ASGN Incorporated Q1 FY2026 earnings call

Transition to Everforth: Final earnings call under ASGN name, starting as Everforth on Friday with new stock ticker EFOR E4. Segment reporting change: Moving to industry-based reporting instead of delivery mode. First quarter results: Revenues $968.3M in line with guidance. Commercial segment driven by AI, data, cloud, etc. Federal segment new contract awards $151.3M, backlog $2.8B. Adjusted EBITDA margin miss: Due to business mix and lower higher margin solutions contribution. Strategic pivots: Leadership appointments, acquisition of Quinox, focusing on AI-led transformation, scalable delivery, etc. Industry performance: Commercial industries like healthcare, consumer/industrial, TMT had growth; financial services declined but insurance saw growth. Federal segment: National security and other clients had growth. Solutions performance: AI and data, cybersecurity, enterprise platforms are key drivers with various client projects.

Revenues for the first quarter were $968.3 million. Commercial segment revenues were $675.5 million, an increase of 0.5 percent compared to the prior year. Federal government segment revenues were $292.8 million, a decrease of 1.1 percent year over year. Commercial segment gross margins totaled 31%, a decrease of 140 basis points year over year. Federal government segment gross margins were 19.6%, an increase of 10 basis points year over year but slightly lower than expectations due to higher cost plus revenues contribution. Adjusted EBITDA was $83.6 million, margin 8.6%.

Second quarter estimates: Revenues $970M - $1B, net income $8M - $13.7M, adjusted EBITDA $85M - $95M, margin 8.8% - 9.5%. Includes $8M - $10M in strategic planning expenses expected to decline.

Macro environment uncertainty: Impact of AI and enterprise software on IT spending. Funding delays: At Department of Homeland Security due to shutdown and leadership transition. Foreign exchange rate impact: On delivery center in Mexico. Decision cycles: Lengthened in enterprise software, affecting project conversions.

Q: Color on lower than expected contribution from higher margin commercial solutions.

A: Ramp up of higher margin solutions slower than expected, federal cost plus contracts with lower margins, FX impact.

Q: AI disruption risk in enterprise software.

A: Temporary due to customer reaction to negative commentary, expecting better conversion in April.

Q: Financial services year-over-year decline.

A: Tight expenditure in big banks, green shoots in insurance and diversified financials.

Q: Commercial IT book to bill 1.1.

A: Broad-based bookings, longer-term work in cloud, cybersecurity, etc.

Q: Unanticipated expenses in Q1.

A: $12.8M related to Quinox, go-to-market, etc., with Q2 guide including $8M - $10M.

Q: Assignment business trends.

A: Sequential decline in line with seasonality, pay-to-bill margins steady.

Q: Government consulting implications of presidential budget request.

A: Well-positioned in defense and intel, slow rollout in DHS, expected better second quarter.

Q: Sales force absorption of consulting transition.

A: Normal change, incentives adjusted based on strategy.

Q: Temporary help index and assignment demand.

A: IT tracks IT spending, assignment side not following same trend as lower end.

Q: Gross margin compression and pricing.

A: No material pricing compression, margin miss due to timing and mix.

Q: DSO and free cash flow conversion.

A: Seasonal DSO, free cash flow conversion around 60% over full year.