ASGN Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 4, 2026

Key Takeaways

  • Positive Sentiment: ASGN reported strong Q4 results with revenue of $980.1 million at the top of guidance, an adjusted EBITDA margin of 11% (above expectations), and record commercial consulting bookings of $444.4 million with a 1.3x book-to-bill.
  • Positive Sentiment: The company agreed to acquire Quinnox for $290 million to bolster digital engineering and offshore delivery (Quinnox ~ $100M revenue with low- to mid-teens growth and low-20s adjusted EBITDA margins); management says the deal is accretive but will raise net leverage to ~2.9x post-close.
  • Positive Sentiment: Cash generation remains strong—Q4 free cash flow of $93.7 million and FY free cash flow of $288.1 million—supporting $64.2 million of Q4 buybacks and a newly approved $1 billion share repurchase program while funding M&A and investments.
  • Negative Sentiment: The federal segment showed weakness with revenues down 3.7% YoY and gross margin at 19.9% (down ~60 bps) partly due to loss of higher-margin DOGE contracts and delayed award activity from the government shutdown, leaving a trailing federal book-to-bill of 0.9x.
  • Positive Sentiment: Management emphasized accelerating AI-driven demand—launching an AI Factory, expanding partnerships (Elastic, Snowflake, ServiceNow, Workday, Wiz), and noting commercial consulting growth of 19.2% YoY—supporting the strategic shift to higher-margin technology and digital engineering work.
AI Generated. May Contain Errors.
Earnings Conference Call
ASGN Q4 2025
00:00 / 00:00

Transcript Sections

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Operator

Greetings, and welcome to the ASGN Incorporated Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Kimberly Esterkin of Investor Relations. Thank you. You may begin.

Kimberly Esterkin
VP of Investor Relations at ASGN Incorporated

Good afternoon. Thank you for joining us today for ASGN's, soon to be Everforth, Fourth Quarter and Full Year 2025 Conference Call. With me are Ted Hanson, Chief Executive Officer, Shiv Iyer, President, and Marie 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. Certain 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 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.

Kimberly Esterkin
VP of Investor Relations at ASGN Incorporated

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. These 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.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Thank you, Kim, and thank you for joining our Fourth Quarter and Full Year 2025 Earnings Call. As we begin 2026, I want to thank everyone who joined us for our Investor Day this past November. And if you've not had a chance to view the presentation, a replay of the webcast is available on our website. Our Investor Day provided a valuable platform to showcase our next wave growth strategy and the significant progress we made in our transition toward higher value, higher margin, technology, and digital engineering solutions. At this event, we also had the opportunity to introduce several of our solutions leaders, whose presentations brought to light our advanced capabilities in AI, cybersecurity, and enterprise platforms. AI is now a dominant driver of demand, with nearly 80% of enterprises planning to increase their AI spending in 2026.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

These investments are driving growth in solution capabilities vital to the successful deployment of AI enterprise-wide. Shiv Iyer, our president, will speak more on that shortly. Turning to our fourth quarter 2025 results, which we previewed with you in our recent Quinnox announcement, ASGN delivered solid results for the quarter. Revenues of $980.1 million were at the top end of our guidance range, with IT consulting revenues comprising 63% of the total, up from 59% in the prior year. Adjusted EBITDA margin was 11%, exceeding our expectations. Commercial consulting bookings hit a record $444.4 million, translating to a book-to-bill of 1.3x for the quarter and 1.2x on a trailing 12-month basis.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Volume of new consulting work continues to grow as our customers increasingly recognize the importance of preparing data, building infrastructure, and deploying enterprise platforms to harness the full potential of AI. In our federal segment, new contract awards totaled $144.2 million, or a book-to-bill of 0.9x on a trailing 12-month basis. Federal contract backlog was approximately $3 billion at quarter end, or a coverage ratio of 2.5x the segment's trailing 12-month revenues. In addition to traditional holiday-related seasonality, the lengthy government shutdown delayed new award activity in the fourth quarter. Nonetheless, we are seeing solid pent-up demand in Q1, and increased defense, intelligence, and national security budgets position our federal business strongly for the future. As we discussed at our Investor Day, our clients are increasingly seeking us out as one of their strategic technology partners.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

To meet this demand, we've been proactively transforming our business, advancing our solution capabilities, developing proprietary assets and accelerators, and partnering with leading technology companies to better serve our clients' IT needs. Continuing this transformation momentum in the first half of 2026, we will be adopting a new customer and investor-facing brand, Everforth, unifying our commercial and federal brands under a single dynamic identity. Our transition to Everforth, a name rooted in forth progress, is designed to unlock our scale as an enterprise and increase cross-selling by bringing the breadth of our solutions to our enterprise clients, all while supporting continued revenue growth and margin expansion. While organic revenue growth remains a primary focus, we will also pursue strategic acquisitions that enhance our solutions, capabilities, and technology partnerships. I'm pleased to report just two weeks ago, we announced our intent to acquire Quinnox, an agile, results-driven digital solutions provider.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

As an acquirer of choice, we employ a proven, repeatable acquisition strategy, our M&A playbook, which is guided by well-defined strategic filters and rigorous financial criteria. The acquisition of Quinnox followed this disciplined approach. From a strategic standpoint, joining forces with Quinnox represents a key step forward in our long-term strategy to enhance our digital engineering and global delivery capabilities. Like ASGN, Quinnox is exceptionally client-centric, maintaining customer relationships for well over a decade. We're excited to leverage their established client connections to broaden our market presence, and as we did with GlideFast and TopBloc, pull Quinnox's capabilities across our gold nugget commercial client base. From a financial perspective, Quinnox is an accretive transaction that strengthens our market position without compromising the strength of our balance sheet or our financial flexibility.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Our disciplined approach to capital allocation enables us to make strategic acquisitions like Quinnox, while still investing organically and buying back our shares. In the fourth quarter, we generated $93.7 million in free cash flow and bought back $64.2 million in shares. We continued to repurchase shares in the first quarter, and with a newly approved $1 billion share repurchase program, we are well-positioned to provide sustainable shareholder returns. To build upon our discussion, let me now turn the call over to our President, Shiv Iyer, to speak about Quinnox's digital engineering capabilities and global delivery strength.

Shiv Iyer
President at ASGN Incorporated

Thanks, Ted. It's great to speak with everyone this afternoon. It has certainly been a busy and productive start to the new year, and I share Ted's enthusiasm about the acquisition of Quinnox. Over the past few months, I've had the opportunity to meet with Quinnox's executive team. It is very clear from our meetings that there is a strong cultural fit between our organizations. Cultural alignment is at the heart of a successful acquisition and integral to the comprehensive process that shapes the M&A playbook Ted discussed. During our Investor Day, we spoke about our journey towards becoming a top-tier technology and digital engineering company, and I'm proud to report that we're well on our way to expanding our digital engineering capabilities. Fourth quarter bookings for our application engineering and services practice nearly doubled quarter-over-quarter.

Shiv Iyer
President at ASGN Incorporated

By integrating Quinnox's deep expertise in application management and modernization, analytics, and enterprise platforms into our existing practice, we will immediately expand our market share. In addition, Quinnox's alliance partnerships with companies such as AWS, Databricks, Salesforce, SAP, and Calypso complement our own partner network and will enable us to co-create agile, future-ready solutions that accelerate value for our customers. The ability to deliver complex digital engineering capabilities is key for us to be competitive. Quinnox significantly enhances our delivery capability and broadens our delivery footprint with its highly mature global capability centers in India. These centers will form the foundation of our offshore delivery platform and complement our best-in-class nearshore operations in Mexico. As a leader in offshore delivery, Quinnox deploys cutting-edge technologies, including AI, across its delivery model. Quinnox's proprietary assets, combined with an AI-first workforce, help promote automation, compliance, and speed to value for every single client.

Shiv Iyer
President at ASGN Incorporated

As Ted emphasized, we are an acquirer of choice, and I'd like to believe that part of that strong reputation comes from our unique market positioning. We have the scale of a large IT services player, but also the velocity and agility of a startup. An agile, results-driven digital technology company like Quinnox aligns seamlessly with our business objectives and supports our long-term growth strategy. With that as background, let's turn to our industry performance for the fourth quarter. In our commercial segment, year-over-year growth was driven by a combination of improvements in healthcare accounts, which improved by mid-teens, and consumer and industrial accounts, which improved by low teens. Growth in the healthcare industry was seen across our provider, pharmaceutical, and biotech clients. In the consumer and industrial space, industrial saw the largest improvement, followed by materials and utilities accounts.

Shiv Iyer
President at ASGN Incorporated

We also achieved low single digits revenue growth in the TMT vertical as compared to the prior year. Looking sequentially, on a billable day adjusted basis, we saw growth in four of our five commercial segment industries. Healthcare accounts posted mid-single-digit improvements, with growth in payers, providers, and pharmaceutical accounts. TMT also improved mid-single digits, with telecom, e-commerce, and software and services all increasing. In addition, as we anticipated on our last quarter's call, the financial services industry returned to sequential growth on a billable day adjusted basis, picking up low single-digit improvements from the third quarter of 2025. Within this industry, we achieved sequential improvements in wealth management, regional banks, diversified financials, and insurance accounts. In our federal segment, we track our revenues across four types of customers, which are defense and intelligence, national security, civilian, and other clients.

Shiv Iyer
President at ASGN Incorporated

Defense, intelligence, and national security accounts continue to comprise approximately 70% of our total government revenues. Government-sponsored entities such as USPS, state and local customers, and commercial entities comprise our other clients category. The other clients category saw mid-teens growth year-over-year due to expansion of our data, AI, and modernization efforts for USPS, as well as increases in cybersecurity work for commercial clients. Defense and intelligence revenues improved low single digits year-over-year, due in part to additional funding for Project Maven, a flagship geospatial AI contract for the Department of War. For those who have not had a chance to view our Investor Day presentation, I'd highly recommend watching the video on Project Maven, an incredible case study in mission-ready AI.

Shiv Iyer
President at ASGN Incorporated

Moving from industries to solutions, as Ted highlighted at the beginning of today's call, we continue to secure projects that strengthen technology infrastructure and enable governance readiness for enterprise-wide AI usage. Let me provide a few examples from the fourth quarter. For a top five U.S. bank, our financial service industry experts were engaged to improve the bank's testing, automation, and governance ecosystem. Working hand in hand with our client, we deployed a bank-wide modernization program across online banking, mobile platforms, and partner integrations, vastly improving our client's enterprise-wide functionality and governance. Also, within financial services, our team helped a major U.S. online banking and credit card company maintain its system performance as it underwent a merger with another major financial institution.

Shiv Iyer
President at ASGN Incorporated

As a part of this DevOps project, our engineering and applications team coordinated infrastructure changes, monitored system health, and managed the building, testing, and deploying of software to ensure a smooth transition as the two banks joined forces. On the theme of data migration, during the fourth quarter, our telecom industry experts partnered with Snowflake, for whom we are an elite AI data and cloud services partner, to enable a major U.S. connectivity and communications company to centralize marketing data from a variety of external vendor systems in Snowflake. Now, in the first quarter of 2026, we are laying a governed foundation for Snowflake's Cortex, Snowflake's native AI ML capability that will enable our client to securely run built-in features such as large language models, AI-powered apps, and GenAI insights. AI's explosive growth, powered by soaring energy demands, is driving unprecedented expansion in data center capacity worldwide.

Shiv Iyer
President at ASGN Incorporated

Our cloud and infrastructure team actively collaborating with clients on rapidly scaling their AI data center fleets. For example, we're currently partnering with a major hyperscaler to operationalize multiple data centers on what is already one of the largest AI data center campuses in the world. For this project, we are responsible for managing the hyperscaler's critical environments and leading the complex logistics required to deploy and integrate the data center's advanced system. Ultimately, scaling AI from concept to production requires addressing long-standing challenges of fragmented tools, governance complexity, and resource constraints. In response to these inherent challenges, in November, we launched our AI Factory, a unified framework designed by our joint commercial and government AI teams to empower organizations to integrate AI seamlessly into their core business strategies.

Shiv Iyer
President at ASGN Incorporated

Understanding the challenges around safe and secure AI deployments, our teams have been particularly focused on our solutions related to AI governance. Our federal cybersecurity experts have been busy demoing our AI Factory's Watchtower, a monitoring tool with built-in TrustOps, to both our federal and commercial clients. In addition to building our own assets and accelerators, we're partnering with enterprise platforms to co-deliver high-impact solutions to our commercial and federal clients. Starting with our federal segment, in the fourth quarter, we were awarded additional funding by the Department of Homeland Security and the agency's Continuous Diagnostic and Mitigation Program Office to deploy Elastic's AI capabilities at scale. Our federal team boasts more Elastic-certified engineers than any other organization other than Elastic itself, and was recently named Elastic's Top Services Partner of the Year.

Shiv Iyer
President at ASGN Incorporated

In addition to Elastic, we continue to be a leading ServiceNow provider in the federal space, leveraging ServiceNow's agentic capabilities in new initiatives across the Departments of Homeland Security, War, and Energy. We also recently established a strategic partnership with Wiz, a rapidly growing cloud security company in the process of being acquired by Google. In the fourth quarter, we won our first engagement with Wiz for the Centers for Medicare and Medicaid Services, establishing our footprint in the high-value federal healthcare market. On the commercial side of our business, we continue to make great progress in advancing our positioning with Workday. During the fourth quarter, we were selected as one of the first partners approved to deploy Paradox, Workday's candidate experience agent. Paradox uses conversational AI, simplify interactions, and deliver better experiences. Conversational AI use cases are growing rapidly.

Shiv Iyer
President at ASGN Incorporated

As a part of our Salesforce 360 partnership, for example, we are integrating Agentforce into Slack to enable clients to search their Salesforce CRM with ease. As we expand our value proposition as Everforth, Salesforce, ServiceNow, and Workday will all be central to our cross-platform AI strategy. These are just a few of the many advanced solutions capabilities we deployed in the fourth quarter. We're excited about the future and look forward to continuing to advance our next wave growth strategy. With that, I'll turn the call over to our CFO, Marie Perry, to discuss ASGN's fourth quarter 2025 performance and first quarter 2026 guidance.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

Thanks, Shiv. For the fourth quarter, revenues totaled $980.1 million, at the top end of our guidance range and relatively consistent with the prior year period... Revenues from our commercial segment were $698.6 million, an increase of 0.9% compared to the prior year and up 2.2% sequentially on a billable day adjusted basis. Assignment revenue totaled $359.2 million, a decline of 12% year-over-year, reflecting continued softness in portions of our commercial segment that are more sensitive to changes in the macroeconomic cycle. Revenue from our commercial consulting, the largest of our high-margin revenue streams, totaled $339.4 million, an increase of 19.2% year-over-year. Excluding TopBloc, which we acquired in March 2025, consulting revenues improved mid-single digits year-over-year.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

Revenues from our federal government segment were $281.5 million, a decrease of 3.7% year-over-year. Turning to margins. Gross margin for the fourth quarter of 2025 was 28.9%, consistent with the prior year. Gross margin for our commercial segment was 32.6%, which is in line with the prior year. Gross margins from our federal government segment was 19.9%, a decline of 60 basis points year-over-year, due primarily to the loss of higher-margin contracts related to DOGE. The impact of DOGE will anniversary in March of 2026. SG&A for the quarter was $210.5 million, compared to $197.9 million in the fourth quarter of 2024. SG&A expenses included $10.7 million in acquisition, integration, and strategic planning expenses.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

These items were not included in our previously announced guidance estimates. Also, relative to guidance, our estimates assumed an effective tax rate of 28%. In the fourth quarter, our effective tax rate was 36.4%, above the 28% forecast, driven primarily by discrete one-time items not included in our guidance. For the fourth quarter, net income was $25.2 million. Adjusted EBITDA was $107.9 million. Adjusted EBITDA margin was 11% above our guidance range, driven mainly by greater mix of commercial segment revenue. At quarter end, cash and cash equivalent was $161.2 million, and we had approximately $455 million available on our $500 million senior secured revolver. Our net leverage ratio was 2.4x at the end of the quarter.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

As Ted previously mentioned, we had very strong free cash flow generation in the fourth quarter. Free cash flow was $93.7 million, a conversion rate of approximately 87% of adjusted EBITDA, well above our conversion target rate of 60%-65%. We continue to deliver value to our shareholders, and in the quarter, we deployed roughly $64.2 million of our free cash flow to repurchase 1.4 million shares at an average share price of $46.05. On a full year basis, free cash flow was also strong and totaled $288.1 million, or 68.2% of adjusted EBITDA. We deployed $170.1 million of free cash flow to repurchase 3.1 million shares in 2025 at an average price of $55.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

We have approximately $972 million remaining on our $1 billion share repurchase authorization. Re-emphasizing Ted's prior commentary, our strong free cash flow is a hallmark of our business model. It provides a strategic advantage that enables us to fund growth initiatives, opportunistically repurchase shares, and invest in strategic M&A, all while maintaining a healthy balance sheet. By following a disciplined and balanced approach to capital allocation, we can invest in high return opportunities and prudently manage our leverage, driving sustainable long-term value for our shareholders. With that in mind, in January, we signed a definitive purchase agreement to acquire Quinnox for $290 million in cash. The acquisition, which remains subject to HSR approval, is anticipated to close in March. Post-close, we anticipate our net leverage ratio will be approximately 2.9x after funding the acquisition with cash and borrowings on our revolver.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

We are committed to reducing our debt over time to bring our net leverage closer to our 2.5x target. We will, however, continue to opportunistically balance capital deployment with organic investment and share repurchases. Turning to guidance. Our financial estimates for the first quarter of 2026 are set forth in our earnings release and supplemental material. These estimates are based on current market conditions and assumes no further deterioration in the markets we serve. Guidance also assumes 62 billable days in the first quarter, which is the same number of billable days as the year ago period and one more day than the fourth quarter of 2025. We typically see a low single-digit decline in revenue in the fourth quarter to the first quarter, despite the increase in the sequential billable day, due to a seasonal reset that occurs annually.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

Our quarterly estimates do not include any acquisition, integration, and strategic planning expenses. As we highlighted during our Investor Day, we are streamlining our technology systems and deploying strategic efforts to generate sizable structural cost savings for our business. These cost savings are progressing as planned and will ramp up further over the coming quarters. Our first quarter guidance incorporates two additional considerations. With regards to adjusted EBITDA margin, the first quarter typically sees an approximate 100 basis points decrease sequentially related to our annual payroll tax reset. In addition, our first quarter guidance does not include a contribution from Quinnox. Quinnox is expected to generate low- to mid-teens revenue growth in 2026 over 2025 revenues of approximately $100 million. We anticipate nine months of Quinnox 2026 revenues will be incorporated into our full year financials.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

Quinnox also anticipates adjusted EBITDA margins in the low 20% range for the year. With that as background, for the first quarter of 2026, we are estimating revenues of $960 million-$980 million, net income of $25.8 million-$29.4 million, adjusted EBITDA of $93.5 million-$98.5 million, and adjusted EBITDA margin of 9.7%-10.1%. Thank you. I'll now turn the call back over to Ted.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Thanks, Marie. We enter the new year energized by the progress we've achieved and the robust foundation we've established. Our strategic initiatives are firmly in place, and our strong balance sheet and disciplined approach to capital allocation empowers us to pursue growth opportunities with confidence. The acquisition of Quinnox is a great example of our M&A playbook in action and directly aligns with the strategy to enhance our digital engineering and global delivery capabilities, as we highlighted at our recent Investor Day. The upcoming launch of Everforth, our new unified customer and investor-facing brand, debuting in the first half of this year, also marks a transformative step in our next wave growth strategy and will enhance our operational efficiency and scale. Ultimately, by integrating cutting-edge technology, world-class engineering, and deep expertise, we are very well positioned to adapt and thrive in today's rapidly evolving AI-driven business landscape.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

That concludes our prepared remarks. I want to thank all our employees for your incredible efforts this past year. Your unwavering commitment to our clients is evident and will most certainly guide us to success in 2026. With that, let's open up the call to questions.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for a question. Our first question comes to the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

Jeffrey Silber
Jeffrey Silber
Analyst at BMO Capital Markets

Thanks so much. Wanted to focus on, I guess, your M&A strategy. If you can tell us, you know, what is your focus? I know you've been a little bit more acquisitive over the past year. What are you looking for? How comfortable are you in terms of continued leverage?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

So, Jeff, thanks for the question. I'll just go back to the Investor Day. Obviously, organic growth, first, that's always the primary focus. We're beginning sequentially and soon here year-over-year to get back to organic growth rates here on a positive basis. If you think about the acquisition strategy, you know, overall, at the highest level, it's identifying solution capabilities that we see are in the greatest need of our enterprise clients and then, pulling those acquired solution capabilities across our enterprise account base. Our acquisition of GlideFast, ServiceNow ecosystem was a great example of that. Our acquisition of, most recently of TopBloc within the Workday ecosystem, another example of that.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

And now with Quinnox, real digital engineering capabilities, deep and complex systems, and being able to deploy that across this account base, and with it, getting a offshore platform delivery capability was really the point here. But again, it's, it's solution capabilities that we see are in demand. And, you know, I think the good thing about this, Jeff, is we get to see these, because we're sitting at the table with our clients, understanding their strategic IT roadmaps, and then we can pull back from that and say, "Can we position for that organically, or is this an opportunity to buy versus build," if you will, from an M&A standpoint?

Jeffrey Silber
Jeffrey Silber
Analyst at BMO Capital Markets

I'm sorry, the second part of the question was comfortable being with leverage?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Yeah. Well, look, I think we're post-acquisition gonna be at 2.9. I mean, I would say that's still very modestly leveraged. So, one, we have to have confidence in our numbers going forward, which we have this ability to. Two, we have to have confidence in the target and their ability to generate the revenues and EBITDA they expect coming in. And then three, we have to have a pathway if we're gonna take on a modest amount of leverage to get the acquisition done, to see a path to delever back below our target of 2.5. And so I think all three of those things are in alignment, if you will, this time.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

You know, Jeff, from past acquisitions, when we've made larger platform acquisitions, we've levered up to 3.8x, probably on six different occasions, and within 18-24 months, delevered right back down below our target of 2.5.

Jeffrey Silber
Jeffrey Silber
Analyst at BMO Capital Markets

Okay, great. Thanks so much.

Operator

Thank you. Our next question comes from the line of Tobey Sommer with Truist Securities. Please proceed with your question.

Tobey Sommer
Tobey Sommer
Analyst at Truist Securities

Thanks. Along the same lines of acquisitions, how do you think about the capital allocation tension between buying back your stock, which is at a multiple that you can see, and buying commercial IT consulting businesses that carry higher margin and usually are growing more quickly than sort of the mothership, but also fetch a premium to the aggregate multiple of the company?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Yeah. Well, look, Tobey, I think on the one hand, you know, doing share repurchases is a very accretive thing, especially where the stock is trading today. But we have to be mindful that that's also a permanent retirement of capital, right? And there's some investment that needs to go into the firm, both organically and pointed towards M&A, to position the firm to where we need to be for the future. And we're very fortunate that at this scale, we can do both. Both are accretive. As you said, the acquisition is accretive to growth rates, to growth margins, to EBITDA margins, to cash flow, and to strategy. And so, you know, I think the two of those work hand in hand, so we're certainly mindful of that. But, but you can't be all one or the other.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

You have to have a strategy around both.

Tobey Sommer
Tobey Sommer
Analyst at Truist Securities

Okay. And then for the government consulting business, what's your outlook for that? OBBA funding has been sort of slow to percolate through and work its way into actual contracts and revenue and profit. We do have a budget behind us. Do you think there's an opportunity for your book-to-bill to kind of materially improve with the convergence of those items over the next two or three quarters?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Yeah, I think, you know, we kind of are where we were coming out of the third quarter. The only difference was we had a shutdown, which kind of slowed things down for a number of weeks longer than anyone anticipated. But I think in the back half of the quarter, award activity was moving along. I think here in the first month of January, we've obviously been dealing with, you know, getting past a shutdown, which by and large we have, except for, you know, on the Department of Homeland Security side. And I think as that gets resolved, the cycle is moving here, and I expect award activity to be strong in the areas that are getting budget support, which is Department of Defense and Security, and Intelligence, and I think we're well positioned for that.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

So, as always, something comes up in this industry segment that seems to push things down the road a bit, but the budget is certainly there now. We feel good about our positioning there. From a solution capability, I mean, we play exactly where dollars are being shifted towards. So I think all those things lined up. I think it's just a matter of timing. And what we said coming out of, you know, the third quarter was we thought there would be heavy award activity in the first half of the year, and those would begin to be realized in terms of growth in the second half of the year, and I think that's still the case.

Tobey Sommer
Tobey Sommer
Analyst at Truist Securities

Okay. The last one for you. With respect to gross margin within government consulting, what's a reasonable, sustainable range for gross margin here in a hopefully post-DOJ world?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Yeah. Marie, you want to take that one?

Marie Perry
Marie Perry
CFO at ASGN Incorporated

Certainly. So to your point, those we will lap, in March of 2026. And so we're really seeing consistently what we've talked about, less than 2% of total revenues, which probably equates to about $15 million. On a steady state for federal gross margin, it's probably closer to the 20% gross margin and maybe a little more to that.

Tobey Sommer
Tobey Sommer
Analyst at Truist Securities

Thank you.

Operator

Thank you. Our next question comes from the line of Surinder Thind with Jefferies. Please proceed with your question.

Surinder Thind
Surinder Thind
Analyst at Jefferies

Thank you. Ted, can you provide maybe a bit more color on this idea that, you know, the client demand for AI is beginning to pick up, and you're starting to see demand drive there on the consulting side of the business, and maybe talk about the push-pull versus are there maybe offsets within the staffing business, or how should we think about the client's, you know, desire to really transform and use your services on the consulting side, but then maybe internally, they want to use some of the tools to be more efficient and the impact on staffing?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

... Yeah. Well, let me take the second. I'll let Shiv take the first. I think what's going on in the staffing program is two things, Surinder. I mean, obviously, that business is, you know, kind of sequentially steady, so I don't see a lot of movement either way, on, on the program opening up wider or having less volume sent through it. It's certainly at a moderated level, and I think it's because really there's a buying behavior change going on with our clients, where they used to open up that staffing spigot very wide and let resources flood in to work on internal projects. I think they're being very judicious about that. It's a way that they control spend, and also it's a way they further control outcomes, right?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

As the client more and more is making investments in certain technology outcomes they want to get to, but they're doing it on an outcome basis where there's real scope, real delivery, that they can see what the investment is and what the return is, you know? And is that being impacted by AI? I really don't think... That's not what we view, but, you know, I think it's more around the two things I just mentioned. Shiv, on the first part of that?

Shiv Iyer
President at ASGN Incorporated

Yeah, look, I think you're right. AI is a big driver of demand on a number of dimensions. You know, if I were to put a spectrum to it, all the way from using AI for different use cases, which are either industry specific or sort of horizontal, customer service, any of those, to a lot of work around readiness and modernization of the application stack as well as data. And what we're actually seeing is even for clients that have done some of the readiness work, they're finding that scaling is still challenging because of interoperability considerations, because of just not having a framework to manage this massive AI applications that are being developed and to be put into production, governed, traceability, all of those elements.

Shiv Iyer
President at ASGN Incorporated

Demand across the spectrum, whether clients are getting ready or if they're ready, how do you actually take advantage of the technology at scale?

Surinder Thind
Surinder Thind
Analyst at Jefferies

That's helpful. Then as a follow-up, Marie, could you maybe elaborate on the cost savings plan and what it means for 2026? I think in the prepared comments you talked about generating, you know, sizable structural cost savings and that, you know, these are gonna ramp up over the coming quarters. So just any color around magnitudes, run rates, anything like that, that would be helpful.

Marie Perry
Marie Perry
CFO at ASGN Incorporated

So as we kind of noted in relation to the cost savings, so we gave a net $80 million of cost savings, if you will, over the three-year period, indicated that that cost savings would be kind of moderate in 2026, but really building in 2027 and 2028. The reference in the prepared remarks was really around the acquisition, integration, and strategic planning cost of $10.7 million.

Surinder Thind
Surinder Thind
Analyst at Jefferies

Thank you.

Operator

Thank you. Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

Thank you. The commercial consulting growth, I think it was nearly 20% year-over-year. Can you talk about the mix of that? Like, what was project-based versus maybe longer duration, managed or platform-led work, and then tie that into how you're thinking about revenue visibility in the coming year, 2026.

Shiv Iyer
President at ASGN Incorporated

Oh, well, it's like, we've seen growth across the board, Maggie. It's a lot of transaction or project-based implementation work, whether it's around our enterprise platforms. We've seen a pretty significant growth, as I mentioned in the prepared remarks in our application engineering and services space, which has been growing pretty rapidly. Our data and AI work is actually also growing pretty rapidly, from that perspective. And, so we're seeing demand across the board for our solution set. It's a mix of sort of, as you rightly pointed out, more longer-term projects and, you know, I would say implementation-driven projects. We're seeing a pretty healthy mix of both of those. We're also seeing more fixed price improvements in our pricing from a project perspective.

Shiv Iyer
President at ASGN Incorporated

So as you look forward from a revenue outlook perspective, we also noted our bookings for the fourth quarter, which were a pretty significant number, ending up at a very healthy book-to-bill of about, you know, 1.3+, which really gives us a pretty good platform to build on. Now, keep in mind, as we continue to pivot our business, we're constantly trying to improve the more long-term piece of the consulting business. We're still ramping up that curve, so we still have a lot of work that has finite starts and ends, which sometimes results in bookings converting into revenue over time, right? Typically happens at the end of Q4 to Q1, where we see revenues ramp up a little bit more slower than usual.

Shiv Iyer
President at ASGN Incorporated

But, that makes us constantly improving, and that's what we're striving to do, is to get more secure, longer-term projects, so we don't have to deal with ebbs and flows.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

Thank you. That's helpful. Can you talk a little bit as well from an end market perspective? Now, obviously, healthcare and consumer and industrial looked pretty good. What are you seeing in terms of financial services or TMT? And, you know, any early commentary on budgets for 2026 from clients now that they've finished their budgeting processes?

Shiv Iyer
President at ASGN Incorporated

Look, I think we’re seeing a pretty steady demand, I would say. It’s not like we’re, as we’ve said before, and I, and I said in my prepared remarks, our sequential improvement in financial services was outside of the big banks. So those, those are the ones we’re actually waiting and watching in terms of a pivot. So we’re still trying to get an early read. As Ted said before, some of the, the flow of demand that we’re seeing on the staffing side from requisitions and everything else is holding steady. So still trying to get a better handle. So we’ve not seen what I would call a massive inflection in, in demand. I think demand is holding steady to moderately positive.

Shiv Iyer
President at ASGN Incorporated

We are seeing more uptick in demand in both TMT and software and services, as I noted, because of all the work that is happening around data centers and data center build-out and the demand for those services.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

So, Maggie, if you think about it sequentially, four or five industries up Q3 to Q4, that's certainly a positive. That's a better progress than we've had from an industry standpoint. And then for the fourth quarter, three industries of the five up year-over-year.

Shiv Iyer
President at ASGN Incorporated

Year-over-year.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Right? Kind of held back by, you know, what's going on with big banks and, and also what's going on in the services space.

Shiv Iyer
President at ASGN Incorporated

Correct.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

So, you know, it's progress, if we'll say, and so we're cautiously optimistic. But we do, you know, I would say we need to see some inflection in the big bank area to really contribute to the total, to move forward at a little hotter pace than what we're seeing right now.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

Okay. Thanks, Ted, and thanks, Shiv.

Operator

Thank you. Our next question comes from the line of Kevin McVeigh with UBS. Please proceed with your question.

Kevin McVeigh
Kevin McVeigh
Analyst at UBS

Great. Thank you so much. Hey, I just want to clarify, was there any impact in the quarter from the government shutdown?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

There was a small impact from the government shutdown during the quarter. Well, we mostly had it programmed in, at the beginning. It went on for a few weeks longer, obviously, than we thought, but, you know, it wasn't material to the outcome for the entire quarter.

Kevin McVeigh
Kevin McVeigh
Analyst at UBS

Got it. It's helpful. And then a few comments on the offshore capabilities through Quinnox were interesting. Is that enhancing what you have, or is that just new capabilities that you're bringing offshore?

Shiv Iyer
President at ASGN Incorporated

Well, it's all new capabilities we're bringing offshore. You know, we have a very small presence in India, driven by some of our past acquisitions, largely in the realm of those platforms of ServiceNow and Infor. But this brings a whole new set of complex, mature delivery capabilities across sort of the application lifecycle, whether it's, you know, application modernization management, whether it's, you know, modern application development, a lot of digital integration capabilities, which are critical as, you know, clients are looking to make some of these, the AI solutions work from an interoperability perspective. And also some very specific capabilities around platforms, around Salesforce, Calypso, and even SAP. So it's, frankly, a lot of truly incremental net new, but in a much more advanced, complex global delivery model.

Kevin McVeigh
Kevin McVeigh
Analyst at UBS

That's helpful. And then just my last one real quick: Do you have any contracts with DHS?

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

We do. So they're obviously a pillar customer of ours, an important customer, a lot of important cybersecurity work and other work. I think that, look, as we go through this, obviously they're gonna be adjudicating the, you know, the funding here for DHS, and there are certain things at odds. I don't think any of that affects our work. We don't do a lot, or anything that touches some of the areas that are kind of at odds in the conversation, in the further funding of DHS going forward.

Kevin McVeigh
Kevin McVeigh
Analyst at UBS

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

Hey, good afternoon, and thanks for taking my questions. Ted and Shiv, I'd just like to step back to some of your initial commentary with regards to, you know, AI. Obviously, there's been a lot in the news about AI regarding, you know, SaaS companies, data retrieval services, et cetera. And what I'm wondering is, you know, when you're taking a look at your client base writ large, to what extent are you seeing them just focus on AI? And to what extent are you also seeing...

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

Like, we've had other companies that have basically said that they felt like some of their clients, you know, were basically stalling on some, you know, legacy or more traditional kind of SaaS implementations because they wanted to see how AI was going to, you know, shake out and what needed to be done. And now that they've, some of them have come to the conclusion that, you know, maybe they're not quite ready, and so they're proceeding with some projects that they previously stalled and that there was some releasing of pent-up demand. Are you seeing any of that? And when we think about, you know, the industry groups that are picking up and are seeing good sequential growth, to what extent of it, of that is, you know...

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

you know, pure AI-type projects as opposed to more legacy or traditional projects?

Shiv Iyer
President at ASGN Incorporated

Look, I think, Mark, let me start by saying we're not seeing that, right? I don't think we're seeing large client signals that say that they're stopping implementation projects because they think AI can do what those platforms can do for them, right? And, you know, as Ted and I have repeatedly maintained, these enterprise platforms, at least for our large clients, don't, we don't believe are going anywhere anytime soon because of just the nature of the, of those systems and how interconnected they are to the workflows and the processes and where the canonical data truth resides within those organizations. So that's sort of the first part of the question. In terms of your second part, look, we're seeing healthy demand across, as I said, all our capability areas. Look, if you think about... I talked about application engineering services.

Shiv Iyer
President at ASGN Incorporated

A lot of that is focused on both legacy technologies as well as new, product development that these companies are doing. I talked about, you know, data and AI growing very, very fast for us. So a lot of work, both in data, but data, but also pure AI, around use cases, around governance, around, you know, scalability and trust, in AI. So the demand pattern is pretty healthy across the solution stack. Mark, I don't think there's a-- we're seeing any massive shift of funds or other, stop some things and go fund en masse AI projects at scale.

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

Great. That's, that's what I thought. I just wanted to confirm that.

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

Then with regards to Quinnox, if I'm getting the right information, it looks like they have between 1,500 and 1,888 people. Is that kind of a bench model? And how quickly can that business scale with some of the cross-selling that you're gonna end up bringing in? And what sort of gross margins do they typically produce?

Shiv Iyer
President at ASGN Incorporated

Yeah. So, great questions. So typically, let me start with the numbers you have are accurate. They're roughly somewhere between the two, around the 2,000 number, if you may, Mark. It's-

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

Okay.

Shiv Iyer
President at ASGN Incorporated

It's a very, very robust platform and can actually scale pretty rapidly depending on how we choose to sort of, and the speed at which we wanna take it and deploy it across our, our base, if you may. And, because, you know, it's a very well-run machine in terms of its talent supply chain, the ability to scale. And, you know, I may have mentioned it in previous, it runs at an attrition level that is half of what the industry average is, which is great, because part of the challenge in scaling up tends to be just the ability to replace and replenish talent in India. So all pretty positives, positive. The, the gross margins are in the, are in the high, close to high, I would say, mid... low forties, and, EBITDA margins in the, in the twenties.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

I think, Mark, if there's maybe something of note, I'd say different about this versus our past acquisitions as they come into the first year, we really think that because of their ability to scale on their platform in India from a resource standpoint, and the need from our client base to engage in the opportunities here with them, that we can go a little faster on the revenue synergy side than maybe we would in a typical acquisition in the first year. So, you know, our hope is that those synergies appear a little sooner. You know, but that'll... We'll be careful about picking, you know, a finite number of opportunities and really engaging thoughtfully as we do that.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

But one of the most attractive things about this acquisition, beyond their solution capabilities and their global delivery footprint, was the fact that they could naturally scale up very quickly.

Shiv Iyer
President at ASGN Incorporated

Yeah.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

And if you'll remember, we did the same thing in our nearshore operation when we acquired Intersys, which had, you know, maybe about 1,000 resources that we moved pretty quickly up to about 2,000 on an organic basis. We think the same opportunity exists here.

Mark Marcon
Mark Marcon
Analyst at Robert W. Baird

That's great. Thank you.

Operator

Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to CEO, Ted Hanson, for closing remarks.

Theodore Hanson
Theodore Hanson
CEO at ASGN Incorporated

Great. Well, thank you everyone for attending our fourth quarter in 2025 earnings release, and we look forward to speaking with you in a short number of weeks, in the latter half of April, on our Q1 2026 earnings call. Have a great evening.

Operator

Thank you, and this concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.

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