ultimate client. To use a price advantage with our work, we've talked Tobey about the five circles, right, and the difference between consulting and staffing and there is a hybrid in between those two. And we have a price advantage and as long as we can show quality in our work and in quality and experience in methodologies, we're having a good time with it. So I think it's just -- it's a good sweet spot for us. We don't need to be the architects, we don't need to be the McKinsey's, but there's an awful lot of good IT work to be had.

Peter T. Dameris -- Chief Executive Officer

Tobey, I would add, Robert have reported yesterday and their productivity business is doing quite well, and they made a point, which we passionately agree to. If either in their case, they have subject matter experts. We did too, but not nearly as many. Or if the customer is willing to retain a certain amount of responsibility and architecture and project managements. By working with us, they truly get the exact resource they want, and they don't have to compromise on Mr. and Mrs. Most Available versus Mr. and Mrs. Most Appropriate. So when you're going to talk about them a moat, the ability to deliver the exact resource the customer wants versus the customer and not having any say into the team that works on their project is appealing and I think that appeal will continue to grow.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Peter, I think you call that our deployment model, which is a real advantage. Thank you. And in the ECS business, there was slight mix shift over the last year or so in favor of work? Is that -- is that a broad-based change or is there kind of a single contract win that that's been ramping, that's been driving that?

Peter T. Dameris -- Chief Executive Officer

George?

George Wilson -- President, ECS Federal, LLC

Yeah, hi, Tobey. It's George. No, it's not any in particular, contractor no single contract just overall we have had several contracts that have moved and some of the contracts that we have cost plus and some of our solutions delivery, they've been growing at a faster pace in some of the other, the rest of the company, which drives that shift. One of the things, I am I would point out, but is the DHA acquisition. They're 100% fixed price in T&M. So we do believe that the contract mix is going to move back toward our historical highs in terms of T&M and fixed price.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Perfect. Thanks for adding that.

Edward L. Pierce -- Executive Vice President and Chief Financial Officer

Tobey, I would point out also if you were asking about the shift in the type of work that's performed, the thing that appear to us most that ECS was George's vision that having successfully built Stanley from $2 million to $1 billion. He want to rebuild a company that was just a broad based government service contractor. He wanted to build a large IT solutions government solutions provider. So we're really not chasing large contracts that has outsourced passport renewal for the state department or language translation for the state department or document production for the US Department of Justice. We're really focused on these higher end IT solutions and then operating some of the solutions we build. And that has been a very strategic decision George made five, six years ago that we continue to execute on.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you. Last question also for George I think. Do you happen to have a view on the fiscal '20 budget trajectory?

George Wilson -- President, ECS Federal, LLC

Yeah, sure. I do, but nothing better than you are reading the papers and such like that. So right now, I would say that it's better than it's been in a long time and the pipeline of opportunities that we're seeing and the conversation we're having with our customers, we feel very good about the remaining '19 and moving into '20.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Okay. I'll get back in the queue. Thank you.

Operator

And our next question comes from Mark Marcon. Please go ahead.

Mark Marcon -- Robert W. Baird & Co -- Analyst

Hi, Peter. First of all, I want to pass along my best wishes and sympathy to you and your family and also to express not only how we're going to miss working with you but just the admiration for what you've built over the last 15 years that ASGN with the entire team and even before that what you did with core staff and then, more on -- like this has been fantastic to see and not sure everybody fully appreciates it, but it's been tremendous. I also want to pass along my best wishes to Ted, Ed, Rand and George in terms of continuing the legacy of success.

With regards to business question, it seem little bit pedestrian at this point, but one thing that came up in several calls recently has been basically around the tightness of the labor market. And Rand, I'm wondering if you can talk a little bit about what you're seeing in terms of the rate and also pay rates within Apex Systems?

Peter T. Dameris -- Chief Executive Officer

Rand?

Randolph C. Blazer -- President, Apex Systems, LLC

I'm sorry.

Peter T. Dameris -- Chief Executive Officer

Go ahead.

Randolph C. Blazer -- President, Apex Systems, LLC

Well, listen, over the past say year and a half, we've seen bill rates rise little faster than pay rates. In this last quarter, we saw a little bit different, but I don't know that it's a trend yet of anything. We able to find quality candidates to submit to our clients yes. Our bill ratios are steady if not up, I know for Q1, it's up year-over-year over Q1 of last year. So I'd say steady as Ted said earlier, it's steady as we go. We're very mindful of these metrics and we're watching closely. But you have to remember too, we have these large contracts and you don't change the bill rate overnight. It's not day to day, it is based on contract and so there is sometimes -- it is a pay rate blip that was caused by the tightness of the labor market, with them we'll get bill rate adjustments. So I think we're pretty much in steady, as Ted said steady position here and so far it's very balanced.

Theodore S. Hanson -- President

So Mark that's margin part of the answer. And I would just say, if you think about the texture of we find talent to put to work, we certainly can. If you look at our consultant headcounts, there -- our bill rates are up a little bit and that's certainly a little bit part of the revenue story, but the real part of our revenue (Technical Difficulty) staff of business are on our statement of work business. And so I think that underlies the fact that we're still able to identify and find the talent and put them to work at our customer.

Mark Marcon -- Robert W. Baird & Co -- Analyst

On the staff of business, are you seeing any sort of change in terms of the behavior of the contractors in terms of how long they're staying on assignments or if they're getting (Technical Difficulty) anything along those lines.

Theodore S. Hanson -- President

Yeah, I don't believe there's any material change there. Mark, I mean obviously it's a more active marketplace that we have to be more attentive to that. And if we feel like there is an issue there, we have to proactively go to our customer and think what does that mean on the pay in the build side and kind of work through that. So I think the burden is on us with our customer and consultant to be more active in a way around that, but I don't think that we see a -- something there that's too much different than what we've seen in past economic times.

Randolph C. Blazer -- President, Apex Systems, LLC

Ted if I could. I agree with Ted 100%, but what I will say is the bigger accounts, the Fortune 500, they are willing to go longer with assignments because they don't want to go through the flux of the tight labor market. So we're seeing a slight inch up in the duration of staffing assignment strictly in this staff accounts which is good.

Mark Marcon -- Robert W. Baird & Co -- Analyst

Okay, great. Absolutely. And then George on ECS, are you seeing, in other words, discussion during the prior quarter about the pass through revenue coming through, and obviously that's a greater portion with regards to some of the AI and ML type contracts or how should we think about that on -- over the next coming years or so in terms of how that ends up changing?

George Wilson -- President, ECS Federal, LLC

Yeah, sure, It's going to be a constant part of our business because in delivering some of these complex solutions that we are, requires us to work with commercial and other government vendors of some pretty unique software and hardware as we deliver these things, particularly in AIML. What we have learned is that and what we're seeing is that there's a little bit of seasonality associated with the licenses purchases and such, and we did see that last quarter of last year, we'll probably see that again in the final quarter of this year and also some other purchases maybe in the third quarter of this year. So we're trying to get a little bit better handle on when and how we do these purchases and how we can forecast them for you all. But there will be a constant part of our business moving forward as long as we're delivering some of these complex systems.

Peter T. Dameris -- Chief Executive Officer

Yeah and to kind of quantify it for you, we told you on the fourth quarter call that the pass-throughs were higher than normal on a quarterly basis, but I think we gave you that it typically runs somewhere between 11% and 22% of revenue. Is that about right George and this quarter would have been on the lower end of that number, right?

George Wilson -- President, ECS Federal, LLC

Yeah. This quarter is definitely a lower end of that number. Q4 was a watermark for us.

Peter T. Dameris -- Chief Executive Officer

Yeah.

Mark Marcon -- Robert W. Baird & Co -- Analyst

Thank you. I appreciate the color. Again, Peter, best wishes.

Peter T. Dameris -- Chief Executive Officer

Thank you, Mark.

Operator

And your next question comes from Cliff Greenberg. Please go ahead.

Cliff Greenberg -- Baron Small Cap Fund -- Analyst

Yeah, just -- hi Peter and team. Peter, on behalf of Baron Capital and the shareholder fund, holders in my mutual fund, I want to thank you very much. It's been a great privilege to be your shareholder over the last six years. How we've made 3.5 times our money, which is a great return. I view you as one of the top executives I ever had the privilege to invest with. You built a tremendous business that has a great future and highly strategic and skilled in assembling these assets and also in grooming great executives. I look forward to Ted taking us from here, and I wish the best health for your family and your son and we will stay in touch.

Peter T. Dameris -- Chief Executive Officer

Thank you, Cliff.

Cliff Greenberg -- Baron Small Cap Fund -- Analyst

Yeah. Bye, bye.

Operator

The next question comes from Seth Weber. Please go ahead.

Seth Weber -- RBC Capital Markets -- Analyst

Hi, good evening. Peter, I just wanted to echo best wishes as well. Question I guess for either George or the team, just any early success in cross-selling the ECS platform with Apex with any of the bigger commercial customers yet or is that still kind of still in the early stages?

Peter T. Dameris -- Chief Executive Officer

So Seth, this is Peter, and then I'll let George respond. Unfortunately, it's a good thing, but both of these companies have more than they can say grace over. Apex was faster growth in the same billable day basis on a consolidated basis. And as you know, it's a tight labor market. And ECS is growing above its own industry growth rate. And so we are measured and we will continue to be measured about how we try to cross-sell one another services, because the worst thing you can do is over promise and under deliver. So those conversations are being had. We're trying to coordinate.

I would tell you more of the conversations around where ECS used a look-alike Apex company as a subcontractor to themselves prior to the acquisition that we're trying to default to Apex. And then the second is, the ECS has built a little bit of revenue outside the federal intelligence space with commercial companies, Yum! Brands, Hilton Hotel Grand Vacations. And to the extent that we don't overstretch ourselves, maybe addressing some of Apex's customers on some cybersecurity needs, but it's -- some people to focus for this, but it's measured in its market opportunity, but it's being done thoughtfully so that we don't over promise and under deliver because of the real reality of a tight labor market and be able to staff these projects appropriately.

Seth Weber -- RBC Capital Markets -- Analyst

That makes sense. Thanks, Peter. Maybe just a quick follow-up. I know it's not a big -- big end market exposure to you -- for you, but any comments on Europe. I know you have a little bit of exposure there with the Oxford business. There's been some kind of mix messaging around Europe lately. Just wondering if you had any particular views?

Theodore S. Hanson -- President

Yeah, we have that, not our biggest business, but we have a business in Europe, which is -- which you correctly stated is Oxford. I'd say that marketplace starts, we see a steady on other news over there that there are certain things going on and we certainly are watchful of all that, but our customers continue to need our IT services that Oxford provides and...

Peter T. Dameris -- Chief Executive Officer

(inaudible) performed.

Theodore S. Hanson -- President

It continues to -- when we talk about business mix inside of Oxford, it is growing a little bit faster than the US business. And so it's a little bit of what you're seeing within the margin.

Seth Weber -- RBC Capital Markets -- Analyst

Good to hear. Thank you very much guys.

Operator

And there are no further questions at this time. Please proceed.

Peter T. Dameris -- Chief Executive Officer

All right. Well, we thank you for your time and attention, and Ed looks forward to reporting our second quarter results shortly. So all the best to everyone and thank you again for the privilege of being able to work with each and every one of you.

Operator

And that does conclude our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect.

Duration: 51 minutes

Call participants:

Kimberly Esterkin -- Investor Relations

Peter T. Dameris -- Chief Executive Officer

Theodore S. Hanson -- President

Randolph C. Blazer -- President, Apex Systems, LLC

George Wilson -- President, ECS Federal, LLC

Edward L. Pierce -- Executive Vice President and Chief Financial Officer

Gary Bisbee -- BofA Merrill Lynch. -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Edward Caso -- Wells Fargo Securities. -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Tim McHugh -- William Blair & Company. -- Analyst

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Mark Marcon -- Robert W. Baird & Co -- Analyst

Cliff Greenberg -- Baron Small Cap Fund -- Analyst

Seth Weber -- RBC Capital Markets -- Analyst

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