ASGN Incorporated

Greetings and welcome to the ASGN incorporated first quarter 2023 earnings call. At this time, all participants are in a listen only mode. A brief 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. It is now my pleasure to introduce your host, Kimberly Eskerkin, Investor Relations. Thank you, Kimberly. You may begin.

Thank you, Operator. Good afternoon, and thank you for joining us today for ASGN's first quarter conference call. With me are Ted Hanson, Chief Executive Officer, Ram 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 first quarter of 2023 earnings call. Continuing to execute solidly in the core strategic areas of our business, ASGN's revenues for the first quarter of 2023 improved 3.5% as compared to the prior year period. IT consulting revenues, including both commercial and federal government work, surpassed the 50% mark at $568.4 million, or 50.4% of the first quarter revenues compared to 42.4% of revenues in the prior year quarter. The strong growth of this business, particularly in light of macro conditions, reconfirms our strategic decision to double down on high-end higher value consulting work for Fortune 1000 and federal government clients. We have the right group of professionals in place to successfully execute against this long-term plan. And I want to thank all of the ASGN team for your efforts this past quarter in pushing our growth strategy forward. In contrast to commercial consulting and federal government work, the areas of our business that are more discretionary and cyclical in nature namely assignment revenue, declined. We programmed for some of this in our guidance. However, the decline toward the end of the quarter was greater than we had initially anticipated, and this negatively impacted our adjusted EBITDA margin. Nevertheless, at 10.9% for the first quarter, which is seasonally the lowest, adjusted EBITDA margins remained solidly in the double digit. Importantly, The long-term adjusted EBITDA margin profile of our business has not changed, and it's expected to further improve over time based on our move toward a more consultative model. In addition, while a leading indicator on the downside, permanent placement and creative digital marketing have historically seen an uptick in revenue as macro conditions improve, followed by more sustained rallies once the economy exits a recessionary period. In the meantime, given market conditions, we are leveraging our variable cost structure and proactively taking down expenses in certain areas of the business while investing in others. Those actions are protecting our adjusted EBITDA margins today and into the future. Also, our free cash flow benefited from a reduction in accounts receivable, DSO, by 1.2 days. ASGN's capital allocation strategy has not changed. We still believe that M&A remains the best use of and highest return on capital. Having said that, with limited deals in the pipeline at present, we expect to be more active in repurchasing ASGN shares, given our view of the rather compelling share price. Our board of directors has recently approved a new two-year $500 million share repurchase authorization. With that as a background, let us discuss our segment performance for the court. Our commercial segment, which predominantly serves large enterprises and Fortune 1000 companies, reported first quarter 2023 revenues relatively consistent with the prior year period on a tough double-digit year-over-year comparison. Apex Systems, our largest division, accounted for 85.4% of the commercial segment revenues. Revenues for the division improved 3.1% for the quarter, with top accounts achieving low single-digit growth and retail accounts achieving high single-digit growth year-over-year. Creative digital marketing and permanent placement revenues, which represent 14.6% of commercial segment revenues, declined double digits year-over-year. Our large enterprise, industry-diversified, commercial client base provides balance and protection to the downside. As such, even with the pullback in more of our discretionary businesses, we continue to see solid progress in three of our five commercial segment industry verticals in the quarter. Financial services and healthcare verticals saw single-digit revenue growth year-over-year, while consumer and industrial vertical revenues improved high single digits compared to the first quarter of 2022. The technology, media, and telecom, or TMT, and business and government services verticals both declined mid-single digits. In financial services, growth was driven principally by wealth management. Improvement in our healthcare vertical revenues was largely driven by growth in provider accounts, while consumer and industrial strength was led by growth in energy, utility, and consumer staples. In the TMT vertical, telecommunications and technology accounts saw a pullback with delays in work and the impact of layoffs. In business and government services, aerospace and defense accounts saw solid growth during the quarter while we saw a double-digit revenue pullback in business services. Turning to our consulting business, our consulting offerings remain an important source of the value we provide clients and a core part of our strategic growth strategy. For the first quarter, commercial consulting revenues increased 32.7% year-over-year and were up 20% organically. Bookings were a record for the quarter and totaled approximately 392 million, up 31.7% year-over-year. This translates into a book to bill of roughly 1.3 to one on a trailing 12 months basis. With such strong bookings, it is evident that our clients continue to invest in IT consulting projects. In fact, while we have seen some of our clients de-emphasize smaller discretionary projects, they are reprioritizing their focus to other areas, such as work aimed at modernizing their systems and improving customer experiences. ASGN has been able to leverage these trends and remain favored by our clients in the consulting space as a result of our longstanding relationship our expansive solutions portfolio, and our unique delivery model. So, let me provide some examples of our commercial consulting wins for the quarter. In Q1, Apex Systems, in partnership with our GlideFast unit, was awarded a new contract to provide development services on the ServiceNow platform to a global automotive company. This same client also tasked our team with digitizing, automating, and optimizing its supply chain management processes. This is just one of the 13 new client wins during the first quarter in which APEX brought the client relationship to the table and glide fast the ServiceNow capabilities in order to jointly secure the contract. Also during the first quarter, we won a contract with a leading US healthcare provider to help them deploy the application that uses artificial intelligence to detect when patients are performing an action that puts the patient at risk of falling and then send an alert to the healthcare provider to review and take the appropriate action. The goal of the project is to increase the number of rooms the application can safely monitor remotely by leveraging AI and an APEX systems developed application. 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 15% compared to the first quarter of 2022, driven by a combination of organic growth and the impact of our recent Ironbine acquisition. Contract backlog was over $3 billion at the end of the first quarter, or a healthy coverage ratio of 2.6 times the segment's trailing 12-month revenues. New contract awards for the quarter were approximately 75.2 million, which translates to a book-to-bill of .9 to 1 on a trailing 12-months basis. We're seeing delays in project funding largely due to new multi-phase procurement cycles and an increase in award protests. Q1 is also often seasonally low for our federal government segment. as the government acquisition cycle tends to lag behind the budget cycle. That said, our pipeline of opportunities remains robust, and the number of projects submitted awaiting award is as high as it's ever been. So let's turn to some examples of projects won during the first quarter. In the quarter, our team secured a number of re-competes and won new contract awards. In terms of re-competes, ECS again secured the Department of Homeland Security Web Content Management as a Service Contract, in which we are supporting the DHS with enterprise content delivery, DevSecOps, and cloud platform enhancements. With regards to new awards during the quarter, ECS won a prime contract to support the modernization and agile transformation of the Army's integrated pay and personnel system, which is the Army's number one IT priority at present. IronVine is also making great progress, and ECS has leveraged IronVine's cybersecurity capabilities to pursue new opportunities across its entire client base. For example, in the first quarter, ECS won a new contract under IronVine to support the Millennium Challenge Corporation with designing, building, and installing in-country solutions to track infrastructure investments in Kosovo and Malawi. This momentum has continued, and I'm pleased to report that ECS has already seen several bookings in early Q2. For example, we recently won a re-compete of over $100 million to perform advanced addressing and geospatial technology solutions for our longstanding global mail delivery and shipping customers. With that, I'll now turn the call over to Marie, our CFO, to discuss the first quarter results and our second quarter 2023 guidance.