ASGN Incorporated

Greetings. Welcome to the ASGN Incorporated Fourth 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 on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Kimberly Esherkin of Investor Relations. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us today for ASGN's fourth quarter and full year 2022 conference call. With me are Ted Hampson, 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.

Thank you, Kimberly, and thank you for joining ASGN's fourth quarter 2022 Earnings Call. As we kick off 2023, I'm pleased to report that the past year represented another top line record for ASGN. Our results for the fourth quarter and full year 2022 are indicative of the continued demand for IT services and solutions in the commercial and government and markets we serve. I want to sincerely thank our entire team for your continued efforts, which are the reason ASGN is the leader we are today. we embarked upon the new year positioned exactly where we want to be, with a great team in place, strong balance sheet, and proven operational strategy. After a strong fourth quarter that surpassed our revenue expectations, full-year revenues of approximately $4.6 billion were up 14.3% year-over-year and represented a new company record. Included in the annual revenues were 2.1 billion from commercial and federal IT consulting. On an organic basis, revenues improved 10.3% versus the prior 12 months. The commercial segment, our largest segment, represented 3.4 billion, or 75% of total revenues for 2022, while the federal government segment comprised the remaining 1.1 billion, or 25% of revenues. From a profitability perspective, adjusted EBITDA for the year improved 15.8% as compared to 2021, at a margin of 12.2%. These results put us on track to achieve our three-year financial targets laid out in September of 2021. As will be apparent in our segment commentary today, ASGN's business has hit a positive inflection point. With IT consulting services revenues representing 49% of total revenues in Q4, we are now quickly approaching 50% of our total revenues derived from high-end, higher margin consulting work. This movement up the pyramid will remain our focus. With that as a background, let's review Q4. Our commercial segment, which predominantly services large enterprises and Fortune 1000 companies had another solid quarter driven largely by growth in consulting revenues. Segment revenues increased 7.8% over Q4 of last year on a difficult comparison. Apex Systems, our largest division, accounted for 84.9% of the commercial segments revenues, with top and retail accounts both achieving double-digit growth rates for the quarter. As expected, Creative digital marketing and permanent placement revenues experienced year-over-year declines compared with their high growth rates in the prior year period. From an industry perspective, three out of our five commercial segment industry verticals achieved double-digit revenue growth year-over-year, including the technology, media, and telecom industry, consumer and industrial industries, and the healthcare industries. The financial services industry vertical achieved mid-single-digit growth year-over-year, while business and government services declined low single digits. Growth in technology, media, and telecommunications, or TMT, industry was again led by double-digit growth across telecommunications as well as media and entertainment accounts. Progress in our commercial and industrial accounts reflected growth across all sectors as compared to the fourth quarter of 2021, with the exception of materials. In particular, we achieved double-digit year-over-year growth in energy and consumer staples. The healthcare industry revenues also grew double digits driven by provider accounts. Financial services had solid performance in banking, with the largest growth year-over-year amongst our FinTech and wealth management accounts. Finally, our business and government services vertical saw a slight decline for the quarter year-over-year. Within this vertical, we achieved mid-single-digit growth in aerospace and defense accounts, which was offset by a decline amongst our business services accounts. Our consulting offerings also remain an important source of the value we provide clients. And for the fourth quarter, commercial consulting revenues increased 37.8% year-over-year and up 25.7% organically. Bookings, which totaled $299.8 million, also increased and were up 33.3% year-over-year. This translates into a book-to-bill of roughly 1.2 to 1 on a trailing 12-month basis. ASGN continues to be favored by our clients in the consulting space due to our intimate relationships, which span decades, our solutions portfolio, which continues to expand, and our solutions delivery model, which enables us to meet our clients' demands with the necessary skilled workforce at economical price points. We continue to solidify our role as a go-to player for commercial IT consulting services, and in 2022, increased our Fortune 1000 customer count by 44% year-over-year within APEX Systems as we actively engage long-term IT staffing customers into consulting customers as well. Let's speak about some of our commercial consulting wins during the quarter, beginning with our work in ServiceNow through our GlideFast acquisition. In the first six months as part of ASGN, GlideFast has driven 23 net new wins for Apex Systems, while at the same time continues to actively service its existing client base. As an additional benefit, GlideFast customers are beginning to embrace Apex Systems' other solution strengths as well. Our clients remain pleased with the work the GlideFast team has been providing, and at the end of January, GlideFast was recognized as the 2023 ServiceNow, America's elite segment partner of the year for achieving overall excellence in certification and revenue growth. Reviewing our broader consulting work, during the fourth quarter, we won two data and analytics contracts. The first contract was with a large national banking institution for whom Apex Systems has been expanding its scope of work for the past three years. Now, as a part of our new contract, We will help our client accelerate its growth through process improvements and the development of security and architecture frameworks surrounding their co-branded credit card operations. In addition, we won a second data and analytics contract with a large energy company, a new customer with whom Apex Systems is partnering to assist in the migration and modernization of its data analytics platform in the cloud. This project will enable our clients to have more reliability in their processes, as well as to optimize their databases. Also, along the lines of cloud implementations, we were very pleased to win a consulting contract with a large regional healthcare provider during the fourth quarter. This healthcare company will be conducting a cloud ERP implementation in 2023 that covers its finance, supply chain, human resources, and payroll departments. 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 13.3% compared to the fourth quarter of 2021, driven by a combination of organic growth, license revenues, and the impact of our recent IronVine acquisition. New contract awards for the quarter were approximately $172 million, which translates to a book-to-bill of 0.9 to 1 on a trailing 12-month basis. Contract backlog was $3.3 billion at the end of the fourth quarter, or a healthy coverage ratio of 2.9 times the segment's trailing 12-month revenues. Our pipeline of opportunities is at an all-time high, an indication that our government segment is well positioned to benefit from the government's new budget priorities. The recently passed federal omnibus bill for 2023 is 10% higher than that of 2022, including an additional 16% allocated toward the Department of Defense, an incremental 6% allocated toward the Department of Homeland Security, and a 20% increase in budget for the Department of Veteran Affairs. as compared to the prior year budget. These three agencies are a few of the governmental agencies in which ECS continues to win contracts. So, let me provide some examples of work, one during the past quarter. In the fourth quarter, we secured a new contract providing the Air Force with open source intelligence, or OSINT, analytic tools and training. ECS provides analysts, operators, and commercially available OSINT tools to the Air Force, which are integrated specifically to meet the department's mission. ECS also began to execute on a sizable amount of new funding for innovative cloud technology applications that help accelerate AIML activities and smart sensor work for the Department of Defense in the U.S. and overseas. Speaking of the DOD, in the fourth quarter, ECS won a new contract with the Defense Manpower Data Center to provide full enterprise deployment of ServiceNow. This contract is an example of our ServiceNow capabilities in our federal government segment, which we gained through the 2020 acquisition of ISM. Lastly, our acquisition of IronVine is progressing as planned. The IronVine team of cybersecurity experts is now fully integrated into ECS and actively pitching new business together. Over the past three months, IronVine and ECS have begun to pursue multiple large-scale cybersecurity deals, leveraging the full capabilities of both teams. With that, I will turn the call over to Marie Perry, our CFO, to discuss the fourth quarter results and our first quarter 2023 guidance.