ASGN Incorporated (ASGN) on Q1 2023 Results - Earnings Call Transcript

Operator: Greetings, and welcome to the ASGN Incorporated First Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Esterkin, Investor Relations. Thank you, Kimberly. You may begin. Kimberly Esterkin: Thank you, operator. Good afternoon and thank you for joining us today for ASGN's first quarter conference call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Marie Perry, 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 GAAP and non-GAAP measures are included in today's press release. I will now turn the call over to Ted Hanson, Chief Executive Officer. Theodore Hanson: Thank you, Kimberly, and thank you for joining ASGN's first quarter 2023 earnings call. Continuing to execute solidly in the core strategic areas of our business, ASGN's revenues for the first quarter of 2023 improved 3.5% as compared to the prior year period. IT consulting revenues, including both commercial and federal government work, surpassed the 50% mark at $568.4 million or 50.4% of the first quarter revenues compared to 42.4% of revenues in the prior year quarter. The strong growth of this business, particularly in light of macro conditions, reconfirms our strategic decision to double down on high-end, higher-value consulting work for Fortune 1000 and federal government clients. We have the right group of professionals in place to successfully execute against this long-term plan. And I want to thank all of the ASGN team for your efforts this past quarter in pushing our growth strategy forward. In contrast to commercial consulting and federal government work, the areas of our business that are more discretionary and cyclical in nature, namely assignment revenue declined. We programmed for some of this in our guidance. However, the decline toward the end of the quarter was greater than we had initially anticipated, and this negatively impacted our adjusted EBITDA margin. Nevertheless, at 10.9% for the first quarter, which is seasonally the lowest, adjusted EBITDA margins remained solidly in the double digits. Importantly, the long-term adjusted EBITDA margin profile of our business has not changed and is expected to further improve over time based on our move toward a more consultative model. In addition, while a leading indicator on the downside; permanent placement and creative digital marketing have historically seen an uptick in revenue as macro conditions improve followed by sustained rallies once the economy exits a recessionary period. In the meantime, given market conditions, we are leveraging our variable cost structure and proactively taking down expenses in certain areas of the business while investing in others. Those actions are protecting our adjusted EBITDA margins today and into the future. Also, our free cash flow benefited from a reduction in accounts receivable DSO by 1.2 days. ASGN's capital allocation strategy has not changed. We still believe that M&A remains the best use of and highest return on capital. Having said that, with limited deals in the pipeline at present, we expect to be more active in repurchasing ASGN shares given our view of the rather compelling share price. Our Board of Directors has recently approved a new 2-year $500 million share repurchase authorization. With that as the background, let us discuss our segment performance for the quarter. Our Commercial segment, which predominantly serves large enterprises and Fortune 1000 companies reported first quarter 2023 revenue is relatively consistent with the prior year period on a tough double-digit year-over-year comparison. Apex Systems, our largest division, accounted for 85.4% of the Commercial segment revenues. Revenues for the division improved 3.1% for the quarter, with top accounts achieving low single-digit growth and retail accounts achieving high single-digit growth year-over-year. Creative digital marketing and permanent placement revenues, which represent 14.6% of Commercial segment revenues declined double digits year-over-year. Our large enterprise industry diversified commercial client base provides balance and protection to the side. As such, even with the pullback in more of our discretionary businesses, we continue to see solid progress in 3 out of our 5 commercial segment industry verticals in the quarter. Financial services and health care verticals saw single-digit revenue growth year-over-year, while consumer and industrial vertical revenues improved high single digits compared to the first quarter of 2022. The Technology, Media and Telecom or TMT and business and government services verticals both declined mid-single digits. In Financial Services growth was driven principally by wealth management. Improvement in our health care vertical revenues was largely driven by growth in provider accounts, while consumer and industrial strength was led by growth in energy, utility and consumer staples. In the TMT vertical, telecommunications and technology accounts saw a pullback with delays in work and the impact of layoffs. In business and government services, aerospace and defense accounts saw solid growth during the quarter, while we saw a double-digit revenue pullback in business services. Turning to our consulting business. Our consulting offerings remain an important source of the value we provide clients and a core part of our strategic growth strategy. For the first quarter, Commercial Consulting revenues increased 32.7% year-over-year and were up 20% organically. Bookings were a record for the quarter and totaled approximately $392 million, up 31.7% year-over-year. This translates into a book-to-bill of roughly 1.3:1 on a trailing 12-month basis. With such strong bookings, it is evident that our clients continue to invest in IT consulting projects. In fact, while we have seen some of our clients deemphasize smaller discretionary projects, they are reprioritizing their focus to other areas such as work aimed at modernizing our systems and improving customer experiences. ASGN has been able to leverage these trends and remain favored by our clients in the consulting space as a result of our long-standing relationship our expansive solutions portfolio and our unique delivery model. So let me provide some examples of our Commercial Consulting wins for the quarter. In Q1, Apex Systems in partnership with our GlideFast unit was awarded a new contract to provide development services on the ServiceNow platform to a global automotive company. This same client also tasked our team with digitizing, automating and optimizing its supply chain and trip processes. This is just 1 of the 13 new client wins during the first quarter in which Apex brought the client relationship to the table and GlideFast, the ServiceNow capabilities in order to jointly secure the contract. Also during the first quarter, we won a contract with a leading U.S. health care provider to help them deploy the application that uses artificial intelligence to detect when patients are performing an action that puts the patient at risk of falling and then send an alert to the health care provider to review and take the appropriate reaction. The goal of the project is to increase the number of rooms the application can safely monitor remotely by leveraging AI and an Apex Systems developed application. Let's now turn to our federal government segment, which provides mission-critical solutions to the Department of Defense, the intelligence community and federal civilian agencies. Federal segment revenues for the quarter were up 15% compared to the first quarter of 2022, driven by a combination of organic growth and the impact of our recent Irvine acquisition. Contract backlog was over $3 billion at the end of the first quarter or a healthy coverage ratio of 2.6x the segment's trailing 12-month revenues. New contract awards for the quarter were approximately $75.2 million, which translates to a book-to-bill of 0.9:1 on a trailing 12 months basis. We are seeing delays in project on funding largely due to new multiphase procurement cycles and an increase in award protest. Q1 is also often seasonally low for our federal government segment as the government acquisition cycle tends to lag behind the budget cycle. That said, our pipeline of opportunities remains robust and the number of projects submitted awaiting award is as high as it's ever been. So let's turn to some examples of projects won during the first quarter. In the quarter, our team secured a number of recompetes and won new contract awards. In terms of recompete, ECS again secured the Department of Homeland Security, Web Content Management as a Service contract in which we are supporting the DHS with enterprise content delivery, DevSecOps and cloud platform enhancements. With regards to new awards during the quarter, ECS won a prime contract to support the modernization and agile transformation of the Army's Integrated Pay and Personnel system, which is the Army's number 1 IT priority at present is also making great progress, and ECS has leveraged our cybersecurity capabilities to pursue new opportunities across its entire client base. For example, in the first quarter, ECS won a new contract under Ironvine to support the Millennium Challenge Corporation with designing, building and installing in-country solutions to track infrastructure investments in. This momentum has continued, and I'm pleased to report that ECS has already seen several bookings in early Q2. For example, we recently won a recompete of over $100 million to perform advanced addressing in geospatial technology solutions for our long-standing global mail delivery and shipping customer. With that, I'll now turn the call over to Marie, our CFO, to discuss the first quarter results and our second quarter 2023 guidance. Marie Perry: Thanks, Ted. It's great to speak with everyone again today. Revenues for the first quarter were $1.1 billion, up 3.5% year-over-year on an as-reported basis. Excluding $50.4 million from businesses acquired in the past 12 months, revenues were down 1.2% compared to the prior year quarter. I'd like to put the first quarter revenue results into perspective. From a seasonality standpoint, revenues in the first quarter of each calendar year tend to be lighter as many clients finalize the funding of their calendar year project budgets. Also, on a consolidated basis, we achieved over 20% year-over-year revenue growth in the first quarter of 2022, creating a tough year-over-year comparison. While we anticipate some softness in our Q1 guidance due to macroeconomic conditions, as Ted noted, we fell below our guidance range, mainly due to further revenue declines towards the end of the quarter and our more discretionary and cyclical assignment work. Revenues from our Commercial segment were $832.1 million, essentially flat year-over-year on an as-reported basis and down 3.2% organically. Revenues from Commercial Consulting, the largest of our high-margin revenue streams, totaled $271.7 million, up 32.7% year-over-year. Excluding the $25.9 million contribution from GlideFast, Consulting Services revenue improved 20% year-over-year. Revenues from our federal government segment were $296.7 million, up 15% year-over-year. Excluding the contribution from Ironvine of $24.5 million, revenues for the segment increased 5.5%. Moving on to margins. On a consolidated basis, gross margin was 28.9%, down 100 basis points over the first quarter of last year. The compression in gross margin was mainly related to business mix, including a slightly higher mix of revenues from our federal government segment, which carry a lower gross margin than commercial revenues and a lower mix of creative digital marketing and perm placement revenues, which have higher gross margins. Gross margin for the Commercial segment was 31.5%, down 120 basis points year-over-year, primarily due to a smaller contribution from our discretionary and cyclical assignment revenues as noted. By contrast, gross margin for the federal government segment was 21.6%, up 70 basis points year-over-year due to a smaller amount of cost reimbursable contracts and the contribution from Ironvine. SG&A expenses for the first quarter were $224.1 million, up 5.7% year-over-year due to investments in workforce and technology made in 2022. SG&A expenses were favorable to guidance due to the highly herbal nature of our cost structure, which benefited from fluctuations in our incentive compensation and from attrition in our business. SG&A expenses also included $2.3 million in acquisition, integration and strategic planning expenses that we do not include in our guidance estimates. As expected, interest expense increased year-over-year related to rising interest rates, which impact only a portion of our debt. As a reminder, over half of our debt is fixed at below market rates. Amortization of intangible assets was higher due to recent acquisitions. Income from continuing operations was $49.5 million. Adjusted EBITDA was $123.5 million, and adjusted EBITDA margin was 10.9%. Our 2 highest margin contributors, permanent placement and creative digital marketing revenues pressure our adjusted EBITDA margin compared to what we had originally guided for the quarter. At the end of the quarter, cash and cash equivalents were $65 million, and we had full availability under our $460 million senior secured revolver. Free cash flow for the quarter totaled $68.8 million, an improvement of 48.3% over the first quarter of 2022. As Ted mentioned, cash flows benefited from a reduction in accounts receivable, thereby improving DSO by 1.2 days. With strong free cash flow generation and full availability under the revolver, we have ample dry powder to make strategic acquisitions. Given the limited acquisition opportunities at present, and our stock trading at such attractive levels, we deployed $48.8 million in cash on the repurchase of 563,200 shares of the company's common stock during the first quarter. This week, our Board of Directors approved a new 2-year $500 million share repurchase plan replacing the prior authorization. Turning to our guidance. Our financial estimates for the second quarter of 2023 are set forth in our earnings release and supplemental materials. These estimates are based on trends in March and April; assumes 63.25 billable days in the second quarter, which is essentially the same as the year-ago period and sequentially and include the estimated revenue contribution of $52.8 million from acquisitions made in the last 12 months. We are providing wider ranges this quarter than in prior quarters to account for uncertain macro conditions at present. With that in mind, we expect macro conditions in the second quarter to be similar to that of the first with continued softness in assignment revenues. Given the seasonality of our business in Q1 being the lowest from a revenue standpoint, revenue should increase sequentially. We expect second quarter revenues to be driven by commercial consulting and federal revenue growth, offset by continued softness in IT staffing, consistent with our peer set and to a lower extent, decline in permanent placement and creative digital marketing. We also faced another difficult year-over-year comparison that had over 17% growth in the second quarter of 2022. In our guidance numbers, we have assumed leverage from our variable cost structure and certain cost containment efforts as well as lapping of the payroll tax reset in Q1. We -- these assumptions limit the downward pressure on margins without hampering our long-term growth drivers. With that background, for the second quarter, we are estimating revenues at $1.11 billion to $1.145 billion on roughly the same number of billable days and against a difficult year-over-year comparable. This translates to a year-over-year growth rate of minus 2.8% to plus 0.3% compared to the prior year quarter's results. We are estimating net income of $52.8 million to $60 million and adjusted EBITDA of $125 million to $135 million. We are expecting gross margin will decline year-over-year, primarily due to business mix, similar to the more recent trends, including a greater mix of federal government work and the continued softness in assignment work. Adjusted EBITDA margins are also anticipated to decline year-over-year, but should benefit from our variable cost structure commensurate with revenue. Along with other cost control measures, such as headcount attrition and limitations in discretionary spending. Thank you. Now, I'll turn the call over to Ted for some closing remarks. Theodore Hanson: Thanks, Marie. Like our peers, the difficult macroeconomic conditions are impacting our performance in the more discretionary cyclical areas of our business. These conditions are outside of our control, which is in our control is our ability to execute and strategically position our business to succeed throughout economic cycles. In the first quarter, we did just that. We continue to evolve our business towards a more consultative model. While clients are scrutinizing spend, they're continuing to invest in IT projects that are critical for their businesses. With over 50% of our revenues in higher end, higher value IT consulting work we are shaping and evolving our operations for success in both the short and the long term. Importantly, we have a number of key business stabilizers in place to support our business on the downside. We remain committed to providing leading services and solutions to the commercial and government end markets we serve. Thank you all for joining our first quarter call. We will now open it up to your questions. Operator? Operator: Our next question is from Maggie Nolan with William Blair. Maggie Nolan: Really interesting to see you guys cross that 50% of revenue mark on the IT consulting work. So congratulations on that. My first question is around kind of client sentiment. I know you've mentioned that your clients tend to kind of finalize their budgets in the first quarter. What kind of feedback are you getting from clients as they finalize that process as it relates to kind of the full year spend projections? Theodore Hanson: Yes. Maggie, I'll start, and I'll let Rand kind of hop in with me here on this one. But I think, look, clients are posturing overall as cautious. The staffing programs and the staffing part of the business, they can put their finger on there first and moderate spend and get protective, if you will, based on future uncertainty. At the same time, you can see, just based on the data points in our consulting business, that they continue to stay invested in projects that are going on in IT that are key strategic business drivers. And not only do they continue projects that are going on, but they're also adding to that with new work. So I think the clients are just being -- they're very wary. They're saving money in places of the business where they can, and they're also continuing to invest in areas of the business that are critical for IT. Now underneath that, there's some industry-by-industry story, which we can get into. But I think overall, at a high level, there's a certain cautiousness for sure within the client base. Rand, would you add anything to that? Rand Blazer: No, I think you hit everything. Maggie, obviously, we're watching the bookings numbers, rep consulting numbers. We're watching what's going on in their staffing programs, which Ted said, are easier to put their finger on and pull back on, if you will. But in the consulting world, we're very pleased with, I think, the progress we've made and the clients still thinking forward. And Ted is absolutely right. Some industries are obviously being more aggressive than others on their IT spend. But cautiousness is probably an operative word here. Maggie Nolan: Got it. And then I think it was Marie talking about evaluating some of your expenses and balancing that with your investment areas, given the market conditions. What are some of those key areas where you think you can cut back versus where will you continue to invest for future growth? Marie Perry: Maggie, some of those areas really is the discretionary component of some of our spend. And so items like travel, making sure we are tight on that. We also have attrition just built into our model. And so we see that coming to play as well. And so we believe that in addition to the combination of the attrition that's happening -- and then the rightsizing with the variable cost structure that we have, along with the control over some of those discretionary spend. Theodore Hanson: There's 3 categories. If you think -- Maggie, if you think, about our business in 3 buckets, if you will, obviously, in the staffing piece, which encompasses creative digital, IT and permanent placement. That's where we're seeing most of our natural attrition in commercial consulting. There's a good and productive marketplace. And so we're investing being invested there and attacking that and you can tell from our wins there that that's working. And then on the federal side, also, it's a productive area right now. We're growing. We're staying invested around that. And so I think at a high level, Marie kind of captured all the areas and just inside the segments of our business, those are the plus and minuses. Rand Blazer: Maggie, can I just add real quick because if you remember in the last quarter, we talked about banks being a good spender in the first quarter around IT proved out not to be quite so much, but the amount of activity is picking up because of compliance and other information needs in that sector, both regional and big banks. So we're hopeful that we'll see maybe a resurgence, and therefore, we're deploying to that. Maggie Nolan: On the Commercial Consulting area, what is the sales cycle look like? And how has it evolved year-to-date? You obviously had a good bookings quarter, but I'm wondering if you've seen -- perceived any changes over the course of the first 4 months of the year? Theodore Hanson: Rand, do you want to take that? Rand Blazer: Yes. I wouldn't really say there's much changes. I mean, most Fortune 1000 companies like ourselves -- they have an IT path modernization path, introduction of some technologies or things that can improve productivity of the workforce and/or the customer experience. And that path hasn't changed. I think there -- so the discussions we have with the clients are still around those past and what projects can we take on to help them get there and be efficient, give them quality at the right price point, if you will. So back -- our pipeline is also growing. And so again, there are some industries, no question, Tobey. And I think Ted pointed this out already where we alluded to this, that they're definitely a little bit more cautious than they just want to be slow a little slower. So the sales process may elongate by some weeks or they may get something started but not go full bore right away. But for the most part, we've seen pretty good success and pretty good discussions across the board. There are some areas like I just mentioned in MEGI and the financial services end, there's new discussions now because there's new compliance requirements, do things to monitor new things that they have to get their arms around along with their cloud migrations and the other things that are ongoing. Maggie Nolan: And from a staffing perspective, where would you say the bill rate growth is now? And how does that compare to either folks you have out on assignment or another volumetric weekly hours, whichever 1 you want to choose? Theodore Hanson: Yes. Well, I would say bill rate growth is naturally happening in the business as we have a higher mix of consultative-type engagement, right? We're just -- it's a higher value proposition to the customer. We're getting better rates, higher rates, and we're also getting higher growth in EBITDA margins. So naturally across the business, we continue to see the bill rate go up. That's probably the number 1 factor. The number 2 factor underneath that is pay-to-bill spreads are remaining pretty steady. We're not seeing any degradation of that. And I think that speaks to kind of the continued tightness in the labor pool around mission-critical IT set skill set and that they're still in demand. So those are 2 data points around that. Maggie Nolan: So I guess based on that kind of commentary, is it fair to assume that bill rate growth still exists in the in the staffing business and it is just being sort of overwhelmed by volume declines. Theodore Hanson: It's -- so bill rate growth is still there for sure. It's not as steep as it was, wage inflation, not as steep as it was. So those are going up that at a lesser level than what we saw in the past. And certainly, we're having volume declines in the staffing part of the business. Maggie Nolan: Okay. And could you give us a sense for where perm is now and compare and contrast where it is in the range historically, and maybe also describe the margins in creative digital? I know they come down, but can you rationalize that, too, if you could? Theodore Hanson: Sure. Well, permanent placement is around 3% right now. At its high, it was close to 5% I would say 3.5% to 4% is kind of a normal level for us, if you will. And Cree Circle EBITDA margins are higher than our overall company margins, they range kind of from the mid- to high teens in that business and have been pretty consistent and well-managed by Matt Riley, at Creative Circle over a number of years. Operator: Our next question comes from Heather Balsky with Bank of America. Heather Balsky: I ask, first off, can you dig in a little bit more to the slowdown that you saw towards the end of the quarter in terms of kind of the level of deceleration, what areas of your staffing business were most impacted? And when you think about the guide for the second quarter are you assuming kind of a steady state from what you saw in March and April? Or are you kind of factoring in further deceleration? Theodore Hanson: So maybe a couple of things here. I think coming across the New Year, if you think about coming from the end of December into January, we would typically see a slight notch down. And that's just natural end of projects and new projects are starting, and I think Marie mentioned in her commentary, that's a pretty normal thing in the business, and we saw that in this year. What was unique is about 2/3 of the way into the quarter, certainly into February instead of seeing us begin to track back up, we took another notch down. And that was unexpected. And I'd say that's really the difference. Now what we've seen in the last, what I'll say, 4 to 6 weeks is a pretty good steadiness. So you're still down a little bit. In the staffing part of the business and obviously, you're up on the consulting side of the business. And so they pretty much have kind of continued that offsetting trend here for the last 4 to 6 weeks. So that's the first quarter. If you think about the second quarter, I think Marie's comments were that the guidance that we gave really predicated a similar trend to what we've seen in March and April. And that's the flatishness that I mentioned a few seconds ago. And so that's really where the guidance is predicated we've built some conservatism in that for the staffing to potentially get a little bit weaker. And you can see that both in the bands that we gave on the revenue and the EBITDA side, especially to the downside. So what we'll get, we'll have to watch and see, but that's what we see here just 3 weeks into the quarter. Heather Balsky: That's helpful. And then switching gears. We've gotten some questions just with AI being in the news and very topical. And just curious your thoughts on kind of how the rise of AI right now potentially helps or could hurt your business. I think here we've heard through both case, there's opportunities for AI-type roles. And then on the flip side, is there risk that sort of the number of tech jobs out there shrink. Just curious to get your thoughts. Theodore Hanson: Yes. So I'll start and then let Rand had something to say here. I'll turn it over to him. But I think this is a new business driver, if you will. I mean so often, things come along that kind of push the next wave of digitization, automation and IT work for, and this is certainly going to be one of this. It's too early to really get your arms all the way around what the opportunity is, but there's no question that this is one of the inside of our business, I see it as a productivity driver. A lot of the things that we do for clients in terms of helping them solve problems either on the talent side or providing a certain solution is going to remain there. But in terms of how we operate and execute our business, early on, you can already see that there are going to be opportunities for AI to make a real difference in us continuing to increase the productivity and the way we serve our clients. Rand, what else would you add to that? Rand Blazer: Well, listen, everything Ted said was great. We obviously see AI as a key driver of IT spend going forward, along with machine learning. But let's remember -- and by the way, we featured some of that in this earnings call with our health care client, and we have in the past, featured it with some of the work we're doing with the Department of Defense and the federal side. But let's remember that what you need is a good data structure. You need a good cloud and data structure in order to do AI. And so what you see from some of the other big tech giants is cloud work is still moving forward, because that's -- you've got to harness data. You've got to be able to simulate, -- you've got to be able to track it and the trends in data, which is both a cloud and a data analysis set of things to do. So there's a lot of groundwork to be doing to make AI really work, not to mention just the technology of AI and machine learning. So I think that's why you see a lot of is still growing in those areas. Operator: Our next question comes from Jeff Silber with BMO Capital Markets. Unidentified Analyst: Ryan on for Jeff. Just a quick question. We've seen some headlines surrounding declines in IT spend. I was just wondering how those factors impact your business? And are those impacting the digital transformation initiative that you've spoken about previously? Theodore Hanson: Rand, do you want to take that? Rand Blazer: Let me start. First of all, Jeff, I would say there's a decline in IT staffing expenditures for sure. Okay? And that's because, as Ted pointed out earlier, clients, Fortune 1000 clients, specifically can put their finger on it and leverage it or stop it or start it in hours, not even in days, okay? In consulting, we have not seen a slowdown in consulting spend and the projects that make that up. So I guess I would clarify that. And perm placement is also in that IT staffing piece. Why would you hire somebody on your corporate staff at this point in time in the economic cycle. But that will eventually come back as you said. Jeff, the second part of your question was not just whether they're spending, but go ahead, the second part was what... Unidentified Analyst: It was just on the digital, how that relates to digital transportation. Rand Blazer: Yes. I think digital transformation, look, AI and machine learning is on everybody's mind in the press. But the cloud work and the data analysis I just mentioned is what I call infrastructure and building for that. The digital transformation is embedded and still a big part of what we're doing for clients. We just recently signed a new piece of work with a telecommunications company, media company using ServiceNow technology. Our GlideFast business is growing. I think Ted mentioned that earlier and their backlog and bookings are growing. So there's still a lot of interest in some of the digital transformation initiatives our clients are involved with. I think it goes to the comment Ted made earlier. Those are things that have already started. They may they may, if you will, go a little slower at some of them for a small period, but they're still going. Theodore Hanson: Yes. in just Ryan, Ryan, 1 more thing I would add to that. I think our clients view their IT initiatives as strategic just like we do, right? And so as we look at the things that we're doing in the business, we can't really take our foot off the gas. I mean all these are about REIT customers, being more productive, having better data and analysis, be it in the cloud, having better security. And so while we may let some discretionary spend fall in certain areas inside of our other business, whether it's marketing or travel or some levels of headcount or what have you. What we're going to do are best to stick with our investments in all the IT projects that are helping us move down the pathway in our digital road map. And I feel like our clients look at saying, well, in fact, I know they do because when we talk to them, that's most of what we get. Yes, they're being cautious to Rand's point. But I think IT spend now is so much a strategic initiative than it used to be a cost center, right? And so there's just a little bit different view of this. And yes, some spending will ebb and flow. None of us need laptops. We bought so many over the last couple 3 years. We don't need more laptops, but we do need to keep moving on all these things that are initiatives to get the right in our applications in our business to get them into the cloud to keep them secure and make them productive for us to reach our customers and serve them our services. So anyway, that's kind of how we see it. Unidentified Analyst: And then, just a follow-up. If there were to be some weakness in some of the top of the pyramid areas, so this architecture, implementation consulting work if you see those, when you see trends coincidentally in your consulting business, some of the systems deployments or service centers? Or is there may be some lag between those 2 areas of the Consulting market? Theodore Hanson: Well, Rand, certainly, management consulting is an area that's maybe softer. This went on longer with IT spend around our design and architecture be predabated likely, but the execution of the work, which is where we play for the best part, should still be pretty strong. Operator: Our next question comes from Surinder Thind with Jeffries. Surinder Thind: Ted, just to follow up on the earlier color about kind of the transition that's occurring in 1Q to 2Q in terms of the weakness that we saw in the staffing business. Can you talk about it in terms of -- was this company kind of pulling back on staffing in the sense that they're delaying projects and their having people come off of those projects? Or is it that projects are tending to be pushed were in the pipeline, maybe there was positions that were open and that you had anticipated filling, but at that point, they've removed those positions. How should we think about that mix at this point? And ultimately, what the longer-term risk here is over the next 6 to 12 months in terms of what kind of a pullback in terms of trying to kind of put ends on what the way the clients think about this. Theodore Hanson: Rand, do you want to take that? Rand Blazer: Well, Ted, let me start and then you can jump in. Serrano, the first thing I would say to you, though, is -- when you're on the staffing side, you don't always know what the project is. It's an electronic world where they have requisitions, they published the requisitions through BMS and you respond to them. Do our account managers have a sense of where they're deploying these people. The answer is we have a sense, but it's not a project you're not hiring people for projects, you're hiring people. Where the company puts them is, to some extent, through the electronic media means a little invisible to us. Now having said that, I think it's just a question of when they're rotating people or that they just are taking a pause in when you start a new person back up. And I think they do that because it's a cost control measure. That's why companies have staffing programs. that they -- and with the full visibility from the top down in the organization, remember, 15 years ago, they didn't -- 20 years ago, they didn't really have all these programs. There was a lot of independent one-off hiring people. They've really put great programs in place. They've made it electronic, which all of us have responded to, and we benefited from in the sense of transactional flow. But having said that, I think what they see is they know that this is a way that they can control costs, at least in the short term. not a long-term answer. It's a short-term answer just to bridge the gap until they decide to continue to move forward. But you can't run your service centers, for example, which is where some of that staffing goes. Unless you up the productivity of that team or you just limp along for a while because there's a general lower level of action going on in that service center. I'm using that as an example. If it's project oriented, it's more coming through the consulting program and I think our backlog and consulting revenues talk for themselves. Surinder Thind: That's helpful. And then as a follow-on for Marie, can you maybe talk about M&A at this stage, given the color around the limited deal pipeline, is that by design here? Is it a valuation issue? How should we think about that part of the commentary? Marie Perry: Well, I mean, from an M&A perspective, I mean, it's really around trying to find that right deal, to your point that meets our value proposition. So we've said that or use of capital that M&A is the first and best use. Theodore Hanson: But you know where we are Surinder, let me add 1 more thing. I think it's opportunistic, right? And so what we've always said if there wasn't the next right opportunity in front of us, that we would then turn to share repurchases, which obviously, we've done here during the last quarter, and intend to continue with, with the new share authors repurchase authorization and continued free cash flow here as we go forward. So look, we still would love to find certain properties that fit our shopping list that we have defined, both in commercial and GOV. We continue to talk to various targets and that doesn't stop. It's just slower now and kind of nothing at the lip of the cup. To your point, I think one of your -- the last part of your question was about valuation; and there's still not a discovery evaluation today because they're -- a seller is not willing to sell a really good business into a marketplace where the buyer is not willing to pay what he perceives or she perceives the multiple to be. And so you've got a little bit of a stalemate going on still. And until the financing markets and the equity capital markets are working in a way that supports a normal amount of deal flow in that discovery can be made. We're at a little bit of a lagger head, I would say. Operator: Our next question comes from Mark Marcon with Baird. Unidentified Analyst: This is Andre on Mark. So my first question will just follow up on the last one. Can you speak about how you feel about your current debt levels? And what are your thoughts on increasing leverage if the right opportunity did come up in this environment? Theodore Hanson: Sure. So great question, Andre. I mean we're still very modestly leveraged, I think, on a senior basis, secured where less than 1, about $0.9 million going to total leverage basis, it's under 2%, 1.9%. We've always said that when we're below 2.5, we're kind of under levered, if you will, if there are good M&A opportunities in the marketplace. In normal times, we've leveraged up to about 3.8x about and we've done that on 5 different occasions, I believe, to make a larger acquisition. And the margin and free cash flow characteristics of the business certainly support that. But these are normal times. So obviously, we're wary about leverage and how we think about that with so much uncertainty in the market. But we have dry powder. We have free cash flow. We have $460 million revolver that doesn't have anything outstanding on it. We purposefully increased it about 2 quarters ago, so that if the right M&A opportunity came along, we could take advantage of it. So I would say we're willing to take on a little bit of leverage for the right thing, but you won't see us up at 3x and 3.8x leverage metrics until we have some certainty in the market. Unidentified Analyst: Great, that's very helpful color. And then my follow-up will be, you spoke a little bit about the new multiphase procurement cycles on the federal side. Could you provide some more color on that? And any initial thoughts on how that could impact strategy or go-to-market operations on the federal side? Theodore Hanson: Yes. There's just a lot of gyrations going on in the whole procurement world within the federal government. Still has hung over from COVID, it's still not quite cycling and working like it should. The government is going to big, multilayered RFPs and awards where they can to be more efficient. And that naturally is slowing down the procurement wheel to get to get something an RFP put together to get it on the street to get the right firms to respond to it, to adjudicate all that and then to finally make award. And then on the back end of all that, the world of protest has just taken on another level of craziness. There's just a lot more protests going on. It used to be you were very careful about making a protest because you were basically telling your customer they were wrong in terms of how they looked at a certain situation and adjudicated down to a final award. But today, nobody is afraid to adjudicated or to protest. It seems like that's the first response, the minute an award is made. So -- and now that only are you seeing protests on the back end after awards are made, you're seeing them on the front end when firms don't agree with how the government customer is putting together the criteria when they put a contract out for bid. So it's just -- there's just a different level of stuff going on in that whole procurement world. And it's quite honestly kind of just bringing complexity and slowing down the machine, if you will beyond the effect of the lingering effect from COVID. Operator: There are no further questions at this time. I would like to turn the floor back over to Ted Hanson, CEO, for closing comments. Theodore Hanson: Great. Well, thank you for being with us today. We appreciate all your questions and your time, and we look forward to announcing our second quarter results. later in July. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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ASGN Incorporated (NYSE:ASGN) Financial and Operational Highlights

  • ASGN's financial performance in Q3 2024 includes revenues of $1.031 billion and net income of $47.5 million, with an adjusted EBITDA of $116.9 million.
  • The company repurchased one million shares for $95.6 million, aiming to enhance shareholder value.
  • IT consulting segment is a major revenue contributor, with the commercial segment reporting new bookings of $1.2 billion and the federal government segment securing $1.1 billion in new contract awards.

ASGN Incorporated (NYSE:ASGN) is a leading provider of IT services and solutions, catering to both commercial and government sectors. The company offers a range of services, including IT consulting and staffing solutions. ASGN competes with other major players in the IT services industry, striving to maintain its position through strategic initiatives and financial performance.

On October 25, 2024, Lindstrom Carol, a director at ASGN, sold 1,060 shares of the company's common stock at approximately $93.02 per share. This transaction leaves her with 4,579 shares. The sale comes at a time when ASGN's stock is trading at $92.75, reflecting a 1.19% decrease today, with a trading range between $92.645 and $95.98.

ASGN's financial results for the third quarter of 2024 show revenues of $1.031 billion and a net income of $47.5 million. The adjusted EBITDA, a measure of the company's operating performance, is $116.9 million, which is 11.3% of the revenues. Operating cash flows are strong at $135.8 million, with free cash flow at $127.9 million, indicating healthy financial management.

The company has also been active in repurchasing its own shares, buying back approximately one million shares for $95.6 million during the quarter. This move can be seen as a strategy to enhance shareholder value by reducing the number of shares outstanding, potentially increasing earnings per share.

ASGN's IT consulting segment contributes significantly to its revenues, accounting for 57.9% of the total. The commercial segment reported new bookings of $1.2 billion over the past year, with a book-to-bill ratio of 1.1 to 1, indicating strong demand. The federal government segment secured $1.1 billion in new contract awards, with a book-to-bill ratio of 0.9 to 1, as highlighted by the management's comments on stable market demand.

ASGN Incorporated (NYSE:ASGN) Earnings Report Highlights

  • ASGN's earnings per share (EPS) of $1.03 missed the estimated $1.35, while revenue exceeded expectations at $1.031 billion.
  • The company reported a net income of $47.5 million and an adjusted EBITDA of $116.9 million, indicating strong financial health.
  • ASGN's IT consulting segment was a major revenue contributor, and the company showed a stable market demand in both commercial and federal government segments.

ASGN Incorporated (NYSE:ASGN) is a key player in the IT services and solutions industry, catering to both commercial and government sectors. The company recently reported its third-quarter 2024 earnings, revealing a mixed financial performance. While ASGN's earnings per share (EPS) of $1.03 fell short of the estimated $1.35, the company managed to surpass revenue expectations with $1.031 billion against the anticipated $1.006 billion.

During the earnings call on October 23, 2024, attended by notable analysts, ASGN's leadership, including CEO Ted Hanson and CFO Marie Perry, provided insights into the company's financial health. The call highlighted ASGN's net income of $47.5 million and an adjusted EBITDA of $116.9 million, which represents 11.3% of the total revenues. The company also reported strong operating cash flows of $135.8 million and a free cash flow of $127.9 million.

ASGN's IT consulting segment played a significant role, contributing 57.9% to the total revenues. In the commercial segment, the company achieved new bookings of $1.2 billion over the trailing twelve months, with a book-to-bill ratio of 1.1 to 1. The federal government segment secured $1.1 billion in new contract awards, with a book-to-bill ratio of 0.9 to 1, indicating a stable market demand.

Financial metrics provide further insights into ASGN's market position. The company's price-to-earnings (P/E) ratio is approximately 23.07, while the price-to-sales ratio is about 0.995. The enterprise value to sales ratio stands at 1.21, and the enterprise value to operating cash flow ratio is around 11.84. These figures reflect ASGN's valuation relative to its sales and cash flow. Additionally, the company's debt-to-equity ratio of 0.58 suggests a moderate level of debt compared to its equity.

Insider Trading at ASGN: Director Carol Lindstrom's Strategic Move

Insider Trading Activity at ASGN: A Strategic Move by Director Carol Lindstrom

On Tuesday, April 30, 2024, Carol Lindstrom, a director at ASGN:NYSE, made a significant move by selling 1,000 shares of ASGN's Common Stock at a price of approximately $97.04 per share. This transaction reduced Lindstrom's stake in the company to 5,639 shares, a detail that was officially recorded in a Form 4 filing with the SEC. This insider trading activity provides a glimpse into the actions of those with intimate knowledge of the company, potentially reflecting their perspective on the company's current valuation and future prospects.

ASGN's Financial Highlights and Strategic Initiatives

ASGN, a company that operates under the NYSE with the symbol ASGN, has recently been in the spotlight for its financial achievements and strategic initiatives. In the first quarter of 2024, ASGN reported impressive financial results, including revenues of $1.05 billion and a net income of $38.1 million. These figures are indicative of the company's strong performance and operational efficiency. Furthermore, ASGN's adjusted EBITDA stood at $108.3 million, representing 10.3 percent of the revenues, which highlights the company's profitability and its ability to generate earnings before interest, taxes, depreciation, and amortization.

The company's commitment to enhancing shareholder value is evident through its actions, such as the repurchase of approximately 0.8 million shares of its common stock for $79.7 million and the approval of a new, two-year $750 million stock repurchase program. These stock repurchase programs are a clear indication of ASGN's confidence in its own future prospects and its dedication to returning value to its shareholders. Additionally, the successful refinancing of its term loan B, achieving a 50-basis point reduction in the interest rate, demonstrates ASGN's strategic financial management and its ability to optimize its capital structure for the benefit of its stakeholders.

ASGN's business segments also show promising growth, with IT Consulting revenues accounting for approximately 56.7 percent of the total revenues. The Commercial Segment's new bookings for the trailing-twelve-month period (TTM) at $1.3 billion further underscore the company's strong market position and its ability to secure new business. These financial and operational achievements are complemented by ASGN's commitment to social responsibility, as evidenced by Apex Systems, a brand under ASGN, receiving the VETS Indexes Recognized Employer designation. This award highlights the company's dedication to supporting veterans and the military-connected community, reinforcing ASGN's role as a leader in fostering an inclusive and supportive work environment.

ASGN's Financial Metrics and Market Valuation

The financial metrics such as the price-to-earnings (P/E) ratio of approximately 21.51, price-to-sales (P/S) ratio of about 1.02, and other valuation ratios provide investors with a comprehensive view of ASGN's market valuation. These ratios indicate the amount investors are willing to pay for a dollar of earnings or sales, offering insights into the company's financial health and market position. The debt-to-equity (D/E) ratio of about 0.56 further provides an understanding of the company's leverage and financial stability. Together, these financial indicators and strategic initiatives paint a picture of ASGN as a robust company with a solid foundation for future growth and a commitment to delivering value to its shareholders and contributing positively to the community.