ASGN rporated(ASGN) - 2024 Q1 - Quarterly Results

Executive Summary ASGN Incorporated achieved solid results in Q1 2024, with revenue and Adjusted EBITDA near the upper end of guidance, approving a new $750 million share repurchase program while growing IT consulting services despite cautious client IT spending Q1 2024 Performance Highlights Q1 2024 Key Financial Metrics: | Metric | Amount (million USD) | | :--- | :--- | | Revenue | 1,050 | | Net Income | 38.1 | | Adjusted EBITDA | 108.3 | | Cash Flow from Operations | 73.3 | | Free Cash Flow | 62.5 | - IT consulting services revenue accounted for 56.7% of total revenue, with new bookings in the Commercial segment reaching $1.3 billion over the past 12 months and new contract awards in the Federal Government segment totaling $1.1 billion[2] - The company completed the refinancing of its Term Loan B, reducing the interest rate by 50 basis points to SOFR plus 175 basis points[2] - Approximately 0.8 million shares of common stock were repurchased for $79.7 million during the quarter, and post-quarter, the Board approved a new two-year, $750 million share repurchase program, the largest in company history[2] Management Commentary and Strategic Focus - CEO Ted Hanson stated that Q1 2024 results were solid, with revenue and Adjusted EBITDA near the upper end of guidance[3] - IT consulting services revenue continued to grow, representing 56.7% of consolidated revenue, up from 50.4% in the prior year period[3] - Despite continued client caution in IT spending, the company maintained business stability through its diversified Commercial and Government revenue mix and large client portfolio[3] - The company is shifting its business towards higher-value IT consulting services and actively adjusting operations to align with market cycles, preparing for accelerated IT spending growth in the future[3] First Quarter 2024 Financial Results ASGN reported $1.05 billion in Q1 2024 revenue, a 7.1% year-over-year decrease, driven by IT consulting growth offset by Commercial segment cyclical weakness, with gross margin at 28.2% and declines in net income and Adjusted EBITDA Consolidated Financial Performance Overview Q1 2024 Consolidated Financial Data (vs. Q1 2023): | Metric | March 31, 2024 (million USD) | March 31, 2023 (million USD) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 1,049.0 | 1,128.8 | -7.1% | | Net Income | 38.1 | 49.5 | -23.0% | | Diluted EPS | 0.81 | 0.99 | -18.2% | | Adjusted Net Income | 54.6 | 68.7 | -20.5% | | Adjusted Diluted EPS | 1.16 | 1.38 | -15.9% | | Adjusted EBITDA | 108.3 | 123.5 | -12.3% | | Adjusted EBITDA Margin | 10.3% | 10.9% | -0.6 pp | Revenue Breakdown by Segment and Service Type Q1 2024 Revenue Composition: | Segment/Service Type | Amount (million USD) | Percentage of Total Revenue (%) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 1,049.0 | 100.0% | -7.1% | | Commercial Segment Revenue | 731.5 | 69.7% | -12.1% | | Federal Government Segment Revenue | 317.5 | 30.3% | +7.0% | | IT Consulting Services Revenue | 594.5 | 56.7% | +4.6% | | - Federal Government Consulting | 317.5 | - | +7.0% | | - Commercial Consulting | 277.0 | - | +2.0% | | Staffing Services Revenue | 454.5 | 43.3% | -18.9% | - IT consulting services revenue increased by 4.6% year-over-year, with Federal Government consulting revenue growing 7.0% and Commercial consulting revenue growing 2.0%[7] - Staffing services revenue decreased by 18.9% year-over-year, reflecting continued weakness in the more cyclical parts of the Commercial segment business[7] Profitability and Operating Expenses Q1 2024 Profitability and Expenses (vs. Q1 2023): | Metric | March 31, 2024 (million USD) | March 31, 2023 (million USD) | YoY Change | | :--- | :--- | :--- | :--- | | Gross Margin | 28.2% | 28.9% | -70 bps | | Selling, General and Administrative Expenses (SG&A) | 210.2 | 224.1 | -13.9 | | SG&A as % of Revenue | 20.0% | 19.9% | +0.1 pp | - Gross margin decreased by 70 basis points, primarily due to a higher proportion of Federal Government segment revenue, which has a lower gross margin than the Commercial segment[7] - SG&A expenses included $1.2 million in acquisition, integration, and strategic planning costs, which were not included in the company's previously issued guidance estimates[8] Capital Resources and Allocation Capital Resources as of March 31, 2024: | Metric | Amount (million USD) | | :--- | :--- | | Cash and Cash Equivalents | 158.4 | | Senior Secured Revolving Credit Facility (due 2028) | 500.0 (fully available) | | Senior Secured Term Loan B (due 2030) | 497.5 | | Senior Unsecured Notes (4.625%, due 2028) | 550.0 | - In Q1 2024, the company repurchased 0.8 million shares of common stock at an average price of $96.63 per share, totaling $79.7 million[10] - Post-quarter, the Board approved a new two-year, $750 million share repurchase program, the largest in company history[10] Second Quarter 2024 Financial Estimates ASGN forecasts Q2 2024 revenue between $1.0345 billion and $1.0545 billion, with net income projected from $44.7 million to $48.3 million, maintaining gross margins between 28.9% and 29.2%, and providing adjusted non-GAAP metric estimates Q2 2024 Guidance Q2 2024 Financial Estimates: | Metric | Low End (million USD) | High End (million USD) | | :--- | :--- | :--- | | Revenue | 1,034.5 | 1,054.5 | | Selling, General and Administrative Expenses (SG&A) | 206.0 | 210.0 | | Amortization of Intangible Assets | 15.1 | 15.1 | | Net Income | 44.7 | 48.3 | | Diluted EPS | 0.97 | 1.04 | | Gross Margin | 28.9% | 29.2% | | Effective Tax Rate | 28.0% | 28.0% | | Adjusted EBITDA | 114.0 | 119.0 | | Adjusted Net Income | 59.2 | 62.8 | | Adjusted Diluted EPS | 1.28 | 1.36 | | Adjusted EBITDA Margin | 11.0% | 11.3% | Key Assumptions for Q2 Estimates - Financial estimates are based on current operating trends, assume no material market deterioration, and exclude any acquisition, integration, or strategic planning costs[11] - Q2 is expected to have 63.5 billable days, which is 0.25 days more than the prior year period and 0.75 days more than Q1 2024[12] - Non-GAAP financial estimates include $20.7 million in non-cash expenses, primarily consisting of stock-based compensation, depreciation, and amortization of capitalized cloud application implementation costs[12] Supplemental Financial Data (Unaudited) This section presents ASGN's unaudited consolidated financial statements, including statements of operations, cash flows, and balance sheets, along with detailed reconciliations of GAAP to non-GAAP financial measures for Q1 2024 and Q2 2024 estimates Consolidated Statements of Operations Consolidated Statements of Operations (as of March 31, 2024): | Metric | March 31, 2024 (million USD) | March 31, 2023 (million USD) | December 31, 2023 (million USD) | | :--- | :--- | :--- | :--- | | Revenue | 1,049.0 | 1,128.8 | 1,074.1 | | Cost of Services | 752.8 | 802.4 | 769.2 | | Gross Profit | 296.2 | 326.4 | 304.9 | | Selling, General and Administrative Expenses | 210.2 | 224.1 | 203.6 | | Amortization of Intangible Assets | 15.1 | 18.1 | 17.9 | | Operating Income | 70.9 | 84.2 | 83.4 | | Interest Expense | (17.6) | (15.4) | (16.7) | | Income Before Income Taxes | 53.3 | 68.8 | 66.7 | | Provision for Income Taxes | 15.2 | 19.3 | 16.4 | | Net Income | 38.1 | 49.5 | 50.3 | | Diluted EPS | 0.81 | 0.99 | 1.06 | Shares Used in EPS Calculation: | Metric | March 31, 2024 (million shares) | March 31, 2023 (million shares) | December 31, 2023 (million shares) | | :--- | :--- | :--- | :--- | | Basic | 46.5 | 49.3 | 47.1 | | Diluted | 46.9 | 49.8 | 47.5 | Consolidated Statements of Cash Flow and Balance Sheet Consolidated Cash Flow Data (as of March 31, 2024): | Metric | March 31, 2024 (million USD) | March 31, 2023 (million USD) | December 31, 2023 (million USD) | | :--- | :--- | :--- | :--- | | Cash Flow from Operating Activities | 73.3 | 80.5 | 116.4 | | Cash Flow from Investing Activities | (10.8) | (12.3) | (7.2) | | Cash Flow from Financing Activities | (80.0) | (73.4) | (79.3) | | Free Cash Flow (Non-GAAP) | 62.5 | 68.8 | 109.2 | Consolidated Balance Sheet Data (as of March 31, 2024): | Metric | March 31, 2024 (million USD) | December 31, 2023 (million USD) | | :--- | :--- | :--- | | Cash and Cash Equivalents | 158.4 | 175.9 | | Working Capital | 561.7 | 579.2 | | Goodwill and Net Intangible Assets | 2,376.9 | 2,392.0 | | Total Assets | 3,488.8 | 3,544.6 | | Long-Term Debt | 1,036.3 | 1,036.6 | | Total Liabilities | 1,627.4 | 1,652.5 | | Total Stockholders' Equity | 1,861.4 | 1,892.1 | Reconciliation of GAAP to Non-GAAP Measures (Q1 2024) Reconciliation of GAAP Net Income to Adjusted EBITDA (as of March 31, 2024): | Metric | March 31, 2024 (million USD) | March 31, 2023 (million USD) | December 31, 2023 (million USD) | | :--- | :--- | :--- | :--- | | Net Income | 38.1 | 49.5 | 50.3 | | Interest Expense | 17.6 | 15.4 | 16.7 | | Provision for Income Taxes | 15.2 | 19.3 | 16.4 | | Depreciation and Other Amortization | 9.4 | 6.8 | 7.8 | | Amortization of Intangible Assets | 15.1 | 18.1 | 17.9 | | EBITDA (Non-GAAP) | 95.4 | 109.1 | 109.1 | | Stock-Based Compensation | 11.7 | 12.1 | 10.3 | | Acquisition, Integration and Strategic Planning Costs | 1.2 | 2.3 | 1.6 | | Adjusted EBITDA (Non-GAAP) | 108.3 | 123.5 | 121.0 | Reconciliation of GAAP Net Income to Adjusted Net Income (as of March 31, 2024): | Metric | March 31, 2024 (million USD) | March 31, 2023 (million USD) | December 31, 2023 (million USD) | | :--- | :--- | :--- | :--- | | Net Income | 38.1 | 49.5 | 50.3 | | Credit Facility Amendment Fees | 1.5 | — | — | | Acquisition, Integration and Strategic Planning Costs | 1.2 | 2.3 | 1.6 | | Adjusted Tax Impact | (0.7) | (0.6) | (0.4) | | Non-GAAP Net Income | 40.1 | 51.2 | 51.5 | | Amortization of Intangible Assets | 15.1 | 18.1 | 17.9 | | Other Adjustments | (0.6) | (0.6) | (0.6) | | Adjusted Net Income (Non-GAAP) | 54.6 | 68.7 | 68.8 | | Diluted Net Income Per Share | 0.81 | 0.99 | 1.06 | | Adjustments | 0.35 | 0.39 | 0.39 | | Adjusted Diluted Net Income Per Share (Non-GAAP) | 1.16 | 1.38 | 1.45 | Reconciliation of GAAP to Non-GAAP Measures (Q2 2024 Estimates) Reconciliation of GAAP Net Income to Adjusted EBITDA (Q2 2024 Estimates): | Metric | Low End (million USD) | High End (million USD) | | :--- | :--- | :--- | | Net Income | 44.7 | 48.3 | | Interest Expense | 15.7 | 15.7 | | Provision for Income Taxes | 17.4 | 18.8 | | Depreciation and Other Amortization | 9.2 | 9.2 | | Amortization of Intangible Assets | 15.1 | 15.1 | | EBITDA (Non-GAAP) | 102.1 | 107.1 | | Stock-Based Compensation | 11.9 | 11.9 | | Adjusted EBITDA (Non-GAAP) | 114.0 | 119.0 | Reconciliation of GAAP Net Income to Adjusted Net Income (Q2 2024 Estimates): | Metric | Low End (million USD) | High End (million USD) | | :--- | :--- | :--- | | Net Income | 44.7 | 48.3 | | Amortization of Intangible Assets | 15.1 | 15.1 | | Other Adjustments | (0.6) | (0.6) | | Adjusted Net Income (Non-GAAP) | 59.2 | 62.8 | | Diluted Net Income Per Share | 0.97 | 1.04 | | Adjustments | 0.31 | 0.32 | | Adjusted Diluted Net Income Per Share (Non-GAAP) | 1.28 | 1.36 | Corporate Information and Disclosures This section provides an overview of ASGN, detailed definitions of non-GAAP financial measures, a "safe harbor" statement for forward-looking statements, and information for investors to access conference call details About ASGN Incorporated - ASGN Incorporated (NYSE: ASGN) is a leading provider of IT services and solutions, serving both Commercial and Federal Government sectors[16] - The company helps businesses and government organizations develop, implement, and operate critical IT and business solutions through its integrated services[16] Non-GAAP Financial Measures Definitions - EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are intended to measure the company's core business operating performance on a continuing basis, excluding the impact of non-operating and certain non-cash expenses[27] - Adjusted Net Income provides a more comprehensive view of the company's acquired businesses' performance by excluding non-operating and certain non-cash expenses, and adjusting for certain cash flows related to intangible asset amortization[27] - Free Cash Flow provides information about the amount of cash generated by the business available for strategic opportunities[28] - Commercial consulting bookings are defined as the value of new contracts signed during a specific period, including the impact of scope changes and terminations; Federal Government new contract awards are defined as the estimated future revenue amount of contracts awarded during a specific period[28] - Revenue on a same billable day basis provides more comparable information by adjusting for differences in the number of billable days[29] Safe Harbor Statement - Certain statements in the press release are forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, involving significant risks and uncertainties[17] - Forward-looking statements do not guarantee future performance, actual results may differ materially, and the company undertakes no obligation to update any forward-looking statements in the press release[18] Conference Call Information - The company held a conference call on April 24, 2024, at 4:30 PM ET to review Q1 2024 financial results and provide Q2 estimates[15] - A replay of the conference call was available from 7:30 PM ET on the day of the call until May 8, 2024[15]