ASGN Incorporated Q3 FY2025 earnings call

Financial Performance - ASGN delivered solid third-quarter performance with revenues at $1.01 billion and adjusted EBITDA margin of 11.1%, both at the high end of guidance ranges. ### Industry Performance - Consumer and industrial accounts saw mid-teens growth year over year, driven by material utilities, industrial, consumer discretionary, and consumer staples clients. Healthcare was the second-best performing industry, up high single digits to double-digit growth among healthcare provider, pharmaceutical, and biotech clients. ### Solutions Capabilities - Saw increase in projects focused on data and AI, application development and engineering, customer experience, and cybersecurity. Examples include work with a Fortune 500 managed care organization on a data supply chain platform, and with the FBI on enterprise-scale software development. ### AI Adoption - AI spending is a fundamental replatforming of enterprise technology, but challenges like organizational readiness, operational governance, and skill/talent gaps exist for enterprise-wide AI adoption. ### H-1B Visa - Actively tracking potential changes to H-1B visa application process, believing any changes would be an incremental positive to ASGN.

In the third quarter, ASGN's total revenues were $1.01 billion. The commercial segment had revenues of $711.3 million, a 1% decrease year over year. Assignment revenues were $376.4 million, down 13.2% year over year, while commercial consulting revenues were $334.9 million, up 17.5% year over year. The federal government segment had revenues of $300.1 million, a 3.9% decrease year over year. Gross margin for the commercial segment was 33.2%, up 40 basis points year over year, and for the federal government segment was 20.3%, down 40 basis points year over year. IT consulting represented approximately 63% of total revenues in the third quarter, up from 58% in the same period last year. Federal new contract awards totaled $461 million for the third quarter, and federal contract backlog was approximately $3.1 billion at quarter-end.

For 2025, ASGN estimates revenues of $960 million to $980 million, net income of $32.1 million to $35.7 million, adjusted EBITDA of $102 million to $107 million, and adjusted EBITDA margin of 10.6% to 10.9%. Guidance assumes 61 billable days in the fourth quarter, same as the year-ago period and 2.5 days fewer than the third quarter. The estimates are based on current market conditions and assume no further deterioration in the markets served, and do not include acquisition, integration, and strategic planning expenses.

Challenges in enterprise-wide AI adoption such as organizational readiness, operational governance, and lack of skills and engineering talent. Impact of government shutdown on federal contract awards and ramping up of new awards. Macro conditions affecting client spending and IT initiatives, which could slow down new award cycles and implementation of projects.

Q: How does the H-1B visa situation impact ASGN and what's the impact of the federal government shutdown?

A: Any changes to the H-1B visa application process are seen as an incremental positive to ASGN. The government shutdown slows down the cycle of new awards and the ability to ramp up on awards won or may win, though it's currently immaterial to ASGN's operations.

Q: Do you assume the government shutdown extends through the fourth quarter and what software implementations are seeing best demand in commercial consulting?

A: No assumption on the length of the shutdown. In commercial consulting, demand is strong in data and AI (Snowflake, Databricks), enterprise platforms like Workday, GlideFast, ServiceNow, and cloud/Salesforce areas.

Q: What's the outlook on AI ROI and the one big beautiful bill for the federal government?

A: Challenges in AI ROI include integration into architectures, data alignment, and workflow integration. The one big beautiful bill will benefit defense and intel areas, with potential benefits starting in the first half of 2026 and translating to revenue later.

Q: How does the staffing business compare to the consulting business and what about cost reimbursable contracts?

A: There's a shift to partners driving outcomes, creating headwinds for the staffing business. Cost reimbursable contracts are a natural ebb and flow, with no material impact on margins currently.

Q: Talk about competitive dynamics and pricing of accelerators.

A: Compete with Accenture, Big Four, and India-based pure plays. Accelerators are allowing faster delivery, with early discussions on standalone pricing for some advanced accelerators like Pathfinder.

Q: What about the momentum of commercial consulting and pricing of accelerators?

A: Commercial consulting momentum is sustainable in data/AI, custom engineering, and platform areas. Accelerators are enabling faster delivery and there are ongoing discussions about pricing changes for these assets as they mature.