Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ASGN Inc (ASGN, Financial) reported revenues of $1.035 billion for Q2 2024, meeting expectations.
- Adjusted EBITDA margin of 11.3% was at the top of the company's guidance range.
- Commercial consulting revenues were essentially flat year-over-year but improved 1.6% sequentially.
- Gross margin for the commercial segment increased by 50 basis points year-over-year to 32.7%.
- ASGN Inc (ASGN) secured several significant contracts, including a $1.1 billion IDIQ with the National Institutes of Health.
Negative Points
- Federal government segment revenues declined by 3.3% year-over-year.
- Commercial segment revenues were down 10.6% compared to the prior year.
- Lower than expected license revenues in the federal government segment impacted overall performance.
- Book-to-bill ratio for the federal government segment was 0.7 times, indicating slower contract awards.
- The assignment business continues to show signs of weakness, with a slight decline expected in future quarters.
Q & A Highlights
Q: Can you explain the timing shift in federal government software revenues and the tough comparison on pass-through licenses in Q3?
A: (Ted Hanson, CEO) The timing of software licenses can be uncertain and they ebb and flow through the quarters. We had planned for a similar amount of licenses as the prior year quarter, but they didn't materialize. These licenses will come in future quarters. The core business, which generates direct labor, is growing and is the most profitable part of our business. Despite the shortfall in license revenues, our federal segment delivered all their expected EBITDA and more.
Q: Can you provide any color on the sequential trends during the quarter and exit rates across your business?
A: (Ted Hanson, CEO) Business has been steady through the first three weeks of July. We had a steady Q2 and expect similar steadiness in Q3. Market conditions have not changed significantly, and our numbers reflect this stability.
Q: What trends are you seeing in commercial consulting bookings and the pipeline?
A: (Rand Blazer, President) The size and shape of engagements remain consistent. We are seeing more AI-related work, particularly in data preparation for AI. We are performing well against competitors, and our book-to-bill ratio of 1.2 is solid. Sequential growth in bookings is a positive indicator.
Q: How is the assignment business performing, particularly in core IT versus more discretionary areas like creative digital and perm businesses?
A: (Marie Perry, CFO) Permanent placement as a percentage of total revenue was 2.5%, consistent with prior quarters. The assignment business overall shows slight weakness, which is reflected in our guidance.
Q: How are you addressing the challenges in the federal government segment, particularly with the lower book-to-bill ratio?
A: (Ted Hanson, CEO) We are adding resources where needed and addressing performance issues. The market has headwinds, but we are well-positioned for opportunities. We have seen a good start in Q3 with increased bookings and expect a strong bookings quarter.
Q: How are you managing the M&A environment given the current challenges?
A: (Ted Hanson, CEO) The M&A environment remains challenging due to spending concerns, higher interest rates, and valuation issues. We are monitoring potential targets and building relationships with principals. We are acquisition-ready but need the right environment for deals to come together.
Q: Are you seeing increased demand for resources from your Mexico delivery center?
A: (Ted Hanson, CEO) Demand remains high as clients focus on total cost of ownership. The Mexico delivery center is working on US-based projects and is a positive alternative to offshore options. We are also building an Indian offshore capability focused on ServiceNow and AI.
Q: What are the key drivers behind the changes in margins, particularly in the federal segment?
A: (Ted Hanson, CEO) Margins are steady sequentially but have declined year-over-year due to business mix. Lower contribution from higher-margin units like creative digital marketing and permanent placement, combined with the federal segment's performance, are the primary drivers.
Q: How do you see the upcoming election year impacting IT and federal spending?
A: (Ted Hanson, CEO) The criticality of IT spending for strategic initiatives remains strong regardless of who is in office. The most important factor is getting the election behind us to reduce uncertainty and improve business confidence, which will drive more normal levels of IT spending.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
