ASGN Incorporated

Greetings. Welcome to the ASGN Incorporated First Quarter 2024 Earnings Call. At this time, all participants are on 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. I'll now turn the conference over to your host, Kimberly Estrigan, Vice President of Investor Relations. You may begin.

Good afternoon. Thank you for joining us today for ASGN's first quarter 2024 conference call. With me are Ted Hanson, 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, adjust the 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, Kim, and thank you for joining ASGN's first quarter 2024 earnings call. ASGN achieved solid results for the first quarter. Revenues of $1.05 billion and adjusted EBITDA of $108.3 million were both near the top end of our guidance ranges. When we spoke last quarter, we expected our commercial segment would see revenue trends in Q1 comparable to that of Q4, while our federal government segment would continue to achieve year-over-year top-line growth. As evident from our segment results, which I'll review in detail shortly, market conditions were as we predicted. Our commercial clients continue to be cautious and acutely focused on where and when they will spend. Importantly, despite IT budgets being slow to be executed, our clients continue to leverage our high-end consulting capabilities, so our commercial consulting revenues increase both year-over-year and sequentially. On the government side of our business, revenues improved year over year and visibility began to build towards the end of the quarter with the passage of the appropriations bill in late March. While a release in federal spend will not happen automatically, the approval of the budget is a step in the right direction. Speaking of moving in the right direction, we continue to proactively shape and evolve our operations to position our business for continued growth. Our industry-diverse large-account portfolio not only serves us well in good times, but also in more difficult macro conditions. Our federal government services provide counter-cyclical support to balance out our five diverse commercial industry verticals. We are also focusing on the right type of services, that of higher value, higher margin, IT consulting, where projects and visibility are longer and client relationships are stickier, providing our business with enhanced stability across market cycles. A highlight of our quarterly results, IT consulting revenues comprised approximately 57% of Q1 2024 revenues, as compared to roughly 50% in the prior year period. In addition, adjusted EBITDA benefits from higher commercial consulting margins. ASGN has made great strides in growing our IT consulting business, and with a vast addressable market, there are many more opportunities for further growth. This growth will be driven in part by continuing to develop and foster the right customer relationships with the Fortune 1000 and government clients. Our longstanding, trusted client relationships are what drove our progression into IT consulting, and these clients will continue to pull us up the IT services pyramid. Importantly, as we await increased spending, we are making the right investments in our people, training and upskilling our teams in the latest technological developments, including key areas such as cybersecurity, data analytics, cloud, and AI, all with our customers' needs in mind. Technology is shifting at a rapid pace, and it is essential that we stay ahead of this change to remain competitive. We're also executing on the right strategic decisions when it comes to our capital allocation. While Marie will discuss our recent term line B refinancing shortly, I am pleased to announce that just this week our board of directors approved a new two-year 750 million share repurchase authorization. This authorization is the largest in ASGN's history, reflecting our commitment to deliver value to our stockholders by using our solid free cash flow to buy back shares, while at the same time ensuring that we remain ready to execute on the right strategic acquisitions. With that as a background, let's turn to our segment performance, beginning with our largest segment by revenue commercials. Our commercial segment services large mid-market accounts and Fortune 1000 companies. Commercial segment revenues for the quarter declined by low double digits year-over-year. Revenues for this segment benefited from the growth in our consulting business, offset by continued softness in the more cyclical areas of our assignment business. quarter compared to the year-ago period, and we were also up 3.2% sequentially. Commercial consulting bookings of approximately $323.2 million translated to a book-to-bill of 1.2 times on a trailing 12-month basis. Bookings were again weighted towards renewals in the first quarter. That said, even as IT budgets continue to be prioritized and managed, Our customers are actively spending in the areas of cybersecurity, cloud, and data analytics. Investments in cloud and data infrastructure are often considered a precursor to investments in the AI space, and we are actively working with our clients to solidify their AI foundations. Turning to our vertical performance, all five commercial industry verticals declined year-over-year. That said, we saw year-over-year growth in three sub-verticals, including utilities, healthcare providers, and telecom accounts. On a sequential basis, two verticals, TMT, business and government services, appear to be stabilizing on the same billable day adjusted basis. We also saw sequential growth in several sub-verticals on the same billable day adjusted basis. including regional banks, telecom, media, healthcare payers, energy, consumer staples, and aerospace and defense accounts. While it's encouraging to see these sequential improvements, we have not yet seen an inflection point in IT spending. Nevertheless, our commercial consulting bookings remained solid, and during the first quarter, our teams won work across multiple service areas. Cybersecurity continues to be an area of growth for our commercial segments. And as discussed last quarter, collaboration with our federal government segment on cybersecurity services has only added to this strength. During the quarter, we won a contract delivering technical remediation and advisory services to a Fortune 500 insurance client. Our comprehensive governance, risk, and compliance solutions helped our client mature their security operations and become an improved governance and oversight-focused organization. Beyond cybersecurity, our product and application services are resonating with clients that are looking for opportunities to scale and become more efficient. One way we've delivered efficiency to clients is via our world-class nearshore delivery center in Mexico. In the first quarter, a global leader in medical transportation approached our commercial team following difficulties they were having with their current offshore provider. our Mexico Delivery Center stepped in to offer a team of experts, from developers to testers, to have extensive experience working together in a much more convenient time zone for our clients. Our near-shore consultants are not only impressing our client base, but they are also enjoying the projects they are performing and their work environment. In fact, I'm very pleased to report that earlier this month, Our commercial segment brand, Apex Systems, was recognized as one of the best places to work for women in Mexico for the second year in a row. Providing an inclusive, multicultural environment is core to ASGN's belief systems and corporate policies, and this award is a testament to our continued commitment to career development for all. Along the lines of career development, our growing data and AI practice is being supported by internal investments in talent, technology partnerships, intellectual property, and training. We are proactively training our workforce in the U.S. and Mexico in the latest Gen AI technologies. For one of the world's largest telecommunications providers, for example, our AI skill sets enabled us to win a 12-month consulting engagement supporting a Gen AI application development program. We are providing our client with scalable access to talent, technical leadership, and large language model training. In another instance, for an oil and gas company that ranks amongst the top 10 of the Fortune 500s, We're leading an implementation of the Databricks Unity Catalog, a cloud-based platform that offers a unified governance layer for enterprise data and AI. Our client has over 100 Databricks workspaces for deployments in the cloud, and our project team is tasked with helping our client develop a governance structure related around the auditability, security posture, and cost allocation of these workspaces. Our team of consultants is currently collaborating with Databricks and our client's internal IT team to build automation to onboard these Databricks workspaces with ease and repeatability. Our pipeline of data and AI work continues to grow, and we look forward to supporting our clients as they focus on data preparation, developing use cases, and ultimately implementing their own AI platforms. Now let's 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 first quarter were up solidly year-over-year. Contract backlog was $2.9 billion at the end of the first quarter, or a coverage ratio of 2.2 times the segment's trailing 12-month revenues. New contract awards were approximately $197.3 million translating to a book to bill of 0.9 times on a trailing 12-month basis. With the recent passage of the federal budget, awards previously deferred by the continuing resolution are beginning to work their way through the procurement system. We have been in pursuit of new awards throughout the budgeting process and now hope that with the recent appropriations bill, our proposals submitted and awaiting award will begin to convert at a higher velocity. The recently passed federal budget allocates funds to several key service areas in which our government teams have an established leadership presence, one of which is the area of cybersecurity. In the first quarter, our federal government segment won a $120 million five-year recompete cybersecurity contract with the Department of Health and Human Services. Under this contract, our team will provide comprehensive advanced managed cybersecurity services, threat intelligence analytics, and data forensics to the Centers for Medicare and Medicaid Services and their healthcare marketplace. The newly approved federal budget also allocates increased funds toward responsible AI applications. In addition to our growing AI presence on the commercial side of our business, Our federal government segment remains recognized as one of the U.S. government's leading AI contractors in both mission and enterprise IT. During the first quarter, our national security and intelligence business received additional funding to support the DoD in developing, deploying, and integrating its next-gen AI capabilities. We also want a new contract to support AI-enabled open-source intelligence solutions for which our team will provide extensive training and program support. We continue to win contracts focused on digital transformation and emerging technology services. Leveraging more than two decades of experience as a leading Microsoft solutions partner in Azure, during the first quarter, we expanded our contract ceiling with the IRS to provide digital transformation services, IT operations, application management, and engineering services. We also broaden our work with the Army's program executive office for simulation training and instrumentation. For this particular Army office, we provide full project lifecycle services ranging from project management, modeling, and simulation to emerging technology integration and logistics support. With that, I will turn the call over to Marie to discuss the first quarter results and our second quarter 2024 guidance.