Greetings and welcome to ASGN, Inc. Third Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Esterkin, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon and thank you for joining us today for ASGN third 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 these statements made on today’s 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 third quarter 2020 earnings call. ASGN reported strong results for the third quarter, with both revenues and Adjusted EBITDA exceeding our expectations. For the quarter, revenues totaled $1.01 billion, up 0.9% from the prior year, and ahead of our guidance of $913 million to $938 million for the quarter. Adjusted EBITDA totaled $113.3 million, or a margin of 11.2%, for the third quarter, well ahead of our guidance. Performance was broad-based with each segment outperforming our initial expectations. ECS, in particular, saw better-than expected results for the third quarter, with revenues up 40% over the prior year. Apex segment revenues, the lower than Q3 of 2019 on tough year-over-year comps, were up sequentially by 3.3%. The improvement was mainly the result of a turnaround in our Apex Systems commercial business. Throughout the quarter, clients continued to request bids on new work in both the commercial and federal government markets. In fact, we witnessed very balanced growth in Q3, with week-over-week revenue improvements across all segments. We believe this steady revenue growth during Q3 is evidence that our commercial business hit trough levels in the second quarter and is now on a solid upward trajectory. Ed Pierce, our CFO, will discuss more on this recovery and our fourth quarter guidance later in today’s call. As I have emphasized previously, ASGN’s scale, high-end IT service offerings, and large and diverse client base provide us with stability throughout market cycles. These aspects of our business model also provide us with the ability to accelerate as our clients pursue their IT modernization and digital transformation initiatives. M&A continues to be a great way for us to build our capabilities in key solutions areas, while simultaneously moving higher up in the value chain. In September, we…

Thanks, Ted. Good afternoon, everyone. Ted mentioned, our financial performance for the quarter was well above our guidance estimates driven by the high growth of our federal government business and the solid growth of all of our all our commercial divisions from the trough level revenues experienced in late May of last quarter. Revenues for the quarter were just above $1 billion, which is the highest quarterly revenue level since Q4 of last year. Q3 revenues were up slightly year-over-year and up 8% sequentially. Net income and adjusted EBITDA were also both up sequentially. Our adjusted EBITDA margin was 11.2%, which was in line with the preceding quarter and higher than our guidance estimates. Commercial revenues for the quarter accounted for 71.5% of total revenues and because of the pandemic, were down year-over-year on one additional Billable Day. However, on a sequential basis, commercial revenues were up 3.7%, and all commercial divisions generated higher revenues per Billable Day than the preceding quarter. Federal government revenues accounted for 28.5% of total revenues, up 40% percent year-over-year and up 20.4% sequentially. The high growth was driven by a number of factors, including increased volume on certain existing programs, new contract awards and the contribution from Blackstone Federal, which was acquired in January of this year. Gross margin for the quarter was down year-over-year due to changes in business mix stemming from the decline in permanent placement revenues and the high revenue growth of our federal government business, which carries lower gross margins than our commercial business. Gross margin on federal government revenues was lower than Q3 of last year due to high volume from certain programs under cost reimbursable contracts, which typically have lower margins than other contract types. The contract gross margin for the commercial business, which excludes the effects of…

Thanks, Ed. As we enter the fourth and final quarter of the year, I can positively say that ASGN has established a solid foothold at scale in the commercial and federal government marketplaces for IT services. Our customers are feeling more confident than in months past, and they are seeing the need to continue moving forward on their strategic technology roadmaps more clearly than ever before. This favorable dynamic creates consistent and growing demand for ASGN's high-end consulting services. From an M&A perspective, we will continue to look to acquire companies in the commercial and government markets that provide us new capabilities, new customers or new contract vehicles. DHA, which we acquired in January of 2019, expanded our relationship with the FBI and strengthened our cybersecurity offerings. Intersys, which we acquired in October of 2019, expanded our consulting capabilities in big data and business intelligence, while also providing a near-shore Mexican Development Center. Blackstone Federal, which we acquired at the beginning of 2020, provides us with a much stronger footprint with the Department of Homeland Security. Turning to our most recent acquisitions, LeapFrog offers us new capabilities in digital innovation, while Skyris broadens our geospatial expertise and strengthens our position with the NGA. I am very pleased to see that our business is on a solid upward trajectory and is meeting or in many cases exceeding our internal expectations. Through both organic growth and acquisitions, we have positioned ASGN for continued success in this new remote working environment. We will continue to look for ways to strengthen and advance the IT services we provide each of our commercial and government clients throughout the fourth quarter. That concludes our prepared remarks for today. I want to thank our management team and all of our employees for a fabulous third quarter. On behalf of our entire company and Board of Directors, we appreciate your continued support of ASGN. We will now open up the call to your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Gary Bisbee with Bank of America. Please proceed with your question.

Hey, guys, good afternoon, and another very strong quarter. I guess, maybe if I could just start with you gave the guidance, instead it assumes no deterioration in markets. I guess, how are you thinking about the recent spike in virus activity and any impact that could have on your commercial staffing businesses at this point?

Well, Gary, thanks for the question. I think that if we look at what's going on in Europe, we haven't seen an impact yet on this new wave of cases or business remains fairly steady there. We haven't seen clients change their behavior there. And I expect since there are few weeks ahead of us here, that hopefully we'll see kind of that same trend. I don't know where this is going. Obviously, we carved that out in our guidance that, we didn't know how, or if that may affect our performance, but I can tell you just in terms of what we're seeing every week in the business, our trend continues here. And some of the things that we've seen whether it's COVID affected industries or small accounts, they obviously are still struggling to some degree and so performance in those areas, although it's a small percentage of our business is still difficult. But in large accounts, non-COVID affected areas, federal government or business is still on a good footing.

Okay, thanks. And then in your discussion of the ECS growth, I think, Ed maybe attributed the growth in the quarter to several things growth in existing contracts and new wins. And obviously, there's been some M&A as well. Can you talk a little bit about that concept of growth in existing contracts? Is that a meaningful driver over time and how significant is that today or as a driver of growth of the business?

Sure. Well, look, I'll let Ed break the numbers down for you and then let George comment as well, but definitely, the extra growth, if you want to call it that, that we saw in the quarter was driven by some heavy spending on a couple of existing contracts here at the end of the government’s fiscal year coming into the end of our calendar third quarter. Ed, do you want to break down the numbers for Gary?

Yes. Gary, we mentioned in our earnings release, as you know about we made the comment about the existing programs sort of higher spent, and there were a couple in particular that we saw a surge in spending in Q3 over Q2. And that increase was about, let’s say, $38.5 million. And Ted mentioned that it sort of coincided and with the end of the government’s fiscal year. Look, I think on a go-forward basis, you're going to expect that largely that in terms of sort of where our growth is coming from, it's going to be coming from existing program. Now as it relates to that surge, if you were to exclude the servers from the revenue growth that we saw in the quarter, we still had 20% revenue growth, right, for the quarter. So you kind of think about it in those terms. And then, as it relates to Q4, we don't expect to see a similar surge from those contracts, with those programs. And so that's all contemplated in our numbers.

Great. Thank you.

Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

Thanks so much. You spent some time in your prepared comments, giving us a little bit color on the acquisitions and I do appreciate it. It seems like the pace of acquisitions seem to have ramped up a bit. Is that something that we should expect to continue? And then I'm also curious what you're saying in terms of deal multiples, how they're trending as well.

Yes. Thanks for the question, Jeff. I mean, obviously, these acquisitions are important part of building capabilities. I mean, we have a – we're in the right spot with the right account portfolio across a diversified set of industry segments. And so we have access to a lot of work opportunities and the more capabilities that we can bring into our business, whether we build them organically, or we acquire them through M&A is going to give us a real chance for a better work, better growth and to move up the value chain if you will, with these customers. So will the pace continue like it is? I don't know, obviously we're always working on our pipeline. It's kind of – we have a high bar in terms of the type of companies and the things that we're looking for is we've kind of laid out for you in the past. So I can't quite talk to the pace, but it's been a good marketplace for M&A here lately, and both in the commercial and the government sector, we've had a lot of good things to look at. As it relates to multiples, it's – we've gotten some things done here at some pretty, what I think are pretty good, reasonable multiples, whether it's high single digits on adjusted EBITDA or low double digits on adjusted EBITDA, we've been able to make acquisitions that we believe to be accretive here, right off the bat. And again, what's most important is not the revenues and EBITDA, they bring into our business because in the grand scheme of things, that's a little smaller, but the revenue synergy opportunities of having that capability and having those new partners in our go-to-market approach is really paying off. And we mentioned that if you will, in the prepared remarks.

Okay, great. That's helpful. My follow-up, can you give us a little bit of color on how bill-pay spreads are trending? And I'm just curious from a supply perspective, is the talent – is it easier to find talent? Is the supply constraint loosening up in this environment?

So I would tell you that this unemployment picture and this recession has not been about IT talent being out of work. So I don't see that. I think that we've seen a great change if you will in that way. Rand, you wanted to talk a little bit about what you see there and also about bill-pay spreads.

I think you said it correctly, this – what we're going through is not a recession for IT workers. So it's been steady as we've had for the past years. Bill-pay spread, though, has continued to inch up inside of our commercial units. And I think that's more around the discipline that we have and the fact that we have valued clients that we put these people to work with. And when you're numbered one or two in the industry, you get some preference, I think, to some extent. So I think it's steady as we go.

Okay, appreciate the color. Thanks so much.

Our next question comes from the line of Tobey Sommer with Truist. Please proceed with your question.

Thank you. I was wondering if you could comment about what you're seeing from and hearing from customers with respect to reshoring or nearshoring work as supply chains and delivery capabilities are retooled and rethought. And in the context of that, could you – let us know what your medium or long-term goals, maybe for either growth or percentage of sales and profit from the consulting area?

Rand, do you want to talk about that?

Well, first of all, I would say, we have commented all along that when we're in a business, we want it to be $1 billion business. So our first goal in consulting is to get it to $1 billion and continue to grow double digits. So we're on that path. We've made great gains on that path in the last couple of years. That's on the commercial side, on the government side, you can see how fabulously ECS is doing. As far as offshore, nearshore, Tobey, I'm not going to say there's a mega trend here going on. There are certainly the virus created a scenario where to have better direct control line of sight with some of the things you – we’ve put overseas to bring it back onshore was definitely a trend early back in March, April timeframe. We reported on that, I think in the second quarter. There are still some of those discussions, but it's a case by case basis. I'm not, I don't think we're that big in that market to say there's a mega trend going on. But as you continue to put scrutiny on building the U.S. workforce, American workers limiting the H1-Bs getting customer, personalized customer assistance, getting direct response in line of sight around these teams, there are some influencers that would say closer the better because I can see it, control it and react to it better. And it's in the right time zone. Does that answer your question, Toby?

It does. Thanks. And as a follow-up, is there a point at which the consulting business approaches such a scale, if you’re able to put yourself on the trajectory for $1 billion in sales, at which existing consulting customers of your staffing lines of business see you as a competitor and choose to direct their demand to alternative staffing providers?

Ted, do you want me to take that?

Yes, Rand.

I’ll start and then Ted will jump on. Tobey, I don’t think so. Fortune 500 companies, let’s use them as a population spend X amount of money on staffing and X amount of money on consulting. The consulting number is much bigger than the staffing number. I think they’re looking for value. I don’t think they’re trying to mix and match or to use one or the other. Where there’s good value that is technical competence, quality work and particularly these new digitization technologies and roadmaps and good price points around it, you’re going to win. And I think what we’re seeing is our clients are willing because of our excellence in the staffing world and having a valued account relationship and have brought value to them. They’re pulling us into the consulting side saying, I think, you can do more, let’s talk about this. And once we get going, we certainly win our share of those. But we need to continue to add, as Ted said earlier, add technical capability and muscle and make sure that we’re able to deal with the requirements and the solutions that they’re looking for. But we definitely have a reputation and a value offering to these clients. And we have deep account relationships, which are extremely valuable.

And I think I should – the customer is asking, as Rand said for these big traditional consulting firms to stay up in strategy, architecture and design, and they don’t want to pay, their markup and the fees to execute the work in most instances. And I really think at the end of the day, as Rand said, the client’s directing that. The other thing you have going on here is that the IT staffing market was a $30 billion market. And it’s probably not too far off to that, but that’s where it was here in the U.S. And the IT U.S. consulting market is more like $300 billion and growing faster. So I just think there’s plenty of room here to play in the market. And I don’t see there’d be a conflict if you will, there around the services we provide versus that of the big traditional staffing – I mean, traditional consulting firms.

Thank you very much.

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

Good afternoon. Congratulations on fabulous quarter. I guess, first question here is just on the commercial side of the business. So follow-up to the last question, can we talk a little bit about how you’re thinking about the outlook for demand on the consulting side versus the staffing side? And the way that I’m trying to think about this as maybe a little bit of color on the conversations you’re having with clients there in terms of the current environment. And how they’re may be thinking about when we look at the unemployment numbers, obviously the top five numbers are coming down, but the structural unemployment numbers seem to be growing. So maybe some color around how business in their confidence, if there’s a preference for one model over the other, if the structural unemployment was to increase – or continue increasing.

Rand?

Yes. Thanks Ted. There’s a number of questions in there. Well, first of all, let me go back and say, when a client talks, if he talks about, they talk about their business problem or their technology needs. And so that’s where the dialogue is taking place. In Apex terms, and a lot of our Oxford and commercial units where we’re doing some consulting work now and Creative Circle, the conversation goes from, you’ve always provided us the staff, but can you do more? And they see us as an expert in workforce management and productivity workforces, and the ability to quickly surge or pull back and to get productivity out of a smaller team than they’re traditionally using. So we quickly got dragged into that side of our solution set, what we call workforce management. And you can see that’s a natural extension of staffing. But I think what’s happened is, as we built more insight into the client’s technology architectures and business needs, we’ve seen the need to put together what we call digital roadmaps, and we have them for the 26 segments of industry we work in because that roadmaps different from a hospital, from a retail company, from a bank. And so we get engaged now around the digital roadmap. And there’s a lot of good work to be done as Ted was saying, Accenture may be the architect of those roadmaps, but there’s a lot of data movement or housing, or even constructing clouds or hybrid clouds or distributed clouds to support different aspects of the business, looking at movement of harnessing and putting business data into dashboards for the client. I mean, we’re very capable of those things. Quality assurance in the healthcare world, encoding and recoding, which they’ve recognized they need to stay up on in order to get their revenue flow going consistently. So there’s always a set of business needs. Some of them are not as sexy, but they are definitely more in the – what I call, modern enterprise or digital transformation area. And as we’ve built up our technical skill, we’re now engaging in those kinds of dialogues and we’re actually winning some work. In terms of structural employment, I guess, I’m not sure, Surinder where you’re headed there, what you’re thinking. I mean, are you referring to in the [indiscernible] particularly?

I guess, what I was thinking about is in terms of we’re hearing about things like Boeing increasing layoffs, obviously more permanently opposite Disney, I guess that was the genesis of the question, maybe if we’re heading into more of a recessionary type environment versus what seems to initially was a lot of temporary layoffs. And now what we’re beginning to see is more permanent layoff. And are we potentially – I guess, the question is how does demand for you guys on a go-forward basis look, if we were to enter into a more traditional recessionary environment. I mean, should we expect one business over the other to maybe within the commercial side hold up better? Or are they just – they’re closely tied? I mean, obviously there’s different growth rates for different reasons, but it’s just more about how the clients view those two services.

Well, Ted, if I could. Surinder, that’s why we provide you information around the eight industries and 26 segments we work in. We have said repeatedly over the last couple of quarters, there’s a couple sectors of the economy like our airline clients or transportation clients or some of our oil and gas clients. They’re in hospitality clients that are definitely on their back and the spending and the amount of business there’s a negative growth for us in service to those clients, okay. Disney is probably not so much the IT factor, when California shutdown Disneyland, you’ve got a lot of people that were working there that can’t go to work. I mean, Boeing is a little different animal because it’s tied into the overall air travel and transportation scenario that the world is facing, not just the U.S. So on the other side, regional banks, banks, wealth management, e-commerce, Amazon, Microsoft, Apple, our technology clients, they’re continuing to do very well. And in fact, in some of these industries, for example, banks, they’ve cut back their staff if not closed their branch backs. Thanks. Well, they have to replace that with automation and better personalized automation that supports their customer base, those of us that are using the bank for financial transactions. So if you looked at it 31% of financial transactions in 2019 took place digitally, today that number will be 80-some percent where they’re using Zelle or PayPal or Venmo or whatever. And all of that requires technology to get it up and running, make it easy for the customer to use and to maintain those capabilities, not even to mention massaging the data that you see there and how you can provide better customer service. So as you just see from the remarks that Ted made, and some of our industries were clearly growing financial services, healthcare the technology side and technology and communication, our government side, where we’re working with the big integrators and you can certainly hear from George all the interest in modernization and digitization of the federal businesses. So there’s a lot of positives, these industries that are a little bit down, going to be structurally down forever, I’m not a predictor of that. But I think they’re going to have to find ways to – it’s hard change air travel until the world gets past COVID. But I’m not sure that they’re long-term and when we talked about oil and gas or hospitality, I mean, they’re still trying to do things to automate, be more productive inside, digitize their business and digitize their relationship with their customer base, which is where we fit in. Ted?

Surinder I would say, I would add to what Rand said, which I agree with is, the value of this firm is this large account portfolio with a third of it in the government services sector and the rest of the commercial sector, all of that wrapped around large accounts with the right industry diversification. And so I really believe in that those are the clients that are going to need IT services from us. We’re growing our capabilities to meet that. And I don’t see a structural issue with that going forward.

Okay. That’s very helpful. Thank you.

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

Hey guys, good afternoon. Appreciate all the commentary around the ECS business. I’m trying to understand sort of the implications around margin. Is there any color on the contract type that’s in the backlog? I see the disclosure by the revenue by contract. Is there any way to think about the backlog composition by contract type?

George, do you want to take that one?

Yes, sure. Thanks for the question, Seth. We provide you a breakdown, as you mentioned there in terms of the types of contracts that we have, we really don’t provide sort of backlog – breakout by the backlog, and we can look at doing that. But I would say that in general, what you see there in terms of what are our percent of the three different types of contracts probably generally reflected in our backlog as well.

Okay. So the current margin dynamic is a sort of a fair representation of how we should be thinking about it going forward then. Is that accurate?

Seth, during the quarter the surge definitely caused a spike up in the cost plus area and Seth, don’t go that this one quarter reflects that. I think if you looked at our mix in the second quarter and what we expected to be in the fourth is a more equal contribution of fixed price, common material and cost plus. And so obviously that would delay a different a little bit better gross margin profile. Is that fair?

Yes. You don’t want to pick one quarter and say, that’s it. And I will say also that several of the contracts that we have won recently folks at the FBI and Homeland Security are all on the time and materials, not in the cost plus areas. And those are just starting to ramp up.

Okay. That’s helpful. Thank you. And then just to follow-up on Apex. I appreciate the color around retail branch versus top accounts. Can you just talk to whether you’re seeing, I guess, the same degree of sequential improvement across the two? Or are top accounts performing better sequentially?

Rand, do you want to take that?

Yes, there is sequential improvement in our top accounts. Yes, there is not in our branch accounts. Remember top accounts represent about 74%, 75% of the Apex business. We’ve not put a top accounts program in Creative Circle and Oxford as well. So, all of them are at different stages of this. In Apex case, it’s the most mature, but there is sequential growth in the top accounts. But not so in the smaller and branch accounts – branch accounts are typically more mid-market smaller accounts that are not national scope. Don’t hit two or three of our offices, so we can service them in one office by themselves. And given that they’re smaller accounts, we’ve seen some, just like the general economy, some deterioration in that sector of the economy.

Right. Okay. That’s very helpful. I appreciate it, guys. Have a good night.

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

Great. Thanks. And nice results for sure. Is there any kind of extended holiday impact we should think about it in the guidance as it that relate to kind of the way the holiday falls or anything you’d call out Ted one way or the other, just as we’re thinking about the guidance, which obviously looked pretty good here regardless.

Thanks, Kevin. So obviously sequentially coming from the third to the fourth, you always have fewer days. Ed, can you talk about just the framework of that and how we thought about it when we put the guidance together?

Yes. I mean, we obviously considered that and like you say sequentially, they’re going to have fewer available days. When you compare with Q4 of last year, it’s the same number of days. And so, Kevin it’s not really – it’s already reflected and we did consider it.

And if you’d look at it on a billable day basis, Kevin, you’ve got solid sequential growth there, third to fourth quarter, so anyway for what it’s worth.

No, I guess, I was thinking more along the lines with kind of the New Year’s on a Thursday and the Christmas holiday on the 25.

No, Kevin, we can send it all that.

Okay. Okay. And then just, I guess, any other thoughts on some structural cost benefit post-COVID, whether it’s even less real estate occupancy, T&E, anything like that you’re thinking about can use kind of either – that kind of flows into the margin or maybe reinvest in the business, anything that you’re thinking about along those lines?

While you’re seeing a little bit of that right now, right? So on the gross margin side, obviously we have – our consultants have less travel and billable expenses, which we don’t pass through with a markup. So there’s a small almost inconsequential kind of pick up right there. Within our SG&A, obviously we’re benefiting a little bit from less travel, lower healthcare. But same time we’re investing in the business. So each one of our businesses have invested in a modest amount of head count where it’s appropriate in order to support current account opportunities or even beyond that prepare ourselves for 2021. And so, there’s some savings there and there’s also some pickup. So I’m sure that will not travel the way we used to, although there will be some travel expenses that come into the business, healthcare expenses will kind of come into the business. I think overall, if I stepped back from all that, Kevin, we’re still on a march here to try to move our EBITDA margins from where they are kind of in 11%, 11.5% range up to the 12% range, which is our long-term objective here and such, still feel confident. We’re going to get there. Some of these little things are going to contribute, but also we’re going to do a better job of leveraging our SG&A structure through automation and other things. So that’s really what we’re focused on here. Just the move to those margin profiles that we had in our long-term plan.

Super helpful. Thank you.

Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Yes. Good afternoon. Two questions here. As consulting work continues to grow as a piece of your business, I’m wondering if you could share some additional details around the services provided outside of ECS. Are there certain project types, account types or industries that are grabbing a larger share of the commercial consulting type work?

Sure. Rand, do you want to talk to that?

Yes. I would say most of our consult – well, remember we operate in eight industries, we report on five, but our financial services sector, our government integrator side of the business and healthcare tend to be our stronger consulting sectors, if you will. Consumer industrial was strong in these past six months, it’s fallen off a bit. But I suspect it will come back. So the only one that hasn’t done and we’re doing a little bit in technology, but telecommunications and tech, probably a little less so than the other areas. What kind of work are we doing? I think I’ve described earlier, workforce management is a certain base, which is a natural extension of what we’re doing, where the client’s saying, this is your competence, not mine. You take over this responsibility, build it for me, run it, manage it and hit different productivity levels. They’ve also turned to us for developing agile teams or different teams to deal with specific technologies. Whether that’s for in the auto industry or it’s in aerospace defense or other areas, we’ve built a lot of centers of excellence for clients in certain technologies, and then manage the throughput through those centers of excellence. Now we’re getting into what we call the digital roadmap, digital transformation kinds of services, where we’ve developed a roadmap. We have some insight based on best practices in different sectors of the economy where they think they can digitize their business, whether that’s harnessing and capturing more data or correlating the data and translating that into personalized customer service. It’s manifesting itself in mobile apps in different areas. Some cases it’s a matter of helping them redistribute the cloud for key areas that they need to have either certain security on or certain visibility around. So it varies. What I think we’re moving into is dashboards, more dashboards using data that’s harnessed in the cloud to help them operate their businesses even more effectively than they’re doing today. I mean, that’s a lot of different things. What we are not is the architects of that structure necessarily, somebody like Accenture or IBM can do that. But there’s a lot of areas here where we can help.

Great. Okay. Thank you, Rand for all that detail. I’ve got another one for you kind of along the same lines, but more focused on your consultants. Has the environment created an opportunity for you to provide additional training to consultants and new technologies or offerings? And if so, which areas are they focused on?

Well, first of all, if you look at our – Ted, sorry, go ahead. Ted’s well versed in this as well. I mean, our deployment model is to use contingent labor to build many of our consulting teams. So while we may have the leadership and the structure and the methodology and the experience, we do rely on pulling in contingent labor that has specialized industry experience in specialized technologies, whether it be service now, salesforce, workday, or a specific operational requirement around the cloud or in dashboards. So we don’t have to overly train our team because we’re bringing in and using a workforce that’s generally very experienced and very industry specialized. Now, to that extent, we do have ongoing technical training and technology training for our national account leaders and for our salespeople, as well as for our consulting people. And we do that around certain technologies. We’ve certainly done it around cloud, we certainly done it around cybersecurity, we certainly done it around salesforce, service now and some of the other very hot areas. Dashboard is something – and by the way, we ourselves are a digital business. A highly digital business, Ted, alluded to this in a minute ago about continuing our investment in that. We also have our own experience around building dashboards and doing things to consolidate it in our cloud information that can support across the ASGN networks. So, we do have expertise. We are relying on a contingent labor pool that is trained and specialized. And when we do have to go out, we’ll pick certain select areas and/or we’ll work with our Talent University network, which we have, which will help us put that training in place. Did that give you a feel?

It’s worth adding there. Remember our clients never come to us for inexperienced workforce. I mean, they always want workforce experience, technology with industry expertise based on their own business. So that’s their need to us. And really our model around providing talent and consulting services in the commercial part of our business, the Apex and our other units is really around not carrying a bench and bringing that talent on a just-in-time basis. That way we’re 100% utilized and we’re not worried about all the time about utilization. And we can charge a rate and a fee for that kind of work that’s very competitive. So that really is the differentiated part of our business model there.

Understood. Thank you, gentlemen.

Our next question comes from the line of Mark Marcon with Robert W. Baird. Please proceed with your question.

Good afternoon, everybody. And let me add my congratulations. Just wondering, what are you thinking with regards to your current capacity and what sort of internal head count additions you’re thinking about from a short-term perspective. And I’ve got some follow ups for George on government.

Okay. So Mark, I mean, like I mentioned earlier, we feel like we have capacity right now to do more. And so you’re seeing that in our performance. We are modestly adding to head count maybe a little less than we would typically do, but we don’t have a freeze on if you will. So if there are account opportunities that we can serve, if there are other work opportunities where we need to deploy talent, that we don’t have, then obviously we’re adding to that. So a little bit of that investment in head count not only for today, but getting ready for 2021, but a little less than our regular pace.

Great. And then, I mean, how much excess capacity would you say you have? I’m just trying to think through like what the incremental margins might look like on the commercial side when we get on the other – when we truly get on the other side of COVID?

Yes. Well, I think Mark, that’s difficult to say. I mean, I would just guide you back that we’ve been performing kind of in the mid, I’ll call it the 11.5% range kind of pre-COVID in that part of our business. And obviously there are times that we’ve performed at 12% EBITDA margins and we’re kind of moving there on a sustainable basis. So, I’d kind of keep you right there if you will. And you had a question for George, you said.

Yes. Can you talk – George, can you talk a little bit about the implications from the election? Assume that the polls are right. How does that impact you? What have you seen in prior changes when we’ve had sweeps?

Yes. Thanks for the question, Mark. Sure. We have seen some shifts and if we do get a sweep here, obviously we’re going to get some changes in policies and such. And we’ve [indiscernible] mission central customers and pipelines that have broad support across the political aisle. So we are really not specialized in something that you could classify as Denmore or Republican. And we’re going stay focus that way because that’s where we chase the R&D dollars. That’s where we chase the high end applications, the high-end technologies. And so we know where it goes, we don’t think there’s going to be any significant impact to our programs.

Great. And then from a short-term…

And Mark, one thing too, if you think about the areas where we traffic and specialized, right? Cybersecurity, AI machine learning, cloud and data migration, I mean, those are things that are going to be in a long-term – have long-term budget support if you will, across the government. So I think George is right and we feel really confident that those are going to be things – areas that we want to be in. And we’re going to be fairly disciplined about staying there.

Great. And then from a very short-term perspective, would you expect the same sort of mix in terms of pass-through software revenue as we had a year ago? Or is that – how should we think about the seasonality from that perspective? Just a really short-term question.

George?

Yes. So we’ve had continued pass-through to accomplish our missions that’s form the license as well as also technology – other technology purchases. We do not expect a huge log in Q4 like we did last year in Q4. We got to pick up in this Q3 and I expect that moving forward, we will have continued pickups but it’s not necessarily seasonal. But it will just like it is in Q3 provide a supplemental surge to our revenue.

Great. Thank you very much.

There are no further questions in the queue. I’d like to hand the call back to Mr. Hanson for closing remarks.

Great. Well, I want to thank everyone for being on the call today. And we look forward to talking to you about our fourth quarter results in the first parts of 2021. Everyone stay safe and healthy.

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.