ASGN Incorporated Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Business Performance: Revenues totaled $968.3 million, adjusted EBITDA margin 9.7% in line with guidance. IT consulting revenues reached roughly 61% of total revenues, up from 57% in the prior year period.
• Acquisition: Completed acquisition of TopBloc on March 4th, with integration going well and already partnering on new consulting opportunities.
• Segment Dynamics: Commercial segment saw growth in consulting, while federal segment had strong bookings but impact from DOGE.
• Innovation and Projects: Examples of AI, data, cybersecurity projects for clients, such as supply chain modernization for a Fortune 200 client and identity and access management platform for a health services company.

Segment Performance

• Commercial Segment: Revenues were $672.2 million, a decrease of 8.1% year over year. Consulting revenues totaled $290.1 million, an increase of 4.7% year over year. Consulting bookings were $336.9 million, up 4.2% compared to Q1 2024, with book-to-bill at 1.2 times for the quarter. Growth in consumer and industrial verticals (mid-single digits), pharmaceutical/biotech (low single digits), e-commerce (mid-teens), diversified financials (mid-single digits), and slight growth in regional banks.
• Federal Government Segment: Revenues were $296.1 million, a decrease of 6.7% year over year. Bookings were $343.1 million, book-to-bill 1.2 times on a trailing twelve-month basis. Contract backlog was over $3.1 billion at quarter end. Impact from DOGE on revenues and margins, but won new contracts with FBI and DoD.

Guidance

• Second Quarter 2025: Estimates revenues of $985 million to $1.015 billion, net income of $29.3 million to $34.3 million, adjusted EBITDA of $101 million to $108 million, and adjusted EBITDA margin of 10.3% to 10.6%. Widened revenue guidance range due to macro uncertainty, with impact of DOGE less than 2%. Assumes 63.25 billable days, 0.25 days fewer than prior year period.

Risks

• Macro Uncertainty: Impact on client IT spending, with clients cautious about increasing IT investment due to factors like tariffs and inflation.
• DOGE Impact: Cost-cutting efforts by DOGE affecting federal segment revenues and margins, with some interruptions in certain types of work.

Question and Answer

Q: Tobey Sommer asks about bookings in different businesses and DOGE impact.

A: Ted Hanson responds that commercial bookings have a mix of renewal and new work, with renewal being a larger percentage, and federal bookings were strong with some recompete and new work, with DOGE impact on dev civilian side less than defense intel side.

Q: Mark Marcon asks about margins and client project certainty.

A: Ted Hanson says commercial consulting work's mix helps gross margins, and Shiv Iyer notes clients still expanding in strategic areas like data, AI, and cybersecurity but are cautious.

Q: Kevin McVeigh asks about TopBloc contribution and DOGE impact.

A: Ted Hanson says TopBloc contribution was immaterial in Q1, and Rand Blazer talks about DOGE impact on federal business being more on general program management consultative work which is a small part of the business.

Q: Trevor Romeo asks about guidance and Mexico nearshoring.

A: Marie Perry says guidance is consolidated, and Rand Blazer mentions Mexico nearshoring is growing due to cost pursuit and will be part of digital engineering.

Q: Jeff Silber asks about federal contract terminations and internal investments.

A: Ted Hanson says contract terminations are handled real-time, and they reallocate investments to areas with good outcomes.

Q: Surinder Thind asks about intra-quarter visibility and Q2 margins.

A: Ted Hanson says widening guidance range is due to macro uncertainty, and Marie Perry explains Q2 margins are affected by business mix and DOGE impact.

Q: Joseph Vafi asks about financial services commentary and DOGE adjudications.

A: Rand Blazer says financial services business from big banks was flat, and DOGE effect on adjudications is more within agencies.