NYSE:ASGN ASGN Q3 2023 Earnings Report $54.51 +1.85 (+3.51%) Closing price 03:59 PM EasternExtended Trading$54.48 -0.03 (-0.06%) As of 04:49 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast ASGN EPS ResultsActual EPS$1.68Consensus EPS $1.56Beat/MissBeat by +$0.12One Year Ago EPSN/AASGN Revenue ResultsActual Revenue$1.12 billionExpected Revenue$1.11 billionBeat/MissBeat by +$6.82 millionYoY Revenue GrowthN/AASGN Announcement DetailsQuarterQ3 2023Date10/25/2023TimeN/AConference Call DateWednesday, October 25, 2023Conference Call Time4:30PM ETUpcoming EarningsASGN's Q2 2025 earnings is scheduled for Wednesday, July 23, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by ASGN Q3 2023 Earnings Call TranscriptProvided by QuartrOctober 25, 2023 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00Greetings. Welcome to the ASGN Incorporated Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. Operator00:00:18I will now turn the conference over to your host, Kimberly Esterkin, Vice President of Investor Relations. You may begin. Speaker 100:00:26Good afternoon, and thank you for joining us today for ASGN's Q3 2023 Conference Call. With me are Ted Hanson, Chief Executive Officer Rand Blaser, President and Murray Perry, Chief Financial Officer. Before we get started, I would like to remind everyone that our commentary contains forward looking statements. Although we believe these statements are reasonable, They are subject to risks and uncertainties. And as such, our actual results could differ materially from those statements. Speaker 100:00:58Certain of these risks and uncertainties are described in today's press release and in our SEC filings. We do not assume any obligation to update these statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors. Asgn.com. Please also note that on this call, we will be referencing certain non GAAP measures, such as adjusted EBITDA, adjusted net income and free cash flow. Speaker 100:01:34These non GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non GAAP measures are included in today's press release. I will now turn the call over to Ted Hanson, Chief Executive Officer. Speaker 200:01:51Thank you, Kim, and thank you for joining ASGN's Q3 2023 earnings call. ASGN's performance for the Q3 of 2023 was in line with our expectation, with results slightly ahead of or within our guidance 3rd quarter 2023 revenues of $1,120,000,000 were above the midpoint of our guidance With IT consulting revenues reaching approximately 55% of the total ahead of our 2024 goal. Adjusted EBITDA margin was 12.3% for the 3rd quarter, above the top end of our guidance range. We continue to see opportunities for margin expansion as our consulting revenues grow. With that as a background on our consolidated results, I'd like to turn to our industry performance. Speaker 200:02:44As we review our performance, 3 key things will be consistent throughout the discussion. First, while the market for IT spend remains difficult, these headwinds will reverse and ASGN's business is better positioned than it's ever been to capture in demand IT opportunities. 2nd, the strength of our business lies in our large domestic enterprise account base. Our diversified client base across 6 critical industry verticals provides stability throughout market cycles. 3rd, our business continues to evolve toward IT consulting with more than half of our consolidated revenues now in the higher end, Higher value project and solution capabilities. Speaker 200:03:26This growth in consulting revenues, along with the variable nature of our cost structure, Support our margins. I'll speak more about each of these topics as we review our quarterly performance. So let's begin by discussing the 5 industry verticals that comprise Our Commercial segment predominantly services large enterprise and Fortune 1,000 companies. Commercial segment revenues for the quarter declined by low teens on a difficult year over year comparison. Revenues for the segment benefited from growth in our For the quarter, commercial consulting revenues increased 2.1% year over year. Speaker 200:04:13Commercial consulting bookings $291,000,000 translated to a book to bill of 1.1 times for the quarter and 1.2 times on a trailing 12 month basis. Of the consulting work won during the quarter, bookings were again weighted toward renewals on existing projects with a large portion of bookings Coming in at the end of the Q3, an indication that our clients remain cautious in their spend. Sales cycles are slow And project durations continue to be elongated, but our retention rates on existing deals remain strong as our clients continue to recognize the high value of We are seeing anything with an immediate return on investment, specifically projects aimed at cost containment And those generating operational efficiency getting the green light from clients. I'll speak more on the work won during the quarter shortly. Turning to our vertical performance, our Consumer and Industrial and Healthcare verticals saw low single digit revenue declines year over year. Speaker 200:05:20Within Consumer and Industrial, Consumer Staples and Utilities were bright spots, each experiencing low single digit growth as compared to the Q3 of In the healthcare vertical, provider accounts maintained the strength and revenues were up double digits year over year. Technology, Media and Telecommunications or TMT Business and Government Services and Financial Services Our 3 remaining commercial industry verticals all saw continued revenue declines year over year. So each of these verticals Some resiliency in certain areas on a sequential basis. Within TNT, for example, media and entertainment account revenues remain relatively consistent with the Q2 of 2023 with the rate of decline slowing. Within our financials vertical, big bank revenues were relatively flat sequentially with small sequential revenue growth and diversified financials. Speaker 200:06:22Even in these more challenging macroeconomic conditions, As previously noted, our commercial bookings remain solid. We continue to make progress on the AI front across the commercial segment, With generative AI counting for many of the new opportunities in our pipeline, followed closely by work in machine learning, The vast majority of the generative AI projects for clients are exploratory at this time. We expect larger AI programs to follow once Use cases that demonstrate value creation have been identified for our clients. At the same time that AI exploration work Taking place, we're seeing strong demand for data engineering and data governance in support of AI use cases. These infrastructure needs are being driven by the desire to ensure that data is complete, accurate and timely for training, testing and deploying AI models One example of work is a consulting project we won during the Q3 with a leading North American pet supply company. Speaker 200:07:27Our team was brought on to build out an end to end freight management system for our clients, including the full cloud data platform Architecture, configuration, reporting and analytics are properly set up in the new freight management tool. At the same time, we must ensure that the data is extracted correctly from the old tool and ingested into the new tool. We're using technology solutions such as Snowflake, Databricks and Google Cloud as part of this end to end architecture to ensure the We also continue to excel in projects involving engineering, robotics and machine learning capabilities. In another consulting project won during the Q3, we were hired to provide services to a leader in e grocery technology. Under this contract, we're helping to drive the deployment of our clients' robotic grocery fulfillment systems, Which are used to stock the warehouses of a major retailer nationwide. Speaker 200:08:36We are providing end to end provisioning, installation, quality assessment and support for each warehouse deploying the new eGrocery technology. Let's now turn to our federal government segment, our 6th Industry vertical, which provides mission critical solutions to the Department of Defense, the intelligence community and Fed civilian agencies. Federal segment revenues for the quarter were up 12.3% year over year on an as reported basis and up 4% organically. Contract backlog was roughly $3,300,000,000 at the end of the 3rd quarter or a healthy coverage ratio of 2.6 times The segment's trailing 12 month revenues. New awards were approximately $501,200,000 which translates to a book to bill of 1.5 times for the quarter and 0.9 times on a trailing 12 month basis. Speaker 200:09:35As we continue to secure work during the Q3, we recognize the potential for some disruption in the procurement process Should the government shutdown occur following the end of Q3, our government team proactively engaged in discussions with clients for several weeks leading up to October 1 and reconfirm that the vast majority of our work is mission critical. We believe that 10% or less of our federal government work to be impacted in the case of an extended government shutdown. We're keeping track of budgetary developments. In the meantime, we remain heads down on providing leading IT solutions to our government client base. Speaking of supporting our clients, in the Q3, we won a combination of new and recompete contracts. Speaker 200:10:26Amongst the new work secured, we won 2 new cybersecurity contracts with the U. S. House of Representatives and the Census Bureau. In addition, we secured a 5 year data and AI contract to support the National Geospatial Intelligence Agency, The Chief Digital Artificial Intelligence Office or CVAO and the Army Research Laboratory. We also won a smaller contract from the CBAO to help establish a global AI innovation lab that will support academic research in artificial intelligence worldwide. Speaker 200:11:05Similar to the commercial segment, much of our work in generative AI in the government space remains exploratory at present. But with excellent qualifications and traditional forms of artificial intelligence, our federal and civilian customers continue to look to us to identify use cases that will increase their operational efficiency. In fact, on several DoD AI Research and development programs, we are integrating generative AI and large language models into current solutions. With regards to project extensions, we want to work with the U. S. Speaker 200:11:41Postal Service supporting several key areas, Including advanced data management and cybersecurity and continue to support the Department of Veteran Affairs, While adding new work in strategic planning, cloud advisory services and AI technology implementation, The breadth of work just described is evidence of the countercyclical balance the government industry vertical provides to our overall account portfolio. With that, I'll turn the call over to Marie to discuss the Q3 results and our Q4 2023 guidance. Speaker 300:12:19Thanks, Ted. It's great to speak with everyone this afternoon. As Ted noted, our results for the quarter We're in line with or exceeded our expectations. The 3rd quarter revenue of $1,120,000,000 We're down 6.8% year over year. Revenues for the Commercial segment were $782,400,000 Down 13.1% compared to the prior year quarter. Speaker 300:12:47Revenues from commercial consulting, The largest of our high margin revenue stream totaled $274,200,000 up 2.1% year over year on a tough comparison of 43.2% growth in the Q3 of 2022. Growth in commercial consulting revenue was offset by 19.5% year over year decline in assignment revenues, reflecting the continued softness in more discretionary and cyclical parts of our business. On a same billable day basis, Adjusting for 1.5 fewer billable days in Q3 of 2023 compared to the prior year quarter, Assignment revenues declined 17.6%. Revenues from our federal government segment were $334,400,000 up 12.3% year over year, including a 24 point $6,000,000 contribution from IronVine. The growth in our federal government segment, our 6th verticals, Speaks directly to the benefits of maintaining a diverse client base across industries. Speaker 300:13:59Turning to margins. On a consolidated basis, Gross margin was 28.9%, down 110 basis points over the Q3 of last year and flat sequentially. The year over year compression in gross margin was mainly related to business mix, including a lower mix of certain high margin revenue Within our Commercial segment, a higher mix of revenue from our federal government segment, which carry a lower gross margin than Commercial Segment revenues. Gross margin for the Commercial segment was 32.5%, down 60 basis points year over year, primarily due To the lower mix of certain high margin assignment revenue streams, mainly creative digital marketing and permanent placement revenue, which was partially offset by a higher mix of high margin IT consulting revenues with a year over year expansion in gross margin. Gross margin for the Federal Government segment was 20.4%, down 10 basis points year over year. Speaker 300:15:06SG and A expense for the Q3 were $206,000,000 or 18.4 percent of revenues as compared to $232,600,000 or 19.4 percent of revenues in the prior year period. SG and A expenses included $1,100,000 in acquisition, integration and strategic planning expenses And a $2,700,000 tentative legal settlement, both of which were not included in our guidance estimates. As expected, interest expense increased year over year related to rising interest rates and our recent refinancing. At the end of August, we completed a successful transaction that upsized and extended the maturity of our revolving credit facility and term loan B. Our revolving credit facility is now $500,000,000 with a 5 year maturity Extending to 2028, our term loan B is also $500,000,000 and extends 7 years Maturing in 2030. Speaker 300:16:15Post transaction, our net leverage remains low at 2x adjusted EBITDA. Ted will speak further about this transaction shortly. Income from continuing operations was 59,400,000 Adjusted EBITDA was $137,500,000 and adjusted EBITDA margin was 12.3%. At quarter end, cash and cash equivalents were $145,600,000 and we had full availability under our new 500,000,000 Senior secured revolver. Free cash flow for the quarter was 137,700,000 an increase of 73.2 percent year over year. Speaker 300:16:59We deployed $91,300,000 in cash We have roughly $349,100,000 remaining under our share repurchase authorization. With strong free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisitions once the M and A market improves. Turning to our guidance. Our financial estimates for the 4th Quarter of 2023 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and do not take into Any possible revenue decline associated with the potential government shutdown in November. Speaker 300:17:53Our estimates assume 60 billable days in the 4th quarter, which is the same as the year ago period and 2.5 fewer billable days than Q3 of 2023. Guidance also takes into account seasonality, With the Q4 traditionally the 2nd lowest quarter after the Q1. We expect macro conditions Challenging in the Q4. In our commercial segment, we anticipate revenues to remain soft across both assignment and consulting. These declines are expected to be partially offset by growth in our federal government segment. Speaker 300:18:34We are expecting gross margin will decline year over year due to business mix similar to the more recent trends, including a greater mix of federal government work and continued softness in Our more cyclical and discretionary commercial businesses. This should be partially offset by improvement in our year over year cash SG and A expense margin. With this as background, for the Q4, we are estimating revenues of $1,040,000,000 to $1,060,000,000 We are estimating net income of $46,200,000 to $49,100,000 adjusted EBITDA of $115,500,000 to $119,500,000 And adjusted EBITDA margin of 11.1% to 11.3%. Thank you. I'll now turn the call back over to Ted for some closing remarks. Speaker 200:19:34Thanks, Maureen. ASGN's business is very well positioned when IT market demand and the overall economy improves. Consistent with our peer set and our clients, we remain Cautious about the near term market demand given the uncertain macroeconomic condition. Nevertheless, the great qualifications that go up Across sought after IT solutions and skill sets, ASGN is ready to leverage growth in IT SIN in the future. As we proactively position our company for the future, as Maureen noted, in the Q3, we successfully completed a transaction To upsize and extend the majority of our revolving credit facility and Term Loan B, this transaction increased our financial flexibility and provided us with significant dry powder for acquisitions as the M and A market strengthened. Speaker 200:20:28We continue to believe M and A is the best use of And highest return on our capital. Both the Revolver and TerminalMD were oversubscribed, which we can attribute to the strength of our underlying The success of this refinancing was also due to the efforts of our treasury team led by Jim Brill. Jim has been an integral part of the ASGN family for the past 16 years, but we knew the day would come when Jim would retire. Jim, it has been a pleasure to work alongside you all these years. And on behalf of our entire company, I want to thank you for your exceptional leadership and dedication to ASGN. Speaker 200:21:06You will be missed, and we wish you the very best in your well deserved retirement. Transitioning into Jim's role as Treasurer, we welcome Chris Dennini, who has served in our VP of Finance and Treasury role at ASGN since July. Chris has been shadowing Jim since day 1. With an extensive background in finance and treasury for publicly traded companies, Chris brings a wealth of experience to ASGN. We're excited to have Chris on board and hope that many of you have the opportunity to meet him in the near future. Speaker 200:21:39That concludes our prepared remarks. I'd like to thank our entire ASGN team for your continued efforts this past quarter. Our ability to remain in the fast current of where IT spend is today and in the future is the result of your dedication and unwavering commitment to our clients. Thank you again for joining our Q3 call. Operator, please open the call to questions. Operator00:22:03Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Tobey Sommer with Chivas Securities. Please proceed with your question. Speaker 200:22:35Thank you. Speaker 400:22:36I was wondering if you could give us a little bit more color on what you're seeing in the commercial consulting arena in terms of The elongation of decision making and maybe the size of projects, are they diminishing outright or are customers sort of Piecemealing them out in modules or phases as opposed to signing up for sort of the whole end to end period for you? Thank you. Speaker 200:23:02Yes. So thanks for the question, Toby. I'll let Rand kind of jump in here too. But I'll tell you, I think in general, what we're seeing is There's solid bookings, a little bit more renewals than new work, but what I would call very solid bookings. For this quarter, it was $291,000,000 We were at a 1.1 book to bill, which Q3 is always seasonably a little lighter. Speaker 200:23:28So I think we were generally pleased with that. We're definitely seeing clients elongate those. That reduces their spend, if you will, in our revenue. It's not a bill rate or a margin issue. It's Mostly embedded in that. Speaker 200:23:46And Rand, size of project is generally similar, right? Speaker 500:23:52Yes, except for the AI work, which You noted Ted tends to be smaller, but the normal flow of our consulting work is the larger and now 7 figure projects that have a 9 to 12 month duration. And Toby, to your question of is the client piecing it out, if you will, to us, I think it's more as an on the go scenario. In other words, as projects mature, they come to different milestones. I think the clients generally and some of this is seasonal is not in a rush to finish, if you will. I'm not Suggesting that they don't think it's a priority, but it's just being cautious, which they've been for some time now in the last quarter or 2. Speaker 500:24:38So it's not so much the way it's contracted, it's more the way it's executed. Did that answer your question? Speaker 400:24:47Sure. That provides helpful color. And then as a follow-up on the same theme, within that rate of bookings and I understand most of Renewals, do you think you're holding serve, gaining share, how do you think you're doing relative to the market In the areas that you play. Speaker 500:25:09Brad? Ted, I'll take the first shot and We'll wait for our peer group to report, Tobey over the next days weeks. But I mean, I feel like we're We're holding court, if not expanding just a bit. Most of the work that we're seeing, by the way, is a lot in that data that Ted mentioned In the notes, the data area, data aggregation, data consolidation, data cleansing, data mapping, These are fundamental steps you take in any kind of systems development, if you will. And I think a lot of clients are recognizing that this data work It takes time, has to be pulled together, has to be meticulous, and guess what, this all sets The stage for AI technology when it comes in. Speaker 500:25:57And Toby, one other thing we watch is the technology that supports Data mapping and data cleansing, they are beginning to pop up on the horizon new pieces of technology to support that effort. But for the most part, it's still methodology and labor intensive, and it's prep work, important prep work for AI Speaker 400:26:23Thank you. If I could ask a question about M and A, I think you said in your prepared remarks When M and A when sort of markets reopen, resume, revive, something like that, did What do you mean by that? Because certainly, it seems based on your financing, you have the capital and appetite. Is it a question of multiples or fewer assets Available out in the market, from many perspectives, one might think this would be a sort of a good time for you to lean in a bit. Speaker 200:26:54Well, I would agree with that. I would say, Toby, we still see that high quality assets are Not stepping into the market because they still haven't in their own mind maybe reconciled the valuation question. So you while we see things flowing through the pipeline and we're prosecuting all of it, it's Lesser quality I would say more and lesser quality assets than we would typically see. So I think it's more that than anything else. For a company that has great IT solution capabilities in some high demand areas that we want to be in, They're performing, maybe not as good as they were, but they're performing well and I think they can afford to wait here. Speaker 200:27:40I think it's mostly around that. Speaker 400:27:43That makes perfect sense. Last question for me. Could I get you to maybe give us a history lesson in how The government business performed and what the impacts were to top line contract awards and book to bill as near as you could isolate those In the last shutdown in 2018 that straddled into 2019, because that may be informative as we perhaps experience Some sort of volatility in government staying open over the next several months? Speaker 200:28:15Yes. Well, Toby, that's Pretty far back, so I couldn't clearly give you an answer on that, but let us follow-up with you offline on that, if that's okay. Speaker 400:28:25Terrific. Thank you very much. Yes. Speaker 200:28:27And Operator00:28:30our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question. Speaker 600:28:36Hi, Ted and Marie and Rand. Thanks for taking my questions. My first one is on the commercial Can you share your initial impressions about the clients' budgeting processes for 2024 and What that might mean for spending potential next year? Speaker 200:28:56Well, we're in the middle of that right now. I will tell you on a macro basis, not client by client, but I mean if you kind of follow Gartner, they're lowering IT spending growth here in this year, they're kind of down to 3% or 4% now, and they're expecting a higher number next year, Right. So I think that's an overall market comment. Rand, are we really kind of into that on the client side Hear enough to make a comment? Speaker 500:29:30Well, I would say there's two levels of client here, the technical client that runs the projects And has to get things accomplished and the executive team that has to make a decision relative to their financials and their own outlook for the future. I can tell you the technical client level, Maggie, it's let's talk about it, let's get the next stage going. As I just mentioned, a lot of the work is in what I call Prep phase for AI before use cases get layered on. So there is a lot of discussion at the technical level. I think the executive level, I can't speak to that, but I would sense if I were an executive of some of these businesses. Speaker 500:30:09If I'm a provider, it's Full steam ahead. If I'm a big bank, earnings are looking up, maybe I'm thinking positively. If I'm Technology, the ad money and the results we're seeing now that are coming out in the market are kind of giving us an indicator that earnings are Moving up. So we our thesis, as you know, has always been that IT spend is a function of earnings of the company. So I think executives are watching what happens with, I'm sure, the continuing resolution with what's going on in the House. Speaker 500:30:41There's obviously going to be money spent on aid for in the foreign world. And I mean, I just think it's too early quite to tell, but We're optimistic, I would say. The bookings give us an indicator, Maggie, a little bit, right? I We've had pretty solid bookings and even as Ted said, the Q3 bookings were quite good. Usually, it's our lowest commercial quarter. Speaker 500:31:05The government side also had great bookings in the Q3. Speaker 600:31:11That's helpful. Thank you. And then I think it was Ted in your prepared remarks, you mentioned maybe some opportunities for more margin expansion. Is that anything incremental to some of the opportunities that you've laid out in the past like at your Investor Day? Or was that a comment on Expected mix shift over time or any comments you would have there over kind of a multiyear timeframe would be helpful. Speaker 600:31:35Yes. Speaker 200:31:35I think it's both of those, Maggie. Yes, I mean, we still we see in our numbers and we still believe that as a consultative part of our business becomes bigger, It comes at a better gross margin and EBITDA margin, and that's levering up our margin profile. Even here where Some of our more cyclical businesses that have higher margins are down. We're still doing a good job, if that's the right way to say it, of Generating a +12 percent EBITDA margin here in the 3rd quarter. So, I think it's mostly around that. Speaker 200:32:10I mean, I've said before, our range that we gave in our 3 year plan, which was about 12% to 12.5% is a short term target. But And with most quarters, we play within that range. But there's nothing that says in the future it won't continue to grow higher because The things we laid out in our Investor Day and because of the kind of quarter to quarter mix shift that you can see in our consulting business. Speaker 100:32:40Got it. Thank you so much. Operator00:32:44Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question. Speaker 700:32:52Good afternoon and thanks for taking my questions. On the margins, I mean, you've done a really nice job here in terms of protecting the EBITDA margins. Wondering how you're thinking about internal headcount going forward over the course of this coming year? How should we think about your priorities with regards to preserving the margin strength relative to building out capabilities that will probably benefit whenever the environment truly improves. Speaker 200:33:25Yes. Well, good question, Mark. I mean, I think Graham and I both believe that we can pace this out. I mean, I don't think we have to sabotage Margin to invest ahead of something. Our right now, our headcounts Are coming down and incentives coming down. Speaker 200:33:45Those are some of the stabilizers that are part of Our business stabilizers and helps us protect the margin. But as incentives come back and we need to At headcount, either in solution areas or in certain other areas, I think we'll pace those out. We've done it before. We saw this in 'eight and 'nine. So again, I don't think we're cutting our nose off despite our face here. Speaker 200:34:13I mean, This is something we feel pretty good about the balance. And the attrition that we're seeing is the natural attrition that's built into the business, and We're watching it. There are some areas where we're investing today, frankly. There are other areas where we're letting natural attrition work. And so we're You know, monitoring and wary of all that. Speaker 700:34:37That's great. Speaker 500:34:39Ted and Mark, can I add real quickly? You can't talk about headcount without talking about productivity. And quietly, we've been continuing to upgrade, refit Some of the technology we use in our areas, in the recruiting area and certainly in our methodologies and the way we go to work with the engagement. So there's room here also in productivity improvement to absorb You know some of the growth. So we're watching both of those things, okay, and investing in it, in fact. Speaker 700:35:11That's great. Do you have any more perspective with regards to and I know it's early days, but when the AI work could Transition from being exploratory to larger engagements and when it does become larger engagements like What sort of magnitudes are you thinking about? And would you be in a good position to be a prime on some of those? Speaker 800:35:39Brad? Speaker 500:35:40Well, the answer is yes. Mark, with you and others, we've talked about 3 layers of The road to AI and that's the processing power and the work that's happening not just in chips, but also in the software enterprise software world. And you see and then the next layer is cloud and the data and the data preparation and the data readiness and the third is use cases. So there's a lot of work obviously for companies like us in that middle layer in the data side. The use cases will be an application of that data. Speaker 500:36:13So I would think if I were a client, I'm presuming this will happen. The client says, look, you've done some great work with our data work. I need you to now extend it to our use cases and what we're trying to accomplish at the end of the day. By the way, we're building the data in a way that supports some of these use cases that are visioned and envisioned. So should we be a prime? Speaker 500:36:34Yes, because of our inroads with data and the cloud and the infrastructure of data. And should we also be smart on the technologies that continue to emerge, not just the enterprise technology, but these newer technologies that are coming out. And we're doing both, not just through our alliance relationships, but our experience. So I hope we are in great position to support them As we go, and if you remember, Gartner pointed out that they thought the customer experience was going to be the highest Best use cases for AI in the future and our creative marketing team has done cyber, Creative Circle has done a lot of work, both pioneering, working, articulating and helping clients think about their use case strategy. So I'm hoping we're in Good position, but importantly, we're doing the building block work that we need to do to be in that position. Speaker 200:37:30I think one more point is, Remember, Mark, we've now for several years running have been identified as the number one provider of AI capabilities in the federal government space. So that's Internal solution capability that not only supports our federal customer, but we can leverage that know how in certain commercial areas. Speaker 700:37:52That's terrific. And then can you talk a little bit about like the supply side in terms of obviously, these skills are in really high demand. I'm wondering like what is the pipeline? Where are you getting the contractors that truly have The knowledge, what level do they have? And how are you thinking about the bill rates and the margins given the scarcity Relative to the demand, it sounds like this should be over, Who knows whether it's a year from now or 3 years from now, but a really promising area? Speaker 200:38:33Yes. Well, remember, we're not just hiring 1 AI expert, right? There's multiple facets and layers to this, as Sure. I mean, today in the data world, we have many of these in our organization many of these people in our organization and working on other data type Projects that can port to these AI use cases and be effective there. So I mean, I think a lot of these players will come from pools of solution capabilities That we already have in our business today, if you will. Speaker 700:39:11Great. In terms of TMT, you mentioned that the accounts look like they're a little bit stable, but TMT was down 27% versus 18%. Are you seeing sequential stability like on a week to week basis? Just wondering How you're thinking about that? Speaker 200:39:33Yes. I'd say the answer is yes. But, Randy, do you want to comment on that one? Speaker 500:39:38Yes. I think we're watching both and we're watching what I call micro indicators. So we watch certain things in the marketplace, things we've mentioned, Whether companies are having their earnings, are they growing themselves, which products, if you will, in the technology and telecommunications area growing, Whereas ad spending being added in media to help those businesses and you're seeing some of that starting to turn around. When we look at stability, Obviously, we've declined through the year. Keep in mind, our comps from a year ago were quite high. Speaker 500:40:13But definitely, as we exited Q3 and we Started in Q4, we see which to us is a step in the right directions to build steadiness In the work in the workflow, but I think you look at these other indicators and you see that there's maybe a light at the end of the tunnel coming. Speaker 700:40:35Great. And then one last, Toby asked a history question, I've got one as well. Rand, Ted, you've both You've been involved in this business for multiple cycles. How would you compare what we're seeing on the Commercial side in terms of the trends right now relative to prior cycles, what Elements feel different from your perspective. My recollection was Apex actually navigated The GFC really well. Speaker 700:41:16And so I'm just wondering how does this compare? How are you thinking about it? Speaker 200:41:21Yes. Well, it's different for sure, right? The business cycle is a business Cycles, but no two are kind of based on the same foundation or acting the same way. If you think about the great financial crisis, certainly that affect The big banks and the financial services industry, things related to the banks, predominantly housing and mortgage, if you will, And the retail and the consumer got caught in some of that stuff. And I think that What's different this time is it's been 2 years now that we've been watching this interest rate Increase and in turn been talking about an impending recession and large enterprise accounts have slowly positioned themselves in a much More cautious way, and that's happened broadly across the board over a long period of time. Speaker 200:42:15And so instead of seeing kind of a Faster ripple through certain industries. You've seen it broad based over a long period of time in enterprise accounts. And I think that makes This cycle, if you will, a little more different. That being said, how we manage through this is Not too different. I mean, we've definitely done this at various times before. Speaker 200:42:38So we have an understanding about how that business should operate and what the management Actions are that we need to take. And we also kind of realized the things that sometimes lead you into these downturns Are the things that leave you out. So certainly, our TMT industry was one that really led, I think, For many of us into this cycle, and while it's still not there, you may be seeing Signs that their businesses are returning to growth and better profitability and that will be good for us because they want to lean into More IT initiatives that they need us to be a part of. So that will be a positive thing for us. Speaker 700:43:27Great. Really appreciate the thoughtful answers. Thank you. Operator00:43:32Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question. Speaker 900:43:39Thank you so much. In your prepared remarks, and I'm going to quote it, it says, in our Commercial segment, we anticipate revenues to remain soft Across both assignment and consulting, and this is referring to your guidance for the Q4. Should I assume that means that you think both assignment And consulting will be down on a year over year basis in the Q4? Speaker 200:44:02So Jeff, thanks for the question. I think that Our guidance kind of reflects what I would call flat to very slightly down in the commercial and up in the federal. If Marie were talking to you, that's what she would say. And then secondarily, I think we're taking Also a little bit more conservative view of permanent placement and how that could influence the margin. So I think those Are the components on the commercial side? Speaker 200:44:33Look, there's although there's no real material change in the operating environment, the 4th quarter is always Lower than the Q3. So the Q3 is always the strongest and in the Q4 you see a little softening and that's because you've got Holidays and less billable days. You also have various projects come to natural end, customers working on budgets on things that they may not start until the next year. And then you have some clients who will get kind of into December and say, look, I'm not going to finish this by January 1. Let's just Shut the lights off here for a week or 10 days and let's come back at it, after the holidays. Speaker 200:45:15And so those are all natural things that happened here in the 4th So that's what's underneath the guidance. I'll tell you at a macro level, in the commercial markets, there's no real change in the operating environment. I think that's One thing that is kind of clear here and we coming out of Q3 and then to Q4, things are what we would say is fairly steady. Our Q3 was a little bit better than expected and that then translates into how we set Q4 guidance. No turn yet in the commercial market. Speaker 200:45:47The commercial market is still not found in inflection point. We've talked about little things on the call here that we are hopeful that they begin to lead us, as Ram said, to a little bit of life, but no churn yet. And the business stabilizers, obviously, are working in our business and continue to work, and we feel good about them maintaining EBITDA margin for us even in the face of a really difficult commercial market. Speaker 900:46:17Okay. I understand. Maybe I could shift gears to the federal government business. I know you mentioned in terms Potential government shutdown, I think it was less than 10% of your business will be impacted. But can we just talk about the mechanics? Speaker 900:46:31I mean, what happens if, God forbid, we do get a shutdown? Do all the projects stop, contract negotiations stop? If you could just help me walk through what we could expect if that does happen? Speaker 200:46:43Well, I think in that the first thing that happens in that is we you immediately kind of Come together close with your clients and you determine what's critical and what's not, right? And thankfully, we've already started that process based Some of what was going on in that market leading into October. So we are we've got a foot ahead on that, if you will, and we have a pretty good idea. Once you go through that, you continue work on the mission critical stuff and you make a determination, the client makes a determination on the few things That may not appear to be mission critical and so that our client will do that in concert with us and so we'll know that. And then what happens on new work is it pushes to the right. Speaker 200:47:30So awards that are in process We had delayed a little bit the adjudication of those no matter what states they're in and things just slightly slip out into the first Speaker 900:47:46Okay. That's really helpful. Thanks so much. Speaker 200:47:48Hey, Jeff, maybe one thing too to note here and Who knows? It's been such a crazy turn of events here over the last few weeks in that federal government space with what's going on with the House. But It's not presupposed there's going to be a shutdown. I mean, we mentioned that in our as a caveat in our guide, but It looks like we could be moving here towards another continued resolution of some period of time, whether that's a short one or a long one. We're in one right now. Speaker 200:48:19And so we'll see how things develop on that front as we get a few more weeks down the road. Speaker 900:48:25Yes. We finally have a speaker, so that's a good sign. All right. Thanks so much. Operator00:48:32Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your question. Speaker 800:48:39Afternoon, everybody. Thank you. Rand, appreciate the comments about kind of stability here at the end of the Q3. I'm just wondering, would you be willing to talk Kind of cadence of business through the quarter, like if things were things just sort of stable through the Q3? Did they go down and then get a little better? Speaker 800:48:59Did they get a A little bit worse. I'm just wondering if you could give any color on sort of the intra quarter trajectory on the commercial side? Thanks. Speaker 500:49:10Ted, do you want to You're talking about Q3? Speaker 800:49:14I was talking about Q3. Yes, just the July, August, September trend lines? Speaker 500:49:22Ted, I would say light waves. We'd have sectors and client sectors where you'd have a little wave up and then you'd have other sectors with a little wave down, but nothing Too dramatic, I would say. So it's more rolling waves through the quarter, but I think we We're pleased particularly and I guess I'd make this comment in our more discretionary areas like the staffing, the Seeing the perm placement work, the creative marketing work, the fact that it becomes a little more stable toward the end of the quarter And you could almost predict week to week what you're trying to see and that was a good sign. Speaker 300:50:07Okay. Speaker 800:50:10And then I just wanted to go back to the comment, the Gartner forecast comment relative Your business, I mean, they are Gartner is projecting a pretty big uptick next over the next couple of years. And so I'm just trying to tie that together. Are you just not confident? You're not ready to make Call yet? Are you seeing any kind of green shoots that would lend you confidence that that's The actual right way to think about it or it's just too soon to make that call because I mean Gartner does have that forecast out there. Speaker 200:50:46Right. It's such a broad forecast. I mean, if you start to break it down into areas, the software companies and the big tech companies Providing cloud and now generative AI capabilities and other things, they're seeing pretty good growth rates. The consulting services and the IT services behind that are a little bit of a lead lag. So I guess, Seth, I would Probably lay it more on that, right? Speaker 200:51:14And I think what Gartner is capturing is a big broad spend in all those categories. And Rand, would you say anything else? Speaker 500:51:23I think, Seth, we look at it by industry. I appreciate what Gartner is saying, but we watch particularly the earnings of different industries and companies within these industries. So we were pleased that the banks had a good quarter this past quarter. It looks like big technology had a good quarter. I'm not sure telco is where they are for sure. Speaker 500:51:48Not worried we're not worried about providers because we, the baby boomers, are demanding more services and you have the flu season. And so, I mean, if you watch the earnings, it's utilities, it's oil and gas, it's this consumer staples, assuming the consumer stay Strong are doing well. And by the way, we're doing well. If you believe that the banks can continue to Improve their build on their performance, I wouldn't say improve, build on it, then that's for 10 is a good thing. I think technology is claiming they're getting better and better advertising dollars and they're getting better reach and they're coming back. Speaker 500:52:30Obviously, the enterprise software guys are doing really well, right, mostly because they're embedding AI and they're raising the rate structure around that AI, which Clients have to spend now even if they're not putting it to full use till later. And that goes back to those 3 layers we talked about processing power, So there are certainly indicators we watch in a macro sense around the industries to give us a sense of what the client spend will be. And we also know what they're worried about and what they're thinking about in terms of their initiatives, particularly in that middle layer, the data layer. So I mean, I think those are things we look at, Ted, right? And it's Is anything conclusive yet from all that data? Speaker 500:53:15I think with stability in the federal government and interest rates, I think we might see Something good, but what do I know? I mean, I'm certainly not a professional economist. Speaker 800:53:26Okay. That's helpful, Helpful perspective, guys. Thank you. Operator00:53:33Our next question comes from the line of Josh Chan with UBS. Please proceed with your question. Speaker 1000:53:39Hi, good afternoon, Ted, Marie and Rand. Thanks for taking my questions. I guess you mentioned that On the consulting side, there is some elongation of projects and that's causing some of the softness. So historically, what typically gets the clients more Then that they will, I guess, recompress those project timelines again. What are you looking for there? Speaker 200:54:02Well, look, I think it goes back to what Rand said. When Rand is speaking about, Hey, they're watching their bottom line and they're measuring how much they're willing to burn and spend on projects in order to get to certain outcomes. They have to be feel better about their own growth and pick up the pace, if you will, of Investments and initiatives in IT. So they're hanging in there with the critical stuff. They're trying to measure it out and watch that. Speaker 200:54:35But I think it goes back to again, we've said a few times today and I think it applies to your question, Josh, they just have to feel better about where they're headed quarter Quarter and into 2024 to really lean in harder and speed up and take on more spend in IT. Speaker 1000:54:55Thanks, Ted. Yes, that's good color. Thank you. I guess, I got my second question on margins. So It looks like your SG and A is going down more than your revenue is. Speaker 1000:55:08Is that just a function of mix as some of the businesses that are Down more have higher SG and A competition, I guess. Could you talk to the SG and A decline there? Speaker 300:55:22So Josh, on an SG and A, it's a kind of you're talking about year over year? Speaker 1000:55:28Correct, Speaker 300:55:29yes. Yes. So we kind of noted that as well. So it really is a lower incentive comp associated really with our business stabilizers, right? So kind of just the rate around the incentive It's really what the change is on a year over year basis. Speaker 200:55:47And I think maybe just a second Piece of detail under Marie's point is, if you think about last year, we were at full incentive levels in all kinds of different ways. And so that in and of itself is a difficult comp on the expense side, right? So You were at full kind of max incentives and now incentives are properly coming down with the to where the performance of the business is. Speaker 1000:56:20Okay. That makes sense. And Ted, Speaker 500:56:22is it Josh, is it worth mentioning, we don't have 2 different workforces, 1 for staffing, one for consulting. That was sort of embedded in your question. We have one workforce. Our account managers provide Support to our clients across the array of services. Our recruiting team supports not just staffing requirements, but our consulting team requirements. Speaker 500:56:42And our back office certainly does both. So don't think of it as 2 different workforces. It's one workforce and then what Marie and Ted said is just What's happening across the board? Speaker 1000:56:54Okay. Thanks for the color there, Ryan. I appreciate it. Operator00:56:59Our next question comes from Heather Balsky with Bank of America. Please proceed with your question. Speaker 1100:57:06Hi. Thanks for taking my question. I wanted to first quickly ask about permanent staffing, including Creative Circle. Just If you could share kind of where you are in terms of, I guess, normalized trends Speaker 300:57:31Hi, Heather. How are you? So for perm placement in Q3, it represents 2.6% of total revenues. If you kind of just look at from a dollar perspective, we're down 42%. Last year, we were at 4.2% So and honestly, when you look at it, just one other point, during COVID, The 2.6% is almost kind of close to our COVID levels. Speaker 1100:58:04That's really helpful. And then my other question is actually on government. Current sort of potential shutdown aside, just what you're seeing in terms of Spend and procurement, I know if we go back a year ago, there have been some delays in procurement. I'm curious If there's been any kind of improvement, are they kind of back to a more normalized spending cycle Or is all maybe bringing in the potential shutdown, is all the kind of stuff going on creating some disruption and how They're standing. Speaker 200:58:47I don't think the continuing resolutions have caused that we're under right now any kind of Disruption, if you will. I think we saw a normal as much as we could it could be normal, a fairly normal end to the government Fiscal year in Q3, we our bookings were higher at $500,000,000 Our book to bill at 1.5 It was a good number and a very good number and higher than we've been running and about as we anticipated. And we'll watch the other peer groups, Peer companies released, but I expect them to have good results as it relates to new bookings. So I think on that front, Heather, even though we've got Some wobbliness here going on and what's going on with the continuing resolution and some of those Certainties that you saw a pretty healthy and good flow of contract awards in that federal government space During the Q3, the end of the government fiscal year. Speaker 1100:59:50That's helpful. Thank you. Operator00:59:54And our next question comes from Surinder Thind with Jefferies. Please proceed with your question. Speaker 1201:00:01Thank you. Speaker 301:00:03I guess just a couple Speaker 1201:00:04of clarifications on some earlier commentary. The first being the comments around just kind of Clients elongating projects at this point. Are you able to quantify that in any manner? Are these 9 to 12 months projects that are now maybe being realized over 15 months or just how should we think about that? And then in terms of the context, obviously, around what how to interpret the bookings number there? Speaker 201:00:30Yes. Well, I think that you for sure are seeing stuff like that. We've seen that typically we're around 12 months On these projects on average for the commercial consulting team, that now is leaking further out, whether it's 15 months or 16 months or what have you, it's definitely slowing. And I think it correlates with the fact that we're still getting Solid bookings and book to bill numbers, but it's just yielding a lower growth rate. And our bill rates, I will just tell you anecdotally are slightly up. Speaker 201:01:08So it's not a bill rate issue. It's an hours applied or hours billed Phenomena there. Got it. Speaker 501:01:18And is it also surrender worth mentioning that none of this Just new, we reported the same thing in the Q2. And by the way, as quickly as it could slow down, it could also accelerate. Speaker 1201:01:31Got it. So is the idea that the elongation process has stabilized at this point? Or is it that If we were to rewind a year ago when this first kind of started, the 12 months was 13 months or 14 months and now and then last quarter was Speaker 201:01:55That's that would take a crystal ball, right? I think that's up to the client. I mean, I think we've seen for 2 quarters here A similar trend to Rand's point, we don't see that it will change in the Q4. So that It will be 3 quarters, although this again, more to come. We'll have to watch this Q4 and see if it's consistent With the second and third, but we've got 2 quarters here where we've seen a fairly consistent trend. Speaker 1201:02:27Understood. And then just follow-up on the bill rate, talked about a lot of renewal projects. It sounds like you're able to hold the line on pricing here, maybe even squeeze out a little bit more. Is that the right way to think about it? What exactly is the conversation there? Speaker 1201:02:45Is there some CPI? Is there some negotiation here? Is there a lot of pushback? How should we think about that part of the growth algorithm? So is that Adding maybe a percentage point of growth at this point, how should we think about that? Speaker 201:03:01So you're seeing very slightly Very slight increases in bill rate, but a slight increase. You're seeing maintaining to slightly more in margin. And Rand, what would you say to the back and forth with the client? Speaker 501:03:19Well, some of our work, a good portion of the work are Set bill rates that have escalators to them as you go out into the future. And then some of the escalation could be some change in the mix So the project during the course of the execution of the project, maybe adding somebody with certain expertise or dropping somebody else out. So there's a number of factors that go into it, but it's not really negotiation at At point, it's a matter of what's the right skill set to finish the job. Speaker 201:03:52And then, Sreedhar, one thing I would just add at a high level is there For in demand IT professionals in all these critical skill areas, the client still realizes that they have To pay a market rate in order to get them, there's not a sale going on, if you will. And So in those areas, there's a productive understanding between us and the client that those are to get The best capabilities there that there's a certain rate for that. Speaker 1201:04:27That's helpful. And then kind of the final question here. Just revisiting commercial consulting, revenues were down a few percentage points quarter over quarter. That was A surprise to me to see that given how strong that business has been and the fact that it showed strong sequential growth last quarter. Just any color there? Speaker 1201:04:49Is that maybe a few projects that maybe kind of ended near the same time? Or did clients just push out some work? Or is it more broad based than that? I'm just trying to understand how to interpret that And how we should think about that on a go forward basis? Speaker 501:05:09Ted, let me start. Speaker 201:05:11Well, I've got commercial consulting kind of flat quarter to quarter sequentially. So and Surinder, tell me the rest of your question there? Speaker 1201:05:26Just the color around that, I mean, I'm trying to pull up Speaker 701:05:30the slide deck Speaker 201:05:30here. Speaker 1201:05:32When I see the commercial segment, I see Q2 at 281.1 in your slide deck and Q3 at 274 point So I see that down 3 percentage points quarter over quarter Speaker 701:05:45for commercial contracts. Speaker 501:05:46Correct, slightly down. Yes. Yes. And I think it can almost best be explained by summertime, okay? Q3 has summertime And people take time off and it's just and the elongation of projects that may be decisions that they make in the summer, Just like they're going to make in the Q4 around the holiday period, Ted mentioned earlier, there are some companies will make a decision here in the next 3, 4 weeks To furlough people for 5 days or 10 days, just to kind of put a pause in it, let people enjoy the holiday and get started again on January 1st For a second, so it's I think it's nothing to read into it other than that. Speaker 201:06:30Yes. And I would tell you, once you adjust for days, it's so I'll surrender. There's no there would be no discerning fact. There would be no big thing around bill rates or Hours or anything like that. I think it's just the vagaries of 1 quarter to another. Speaker 1201:06:50Okay. Thank you. Operator01:06:54And we have reached the end of the question and answer session. And I'll now turn the call back over To CEO, Ted Hanson, for closing remarks. Speaker 201:07:02Great. Well, I want to thank everyone for their time and attention And we look forward to speaking with you about our Q4 and full year 'twenty 3 at the beginning of February. Thank you very much. Operator01:07:18And this concludes today's conference. You may disconnect your line at this time. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallASGN Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) ASGN Earnings HeadlinesASGN First Quarter 2025 Earnings: EPS Misses ExpectationsMay 3, 2025 | finance.yahoo.comEarnings Miss: ASGN Incorporated Missed EPS By 26% And Analysts Are Revising Their ForecastsApril 28, 2025 | uk.finance.yahoo.comThe Trump Dump is starting; Get out of stocks now?The first 365 days of the Trump presidency… Will be the best time to get rich in American history.May 7, 2025 | Paradigm Press (Ad)ASGN's (ASGN) Hold Rating Reiterated at Canaccord Genuity GroupApril 28, 2025 | americanbankingnews.comCanaccord cuts ASGN stock rating to hold, slashes targetApril 26, 2025 | uk.investing.comASGN downgraded to Hold from Buy at CanaccordApril 26, 2025 | markets.businessinsider.comSee More ASGN Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like ASGN? Sign up for Earnings360's daily newsletter to receive timely earnings updates on ASGN and other key companies, straight to your email. Email Address About ASGNASGN (NYSE:ASGN) engages in the provision of information technology (IT) services and solutions in the technology, digital, and creative fields for commercial and government sectors in the United States, Canada, and Europe. It operates through two segments: Commercial and Federal Government. The Commercial Segment provides consulting, creative digital marketing, and permanent placement services primarily to enterprise clients. This segment also offers workforce mobilization, modern enterprise, and digital innovation IT consulting services; and cloud, data and analytics, and digital transformation solutions. The Federal Government Segment provides mission-critical solutions to the department of defense, intelligence communities, and federal civilian agencies. This segment offers cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization, and science and engineering solutions. The company was formerly known as On Assignment, Inc. and changed its name to ASGN Incorporated in April 2018. 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There are 13 speakers on the call. Operator00:00:00Greetings. Welcome to the ASGN Incorporated Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. Operator00:00:18I will now turn the conference over to your host, Kimberly Esterkin, Vice President of Investor Relations. You may begin. Speaker 100:00:26Good afternoon, and thank you for joining us today for ASGN's Q3 2023 Conference Call. With me are Ted Hanson, Chief Executive Officer Rand Blaser, President and Murray Perry, Chief Financial Officer. Before we get started, I would like to remind everyone that our commentary contains forward looking statements. Although we believe these statements are reasonable, They are subject to risks and uncertainties. And as such, our actual results could differ materially from those statements. Speaker 100:00:58Certain of these risks and uncertainties are described in today's press release and in our SEC filings. We do not assume any obligation to update these statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors. Asgn.com. Please also note that on this call, we will be referencing certain non GAAP measures, such as adjusted EBITDA, adjusted net income and free cash flow. Speaker 100:01:34These non GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non GAAP measures are included in today's press release. I will now turn the call over to Ted Hanson, Chief Executive Officer. Speaker 200:01:51Thank you, Kim, and thank you for joining ASGN's Q3 2023 earnings call. ASGN's performance for the Q3 of 2023 was in line with our expectation, with results slightly ahead of or within our guidance 3rd quarter 2023 revenues of $1,120,000,000 were above the midpoint of our guidance With IT consulting revenues reaching approximately 55% of the total ahead of our 2024 goal. Adjusted EBITDA margin was 12.3% for the 3rd quarter, above the top end of our guidance range. We continue to see opportunities for margin expansion as our consulting revenues grow. With that as a background on our consolidated results, I'd like to turn to our industry performance. Speaker 200:02:44As we review our performance, 3 key things will be consistent throughout the discussion. First, while the market for IT spend remains difficult, these headwinds will reverse and ASGN's business is better positioned than it's ever been to capture in demand IT opportunities. 2nd, the strength of our business lies in our large domestic enterprise account base. Our diversified client base across 6 critical industry verticals provides stability throughout market cycles. 3rd, our business continues to evolve toward IT consulting with more than half of our consolidated revenues now in the higher end, Higher value project and solution capabilities. Speaker 200:03:26This growth in consulting revenues, along with the variable nature of our cost structure, Support our margins. I'll speak more about each of these topics as we review our quarterly performance. So let's begin by discussing the 5 industry verticals that comprise Our Commercial segment predominantly services large enterprise and Fortune 1,000 companies. Commercial segment revenues for the quarter declined by low teens on a difficult year over year comparison. Revenues for the segment benefited from growth in our For the quarter, commercial consulting revenues increased 2.1% year over year. Speaker 200:04:13Commercial consulting bookings $291,000,000 translated to a book to bill of 1.1 times for the quarter and 1.2 times on a trailing 12 month basis. Of the consulting work won during the quarter, bookings were again weighted toward renewals on existing projects with a large portion of bookings Coming in at the end of the Q3, an indication that our clients remain cautious in their spend. Sales cycles are slow And project durations continue to be elongated, but our retention rates on existing deals remain strong as our clients continue to recognize the high value of We are seeing anything with an immediate return on investment, specifically projects aimed at cost containment And those generating operational efficiency getting the green light from clients. I'll speak more on the work won during the quarter shortly. Turning to our vertical performance, our Consumer and Industrial and Healthcare verticals saw low single digit revenue declines year over year. Speaker 200:05:20Within Consumer and Industrial, Consumer Staples and Utilities were bright spots, each experiencing low single digit growth as compared to the Q3 of In the healthcare vertical, provider accounts maintained the strength and revenues were up double digits year over year. Technology, Media and Telecommunications or TMT Business and Government Services and Financial Services Our 3 remaining commercial industry verticals all saw continued revenue declines year over year. So each of these verticals Some resiliency in certain areas on a sequential basis. Within TNT, for example, media and entertainment account revenues remain relatively consistent with the Q2 of 2023 with the rate of decline slowing. Within our financials vertical, big bank revenues were relatively flat sequentially with small sequential revenue growth and diversified financials. Speaker 200:06:22Even in these more challenging macroeconomic conditions, As previously noted, our commercial bookings remain solid. We continue to make progress on the AI front across the commercial segment, With generative AI counting for many of the new opportunities in our pipeline, followed closely by work in machine learning, The vast majority of the generative AI projects for clients are exploratory at this time. We expect larger AI programs to follow once Use cases that demonstrate value creation have been identified for our clients. At the same time that AI exploration work Taking place, we're seeing strong demand for data engineering and data governance in support of AI use cases. These infrastructure needs are being driven by the desire to ensure that data is complete, accurate and timely for training, testing and deploying AI models One example of work is a consulting project we won during the Q3 with a leading North American pet supply company. Speaker 200:07:27Our team was brought on to build out an end to end freight management system for our clients, including the full cloud data platform Architecture, configuration, reporting and analytics are properly set up in the new freight management tool. At the same time, we must ensure that the data is extracted correctly from the old tool and ingested into the new tool. We're using technology solutions such as Snowflake, Databricks and Google Cloud as part of this end to end architecture to ensure the We also continue to excel in projects involving engineering, robotics and machine learning capabilities. In another consulting project won during the Q3, we were hired to provide services to a leader in e grocery technology. Under this contract, we're helping to drive the deployment of our clients' robotic grocery fulfillment systems, Which are used to stock the warehouses of a major retailer nationwide. Speaker 200:08:36We are providing end to end provisioning, installation, quality assessment and support for each warehouse deploying the new eGrocery technology. Let's now turn to our federal government segment, our 6th Industry vertical, which provides mission critical solutions to the Department of Defense, the intelligence community and Fed civilian agencies. Federal segment revenues for the quarter were up 12.3% year over year on an as reported basis and up 4% organically. Contract backlog was roughly $3,300,000,000 at the end of the 3rd quarter or a healthy coverage ratio of 2.6 times The segment's trailing 12 month revenues. New awards were approximately $501,200,000 which translates to a book to bill of 1.5 times for the quarter and 0.9 times on a trailing 12 month basis. Speaker 200:09:35As we continue to secure work during the Q3, we recognize the potential for some disruption in the procurement process Should the government shutdown occur following the end of Q3, our government team proactively engaged in discussions with clients for several weeks leading up to October 1 and reconfirm that the vast majority of our work is mission critical. We believe that 10% or less of our federal government work to be impacted in the case of an extended government shutdown. We're keeping track of budgetary developments. In the meantime, we remain heads down on providing leading IT solutions to our government client base. Speaking of supporting our clients, in the Q3, we won a combination of new and recompete contracts. Speaker 200:10:26Amongst the new work secured, we won 2 new cybersecurity contracts with the U. S. House of Representatives and the Census Bureau. In addition, we secured a 5 year data and AI contract to support the National Geospatial Intelligence Agency, The Chief Digital Artificial Intelligence Office or CVAO and the Army Research Laboratory. We also won a smaller contract from the CBAO to help establish a global AI innovation lab that will support academic research in artificial intelligence worldwide. Speaker 200:11:05Similar to the commercial segment, much of our work in generative AI in the government space remains exploratory at present. But with excellent qualifications and traditional forms of artificial intelligence, our federal and civilian customers continue to look to us to identify use cases that will increase their operational efficiency. In fact, on several DoD AI Research and development programs, we are integrating generative AI and large language models into current solutions. With regards to project extensions, we want to work with the U. S. Speaker 200:11:41Postal Service supporting several key areas, Including advanced data management and cybersecurity and continue to support the Department of Veteran Affairs, While adding new work in strategic planning, cloud advisory services and AI technology implementation, The breadth of work just described is evidence of the countercyclical balance the government industry vertical provides to our overall account portfolio. With that, I'll turn the call over to Marie to discuss the Q3 results and our Q4 2023 guidance. Speaker 300:12:19Thanks, Ted. It's great to speak with everyone this afternoon. As Ted noted, our results for the quarter We're in line with or exceeded our expectations. The 3rd quarter revenue of $1,120,000,000 We're down 6.8% year over year. Revenues for the Commercial segment were $782,400,000 Down 13.1% compared to the prior year quarter. Speaker 300:12:47Revenues from commercial consulting, The largest of our high margin revenue stream totaled $274,200,000 up 2.1% year over year on a tough comparison of 43.2% growth in the Q3 of 2022. Growth in commercial consulting revenue was offset by 19.5% year over year decline in assignment revenues, reflecting the continued softness in more discretionary and cyclical parts of our business. On a same billable day basis, Adjusting for 1.5 fewer billable days in Q3 of 2023 compared to the prior year quarter, Assignment revenues declined 17.6%. Revenues from our federal government segment were $334,400,000 up 12.3% year over year, including a 24 point $6,000,000 contribution from IronVine. The growth in our federal government segment, our 6th verticals, Speaks directly to the benefits of maintaining a diverse client base across industries. Speaker 300:13:59Turning to margins. On a consolidated basis, Gross margin was 28.9%, down 110 basis points over the Q3 of last year and flat sequentially. The year over year compression in gross margin was mainly related to business mix, including a lower mix of certain high margin revenue Within our Commercial segment, a higher mix of revenue from our federal government segment, which carry a lower gross margin than Commercial Segment revenues. Gross margin for the Commercial segment was 32.5%, down 60 basis points year over year, primarily due To the lower mix of certain high margin assignment revenue streams, mainly creative digital marketing and permanent placement revenue, which was partially offset by a higher mix of high margin IT consulting revenues with a year over year expansion in gross margin. Gross margin for the Federal Government segment was 20.4%, down 10 basis points year over year. Speaker 300:15:06SG and A expense for the Q3 were $206,000,000 or 18.4 percent of revenues as compared to $232,600,000 or 19.4 percent of revenues in the prior year period. SG and A expenses included $1,100,000 in acquisition, integration and strategic planning expenses And a $2,700,000 tentative legal settlement, both of which were not included in our guidance estimates. As expected, interest expense increased year over year related to rising interest rates and our recent refinancing. At the end of August, we completed a successful transaction that upsized and extended the maturity of our revolving credit facility and term loan B. Our revolving credit facility is now $500,000,000 with a 5 year maturity Extending to 2028, our term loan B is also $500,000,000 and extends 7 years Maturing in 2030. Speaker 300:16:15Post transaction, our net leverage remains low at 2x adjusted EBITDA. Ted will speak further about this transaction shortly. Income from continuing operations was 59,400,000 Adjusted EBITDA was $137,500,000 and adjusted EBITDA margin was 12.3%. At quarter end, cash and cash equivalents were $145,600,000 and we had full availability under our new 500,000,000 Senior secured revolver. Free cash flow for the quarter was 137,700,000 an increase of 73.2 percent year over year. Speaker 300:16:59We deployed $91,300,000 in cash We have roughly $349,100,000 remaining under our share repurchase authorization. With strong free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisitions once the M and A market improves. Turning to our guidance. Our financial estimates for the 4th Quarter of 2023 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and do not take into Any possible revenue decline associated with the potential government shutdown in November. Speaker 300:17:53Our estimates assume 60 billable days in the 4th quarter, which is the same as the year ago period and 2.5 fewer billable days than Q3 of 2023. Guidance also takes into account seasonality, With the Q4 traditionally the 2nd lowest quarter after the Q1. We expect macro conditions Challenging in the Q4. In our commercial segment, we anticipate revenues to remain soft across both assignment and consulting. These declines are expected to be partially offset by growth in our federal government segment. Speaker 300:18:34We are expecting gross margin will decline year over year due to business mix similar to the more recent trends, including a greater mix of federal government work and continued softness in Our more cyclical and discretionary commercial businesses. This should be partially offset by improvement in our year over year cash SG and A expense margin. With this as background, for the Q4, we are estimating revenues of $1,040,000,000 to $1,060,000,000 We are estimating net income of $46,200,000 to $49,100,000 adjusted EBITDA of $115,500,000 to $119,500,000 And adjusted EBITDA margin of 11.1% to 11.3%. Thank you. I'll now turn the call back over to Ted for some closing remarks. Speaker 200:19:34Thanks, Maureen. ASGN's business is very well positioned when IT market demand and the overall economy improves. Consistent with our peer set and our clients, we remain Cautious about the near term market demand given the uncertain macroeconomic condition. Nevertheless, the great qualifications that go up Across sought after IT solutions and skill sets, ASGN is ready to leverage growth in IT SIN in the future. As we proactively position our company for the future, as Maureen noted, in the Q3, we successfully completed a transaction To upsize and extend the majority of our revolving credit facility and Term Loan B, this transaction increased our financial flexibility and provided us with significant dry powder for acquisitions as the M and A market strengthened. Speaker 200:20:28We continue to believe M and A is the best use of And highest return on our capital. Both the Revolver and TerminalMD were oversubscribed, which we can attribute to the strength of our underlying The success of this refinancing was also due to the efforts of our treasury team led by Jim Brill. Jim has been an integral part of the ASGN family for the past 16 years, but we knew the day would come when Jim would retire. Jim, it has been a pleasure to work alongside you all these years. And on behalf of our entire company, I want to thank you for your exceptional leadership and dedication to ASGN. Speaker 200:21:06You will be missed, and we wish you the very best in your well deserved retirement. Transitioning into Jim's role as Treasurer, we welcome Chris Dennini, who has served in our VP of Finance and Treasury role at ASGN since July. Chris has been shadowing Jim since day 1. With an extensive background in finance and treasury for publicly traded companies, Chris brings a wealth of experience to ASGN. We're excited to have Chris on board and hope that many of you have the opportunity to meet him in the near future. Speaker 200:21:39That concludes our prepared remarks. I'd like to thank our entire ASGN team for your continued efforts this past quarter. Our ability to remain in the fast current of where IT spend is today and in the future is the result of your dedication and unwavering commitment to our clients. Thank you again for joining our Q3 call. Operator, please open the call to questions. Operator00:22:03Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Tobey Sommer with Chivas Securities. Please proceed with your question. Speaker 200:22:35Thank you. Speaker 400:22:36I was wondering if you could give us a little bit more color on what you're seeing in the commercial consulting arena in terms of The elongation of decision making and maybe the size of projects, are they diminishing outright or are customers sort of Piecemealing them out in modules or phases as opposed to signing up for sort of the whole end to end period for you? Thank you. Speaker 200:23:02Yes. So thanks for the question, Toby. I'll let Rand kind of jump in here too. But I'll tell you, I think in general, what we're seeing is There's solid bookings, a little bit more renewals than new work, but what I would call very solid bookings. For this quarter, it was $291,000,000 We were at a 1.1 book to bill, which Q3 is always seasonably a little lighter. Speaker 200:23:28So I think we were generally pleased with that. We're definitely seeing clients elongate those. That reduces their spend, if you will, in our revenue. It's not a bill rate or a margin issue. It's Mostly embedded in that. Speaker 200:23:46And Rand, size of project is generally similar, right? Speaker 500:23:52Yes, except for the AI work, which You noted Ted tends to be smaller, but the normal flow of our consulting work is the larger and now 7 figure projects that have a 9 to 12 month duration. And Toby, to your question of is the client piecing it out, if you will, to us, I think it's more as an on the go scenario. In other words, as projects mature, they come to different milestones. I think the clients generally and some of this is seasonal is not in a rush to finish, if you will. I'm not Suggesting that they don't think it's a priority, but it's just being cautious, which they've been for some time now in the last quarter or 2. Speaker 500:24:38So it's not so much the way it's contracted, it's more the way it's executed. Did that answer your question? Speaker 400:24:47Sure. That provides helpful color. And then as a follow-up on the same theme, within that rate of bookings and I understand most of Renewals, do you think you're holding serve, gaining share, how do you think you're doing relative to the market In the areas that you play. Speaker 500:25:09Brad? Ted, I'll take the first shot and We'll wait for our peer group to report, Tobey over the next days weeks. But I mean, I feel like we're We're holding court, if not expanding just a bit. Most of the work that we're seeing, by the way, is a lot in that data that Ted mentioned In the notes, the data area, data aggregation, data consolidation, data cleansing, data mapping, These are fundamental steps you take in any kind of systems development, if you will. And I think a lot of clients are recognizing that this data work It takes time, has to be pulled together, has to be meticulous, and guess what, this all sets The stage for AI technology when it comes in. Speaker 500:25:57And Toby, one other thing we watch is the technology that supports Data mapping and data cleansing, they are beginning to pop up on the horizon new pieces of technology to support that effort. But for the most part, it's still methodology and labor intensive, and it's prep work, important prep work for AI Speaker 400:26:23Thank you. If I could ask a question about M and A, I think you said in your prepared remarks When M and A when sort of markets reopen, resume, revive, something like that, did What do you mean by that? Because certainly, it seems based on your financing, you have the capital and appetite. Is it a question of multiples or fewer assets Available out in the market, from many perspectives, one might think this would be a sort of a good time for you to lean in a bit. Speaker 200:26:54Well, I would agree with that. I would say, Toby, we still see that high quality assets are Not stepping into the market because they still haven't in their own mind maybe reconciled the valuation question. So you while we see things flowing through the pipeline and we're prosecuting all of it, it's Lesser quality I would say more and lesser quality assets than we would typically see. So I think it's more that than anything else. For a company that has great IT solution capabilities in some high demand areas that we want to be in, They're performing, maybe not as good as they were, but they're performing well and I think they can afford to wait here. Speaker 200:27:40I think it's mostly around that. Speaker 400:27:43That makes perfect sense. Last question for me. Could I get you to maybe give us a history lesson in how The government business performed and what the impacts were to top line contract awards and book to bill as near as you could isolate those In the last shutdown in 2018 that straddled into 2019, because that may be informative as we perhaps experience Some sort of volatility in government staying open over the next several months? Speaker 200:28:15Yes. Well, Toby, that's Pretty far back, so I couldn't clearly give you an answer on that, but let us follow-up with you offline on that, if that's okay. Speaker 400:28:25Terrific. Thank you very much. Yes. Speaker 200:28:27And Operator00:28:30our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question. Speaker 600:28:36Hi, Ted and Marie and Rand. Thanks for taking my questions. My first one is on the commercial Can you share your initial impressions about the clients' budgeting processes for 2024 and What that might mean for spending potential next year? Speaker 200:28:56Well, we're in the middle of that right now. I will tell you on a macro basis, not client by client, but I mean if you kind of follow Gartner, they're lowering IT spending growth here in this year, they're kind of down to 3% or 4% now, and they're expecting a higher number next year, Right. So I think that's an overall market comment. Rand, are we really kind of into that on the client side Hear enough to make a comment? Speaker 500:29:30Well, I would say there's two levels of client here, the technical client that runs the projects And has to get things accomplished and the executive team that has to make a decision relative to their financials and their own outlook for the future. I can tell you the technical client level, Maggie, it's let's talk about it, let's get the next stage going. As I just mentioned, a lot of the work is in what I call Prep phase for AI before use cases get layered on. So there is a lot of discussion at the technical level. I think the executive level, I can't speak to that, but I would sense if I were an executive of some of these businesses. Speaker 500:30:09If I'm a provider, it's Full steam ahead. If I'm a big bank, earnings are looking up, maybe I'm thinking positively. If I'm Technology, the ad money and the results we're seeing now that are coming out in the market are kind of giving us an indicator that earnings are Moving up. So we our thesis, as you know, has always been that IT spend is a function of earnings of the company. So I think executives are watching what happens with, I'm sure, the continuing resolution with what's going on in the House. Speaker 500:30:41There's obviously going to be money spent on aid for in the foreign world. And I mean, I just think it's too early quite to tell, but We're optimistic, I would say. The bookings give us an indicator, Maggie, a little bit, right? I We've had pretty solid bookings and even as Ted said, the Q3 bookings were quite good. Usually, it's our lowest commercial quarter. Speaker 500:31:05The government side also had great bookings in the Q3. Speaker 600:31:11That's helpful. Thank you. And then I think it was Ted in your prepared remarks, you mentioned maybe some opportunities for more margin expansion. Is that anything incremental to some of the opportunities that you've laid out in the past like at your Investor Day? Or was that a comment on Expected mix shift over time or any comments you would have there over kind of a multiyear timeframe would be helpful. Speaker 600:31:35Yes. Speaker 200:31:35I think it's both of those, Maggie. Yes, I mean, we still we see in our numbers and we still believe that as a consultative part of our business becomes bigger, It comes at a better gross margin and EBITDA margin, and that's levering up our margin profile. Even here where Some of our more cyclical businesses that have higher margins are down. We're still doing a good job, if that's the right way to say it, of Generating a +12 percent EBITDA margin here in the 3rd quarter. So, I think it's mostly around that. Speaker 200:32:10I mean, I've said before, our range that we gave in our 3 year plan, which was about 12% to 12.5% is a short term target. But And with most quarters, we play within that range. But there's nothing that says in the future it won't continue to grow higher because The things we laid out in our Investor Day and because of the kind of quarter to quarter mix shift that you can see in our consulting business. Speaker 100:32:40Got it. Thank you so much. Operator00:32:44Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question. Speaker 700:32:52Good afternoon and thanks for taking my questions. On the margins, I mean, you've done a really nice job here in terms of protecting the EBITDA margins. Wondering how you're thinking about internal headcount going forward over the course of this coming year? How should we think about your priorities with regards to preserving the margin strength relative to building out capabilities that will probably benefit whenever the environment truly improves. Speaker 200:33:25Yes. Well, good question, Mark. I mean, I think Graham and I both believe that we can pace this out. I mean, I don't think we have to sabotage Margin to invest ahead of something. Our right now, our headcounts Are coming down and incentives coming down. Speaker 200:33:45Those are some of the stabilizers that are part of Our business stabilizers and helps us protect the margin. But as incentives come back and we need to At headcount, either in solution areas or in certain other areas, I think we'll pace those out. We've done it before. We saw this in 'eight and 'nine. So again, I don't think we're cutting our nose off despite our face here. Speaker 200:34:13I mean, This is something we feel pretty good about the balance. And the attrition that we're seeing is the natural attrition that's built into the business, and We're watching it. There are some areas where we're investing today, frankly. There are other areas where we're letting natural attrition work. And so we're You know, monitoring and wary of all that. Speaker 700:34:37That's great. Speaker 500:34:39Ted and Mark, can I add real quickly? You can't talk about headcount without talking about productivity. And quietly, we've been continuing to upgrade, refit Some of the technology we use in our areas, in the recruiting area and certainly in our methodologies and the way we go to work with the engagement. So there's room here also in productivity improvement to absorb You know some of the growth. So we're watching both of those things, okay, and investing in it, in fact. Speaker 700:35:11That's great. Do you have any more perspective with regards to and I know it's early days, but when the AI work could Transition from being exploratory to larger engagements and when it does become larger engagements like What sort of magnitudes are you thinking about? And would you be in a good position to be a prime on some of those? Speaker 800:35:39Brad? Speaker 500:35:40Well, the answer is yes. Mark, with you and others, we've talked about 3 layers of The road to AI and that's the processing power and the work that's happening not just in chips, but also in the software enterprise software world. And you see and then the next layer is cloud and the data and the data preparation and the data readiness and the third is use cases. So there's a lot of work obviously for companies like us in that middle layer in the data side. The use cases will be an application of that data. Speaker 500:36:13So I would think if I were a client, I'm presuming this will happen. The client says, look, you've done some great work with our data work. I need you to now extend it to our use cases and what we're trying to accomplish at the end of the day. By the way, we're building the data in a way that supports some of these use cases that are visioned and envisioned. So should we be a prime? Speaker 500:36:34Yes, because of our inroads with data and the cloud and the infrastructure of data. And should we also be smart on the technologies that continue to emerge, not just the enterprise technology, but these newer technologies that are coming out. And we're doing both, not just through our alliance relationships, but our experience. So I hope we are in great position to support them As we go, and if you remember, Gartner pointed out that they thought the customer experience was going to be the highest Best use cases for AI in the future and our creative marketing team has done cyber, Creative Circle has done a lot of work, both pioneering, working, articulating and helping clients think about their use case strategy. So I'm hoping we're in Good position, but importantly, we're doing the building block work that we need to do to be in that position. Speaker 200:37:30I think one more point is, Remember, Mark, we've now for several years running have been identified as the number one provider of AI capabilities in the federal government space. So that's Internal solution capability that not only supports our federal customer, but we can leverage that know how in certain commercial areas. Speaker 700:37:52That's terrific. And then can you talk a little bit about like the supply side in terms of obviously, these skills are in really high demand. I'm wondering like what is the pipeline? Where are you getting the contractors that truly have The knowledge, what level do they have? And how are you thinking about the bill rates and the margins given the scarcity Relative to the demand, it sounds like this should be over, Who knows whether it's a year from now or 3 years from now, but a really promising area? Speaker 200:38:33Yes. Well, remember, we're not just hiring 1 AI expert, right? There's multiple facets and layers to this, as Sure. I mean, today in the data world, we have many of these in our organization many of these people in our organization and working on other data type Projects that can port to these AI use cases and be effective there. So I mean, I think a lot of these players will come from pools of solution capabilities That we already have in our business today, if you will. Speaker 700:39:11Great. In terms of TMT, you mentioned that the accounts look like they're a little bit stable, but TMT was down 27% versus 18%. Are you seeing sequential stability like on a week to week basis? Just wondering How you're thinking about that? Speaker 200:39:33Yes. I'd say the answer is yes. But, Randy, do you want to comment on that one? Speaker 500:39:38Yes. I think we're watching both and we're watching what I call micro indicators. So we watch certain things in the marketplace, things we've mentioned, Whether companies are having their earnings, are they growing themselves, which products, if you will, in the technology and telecommunications area growing, Whereas ad spending being added in media to help those businesses and you're seeing some of that starting to turn around. When we look at stability, Obviously, we've declined through the year. Keep in mind, our comps from a year ago were quite high. Speaker 500:40:13But definitely, as we exited Q3 and we Started in Q4, we see which to us is a step in the right directions to build steadiness In the work in the workflow, but I think you look at these other indicators and you see that there's maybe a light at the end of the tunnel coming. Speaker 700:40:35Great. And then one last, Toby asked a history question, I've got one as well. Rand, Ted, you've both You've been involved in this business for multiple cycles. How would you compare what we're seeing on the Commercial side in terms of the trends right now relative to prior cycles, what Elements feel different from your perspective. My recollection was Apex actually navigated The GFC really well. Speaker 700:41:16And so I'm just wondering how does this compare? How are you thinking about it? Speaker 200:41:21Yes. Well, it's different for sure, right? The business cycle is a business Cycles, but no two are kind of based on the same foundation or acting the same way. If you think about the great financial crisis, certainly that affect The big banks and the financial services industry, things related to the banks, predominantly housing and mortgage, if you will, And the retail and the consumer got caught in some of that stuff. And I think that What's different this time is it's been 2 years now that we've been watching this interest rate Increase and in turn been talking about an impending recession and large enterprise accounts have slowly positioned themselves in a much More cautious way, and that's happened broadly across the board over a long period of time. Speaker 200:42:15And so instead of seeing kind of a Faster ripple through certain industries. You've seen it broad based over a long period of time in enterprise accounts. And I think that makes This cycle, if you will, a little more different. That being said, how we manage through this is Not too different. I mean, we've definitely done this at various times before. Speaker 200:42:38So we have an understanding about how that business should operate and what the management Actions are that we need to take. And we also kind of realized the things that sometimes lead you into these downturns Are the things that leave you out. So certainly, our TMT industry was one that really led, I think, For many of us into this cycle, and while it's still not there, you may be seeing Signs that their businesses are returning to growth and better profitability and that will be good for us because they want to lean into More IT initiatives that they need us to be a part of. So that will be a positive thing for us. Speaker 700:43:27Great. Really appreciate the thoughtful answers. Thank you. Operator00:43:32Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question. Speaker 900:43:39Thank you so much. In your prepared remarks, and I'm going to quote it, it says, in our Commercial segment, we anticipate revenues to remain soft Across both assignment and consulting, and this is referring to your guidance for the Q4. Should I assume that means that you think both assignment And consulting will be down on a year over year basis in the Q4? Speaker 200:44:02So Jeff, thanks for the question. I think that Our guidance kind of reflects what I would call flat to very slightly down in the commercial and up in the federal. If Marie were talking to you, that's what she would say. And then secondarily, I think we're taking Also a little bit more conservative view of permanent placement and how that could influence the margin. So I think those Are the components on the commercial side? Speaker 200:44:33Look, there's although there's no real material change in the operating environment, the 4th quarter is always Lower than the Q3. So the Q3 is always the strongest and in the Q4 you see a little softening and that's because you've got Holidays and less billable days. You also have various projects come to natural end, customers working on budgets on things that they may not start until the next year. And then you have some clients who will get kind of into December and say, look, I'm not going to finish this by January 1. Let's just Shut the lights off here for a week or 10 days and let's come back at it, after the holidays. Speaker 200:45:15And so those are all natural things that happened here in the 4th So that's what's underneath the guidance. I'll tell you at a macro level, in the commercial markets, there's no real change in the operating environment. I think that's One thing that is kind of clear here and we coming out of Q3 and then to Q4, things are what we would say is fairly steady. Our Q3 was a little bit better than expected and that then translates into how we set Q4 guidance. No turn yet in the commercial market. Speaker 200:45:47The commercial market is still not found in inflection point. We've talked about little things on the call here that we are hopeful that they begin to lead us, as Ram said, to a little bit of life, but no churn yet. And the business stabilizers, obviously, are working in our business and continue to work, and we feel good about them maintaining EBITDA margin for us even in the face of a really difficult commercial market. Speaker 900:46:17Okay. I understand. Maybe I could shift gears to the federal government business. I know you mentioned in terms Potential government shutdown, I think it was less than 10% of your business will be impacted. But can we just talk about the mechanics? Speaker 900:46:31I mean, what happens if, God forbid, we do get a shutdown? Do all the projects stop, contract negotiations stop? If you could just help me walk through what we could expect if that does happen? Speaker 200:46:43Well, I think in that the first thing that happens in that is we you immediately kind of Come together close with your clients and you determine what's critical and what's not, right? And thankfully, we've already started that process based Some of what was going on in that market leading into October. So we are we've got a foot ahead on that, if you will, and we have a pretty good idea. Once you go through that, you continue work on the mission critical stuff and you make a determination, the client makes a determination on the few things That may not appear to be mission critical and so that our client will do that in concert with us and so we'll know that. And then what happens on new work is it pushes to the right. Speaker 200:47:30So awards that are in process We had delayed a little bit the adjudication of those no matter what states they're in and things just slightly slip out into the first Speaker 900:47:46Okay. That's really helpful. Thanks so much. Speaker 200:47:48Hey, Jeff, maybe one thing too to note here and Who knows? It's been such a crazy turn of events here over the last few weeks in that federal government space with what's going on with the House. But It's not presupposed there's going to be a shutdown. I mean, we mentioned that in our as a caveat in our guide, but It looks like we could be moving here towards another continued resolution of some period of time, whether that's a short one or a long one. We're in one right now. Speaker 200:48:19And so we'll see how things develop on that front as we get a few more weeks down the road. Speaker 900:48:25Yes. We finally have a speaker, so that's a good sign. All right. Thanks so much. Operator00:48:32Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your question. Speaker 800:48:39Afternoon, everybody. Thank you. Rand, appreciate the comments about kind of stability here at the end of the Q3. I'm just wondering, would you be willing to talk Kind of cadence of business through the quarter, like if things were things just sort of stable through the Q3? Did they go down and then get a little better? Speaker 800:48:59Did they get a A little bit worse. I'm just wondering if you could give any color on sort of the intra quarter trajectory on the commercial side? Thanks. Speaker 500:49:10Ted, do you want to You're talking about Q3? Speaker 800:49:14I was talking about Q3. Yes, just the July, August, September trend lines? Speaker 500:49:22Ted, I would say light waves. We'd have sectors and client sectors where you'd have a little wave up and then you'd have other sectors with a little wave down, but nothing Too dramatic, I would say. So it's more rolling waves through the quarter, but I think we We're pleased particularly and I guess I'd make this comment in our more discretionary areas like the staffing, the Seeing the perm placement work, the creative marketing work, the fact that it becomes a little more stable toward the end of the quarter And you could almost predict week to week what you're trying to see and that was a good sign. Speaker 300:50:07Okay. Speaker 800:50:10And then I just wanted to go back to the comment, the Gartner forecast comment relative Your business, I mean, they are Gartner is projecting a pretty big uptick next over the next couple of years. And so I'm just trying to tie that together. Are you just not confident? You're not ready to make Call yet? Are you seeing any kind of green shoots that would lend you confidence that that's The actual right way to think about it or it's just too soon to make that call because I mean Gartner does have that forecast out there. Speaker 200:50:46Right. It's such a broad forecast. I mean, if you start to break it down into areas, the software companies and the big tech companies Providing cloud and now generative AI capabilities and other things, they're seeing pretty good growth rates. The consulting services and the IT services behind that are a little bit of a lead lag. So I guess, Seth, I would Probably lay it more on that, right? Speaker 200:51:14And I think what Gartner is capturing is a big broad spend in all those categories. And Rand, would you say anything else? Speaker 500:51:23I think, Seth, we look at it by industry. I appreciate what Gartner is saying, but we watch particularly the earnings of different industries and companies within these industries. So we were pleased that the banks had a good quarter this past quarter. It looks like big technology had a good quarter. I'm not sure telco is where they are for sure. Speaker 500:51:48Not worried we're not worried about providers because we, the baby boomers, are demanding more services and you have the flu season. And so, I mean, if you watch the earnings, it's utilities, it's oil and gas, it's this consumer staples, assuming the consumer stay Strong are doing well. And by the way, we're doing well. If you believe that the banks can continue to Improve their build on their performance, I wouldn't say improve, build on it, then that's for 10 is a good thing. I think technology is claiming they're getting better and better advertising dollars and they're getting better reach and they're coming back. Speaker 500:52:30Obviously, the enterprise software guys are doing really well, right, mostly because they're embedding AI and they're raising the rate structure around that AI, which Clients have to spend now even if they're not putting it to full use till later. And that goes back to those 3 layers we talked about processing power, So there are certainly indicators we watch in a macro sense around the industries to give us a sense of what the client spend will be. And we also know what they're worried about and what they're thinking about in terms of their initiatives, particularly in that middle layer, the data layer. So I mean, I think those are things we look at, Ted, right? And it's Is anything conclusive yet from all that data? Speaker 500:53:15I think with stability in the federal government and interest rates, I think we might see Something good, but what do I know? I mean, I'm certainly not a professional economist. Speaker 800:53:26Okay. That's helpful, Helpful perspective, guys. Thank you. Operator00:53:33Our next question comes from the line of Josh Chan with UBS. Please proceed with your question. Speaker 1000:53:39Hi, good afternoon, Ted, Marie and Rand. Thanks for taking my questions. I guess you mentioned that On the consulting side, there is some elongation of projects and that's causing some of the softness. So historically, what typically gets the clients more Then that they will, I guess, recompress those project timelines again. What are you looking for there? Speaker 200:54:02Well, look, I think it goes back to what Rand said. When Rand is speaking about, Hey, they're watching their bottom line and they're measuring how much they're willing to burn and spend on projects in order to get to certain outcomes. They have to be feel better about their own growth and pick up the pace, if you will, of Investments and initiatives in IT. So they're hanging in there with the critical stuff. They're trying to measure it out and watch that. Speaker 200:54:35But I think it goes back to again, we've said a few times today and I think it applies to your question, Josh, they just have to feel better about where they're headed quarter Quarter and into 2024 to really lean in harder and speed up and take on more spend in IT. Speaker 1000:54:55Thanks, Ted. Yes, that's good color. Thank you. I guess, I got my second question on margins. So It looks like your SG and A is going down more than your revenue is. Speaker 1000:55:08Is that just a function of mix as some of the businesses that are Down more have higher SG and A competition, I guess. Could you talk to the SG and A decline there? Speaker 300:55:22So Josh, on an SG and A, it's a kind of you're talking about year over year? Speaker 1000:55:28Correct, Speaker 300:55:29yes. Yes. So we kind of noted that as well. So it really is a lower incentive comp associated really with our business stabilizers, right? So kind of just the rate around the incentive It's really what the change is on a year over year basis. Speaker 200:55:47And I think maybe just a second Piece of detail under Marie's point is, if you think about last year, we were at full incentive levels in all kinds of different ways. And so that in and of itself is a difficult comp on the expense side, right? So You were at full kind of max incentives and now incentives are properly coming down with the to where the performance of the business is. Speaker 1000:56:20Okay. That makes sense. And Ted, Speaker 500:56:22is it Josh, is it worth mentioning, we don't have 2 different workforces, 1 for staffing, one for consulting. That was sort of embedded in your question. We have one workforce. Our account managers provide Support to our clients across the array of services. Our recruiting team supports not just staffing requirements, but our consulting team requirements. Speaker 500:56:42And our back office certainly does both. So don't think of it as 2 different workforces. It's one workforce and then what Marie and Ted said is just What's happening across the board? Speaker 1000:56:54Okay. Thanks for the color there, Ryan. I appreciate it. Operator00:56:59Our next question comes from Heather Balsky with Bank of America. Please proceed with your question. Speaker 1100:57:06Hi. Thanks for taking my question. I wanted to first quickly ask about permanent staffing, including Creative Circle. Just If you could share kind of where you are in terms of, I guess, normalized trends Speaker 300:57:31Hi, Heather. How are you? So for perm placement in Q3, it represents 2.6% of total revenues. If you kind of just look at from a dollar perspective, we're down 42%. Last year, we were at 4.2% So and honestly, when you look at it, just one other point, during COVID, The 2.6% is almost kind of close to our COVID levels. Speaker 1100:58:04That's really helpful. And then my other question is actually on government. Current sort of potential shutdown aside, just what you're seeing in terms of Spend and procurement, I know if we go back a year ago, there have been some delays in procurement. I'm curious If there's been any kind of improvement, are they kind of back to a more normalized spending cycle Or is all maybe bringing in the potential shutdown, is all the kind of stuff going on creating some disruption and how They're standing. Speaker 200:58:47I don't think the continuing resolutions have caused that we're under right now any kind of Disruption, if you will. I think we saw a normal as much as we could it could be normal, a fairly normal end to the government Fiscal year in Q3, we our bookings were higher at $500,000,000 Our book to bill at 1.5 It was a good number and a very good number and higher than we've been running and about as we anticipated. And we'll watch the other peer groups, Peer companies released, but I expect them to have good results as it relates to new bookings. So I think on that front, Heather, even though we've got Some wobbliness here going on and what's going on with the continuing resolution and some of those Certainties that you saw a pretty healthy and good flow of contract awards in that federal government space During the Q3, the end of the government fiscal year. Speaker 1100:59:50That's helpful. Thank you. Operator00:59:54And our next question comes from Surinder Thind with Jefferies. Please proceed with your question. Speaker 1201:00:01Thank you. Speaker 301:00:03I guess just a couple Speaker 1201:00:04of clarifications on some earlier commentary. The first being the comments around just kind of Clients elongating projects at this point. Are you able to quantify that in any manner? Are these 9 to 12 months projects that are now maybe being realized over 15 months or just how should we think about that? And then in terms of the context, obviously, around what how to interpret the bookings number there? Speaker 201:00:30Yes. Well, I think that you for sure are seeing stuff like that. We've seen that typically we're around 12 months On these projects on average for the commercial consulting team, that now is leaking further out, whether it's 15 months or 16 months or what have you, it's definitely slowing. And I think it correlates with the fact that we're still getting Solid bookings and book to bill numbers, but it's just yielding a lower growth rate. And our bill rates, I will just tell you anecdotally are slightly up. Speaker 201:01:08So it's not a bill rate issue. It's an hours applied or hours billed Phenomena there. Got it. Speaker 501:01:18And is it also surrender worth mentioning that none of this Just new, we reported the same thing in the Q2. And by the way, as quickly as it could slow down, it could also accelerate. Speaker 1201:01:31Got it. So is the idea that the elongation process has stabilized at this point? Or is it that If we were to rewind a year ago when this first kind of started, the 12 months was 13 months or 14 months and now and then last quarter was Speaker 201:01:55That's that would take a crystal ball, right? I think that's up to the client. I mean, I think we've seen for 2 quarters here A similar trend to Rand's point, we don't see that it will change in the Q4. So that It will be 3 quarters, although this again, more to come. We'll have to watch this Q4 and see if it's consistent With the second and third, but we've got 2 quarters here where we've seen a fairly consistent trend. Speaker 1201:02:27Understood. And then just follow-up on the bill rate, talked about a lot of renewal projects. It sounds like you're able to hold the line on pricing here, maybe even squeeze out a little bit more. Is that the right way to think about it? What exactly is the conversation there? Speaker 1201:02:45Is there some CPI? Is there some negotiation here? Is there a lot of pushback? How should we think about that part of the growth algorithm? So is that Adding maybe a percentage point of growth at this point, how should we think about that? Speaker 201:03:01So you're seeing very slightly Very slight increases in bill rate, but a slight increase. You're seeing maintaining to slightly more in margin. And Rand, what would you say to the back and forth with the client? Speaker 501:03:19Well, some of our work, a good portion of the work are Set bill rates that have escalators to them as you go out into the future. And then some of the escalation could be some change in the mix So the project during the course of the execution of the project, maybe adding somebody with certain expertise or dropping somebody else out. So there's a number of factors that go into it, but it's not really negotiation at At point, it's a matter of what's the right skill set to finish the job. Speaker 201:03:52And then, Sreedhar, one thing I would just add at a high level is there For in demand IT professionals in all these critical skill areas, the client still realizes that they have To pay a market rate in order to get them, there's not a sale going on, if you will. And So in those areas, there's a productive understanding between us and the client that those are to get The best capabilities there that there's a certain rate for that. Speaker 1201:04:27That's helpful. And then kind of the final question here. Just revisiting commercial consulting, revenues were down a few percentage points quarter over quarter. That was A surprise to me to see that given how strong that business has been and the fact that it showed strong sequential growth last quarter. Just any color there? Speaker 1201:04:49Is that maybe a few projects that maybe kind of ended near the same time? Or did clients just push out some work? Or is it more broad based than that? I'm just trying to understand how to interpret that And how we should think about that on a go forward basis? Speaker 501:05:09Ted, let me start. Speaker 201:05:11Well, I've got commercial consulting kind of flat quarter to quarter sequentially. So and Surinder, tell me the rest of your question there? Speaker 1201:05:26Just the color around that, I mean, I'm trying to pull up Speaker 701:05:30the slide deck Speaker 201:05:30here. Speaker 1201:05:32When I see the commercial segment, I see Q2 at 281.1 in your slide deck and Q3 at 274 point So I see that down 3 percentage points quarter over quarter Speaker 701:05:45for commercial contracts. Speaker 501:05:46Correct, slightly down. Yes. Yes. And I think it can almost best be explained by summertime, okay? Q3 has summertime And people take time off and it's just and the elongation of projects that may be decisions that they make in the summer, Just like they're going to make in the Q4 around the holiday period, Ted mentioned earlier, there are some companies will make a decision here in the next 3, 4 weeks To furlough people for 5 days or 10 days, just to kind of put a pause in it, let people enjoy the holiday and get started again on January 1st For a second, so it's I think it's nothing to read into it other than that. Speaker 201:06:30Yes. And I would tell you, once you adjust for days, it's so I'll surrender. There's no there would be no discerning fact. There would be no big thing around bill rates or Hours or anything like that. I think it's just the vagaries of 1 quarter to another. Speaker 1201:06:50Okay. Thank you. Operator01:06:54And we have reached the end of the question and answer session. And I'll now turn the call back over To CEO, Ted Hanson, for closing remarks. Speaker 201:07:02Great. Well, I want to thank everyone for their time and attention And we look forward to speaking with you about our Q4 and full year 'twenty 3 at the beginning of February. Thank you very much. Operator01:07:18And this concludes today's conference. You may disconnect your line at this time. Thank you for your participation.Read morePowered by