ASGN Incorporated (ASGN) on Q3 2022 Results - Earnings Call Transcript
Operator: Good afternoon and welcome to ASGN Incorporated Third Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kimberly Esterkin, from Investor Relations. Please go ahead.
Kimberly Esterkin: Thank you, operator. Good afternoon, and thank you for joining us today for ASGNâs Third Quarter 2022 Conference Call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Marie Perry, Chief Finance 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 todayâs 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 todayâs press release. I will now turn the call over to Ted Hanson, Chief Executive Officer.
Ted Hanson: Thank you, Kimberly, and thank you for joining ASGNâs Third Quarter 2022 Earnings Call. Before we begin, on behalf of the entire ASGN team, Iâd like to welcome Marie Perry to her first earnings call as our CFO. Weâre excited for Marie to participate in todayâs discussion. With that said, letâs now turn to our third quarter results. As is evident from our Q3 financials, growth continued to build quarter-over-quarter and demand for our services and solutions remain strong. Revenues which were a record for the third quarter came in above the midpoint of our guidance range for Q3 and totaled 1.2 billion up 11.6% year-over-year. This growth was largely driven by our commercial segment, and specifically our consulting business. This record top line performance would not have been possible were it not for the incredible efforts of all of our professionals in service of our clients as the ASGN team collectively strives to meet and exceed their expectations. Consequently, these results bring us closer to our goal of 6 billion in revenues by 2024. Iâll provide some comments on our three year plan later in todayâs call. Our commercial segment accounted for 75.1% of consolidated revenues. While our federal government segment accounted for the remaining 24.9% of revenues. The strength and breadth of our account portfolio contributes to our success with virtually almost all of our revenues derived in the U.S. and largely from Fortune 1,000 accounts. Moving down the income statement adjusted EBITDA of 148.7 million was also above the midpoint of our guidance range, improving 8.9% year-over-year. Adjusted EBITDA margin was 12.4% for the quarter. Free cash flow from continuing operations totaled 79.5 million and improvement of 18.8% over the prior year. Quarter making the best use of this cash is our balanced, flexible and disciplined approach to capital allocation, which includes investing organically in our business, making strategic acquisitions of profitable high growth companies and relevant solution areas and returning value to our shareholders through our stock buyback program. Before speaking further on our recent acquisitions and segments performance, Iâd like to provide the following three highlights that continued to drive our performance. First, ASGN maintains a large and diverse enterprise account portfolio representing the most significant portion of the revenue base. Second, the IT services market remains favorable and with the support of our larger cap portfolio, ASGN is successfully executing against these opportunities. And third, favorable bookings in both the commercial and government segments provide us with visibility and position ASGN well for 2023. Now letâs review the segment performance. Our commercial segment, which services large enterprises in Fortune 1,000 companies had another solid quarter with growth in both IT staffing and consulting services. Revenues of 900 million increased 16.1% over Q3 of last year as well as improved 12.9% organically every year on a difficult comparison. Impact systems our largest division accounted for 84.1% of the segmentâs revenues for the quarter with top and retail accounts both achieving double digit growth rates. Creative digital marketing experienced a lower growth rate compared with Q3, 2021, due in part to the high growth rates in the prior period. From an industry perspective, four out of our five commercial segment industry verticals achieved double digit growth for the quarter while business and government services was up low single digits versus the prior year. Within Apex systems, specifically, financial services had solid performance and banking with even greater year-over-year growth amongst our FinTech and wealth management accounts. Growth in technology, media and telecommunications, or TMT industry was again led that double digit growth in technology and telecommunications accounts. Progress in our commercial and industrial accounts reflected strength across all sectors as compared to the third quarter of 2021 with the exception of materials. In particular, we achieved double digit growth year-over-year in energy, utilities, consumer discretionary, and consumer staples. Healthcare industry revenues also grew double digits driven by the provider and payer accounts. Finally, growth in our business and government services particle was led by mid single digit growth in our business services accounts. While aerospace and defense accounts were up low single digits versus the prior year. Gross margin for the commercial segment was 33.1% up 70 basis points for the prior year driven by our growing contribution of high margin, commercial consulting and permanent placement business. Commercial consulting revenues totaled 268.6 million for the third quarter, an increase of 43.2% year-over-year and up 29.8% organically. Revenues derived from our work and web, mobile and application development, data analysis, cloud architecture and migration engagements, along with work where our new ServiceNow solutions lead our commercial consulting quarterly performance. We also had a solid quarter for commercial consulting new bookings which totaled 254.3 million up 36.9% year-over-year. This translates into a blip to bill of roughly 0.9 to 1 for the quarter, and 1.3 to 1 on a trailing 12 month basis. Keep in mind seasonally, the third quarter is typically our lowest book-to-bill quarter. Our early October performance support a healthy bookings outlook. In addition to our bookings, our pipeline of new business opportunities also remain strong. ASGN continues to be favored by our clients in a consulting space due to our intimate relationships, which spanned decades, our solutions portfolio, which continues to expand and our solutions delivery model, which enables us to meet our clients demand with the necessary skilled workforce at economical price points. As I mentioned, we continue to enhance our solution capabilities and at the beginning of July, we officially closed our acquisition GlideFast. The addition of GlideFast puts ASGN on the map as a key ServiceNow player. In a fast growing technology market itâs important that we offer services that promote our clients to Tuesdays and pathways. GlideFast does just that extending our value proposition through its ServiceNow capabilities while at the same time being an important source of revenue and margin expansion. After one quarter with ASGN GlideFast performing ahead of our expectations for visits revenue run rate and new business secured. For example, during the quarter Apex systems and GlideFast jointly want to contract with a client, who is currently in the process of modernizing its asset management system by moving this capability from a legacy system to ServiceNow. Once this capability has been transferred over to ServiceNow, our client can now conduct an initial audit for deployed hardware and software assets. This particular asset management capability has become important in the past three years as remote teams put stress on their existing assets, systems and processes, resulting in a lack of precision on what applications have been deployed, and on which devices. ASGNâs underlying objective with this particular client was to improve the visibility and security of its asset management capabilities and to reduce costs. This contract is a great example of work one and now delivered as a result of our new ServiceNow solutions capabilities. Letâs now turn to the federal government segment which provides mission critical solutions to the Department of Defense the intelligence community and federal civilian agencies. Revenues for the quarter total 297.9 million down slightly year-over-year but up 2.3% sequentially. As we discussed in recent calls this year-over-year decline resulted from our strategic decision not to re-compete a low margin web services retail program in the third quarter of last year, which was partially offset by the impact of distances we acquired in 2021. Federal government segment gross margins were up 120 basis points compared to the prior year due to favorable business. New contract awards for the quarter were approximately 560 million, which translates to a book-to-bill of 1.9 to 1 for the quarter, and 1.0 to 1 on a trailing 12 month basis. This significant quarterly award activity demonstrates that the government continues to drive its spending in areas in which ASGN is focused, including that of cyber security, cloud, AI, ML and IT modernization. Our strong book-to-bill for the third quarter supports the government segments continued growth. Contract backlog improved from 2.9 billion at the end of the second quarter, to total 3.1 billion at the end of the third quarter or healthy coverage ratio of 2.8 times to segments trailing 12 month revenues. Beyond our backlog, which extends for multiple years, our pipeline of opportunities is at an all time high, providing great visibility into 2023. The strength of our pipeline is an indication that our government segment is in the right markets, headlines of justice, defense and intelligence and federal civilian and providing the right solutions. During the quarter, we won a number of key contract awards including a new contract with the FBI to provide enterprise IT operations a re-compete supporting U.S. transportation command software development Help Desk and engineering for its global air transportation execution system or GATES and importantly compete with the Defense Advanced Research Projects Agency or DARPA whom we maintain a long standing history and strategic re-compete to expand and advanced cyber security and zero trust solutions to the United States Army and other defense agencies. On the topic of cyber security, at the beginning of October, we acquired Iron Vine Security at leading cyber security company that designs, implements and executes cyber security programs for federal customers. As with all of our acquisitions, Iron Vine represents a high growth business, whose contributions will be accretive to both our gross and EBITDA margin. Iron Vine adds key new accounts to our portfolio, such as the Security and Exchange Commission, the Centers for Medicare and Medicaid Services, the Department of State and the National Institutes of Health. Iron Vine also significantly strengthened ECSs cyber security offerings to government accounts, while making us more competitive for future work. Iron Vine off to a strong start, and we are excited to welcome their talented team to ASGN. With that, I will turn the call over to Marie Perry our CFO to discuss the third quarter financial results and our fourth quarter and full year 2022 guidance. Merie?
Marie Perry: Thanks, Ted. Itâs great to speak with everyone today. As Ted mentioned earlier, our revenues for Q3 exceeded the midpoint of our guidance estimate and a record for the third quarter. Revenues were 1.2 billion, up 11.6% year-over-year on as reported basis, and up 8.4% organically, which adjust for 34.2 million contributions from acquired businesses. Revenue from our commercial segment were 900 million up 16.1% on a difficult year-over-year comparison, all commercial divisions grew with the highest growth coming from the commercial consulting services, which carry higher gross margins than our IT staffing services. Revenues for commercial consulting, the largest of our high margin revenue streams, were 268.6 million, up 43.2% year-over-year. Consulting services included approximately 25.1 million in revenue from GlideFast. Revenues from our federal government segments were 297.9 down slightly year-over-year on a difficult compare, but up 2.3% sequentially. Revenues for the third quarter of 2021 included 13.4 million of a low margin web service resale program that the federal government segment chose not to renew in Q3 of last year. Revenues for the third quarter of 2022 included 9.1 million from acquired businesses. Gross margin was 30% up 130 basis points over Q3 of last year. Both business segments and all operating divisions reported year-over-year expansion in gross margin driven by improvements in business. Gross margin for the commercial segment was 33.1% up 70 basis points year-over-year. The expansion was a result of double digit growth of our high margin commercial consulting and permanent placement services. Gross margin for the federal government segment was 20.5% up 120 basis points year-over-year as a result of changes in businesses. This improvement resulted from a smaller contribution of cost, reimbursable contracts, which carry a lower margin that other contract ties. The contribution of higher margin businesses we acquired in the third quarter of last year, and the decision not to renew a low margin web service resale program in the third quarter of last year. SG&A expenses were 232.6 million, up 20.7% year-over-year. This increase in expense is commensurate with the growth in the business and also reflects increased investment in our headcount to support future growth. SG&A expenses also included 3.3 million in acquisition and integration expenses that we do not include in our guidance estimates. Excluding these acquisitions and integration expenses SG&A was slightly above our guidance estimates, primarily as a result of greater than expected incentive compensation from higher growth in revenues in gross profit. Income from continuing operations was 71.1 million, up 7.2% year-over-year. Adjusted EBITDA was 8.9% year-over-year. Adjusted EBITDA margin was 12.4% for the quarter, a 30 basis point decline year-over-year due to the incremental investments in SG&A previously discussed. At quarter end, cash and cash equivalents were 211.2 million, and we had 204 million available under our 250 million revolver. Free cash flow from continuing operations totaled 79.5 million and improvement of 18.8% over the prior year. Our senior secured debt leverage ratio for the quarter was 0.96 to 1, we deployed 59.5 million on the repurchase of approximately 624,000 shares of the companyâs common stock during the quarter and year-to-date have repurchased 2.2 million shares for a total of 227.6 million. Turning to our guidance. Our financial estimates for the fourth quarter are set forth in our earnings release and supplemental materials. These estimates are based on the current production trends. Assume 60 billable days in the fourth quarter, which is four days fewer than Q3 of 2022 and one day fewer than Q4 of 2021 and include an estimated revenue contribution of 48 million from the recent acquisition of GlideFast and Iron Vine. For the fourth quarter, we are estimating revenues of 1 billion, 123 million to 1 billion, 143 million ad implied revenue growth rate of 6.6% to 8.5% on one fewer billable day and on difficult comparable. As the fourth quarter of 2021 benefited from high revenue growth on a sequential basis, the implied revenue growth rate for the fourth quarter of 2022 is expected to be up on the same number of billable days. We are estimating net income of 54.2 million to 57.8 million and adjusted EBITDA of 128.5 to 133.5 million. We expect gross margins to remain relatively consistent year-over-year and sequentially. The estimated sequential decline and adjusted EBITDA and adjusted EBITDA margin primarily relates to sequential decline in revenues and gross profit attributable to fewer billable days in the quarter. The midpoint of our fourth quarter guidance range anticipate full year revenue growth for 2022 of 13.8%. Net income growth of 15.3% and adjusted EBITDA growth of 15.6% compared to 2021. Thank you. Iâll now turn the call back over to Ted for closing remarks. Ted?
Ted Hanson: Thanks, Marie. It has been just over a year since we introduced our three year plan in September 2021. While many things have changed in the past 12 months demand in our end markets remains favorable, and we are successfully executing against these opportunities. Our ability to succeed quarter-after-quarter comes down to our resilient operating model. ASGN maintains a large diverse enterprise account portfolio with strong commercial and government bookings that position us favorably for the future. Our balance but flexible capital deployment strategy enables us to act in the best interest of all of our stakeholders, including successfully completing acquisitions that provide us with new solution capabilities that are in high demand by customer base. With that as a background, Iâd like to provide some commentary on where we are tracking versus the three year plan we laid out last September. For reference, you can find the full three year plan and anticipated growth rates in the Investor and Analyst a presentation posted our Investor Relations website. Starting with revenue, given the outperformance of the business in the first half of the year and continued strong top line growth in the third quarter, we continued to track ahead of our baseline revenue growth expectations. Taking into account acquisitions, revenue growth rates remain within the previously projected range. As a reminder, we plan to deploy 1.25 billion to 2.1 billion in acquisitions from 2021 to 2024. And based on our acquisition pace to-date we sit squarely within this range. Lastly, in terms of adjusted EBITDA we are currently tracking toward the high end of our guidance range of both a dollars and a percentage of revenue basis. Overall, we are pleased with the growth weâve seen across the business and are tracking in line if not better than our initial expectations. While the types of contracts and work requested may be evolving in line with market and client needs, the demand for ASGNâs IT services and solutions remain strong. Weâre confident that this demand in combination with our strong pipeline for will carry us solidly in the fourth quarter and into future years. That said, itâs not just the type of services we offer that sets our business apart it is also the quality of the service we provide our clients project after project that continues to differentiate ASGN from the competition. As we conclude our remarks, Iâd like to again sincerely thank our entire team for your hard work and dedication this past quarter. Our success is certainly a reflection of your efforts. With that, letâs open the call to question. Operator?
Operator: Thank you. At this time, we will be conducting our question and answer session. We have a first question from the line of Tim Mulrooney with William Blair. Please go ahead.
Unidentified Analyst: Hey, this is Sam on for Tim, thanks for taking our questions here. We asked this question last quarter. But given the times weâre in I think it makes sense to check in on this again. If we break down IT spend in three broad buckets, those being workforce management, digital transformation and modern enterprise. You mentioned that modern enterprise would be the one area where you would likely see softness first. So can you talk about that if youâre seeing any cracks in spending there? And then also maybe any other high level thoughts that you have around the other two buckets?
Ted Hanson: Yes. Well as the trend weâve been on is the digital transformation bucket is growing the most and bigger share of the pie. The workforce mobilization management is still a big part and growing but a smaller piece of the pie. And the modern enterprise we suggest will start growing a little bit more particularly with ServiceNow capabilities. So I think weâre seeing about what we thought we just as you said, weâd like to continue to see the digital transformation in the modern enterprise where typically around ServiceNow continue to grow.
Unidentified Analyst: Then one more for us. Can you comment on the pace of your internal headcount increases? I know youâve been pretty aggressive here, kind of capitalizing on the strong demand that youâve been seeing. But curious is that itâs slowing down at all, given the the more macro uncertainty weâre headed to right now?
Ted Hanson: Yes, well, look, weâll have to monitor that as we go. So through the third quarter, weâve continued to invest in headcount to meet opportunities and market. And I think we have an approach where over a period of time by our headcount growth will grow a little bit less than our growth in revenue. And thatâs just kind of the pace of business that we follow here. So if we see something developed in the marketplace, we can react to that pretty quickly by growing headcount at a slower pace or not growing it. We also have a natural attrition rates to rely on which we understand well and have pulled that lever or watch that lever work in the past. So Iâve just say, as of the third quarter, we have opportunity in the market. Weâve continued to invest in the, for what we see going forward, weâll have to address that as we get.
Operator: Thank you. We have next question from the line of Tobey Sommer with Truist Securities. Please go ahead.
Tobey Sommer: Thank you. In the consulting business, you talked about seasonally lower booking activity in 3Q but you already seen something better and 4Q. Could you give us a sense for what the differences and seasonality between those quarters since we donât have sort of data series over a number of years to understand what itâs like ourselves.
Ted Hanson: So Iâll let Ron talk about the seasonality. Tobey, Iâll remind everybody that if you go to the supplemental, that we give quarterly book-to-bill for both commercial and federal separately for the last three years. So that data will be out there. But Ron anything on why Q3 and commercial is typically.
Randolph Blazer: Yes. First of all, Tobey, when you look at 220, there was a COVID, quarter, quarter two, but if you looked at the other three quarters, quarter three was the smallest, bookings although very healthy. Same with â21. And now again â22 we believe. I honestly, I donât think we necessarily have an answer for you, Tobey why itâs seasonal, to the commercial marketplace. I mean, a lot of them set their budgets at the beginning of the year. Some of them are on count, not calendar years, but years it began in April 1. So it probably has more to do with their budget cycle than it does anything else. But it seems to work out that way.
Ted Hanson: And then the only thing I will add Tobey and this, but just for the larger group that thereâs a big difference here between commercial and the federal market. Typically, as was this year, the federal market, Q3 which is the calendar Q3 but the end of the government fiscal year, is almost always the strongest new bookings and book-to-bill quarter. And you see that in our federal numbers here for our calendar Q3.
Randolph Blazer: Yes and I understand we have the supplemental data, but youâve been so sort of acquisitive in the consulting area over the last few years, I wasnât sure how dependably seasonal patterns would shine through that. You segwayed into the government. So I was going to ask question about that. Contract awards, you point out were healthy in the quarter, but I think a decent amount of that was re-compete. How much of that was either new or to inform our expectations for growth in the federal business?
Ted Hanson: A little more than half of that number was re-compete. A little less than half was new work one that we didnât have before or contract growth on existing work.
Tobey Sommer: It competes to sort of inform us about over the next as you look 2023 and/or â two questions does the resolution get in the way contract pursuits that youâre aiming at here in calendar 4Q and maybe the early part of next year is to see our extends that far?
Ted Hanson: Okay, so I heard most of what you asked. You blipped out a little bit. So I think that usually, calendar Q4 which is the first quarter of the government fiscal year, is the light, very light from a new booking standpoint, because of the wave in Q3. I think this year, we think that might be a little different. There may be a little more strength in the Q4 number. But thatâs just, thatâs more about the cycle of the government contracting agency coming off the COVID situation and the new budget from March. I think weâll have to watch the election play out and see how that affects this, if any, it may not I can tell you it feels like the administration is working hard to try to get everything out on the street and bid and awarded that they can we see a lot of activity. But itâd be difficult for me to comment on anything in 2023 and beyond.
Tobey Sommer: Thanks. Last question for me. Could you quantify the impact of the acquisition that closed in October on the fourth quarter revenue guidance and profit guidance? I think the press release quantify the contribution from acquisitions, but not that discrete one, which I donât think was already incorporated and consensus. Thank you.
Marie Perry: Hi, Tobey. So yes, so the fourth quarter, we talked about 48 million from acquisitions. And so about half of that is for Iron Vine and the rest, the other half is right there.
Ted Hanson: Then on the EBITDA margin side, Tobey as we say, generically, and itâs true in this case as well expect middle to high teens EBITDA margin rates from the contribution of these acquisitions.
Operator: Thank you. We have next question for the line of Jeffrey M. Silber with BMO Capital Markets, please go ahead.
Jeffrey M. Silber: Thanks so much. This quarter, some of the other IT services firms have been talking about sales cycles lengthening a bit. And as some had mentioned projects potentially ending early or having a little bit more difficulty selling add on work. Are you guys seeing any of that at all?
Randolph Blazer: I would say nothing more than the normal dose of it.
Jeffrey M. Silber: And just switching over to the federal government segment. It looks like and forgive me if Iâm just miss reading it. But it looks like adjusted EBITDA margins in that segment were down both sequentially and year-over-year. Was there something specific to point out there?
Ted Hanson: The thing thatâs going to drive our margins there are the mix of dissents. And so I donât think thereâs anything to call out specifically. Marie you can add in anything in there you want otherwise. Yes. So nothing to call out this week.
Jeffrey M. Silber: Okay, great. And just one more, Iâve had a few people asked me to ask this cybercoders. I know, itâs small. But can we talk about how large it is and what the trends are in that sector, in that line of business. Thanks.
Ted Hanson: Well, we canât talk about cybercoders individually, but we can talk about perm placement overall. We told you, in the second quarter and the third that we expected it to be a slightly lower contribution to the overall revenue mix, which is true, because we have other units that are growing faster like commercial consulting, plus, youâve got the addition of acquisitions here. So naturally, thatâs going to continue to come down. It was just a little over 4% in the third quarter, and itâs going to be somewhere between 3% and 4% in the fourth quarter. And I think that it kind of is in sync with what our peers gave in the second quarter.
Operator: Thank you. We have next question from the line of Heather Balsky with Bank of America. Please go ahead.
Heather Balsky: Hi, thank you for taking my question. Switch speaker for the sound better. I wanted to piggyback off the last question with regards to perm placement. That line of business in general, for the staffing industry tends to be hyper cyclical. And Iâm just curious if you could help provide some perspective in terms of what you saw during COVID in terms of how that business performed and then your thoughts on the margin side in terms of your ability to try margin if we go into a downturn, and that business does often?
Ted Hanson: Well, look, that is true. Perm placement is the most cyclical part of the staffing business in general. Thatâs why we manage it the way we do. As a percentage of the total revenues it together with creative circle was down over 20% together, is what we said during the COVID period. Today itâs performing very nicely, and weâre expecting it to have a similar market in the fourth quarter, although weâll break that out specifically, but theyâre going to perform as we expect, I believe, if weâre just looking one month into the fourth quarter and like we said earlier, itâs going to be a lower percent of the revenue mix, based on what we said before. So I think that probably has or is the best way to look at it as a very small piece of $1 billion 2 revenue mix.
Heather Balsky: Thank you. And is there any color you can help us think through even though itâs a small part of revenues, the impact on EBITDA or just your thoughts and EBITDA if that business were to cycle down?
Ted Hanson: Well, look, I think you can kind of do your own downside scenario. I mean, if you think that part of the business is going to be down, you could pick a number 20% again, which is what we said before between those two business units. And then the effect on gross margin is more because itâs a hack contribution gross margin. But again, I mean, I think around the edges based on what weâre seeing, I donât think that itâs the big, itâll be the one that stopped first, but it wonât be a crusher, if you will to gross margin and bottom line. At least thatâs not what weâve seen in the past. Certainly it has an effect on it, but wonât be the biggest contributor to it.
Operator: Thank you. We have next question from the line of Surinder Thind with Jefferies. Please go ahead.
Surinder Thind: Thank you. Iâd like to start with a question around like, guidance. Marie, can you maybe provide a bit more color on the sequential decline and what I mean by that is, when I do the math, I donât see any sequential growth adjusted for day count. Any color there.
Ted Hanson: On the revenue side?
Surinder Thind: On the revenue side yes. Right. Because day count is 60 days versus 64. So what I adjust for that, I get to kind of an 1122 number. And then adding the acquisition in our environment get to like an 1140 type number. And thatâs within your guidance. So that kind of says that itâs, thereâs not revenue growth sequentially.
Ted Hanson: So thereâs slight revenue growth, weâd call it about 1%. sequentially. Once you adjust for those four billing days, coming from Q3 into Q4.
Surinder Thind: Got it. And any color in terms of were in amongst the segments?
Ted Hanson: In terms of the individual business units Surinder?
Surinder Thind: Yes. That is correct.
Ted Hanson: Yes, with our guidances for the enterprise at the ASGN level. So weâre not going to break it down. But we say both businesses are going to have performance here in the fourth quarter. I just would leave it at that.
Ted Hanson: And the federal unit, you have to adjust, right, youâre adjusting for acquisition in and out, but you just call it up slightly adjusted for billing days in the fourth quarter from the third.
Randolph Blazer: And commercials slight positive
Surinder Thind: And then in terms of just the bigger macro trends that youâre seeing. Can you maybe talk about the visibility that you have in the consulting side of the business maybe versus the visibility in the staffing side? Maybe compare and contrast those two in terms of where we are in the cycle and how comfortable you are, when we think about other IT services firms, theyâre able to guide or they tend to provide guidance youâre out in you guys are now about 50/50 in terms of your revenue mix?
Randolph Blazer: Well, I will start, Surinder, I think weâve always said our staffing, we have somewhere little north of six months or half a year visibility and consulting, we have more than that. It would approach a year, nine months to a year visibility because theyâre discreet contracts are longer term and theyâre signed and funded. So in staffing, of course, the client can make a decision today to change their posture with us at any moment. So but I think given our account base weâre pretty comfortable that we have visibility out for somewhere between 6 to 12 months for sure, between staffing and consulting. Consulting is definitely more disability. On the government side similar, itâs much more, Iâd say itâs predictable because of contracts that are set up for the fiscal year the government and funded. So we have relatively good visibility there, which is a consulting type business right.
Surinder Thind: And then one related question to that, in terms of the visibility component, are there also differences in behavior that we should maybe be thinking about in a down cycle in the sense that would the staffing part of the business or do clients tend to focus on that more whereas with your consulting, maybe thatâs I would call it safer revenues? Or how should we think about that component in terms of the reactivity of clients?
Randolph Blazer: Ted, Iâll start, I think Tedâs mentioned already, current placement is the most cyclical, but itâs a very small percentage of our total portfolio. Staffing would is appears to be the most cyclical because clients can quickly make a decision to cut resources or to add resources in surge matter anywhere along the line. So it tends to be a little bit more sensitive to clients decision making. Consulting usually are well thought out projects by our clients that theyâre on a path on a roadmap. They have budget for year, and theyâre off and running. That doesnât mean they wonât change your mind somewhere along the line or redirect the work. But itâs definitely the one thatâs probably more consistent. Now, having said that Surinder very well following us many years. For the most part weâve had, in our staffing side, a lot of our staffing work is an infrastructure, keep the lights on kind of work, a certain percentage is there. Thatâs why we were pushing so well, no eight, no nine and in the COVID period, in the commercial business. So there are a lot of different components that go into it, the more infrastructure work youâre doing still more you see it as an annuity, if you will, or a more consistent revenue path. But definitely prem placement be the most uncertain, but a small, small part of our business, as Ted said. Staffing next, although weâre pushing by the size of our accounts, and by the infrastructure spend, and consulting last, because those are generally well thought out projects that are on a pathway to achieve some objective for the client.
Surinder Thind: Got it. Thank you guys. Thatâs it for me.
Ted Hanson: And Surinder if you want to follow up on the billable day question, please do after the call, and again up slightly and commercial up mid single digits and federal slightly up for ASGN sequentially when you make your adjustments.
Surinder Thind: Got it. I appreciate that. And I will follow up. Thank you.
Operator: Thank you. We have next question from the line of Kevin McVeigh with Credit Suisse. Please go ahead.
Kevin McVeigh: Thanks for fitting me in. and Marie welcome. Hey, just to follow up on the guidance. I donât know if I picked it up wrong. But it looks like that the EPS relative to revenue is a little bit of adult and it looks like a lot of the incremental expenses in SG&A. And it didnât have our invite in there. But if I mess right now, it looks like it was an incremental $15 million to SG&A. Is that right? And if it is, what is that?
Ted Hanson: So coming from the third quarter, the fourth Kevin? Is that what youâre saying?
Kevin McVeigh: Yes. Right.
Ted Hanson: Yes. So I donât think SG&A is up 15 million. I think that and I would tell you, the biggest factor is the four last billing days, because youâre fully loaded for costs. So when youâre in normal, in normal yours, if we went back before COVID, coming out of the third quarter and into the fourth quarter, you would see a decline in EBITDA margin from third to fourth. You didnât see that in 2020, because of the COVID ramp and you didnât see it in 2021 because we had a very abnormal quarter of acceleration from third to fourth that was for both units. It was above 5% which is not normal. So you really I mean, this is not something, this is normal for us weâre used to seeing from the third to the fourth. But youâd have to go back to â19 and prior to see that.
Kevin McVeigh: And then the lower margin web contract, how much did that help in the quarter? Right, because sounds like it was obviously little margin. But the revenue wasnât there. Itâs any sense of what the margin benefit from it was?
Ted Hanson: Well, I mean, I think in the past, we said each quarter the contribution is plus or minus 15 million and it had virtually no margin associated with it.
Operator: Thank you. We have next question from the line of Mark Marcon with Baird. Please go ahead.
Mark Marcon: Good afternoon, Marie welcome to the call. I was wondering, can you talk a little bit about the joint contract between Apex systems and GlideFast? Howâs the profitability of a contract like that compared to kind of a single contract and based on what youâre seeing now how quickly could you expand those sorts of joint wins?
Ted Hanson: Well, first of all, Iâd like never talk about anything other than itâs one win and its Apex systems win in the commercial account. And when we win the ServiceNow, itâs a basically we do it on Apex paper, if you will, but itâs GlideFast rates, GlideFast capability. Apex is bringing the client to the bench, if you will, or to the troughs and then working to make sure that the GlideFastâs team understands applying environment. Mark, we expect healthy growth in this area, because Apex has an account base thatâs second to none. And if you ever listen to Bill McDermott and ServiceNow, they have a huge penetration in the Fortune 1000 in Fortune 500 with their licenses. Now, I will also tell you, I think Bill would say most of these Fortune 500 companies are using ServiceNow in a very small way, not in a large enterprise way. So thereâs a lot of room and opportunity here for them as a company, and for us as a service agent of their products. So, I mean, we said when we made the acquisition, which we talked about last quarter, or I guess in the GlideFast publication, we expect that thereâs a lot of great synergy between us. We didnât price it based on the synergy. We priced it based on GlideFast own performance, which was stellar.
Mark Marcon: And then there have been a lot of questions around visibility. Obviously, the reason for that is because there is some concern with regards to macro slowing, given the increase in terms of interest rates youâve been through multiple cycles. First of all, are you with your clients, Ted and Rand, are you hearing anything among those Fortune 1000 clients in terms of concerns or thoughts about, hey, we might slow down? And secondly, youâve done a great job in terms of navigating through prior cycles. Can you just for people who arenât as familiar with you, if you can just kind of remind people in terms of some of the variable cost components that you have, and your ability to adjust as need be.
Ted Hanson: Right. So let me start and Ran can hop in here. So lots of headlines in the news right now about slowing rates of hiring, or maybe even layoffs. What weâre finding is clients are doing that, but in areas that are not IT. So I think Ran said earlier that weâre not seeing any disruption other than the normal, specific accounting here or there around, not signing up for a piece of work, or maybe changing sentiment on hiring. So think that where canât call anything in that regard was just a normal conversations right now. And a lot of the reasons that clients are using us to teach digital transformation or cost optimization or otherwise, what Iâll just call improved data and analytics and move to the cloud, all these other things continue, they havenât gone away, just because weâre all watching whatâs going on in the news. So I wouldnât say any overreaction to clients right now. And I think when you hear the headlines, Mark, and this, you have to kind of bifurcated between our some of these big companies saying they have too many people in the warehouse or logistics, or administrative or what have you, and kind of separate that from really whatâs going on in IT. So that would probably be the first thing. When the business now to your second question. When the business grows more slowly, or may not grow at all, we find that our P&L naturally adjust to that as we take the actions that we know we need to take. So if revenue is lower margins, gross margins are pretty well intact. And so gross profit moves together with that. Our SG&A is highly variable, like in terms of the fact that itâs mostly compensation. Itâs modest fixed costs and itâs highly incentive. And those incentives adjust with changes in revenue and gross profit. So in that way, we maintain pretty stable margins when it comes to the bottom line. And you can go back and see that during the COVID period is the best example of that. And then Ran obviously in APEX as a private company went through this eight or nine and saw similar things. So our clients we are such an important part of the fabric around how they get things done. Not just new things, but just operate there shop every day that and itâs a better tool for them than big fixed internal workforce. And weâve seen that secular change play out here for years. And so in that way, they need us to stand by them and help them operate their technology operations and accomplish the projects that are important to the business.
Mark Marcon: Got it and I appreciate that. And then lastly we obviously have an election coming along. You did announce a number of really nice contract signings on the government space. Do you think the pace of the decisions is going to actually increase here? And what would happen during the lame duck session, particularly if thereâs kind of a split from a party perspective?
Ted Hanson: Well, look, I think that we evidence of our numbers, and youâll see our peers report, but the pace quick and then Q3. So I think there was a build during the first quarter, two quarters after the budget became effective. And then now youâve seen it began to happen here in Q3 and we think there will be maybe a little bit more strength in new bookings for the sector overall in Q4. What happens if we get into different situation as it relates to the parties and whoâs in power. Again, I canât really comment on that. I will tell you, that the threat is not getting any less or easier. Itâs out there, and it continues to grow. And itâs cyber security, our solutions around AI and Machine Learning, and for the government continue to modernize this system so that it can do the work that it needs to do. Those things are not going away. And I think whatever party is in power, theyâre going to support these things.
Operator: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And Iâd like to turn the call back over to Ted Hanson, CEO for closing remarks. Over to you.
Ted Hanson: Right. Well, thank you, operator and I appreciate everyone being on our Q3 earnings release call and we look forward to speaking with you in February and discussing the fourth quarter and our outlook for the first quarter of 2023.
Operator: Thank you. Ladies and gentlemen, this concludes todayâs conference. You may disconnect your lines at this time. Thank you for your participation.
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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.