ASGN Incorporated

Greetings. Welcome to the ASGN Incorporated First Quarter 2022 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 and telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Kimberly Esterkin. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us today for ASGM's first quarter 2022 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 first quarter 2022 earnings call. I'm very pleased to report that the momentum we experienced in the fourth quarter of 2021 continued into the first quarter of 2022. Revenues for the first quarter totaled $1.1 billion, up 20.3% year-over-year, and surpassing the high end of our guidance range. Our commercial segment accounted for 76.3% of consolidated revenues, with strength across all business units driving the segment's growth. Our federal government segment accounted for the remaining 23.7% of revenues and performed in line with our expectations for the quarter, achieving consistent revenues year-over-year despite the difficult quarterly comparison. Adjusted EBITDA also improved significantly and was up 39.1% year-over-year to a total $134.8 million, a record for the first quarter. With such strong quarterly results, we continue to train ahead of the three-year targets we laid out at our Investor and Analyst Day Conference this past September. This performance brings us closer to our goal of $6 billion in revenues by 2024, $4.9 billion of which will come from the organic growth of our existing business. It is clear from these aforementioned results and the segment-level detail that I will provide shortly that ASGN's business model supports the future of work and that our company continues to be a winner in providing IT services and solutions to the commercial and government end markets. ASGN's unique delivery model provides not only critical IT resources, but also consultative solutions with custom-fit teams. We are better positioned than any other company to solve for gaps in IT talent while preparing the future technology workforce for tomorrow's digital needs. I'd like to thank our entire team for your exceptional efforts this past quarter. Together, you've enabled ASGN to not only surpass our internal financial targets, but to also reach new company records. Our commercial segment had a very strong quarter with revenues of $832.9 million, an increase of 28.3% over Q1 of last year. Apex Systems, our largest division, accounting for 82.7% of the segment's revenues for the quarter, reported solid double-digit growth in both IT staffing and consulting services. We also saw a strong uptick in creative digital marketing and permanent placement services for the quarter. From an industry perspective, all of our five commercial segment industry verticals achieved double-digit growth for the quarter. Financial services, our largest industry vertical, have particularly strong performance across insurance, fintech, and wealth management accounts. Growth in our technology, media, and telecommunications, or TMT accounts, was led by our technology and telecommunication accounts. Growth in our commercial and industrial accounts reflected strength across all sectors, with particular strength in energy, industrials, and consumer discretionary accounts. Growth in our healthcare vertical continued to be driven by both provider and payer accounts. Finally, growth in our government and business services vertical was led by our business services accounts, while aerospace and defense and government accounts were up mid-single digits versus Q1 of 2021. Impact Systems' top accounts across all five of the industry verticals we target, along with the unit's retail and branch accounts, all achieved double-digit growth rates for the quarter. Creative Circle also posted positive growth across their top account, while permanent placements at CyberCoders exceeded our expectations, enabling the unit to achieve solid double-digit growth for the quarter. Gross margin for the commercial segment was 32.7% of 210 basis points from Q1 of last year, due to growth across our high-margin commercial consulting, creative digital marketing, and permanent placement businesses. This growth and gross margin contributed to a corresponding increase in adjusted EBITDA margins of 140 basis points compared with Q1 2021. We also continued to expand our commercial consulting revenues during the quarter. Commercial consulting revenues totaled $204.7 million, an increase of 74.2% over Q1 of last year. Revenues derived from our work in digital transformation, workforce management, and modern enterprise projects led to the segment's strong performance. ASGM's consulting offerings remain an important source of value we provide our clients, so we continue to build out our solution strengths and identify acquisition opportunities that expand our consulting capabilities and bring value to our diversified set of clients. Our digital transformation projects, in particular, which help our clients develop new digital tools and pathways to enhance their customer support, financial transactions, and supply chain are in great demand. In order to provide additional color on our consulting business and for industry comparative purposes, starting this quarter, we will also provide our quarterly commercial consulting booking and book-to-bill results. ASTN defines bookings as the amount of funded work won during any given quarter that will be executed over the ensuing quarters. Our book-to-bill is the ratio of our total bookings to the commercial consulting revenues for the quarter. Commercial consulting bookings for the quarter total 297.5 million, up 63.5% over Q1 of last year. This translates into a book-to-bill of 1.5 to 1 for the quarter. While this ratio continues to trend positively and the outlook for our consulting business remains strong, it is important to keep in mind that as we head into the second quarter, our commercial consulting business and overall commercial segment faces tougher year-over-year comparisons through the remainder of 2022. Now let's turn to our federal government segment, which provides mission-critical solutions to the Department of Defense, intelligence agencies, and other civilian agencies. Revenues for the quarter totaled $258.1 million, consistent with Q1 of last year and in line with our expectations. Gross and adjusted EBITDA margins were up significantly from Q1 of last year, related to improvements in business mix, which included a lower mix of revenues from cost-reimbursable contracts, which carry lower margins than other contract types, and the contribution from the higher margin businesses we acquired in 2021. The contract awards for the quarter were approximately $128 million. At quarter end, contract backlog totaled $2.9 billion, a healthy coverage ratio of 2.6 times the segment's trailing 12-month revenues. Examples of contracts awarded to our federal government segment during the quarter included a contract to support cybersecurity efforts for the U.S. Army's Network Enterprise Technology Command, the expansion of a contract with the Army Research Lab, and a flagship contract with the Defense Information Systems Agency, or DISA, to provide the DoD and other federal agency IT services and solutions. With that, I will turn the call over to Ed Pierce, our CFO, to discuss the first quarter financial results and our second quarter 2022 guidance.