ASGN rporated(ASGN) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - ASGN reported revenues of $1,020,000,000 for Q2 2025, which was above the high end of guidance and represented a decrease of 1.4% year over year [6][23] - Adjusted EBITDA was $108,500,000 with an adjusted EBITDA margin of 10.6%, at the top end of expectations for the quarter [6][26] - Net income for the quarter was $29,300,000, and free cash flow was $115,800,000, translating to a conversion rate of approximately 107% of adjusted EBITDA [26][27] Business Line Data and Key Metrics Changes - Revenues from the commercial segment were $708,100,000, a decrease of 2.4% compared to the prior year, while commercial consulting revenues increased by 15.7% year over year to $325,700,000 [23][24] - Federal government segment revenues were $312,500,000, an increase of 1.1% year over year, including approximately $10,000,000 of higher than expected license revenue [24] - Assignment revenues totaled $382,400,000, reflecting a decline of 13.9% year over year due to macroeconomic softness [23] Market Data and Key Metrics Changes - The consumer and industrial accounts performed strongly, with mid double-digit growth year over year, driven by materials, utilities, and consumer discretionary accounts [11] - The healthcare vertical remained flat year over year, while financial services and TMT accounts saw declines compared to the previous year [11][12] - Federal contract awards totaled $72,000,000 for the quarter, with a book-to-bill ratio of 1.1 times on a trailing twelve-month basis [8] Company Strategy and Development Direction - ASGN is focusing on AI investments, recognizing the need for clients to stay competitive through technological advancements [29][30] - The company launched the ASGN AI Innovation Center to enhance innovation and promote AI-driven business growth [30][31] - Strategic partnerships with companies like AWS and Workday are being leveraged to build client-specific IP and enhance service offerings [67][70] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing macroeconomic uncertainties but highlighted continued client investment in AI and modernization efforts [6][29] - The recent increase in U.S. Defense spending is expected to benefit ASGN's federal business, particularly in AI and cybersecurity [9][48] - Management expressed cautious optimism regarding the recovery of discretionary spending and the potential for growth in consulting services [45][60] Other Important Information - The company has approximately $470,000,000 remaining under its share repurchase authorization [27] - Guidance for Q3 2025 estimates revenue between $992,000,000 and $1,012,000,000, with net income projected between $35,800,000 and $39,400,000 [28] Q&A Session Summary Question: How is TopLock performing relative to expectations? - Management indicated that TopLock is tracking just ahead of revenue and bookings expectations, contributing over $150,000,000 in revenues for the full year [36][37] Question: What impact is AI having on the cyclical assignment business? - Management stated that the assignment business remains stable and that current softness is largely due to macroeconomic factors rather than AI [39][42] Question: What is the long-term margin profile for the government consulting area? - Management noted that while higher margin work is diminishing, there are opportunities to increase direct labor, which could improve margins in the future [50][52] Question: What are the expectations for the impact of DOGE on revenues? - Management confirmed that the DOGE impact was expected to be less than 2% of total revenues, consistent with prior expectations [55] Question: What drove the strength in the consumer and industrial segments? - Management highlighted significant investments and demand in cloud, data, and AI as key drivers of strength in these segments [82][84] Question: How is ASGN using AI internally to improve efficiencies? - Management discussed ongoing efforts to implement AI across enterprise software tools to enhance productivity and streamline operations [87][89]