ASGN rporated(ASGN) - 2023 Q4 - Annual Report

PART I Business Overview ASGN is a leading IT services and solutions provider for commercial and government sectors, focusing on high-value consulting, digital transformation, and AI-driven growth - ASGN operates through two segments: Commercial (71.3% of 2023 revenues) and Federal Government (28.7% of 2023 revenues)[10][13][17] - The company's strategy involves expanding IT consulting services and solutions capabilities, offering higher-value technical solutions, and becoming a leading provider in commercial and federal government markets[10] - ASGN invests in six core areas: leadership, recruitment of in-demand skillsets, training and skill development, partnerships, internal artificial intelligence (AI) tools, and client AI roadmaps[12] - Revenues from contracts directly with U.S. federal government agencies combined were approximately 24.3% of 2023 consolidated revenues, with no other single client representing more than 10%[11] Overview and History ASGN Incorporated is a leading IT services and solutions provider for commercial and government sectors, expanding capabilities through strategic acquisitions and investments in AI - ASGN Incorporated is a leading provider of information technology (IT) services and solutions to the commercial and government sectors, operating through two segments[10] - Over the last five years, ASGN completed 11 'tuck-in' acquisitions to expand IT consulting services and solutions capabilities and offer higher-value technical solutions[10] - The company invests in leadership, recruitment of in-demand skillsets, training and skill development, partnerships, internal AI tools, and client AI roadmaps[12] Commercial Segment The Commercial Segment, accounting for 71.3% of 2023 revenues, drives growth through high-margin IT consulting services in digital transformation and AI - The Commercial Segment accounted for 71.3% of 2023 consolidated revenues[13] - Growth in this segment is driven by digital transformation and innovation requirements, including AI, workforce mobilization, and modern enterprise needs across five industry verticals[13] - The segment offers higher-end, higher-margin IT consulting services across cloud, data and analytics, cyber/information security, AI/ML (including GenAI), and digital transformation solutions[14][15] - ASGN has a network of 90 branch offices in the U.S., four in Canada and Europe, and two near-shore delivery centers in Mexico, plus a small delivery center in India[15] Federal Government Segment The Federal Government Segment, representing 28.7% of 2023 revenues, provides advanced IT solutions to U.S. agencies with a $3.0 billion contract backlog - The Federal Government Segment accounted for 28.7% of 2023 consolidated revenues[17] - This segment delivers advanced solutions in cloud and enterprise IT, cybersecurity, AI/ML, application, and digital transformation to U.S. defense, intelligence, and federal civilian agencies[17] - As of December 31, 2023, the segment had a contract backlog of $3.0 billion, providing longer-term revenue visibility[18] - The segment maintains over 1,000 combined certifications, accreditations, and awards in AI/ML and invests in skillsets through its Data and AI Center of Excellence[18] Industry and Market Dynamics ASGN's total addressable market is approximately $580 billion, with a strategic focus on higher-margin IT consulting services in digital transformation and AI - ASGN's total addressable market is approximately $580 billion, including $400 billion in commercial IT consulting, $121 billion in government IT consulting, and $59 billion in professional staffing[20] - The business model is evolving to focus on higher-end, higher-margin IT consulting services and solutions, particularly in digital transformation, data analytics, AI/ML, and information security[21] Candidates ASGN recruits and employs approximately 23,500 billable IT and creative digital marketing professionals, providing employment benefits and covering associated costs - ASGN recruits IT and creative digital marketing professionals for contract or permanent work, who become company employees upon placement[22] - The company covers employment costs and offers access to medical, dental, vision, and 401(k) retirement savings plans after minimum service periods[22] - In 2023, ASGN employed approximately 23,500 billable professionals on a full-time-equivalent basis[22] Strategy ASGN's strategy focuses on being a leading provider of high-margin IT services to commercial and federal clients, with over 55% of Q4 2023 revenues from IT consulting - ASGN's strategy is to be a leading provider of high-margin, scalable IT services and professional solutions to large commercial enterprise accounts and federal government customers[23] - Over 55% of Q4 2023 revenues were from commercial and federal government IT consulting work, with a goal for continued growth through organic efforts and acquisitions[23] - Strategic innovation focuses on leveraging GenAI technologies to enhance productivity for recruiters, candidates, and clients[24] Competition ASGN operates in a highly competitive and fragmented IT consulting industry, differentiating itself through a unique deployment model, experienced leaders, and a deep talent pool - ASGN competes in a highly competitive and fragmented IT consulting and professional services industry on a local, regional, national, and international basis[25][37] - Key competitive factors for clients include assessing job requirements, professional appropriateness, price, and client satisfaction[27] - ASGN differentiates itself with a unique deployment model, experienced engagement leaders, and a deep labor pool of highly-skilled technical talent, offering a cost advantage over traditional consulting firms[27] Human Capital ASGN's workforce, comprising approximately 3,700 internal employees, is central to its business, with initiatives focused on DEI, competitive compensation, and career growth - ASGN's workforce is considered the core of its business, with approximately 3,700 internal employees in 2023[28] - Initiatives include promoting diversity, equity, and inclusion (DEI) through training, recruitment, and an inclusion council, with over 40% diverse senior management[28] - The company offers competitive compensation, benefits, wellness programs, flexible/hybrid work schedules, and career growth opportunities through training, ERGs, and a mentorship program[29][30] Government Regulation ASGN adheres to federal, state, and local laws governing employment, ensuring professionals are licensed and providing necessary insurance coverage - ASGN ensures its billable professionals possess all required licenses and certifications and provides workers' compensation, unemployment, and professional liability insurance[32] - The company is subject to federal, state, and local laws governing employer/employee relationships, including payroll taxes, wage and hour requirements, and benefits[81] Available Information and Access to Reports ASGN electronically files its SEC reports (10-K, 10-Q, 8-K, Proxy Statements) and corporate governance documents, which are publicly available on SEC and company websites - ASGN electronically files its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Proxy Statements with the SEC[33] - These reports are available free of charge on the SEC's website (sec.gov) and ASGN's website (asgn.com)[33] - The company's website also provides copies of its Code of Ethics, Code of Business Conduct and Ethics, Corporate Governance Guidelines, and Board committee charters[34] Risk Factors ASGN faces risks from intense competition, talent retention, technological changes (including AI), government contract complexities, legal/regulatory compliance, economic conditions, and key management loss - The professional staffing and consulting services industry is highly competitive and fragmented, with limited barriers to entry, posing a risk to ASGN's future growth and profitability[37][39] - ASGN's business is substantially dependent on its ability to attract and retain qualified billable professionals, and a shortage or increased competitive wages could adversely affect profitability[40] - Failure to keep pace with rapid technological changes, including AI and GenAI, or to make appropriate strategic investments, could adversely affect services, results of operations, and business development[46][47] - A cybersecurity incident could disrupt services, lead to disclosure or misuse of sensitive information, harm reputation, decrease demand, and expose ASGN to liability and costs[48][50] - The company may not realize the full value of its Federal Government Segment contract backlog ($3.0 billion at Dec 31, 2023) due to the U.S. government's ability to modify, curtail, or terminate contracts[61][62] - The development and use of emerging AI services and solutions involve risks related to transparency, explainability, fairness, harmful bias mitigation, and unique third-party privacy and security, potentially leading to legal, reputational, and financial harm[84][85] Profitability and Operational Risks ASGN faces profitability and operational risks from client contract terminations, macroeconomic events, acquisition integration challenges, and debt covenant compliance - Many client agreements are terminable at will, and the termination of a significant number could adversely affect revenues and results of operations[38] - Macroeconomic events such as inflation, recession, and interest rate increases, along with competition and labor market trends, could adversely affect ASGN's growth[42] - Failure to successfully make or integrate acquisitions could harm ASGN's business and growth, leading to diversion of management attention, integration difficulties, or unanticipated costs[51][52] - Failure to comply with debt agreements could affect operating flexibility, and increases in interest rates on variable-rate debt could adversely affect results of operations[54][55] Risks Related to Government Contracts Government contracts expose ASGN to risks from changes in spending, competitive bidding, cost estimation, security clearance loss, and non-compliance with complex regulations - Changes in U.S. government spending or budgetary priorities, delays in budget approval, or contract awards may significantly and adversely affect future financial results[63][64] - ASGN's revenues and profitability may be adversely impacted if it fails to compete effectively in the competitive bidding process for government contracts[65][66] - Earnings and profitability may vary based on the mix of contract types (firm-fixed-price, cost reimbursable, time and materials), and failure to accurately estimate and manage costs could result in reduced profits or losses[67][68] - A significant loss or suspension of facility or employee security clearances with the federal government could lead to a reduction in revenues and operating results[69] - Failure to comply with numerous complex laws and regulations related to government contracts could result in fines, penalties, or suspension/debarment[70][71] Legal and Regulatory Risks ASGN faces legal and regulatory risks from significant lawsuits (e.g., wage and hour violations), extensive government regulations (e.g., data privacy), and potential changes in fiscal and tax policies - Significant legal actions, claims, or investigations, including collective class and PAGA actions alleging wage and hour law violations, could subject ASGN to substantial uninsured liabilities and damage its reputation[76][77][79] - ASGN is subject to extensive government regulation, including federal, state, and local employment laws and data privacy laws like GDPR, with non-compliance potentially leading to fines and penalties[80][81][82] - Future changes in laws or governmental regulations could restrict services or increase costs, reducing revenues and earnings[83] - Changes to fiscal and tax policies in the U.S. and foreign jurisdictions could adversely affect ASGN's results of operations and cash flows[86] General Risks General risks include the loss of key management, internal control failures, stock price volatility, and corporate provisions that may prevent a change in control - The loss of key members of senior management or inadequate succession plans could adversely affect the execution of ASGN's business strategy and financial results[88][89] - Failure of internal controls may leave ASGN susceptible to errors and fraud, as control systems provide only reasonable assurance[90] - The trading price of ASGN's common stock has experienced significant volatility, influenced by operating results, economic conditions, competition, and market fluctuations[91] - Provisions in ASGN's corporate documents and Delaware law may delay or prevent a change in control that stockholders consider favorable[92][93] Unresolved Staff Comments ASGN Incorporated reports that there are no unresolved staff comments from the SEC - This item is not applicable, indicating no unresolved staff comments[94] Cybersecurity ASGN integrates cybersecurity risk management into its ERM, aligning with CMMC 2.0, investing in protection, conducting regular assessments, and reporting no material threats in 2023 - ASGN integrates cybersecurity risk management into its overall enterprise risk management (ERM) process, overseen by the Board's Audit and Strategy and Technology Committees[95][98] - The company aligns with the Department of Defense's Cybersecurity Maturity Model Certification (CMMC) 2.0 framework and invests in endpoint protection, cloud security, vulnerability management, and data loss prevention[96] - ASGN conducts regular threat actor risk assessments, third-party vendor risk assessments, penetration tests, and internal/external audits to detect security gaps and ensure adherence to policies[96][97] - In 2023, ASGN did not identify risks from known cybersecurity threats that materially affected or are reasonably likely to materially affect its operations, business strategy, results of operations, or financial conditions[98] Governance ASGN's cybersecurity governance structure provides transparency to the Board and CEO, with the Enterprise Security Council formulating policies and a 24/7 SOC monitoring threats - ASGN's data protection and cybersecurity governance structure provides transparency to the Board, its Strategy and Technology and Audit Committees, and the CEO[98] - The Enterprise Security Council, led by CIOs, formulates comprehensive data protection and cybersecurity policies and oversees emerging security threats[100] - ECS Federal, LLC (Federal Government Segment) operates a 24/7 Security Operations Center (SOC) dedicated to monitoring, detecting, and responding to cybersecurity threats across the organization using AI/ML tools[101] Properties ASGN's properties include headquarters in Richmond and Fairfax, along with 113 branch offices across the U.S., Canada, the U.K., and Spain, and delivery centers in Mexico and India, with leases extending through January 2030 ASGN Properties Overview | Property Type | Location | Square Feet | Lease Expiration | | :--------------------------------- | :--------------------------------- | :---------- | :--------------------------------- | | ASGN and Commercial Segment Headquarters | Richmond, Virginia | 78,000 | April 2027 | | Federal Government Segment Headquarters | Fairfax, Virginia | 46,200 | November 2029 | | Branch offices | United States, Canada, United Kingdom, and Spain | 695,200 | January 2024 through January 2030 | | Delivery Centers | Mexico and India | 84,700 | May 2024 through December 2027 | - ASGN has 113 branch office locations with lease terms ranging from one year to 12.6 years[103] Legal Proceedings ASGN is involved in various legal proceedings, including wage and hour actions, but does not anticipate a material effect on its financial position or results - ASGN is involved in various legal proceedings, claims, and litigation in the ordinary course of business, including collective class and PAGA actions alleging violations of wage and hour laws[104] - The company does not believe that the disposition of pending or asserted matters will have a material effect on its financial position, results of operations, or cash flows[104] Mine Safety Disclosures This item is not applicable to ASGN Incorporated - This item is not applicable[105] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ASGN's common stock (NYSE: ASGN) had 46.5 million shares outstanding as of February 15, 2024, with no cash dividends paid. A $500.0 million stock repurchase program was approved in April 2023, with $273.7 million remaining - ASGN's common stock is listed on the New York Stock Exchange (NYSE) under the symbol ASGN, with 46.5 million shares outstanding as of February 15, 2024[2][106] - The company has not declared or paid any cash dividends on its common stock since inception and has no present intention of paying any in the foreseeable future, with restrictions from its credit facility[106] Stock Performance (December 31, 2018 - December 31, 2023) | At December 31, | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :----------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | ASGN | $100.00 | $130.22 | $153.27 | $226.42 | $149.50 | $176.46 | | SIC Code No. 736 Index | $100.00 | $122.83 | $132.23 | $180.23 | $128.44 | $138.26 | | NYSE Market Index | $100.00 | $125.74 | $134.53 | $162.34 | $147.16 | $167.43 | - On April 24, 2023, the Board approved a new stock repurchase program for up to $500.0 million of common stock over two years, with approximately $273.7 million remaining as of December 31, 2023[110][111] Common Stock Repurchases (Q4 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------- | :------------------------------- | :--------------------------- | | October | 320,306 | $81.10 | | November | 335,701 | $87.67 | | December | 213,340 | $93.71 | | Total | 869,347 | $86.73 | Common Stock ASGN's common stock is listed on the NYSE under the symbol ASGN, with 46.5 million shares outstanding as of February 15, 2024 - ASGN's common stock is listed on the New York Stock Exchange (NYSE) under the symbol ASGN[106] - As of February 15, 2024, ASGN had 46.5 million outstanding shares of Common Stock[2][106] Dividend Information ASGN has not paid cash dividends on its common stock since inception and has no current intention to do so, with its credit facility restricting such payments - ASGN has not declared or paid any cash dividends on its common stock since inception and has no present intention of paying any in the foreseeable future[106] - The terms of ASGN's credit facility restrict its ability to pay dividends, with the restriction variable based upon the leverage ratio and other circumstances[106] Securities Authorized for Issuance Under Equity Compensation Plan Information regarding securities authorized for issuance under equity compensation plans will be provided in the 2024 Annual Meeting of Stockholders proxy statement - Information responsive to this item will be set forth in the Company's definitive proxy statement for the 2024 Annual Meeting of Stockholders, to be filed within 120 days of the close of the fiscal year 2023[107] Stock Performance Graph The stock performance graph compares ASGN's common stock price from 2018-2023 against the NYSE market index and an index of Personnel Supply Services Companies - The graph compares ASGN's common stock price performance from December 31, 2018, to December 31, 2023, against the NYSE market index and an index of Personnel Supply Services Companies (SIC Code No. 736)[107] ASGN Stock Performance vs. Indices (2018-2023) | At December 31, | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :----------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | ASGN | $100.00 | $130.22 | $153.27 | $226.42 | $149.50 | $176.46 | | SIC Code No. 736 Index | $100.00 | $122.83 | $132.23 | $180.23 | $128.44 | $138.26 | | NYSE Market Index | $100.00 | $125.74 | $134.53 | $162.34 | $147.16 | $167.43 | - Historical stock price performance should not be relied on as an indication of future performance[108] Recent Sales of Unregistered Securities ASGN reported no recent sales of unregistered securities - There were no recent sales of unregistered securities[110] Common Stock Repurchases The Board approved a new $500.0 million stock repurchase program in April 2023, with $273.7 million remaining as of December 31, 2023 - On April 24, 2023, the Board approved a new stock repurchase program authorizing up to $500.0 million of common stock over two years, replacing the previous program[110] - As of December 31, 2023, approximately $273.7 million remained available for future stock repurchases under the program[110][111] Common Stock Repurchases (Q4 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------- | :------------------------------- | :--------------------------- | | October | 320,306 | $81.10 | | November | 335,701 | $87.67 | | December | 213,340 | $93.71 | | Total | 869,347 | $86.73 | - Common stock totaling 30,130 shares with an aggregate value of $2.6 million were tendered by employees for payment of statutory tax withholdings, excluded from the repurchase table[111] Selected Financial Data ASGN Incorporated does not present selected financial data separately in this report - This item is not applicable, as no selected financial data is presented[112] Management's Discussion and Analysis of Financial Condition and Results of Operations ASGN, an IT services provider, experienced a 2.8% revenue decline in 2023 due to commercial segment softness, despite federal growth, leading to gross margin compression, but saw improved operating cash flow and strong liquidity - ASGN provides IT services and solutions across the commercial and government sectors, operating through two segments: Commercial and Federal Government[113] Consolidated Revenues (2023 vs. 2022) | Year | Revenues (millions) | YoY Change | | :--- | :---------------- | :--------- | | 2023 | $4,450.6 | (2.8)% | | 2022 | $4,581.1 | - | Consolidated Gross Profit and Margin (2023 vs. 2022) | Metric | 2023 (millions) | 2022 (millions) | Change | | :----------------- | :---------------- | :---------------- | :------- | | Gross Profit | $1,280.0 | $1,369.6 | (6.5)% | | Gross Margin | 28.8% | 29.9% | (1.1)% | Net Cash Provided by Operating Activities (2023 vs. 2022) | Year | Amount (millions) | | :--- | :---------------- | | 2023 | $456.9 | | 2022 | $307.8 | - ASGN had working capital of $579.2 million and cash and cash equivalents of $175.9 million at December 31, 2023, with full availability of its $500.0 million revolving credit facility[136] OVERVIEW ASGN provides IT services and solutions to commercial and government sectors through two segments, with virtually all revenues generated in the United States - ASGN provides information technology (IT) services and solutions across the commercial and government sectors[113] - The company operates through two segments: Commercial (largest, providing consulting, creative digital marketing, and permanent placement) and Federal Government (providing mission-critical solutions)[113] - Virtually all of ASGN's revenues are generated in the United States[113] Critical Accounting Policies and Estimates ASGN's critical accounting policies involve management assumptions and estimates, with goodwill and acquired intangible assets being the most significant, evaluated annually for impairment - ASGN's financial statements require management to make certain assumptions and estimates, with goodwill and acquired intangible assets identified as the most critical accounting policies[114][115] - Goodwill is evaluated for impairment annually (as of October 31st) or more frequently if events indicate impairment[116] - In 2023, a qualitative assessment determined it was more likely than not that the fair value of each reporting unit exceeded its carrying amount, indicating no impairment[117] RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2023 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2022 In 2023, consolidated revenues decreased by 2.8% to $4,450.6 million, with gross profit declining by 6.5% and gross margin compressing by 110 basis points due to business mix Consolidated Revenues (2023 vs. 2022) | Year | Revenues (millions) | YoY Change | | :--- | :---------------- | :--------- | | 2023 | $4,450.6 | (2.8)% | | 2022 | $4,581.1 | - | Segment Revenue Performance (2023 vs. 2022) | Segment | 2023 Revenue (millions) | 2022 Revenue (millions) | Change | % of Total 2023 | % of Total 2022 | | :----------------- | :---------------------- | :---------------------- | :------- | :-------------- | :-------------- | | Commercial | $3,174.4 | $3,435.7 | (7.6)% | 71.3% | 75.0% | | Federal Government | $1,276.2 | $1,145.4 | 11.4% | 28.7% | 25.0% | Gross Profit and Gross Margin (2023 vs. 2022) | Metric | 2023 (millions) | 2022 (millions) | Change | | :----------------- | :---------------- | :---------------- | :------- | | Gross Profit | $1,280.0 | $1,369.6 | (6.5)% | | Gross Margin | 28.8% | 29.9% | (1.1)% | - Consolidated gross margin compression of 110 basis points was mainly due to a lower mix of high-margin assignment revenues within the Commercial Segment and a higher mix of lower-margin Federal Government Segment revenues[125] Key Financial Results (2023 vs. 2022) | Metric | 2023 (millions) | 2022 (millions) | | :-------------------------- | :---------------- | :---------------- | | Operating Income | $364.1 | $409.5 | | Interest Expense | ($66.4) | ($45.9) | | Provision for Income Taxes | $78.4 | $96.7 | | Income from Continuing Operations | $219.3 | $266.9 | | Net Income | $219.3 | $268.1 | Commercial Segment - Consulting Metrics Commercial consulting bookings increased to $1,351.9 million in 2023, maintaining a book-to-bill ratio of 1.2 to 1, with an average project duration of one year Commercial Consulting Bookings and Book-to-Bill Ratio | Metric | 2023 | 2022 | 2021 | | :---------------- | :--------- | :--------- | :--------- | | Bookings (millions) | $1,351.9 | $1,192.2 | $810.3 | | Book-to-Bill Ratio | 1.2 to 1 | 1.2 to 1 | 1.3 to 1 | - The average duration of commercial consulting projects is one year[132] Federal Government Segment Metrics Federal Government Segment new contract awards were $1,022.2 million in 2023, with a book-to-bill ratio of 0.8 to 1 and a total contract backlog of $3,009.5 million Federal Government Segment New Contract Awards and Book-to-Bill Ratio (TTM) | Metric | 2023 | 2022 | 2021 | | :------------------ | :--------- | :--------- | :--------- | | New Contract Awards (millions) | $1,022.2 | $1,073.3 | $1,157.0 | | Book-to-Bill Ratio | 0.8 to 1 | 0.9 to 1 | 1.1 to 1 | Federal Government Segment Contract Backlog (as of December 31) | Backlog Type | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :--------------------------- | :---------------- | :---------------- | :---------------- | | Funded Contract Backlog | $543.5 | $582.3 | $529.2 | | Negotiated Unfunded Contract Backlog | $2,466.0 | $2,681.2 | $2,472.0 | | Total Contract Backlog | $3,009.5 | $3,263.5 | $3,001.2 | Federal Government Segment Contract Backlog Coverage Ratio | Year | Ratio | | :--- | :--------- | | 2023 | 2.4 to 1 | | 2022 | 2.9 to 1 | | 2021 | 2.6 to 1 | Liquidity and Capital Resources ASGN's working capital was $579.2 million and cash $175.9 million at year-end 2023, with operating cash flow increasing to $456.9 million due to lower accounts receivable - Working capital at December 31, 2023, was $579.2 million, and cash and cash equivalents were $175.9 million[136] - Net cash provided by operating activities increased to $456.9 million in 2023 from $307.8 million in 2022, primarily due to lower accounts receivable and improved days sales outstanding (DSO)[137] - Net cash used in investing activities decreased significantly to $40.5 million in 2023 (primarily capital expenditures) from $510.0 million in 2022 (which included $484.6 million for acquisitions)[137] - Net cash used in financing activities was $310.9 million in 2023, mainly for $273.1 million in common stock repurchases and $31.5 million in net repayments under the revolving credit facility[138] Contractual Cash Obligations (as of December 31, 2023) | Contractual Obligations | Less than 1 year (millions) | 1-3 years (millions) | 3-5 years (millions) | More than 5 years (millions) | Total (millions) | | :---------------------- | :-------------------------- | :------------------- | :------------------- | :--------------------------- | :--------------- | | Long-term debt obligations | $69.8 | $138.4 | $669.6 | $533.4 | $1,411.2 | | Operating Leases | $22.8 | $34.4 | $16.3 | $2.5 | $76.0 | | Purchase obligations | $23.2 | $24.4 | $0.1 | — | $47.7 | | Total | $115.8 | $197.2 | $686.0 | $535.9 | $1,534.9 | Off-Balance Sheet Arrangements As of December 31, 2023, ASGN had no off-balance sheet arrangements - As of December 31, 2023, ASGN had no off-balance sheet arrangements[141] Accounting Standards Updates Recent ASUs on segment reporting and income taxes are expected to impact disclosures only, with no effect on ASGN's financial results or condition - ASU No. 2023-07 (Segment Reporting) requires enhanced segment disclosures and is effective for fiscal years beginning after December 15, 2023[193] - ASU No. 2023-09 (Income Taxes) requires a tabular tax rate reconciliation and disaggregated income taxes paid, effective for annual periods beginning after December 15, 2024[194] - Both ASUs are expected to impact disclosures only, with no effect on ASGN's results of operations, cash flows, and financial condition[193][194] Quantitative and Qualitative Disclosures About Market Risk ASGN's primary market risk is interest rate exposure on its variable-rate debt, where a 100 basis-point increase would fluctuate interest expense by approximately $5.0 million annually - ASGN's primary market risk exposure arises from interest rates associated with its debt instruments[143] - A hypothetical 100 basis-point change in interest rates on the $498.8 million variable-rate debt outstanding would result in an approximate $5.0 million fluctuation in interest expense over a 12-month period[143] - The company has not entered into any market risk sensitive instruments for trading purposes[143] Financial Statements and Supplementary Data This section presents ASGN's audited consolidated financial statements for 2021-2023, with an unqualified opinion from Deloitte & Touche LLP, noting a critical audit matter regarding a debt facility amendment - Deloitte & Touche LLP issued an unqualified opinion on ASGN's consolidated financial statements for the three years ended December 31, 2023, and on the effectiveness of its internal control over financial reporting as of December 31, 2023[146][147] - A critical audit matter was identified regarding the accounting for the August 31, 2023, amendment to the senior secured credit facility, specifically determining if it qualified as a debt modification or extinguishment and the appropriate treatment of related financing costs[151][152] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP provided an unqualified opinion on ASGN's 2023 consolidated financial statements and internal control over financial reporting, noting a critical audit matter on debt facility accounting - Deloitte & Touche LLP provided an unqualified opinion on ASGN's consolidated financial statements for the three years ended December 31, 2023[146] - An unqualified opinion was also expressed on the effectiveness of ASGN's internal control over financial reporting as of December 31, 2023[147] - The critical audit matter identified was the accounting for the August 31, 2023, amendment to the senior secured credit facility, involving judgments on debt modification/extinguishment and related cost treatment[151][152] CONSOLIDATED BALANCE SHEETS ASGN's consolidated balance sheets show cash and cash equivalents of $175.9 million and total assets of $3,544.6 million at December 31, 2023 Consolidated Balance Sheet Highlights (as of December 31) | Asset/Liability/Equity | 2023 (millions) | 2022 (millions) | | :------------------------------------------------------------------------------------------------------------------------------------------------------------ | :---------------- | :---------------- | | Cash and cash equivalents | $175.9 | $70.3 | | Accounts receivable, net | $741.5 | $853.6 | | Total current assets | $973.3 | $981.1 | | Identifiable intangible assets, net | $497.9 | $569.6 | | Goodwill | $1,894.1 | $1,892.0 | | Total assets | $3,544.6 | $3,585.7 | | Total current liabilities | $394.1 | $441.9 | | Long-term debt | $1,036.6 | $1,066.6 | | Total liabilities | $1,652.5 | $1,684.4 | | Total stockholders' equity | $1,892.1 | $1,901.3 | CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME In 2023, ASGN reported revenues of $4,450.6 million, net income of $219.3 million, and diluted EPS from continuing operations of $4.50 Consolidated Statements of Operations Highlights (Year Ended December 31) | Metric | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :--------------------------------- | :---------------- | :---------------- | :---------------- | | Revenues | $4,450.6 | $4,581.1 | $4,009.5 | | Gross profit | $1,280.0 | $1,369.6 | $1,142.4 | | Operating income | $364.1 | $409.5 | $350.9 | | Income before income taxes | $297.7 | $363.6 | $313.4 | | Provision for income taxes | $78.4 | $96.7 | $81.6 | | Net income | $219.3 | $268.1 | $409.9 | | Diluted EPS (Continuing operations) | $4.50 | $5.21 | $4.33 | | Comprehensive income | $222.0 | $265.7 | $410.6 | CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ASGN's stockholders' equity was $1,892.1 million at year-end 2023, reflecting $219.3 million in net income and $275.7 million in stock repurchases Consolidated Stockholders' Equity Highlights (Year Ended December 31) | Metric | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :-------------------------------- | :---------------- | :---------------- | :---------------- | | Balance at beginning of year | $1,901.3 | $1,865.4 | $1,587.1 | | Stock-based compensation expense | $44.0 | $49.3 | $52.7 | | Stock repurchase and retirement of shares | ($275.7) | ($281.4) | ($183.3) | | Net income | $219.3 | $268.1 | $409.9 | | Balance at end of year | $1,892.1 | $1,901.3 | $1,865.4 | CONSOLIDATED STATEMENTS OF CASH FLOWS Net cash provided by operating activities increased to $456.9 million in 2023, while net cash used in investing activities decreased to $40.5 million Consolidated Statements of Cash Flows Highlights (Year Ended December 31) | Metric | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :------------------------------------------ | :---------------- | :---------------- | :---------------- | | Net cash provided by operating activities | $456.9 | $307.8 | $193.7 | | Net cash used in investing activities | ($40.5) | ($510.0) | $246.5 | | Net cash used in financing activities | ($310.9) | ($256.5) | ($184.4) | | Net Increase (Decrease) in Cash and Cash Equivalents | $105.6 | ($459.3) | $255.2 | | Cash and Cash Equivalents at End of Year | $175.9 | $70.3 | $529.6 | | Cash paid for Income taxes | $44.8 | $54.5 | $170.3 | | Cash paid for Interest | $62.1 | $43.7 | $35.2 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes to ASGN's consolidated financial statements, covering general information, significant accounting policies, and specific financial disclosures 1. General The consolidated financial statements are prepared under GAAP and SEC rules, requiring management estimates and assumptions - The consolidated financial statements are prepared in accordance with GAAP and SEC rules, including ASGN Incorporated and its wholly-owned subsidiaries[168] - The preparation of financial statements requires management to make estimates and assumptions, with critical accounting policies discussed in Note 2[169] 2. Summary of Significant Accounting Policies This note details ASGN's significant accounting policies, including revenue recognition, goodwill and intangible asset impairment, stock-based compensation, and operating leases - Revenues are recognized as control of the promised service is transferred to customers, primarily under time-and-materials (T&M) contracts, with the Federal Government Segment also using cost reimbursable and firm-fixed-price (FFP) contracts[170][171] - Goodwill and indefinite-lived intangible assets (trademarks) are evaluated for impairment annually (as of October 31st), while finite-lived intangible assets are amortized over their useful lives[174][185] - Stock-based compensation expense is measured based on the grant-date fair value of awards and recognized over the requisite service period[173] - Operating lease right-of-use assets and lease liabilities are recognized at the lease commencement date, based on the present value of future minimum lease payments[180] - The company carries retention policies for workers' compensation liability exposures, with loss reserves estimated based on actuarial reports and historical claims[186] 3. Accounting Standards Update Recent ASUs on segment reporting and income taxes are expected to impact disclosures only, with no effect on ASGN's financial results or condition - ASU No. 2023-07 (Segment Reporting) requires disclosure of significant segment expenses and other segment items annually and interim, effective for fiscal years beginning after December 15, 2023[193] - ASU No. 2023-09 (Income Taxes) requires a tabular tax rate reconciliation and disaggregated income taxes paid by jurisdiction, effective for annual periods beginning after December 15, 2024[194] - Both ASUs are expected to impact disclosures only, with no effect on ASGN's results of operations, cash flows, and financial condition[193][194] 4. Discontinued Operations ASGN sold its Oxford business in 2021 for $525.0 million, resulting in a $216.9 million gain, with its financial results reported as discontinued operations - On August 17, 2021, ASGN sold its Oxford business for $525.0 million, resulting in a gain of $216.9 million ($168.8 million net of income taxes)[195] - The sale was a strategic shift to redeploy capital into IT consulting acquisitions, and the financial results of the Oxford business are reported as discontinued operations[195] - There were no significant operating results from discontinued operations in 2023 and 2022[195] Discontinued Operations (Oxford business) Results (2021) | Metric | 2021 (millions) | | :--------------------------------------- | :---------------- | | Revenues | $324.3 | | Income from discontinued operations, net of income taxes | $178.1 | 5. Leases ASGN has operating leases for offices and data centers, with total lease expense of $39.3 million in 2023 and a weighted-average remaining lease term of 3.9 years - ASGN has operating leases for corporate offices, branch offices, and data centers, with lease terms ranging from one year to 12.6 years[180] Lease Expense (Year Ended December 31) | Component of Lease Expense | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :------------------------- | :---------------- | :---------------- | :---------------- | | Operating lease expense | $26.1 | $25.4 | $26.9 | | Short-term lease expense | $7.5 | $6.9 | $5.4 | | Variable lease expense | $5.7 | $4.8 | $5.1 | | Total | $39.3 | $37.1 | $37.4 | - The weighted-average remaining lease term for operating leases was 3.9 years, and the weighted-average discount rate was 5.03% at December 31, 2023[199] Future Maturities of Operating Lease Liabilities (as of December 31, 2023) | Year | Amount (millions) | | :--------- | :---------------- | | 2024 | $22.8 | | 2025 | $19.3 | | 2026 | $15.1 | | 2027 | $10.5 | | 2028 | $5.8 | | Thereafter | $2.5 | | Total future minimum lease payments | $76.0 | 6. Acquisitions In 2022, ASGN acquired two IT consulting businesses for an aggregate purchase price of $483.0 million, none of which were individually material - In 2022, ASGN acquired two IT consulting businesses, GlideFast Consulting (Commercial Segment) for $350.0 million in cash and Iron Vine Security (Federal Government Segment)[202] - The aggregate purchase price for acquisitions in 2022 was $483.0 million[201] - None of the acquisitions in the periods presented were material individually or in the aggregate, so no pro forma results were presented[202] 7. Goodwill and Other Identifiable Intangible Assets Goodwill totaled $1,894.1 million at year-end 2023, with acquired intangible assets (net) at $497.9 million, and estimated future amortization expense of $225.1 million Goodwill by Reportable Segment (as of December 31) | Segment | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :----------------- | :---------------- | :---------------- | :---------------- | | Commercial | $1,075.8 | $1,074.7 | $829.3 | | Federal Government | $818.3 | $817.2 | $740.2 | | Total | $1,894.1 | $1,891.9 | $1,569.5 | Acquired Intangible Assets (Net Carrying Amount, as of December 31) | Asset Type | 2023 (millions) | 2022 (millions) | | :-------------------------------- | :---------------- | :---------------- | | Customer and contractual relationships | $214.0 | $273.6 | | Contract Backlog | — | $7.6 | | Non-compete agreements | $11.1 | $15.6 | | Trademarks (not subject to amortization) | $272.8 | $272.8 | | Total Net Carrying Amount | $497.9 | $569.6 | Estimated Future Amortization Expense (Intangible Assets) | Year | Amount (millions) | | :--------- | :---------------- | | 2024 | $58.1 | | 2025 | $48.8 | | 2026 | $41.8 | | 2027 | $32.0 | | 2028 | $21.2 | | Thereafter | $23.2 | | Total | $225.1 | 8. Property and Equipment Net property and equipment totaled $81.4 million at year-end 2023, with depreciation expense of $27.9 million for the year Net Property and Equipment (as of December 31) | Asset Type | 2023 (millions) | 2022 (millions) | | :-------------------------- | :---------------- | :---------------- | | Computer hardware and software | $180.5 | $201.3 | | Furniture, fixtures and equipment | $29.6 | $27.9 | | Leasehold improvements | $27.0 | $27.0 | | Work-in-progress | $6.5 | $7.4 | | Less: accumulated depreciation | ($162.2) | ($197.3) | | Total Net | $81.4 | $66.3 | Depreciation Expense (Year Ended December 31) | Category | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :------------------------------------------ | :---------------- | :---------------- | :---------------- | | Selling, general, and administrative expenses | $26.5 | $25.3 | $23.4 | | Costs of services | $1.4 | $1.0 | $4.6 | | Total | $27.9 | $26.3 | $28.0 | 9. Long-Term Debt Long-term debt totaled $1,036.6 million at year-end 2023, including a $498.8 million term loan B and $550.0 million in unsecured senior notes, with the credit facility amended in August 2023 Long-Term Debt (as of December 31) | Debt Type | 2023 (millions) | 2022 (millions) | | :-------------------------- | :---------------- | :---------------- | | Revolving credit facility | $0.0 | $31.5 | | Term loan B | $498.8 | $490.8 | | Unsecured Senior Notes | $550.0 | $550.0 | | Unamortized deferred loan costs | ($7.2) | ($5.7) | | Term loan B, principal payments due in the next 12 months | ($5.0) | — | | Total | $1,036.6 | $1,066.6 | - In August 2023, ASGN amended its senior secured credit facility, extending the term loan B maturity to August 2030 and the revolving credit facility maturity to February 2028, and increasing the revolver borrowing capacity to $500.0 million[213] - Borrowings under the term loan bear interest at SOFR plus 2.25% or the bank's base rate plus 1.25%[213] - ASGN has $550.0 million of unsecured senior notes, due in 2028, bearing interest at 4.625% payable semiannually[214] - The company was in compliance with its debt covenants at December 31, 2023[213] 10. Commitments and Contingencies Total contractual cash obligations were $1,534.9 million at year-end 2023, with workers' compensation loss reserves of $3.0 million and various legal proceedings not expected to be material Contractual Cash Obligations (as of December 31, 2023) | Contractual Obligations | Less than 1 year (millions) | 1-3 years (millions) | 3-5 years (millions) | More than 5 years (millions) | Total (millions) | | :---------------------- | :-------------------------- | :------------------- | :------------------- | :--------------------------- | :--------------- | | Long-term debt obligations | $69.8 | $138.4 | $669.6 | $533.4 | $1,411.2 | | Operating Leases | $22.8 | $34.4 | $16.3 | $2.5 | $76.0 | | Purchase obligations | $23.2 | $24.4 | $0.1 | — | $47.7 | | Total | $115.8 | $197.2 | $686.0 | $535.9 | $1,534.9 | - Workers' compensation loss reserves were $3.0 million (net of anticipated recoveries) at December 31, 2023[216] - ASGN has undrawn stand-by letters of credit of $3.9 million to secure workers' compensation claims and other obligations[216] - The company is involved in various legal proceedings but does not believe their disposition will have a material effect on its consolidated financial statements[217] 11. Stockholders' Equity ASGN repurchased 3.4 million common shares for $275.7 million in 2023, with $273.7 million remaining under the $500.0 million repurchase program - ASGN repurchased 3.4 million common shares for $275.7 million in 2023 and 2.8 million shares for $281.4 million in 2022, with all repurchased shares retired[218] - Under the $500.0 million stock repurchase program approved on April 24, 2023, approximately $273.7 million remained at year-end 2023 for future repurchases[218] 12. Stock-Based Compensation and Other Employee Benefit Plans Stock-based compensation expense was $44.0 million in 2023, with $56.1 million of unrecognized expense related to unvested RSUs, and $26.1 million in 401(k) matching contributions Stock-Based Compensation Expense (Year Ended December 31) | Category | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :------------------------------------------ | :---------------- | :---------------- | :---------------- | | Continuing operations (included in SG&A expenses) | $44.0 | $49.3 | $39.6 | | Discontinued operations | — | — | $13.1 | | Total | $44.0 | $49.3 | $52.7 | - ASGN has two stock-based compensation plans: the 2010 Incentive Award Plan (1.5 million shares available) and the 2012 Employment Inducement Incentive Award Plan (immaterial shares available)[219][220] - Restricted Stock Units (RSUs) generally vest over one- to five-year periods, with some based on financial performance and total shareholder return targets[222] - As of December 31, 2023, there was $56.1 million of unrecognized compensation expense related to unvested RSUs, expected to be recognized over approximately 2.0 years[227] - The Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at a 15% discount, with 0.3 million shares issued in 2023[228][230] - ASGN made matching contributions to its 401(k) retirement savings plans of $26.1 million in 2023[231] 13. Income Taxes The provision for income taxes was $78.4 million in 2023, with an effective tax rate of 26.3%, and total deferred tax liabilities (net) of $156.0 million Provision for Income Taxes (Year Ended December 31) | Category | 2023 (millions) | 2022 (millions) | 2021 (millions) | | :---------------- | :---------------- | :---------------- | :---------------- | | Current | $51.6 | $65.1 | $62.1 | | Deferred | $26.8 | $31.6 | $19.5 | | Total | $78.4 | $96.7 | $81.6 | - The effective tax rate was 26.3% in 2023, slightly lower than 26.6% in 2022, primarily due to lower income before income taxes[129][238] Components of Deferred Tax (Liabilities) Assets (as of December 31) | Item | 2023 (millions) | 2022 (millions) | | :-------------------------- | :---------------- | :---------------- | | Intangibles | ($185.3) | ($159.9) | | Depreciation expense | ($7.2) | ($8.8) | | Operating lease right-of-use assets | ($15.2) | ($11.8) | | Operating lease liabilities | $15.9 | $12.2 | | Employee-related accruals | $17.5 | $21.0 | | Stock-based compensation | $11.8 | $11.1 | | Total | ($156.0) | ($129.2) | - ASGN had $0.2 million in domestic credit carryforwards and $1.5 million of foreign net operating losses (expiring from 2030), with a valuation allowance of $0.6 million at December 31, 2023[238] - Unrecognized tax benefits were $1.2 million at December 31, 2023, and the company remains subject to U.S. federal income tax examinations for 2020 and subsequent years[240][241] 14. Earnings per Share Diluted EPS from continuing operations was $4.50 in 2023, based on 48.7 million weighted-average diluted shares outstanding Earnings per Share (Year Ended December 31) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------------------------------------- | :----- | :----- | :----- | | Basic — Continuing operations | $4.54 | $5.27 | $4.40 | | Basic — Discontinued operations | — | $0.03 | $3.38 | | Basic Total | $4.54 | $5.30 | $7.78 | | Diluted — Continuing operations | $4.50 | $5.21 | $4.33 | | Diluted — Discontinued operations | — | $0.02 | $3.33 | | Diluted Total | $4.50 | $5.23 | $7.66 | Weighted-Average Shares Outstanding (Millions, Year Ended December 31) | Metric | 2023 | 2022 | 2021 | | :--------------------------------------------------- | :----- | :----- | :----- | | Basic | 48.3 | 50.6 | 52.7 | | Diluted | 48.7 | 51.3 | 53.5 | 15. Segment Reporting ASGN operates through Commercial and Federal Government segments, with 2023 revenues of $3,174.4 million and $1,276.2 million respectively, and performance evaluated by revenues, gross profit, and operating income - ASGN operates through two segments: Commercial and Federal Government, with management evaluating performance based on revenues, gross profit, and operating income[246] Segment Performance (Year Ended December 31, 2023) | Metric | Commercial (millions) | Federal Government (millions) | Consolidated (millions) | | :-------------------------- | :-------------------- | :---------------------------- | :---------------------- | | Revenues | $3,174.4 | $1,276.2 | $4,450.6 | | Gross profit | $1,017.6 | $262.4 | $1,280.0 | | Operating income | $344.1 | $99.2 | $364.1 | | Depreciation and other amortization | $20.3 | $5.7 | $28.6 | | Amortization of intangible assets | $34.8 | $36.9 | $71.7 | Revenues by Segment and Type (Year Ended December 31, 2023) | Segment | Type | Amount (millions) | | :----------------- | :----------------- | :---------------- | | Commercial | Assignment | $2,078.9 | | | Consulting | $1,095.5 | | Federal Government | Firm-fixed-price | $386.7 | | | Time and materials | $504.9 | | | Cost reimbursable | $384.6 | Federal Government Segment Revenues by Customer Type (Year Ended December 31, 2023) | Customer Type | Amount (millions) | | :------------------------------------ | :---------------- | | Department of Defense and Intelligence Agencies | $614.6 | | Federal Civilian | $621.6 | | Other | $40.0 | 16. Fair Value Measurements The carrying amounts of most current assets and liabilities approximate fair value, while long-term debt's fair value was slightly less than its $1.0 billion carrying amount - The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued payroll approximate their fair value due to their short-term nature[252] - The fair value of long-term debt ($1.0 billion carrying amount at December 31, 2023) was slightly less than its carrying value, determined using Level 1 inputs[252] - Certain assets, such as goodwill and trademarks, are not measured at fair value on an ongoing basis but are subject to fair value adjustments if impairment is evident[252] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ASGN Incorporated reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in and disagreements with accountants on accounting and financial disclosure[254] Controls and Procedures ASGN's management concluded that its disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023, with no material changes during the fourth quarter - ASGN's management concluded that its disclosure controls and procedures were effective as of December 31, 2023[255] - Management assessed and believes that ASGN maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO framework[258] - There were no changes in ASGN's internal control over financial reporting during the fourth quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[259] Evaluation of Disclosure Controls and Procedures ASGN's management concluded that its disclosure controls and procedures were effective as of December 31, 2023, ensuring timely and accurate information reporting - As of December 31, 2023, ASGN's management, under the supervision of its Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective[255] - Disclosure controls and procedures are designed to ensure information required by the Exchange Act is recorded, processed, summarized, and reported within specified time periods[255] Management's Report on Internal Control over Financial Reporting Management affirmed the effectiveness of ASGN's internal control over financial reporting as of December 31, 2023, based on the COSO framework, acknowledging inherent limitations - Management is responsible for establishing and maintaining adequate internal control over financial reporting[256] - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023, using criteria set forth by COSO, and concluded it was effective[258] - Internal control over financial reporting, due to inherent limitations, may not prevent or detect all errors and fraud[257] Changes in Internal Control over Financial Reporting There were no material changes in ASGN's internal control over financial reporting during the fourth quarter - There were no changes in ASGN's internal control over financial reporting during the fourth quarter that materially affected, or are reasonably likely to materially affect, the company's int