ASGN Incorporated Q4 FY2025 earnings call

• Investor Day in November 2025 showcased the next wave growth strategy and transition toward higher value, higher margin technology and digital engineering solutions.
• AI is a dominant driver of demand, with nearly 80% of enterprises planning to increase AI spending in 2026.
• Fourth quarter revenues of $980.1 million were at the top end of guidance range; IT consulting revenues comprised 63% of total, up from 59% prior year. Commercial consulting bookings were a record $444.4 million with a book to bill of 1.3 times for the quarter. Federal new contract awards totaled $144.2 million with a book to bill of 0.9 times on a trailing twelve-month basis, and federal contract backlog was ~$3 billion at quarter end.
• Transition to new brand Everforth to unify commercial and federal brands. Acquisition of Quinox, an agile digital solutions provider, which is accretive, strengthens market position, and enhances digital engineering and global delivery capabilities.
• In commercial segment, year-over-year growth driven by healthcare (mid-teens), consumer and industrial (low teens) accounts. Sequentially, four of five commercial segment industries saw growth. In federal segment, defense, intelligence, and national security accounts comprise ~70% of government revenues; other clients category saw mid-teens growth.
• Deployed various solutions capabilities including AI Factory, partnerships with Elastic, ServiceNow, Wiz, Workday, etc., to support clients' IT needs.

For the fourth quarter, revenues totaled $980.1 million. The commercial segment had revenues of $698.6 million, an increase of 0.9% compared to the prior year and up 2.2% sequentially on a billable day adjusted basis. Assignment revenue totaled $359.2 million, a decline of 12% year over year. Commercial consulting revenue, the largest high-margin stream, was $339.4 million, an increase of 19.2% year over year. The federal government segment had revenues of $281.5 million, a decrease of 3.7% year over year. Gross margin for 2025 was 28.9%, with commercial segment gross margin at 32.6% and federal government segment gross margin at 19.9% (a decline of 60 basis points year over year due to loss of higher margin contracts related to Doge).

• 2026 guidance: Revenues estimated at $960 million to $980 million, net income $25.8 million to $29.4 million, adjusted EBITDA $93.5 million to $98.5 million, adjusted EBITDA margin 9.7% to 10.1%.
• First quarter guidance assumes 62 billable days, typically sees ~100 basis point sequential decrease in adjusted EBITDA margin due to annual payroll tax reset, and no contribution from Quinox initially. Quinox expected to generate low to mid-teens revenue growth in 2026 over 2025 revenues of ~$100 million, with adjusted EBITDA margin in low 20% range.

• Market uncertainties and potential material differences from forward-looking statements.
• Government shutdown delayed award activity in fourth quarter, though pent-up demand seen in Q1.
• Integration risks related to acquisitions, including HSR approval for Quinox acquisition and managing post-acquisition integration.

Q: What is your focus in M&A strategy? How comfortable are you with continued leverage?

A: Focus is on identifying solution capabilities in demand for enterprise clients and pulling acquired capabilities across account base. Post-acquisition, net leverage ratio will be ~2.9 times, which is modestly leveraged with confidence in numbers, target's ability to generate expected revenues/EBITDA, and pathway to delever back below 2.5 times target.

Q: How do you think about capital allocation tension between stock buybacks and buying commercial IT consulting businesses?

A: Share repurchases are accretive, but need to invest in firm both organically and via M&A. Both share repurchases and acquisitions are accretive, and strategy involves both.

Q: Outlook for government consulting business?

A: Budget is there, but award activity was impacted by shutdown. Expect award activity to be strong in defense, security, and intelligence areas in back half of year as shutdown resolves.

Q: What's a reasonable sustainable range for federal gross margin post-Doge?

A: Post-Doge lap in March 2026, federal gross margin likely closer to 20% and above, with Doge impact being less than 2% of total revenues (~$15 million).

Q: Color on client demand for AI and impact on staffing?

A: Clients are being judicious with staffing spend, changing buying behavior to outcome-based investments. AI is a big driver of demand across spectrum from readiness to scaling, with demand healthy across solution stack.

Q: Elaboration on cost savings plan for 2026?

A: Net $80 million of cost savings over three years, moderate in 2026 but ramping up in 2027 and 2028, with acquisition integration and strategic planning expenses of $10.7 million in fourth quarter.

Q: Mix of commercial consulting growth and revenue visibility?

A: Growth across board in commercial consulting, mix of project-based and longer duration manager platform-led work. Bookings in fourth quarter were healthy, with a good platform for 2026, though mix of longer-term projects is ramping up.

Q: End market and budgets for 2026?

A: Steady demand, with sequential improvement in some industries. Still waiting for inflection in big bank area to drive more significant growth.

Q: Impact of government shutdown in quarter?

A: Small impact, mostly programmed in, with shutdown going on a few weeks longer than expected but not material to quarter outcome.

Q: Offshore capability through Quinox?

A: Quinox brings new complex, mature delivery capability across life cycle, enhancing global delivery footprint with highly global capability centers in India, complementing nearshore operations in Mexico.

Q: Contracts with DHS?

A: Have contracts with DHS, with work not affected by funding adjudications in areas not at odds in funding conversation.

Q: Client focus on AI and legacy projects?

A: Not seeing clients stop legacy projects due to AI, demand healthy across solution stack including legacy technologies and new product development, with data and AI growing rapidly.

Q: Quinox's size, scaling, and gross margins?

A: Quinox has ~1500-1800 employees, can scale rapidly, has low attrition, gross margins in high 30s to low 40s, and EBITDA margins in the twenties. Can scale revenue synergies quicker than typical acquisitions due to their platform and global delivery footprint.