ASGN Incorporated Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Macro conditions in Q2 were consistent with Q1, with clients being cautious. IT consulting revenues increased, and ASGN's GICS Code was switched to the IT sector.
• In Commercial segment, strategy to expand IT commercial consulting is working, with new skill sets added to project teams. AI initiatives include Data and Analytics, Cloud and Infrastructure, and cyber practices. Examples of projects include working with a multinational beauty company on Microsoft Fabric and a lifestyle brand on Google Cloud data solutions.
• In Federal Government segment, task orders began to be received under re-compete contracts. Training in AI and earning certifications expanded professionals' skill sets. Won a $1.1 billion IDIQ with the NIH for IT support over 5 years.

Segment Performance

• Commercial Segment: Revenues declined by low double digits year-over-year. IT consulting revenues totaled 57.1% of consolidated revenues for Q2 2024, up from 53.1% in the prior year quarter. Commercial consulting revenues were essentially flat year-over-year but improved 1.6% sequentially. Commercial consulting bookings were $327.4 million, giving a book-to-bill of 1.2x on a trailing 12-month basis. TMT revenues improved 7.2% year-over-year and 8% sequentially.
• Federal Government Segment: Revenues declined low single digits year-over-year. Contract backlog was $2.8 billion at the end of Q2, a coverage ratio of 2.2x the segment's trailing 12-month revenues. New contract awards were $194.3 million, with a book-to-bill of 0.7x on a trailing 12-month basis.

Guidance

• For Q3 2024, estimated revenues are $1.024 billion to $1.044 billion, net income $45.8 million to $49.4 million, adjusted EBITDA $114 million to $119 million, and adjusted EBITDA margin 11.1% to 11.4%. Assumes 63.5 billable days in Q3 and similar market conditions to Q2.

Risks

• Macro factors like high interest rates, inflation, geopolitical unrest, and the U.S. Presidential election hinder IT spending. Variability in federal government license revenues, which have low gross margin and EBITDA margin.

Question and Answer

• Q: About Federal software revenues timing shift and license revenue ebb and flow.

A: License revenues ebb and flow, core business with direct labor growing, software licenses part of solutions but low margin.

• Q: Sequential trends and exit rates.

A: Business steady, similar steadiness expected in Q3, first three weeks of July business steady.

• Q: Commercial consulting bookings and client trends.

A: Book-to-bill 1.2x steady, engagements include AI-extended work, steady vs competitors.

• Q: Assignment business performance and AI projects.

A: Perm as percent of revenue consistent, AI projects involve prep work for use cases, helping enterprise efficiency.

• Q: Mexico delivery center updates.

A: Headcount steady, focused on AI-enhanced data work, building nearshore/offshore capability.

• Q: Federal project delays and M&A environment.

A: Projects pushed right, M&A environment affected by spending, interest rates, waiting for right environment.

• Q: Client spending and Mexico delivery bookings.

A: Client conversations about AI roadmap and project execution, Mexico delivery in commercial consulting with demand for nearshore resources.

• Q: Government consulting predictability and assignment business capacity.

A: Adding resources as needed, assignment business capacity maintained, ready for spending pickup.