ASGN Incorporated

Greetings and welcome to the ASGN Incorporated Second Quarter 2024 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. I will now turn the conference over to your host, Kimberly Estigan of Investor Relations. You may begin.

Good afternoon. Thank you for joining us today for ASGN's second quarter 2024 conference call. With me are Ted Hansen, Chief Executive Officer, Ran 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 risk 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, Kim, and thank you for joining ASGN's second quarter 2024 earnings call. ASGN's results for the second quarter confirmed our expectations that macro conditions in Q2 would be consistent with Q1. Revenues were $1,035,000,000, while adjusted EBITDA margin of 11.3% was at the top of our expectations. Consistent with the first quarter, in Q2, our clients continued to acutely focus on where and when to spend against their IT budgets. Their long-term IT roadmaps and priorities have not changed. However, concerns about protecting their bottom lines continue to drive cautious execution. This behavior is not unique to ASGN's customer base. On a recent call hosted by the Global ISG Index for the second quarter of 2024, their team of experts concluded that new bookings and hiring remain muted, and headwinds such as high interest rates, inflation, geopolitical unrest, and the impending U.S. presidential election continue to hinder increased IT spend. IT consulting revenues totaled 57.1% of consolidated revenues for the second quarter of 2024, up from 53.1% in the prior year quarter. The evolution of our revenues has not only reflected our financial statements, but it's also been acknowledged by equity market indices. In May, in recognition of the pivot in our strategy, the joint S&P and MSCI committee responsible for the GICS code classification officially switched ASGN's GICS code from the industrial sector under human resources and employment services to the information technology sector under IT consulting and other services. With each accomplishment, whether that be increasing our IT consulting revenues and ultimately overall company margins or receiving a new GIX code, we're making measured strategic progress toward our goal of moving up the IT services pyramid into higher-end, higher-value IT consulting solutions. Our progress towards this goal will be driven by continuing to nurture our longstanding trusted client relationships, which, like our variable cost structure, are a cornerstone of our business model. Our large account portfolio across six diverse industry verticals offers us firsthand insight into our clients' investments and long-term IT roadmap. As we position ourselves for the future, We remain committed to fostering these relationships and supporting our clients' most critical IT needs. I'll provide some more details about how we are staying ahead of our clients' IT needs, and in particular, those related to AI, as we discuss our segment performance. So let's begin with our largest segment by revenue, commercial. Our commercial segment services Fortune 1000 and large mid-market companies. Commercial segment revenues for the quarter declined by low double digits year-over-year due to continued softness in the more cyclical areas of our assignment business. Despite a softer macro economy, our strategy to expand our IT commercial consulting business is working. Commercial consulting revenues were essentially flat year-over-year on a difficult prior year comparison, but improved 1.6% sequentially. Commercial consulting bookings of $327.4 million puts our book to bill at 1.2 times on a trailing 12-month basis. From an industry perspective, we saw year-over-year growth in one of our five commercial verticals. PMT revenues improved 7.2% compared to the second quarter of 2023, led by double-digit growth in telecommunications and e-commerce. Sequentially, TMT revenues improved 8%, while consumer and industrial revenues increased 3.1%. Taking into account the additional billable day in Q2 2024, we also saw sequential growth in 10 sub-verticals, including regional banks, diversified financials, utilities, materials, consumer discretionary, telecommunications, e-commerce, tech hardware, software and services, and business services. Although it remains encouraging to see these sequential improvements, we believe we have not yet seen an inflection point in IT spending. As we move up the IT services pyramid toward higher-end consulting work, we are adding new skill sets to our project teams, including solution architects. Our ability to add advanced skill sets to our project teams offers the opportunity to improve our margins, expand our contract sizes and lengths, and enhance our industry vertical performance. It also reflects the high value our clients attribute to ASGN to solve their complex IT problems. Identifying use cases for GenAI is one of those complex problems. While use cases are growing, we are still in the early stages of AI implementation. ASGN's solution capabilities are cross-disciplined enables us to differentiate our AI services, and so we are deploying a multilayered approach to our AI new business efforts. Data is the fuel for AI, so our data and analytics practice is naturally at the forefront of our AI engagement. AI is also compute-intensive, so our cloud and infrastructure team is working diligently to create AI solutions that can scale. finally ai must be secure so our cyber practice plays an integral role in use case development our clients are readily relying on us to conduct business case and technical assessments to understand where to apply this novel technology so let me provide some examples of the projects won during the quarter we provide these engagement examples to give a sense of the work we are performing and asdn's ability to bring a combination of it and ai to address our clients' needs. In Q2, for our multinational beauty company, we began implementing a pilot of Microsoft Fabric to enhance our clients' cloud-based FinOps management solution. By piloting this AI-powered analytics and data platform, our client is gaining actionable insights to better forecast and control their cloud efficiency. Microsoft Fabric is a critical priority across our customer base. And we recently launched our first listing on the Microsoft Azure Marketplace, a consulting workshop on Fabric. Participating in the Azure Marketplace provides our commercial consulting practice with the opportunity to accelerate growth, increase brand awareness, and importantly, build new client relationships. In another contract won during the quarter, Our data and AI team in Mexico was engaged by a lifestyle brand to develop a roadmap to implement a data solution on Google Cloud. This project involves expertise across several technologies, such as GitHub, BigQuery, and a Gemini-based accelerator. By following an agile approach in deploying an AI-powered accelerator, Our consulting team improved their velocity of implementation by three times without sacrificing quality of service. This project is on track to hit its first milestone in Q3 in complete migration to Google Cloud. Also, during the second quarter, our Mexico Delivery Center supported a Fortune 500 gaming company with application development and modernization. Our technical architects, GitHub-trained co-pilot developers, and program managers all collaborated closely with our client to develop a roadmap for the creation of a custom in-gaming tool. This is a three-year engagement with our delivery team scaling up over the project lifecycle. Finally, another consulting project won during the quarter was a threat and vulnerability management assessment performed for one of our large healthcare payer clients. Our client was looking to enhance their vulnerability management capabilities and ensure that their operating systems were up to industry standards. By migrating our client's primary threat scanning tool from on-premise to a hybrid cloud solution, our commercial team helped our client mitigate future risks. This cloud solution broadened our client's scanning scope and significantly reduced threat scanning time. Let's now turn to our federal government segment, which provides advanced IT solutions to the Department of Defense, the intelligence community, and federal civilian agencies. Federal segment revenues for the quarter declined low single digits year-over-year, but improved on a year-to-date basis. Contract backlog was $2.8 billion at the end of the second quarter, or a coverage ratio of 2.2 times the segment's trailing 12-month revenues. New contract awards were $194.3 million, putting our book-to-bill at 0.7 times on a trailing 12-month basis. Task orders under IDIQ's 1 in Q4 2023 have not materialized as quickly as we originally anticipated. In addition, while our core government services revenues continued to grow, lower-than-expected pass-through licensing fees impacted our second quarter results. Marie will speak further about this topic later in today's call. On a positive note, we are already seeing a greater flow of task orders begin to be released in the third quarter. I'll provide an update on those shortly. As we prepare for new task orders, like with our commercial segment, we are actively upskilling our federal government professionals in Gen AI. Through our Data and AI Center of Excellence, we are training our professionals in our proprietary large language models, along with publicly available Gen AI services such as ChatGPT, Gemini, and Copilot. Our government teams are also earning in-demand AI professional certifications. These training and certification opportunities expand our professional skill sets, enhance our technology partnerships, and provide us the ability to create internal use cases to improve ASGN's overall efficiencies. During the second quarter, we began receiving task orders under the $1.25 billion ReCompete DARPA IDIQ awarded to our federal government segment at the end of 2023. Our team is supporting DARPA with acquisition lifecycle solutions, program oversight, and expert advisory to meet their dynamic research and development missions. At the start of July, we began receiving task orders on an $88 million single award re-compete contract with the Missile Defense Agency, in which we are providing business operation and modernization support services, along with business intelligence and analytic solutions. While work began under this contract in Q3, it is reflected in our Q2 2024 backlog. In addition to those contracts already booked in the backlog in Q2 2024, our Justice Solutions team won a prime spot on a recompete award with the FBI. This $8 billion, eight-year information technology supplies and support services contract is the largest contract vehicle ever established by the FBI. This contract allows our federal government segment to expand the critical IT services and technology solutions it provides to the FBI to include AI-infused IT and cybersecurity solutions. Our federal government segment has supported the FBI for over three decades. And we look forward to receiving task orders under this contract, which will add to our bookings performance. With that, I'll now turn the call over to Marie to discuss the second quarter results and our third quarter guidance.