ASGN Incorporated

Greetings and welcome to ASGN Incorporated second quarter 2022 earnings conference 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kimberly Estrican, Investor Relations. Thank you. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us today for ASGN's second quarter 2022 conference call. With me are Ted Hanson, Chief Executive Officer, Ran Blazer, President, Ed Pierce, Chief Financial Officer, and Marie Perry, Executive Vice President. 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 ASGN's second quarter 2022 earnings call. As is evident from our second quarter results, We had a strong first half to the calendar year. Revenues for the second quarter surpassed the high end of our guidance range and totaled $1.1 billion, up 17.1% year-over-year, and up 4.7% sequentially, driven by the continued strength of our commercial segment, as well as growth in our federal government segment, despite a difficult year-over-year comparable. Our commercial segment accounted for 74.5% of consolidated revenues, while our federal government segment accounted for the remaining 25.5% of revenues. Adjusted EBITDA also surpassed our estimates for the quarter and was up 20.7% year-over-year and up 6.8% sequentially to total $144 million. With these strong results, we continue to trend ahead of our 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. An important component to our success and in achieving our three-year revenue goal is our unique deployment model. As a leading provider of IT services and solutions to the commercial and government end markets, our business is U.S.-focused and has a very steady and predictable trend. These trends include not just our history of achieving above-industry revenue growth, but also our continued margin expansion and free cash flow growth. For the quarter, adjusted EBITDA margins improved 40 basis points year-over-year to total 12.6%. Our free cash flow from continuing operations was $79.6 million, an improvement of 10.1% over the prior year period. Given our strong free cash flow and the market conditions, we have been actively buying back our shares. During the quarter, we purchased $91.2 million in shares, and in today's earnings release, we announced our board of directors approved a new two-year $400 million share repurchase plan, which replaces the $350 million plan approved in December 2021. The increased pace of repurchases in the second quarter A new expanded program, just approved, allows us to take advantage of market conditions while maintaining our view that thoughtful M&A yields the best long-term value for stakeholders. As we discuss our second quarter performance today, three key themes will remain top of mind. These include, one, our consistently strong execution, which is evidenced by the growth of our two business segments. Second, the stability and resiliency of our unique deployment model, which positions us to successfully navigate across market cycles. And third, our strong free cash flow generation and balanced but flexible capital deployment strategy, which enables us to act in the best interests of all our stakeholders. So let's review these themes and start by discussing our largest segment, commercial, which services large enterprises and Fortune 1000 companies. Our commercial segment had another very strong quarter with revenues of $850.6 million, an increase of 19.4% over Q2 of last year, with strong growth in both IT staffing and consulting services. Apex Systems, our largest division, accounted for 83.1% of the segment's revenues for the quarter, with top and retail accounts both achieving double-digit growth rates. From an industry perspective, All five of our commercial segment industry verticals achieved double-digit growth for the quarter. Within APEX Systems specifically, financial services, our largest industry vertical, had strong performance in banking and insurance, with even greater year-over-year increases amongst our fintech and wealth management accounts. Growth in our technology, media, and telecommunications, or TMT accounts, was again led by technology and telecommunications work. Progress in our commercial and industrial accounts reflected strength across all sectors with the exception of materials. In particular, we achieved double-digit growth in energy, utilities, consumer discretionary, and consumer staples. Improvement in our healthcare vertical revenues continued to be driven by both provider and payer accounts. Finally, growth in our business and government vertical was led by our business services accounts, while airspace and defense accounts were up mid-single digits versus the prior year. Gross margin for the commercial segment was 33.1%, up 110 basis points from the prior year, driven by our growing contribution of high-margin commercial consulting, creative digital marketing, and permanent placement businesses. Adjusted EBITDA margins were relatively consistent with Q1. ASGN IT consulting offerings remain an important source of value we provide our clients. For the quarter, commercial consulting revenues totaled $222.2 million, an increase of 53.9% year-over-year. Revenues derived from our work in web, mobile, and application development, data analysis and migration, and cloud architecture engagement, led our commercial consulting's quarterly performance. We had a particularly strong quarter for commercial consulting new bookings, which totaled $340.6 million, up 56.5% year-over-year. This translates into a book-to-bill of 1.5 to 1 for the quarter, consistent with Q1. As a reminder, we calculate commercial consulting's book-to-bill as the ratio of our bookings the amount of new work won during any given quarter that will be executed over the ensuing quarters to our commercial consulting revenues for that quarter. Our pipeline of business remains strong, improving double digits sequentially, and we are actively growing our capabilities. Speaking of expanding our capabilities, at the beginning of July, we officially closed our acquisition of GladFast, an elite ServiceNow provider, and within their first week as part of ASGN, the GladFast team participated in more than a dozen client pitches with Apex Consulting Services. We are not surprised by this new business momentum due to the high demand for ServiceNow. In fact, even prior to acquiring GladFast, our commercial consulting customers were asking for ServiceNow implementations. For those not yet familiar, ServiceNow is a cloud-based workflow platform that it's quickly become the go-to operating system of enterprises worldwide. In essence, ServiceNow provides a new digital layer throughout an enterprise's operations, automating its workflows and streamlining its business processes quickly and at scale. By aligning our current IT consulting offerings with that of GladFast's expertise, we are jump-starting our ServiceNow business and immediately offering GladFast access to APEX Systems account base. The acquisition of GlideFast ideally fits with our M&A strategy of acquiring in-demand digital solution capabilities that can be strategically pulled across our large account portfolio. Like that of Apex Systems, GlideFast's client base spans multiple industries from TMT and financials to consumer and business services, amongst other verticals. we see significant revenue synergies with GlideFast above its standalone anticipated 30% revenue growth in 2023. Ed Pierce will provide further detail on GlideFast's revenue contributions later in this call. Let's now turn to the federal government segment, which provides mission-critical solutions to the Department of Defense, the intelligence community, and civilian agencies. Revenues for the quarter total $291.2 million an increase of 11% year-over-year driven by a combination of organic growth and the impact of businesses we acquired in 2021. We also experienced better-than-expected spending on a cost-reimbursable AIML contract, which was a pull forward from the second half of this year. Ed will speak more on that shortly. Gross and adjusted EBITDA margins were also up for the quarter related to improvements in the federal government segment's business mix, including a smaller contribution of cost-reimbursable contracts, which carry lower margins than other contract types as compared to the prior year, and the contribution from the higher margin businesses we acquired in 2021. New contract awards for the quarter were approximately 263.4 million, which translates to a book-to-bill ratio of 0.9 times to one on a trailing 12-month basis. Awards are speeding up, and we are already seeing contracts come through under the new government budget, a positive sign that government continues to drive spending in each of the areas in which ASGN is focused, including cybersecurity, AIML, and digital transformation. At quarter end, contract backlog totaled $2.9 billion, a healthy coverage ratio of 2.5 times the segment's trailing 12-month revenues. During the quarter, some of our contract awards included a contract to support the U.S. Army cybersecurity efforts by modernizing and strengthening their tactical networks, a re-compete contract supporting NOAA's Office of Marine and Aviation Operations, in which we help optimize their fleet capabilities, a new task order to support FCC application development, and lastly, a contract for building new and improved capabilities within training and readiness for the United States Marine Corps. In addition, justice, homeland, and law enforcement businesses saw solid organic growth during the quarter. This growth was fueled by contracts in cybersecurity, systems engineering, and digital transformation solutions work, including a re-compete contract with the DOJ along with growth in other existing contracts. We also won new work with DHS and state law enforcement agencies. With that, I will turn the call over to Ed Pierce, our CFO, to discuss the second quarter financial results in our third quarter 2022 guidance. Ed?