ASGN Incorporated

Greetings and welcome to the ASGN Incorporated first quarter 2025 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, 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 Easterman, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon. Thank you for joining us today for ASGN's first quarter 2025 conference call. With me are Ted Hansen, Chief Executive Officer, Shiv Iyer, President, Marie Perry, Chief Financial Officer, and Rand Blazer, Executive Vice Chairman. 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, Kim. And thank you for joining ASTN's first quarter 2025 earnings call. As Kim noted, I'm pleased to welcome our new president, Shiv Iyer, to his very first ASTN earnings call. Shiv will make some brief remarks at the close and join us for the Q&A session. Despite macro uncertainty, revenues of $968.3 million and adjusted EBITDA margin of 9.7% were in line with our guidance expectations for the quarter. continue to deliver solutions that cater to our clients' IT modernization, efficiency, and cost containment requirements, leading to strong quarterly bookings for both our commercial and government segments. Our IT consulting revenues also grew, reaching roughly 61% of total revenues for the first quarter, up from 57% in the prior year period. As I noted last quarter, we entered the year with a renewed sense of business optimism from our client base. This improvement and confidence faded as the quarter progressed, with clients remaining cautious about increasing their IT spending. Nonetheless, AHDN's unique business model demonstrates resilience across economic cycles, primarily due to our business stabilizers that support our gross margin, along with our variable cost structure, which aids in safeguarding our operating leverage. Further, our business model also provides flexible onshore and nearshore teams that help reduce our clients' costs while maintaining commitment to providing high-value IT services. Speaking of providing high-value services, in March, we successfully closed our acquisition of TopLock, a preferred certified Workday services partner and recently named Workday Business Impact Partner of the Year. The integration of TopLock is going well, And in the short period of time since the acquisition closed, our Apex and TopLock teams have already partnered on a number of new consulting opportunities. Importantly, TopLock is tracking ahead of our bookings, revenue, and adjusted EBITDA expectations. While market conditions remain volatile, we are confident that nurturing our long-standing client relationships, expanding our technology partnerships, and enhancing our solution capabilities organically and through strategic acquisitions like TopLock, we will position ASGN favorably for the future. So let me provide some examples of our differentiated IT solution capabilities and discuss our segment performance for the first quarter, beginning with commercial. Our commercial segment services Fortune 1000 and large mid-market companies. Revenues for this segment were again driven by growth in our consulting business, which improved 4.7% year-over-year. Consulting bookings of $336.9 million improved 4.2% as compared to the first quarter of 2024 and put our book to bill at 1.2 times for the quarter and 1.1 times on a trailing 12-month basis. From an industry perspective, we saw growth in our consumer and industrial verticals which improved mid-single digits year-over-year. Improvement in this vertical was driven by double-digit growth in materials, utilities, and consumer discretionary accounts, along with mid-single-digit growth in industrials. While revenues for the remaining four commercial verticals were down year-over-year, within our healthcare vertical, pharmaceutical and biotech accounts were up low single digits as compared to the first quarter of 2024. Within our TMT vertical, e-commerce accounts were up mid-teens year over year. Finally, within the financial services vertical, diversified financials saw mid-single-digit growth and regional banks saw slight growth as compared to the first quarter of 2024. Although the financial services industry is one of the highest vendors on IT, macroeconomic factors such as higher inflation and uncertainty regarding tariffs have driven cautiousness to spend on new projects across the banking sector. Despite these headwinds, our differentiated IT solutions remain in demand by our diverse U.S.-based Fortune 1000 clients. Consulting engagements for the quarter focused on AI and data solutions, GenAI, cybersecurity, cloud, and digital engineering, with projects specifically aimed at promoting cost savings and efficiency. Let me provide a few examples. For Fortune 200 consumer and industrial clients, in the process of modernizing their supply chain, our industry and technical leaders are helping develop and operationalize that data and AI strategy. We are providing a nearshore team of consultants to support the implementation for client supply chain optimization solutions using Informatica's cloud-native and AI-augmented platform to support data and machine learning operations. Although enterprise-wide applications of Gen AI are still to come, we continue to see AI initiatives like this that focus on high-impact use cases to improve efficiency, reduce costs, and provide deeper data insights. In another example, for a large health services company, we helped build a scalable, secure, and efficient identity and access management platform that supports our clients' growth, compliance, and evolving business needs. By migrating to a new IAM platform, our client will be able to better manage data controls and provide appropriate access and governance across their organization. Our scope of work encompasses the application and integration basis of the new IAM platform, including integration across hundreds of different applications while optimizing workflows and performing thorough testing and validation. Through innovative optimization techniques, We will enhance automation, risk management, and user experience for our clients. Improving data processing while at the same time driving efficiency and cost savings remain top priorities across our client base. For a Fortune 100 oil and gas client, for example, we successfully implemented the Databricks Unity Catalog, a unified governance solution. By optimizing compute resources and nightly processing times, significantly reduced our clients' Databricks costs. Driving innovation and automation on cloud-based platforms is also in high demand. In the first quarter, we collaborated with a U.S. banking client to create a cloud-first automation framework, integrating APIs and modern engineering practices. By eliminating manual file handling, our client achieved end-to-end automation of their costing process, by which they assigned fees to their products and services. thereby enhancing their overall workflow efficiency. Each of these consulting projects involves aspects of intelligence, data management, and the usage of AI is increasingly becoming essential to successfully managing enterprise data. Even as companies limit their IT spend, our clients continue to scale their investments in AI. Clients early in their AI journeys are investing in AI workshops and AI literacy trainings to prepare their organization for future AI usage. Clients further along in their journeys are partnering with us on thought leadership pieces and innovation studies to drive competitive advantages. The most common AI use cases we are currently seeing include the development of agent assistants or co-pilots, the implementation of GenAI to accelerate the software development lifecycle, the usage of AI tools for code conversion and documentation, especially in banking, and leveraging AI for IT operations. With that, let's turn to discuss our federal government segment. Our federal government segment provides advanced IT solutions for the Department of Defense, the intelligence community, and other critical agencies in support of national security. Although the segment's quarterly revenues declined year-over-year, bookings were strong, with new contract awards totaling $343.1 million for the first quarter. This put our book to bill at 1.2 times on both a quarterly and trailing 12-month basis. In addition, contract backlog was over 3.1 billion at quarter end, or a coverage ratio of 2.6 times the segment's trailing 12-month revenues. We are not immune to DOGE. In our first quarter federal government segment, revenues and margins saw a slight impact from DOGE's cost-cutting efforts. That said, our solution capabilities and agency focus remain well aligned with the administration's priorities. The government will gain efficiency through IT modernization that leverages AI, automation, and a commercial delivery model. ASGN brings those exact services and delivery best practices to our customers. With our core solution capabilities in AI, cybersecurity, and digital modernization, for mission-critical defense, national security, and law enforcement programs. Our government teams consistently led the charge in IT innovation, and during the quarter, we went up new five-year firm fixed price contract with the FBI's laboratory division to provide IT modernization services. As the prime awardee on this contract, our team will centralize and modernize information and operational technology or IT and OT, by streamlining technology usage, powering the FBI's services with AI tools, and automating key processes that enhance the FBI's ability to solve cases and prevent acts of crime and terror. Our services to the FBI include infrastructure support, cloud integration and modernization, enhanced cybersecurity protection, and improved data governance. The FBI is a long-standing client of ASGN, and this contract represents an additional opportunity to promote the agency's essential mission. We also support the essential missions of the Department of Defense, and during the first quarter, our Defense and Intel Unit won additional work with the DOD's Chief Digital and AI Office to operate the department's premier AI development environment for innovation at speed and As a mission-critical partner, we will collaborate with the DoD on AI innovation workstreams that provide improved operational insight and decision-making capabilities, as well as enhance value across global warfighting domains. Also during the quarter, we secured a large recompete contract with a strategic logistics customer. By providing technical expertise and solutions to our customer's engineering and technical support center, We will help them reduce their costs while at the same time drive quality and innovation across their operations. As illustrated by these three examples, we continue to see a steady flow of work consistent with Doge's efficiency and IT modernization missions. Nonetheless, as is prudent, we are actively tracking Doge activities and identifying ways to support our customers with additional work or to move essential work onto contracts with available ceilings. Although we remain in a continuing resolution through September, customers are extending current projects. We expect the defense and national security programs, along with essential citizen services, which together constitute the vast majority of our federal government support, will remain priorities in the new government fiscal year. With that, I'll turn the call over to Marie to discuss the first quarter results and our second quarter 2025 guidance.