管理層發言
Greetings, and welcome to the ASGN Incorporated Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. It is now my pleasure to introduce your host, Kimberly Esterkin of Investor Relations. Thank you. You may begin. Good afternoon. Thank you for joining us today for ASGN's third quarter 2025 conference call. With me are Theodore S. Hanson, Chief Executive Officer, Sadasivam Iyer, President, and Marie L. Perry, Chief Financial Officer. Before we get started, I would like to remind everyone that our commentary contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainties. As such, our actual results could differ materially from those statements. Certain of these risks and uncertainties are described in today's press release and in our SEC filings. We do not assume any obligation to update statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors.asgn.com. Please also note that on this call, we will be referencing certain non-GAAP measures such as adjusted EBITDA, adjusted net income, and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in today's press release. I will now turn the call over to Theodore S. Hanson, Chief Executive Officer.
Thank you, Kim, and thank you for joining ASGN's third quarter 2025 earnings call. ASGN delivered solid performance in the third quarter, with revenues reaching $1.01 billion and an adjusted EBITDA margin of 11.1%, both at the high end of our guidance ranges. Our IT consulting business continues to be a key growth driver, representing approximately 63% of total revenues in the third quarter, up from 58% in the same period last year. Commercial consulting bookings totaled $324 million, translating to a book-to-bill of 1.2 times on a trailing twelve-month basis. While bookings remain weighted towards renewals, we are seeing the volume of new lands grow as we take on more complex multi-capability engagements and assessment projects. In our federal segment, new contract awards totaled $461 million for the third quarter, or a book-to-bill of one times on a trailing twelve-month basis, and 1.5 times for the quarter. As anticipated, bookings increased in the third quarter, coinciding with the end of the government fiscal year. Federal contract backlog was approximately $3.1 billion at quarter-end, or a coverage ratio of 2.6 times the segment trailing twelve-month revenues. Although IT spending levels remain steady quarter to quarter, our commercial and government clients continue to acknowledge the importance of executing their key initiatives despite macroeconomic conditions. Strong quarterly bookings reflect the demand across our client base, and ongoing investment in AI highlights a significant commitment to digital advancement. Reflecting upon this ongoing trend, ISG highlighted on their third quarter 2025 index call that AI spending is not merely a passing fad but a fundamental replatforming of enterprise technology. We are witnessing this firsthand. We deploy a growing number of AI use cases on behalf of our client base and are witnessing an increasing volume of data and cloud initiatives flowing through our pipeline as clients prepare for their next phases of digital and AI growth. That said, even with this continued drive towards AI, the path to enterprise-wide AI adoption is not without its challenges. Organizational readiness and operational governance remain hurdles as companies work to streamline and integrate these new technologies into their stacks. In addition, many commercial enterprises and government agencies lack the skills and engineering talent needed to successfully deploy AI. This reality is driving greater reliance on IT service partners like ASGN that can offer the breadth and depth of capabilities needed. On the topic of specialized skill sets, we are actively tracking the potential changes to the H-1B visa application process and believe that any changes to the process will be an incremental positive to ASGN. To further illustrate the demand for our expertise, I would like to turn the call over to our president, Sadasivam Iyer.
Thanks, Theodore. It's great to speak with everyone this afternoon. Let me begin with an overview of our commercial segment industries. Our consumer and industrial accounts saw the greatest improvement in the third quarter, posting mid-teens growth year over year. This strong performance was driven by gains across our materials, utilities, industrial, consumer discretionary, and consumer staples clients. Healthcare was our second-best performing industry, up high single digits year over year to double-digit growth amongst our healthcare provider, pharmaceutical, and biotech clients. Financial services, TMT, and business services all experienced year-over-year declines. Looking sequentially, we saw growth in three of our five commercial industries. The healthcare industry saw the largest sequential growth and was led by our provider clients. Consumer and industrial accounts also posted modest sequential gains driven by our work with utility, materials, and consumer staples customers. In TMT, growth was supported by our e-commerce group, as well as incremental gains in telecom hardware and equipment accounts. Beyond these three industries, we continue to watch financial services closely as these customers are some of the largest spenders on IT. While our financial services revenues declined from the second quarter, new wins for the industry outpaced renewals in Q3, with much of this work in our federal segment slated to begin in Q4. We track our revenues across four customer types: defense and intelligence, national security, civilian, and other clients. In the third quarter, defense, intelligence, and national security accounts comprised approximately 70% of our total government revenues. Notably, national security revenues improved 12% year over year, driven by our work with the Department of Homeland Security. Looking ahead, we are encouraged by the future of our federal segment, particularly due to the increased defense budget under the one big beautiful bill, as well as the strong quarterly bookings that Ted highlighted earlier. Also of note, given the mission-critical nature of the work we perform, the government shutdown to date has had an immaterial impact on our operations. That said, we continue to stay very close to our clients and monitor what is a very dynamic situation. Let's now turn to our solutions capabilities. For the quarter, we saw an increase in projects focused on data and AI, application development and engineering, customer experience, and cybersecurity. I'd like to share a few examples of each. Beginning with our data and AI work. For a Fortune 500 managed care organization, we partnered to develop a centralized data supply chain platform leveraging Databricks, AWS, Snowflake, and MongoDB. Through this engagement, not only did we modernize our client's core data capabilities, but we also laid the groundwork for advanced AI and machine learning workflows that will enable our client to offer smarter, faster, and more efficient healthcare delivery. Our deep expertise in platforms like Databricks and Snowflake, along with our ability to tailor these solutions to each client's unique environment, truly sets ASGN apart in the marketplace. Additionally, our suite of AI-embedded developer productivity tools created for specific industry use cases provides a competitive edge. For example, when a global privately held hospitality company sought to modernize its loyalty application, our AI accelerators shortened the discovery phase by 25% and captured 40% more of the project's detailed requirements than traditional manual methods. This approach reduced project risk and laid a solid foundation for faster modernization of the new loyalty application. We're also building accelerators and custom AI solutions for our government clients. In the third quarter, we secured an extension with DHS to continue supporting the agency's enterprise data warehouse. Our team provides a range of data engineering, data science, and data analytics capabilities to DHS and is leveraging both commercial and our own custom-built AI solutions to advance DHS's mission-critical initiatives. Our data and AI work is closely aligned with the work we are conducting in our application development and engineering space. As an example, under the FBI's information technology supplies and support services contract, a recompete won during the third quarter, we're delivering enterprise-scale software development and application modernization services to help the FBI accelerate DNA analytics delivery across federal, state, and international partners. On the commercial side, with a leading US crop insurance provider, we secured our largest application engineering services contract to date. Our selection was based on our deep industry experience, proven accelerators for legacy modernization, and cost optimization through a blend of onshore, nearshore, and offshore delivery. This three-year contract will modernize policy administration, claims, and customer engagement platforms, enabling real-time data access and insights that enhance underwriting accuracy, claims efficiency, and customer experience. Using AI to reinvent customer experience represents a growing area within our creative digital solutions portfolio. For a Fortune 250 pharmaceutical company, we're leading a full-scale transformation of their in-house agency, reimagining how customer experience is delivered globally. Using our in-house agency excellence framework, we embedded Adobe-powered personalized and AI-driven operations into their workflows, combining translation, reasoning, and execution with human strategy and creativity. This project is one of our many customer experience projects that demonstrate in the AI era, human creativity isn't replaced; it's amplified with AI. Just as we help our clients elevate their own customer experiences, we strive to provide the highest level of service to our clients. This approach often helps us outpace the competition during the proposal process. For example, our cloud and infrastructure team recently replaced a long-standing incumbent as the new level three network support for a Fortune 500 athletic footwear and apparel company. Our deep understanding of this client's business needs was a key differentiator during the selection process. Now, as this retailer's highest level network support, our team of network engineers is responsible for everything from network triage, strategic decisions, and network optimization across the company's distribution centers, stores, and headquarters. Similarly, broader network protection or cyber remains in demand across our client base, particularly among our federal government customers. In the third quarter, we won a recompete contract with the US House of Representatives to support their 24 by 7 security operations team. As the House's first line of defense, our teams provide real-time network security monitoring, endpoint detection and analysis, and cyber incident response and reporting for more than 20,000 geographically dispersed endpoints. These are just a few of the many projects our commercial and government teams secured over the past three months. The breadth of this work underscores our deep industry expertise and engineering capabilities. It also highlights the growing strength of our ecosystem and alliance partnerships, all of which position our business for continued growth. With that, I'll turn the call over to our CFO, Marie Perry, to discuss ASGN's third-quarter segment performance and fourth-quarter guidance.
Thanks, Sadasivam. For the third quarter, revenues totaled $1.01 billion, a decrease of 1.9% year over year but at the top end of our guidance expectations. Revenues from our commercial segment were $711.3 million, a decrease of 1% compared to the prior year. Assignment revenues totaled $376.4 million, a decrease of 13.2% year over year, reflecting continued softness in portions of our commercial segment that are more sensitive to changes in macroeconomic cycles. Revenue from our commercial consulting, the largest of our high-margin revenue streams, totaled $334.9 million, an increase of 17.5% year over year. Excluding Toplot, which we acquired in March 2025, consulting revenues improved mid-single digits year over year. Revenues from our federal government segment were $300.1 million, a decrease of 3.9% year over year. Turning to margins, gross margin for 2025 was 29.4%, an increase of 30 basis points from the third quarter of last year. Gross margins for our commercial segment were 33.2%, up 40 basis points year over year, reflecting a higher mix of consulting revenues. Gross margin from our federal government segment was 20.3%, a decline of 40 basis points year over year due to the loss of higher-margin work related to DOGE and the completion of certain projects. SG&A for the quarter was $212.2 million, compared to $207.5 million in 2024. SG&A expenses included $4.2 million in acquisition, integration, and strategic planning expenses. These items were not included in our previously announced guidance estimates. For the third quarter, net income was $38.1 million. Adjusted EBITDA was $112.6 million, and adjusted EBITDA margin was 11.1%. Also, at quarter-end, cash and cash equivalents were $126.5 million, and we had approximately $460 million available on our $500 million senior secured revolver. Our net leverage ratio was 2.4 times at the end of the quarter. Our strong free cash flow provides a strategic advantage that enables ASGN to fund growth initiatives, invest in strategic M&A, and opportunistically repurchase shares, all while maintaining a healthy balance sheet. Free cash flow was $72 million for the third quarter, a conversion rate of approximately 64% of adjusted EBITDA, well within our target of 60 to 65% conversion. We deployed roughly $46 million of free cash flow to repurchase 0.9 million shares at an average share price of $51.46. At quarter-end, we had approximately $423 million remaining under our $750 million share repurchase authorization. Turning to guidance, our financial estimates for 2025 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and assume no further deterioration in the markets we serve. In addition, estimates do not include any acquisition, integration, and strategic planning expenses. Guidance also assumes sixty-one billable days in the fourth quarter, which is the same number of billable days as the year-ago period and two and a half days fewer than the third quarter. We typically see a larger sequential decline in billable days between the third and the fourth quarter due to holidays. The fourth quarter had the lowest number of quarterly billable days. In terms of our business segment, on a same billable day basis, our estimates assume a slight sequential improvement in our commercial segment from the third to the fourth quarter. For 2025, we are estimating revenues of $960 million to $980 million, net income of $32.1 million to $35.7 million, adjusted EBITDA of $102 million to $107 million, and adjusted EBITDA margin of 10.6% to 10.9%. Thank you. I'll now turn the call back over to Ted.
Thanks, Marie. As we progress through 2025, I'm genuinely excited about the path ahead and eager to share more about our vision for sustainable growth and long-term value creation. On November 20, we'll be hosting an investor day in New York City, where we'll offer an in-depth look at our strategy and unveil new three-year financial targets. I encourage you to listen to the webcast and hear directly from our expanded leadership team about the next phase of our growth journey. A link to register for the webcast is available on our Investor Relations website. This concludes our prepared remarks. I want to express my deep gratitude to every one of our employees for your steadfast dedication throughout this past quarter. Your hard work has been instrumental in strengthening our client partnerships and driving our continued move into high-value technology and engineering solutions. With that, we'll open the call to questions.
分析師問答
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Jeffrey Marc Silber with BMO Capital Markets. Please proceed with your question.
Hey. Thank you so much. This is Ryan on for Jeff. Just wanted to dig a little bit more into the H-1B situation. Particularly, what gives you the confidence that you're a beneficiary there, and how do you see the situation evolving in the coming months based on just your conversations with clientele? Thank you. And just one more follow-up. On the federal government, heard the comments that there's a little bit of caution factored into the fourth quarter guidance. Wondering if any of that is any lingering DOGE-related impact or if it's mostly just the government shutdown and the longevity of that. Thank you.
Thank you for the question. From our standpoint, almost all of our delivery is onshore and nearshore. We have very little presence offshore in contexts where H-1Bs are most used. Anything that tightens the H-1B program—whether enforcing regulations more fully, making the program smaller and harder to access, or increasing the fee—focuses clients back on onshore and nearshore technical skill capabilities, and that's where we sit. That increases the importance of our services to clients. Better enforcement and a tighter program will also create pricing improvements because some current practices can be used to avoid paying prevailing bill rates. All of that highlights our services and core capabilities. Regarding the federal side, there's nothing in our fourth-quarter caution that's related to DOGE. It's primarily about the shutdown. The government shutdown does two things: certain nonessential activities get furloughed, which so far has been immaterial for us, and it slows the cycle of new awards and the ability to ramp on awards you've just won or may win. Taken together, while we don't view this as a mid- or long-term issue, it could cause near-term caution.
Our next question comes from the line of Tobey O'Brien Sommer with Truist Securities. Please proceed with your question.
Thank you. Let me start off by following up on that government shutdown question. Do you assume that the shutdown extends through the fourth quarter and, more specifically, how long do you assume it lasts? Within commercial consulting, which software implementation platforms are you implementing that are experiencing the best demand right now? And where, when you look at your portfolio of services and how you map out against your customers and the available software market in terms of implementations, where might you want to add capability to be able to participate in those other areas? And then, would a feature of the next several years be that commercial IT consulting continues to be a larger percentage of total company sales and therefore a driver of margin expansion over time?
We didn't make a specific assumption on the length of the shutdown. Because its impact has been immaterial to date, we didn't cut numbers in the forecast; rather, we said this is not a quarter to stretch. It kept us from stretching in the forecast. That's the best way to describe it.
Great question. The areas we see continued demand are data and AI, particularly work on Snowflake and Databricks where we are actively partnering. We also see active demand on enterprise platforms like Workday—particularly with Toplot—and on GlideFast and ServiceNow. We see continued demand on the cloud side for both migrations and custom app development. We're ramping up Salesforce capabilities as well, since Salesforce plays in both agentic AI scenarios and experience. The partnerships we've lined up align closely with where our clients are investing, so we believe our current capabilities match the demand. Regarding the structural question, commercial IT consulting has been the driver of margin expansion, and we expect it to remain a key allocation of capital and a strategic pillar going forward.
Thank you.
Our next question comes from the line of Jason Daniel Haas with Wells Fargo. Please proceed with your question.
Hey. Good afternoon. Thanks for taking my questions. There's been some headlines recently about companies not seeing a great ROI on many of the AI projects that they've undertaken. I was curious if you could weigh in on that, if that's something you're hearing from your customers. Where can you help—where's the roadblock—and what can you do to help companies see a better ROI on these projects? And as a follow-up, on the federal government segment, to what extent has the big beautiful bill started to help bookings you're seeing and over what time frame could you see those benefits turn into revenue?
We are hearing that many early AI initiatives aren't delivering expected ROI. There are a few common reasons. First, about 70% of use cases require deeper integration into clients' architectures. Second, data quality and how data lines up remain challenges. Third, integrating AI into workflows requires work within the enterprise platforms where the workflow logic resides. Finally, technical talent is a constraint. We believe the fastest path to ROI today is to harness the core capabilities of enterprise platforms where those workflows live. Agentic AI and orchestration across multiple platforms often promise end-to-end gains, but the returns are limited without deep integration into data and platform workflows. We help by focusing on platform-centric integrations, data engineering, and delivering the engineering talent necessary to operationalize AI use cases.
On the budget side: the areas where we play—defense, intelligence, and national security—are expected to receive the largest increases from the bill. We need to get past the shutdown and any continuing resolution to a final budget. Once we reach a final budget, likely by early in the next quarter, agencies will be funded at higher levels. We expect to see competitions and awards ramp in the first half of next year, and for that to begin contributing to revenue in the midpoint to the second half of next year.
Our next question comes from the line of Surinder Singh Thind with Jefferies. Please proceed with your question.
Thank you. A question about the staffing business versus the consulting business. We're seeing good growth organically on the consulting side, but there seem to be challenges on the staffing side. How would you characterize that in the current environment? Is complexity requiring more outside expertise and less willingness to augment internal staff, and is that a trend that continues? Also, can you talk about the cost-reimbursable contracts? The percentage continues to trend higher and is back near peak levels. What's driving that change and its impact on margins?
Surinder, the staffing business has been stable on a leading-indicator basis, though year over year it's down. There are multiple dynamics at play. Clients increasingly look to partners to drive outcomes and deliverables rather than simply augment internal staff. That shift benefits consulting and creates headwinds for staffing. From our vantage point, that buyer behavior is unlikely to reverse significantly. Regarding cost-reimbursable contracts, we're not seeing a material margin impact. That increase is largely the natural ebb and flow of contracts ending and beginning, and partly related to prior DOGE activities and the completion of certain fixed-price projects. Overall, federal margins are back to a more normal state after last quarter's surge in license revenue.
To add, in today's macro environment clients want a short time to value and clear outcomes. They are focused on total cost of ownership, and they demand faster returns if they greenlight an initiative. That rigor accelerates the move to outcome-focused engagements.
Surinder, remember that last quarter we had a surge in license revenue on the federal side. When you look at Q3 federal margins, they're really back to their more normal state.
Got it. Thank you.
Thank you.
Our next question comes from the line of Alexander J. Sinatra with Baird. Please proceed with your question.
Hi. I'm on for Mark Marcon. You went through a couple of big projects. Who are you competing against to get those big projects and how have competitive dynamics changed, including pricing? And then also on the Toplot and GlideFast side, who do you run into and is pricing working there as well? Also, on the Mexican facility side, has that been impacted at all by the political climate and what are you looking at going into the future?
It varies by client, but competitors are typically the large consultancies—Accenture or the Big Four in some cases—India-based pure plays, and certain platform-focused or smaller competitors. That's the expected competitive set. On GlideFast and Toplot, we're seeing pricing hold up; we're not seeing meaningful pricing pressure given the quality of our deliverables and our assets and accelerators. Regarding the Mexican facility, there has been no impact from the political climate.
Gotcha. Thank you.
Thank you.
Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.
Thank you. On the pricing question related to accelerators: as you're incorporating more of these into the development process, are there active discussions about changes in pricing related to this? Or do you expect that to become a more prominent discussion point in the future? And it seems like momentum is building on the commercial consulting side. Could you comment on whether you think that's sustainable and what the drivers are?
Great question. We are exploring opportunities to price differently for certain assets, but we haven't seen a big shift yet. Today, our accelerators enable faster and higher-quality delivery—reducing discovery time and improving requirements capture. As assets mature, we have the opportunity to position some on a more standalone basis. For example, Pathfinder is an AI-driven cybersecurity product we've invested in, and we are actively discussing pricing models that could be more product-oriented. On momentum, we see continued demand in focused areas—data and AI, custom engineering, and platforms—and we remain thoughtful and focused on those areas where client investment is directed. AI is a significant tailwind supporting work across data, cloud, cybersecurity, and integration.
To add, platforms like Workday will be leaders in agentic AI. Customers increasingly recognize they need modern enterprise platforms to take advantage of agentic capabilities. That drives investment in platforms such as Workday, ServiceNow, and Salesforce, which supports continued demand for consulting and modernization work.
Thank you.
And, ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the floor back to CEO, Theodore S. Hanson, for closing remarks.
Well, thank you for being here this evening to talk about our third-quarter results, and we look forward to speaking with you in the first quarter on our fourth-quarter results. I will remind you as well that we have our Investor Day on November 20, and we look forward to being with you if you can be present with us in New York City. Have a great evening.
Thank you. And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.