Greetings and welcome to the ASGN Incorporated Second Quarter 2020 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Kimberly Esterkin, from Investor Relations. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us today for ASGN's Second 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 measures. Reconciliations between the GAAP and non-GAAP measures are included in today's press release. I will now turn the call over to Ted Hanson, President and Chief Executive Officer.

Thank you, Kimberly, and thank you for joining ASGN's Second Quarter 2020 Earnings Call. ASGN's business demonstrated solid resiliency in the second quarter. Our scale, high-end IT service offerings, and large and diverse client base, including over 60% of the Fortune 500 as well as key federal defense and civilian government agencies, provided stability and positioned us well to serve our clients despite the challenges of COVID-19. For the quarter, revenues totaled $936.8 million, down 3.6% from the prior year. Our commercial business, which includes our Apex and Oxford segments, accounted for 74.4% or $697.1 million of consolidated revenues; while our government business, our ECS segment, accounted for 25.6% or $239.7 million of consolidated revenues. Adjusted EBITDA totaled $106.2 million for the second quarter and represented a solid margin of 11.3%. Although we did not provide formal guidance for the second quarter, our results came in well ahead of the midpoint of the illustrative scenarios we provided. Revenues were 4.1% higher, and adjusted EBITDA margins were 110 basis points higher. Looking at the cadence of revenue during the second quarter, April proved to be a challenging four weeks for the commercial market, while our government business remained strong and continued to perform above expectations. Declines in our commercial business continued through the first half of the quarter, flattened in the second half, and have remained stable through the first three weeks of the third quarter. Our government business remained resilient throughout Q2. Strength in the second quarter was driven largely by industry-leading performance of the ECS segment, which was up 25.8% over the prior year; and the strength of Apex Systems, which only declined 3.4% year-over-year. ECS and Apex Systems together comprise roughly 80% of our consolidated revenues. As I emphasized last quarter, ASGN continues to see the benefit of the strategic initiatives we have undertaken to evolve and strengthen our business model. We've become much more IT-centric, and in doing so, expanded and increased market share in our large camp portfolio. Through the ECS segment, we also have significant exposure to the federal government marketplace, a sector that is typically more insulated from economic volatility than commercial industry verticals. Last but not least, we've continued to increase our high-end IT solutions capabilities. Each of these strategic developments has positioned ASGN not only for stability during the current downturn but also for strength in the future recovery. In terms of bidding activity, our pipeline of new business remains solid. We are witnessing an accelerating trend toward digital transformation as our clients push forward strategic initiatives to deepen our customer experience and engagement, increase their businesses' agility, and decrease the time needed to get their products to market. Services related to project management, data analytics, web development, artificial intelligence, machine learning, cloud, and cybersecurity are increasingly in demand. Our clients' IT challenges are also becoming much more complex. We are finding customers awarding more work to firms with multidisciplinary skill sets and broad ranges of IT expertise with characteristics that differentiate ASGN from our competitors. Government contracting remains steady with bids and processes continuing to flow. Like the commercial end markets, IT modernization remains important for our government clients. The federal government is about 5 to 7 years behind the commercial market in IT modernization, including cloud adoption, with only a portion of federal agencies having migrated to the cloud. The increased desire to transition to the cloud, along with the mission-critical sensitive nature of the information held by the government, is creating a strong demand for ASGN's sophisticated cybersecurity capabilities and managed services. Importantly, given the market conditions, our clients are as open as ever to remote work. ASGN is fortunate to have one of the largest, most skilled contingent labor forces available for teleworking today. We shifted our internal workforce to 100% remote in mid-March. And over 80% of our billable consultants also continue to work remotely, with only a small portion of the central staff still on-site with the required safety protocol. Along with our solid business pipeline and diverse client base, our flexible cost structure and robust free cash flow continue to provide stability to our business. Our free cash flow generation is our principal source of liquidity and underpins our strong borrowing capacity. In the second quarter, we generated $178.8 million in free cash flow, up 102.7% year-over-year. We also had $207.9 million in cash on the balance sheet as of June 30. As of quarter end, we had no outstanding borrowings under our $250 million revolving credit facility and have full availability under that facility. Nevertheless, a moderate amount of debt has always been part of our balanced capital structure and supports our ability to make strategic acquisitions. Our acquisition pipeline is active, and acquisitions remain an important part of our long-term growth strategy. With the cash we have on hand, what we expect to generate in the second half of the year, and our borrowing capacity, we have significant capital resources to deploy on M&A or stock repurchases, depending on what makes the most strategic sense for our business at the time. With that as background, let's talk about our segment performance for the second quarter. Apex, our largest segment, which includes Apex Systems and Creative Circle, services clients across multiple commercial end markets. For the second quarter of 2020, the segment generated revenue of $576.9 million, down 8.2% year-over-year. As I noted earlier, Apex Systems declined only 3.4% year-over-year. Creative Circle saw double-digit declines, with the deepest decline among ad, event, and permanent placement services. Digital-related scale placements, however, held up during the quarter. Fortunately, both Apex Systems and Creative Circle revenues appeared to level mid-second quarter. In June, Apex Systems' revenue started to improve, while Creative Circle's revenues held steady without further weekly declines. Before speaking to industry trends for the quarter, a quick housekeeping note. Beginning in the second quarter, we are now classifying Apex Systems' revenue into five industry verticals compared to the eight verticals previously provided. These consolidated verticals offer a better indication of how we internally view our business. Life Sciences is now categorized in the healthcare industry vertical. Telecom is included in the technology, media, and telecom or TMT vertical; and aerospace and defense is part of business and government services. Additional information on these verticals can be found in our earnings supplemental presentation for the second quarter, which has been posted on our investor website. Now back to vertical performance for the quarter. Two out of the five industry verticals for Apex Systems, including Financial Services and Business and Government Services, saw revenue growth during the quarter. The remaining three verticals, Healthcare, Consumer and Industrials, and TMT, declined year-over-year, though each of these verticals did see some acceleration of business in June. In the consumer and industrial space, as anticipated, retail, energy, hospitality, and transportation, including airlines, were all down in the second quarter. Top accounts achieved low single-digit growth rates for Q2, while retail and branch accounts declined in low double digits. Gross margins for the Apex segment were 29.6%, down slightly year-over-year due primarily to the lower permanent placement mix in Creative Circle. Contract gross margins across the segment held steady. EBITDA margins for the Apex segment were flat from a year ago, while Apex Systems' EBITDA margins increased significantly year-over-year, highlighting the resiliency of its variable cost structure. Importantly, we also continue to grow our commercial consulting business. Consulting work through the Apex and Oxford segments combined totaled $96.4 million for the second quarter, up 2.8% year-over-year. Although the growth rate in consulting revenue for the quarter was single digits, bookings increased each month throughout the quarter, with June being the strongest month. Additionally, our pipeline of consulting work continued to increase for the quarter at double-digit rates year-over-year. We expect that our high-end consulting offering will remain an important source of value we provide our clients going forward. We are finding more consulting market share being garnered by firms that are positioned around new technologies or next-gen processes for the cloud, SaaS applications, and data analytics, in particular. So we've continued to ensure that our consulting teams are well versed in these offerings. Throughout the quarter, the Apex segment sought new clients and provided added solutions to existing clients. As I noted previously, digitization projects remain in high demand. For a Fortune 500 business services account, for example, we updated their e-commerce platform, improving user experience and moving their online payment and invoicing features to the cloud. These types of services are part of our digital road map approach in which we support the streamlining and integration of our client systems. Our work for this project was very cost-effective as we use both onshore and nearshore resources by capitalizing on the capabilities of our Mexican Development Center. As I mentioned on our Q1 call, as a result of current market conditions, we are having more discussions with our clients about reshoring their capabilities. Our near-shore Mexican Development Center provides a great alternative to many of Apex and Oxford U.S. clients when traditional outsourcing offshore may not be feasible or comes with newfound challenges. Let's now turn to ECS, which provides mission-critical solutions to the federal government, including the Department of Defense, intelligence agencies, and other civilian agencies. ECS continued to achieve industry-leading growth for the second quarter of 2020 and reported revenues of $239.7 million, up 25.8% year-over-year, driven by the continued high demand from federal government customers for machine learning and artificial intelligence services, a higher volume of cloud services and solutions, new opportunities presented by our acquisitions in the government space, and the contribution from Blackstone Federal, which was acquired in the first quarter. Consistent with the first quarter, in Q2 2020, ECS did not see any material changes in revenue or backlog as a result of COVID-19, due in large part to the stability of the government sector. Business in the ECS segment progressed as usual, with the exception of an increased number of professionals teleworking. Less than 1% of ECS employees are working on site. ECS' new business pipeline remains robust, with no slowdown in customer requests for proposals during the second quarter. Though we have seen some of the work we anticipated would be put up for recompete get pushed back or simply extended. The segment was awarded $175.7 million in new business and achieved a book-to-bill of 0.7:1 for the second quarter. On a trailing 12-month basis, ECS' book-to-bill was a healthy 1.7:1, or a contract backlog coverage ratio of 2.9x. Key contracts in Q2 included a significant expansion of machine learning services under a new contract within the Department of Defense, along with three contracts awarded by the Department of Homeland Security, one for specialized architecture and engineering services; another for high-end design, development and cloud migration of business applications; and a third for data modeling, business architecture, and policy reengineering expertise. In addition to contracts won in the second quarter, ECS was named first among the top 100 vertical market managed service providers for the second year in a row and recognized as part of an elite group of Amazon Web Services Managed Service providers for the sixth consecutive year. Turning to our last segment, Oxford. Oxford offers on-demand consulting talent for commercial, IT, healthcare, life sciences, and engineering clients, as well as permanent placement talent through our CyberCoders division. The segment reported revenues of $120.2 million for the second quarter of 2020, down 21.5% year-over-year. This decline includes an over 40% reduction in permanent placement services, which on a consolidated net basis now only comprised 2.2% of revenues. As we enter the third quarter of 2020, it is clear that the COVID-19 pandemic will continue to impact our economy. Nevertheless, based on the trends we are currently seeing, along with the staggered reopening of the U.S. economy, we believe that we now have enough visibility to reinstate quarterly guidance for the third quarter. Ed Pierce, our CFO, will speak to our expectations shortly. I remain confident in ASGN's long-term growth capabilities. We are in the right industry, IT services, at the right time. We have a large and diverse client base bolstered by the stability of government sector work and large commercial clients. Our contract deployment model, combined with a flexible cost structure, provides further stability to our business. With that said, I'd now like to turn the call over to Ed Pierce, our CFO, to discuss our second quarter performance and third quarter guidance in further detail. Ed?

Thanks, Ted. Good afternoon, everyone. Revenues, margins, profitability, and operating cash flows for the quarter exceeded our internal expectations and were better than the possible outcomes we outlined in our illustrative financial scenarios for the second quarter. Revenues for the quarter declined by 3.6% year-over-year. Revenues from our commercial divisions were largely in line with our internal expectations and exceeded our forecasts for ECS. Revenues from Apex Systems, our largest division, which represented 54.3% of total revenues, fell by only 3.4%. Revenues from ECS, our second largest division, which accounted for 25.6% of total revenues, rose by 25.8%, fueled by strong growth in its artificial intelligence and machine learning solutions, new contract awards, and contributions from Blackstone Federal, which we acquired in Q1. Revenues from our other divisions, which made up 20.1% of total revenues, decreased by 26.2%. Gross margin for the quarter was 27.8%, down year-over-year due to a decrease in permanent placement revenues and the significant growth in ECS. Permanent placement revenues typically yield nearly 100% gross profit, and the gross margin at ECS is lower than our commercial divisions. However, ECS' gross margin is competitive compared to other government services contractors, and its EBITDA margin is only slightly below our consolidated margin. Our contract gross margin, which excludes permanent placement, was 26.2% for the quarter, a decline of about 30 basis points year-over-year. The contract gross margin for our commercial divisions increased by 40 basis points to 29%, while ECS maintained a gross margin of 18.3%, consistent with Q2 of last year. SG&A expenses for the quarter totaled $172.2 million, representing 18.4% of revenues, reflecting a year-over-year improvement of approximately 200 basis points in expense margin. This improvement was driven by lower incentive compensation, primarily those incentives linked to revenue growth or adjusted EBITDA, as well as decreased travel, entertainment, healthcare, and stock-based compensation expenses. Net income was $48.8 million, showing a 13.3% year-over-year increase despite lower revenues and gross profit. The rise in net income was mainly due to reduced SG&A and interest expenses. Adjusted EBITDA for the quarter was $106.2 million, with an adjusted EBITDA margin of 11.3%, or 110 basis points above the midpoint of our illustrative scenarios. This favorable change was primarily influenced by lower-than-anticipated SG&A expenses and a stronger-than-expected contract gross margin for our commercial divisions. Cash flows from operating activities reached $186.1 million, benefiting from lower working capital needs corresponding with the decline in revenues and gross profit, a reduction in accounts receivable DSO of 3.2 days, and a deferral of $31.1 million in FICA taxes as permitted by the CARES Act. At the end of the quarter, cash and cash equivalents were $207.9 million, with no outstanding borrowings under our $250 million revolving credit facility. Our senior secured debt leverage ratio was 1.1:1, significantly below the maximum allowable ratio of 4.25:1. A few comments on recent production data. As we noted in last quarter's call, we began observing weekly revenue declines in our commercial divisions in mid-March due to the pandemic, which continued into the first half of the second quarter. In the latter half of Q2, weekly revenues stabilized and have remained steady through the first three weeks of July. During the same timeframe, ECS continued to see double-digit growth. As Ted mentioned, we are providing formal financial guidance for the third quarter. These estimates, included in our earnings release and supplemental materials, are based on current production trends and assume no significant market deterioration. The estimates reflect the situation as of the earnings release date. Consequently, any worsening of the COVID-19 pandemic may negatively impact our results for the remainder of the quarter. The midpoint of our estimates anticipates that current production trends for our commercial division will continue and that ECS will achieve double-digit year-over-year growth for the quarter. We anticipate total revenues for the third quarter will be flat to down sequentially and will decline by 6.5% to 8.9% year-over-year, influenced by the effects of COVID-19 and challenging comparisons from the previous year due to high single-digit growth in our commercial business in the third quarter of last year. Thank you for your time. I will now turn the call back over to Ted for closing remarks. Ted?

Thanks, Ed. ASGN is now in a better position to manage an economic downturn than any other time in our company's history. Despite some uncertainty remaining, our visibility has improved, and we now have a better sense of how our business is trending as we enter the second half of the year. We continue to evolve our business as a foremost provider of IT consulting solutions and services to the commercial and government industries. Our business model remains resilient. Going forward, we will work to maintain our unique market position, leveraging our long-standing commercial and government client relationships and deploying our in-demand IT services such as Cybersecurity, Cloud, computing, and mobility through the organic growth of our business. We also remain acquisition-ready. You may have heard me speak about our M&A strategy before, but ASGN does not look for distressed assets. We seek to add high-quality, industry-specific IT solutions in the commercial and government spaces to our service offerings. We will maintain our smart capital allocation, generating strong liquidity and using our free cash flow for M&A or stock repurchases depending on what is in the best interest of our company and our stockholders at any given time. Speaking of doing what is in the best interest of our company and our clients, we have officially changed our corporate headquarters' address from Calabasas, California to Richmond, Virginia. With two of our largest divisions, Apex Systems and ECS, based in Virginia, it made strategic sense that our headquarters be located in the commonwealth. This change in address allows us to remain close to our key customers, brands, and their respective management teams. Ultimately, as we look forward to the second half of the year, it is still my belief that the real rate of return of the economy will be based on how fast this healthcare crisis is resolved. Even with the present uncertainty, we continue to execute against our current contracts, safely leveraging our contingent labor force to drive profitability and margin stability for our company. As it relates to inorganic growth, we will continue to push forward developing M&A opportunities that expand our capabilities and add key clients and contracts to our business pipeline. We have an exceptional team in place who has gone the extra mile to ensure that our business continues to run smoothly and that our clients' critical IT needs remain our top priority. I note that we are positioned to emerge from the current situation even stronger than before, and I'd like to thank all of our employees for your dedication to ASGN this past quarter and always. On behalf of our entire company and our Board of Directors, we thank you for your continued support. We hope you're all safe and staying healthy. We will now open up the call to your questions.

And our first question is from Edward Caso from Wells Fargo.

This is Justin Donati on for Ed. Really good performance here this quarter with revenue and margin in particular. Just wondering if you could give a little bit more color around the margin in Q3. It looks like it may be a little bit weaker. What areas are you seeing that might be a little bit weaker relative to the other segments? Hello, can you hear me? Ted and Ed, are you back on?

Did we lose, Ted?

No, I'm here.

Okay. There we go. Can you hear us now?

Have you heard the question?

I heard your question. Yes. Justin, I believe there are two things happening here, and I'll let Ed elaborate. We are undergoing a shift in our business mix, which will affect our margins compared to previous quarters or last year. Additionally, we had an unexpectedly strong quarter in EBITDA margins from Apex due to their business flow and lower costs in the second quarter, which we think may not carry through into the third quarter. Ed, do you want to add to that?

Yes, Justin. If you consider the midpoint of the range we provided for gross margin, there's approximately a 10 basis point difference compared to our actual results for Q2. A significant factor is that we expect ECS to grow at a faster rate than our other units, which will increase its share of the overall mix. This is a major contributor. Regarding the bottom line or EBITDA margin, we experienced lower healthcare costs in Q2, although we expect slightly higher healthcare expenses in Q3. These are the main reasons for the observed difference in the margin.

Great. That's really helpful. And then just as a follow-up question. Given the strong bookings that you had in your consulting business, when do you see that potentially returning to double-digit growth or maybe even better where it was pre-COVID?

Yes. Rand, do you want to talk about that?

Yes. I think there are two parts to this. First, regarding the commercial units, particularly the Apex side, we are nearing double-digit growth and should return to that level, especially in the second half of this year. For our other units in the commercial sector, such as Oxford and Creative Circle, it's a bit uncertain. It will depend on the marketing function and how it starts to respond. While we are seeing stability in our business flow in Creative Circle, it has not yet resulted in similar outcomes for consulting, as is the case with Oxford and some of their niches. I certainly hope we will be back to double-digit growth by the second half of the year, and I believe Apex will contribute to that. However, we still need to monitor the other areas.

All right. Really appreciate it, and congrats again.

Our next question is from Kevin McVeigh from Crédit Suisse.

Congratulations on the results. Ted, you mentioned M&A a couple of times. And then the buyback, you folks have really done a nice job over the course of time and transformative deals. Appreciating that you're not looking for anything necessarily distressed, but can you help us frame out what kind of the parameters would be depending upon the size? And do we see the appetite given how strong the balance sheet is to do buyback and M&A? Just any thoughts around that would be really helpful, particularly given how strong the results have become.

Thank you, Kevin. I believe acquisitions and share repurchases can coexist, depending on the timing. For this quarter, we decided to build cash on the balance sheet rather than pursuing our buyback plan further. We always hope to see developing acquisition opportunities, as these typically offer the highest returns, which we've demonstrated over time. Our current acquisition strategy focuses on identifying smaller opportunities that enhance our industry-specific capabilities. While these may not be large platform acquisitions, they can support our commercial and government sectors. Our attention is on building a strong pipeline, and we are prepared for acquisitions. We recognize some gaps that we can fill to address existing opportunities in our current client portfolio and pipeline.

That helps. That helps. And then, I guess, you talked about an accelerating trend towards kind of digital transformation amongst your clients, maybe just flesh that out a little bit. And then just if you could maybe reconcile it, it sounds like Creative Circle still may not be where you need it to be. Maybe just help reconcile some of the gaps in Creative Circle relative to the strength you're seeing on the digital transformation side.

Yes. Well, look, I mean, I think it goes without saying that the current situation we're all in because of COVID-19 and the shutdown of the economy, it's pushed our large customers, both in the commercial marketplace and the government marketplace, into remote work scenarios. And that has accelerated, if you will, the need to be able to have remote capability for security around that. It's enhanced opportunities to utilize the cloud, and it's also started conversations around reshoring certain work that was done offshore. So I would say that none of those were new trends, if you will, coming into COVID, but I would say just mostly, those things have been accentuated. If you think about Creative Circle individually, I mean they basically in their business have traditionally served kind of bread and butter marketing and events and also digital skill sets. And what they're seeing in their business today are digital skill sets around UI, UX and other like things that are in high demand with their clients. But the other two buckets of their business have been more slow as you go. It's something easily turned off by clients when they're worried about their own business. So that will flush itself all the way out here as we go. And the small and mid-market accounts upgraded will come back and begin to spend on their services. In the meantime, it gives them a chance to focus on their large account portfolio and develop that further and really hone in on opportunities around digital skill sets and digital work that will relate to the creative marketing space.

And our next question is from Gary Bisbee from Bank of America Securities.

I have a question about the impressive growth at ECS. You mentioned several factors contributing to this, including the acquisition in the first quarter. Can you provide more details? In the past, when you've experienced significant growth, you've referred to some hardware and software that support the contracts, which can be a bit inconsistent. Was there anything significant in that regard, or is this mainly due to a broad acceleration in the business along with the M&A?

Yes, Gary, thanks for the question. I'm going to let George speak to this. Although on the top of it, I'll say we're really excited about how ECS is performing. And while we set your long-term view of kind of high single-digit growth and then a complement of M&A to go with that, we'll get higher growth rates when we can, and ECS certainly has been doing that. George, do you want to talk a little bit about just the components of growth for the quarter?

Yes, sure. Thank you, Ted. And thank you, Gary, for the question. Yes, I would characterize it as more broad and not anything in particular, anything specific. We have, and we do continue to have a strong component of software and hardware and subcontractors in our solutions, where we approach the customer, helping them solve their difficult problems. We're always reaching out and using subcontractors and the best technologies that we can provide. But overall, it's been across the board in a broader executionable mission. So that provides a little bit more color for you. Is that what you're looking for?

Yes, and perhaps a follow-up on ECS. I understand that your contracts are resilient regardless of external factors. As you consider the upcoming election this fall, is there anything that might influence your business strategy, demand, or any outcomes we should keep in mind regarding a potential change in the administration?

Yes, I believe there will be significant discussion on this topic over the next few quarters, but I feel confident in our current position. We have a diverse portfolio that includes both defense and federal civilian sectors. In defense, we are focused on IT modernization and cloud cybersecurity, which are essential and not likely to diminish. Additionally, our efforts are centered around technical solutions rather than managing large overseas operations. I think both political parties recognize the importance of what we do. On the federal civilian side, while some initiatives may shift depending on the administration, we are very comfortable with our standing in high-end solutions that address our customers' toughest challenges. I don’t anticipate major changes in defense spending in the next several years.

Great. If I could just ask a quick question for Ed. The SG&A was well controlled given the strong revenue. How do you see some of those costs returning as we move forward? I believe I heard someone mention that at Apex, we might not see as much benefit to the margin in Q3. Any insight on how we should think about the timing? I understand that revenue is a key factor, but that would be helpful.

Gary, I think as it relates to phasing, I don't think you're going to see much sort of change that will occur in the second half of the year. But clearly, as we continue to add to our headcount, as we see demand in the marketplace, you're going to see headcount costs go up. Okay. But we've spoken many times about the variable nature of our cost base, so you have a pretty good sense of that. But in terms of fixed cost, I think headcount would be the big driver.

Yes, Ed, I just want to add that we have the ability to increase productivity and move forward. So Ed is correct, we will add resources in a moderate way where we need to support specific accounts or opportunities. However, I don’t want to give the impression that we are planning significant hiring in anticipation of a surge. That is not our current situation.

Our next question is from Seth Weber from RBC Capital Markets.

This is Emily McLaughlin on for Seth tonight. My first question, in the prepared remarks, Ted talked about top accounts growing low single digits and retail and branch accounts down low double digits. Wondering if there's any notable divergence in recent production trends between these two groups.

No. I think that's what you've seen from us for a couple of quarters here. And certainly, if you just think about the parts of the economy that have been the most affected, obviously, small and mid-market accounts, which we refer to as retail accounts, have been impacted more than large accounts. So while the rates of growth differ, I believe it's not significantly different from what we've observed.

Okay. And just are you seeing anything in terms of price concessions on the commercial side? I think last quarter, it sounded like some of the smaller accounts were asking for concessions. Just wondering if that's continued or lessened relative to a few months ago.

Overall, our contract margins have remained very stable. We've even seen a little tick-up. But Rand, do you want to talk about client account concessions on the commercial side specifically?

Well, no, I think you hit it, Ted. In Apex, the gross account margins are increasing. We always have accounts that are looking for specific things, and they often have short-term targets. We will adjust based on the account's strategic importance and what we can offer. However, our margins have remained very stable and have even increased slightly.

Our next question is from Tobey Sommer from SunTrust Robinson Humphrey.

I was wondering if you could give us some color on why the Oxford and Apex businesses are performing differently and if you see them kind of converging at all over the near term.

The two main differences between the Apex and Oxford businesses relate to the size of the accounts they serve. Apex primarily caters to Fortune 500 and 1000 companies, while Oxford mainly focuses on middle market and smaller retail accounts. Additionally, Apex addresses all IT needs of CIOs to support their operations, whereas Oxford specializes in providing individual, hard-to-find niche technical talent. These are the two key factors driving the differences in performance.

And on the consulting side, the rate of growth did slow. Was the single-digit rate of growth, is that an organic number? Or does that include some acquisition from some acquisition contribution? And then what drove that? Was that kind of a slowdown of existing projects, cancellations? Could you speak to the reasons for the slowdown?

Rand, do you want to take that?

Yes, let me start by saying that the number reflects everything, including the Intersys acquisition, which we don't separate out because we've integrated them to support most of our pipeline and opportunities. While Intersys does contribute some revenue, it's not the main factor; we've successfully generated new consulting business through our own efforts. We consider it all as one total. Also, if you recall from the end of last year, particularly in the fourth quarter, our bookings growth wasn't as strong as previous periods, although it was still up year-over-year. The comparisons for us in the consulting business are quite challenging. I believe that slowdown at the end of last year impacted our growth rate in the first two quarters of this year, alongside the effects of COVID-19. However, as Ted mentioned, our bookings are now showing signs of accelerating growth, particularly by the end of Q2. To address why our bookings slowed down at the end of last year, it's somewhat typical for companies to finish out their budgets before starting new ones in January, which leads to a slower start. By February, as they began to establish their budgets, they started reacting to the COVID-19 situation and adjusted their priorities accordingly. Between February and May, they worked through those adjustments, and we're now seeing an increase in bookings with our clients. Several factors played a role in this, and I don't want to overemphasize any one of them, but it's clear that our clients were cautious about their spending and reallocated funds. Overall, I feel more positive about the situation now than I did three months ago. Ted and I were aware of the slowdown in bookings during the fourth quarter, and we knew it would impact us down the line.

Our next question is from Jeff Silber from BMO Capital Markets.

I wanted to ask more of a philosophical kind of question that clients have been asking me, but let me ask you this question. So you talk about the shift to remote work, everybody is doing it, everyone is seeing it. Do you think if this is a more profound change that we might see clients use their own workforce remotely as opposed to outsourcing to firms like you? Do we see a shift there?

No. Well, look, I mean, certainly, they're going to be more open with their own internal workforce to allow them to work remotely. I'm sure we all will in certain circumstances. But I think that really, the driver behind using firms like us is you never have the right talent at the right time when you need it. So I think that most of this, if you will, is a supporter of demand for our services. And I think that in many different ways, clients are going to be as open or more open to use us, either for talent or to get certain solutions. And they're going to be more open-minded to look beyond having someone sitting within their four walls, which will allow us, in turn, to look in different geographies of the country for the right skill set, even at better price points at some time, which helps them and helps us. And again, will kind of support the demand equation of all this. So I don't really believe that working remotely necessarily as it relates to their internal staff is really going to have an impact, if you will, on the demand equation for the services we provide.

Okay. That's helpful. I appreciate that. You mentioned pricing, and I know a lot of times it has to do with mix, but I'm specifically focused on your assignment business. Are you seeing any less pressure from a wage inflation perspective given what's going on in the labor markets?

Yes. I believe that high-end IT skill sets are still in demand and were not part of the group that was furloughed. Looking ahead, I think both wage and pricing scenarios in that area will remain stable.

And our next question is from Mark Marcon from Baird.

Let me congratulate you on your performance. Can you discuss what you're observing with Apex Systems consulting, particularly regarding bookings? Specifically, for the upcoming quarter and the latter part of this year, do you anticipate that these bookings will grow sequentially, and how should we approach our expectations in that regard?

Sure. So Mark, we don't give out that information underneath the segment quantitatively, but I'll let Rand speak qualitatively about it and give you a sense of where it is.

Sure, Mark, I have to address this in a couple of ways. First, the flow of consulting revenue and bookings is driven primarily by the specific accounts. In sectors like transportation, some retail, and oil and gas, we’re not seeing much consulting business, similar to the situation in the staffing industry. There’s an industry-specific effect regarding the consulting we are witnessing. However, there are areas, specifically in government, business services, healthcare, wealth management, fintech, and regional banking initiatives, where consulting is beginning to recover. Analyzing by industry segment reflects what's occurring in our bookings and revenue, as it aligns with these industry trends. In terms of the type of work we are pursuing, it's closely aligned with the digital roadmap, which includes the digitization of businesses—whether that's web development, integrating web systems with order processing, billing, payment systems, and logistics. All this work is happening in the cloud. Looking ahead on the marketing front, we still have to learn how to utilize this information to better engage and generate demand from our customers, which many discuss, but we are still in the early stages of this kind of work. Ultimately, it's about digitizing business processes and connecting customers with suppliers and our workforce to enhance efficiency and speed.

Terrific. I appreciate that, Rand. Can you talk also a little bit about the trends that you're seeing, both in terms of industry verticals? You mentioned that across the commercial side, things stabilized in the second half of the quarter, and then that stabilization continued through July. Is that relatively uniform across the various industry verticals? Or are there some that are actually discontinuing to grow sequentially? And then some by consumer and industrials, that might even be softening a little bit further? And if there is a change along those lines, what are the longer-term implications? Or how should we think about that?

Well, Ted, do you want me to go ahead and respond?

Please.

Yes, Mark, there's a lot to discuss. We are managing within our commercial business units across 26 segments that fit into five industries. I would say we have observed some strength in different segments across these industries. In financial services, we're seeing activity in insurance, fintech, and wealth management, although it's slightly lower compared to the larger banks. In government, we are engaged with state and local entities, small businesses, and higher education, while our work with large integrators is a bit less impactful. Consumer industrials show a mixed picture; we're not seeing much activity in chemicals, gas, energy, airlines, or hospitality, but there is strength in specialty retail, e-commerce, tobacco, and logistics. Our telecommunications business is currently underperforming; while diversified telco is strong, wireless and media are lagging. In technology, both our small business technology sector and some of our significant clients are still performing relatively well. Healthcare providers are starting to recover slightly, and payers are also regaining footing, though they have been down over the last few quarters due to their focus on dealing with the virus. Overall, certain industries remain operational, and when we discuss stability in our consulting or assignment revenue, it's primarily from those industries that retain some strength, although some segments are still not bouncing back quickly. Does that clarify things for you, Mark?

Yes, I appreciate that insight. Regarding the recent resurgence of the virus, are you sensing any change in client attitudes? I know things have been stable for the past three weeks, but looking ahead to the latter half of this year, are clients expressing a more conservative outlook? Or is the push for digital transformation strong enough to outweigh any concerns they may have?

Rand, why don't you comment and then George will go...

Yes, I would say we're hearing a steady approach, with an emphasis on the digital side. If we maintain our position there, we will likely continue to be steady or see gradual improvements. George?

Yes. No, we're not seeing any impact to us on the upsurge in things. Our customers continue to focus and have us do things remotely. And as Rand said, the digital modernization on the technologies provide our solutions in being able to do that. So we continue to hire really great people and provide good solutions to the customers.

Great. And then what are you seeing in terms of acquisition multiples among the good, select types of companies that you would typically look at?

So Mark, I think on the debt side, the pace of acquisition has not slowed down. We've really seen no change there. On the commercial side, mainly due to issues around credit and the slowdown in private equity, there haven't been many transactions. It's difficult to really discern that, but we'll see more clarity as we move forward.

Great, and congrats.

We have reached the end of the question-and-answer session, and I will now turn the call over to Ted Hanson, CEO, for closing remarks.

Great. Well, we thank you for being with us this afternoon, this evening. And we wish that you stay safe, stay healthy, and look forward to speaking with you on our third quarter call. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.