Acquisition Expected to be Accretive to 2018
Adjusted EPS
On Assignment Announces Preliminary Fourth
Quarter of 2017 Financial Results
On Assignment to Change Name to ASGN
Incorporated
On Assignment, Inc. (NYSE: ASGN), one of the foremost providers
of IT and professional services in the technology,
creative/digital, engineering and life sciences sectors, announced
today that it has signed a definitive agreement to acquire ECS
Federal, LLC (ECS) from Roy Kapani, the company’s majority owner
and founder, and Lindsay Goldberg, a private investment firm, for
$775 million in cash. The transaction is subject to various
regulatory approvals and customary closing conditions and is
expected to close on April 2, 2018.
ECS, one of the largest privately-held government services
contractors, delivers cyber security, cloud, DevOps, IT
modernization and advanced science and engineering solutions to
government enterprises. Combined, On Assignment and ECS will be one
of the largest and fastest growing IT and professional services
firms in North America.
For the year ended December 31, 2017, ECS estimates its revenues
and Adjusted EBITDA (a non-GAAP measure) on a pro forma basis will
be approximately $586.4 million and $67.6 million, respectively.
Estimated pro forma results assume a business acquired by ECS in
April 2017 occurred at the beginning of the year. For 2018, ECS
expects high single-digit year-over-year revenue growth.
For the year ended December 31, 2017, On Assignment estimates
its revenues and net income will be approximately $2.6 billion and
$157.7 million, respectively and its Adjusted EBITDA (a non-GAAP
measure) will be approximately $311.4 million. On a pro forma
basis, which assumes the acquisition of ECS occurred at the
beginning of 2017 (a non-GAAP measure), On Assignment’s revenues
and Adjusted EBITDA are estimated to be approximately $3.2 billion
and $379 million, respectively. Additionally, the acquisition is
accretive to On Assignment’s 2017 Adjusted Net Income (a non-GAAP
measure).
Commenting on the acquisition, Peter Dameris, CEO of On
Assignment, said: “ECS’ government services solutions will
complement and elevate our offerings and strengthen our position as
a premium IT and professional services provider. Our addressable
end market is now $279 billion by virtue of our entering the $129
billion Government Services space. ECS’ long-term contracts, which
average 5 years in length, and robust backlog ($1.6 billion)
provide strong revenue visibility and mitigate volatility from
permanent placement revenue and a more challenging economic
environment.”
Dameris concluded: “All companies struggle with identifying and
attracting highly qualified technical personnel in today’s economy.
Our combined 24,000+ billable consultants, of which 2,900 maintain
security clearances, and our recruiting prowess will strengthen
ECS’ fulfillment capabilities, credentials and qualifications as it
competes for future awards.”
ECS has well established positions on critical IT systems of
national importance which provide unmatched customer access and
unique visibility into future technology transformation
initiatives. For example, ECS’ domain expertise in cyber security
for the defense industry will be immensely valuable to On
Assignment’s customers given the increased frequency and complexity
of cyber-attacks for customers everywhere.
ECS will become a division of On Assignment and continue to
operate under the ECS brand name. The CEO of ECS, George Wilson,
and the current leadership team will continue to execute the
strategy and oversee the day-to-day operations of the business.
“This acquisition immediately introduces a company with the scale,
contracts, capabilities, personnel, past performance and ability to
compete for the largest opportunities in the Federal market. The
entire team is energized about the possibilities.” said George
Wilson.
On Assignment intends to change its name to ASGN Incorporated to
better reflect its evolving position as a leading provider of human
capital in IT and Professional Services Solutions effective April
2, 2018.
Commenting on the name change, Peter Dameris said: “On
Assignment commenced operations as a life sciences staffing firm in
1985 and has since evolved its offerings to include technology,
creative/digital, engineering and scientific solutions. As our
company has grown over the last 33 years, we believe it is the
right time to change our name to better reflect our path forward.”
Dameris concluded: “Our success is the direct result of the hard
work of our many dedicated employees and billable professionals and
I would like to thank the entire organization for its continued
commitment to excellence.”
Transaction Details
Under terms of the definitive purchase agreement, On Assignment
will acquire all of ECS’ equity for $775 million to be paid at
closing.
In connection with the transaction, On Assignment has obtained a
$1.6 billion financing commitment from Wells Fargo. The committed
financing consists of a $200 million revolving credit facility
(undrawn at close) and a $1.4 billion term B loan. We may complete
a portion of the financing through an amendment to our existing
facilities and expect to issue a new 7 year term B loan to fund the
acquisition and to pay related transaction costs. Upon closing,
funded debt is expected to total approximately 3.7 to 1 estimated
pro forma Adjusted EBITDA for the year ended December 31, 2017.
For income tax reporting purposes, the acquisition will be
treated as an asset purchase, resulting in tax basis in the
intangibles assets acquired. This “step-up” in tax basis is
expected to result in an annual cash income tax savings of
approximately $12 million over the next 15 years from the
amortization of these assets for income tax purposes.
Preliminary Financial Results for Fourth Quarter of
2017
In connection with the announcement of the transaction, On
Assignment is providing preliminary financial results for the
fourth quarter of 2017. These results are subject to completion of
the Company’s financial and accounting procedures and the annual
independent audit. On Assignment anticipates reporting its complete
financial results for the fourth quarter and year ended December
31, 2017 on February 14, 2018.
The preliminary fourth quarter results compared with
previously-announced estimates are as follows (in millions, except
per share amounts):
Preliminary
Results
Previously-Announced Estimates Revenues $ 679.0
$658.0 to $668.0
Net Income
$
67.3
2
$61.4 to $66.2 Adjusted Net Income (non-GAAP measure)1
$
76.0
2,3
$69.4 to $74.1
Income per diluted share:
Net Income $
1.28
2
$1.17 to $1.26 Adjusted Net Income (non-GAAP measure)1 $
1.44
2
$1.32 to $1.41
Number of shares and share equivalents
used to calculated diluted earnings per share
52.8 52.5
Adjusted EBITDA (non-GAAP measure)
$
82.9
4
$77.5 to $80.5
Non-cash tax benefit related to recently
enacted Tax Cuts and Jobs Act
$ 31.4 $30.5 to $33.5
____________
1
Does not include Cash Tax Savings on
Indefinite-lived Intangible Assets. These savings total $6.8
million, or $0.13 per diluted share, and represent the economic
value of the tax deduction that we receive from the amortization of
goodwill and trademarks.
2 Includes excess tax benefits related to stock-based compensation
of $2.5 million (the tax effect of the difference between book and
tax expense for stock-based compensation), which were not included
in our previously-announced estimates. 3 Adjusted Net Income is
calculated as follows: Net income plus (i) $8.4 million
amortization of intangible assets, (ii) $0.9 million acquisition,
integration and strategic planning expenses and (iii) $0.1 million
loss from discontinued operations; less (i) $0.4 million income
taxes on amortization not deductible for income tax purposes and
(ii) $0.3 million tax effect on acquisition, integration and
strategic planning expenses. 4 Adjusted EBITDA is calculated as
follows: Net income plus (i) $8.4 million amortization of
intangible assets, (ii) $6.7 million depreciation, (iii) $6.1
million stock-based compensation, (iv) $6.0 million interest
expense, (v) $0.9 million acquisition, integration and strategic
planning expenses and (vi) $0.1 million loss from discontinued
operations; less $12.6 million income tax benefit.
For the full year 2017, the Company estimates its net income and
Adjusted EBITDA will be approximately $157.7 million and $311.4
million, respectively, and its cash flows from operating activities
and free cash flow (non-GAAP measure) will be approximately $196.4
million and $172.2 million, respectively. At December 31, 2017,
long-term debt was approximately $575.2 million and the leverage
ratio (a non-GAAP measure) was 1.89 to 1.
Legal and Financial Advisors
On Assignment, Inc. retained Sullivan & Cromwell LLP as
legal counsel on the transaction, Latham & Watkins LLP as legal
counsel on the secured financing commitment, Wells Fargo
Securities, LLC as lead financial advisor, American Discovery
Capital, LLC as financial advisor, Wolf Den Associates, LLC for
strategic industry advisory services and Perkins Coie, LLP for
support with government contracts. ECS retained Cravath, Swaine and
Moore LLP and Venable LLP as legal counsel and Robert W. Baird
& Co., Houlihan Lokey, Inc. and SunTrust Robinson Humphrey as
financial advisors.
Conference Call
On Assignment will hold a conference call with analysts and
stockholders today at 8:30 a.m. EST. The dial-in number is (800)
288-8961, (612) 332-0342 for callers outside the United
States) and the conference ID number is 444143. Participants should
dial in ten minutes before the call. A replay of the conference
call will be available beginning today at 11:30 a.m.
EST and ending at midnight EST on February 21,
2018. The access number for the replay is (800) 475-6701, (320)
365-3844 for callers outside the United States) and the
conference ID number 444143.
This call is being broadcasted by CCBN and can be accessed
via On Assignment’s web site
at www.onassignment.com. We have also posted on our website a
presentation regarding this transaction.
About ECS
Founded in 2001 and headquartered in Fairfax, Virginia, ECS is a
leading national information technology solutions provider
delivering cyber security, cloud, DevOps, IT modernization and
advanced science and engineering solutions. ECS designs, implements
and operationalizes security capabilities for some of the most
highly-targeted government customers in the world. The company
maintains partnerships with the world’s leading cyber and cloud
technology organizations, with immediate reach-back capability and
certified experience. ECS is strategically positioned at the
intersection of mission and technology – delivering proven market
differentiation and unparalleled growth at scale.
About On Assignment
On Assignment, Inc. (NYSE: ASGN) is one of the foremost
providers of IT and professional services in the technology,
creative/digital, engineering and life sciences sectors. Through an
integrated suite of professional staffing and IT solutions, On
Assignment improves productivity and utilization among leading
corporate enterprises.
Due to our companies’ achievements, we are viewed as best in
class across multiple industries and have built an outstanding
reputation of excellence over the past 33 years.
Based in Calabasas, California, On Assignment operates a network
of over 150 branch offices across the United States, Canada and
Europe. For more information, visit us at www.onassignment.com.
Reasons for Presentation of Non-GAAP Financial
Measures
Statements in this release may include non-GAAP financial
measures. Such information is provided as additional information,
not as an alternative to our consolidated financial statements
presented in accordance with Generally Accepted Accounting
Principles in the United States ("GAAP"). Such measures also are
used to determine a portion of the compensation for some of our
executives and employees. We believe the non-GAAP financial
measures provide useful information to management, investors and
prospective investors by excluding certain charges and other
amounts that we believe are not indicative of our core operating
results. These non-GAAP measures are included to provide
management, our investors and prospective investors with an
alternative method for assessing our operating results in a manner
that is focused on the performance of our ongoing operations and to
provide a more consistent basis for comparison between quarters.
These terms might not be calculated in the same manner as, and thus
might not be comparable to, similarly titled measures reported by
other companies. Our press release on October 25, 2017 includes a
reconciliation of each non-GAAP financial measure to the most
directly comparable GAAP financial measure. Below is a discussion
of our non-GAAP financial measures referenced in this release.
Non-GAAP net income (net income, less income (loss) from
discontinued operations, net of tax, plus, as applicable,
refinancing costs, acquisition, integration and strategic planning
expenses, accretion of fair value discount on contingent
consideration, impairment charges, and the tax effect of these
items) provides a method for assessing our operating results in a
manner that is focused on the performance of our core business on
an ongoing basis. Adjusted Net Income (Non-GAAP net income plus
amortization of intangible assets, less income taxes on
amortization for financial reporting purposes not deductible for
income tax purposes) provides a method for assessing our operating
results in a manner that is focused on the performance of our core
business on an ongoing basis, adjusted for some of the cash flows
associated with amortization of intangible assets to more fully
present the performance of our acquisitions.
EBITDA (earnings before interest, taxes, depreciation and
amortization of intangible assets) and Adjusted EBITDA (EBITDA plus
stock-based compensation expense and, as applicable, write-off of
loan costs, acquisition, integration and strategic planning
expenses, and impairment charges) are used to determine a portion
of the compensation for some of our executives and employees.
Stock-based compensation expense is added to arrive at Adjusted
EBITDA because it is a non-cash expense. Write-off of loan costs,
acquisition, integration and strategic planning expenses, and
impairment charges are added, as applicable, to arrive at Adjusted
EBITDA as they are not indicative of the performance of our core
business on an ongoing basis.
Free cash flow is defined as net cash provided by (used in)
operating activities, less capital expenditures. Management
believes this provides useful information to investors about the
amount of cash generated by the business that can be used for
strategic opportunities. Our leverage ratio provides information
about our compliance with loan covenants and is calculated in
accordance with our credit agreement, as filed with the Securities
and Exchange Commission ("SEC"), by dividing our total indebtedness
by trailing 12 months Adjusted EBITDA.
Estimated pro forma results for On Assignment assume a business
acquired by ECS in April 2017 occurred at the beginning of the
year, as such these estimated pro forma results are non-GAAP
measures.
Safe Harbor
Certain statements made in this news release are
“forward-looking statements” within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and involve a
high degree of risk and uncertainty. Forward-looking statements
include statements regarding the Company's anticipated financial
and operating performance in 2018, the expected timing of the
closing of the transaction and other statements regarding the
expected performance of On Assignment and of the combined company.
All statements in this release, other than those setting forth
strictly historical information, are forward-looking statements.
Forward-looking statements are not guarantees of future
performance, and actual results might differ materially. In
particular, the Company makes no assurances or guarantees: i) that
a potential transaction with ECS Federal, LLC would occur; ii) what
the final terms related to such a potential transaction would be;
iii) that the assumptions made in determining the value of the
transaction would be realized; or iv) that the Company would be
able to finance the potential transaction per the terms set forth
above. Further, the Company makes no assurances that estimates of
revenues, net income, Adjusted Net Income, Adjusted EBITDA, free
cash flow, leverage ratio and other financial metrics will be
achieved. Factors that could cause or contribute to such
differences include actual demand for our services, our ability to
attract, train and retain qualified staffing consultants, our
ability to remain competitive in obtaining and retaining staffing
clients, the availability of qualified temporary and permanent
placement professionals, management of our growth, continued
performance of our enterprise-wide information systems, and other
risks detailed from time to time in our reports filed with the SEC,
including our Annual Report on Form 10-K for the year ended
December 31, 2016, as filed with the SEC on March 1, 2017. We
specifically disclaim any intention or duty to update any
forward-looking statements contained in this release.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180131005655/en/
On Assignment, Inc.Media Inquiries:Adam BleibtreuChief Marketing
Officer(818) 878-7900orInvestor Inquiries:Ed PierceChief Financial
Officer(818) 878-7900
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