ASGN rporated(ASGN) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1 — Condensed Consolidated Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements and accompanying notes for the reported periods Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in millions): | Item | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $993.9 | $981.1 | | Property and equipment, net | $78.6 | $66.3 | | Operating lease right-of-use assets | $60.1 | $51.1 | | Identifiable intangible assets, net | $515.7 | $569.6 | | Goodwill | $1,893.5 | $1,892.0 | | Total assets | $3,578.9 | $3,585.7 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $443.2 | $441.9 | | Long-term debt | $1,037.5 | $1,066.6 | | Total liabilities | $1,670.2 | $1,684.4 | | Total stockholders' equity | $1,908.7 | $1,901.3 | | Total liabilities and stockholders' equity | $3,578.9 | $3,585.7 | Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations and Comprehensive Income (in millions, except per share data): | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,116.8 | $1,197.9 | $3,376.5 | $3,430.7 | | Gross profit | $322.4 | $358.9 | $975.1 | $1,029.5 | | Operating income | $98.6 | $108.4 | $280.7 | $319.1 | | Interest expense | $(18.5) | $(12.1) | $(49.7) | $(31.5) | | Income before income taxes | $80.1 | $96.3 | $231.0 | $287.6 | | Provision for income taxes | $20.7 | $25.2 | $62.0 | $76.3 | | Income from continuing operations | $59.4 | $71.1 | $169.0 | $211.3 | | Net income | $59.4 | $73.2 | $169.0 | $212.5 | | Basic EPS (Continuing operations) | $1.23 | $1.42 | $3.46 | $4.15 | | Diluted EPS (Continuing operations) | $1.23 | $1.40 | $3.43 | $4.09 | | Comprehensive income | $58.1 | $71.0 | $170.1 | $208.6 | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $1,926.6 million at June 30, 2023, to $1,908.7 million at September 30, 2023, primarily due to stock repurchases and retirement of shares ($92.6 million) partially offset by net income ($59.4 million) and stock-based compensation expense ($10.3 million)[13] - For the nine months ended September 30, 2023, total stockholders' equity increased from $1,901.3 million at December 31, 2022, to $1,908.7 million, driven by net income ($169.0 million) and stock-based compensation expense ($33.7 million), partially offset by stock repurchases ($199.6 million)[15] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in millions): | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $340.5 | $232.5 | | Net cash used in investing activities | $(33.3) | $(366.6) | | Net cash used in financing activities | $(231.6) | $(183.7) | | Net increase (decrease) in cash and cash equivalents | $75.3 | $(318.4) | | Cash and cash equivalents at end of period | $145.6 | $211.2 | - Operating cash flow significantly increased to $340.5 million in the first nine months of 2023, up from $232.5 million in the same period of 2022, primarily due to lower accounts receivable from decreasing revenues and improved DSO[17][78] - Investing activities used less cash in 2023 ($33.3 million) compared to 2022 ($366.6 million), as 2022 included a $351.8 million acquisition (GlideFast)[17][79] - Financing activities used $231.6 million in 2023, mainly for common stock repurchases ($197.7 million) and net debt repayments, compared to $183.7 million in 2022, which also included significant stock repurchases[17][80] Notes to Condensed Consolidated Financial Statements 1. General - The unaudited financial statements are prepared in accordance with GAAP and SEC rules, with certain information condensed or omitted; the December 31, 2022 balance sheet was derived from audited statements, and interim results are not necessarily indicative of full-year results[20] 2. Goodwill and Identifiable Intangible Assets Goodwill by Segment (in millions): | Segment | Dec 31, 2021 | 2022 Acquisitions | Purchase Price Adjustments | Translation Adjustment | Dec 31, 2022 | Purchase Price Adjustments | Translation Adjustment | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | $829.3 | $246.4 | $0.4 | $(1.4) | $1,074.7 | — | $0.5 | $1,075.2 | | Federal Government | $740.2 | $85.5 | $(8.5) | — | $817.2 | $1.1 | — | $818.3 | | Total | $1,569.5 | $331.9 | $(8.1) | $(1.4) | $1,891.9 | $1.1 | $0.5 | $1,893.5 | Acquired Identifiable Intangible Assets (in millions): | Asset Type | Estimated Useful Life (Years) | Gross Carrying Amount (Sep 30, 2023) | Accumulated Amortization (Sep 30, 2023) | Net Carrying Amount (Sep 30, 2023) | Net Carrying Amount (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | :--- | | Customer and contractual relationships | 1 - 13 | $589.3 | $360.4 | $228.9 | $273.6 | | Contract backlog | 1 - 3 | $44.1 | $42.2 | $1.9 | $7.6 | | Non-compete agreements | 1 - 7 | $41.2 | $29.1 | $12.1 | $15.6 | | Trademarks (not subject to amortization) | N/A | $272.8 | — | $272.8 | $272.8 | | Total | | $947.4 | $431.7 | $515.7 | $569.6 | Estimated Future Amortization Expense (in millions): | Period | Amount | | :--- | :--- | | Remainder of 2023 | $17.9 | | 2024 | $58.1 | | 2025 | $48.8 | | 2026 | $41.8 | | 2027 | $32.0 | | Thereafter | $44.3 | | Total | $242.9 | 3. Long-Term Debt Long-Term Debt (in millions): | Item | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Revolving credit facility | $— | $31.5 | | Term loan B | $500.0 | $490.8 | | Unsecured Senior Notes | $550.0 | $550.0 | | Total | $1,050.0 | $1,072.3 | | Unamortized deferred loan costs | $(7.5) | $(5.7) | | Term loan B, principal payments due in next 12 months | $(5.0) | $— | | Long-term debt | $1,037.5 | $1,066.6 | - In August 2023, the Company amended its senior secured credit facility, extending the term loan B maturity to August 2030 and the revolving credit facility to February 2028, and increasing the revolver's borrowing capacity to $500.0 million[28] - The term loan B bears interest at SOFR plus 2.25% or the bank's base rate plus 1.25%; the revolver's interest rate varies based on SOFR/base rate and leverage levels, and the facility is secured by substantially all Company assets[28] - The Company has $550.0 million in unsecured senior notes due in 2028, bearing 4.625% interest, subordinate to the senior secured credit facility[29] 4. Commitments and Contingencies - The Company is involved in various legal proceedings and claims in the ordinary course of business, including wage and hour law actions, but does not believe their disposition will materially affect its financial statements[30] 5. Income Taxes - The interim provision for income taxes is calculated using an annualized estimated effective tax rate, adjusted for discrete items; income taxes payable increased significantly to $33.9 million at September 30, 2023, from $1.1 million at December 31, 2022[31] 6. Earnings per Share Earnings per Share (in millions, except per share data): | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Income from continuing operations | $59.4 | $71.1 | $169.0 | $211.3 | | Net income | $59.4 | $73.2 | $169.0 | $212.5 | | Weighted-average common shares outstanding — basic | 48.1 | 50.1 | 48.8 | 50.9 | | Weighted-average common shares and share equivalents outstanding — diluted | 48.4 | 50.7 | 49.2 | 51.6 | | Basic EPS (Continuing operations) | $1.23 | $1.42 | $3.46 | $4.15 | | Diluted EPS (Continuing operations) | $1.23 | $1.40 | $3.43 | $4.09 | 7. Segment Reporting - ASGN operates through two segments: Commercial (consulting, creative digital marketing, permanent placement) and Federal Government (mission-critical solutions), with virtually all revenues generated in the United States[36] Segment Revenues (in millions): | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Commercial | $782.4 | $900.0 | $2,425.8 | $2,583.5 | | Federal Government | $334.4 | $297.9 | $950.7 | $847.2 | | Consolidated | $1,116.8 | $1,197.9 | $3,376.5 | $3,430.7 | Segment Gross Profit (in millions): | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Commercial | $254.2 | $297.8 | $777.5 | $852.1 | | Federal Government | $68.2 | $61.1 | $197.6 | $177.4 | | Consolidated | $322.4 | $358.9 | $975.1 | $1,029.5 | Federal Government Segment Revenues by Customer Type (in millions): | Customer Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Department of Defense and Intelligence Agencies | $164.8 | $165.5 | $452.7 | $458.4 | | Federal Civilian | $159.5 | $124.8 | $468.3 | $361.9 | | Other | $10.1 | $7.6 | $29.7 | $26.9 | | Total | $334.4 | $297.9 | $950.7 | $847.2 | 8. Fair Value Measurements - The carrying amounts of current assets and liabilities approximate their fair value due to their short-term nature; long-term debt had a carrying amount of $1.1 billion and a fair value of $1.0 billion at September 30, 2023[42] - No fair value adjustments for non-financial assets or liabilities occurred during the nine months ended September 30, 2023[42] Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance and operational results for the three and nine months ended September 30, 2023, detailing revenue trends, expenses, and segment metrics Overview - ASGN provides IT services and professional solutions across two segments: Commercial (consulting, creative digital marketing, permanent placement) and Federal Government (mission-critical solutions)[44] - The Company's revenues are almost entirely generated in the United States[44] Results of Operations for the Three Months Ended September 30, 2023 Compared with the Three Months Ended September 30, 2022 Revenues Revenues by Segment (Three Months Ended September 30, in millions): | Segment | 2023 | 2022 | Change (%) | % of Total 2023 | % of Total 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | $782.4 | $900.0 | (13.1%) | 70.1% | 75.1% | | Federal Government | $334.4 | $297.9 | 12.3% | 29.9% | 24.9% | | Consolidated | $1,116.8 | $1,197.9 | (6.8%) | 100.0% | 100.0% | - Commercial Segment revenues declined 13.1% YoY, with low single-digit declines in Consumer and Industrial and Healthcare, and double-digit declines in other key verticals[47] - Federal Government Segment revenues increased 12.3% YoY, including $24.6 million from the Iron Vine Security acquisition[47] - Total IT consulting services revenues grew 7.4% YoY to $608.6 million, while assignment revenues declined 19.5% YoY to $508.2 million, reflecting softness in discretionary Commercial Segment business[48] Gross Profit and Gross Margin Gross Profit and Gross Margin by Segment (Three Months Ended September 30, in millions): | Segment | Gross Profit 2023 | Gross Profit 2022 | Change (%) | Gross Margin 2023 | Gross Margin 2022 | Change (bps) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | $254.2 | $297.8 | (14.6%) | 32.5% | 33.1% | (60) | | Federal Government | $68.2 | $61.1 | 11.6% | 20.4% | 20.5% | (10) | | Consolidated | $322.4 | $358.9 | (10.2%) | 28.9% | 30.0% | (110) | - Consolidated gross profit decreased 10.2% YoY, leading to a 110 basis point gross margin compression to 28.9%, driven by business mix shifts[52][53] Selling, General and Administrative Expenses - SG&A expenses decreased to $206.0 million (18.4% of revenues) from $232.6 million (19.4% of revenues) in Q3 2022, primarily due to lower incentive compensation expense[54] Amortization of Intangible Assets - Amortization of intangible assets remained stable at $17.8 million in Q3 2023, compared to $17.9 million in Q3 2022[55] Interest Expense - Interest expense increased to $18.5 million from $12.1 million in Q3 2022, driven by higher interest rates and $2.3 million in costs related to August 2023 amendments[56] - The weighted-average cash-based interest rate rose to 6.0% in Q3 2023 from 4.4% in Q3 2022, on approximately $1.0 billion in outstanding borrowings[56] Provision for Income Taxes - Provision for income taxes decreased to $20.7 million from $25.2 million in Q3 2022 due to lower income before taxes; the effective tax rate slightly decreased to 25.8% from 26.2%[57] Income from Continuing Operations - Income from continuing operations decreased to $59.4 million in Q3 2023 from $71.1 million in Q3 2022[58] Income from Discontinued Operations - No income from discontinued operations was reported in Q3 2023, compared to $2.1 million in Q3 2022[59] Net Income - Net income for Q3 2023 was $59.4 million, down from $73.2 million in Q3 2022[60] Results of Operations for the Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022 Revenues Revenues by Segment (Nine Months Ended September 30, in millions): | Segment | 2023 | 2022 | Change (%) | % of Total 2023 | % of Total 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | $2,425.8 | $2,583.5 | (6.1%) | 71.8% | 75.3% | | Federal Government | $950.7 | $847.2 | 12.2% | 28.2% | 24.7% | | Consolidated | $3,376.5 | $3,430.7 | (1.6%) | 100.0% | 100.0% | - Consolidated revenues decreased 1.6% YoY to $3.4 billion; excluding $128.0 million from recent acquisitions, revenues declined 5.3% YoY[62] - Commercial Segment revenues declined 6.1% YoY, including $53.6 million from GlideFast; Federal Government Segment revenues increased 12.2% YoY, including $74.3 million from Iron Vine[63] - Total IT consulting services revenues grew 15.2% YoY to $1.78 billion, while assignment revenues declined 15.3% YoY to $1.60 billion, reflecting continued softness in discretionary Commercial Segment business[64] Gross Profit and Gross Margin Gross Profit and Gross Margin by Segment (Nine Months Ended September 30, in millions): | Segment | Gross Profit 2023 | Gross Profit 2022 | Change (%) | Gross Margin 2023 | Gross Margin 2022 | Change (bps) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | $777.5 | $852.1 | (8.8%) | 32.1% | 33.0% | (90) | | Federal Government | $197.6 | $177.4 | 11.4% | 20.8% | 20.9% | (10) | | Consolidated | $975.1 | $1,029.5 | (5.3%) | 28.9% | 30.0% | (110) | - Consolidated gross profit declined 5.3% YoY, resulting in a 110 basis point gross margin compression to 28.9%, primarily due to a business mix shift[66] Selling, General and Administrative Expenses - SG&A expenses decreased to $640.6 million (19.0% of revenues) from $665.1 million (19.4% of revenues) in the first nine months of 2022, mainly due to lower incentive compensation expense[67] Amortization of Intangible Assets - Amortization of intangible assets increased to $53.8 million from $45.3 million in the first nine months of 2022, reflecting amortization from businesses acquired in the latter half of the previous year[68] Interest Expense - Interest expense increased to $49.7 million from $31.5 million in the first nine months of 2022, primarily due to higher interest rates and $2.3 million in amendment-related costs[69] - The weighted-average cash-based interest rate rose to 5.8% in the first nine months of 2023 from 3.8% in the same period of 2022, on approximately $1.1 billion in outstanding borrowings[69] Provision for Income Taxes - Provision for income taxes decreased to $62.0 million from $76.3 million in the first nine months of 2022 due to lower income before taxes; the effective tax rate slightly increased to 26.8% from 26.5%[70] Income from Continuing Operations - Income from continuing operations decreased to $169.0 million in the first nine months of 2023 from $211.3 million in the same period of 2022[71] Income from Discontinued Operations - No income from discontinued operations was reported in the first nine months of 2023, compared to $1.2 million in the same period of 2022[71] Net Income - Net income for the first nine months of 2023 was $169.0 million, down from $212.5 million in the same period of 2022[71] Commercial Segment - Consulting Metrics Commercial Consulting Bookings and Book-to-Bill Ratio (in millions): | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Trailing-Twelve-Months Ended Sep 30, 2023 | Trailing-Twelve-Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Bookings | $291.0 | $254.3 | $1,340.0 | $1,117.3 | | Book-to-Bill Ratio | 1.1 to 1 | 0.9 to 1 | 1.2 to 1 | 1.3 to 1 | - Commercial consulting bookings increased to $291.0 million in Q3 2023 from $254.3 million in Q3 2022, resulting in a book-to-bill ratio of 1.1 to 1, up from 0.9 to 1[73] - The average duration of commercial consulting projects is one year[72] Federal Government Segment Metrics Federal Government Segment New Contract Awards and Book-to-Bill Ratio (in millions): | Metric | TTM Ended Sep 30, 2023 | TTM Ended Sep 30, 2022 | | :--- | :--- | :--- | | New Contract Awards | $1,080.8 | $1,089.6 | | Book-to-Bill Ratio | 0.9 to 1 | 1.0 to 1 | Federal Government Segment Contract Backlog (in millions): | Metric | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Funded Contract Backlog | $701.0 | $582.3 | $548.0 | | Negotiated Unfunded Contract Backlog | $2,577.8 | $2,681.2 | $2,564.6 | | Contract Backlog | $3,278.8 | $3,263.5 | $3,112.6 | | Contract Backlog Coverage Ratio | 2.6 to 1 | 2.9 to 1 | 2.8 to 1 | - New Contract Awards for the TTM ended September 30, 2023, were $1,080.8 million, with a book-to-bill ratio of 0.9 to 1[75] - Total Contract Backlog increased to $3,278.8 million at September 30, 2023, from $3,263.5 million at December 31, 2022, driven by an increase in funded backlog[76] Liquidity and Capital Resources - Working capital was $550.7 million and cash and cash equivalents were $145.6 million at September 30, 2023[77] - Net cash provided by operating activities was $340.5 million for the first nine months of 2023, up from $232.5 million in 2022, primarily due to lower accounts receivable and improved DSO[78] - The Company had full availability under its $500.0 million revolving credit facility and believes current liquidity sources are sufficient for the next 12 months[77] - Net cash used in financing activities was $231.6 million, including $197.7 million for common stock repurchases and net debt repayments[80] Recent Accounting Pronouncements - There have been no recent accounting pronouncements that significantly impact the Company[81] Critical Accounting Policies - No significant changes to critical accounting policies and estimates occurred during Q3 2023 compared to those disclosed in the 2022 10-K[82] Commitments - There were no material changes to the significant commitments or contractual obligations disclosed in the 2022 10-K[83] Item 3 — Quantitative and Qualitative Disclosures about Market Risks The company's exposure to market risks, primarily interest rate risk, is discussed with no material changes from previous disclosures - No material changes to interest rate risks were reported compared to the 2022 10-K[84] - A hypothetical 100 basis-point change in interest rates on $500.0 million of variable-rate debt would result in an approximate $5.0 million fluctuation in interest expense over a 12-month period[84] Item 4 — Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - The Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[85] - No material changes in internal controls over financial reporting occurred during the three months ended September 30, 2023[86] PART II — OTHER INFORMATION Item 1 — Legal Proceedings The company is involved in ordinary course legal proceedings that are not expected to have a material financial impact - The Company is involved in various legal proceedings, claims, and litigation, including collective class and PAGA actions alleging wage and hour law violations[88] - Management does not believe the disposition of these pending or asserted matters will have a material effect on the Company's financial position, results of operations, or cash flows[88] Item 1A — Risk Factors There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K - No material changes to the risk factors previously described in the Company's 2022 10-K have occurred[89] Item 2 — Unregistered Sales of Securities and Use of Proceeds A new $500.0 million stock repurchase program was approved, under which over 1.15 million shares were repurchased in Q3 2023 - On April 24, 2023, the Board approved a new $500.0 million stock repurchase program over two years, replacing the previous program[90] Common Stock Repurchases (Three Months Ended September 30, 2023): | Period | Total Number of Shares Purchased | Average Price per Share | Maximum Number (or Value) Yet to be Purchased Under Plans (in millions) | | :--- | :--- | :--- | :--- | | July | 166,175 | $78.26 | $427.8 | | August | 550,322 | $80.12 | $383.7 | | September | 434,284 | $79.87 | $349.1 | | Total | 1,150,781 | $79.76 | $349.1 | - In Q3 2023, 18,683 shares ($1.5 million value) were tendered by employees for tax withholding related to restricted stock awards, excluded from the repurchase table[91] Item 3 — Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - There were no defaults upon senior securities[92] Item 4 — Mine Safety Disclosures No mine safety disclosures are reported for the period - There are no mine safety disclosures[92] Item 5 — Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023[93] Item 6 — Exhibits This section lists all exhibits filed with the Form 10-Q, including key corporate documents, agreements, and certifications - Key exhibits include the Amended and Restated Certificate of Incorporation, Fifth Amended and Restated Bylaws, Specimen Common Stock Certificate, Third Amended and Restated Credit Agreement, and certifications from the CEO and CFO[94] - The report also includes Inline XBRL formatted financial statements and cover page interactive data file[94]