ASGN Incorporated

Greetings. Welcome to the ASGN Incorporated fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Kimberly Esterkin, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us today for ASGN's fourth quarter and full year 2021 conference call. With me are Ted Hanson, Chief Executive Officer, Rand Blazer, President, and Ed Pierce, Chief Financial Officer. Before we get started, I would like to remind everyone that our commentary contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainties, and as such, our actual results could differ materially from those statements. Certain of these risks and uncertainties are described in today's press release and in our SEC filings. We do not assume any obligation to update statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors.asgn.com. Please also note that on this call, we will be referencing certain non-GAAP measures, such as adjusted EBITDA, adjusted net income, and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in today's press release. I will now turn the call over to Ted Hansen, Chief Executive Officer.

Thank you, Kimberly, and thank you for joining ASDN's fourth quarter 2021 earnings call. The fourth quarter capped off an extremely productive year for ASGN with momentum building throughout Q4 and positioning us very well for 2022. I want to express my gratitude to all of my teammates at ASGN for your exceptional performance and dedication to our company and our clients this year. Your efforts are the reason why ASGN is a market leader. Beginning with the fourth quarter, revenues totaled $1.1 billion, up 17% year-over-year and ahead of the top end of our guidance range. Adjusted EBITDA totaled $130.3 million, an improvement of 26% year-over-year and also surpassing the high end of guidance. Outperformance of the commercial segment led by our consulting business, along with higher productivity across the company, drove our progress in the quarter. Our federal government segment experienced an improving business mix, resulting in impressive EBITDA and gross margins. More on that shortly. Our success in the final quarter of 2021, combined with the strength of the prior three quarters, resulted in record full-year revenues of $4 billion and adjusted EBITDA of $483.1 million, increases of 14.5% and 23% year-over-year, respectively. Our commercial segment accounted for 2.9 billion or 73% of consolidated revenues in 2021, while our federal government segment accounted for 1.1 billion or 27% of total annual revenues. Free cash flow from continuing operations totaled 246.9 million for 2021. Over the past year, we maintained a very balanced and flexible approach to capital allocation investing in our organic growth, making strategic acquisitions that support our long-term growth strategy, and providing returns to our shareholders. During 2021, we spent 181.3 million on the repurchase of our common stock, of which 13 million went under the new two-year 350 million repurchase plan approved by our board of directors in December of last year. While we will leverage our share buyback program this year, We continue to believe that M&A remains our best use of and highest return on invested capital, and I will provide an update on our recent acquisitions momentarily. Ultimately, the acceleration of our revenue growth throughout Q4, momentum we are witnessing in Q1 to date, and our first quarter 2022 guidance, which Ed Pierce will discuss shortly, are all indications that our business remains on an upward trajectory. While nearly all of our employees continue to work remotely, we are not experiencing any impacts of note from the recent surge in the pandemic. Our productivity and volume of work remain very high. Keep in mind that as a leading provider of IT services and solutions, our business has very steady and predictable trends. These predictable trends include not just our revenue growth, which remains above market, but also our continued margin and cash flow expansions. In other words, ASGN is not at the whims of fleeting technology trends. Our job is to implement technology and business solutions that are in demand by our clients. These digitization and transformational trends are in their early innings of growth and have long trajectories ahead of them. This type of work provides us with a strong pathway for continued success across the end markets we serve. With that said, let's turn to more detail on our segment performance for the fourth quarter, beginning with our largest segment, commercial, which services large enterprise and Fortune 1000 companies. Our commercial segment had a fantastic fourth quarter driven by strength in all service areas. For the fourth quarter of 2021, the commercial segment generated revenue of 790.5 million, up 24.1% year-over-year, and up 22.7% organically. Growth in the segment reflected double-digit growth in commercial consulting, creative marketing, and permanent placement services. APEX Systems continued to report very strong growth, and for the second time, Creative Circles and CyberCoder surpassed their 2019 quarterly revenues. From an industry perspective, all five commercial industry verticals for APEX Systems experienced growth during the quarter, with every vertical achieving double-digit growth on a year-over-year basis. APEX Systems' commercial and industrial accounts were up double digits both year-over-year and sequentially due to the continued strength across all sectors, with particularly high growth in retail, energy, utilities, airlines, and air freight accounts. Our technology and telecommunications, or TMT, vertical was up double digits year-over-year. Within the vertical, technology and telecommunications accounts saw significant growth over Q4 2020. Government and business services was up double digits, led by business services with high double-digit growth, while aerospace defense and government accounts were down roughly 1% versus Q4 2020. Financial services accounts were up high single digits with the largest growth across insurance, fintech, and wealth management accounts. Healthcare continued with double-digit growth driven by provider and payer accounts. Revenues derived from our work in applications and project management, including Agile, Digital, ERP, and Cloud, continued to perform well. APEX Systems' top accounts and retail and branch accounts all achieved double-digit growth rates for Q4. From an industry perspective for the quarter, top account revenue at Apex Systems was up in all five industry verticals we target, while Creative Circle also posted positive growth across their top accounts. Permanent placements at CyberCoder succeeded our expectations. Gross margin for the commercial segment was 32.5%, up 130 basis points from Q4 of last year due to growth across our high-margin commercial consulting segment. creative digital marketing, and permanent placement businesses. EBITDA margins were flat compared to Q4 2020. Higher gross margin and higher productivity in our workforce was offset by higher variable incentive compensation due to the outperformance of our expectations for the quarter, as well as investments in new headcount to support demand opportunities across our account portfolio. We also continued to expand our commercial consulting revenues during the quarter, Commercial consulting revenues totaled 191.7 million in Q4 2021, a significant increase of 75.2% year-over-year and up 67.2% organically. As you may recall at our investor and analyst day conference this past September, we projected to reach 595 million in commercial consulting revenues for 2021. I'm pleased to report with our strong close to the year, Commercial consulting revenues totaled $641.2 million. Growth in consulting revenues was primarily driven by existing accounts, and our pipeline of future opportunities continues to grow at high double-digit rates and is trending positively in the first quarter. ASGN's consulting offerings remain an important source of value we provide our clients. So we continue to build out solution strengths and identify acquisition opportunities that expand our consulting capabilities in service to our clients. To illustrate our solution capabilities and growth, our recent acquisition of AFAP's Infor Business Unit gave us added capability in healthcare and manufacturing ERP solutions. With this added strength, we won a major opportunity in Q4 to support a prestigious hospital's ERP process and move to the cloud. While this account was a longstanding account for APEX Systems, the added ERP solution strength gave us the opportunity to expand our relationship by bringing this solution to one of our existing clients. This is a great example of how we are building and acquiring new solutions and taking that strength to the market. Now let's turn to our the federal government segment, which provides mission-critical solutions to the Department of Defense, intelligence agencies, and other civilian agencies. Revenues for the federal government segment totaled $263.3 million for the fourth quarter, consistent with the prior year period on a very tough comparison. Flat year-over-year revenue was the result of a discontinuation of a low-margin contract offset by revenue generated from our Indersoft and ERPI acquisitions. Importantly, even with this difficult revenue comparison, we saw an improving business mix that resulted in an adjusted EBITDA margin of 11.3% for the quarter, up 230 basis points year-over-year. Gross margin also improved and was up an impressive 560 basis points year-over-year. The federal government segment's new business pipeline remained strong, with $131.1 million in new business awarded during the quarter and a book-to-bill of 1.1 to 1 on a trailing 12-month basis. Contract backlog totaled $3 billion at the end of the fourth quarter, a healthy coverage ratio of 2.6 times the segment's 12-month revenues. In Q4, examples of some of the contracts awarded to our federal government segment included three contracts that were plus-ups for important mission-critical work, including an award to support activities in the development, fielding, and sustainment of AI solutions for the DoD combatant command mission, a second award that focuses on licenses, training, and experience in AI-related analytical toolkits for the Air Force, and a third award for AI-related labeling and expertise for classified mission activities. Also during the quarter, we won a contract to provide system engineering, technical, and advisory services to the Defense Advanced Research Project Agency's Tactical Technology Office, a contract to provide software engineering and application modernization to the Air Force, and a follow-on contract to provide mobile application development and mobile device management for a premier law enforcement customer. With that, I will now turn the call over to Ed Pierce, our CFO, to discuss the fourth quarter financial results and our first quarter 2022 guidance. Ed?