管理層發言
Greetings, and welcome to the ASGN Incorporated Fourth Quarter and Full Year 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 operating 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 soon to be Everforth's Fourth Quarter and Full Year 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 and 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. Thank you for joining our fourth quarter and full year 2025 earnings call. As we begin 2026, I want to thank everyone who joined us for our Investor Day this past November. If you have not had a chance to view the presentation, a replay of the webcast is available on our website. Our Investor Day provided a valuable platform to showcase our next wave growth strategy and the significant progress we made in our transition toward higher value, higher margin, technology and digital engineering solutions. At this event, we also had the opportunity to introduce several of our solutions leaders, with presentations brought to life by our advanced capabilities in AI, cybersecurity, and enterprise platforms. AI is now a dominant driver of demand, with nearly 80% of enterprises planning to increase their AI spending in 2026. These investments are driving growth in solution capabilities vital to the successful deployment of AI enterprise-wide. Sadasivam Iyer, our president, will speak more on that shortly. Turning to our fourth quarter 2025 results, which we previewed with you in our recent Quinox announcement, ASGN delivered solid results for the quarter. Revenues of $980.1 million were at the top end of our guidance range, with IT consulting revenues comprising 63% of the total, up from 59% in the prior year. Adjusted EBITDA margin was 11%, exceeding our expectation. Commercial consulting bookings had a record $444.4 million, translating to a book to bill of 1.3 times for the quarter, and 1.2 times on a trailing twelve-month basis. Volume of new consulting work continues to grow, as our customers increasingly recognize the importance of preparing data, building infrastructure, and deploying enterprise platforms to harness the full potential of AI. In our federal segment, new contract awards totaled $144.2 million, or a book to bill of 0.9 times on a trailing twelve-month basis. Federal contract backlog was approximately $3 billion at quarter end, or a coverage ratio of 2.5 times the segment's trailing twelve-month revenue. In addition to traditional holiday-related seasonality, the lengthy government shutdown delayed award activity in the fourth quarter. Nonetheless, we are seeing solid pent-up demand in Q1, and increased defense, intelligence, and national security budgets position our federal business strongly for the future. As we discussed at our Investor Day, our clients are increasingly seeking us out as one of their strategic technology partners. To meet this demand, we have been proactively transforming our business, advancing our solution capabilities, developing proprietary assets and accelerators, and partnering with leading technology companies to better serve our clients' IT needs. Continuing this transformation momentum in 2026, we will be adopting a new customer and investor-facing brand, Everforth, unifying our commercial and federal brands under a single dynamic identity. Our transition to Everforth, a name rooted in forward progress, is designed to unlock our scale as an enterprise and increase cross-selling by bringing the breadth of our solutions to our enterprise clients, all while supporting continued revenue growth and margin expansion. While organic revenue growth remains a primary focus, we will also pursue strategic acquisitions that enhance our solutions capabilities and technology partnerships. I am pleased to report that just two weeks ago, we announced our intent to acquire Quinox, an agile, results-driven digital solutions provider. As an acquirer of choice, we employ a proven, repeatable acquisition strategy, our M&A playbook, which is guided by well-defined strategic filters and rigorous financial criteria. The acquisition of Quinox followed this disciplined approach. From a strategic standpoint, joining forces with Quinox represents a key step forward in our long-term strategy to enhance our digital engineering and global delivery capabilities. Like ASGN, Quinox is exceptionally client-centric, maintaining customer relationships for well over a decade. We are excited to leverage their established client connections to broaden our market presence, and as we did with GlideFast and TopLock, pull Quinox's capabilities across our gold nugget commercial client base. From a financial perspective, Quinox is an accretive transaction that strengthens our market position without compromising the strength of our balance sheet or our financial flexibility. Our disciplined approach to capital allocation enables us to make strategic acquisitions like Quinox while still investing organically and buying back our shares. In the fourth quarter, we generated $93.7 million in free cash flow and bought back $64.2 million in shares. We continue to repurchase shares in the first quarter, and with a newly approved $1 billion share repurchase program, we are well-positioned to provide sustainable shareholder returns. To build upon our discussion, let me now turn the call over to our president, Sadasivam Iyer, to speak about Quinox's digital engineering capabilities and global delivery strength.
Thanks, Ted. It's great to speak with everyone this afternoon. It has certainly been a busy and productive start to the New Year, and I share Ted's enthusiasm about the acquisition of Quinox. Over the past few months, I've had the opportunity to meet with Quinox's executive team. It is very clear from our meetings that there is a strong cultural fit between our organizations. Cultural alignment is at the heart of a successful acquisition and integral to the comprehensive process that shapes the M&A playbook Ted discussed. During our Investor Day, we spoke about our journey towards becoming a top-tier technology and digital engineering company. I'm proud to report that we're well on our way, expanding our digital engineering capabilities. Fourth quarter bookings for application engineering and services practice nearly doubled quarter over quarter. By integrating Quinox's deep expertise in application management and modernization, analytics, and enterprise platforms into our existing practice, we will immediately expand our market share. In addition, Quinox's alliance partnerships with companies such as AWS, Databricks, Salesforce, SAP, and Calypso complement our own partner network and will enable us to co-create agile, future-ready solutions that accelerate value for our customers. The ability to deliver complex digital engineering capabilities is key for us to be competitive. Quinox significantly enhances our delivery capability and broadens our delivery footprint with its highly global capability centers in India. These centers will form the foundation of our offshore delivery platform and complement our best-in-class nearshore operations in Mexico. As a leader in offshore delivery, Quinox deploys cutting-edge technologies, including AI, across its delivery model. Quinox's proprietary assets combined with an AI-first workforce help promote automation, compliance, and speed to value for every single client. As Ted emphasized, we are an acquirer of choice, and I'd like to believe that part of that strong reputation comes from our unique market positioning. We have the scale of a large IT services player but also the velocity and agility of a startup. An agile, results-driven digital technology company like Quinox aligns seamlessly with our business objectives and supports our long-term growth strategy. With that as background, let's turn to our industry performance for the fourth quarter. In our commercial segment, year-over-year growth was driven by a combination of improvements in healthcare accounts, which improved by mid-teens, and consumer and industrial accounts, which improved by low teens. Growth in the healthcare industry was seen across our provider, pharmaceutical, and biotech clients. In the consumer and industrial space, industrial saw the largest improvement, followed by materials and utilities accounts. We also achieved low single digits revenue growth in the TMT vertical as compared to the prior year. Looking sequentially, on a billable day adjusted basis, we saw growth in four of our five commercial segment industries. Healthcare accounts posted mid-single digit improvements with growth in payers, providers, and pharmaceutical accounts. TMT also improved mid-single digits with telecom, e-commerce, and software and services all increasing. In addition, as we anticipated on our last quarter's call, the financial services industry returned to sequential growth on a billable day adjusted basis, picking up low single digit improvements from 2025. Within this industry, we achieved sequential improvements in wealth management, regional banks, diversified financials, and insurance accounts. In our federal segment, we track our revenues across four types of customers, which are defense and intelligence, national security, civilian, and other clients. Defense, intelligence, and national security accounts continue to comprise approximately 70% of our total government revenues. Government-sponsored entities such as USPS, state and local customers, and commercial entities comprise our other clients category. The other clients category saw mid-teens growth year over year due to expansion of our data, AI, and modernization efforts for USPS, as well as increases in cybersecurity work for commercial clients. Defense and intelligence revenues improved low single digits year over year due in part to additional funding for Project Maven, a flagship geospatial AI contract for the Department of War. For those who have not had a chance to view our Investor Day presentation, I'd highly recommend watching the video on Project Maven, an incredible case study in mission-ready AI. Moving from industries to solutions, as Ted highlighted at the beginning of today's call, we continue to secure projects that strengthen technology infrastructure and enable governance readiness for enterprise-wide AI usage. Let me provide a few examples from the fourth quarter. For a top five US bank, our financial service industry experts were engaged to improve the bank's testing automation and governance ecosystem. Working hand in hand with our client, we deployed a bank-wide modernization program across online banking, mobile platforms, and partner integrations, vastly improving our client's enterprise-wide functionality and governance. Also, within financial services, our team helped a major US online banking and credit card company maintain its system performance as it underwent the merger with another major financial institution. As a part of this DevOps project, our engineering and applications team coordinated infrastructure changes, monitored system health, and managed the building, testing, and deploying of software to ensure a smooth transition as the two banks joined forces. On the theme of data migration, during the fourth quarter, our telecom industry experts partnered with Snowflake, for whom we are an elite AI data and cloud services partner, to enable a major US connectivity and communications company to centralize marketing data from a variety of external vendor systems in Snowflake. Now in 2026, we are laying a governed foundation for Snowflake's Cortex, Snowflake's native AI ML capability that will enable our client to securely run built-in features such as large language models, AI-powered apps, and GenAI Insights. AI's explosive growth, powered by soaring energy demands, is driving unprecedented expansion in data center capacity worldwide. Our cloud and infrastructure team is actively collaborating with clients and rapidly scaling their AI data center fleets. For example, we are currently partnering with a major hyperscaler to operationalize multiple data centers on what is already one of the largest AI data center campuses in the world. For this project, we are responsible for managing the hyperscaler's critical environments and leading the complex logistics required to deploy and integrate the data center's advanced system. Ultimately, scaling AI from concept to production requires addressing long-standing challenges of fragmented tools, governance complexity, and resource constraints. In response to these inherent challenges, in November, we launched our AI Factory, a unified framework designed by our joint commercial and government AI teams to empower organizations to integrate AI seamlessly into their core business strategies. Understanding the challenges around safe and secure AI deployments, our teams have been particularly focused on our solutions related to AI governance. Our federal cybersecurity experts have been busy demoing our AI Factory's Watchtower, a monitoring tool with built-in TrustOps, to both our federal and commercial clients. In addition to building our own assets and accelerators, we are partnering with enterprise platforms to co-deliver high-impact solutions to our commercial and federal clients. Starting with our federal segment, in the fourth quarter, we were awarded additional funding by the Department of Homeland Security and the agency's Continuous Diagnostic and Mitigation Program Office to deploy Elastic's AI capabilities at scale. Our federal team boasts more Elastic certified engineers than any other organization other than Elastic itself and was recently named Elastic's top services partner of the year. In addition to Elastic, we continue to be a leading ServiceNow provider in the federal space, leveraging ServiceNow's agentic capabilities in new initiatives across the Departments of Homeland Security, War, and Energy. We also recently established a strategic partnership with Wiz, a rapidly growing cloud security company in the process of being acquired by Google. In the fourth quarter, we won our first engagement with Wiz for the Centers for Medicare and Medicaid Services, establishing our footprint in the high-value federal healthcare market. On the commercial side of our business, we continue to make great progress in advancing our positioning with Workday. During the fourth quarter, we were selected as one of the first partners approved to deploy Paradox, Workday's candidate experience agent. Paradox uses conversational AI to simplify interactions and deliver better experiences. Conversational AI use cases are growing rapidly. As a part of our Salesforce 360 partnership, for example, we are integrating AgentForce into Slack to enable clients to search their Salesforce CRM with ease. As we expand our value proposition as Everforth, Salesforce, ServiceNow, and Workday will all be central to our cross-platform AI strategy. These are just a few of the many advanced solutions capabilities we deployed in the fourth quarter. We are excited about the future and look forward to continuing to advance our next wave growth strategy. With that, I'll turn the call over to our CFO, Marie L. Perry, to discuss ASGN's fourth quarter 2025 performance and first quarter 2026 guidance.
Thanks, Shiv. For the fourth quarter, revenues totaled $980.1 million, at the top end of our guidance range, and relatively consistent with the prior year period. Revenues from our commercial segment were $698.6 million, an increase of 0.9% compared to the prior year and up 2.2% sequentially on a billable day adjusted basis. Assignment revenue totaled $359.2 million, a decline of 12% year over year, reflecting continued softness in portions of our commercial segment that are more sensitive to changes in the macroeconomic cycle. Revenue from our commercial consulting, the largest of our high-margin revenue streams, totaled $339.4 million, an increase of 19.2% year over year. Excluding TopLock, which we acquired in March 2025, consulting revenues improved mid-single digits year over year. Revenues from our federal government segment were $281.5 million, a decrease of 3.7% year over year. Turning to margin, gross margin for 2025 was 28.9%, consistent with the prior year. Gross margin for our commercial segment was 32.6%, which is in line with the prior year. Gross margins from our federal government segment were 19.9%, a decline of 60 basis points year over year due primarily to the loss of higher margin contracts related to Doge. The impact of Doge will anniversary in March 2026. SG&A for the quarter was $210.5 million compared to $197.9 million in 2024. SG&A expenses included $10.7 million in acquisition integration and strategic planning expenses. These items were not included in our previously announced guidance estimate. Also relative to guidance, our estimates assumed an effective tax rate of 28%. In the fourth quarter, our effective tax rate was 36.4%, above the 28% forecast, driven primarily by discrete one-time items not included in our guidance. For the fourth quarter, net income was $25.2 million, adjusted EBITDA was $107.9 million, and adjusted EBITDA margin was 11%, above our guidance range driven mainly by a greater mix of commercial segment revenue. At quarter end, cash and cash equivalents were $161.2 million, and we had approximately $455 million available on our $500 million senior secured revolver. Our net leverage ratio was 2.4x at the end of the quarter. As Ted previously mentioned, we had very strong free cash flow generation in the fourth quarter. Free cash flow was $93.7 million, a conversion rate of approximately 87% of adjusted EBITDA, well above our conversion target rate of 60% to 65%. We continue to deliver value to our shareholders, and in the quarter, we deployed roughly $64.2 million of our free cash flow to repurchase 1.4 million shares at an average share price of $46.5. On a full-year basis, free cash flow was also strong and totaled $288.1 million, or 68.2% of adjusted EBITDA. We deployed $170.1 million of free cash flow to repurchase 3.1 million shares in 2025 at an average price of $55. We have approximately $972 million remaining on our $1 billion share repurchase authorization. Reemphasizing Ted's prior commentary, our strong free cash flow is a hallmark of our business model. It provides a strategic advantage that enables us to fund growth initiatives, opportunistically repurchase shares, and invest in strategic M&A, all while maintaining a healthy balance sheet. By following a disciplined and balanced approach to capital allocation, we can invest in high-return opportunities and prudently manage our leverage, driving sustainable long-term value for our shareholders. With that in mind, in January, we signed a definitive purchase agreement to acquire Quinox for $290 million in cash. The acquisition, which remains subject to HSR approval, is anticipated to close in March. Post-close, we anticipate our net leverage ratio will be approximately 2.9 times after funding the acquisition with cash and borrowings on our revolver. We are committed to reducing our debt over time to bring our net leverage closer to our 2.5 times target. We will, however, continue to opportunistically balance capital deployment with organic investment and share repurchases. Turning to guidance, our financial estimates for 2026 are set forth in our earnings release and supplemental material. These estimates are based on current market conditions and assume no further deterioration in the markets we serve. Guidance also assumes 62 billable days in the first quarter, which is the same number of billable days as the year-ago period, and one more day than 2025. We typically see a low single-digit decline in revenue from the fourth quarter to the first quarter despite the increase in the sequential billable day due to a seasonal reset that occurs annually. Our quarterly estimates do not include any acquisition and strategic planning expenses. As we highlighted during our Investor Day, we are streamlining our technology systems and deploying strategic efforts to generate sizable structural cost savings for our business. These cost savings are progressing as planned and will ramp up further over the coming quarters. Our first quarter guidance incorporates two additional considerations. With regards to adjusted EBITDA margin, the first quarter typically sees an approximate 100 basis point decrease sequentially related to our annual payroll tax reset. In addition, our first quarter guidance does not include a contribution from Quinox. Quinox is expected to generate low to mid-teens revenue growth in 2026 over 2025 revenues of approximately $100 million. We anticipate nine months of Quinox's 2026 revenues will be incorporated into our full-year financials. Quinox also anticipates adjusted EBITDA margin in the low 20% range for the year. With that as background, for 2026, we are estimating revenues of $960 million to $980 million, net income of $25.8 million to $29.4 million, adjusted EBITDA of $93.5 million to $98.5 million, and adjusted EBITDA margin of 9.7% to 10.1%. Thank you. I'll now turn the call back over to Ted.
Thanks, Marie. We entered the New Year energized by the progress we've achieved and the robust foundation we've established. Our strategic initiatives are firmly in place, and our strong balance sheet and disciplined approach to capital allocation empower us to pursue growth opportunities with confidence. The acquisition of Quinox is a great example of our M&A playbook in action and directly aligns with the strategy to enhance our digital engineering and global delivery capabilities, as we highlighted at our recent Investor Day. The upcoming launch of Everforth, our new unified customer and investor-facing brand debuting in the first half of this year, also marks a transformative step in our Next Wave growth strategy and will enhance our operational efficiency and scale. Ultimately, by integrating cutting-edge technology, world-class engineering, and deep expertise, we are very well positioned to adapt and thrive in today's rapidly evolving AI-driven business landscape. That concludes our prepared remarks. I want to thank all our employees for your incredible efforts this past year. Your unwavering commitment to our clients is evident and will most certainly guide us to success in 2026. With that, let's open up 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 key. 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.
Thanks so much. I wanted to focus on, I guess, your M&A strategy. If you can tell us what is your focus? I know you've been a little bit more acquisitive over the past. What are you looking for? How comfortable are you in terms of continued leverage?
So, Jeff, thanks for the question. I'll just go back to the Investor Day. Organic growth is always the primary focus. We're beginning sequentially and soon year over year to get back to organic growth rates on a positive basis. If you think about the acquisition strategy, overall at the highest level, it's identifying solution capabilities that we see are in the greatest need of our enterprise clients, and then pulling those acquired solution capabilities across our enterprise account base. Our acquisition of GlideFast and the ServiceNow ecosystem was a great example of that. Our acquisition most recently of TopLock within the Workday ecosystem was another example. And now with Quinox, real digital engineering capabilities, deep and complex systems, and the ability to deploy that across this account base and gain an offshore platform delivery capability was the point here. But again, it's solution capabilities that we see are in demand. We see these needs because we're sitting at the table with our clients understanding their strategic IT roadmaps, and then we can pull back from that and say, can we position for that organically or is this an opportunity to buy versus build from an M&A standpoint? Regarding leverage, post-acquisition we expect to be at 2.9 times, which I would say is still modest leverage. We need confidence in our numbers going forward, confidence in the target and their ability to generate the revenues and EBITDA they expect, and a pathway to delever back below our target of 2.5 times. All three of those things are in alignment this time. From past acquisitions, when we've made larger platform acquisitions, we've levered up to about 3.8 times on several occasions and delevered back below our target of 2.5 within eighteen to twenty-four months.
Okay. Great. Thanks so much.
Thank you. Our next question comes from the line of Tobey O'Brien Sommer with Truist Securities. Please proceed with your question.
Thanks. Along the same lines of acquisitions, how do you think about the capital allocation tension between buying back your stock, which is at a multiple that you can see, and buying commercial IT consulting businesses that carry higher margin and usually are growing more quickly than the mothership but also fetch a premium to the aggregate multiple of the company?
Tobey, doing share repurchases is a very accretive action where the stock is trading today. But we must be mindful that share repurchases are a permanent retirement of capital, and we also need to invest in the firm organically and through M&A to position the firm for the future. We are fortunate that at this scale we can do both. Both are accretive. The acquisition is accretive to growth rates, gross margins, EBITDA margins, cash flow, and strategy. The two actions work hand in hand. You cannot be all one or the other; you need a strategy that balances both.
Okay. Then for the government consulting business, what's your outlook for that? ODBA funding has been sort of slow to percolate through and work its way into actual contracts and revenue and profit. We do have a budget behind us. What do you think there's an opportunity for your book to bill to materially improve with the convergence of those items over the next two or three quarters?
We were where we were coming out of the third quarter. The difference was the shutdown, which slowed things down for a number of weeks longer than anyone anticipated. In the back half of the quarter, award activity was moving along. In January, we've been dealing with getting past that shutdown, which by and large we have, except for some matters at the Department of Homeland Security. As that gets resolved, the cycle is moving. I expect award activity to be strong in the areas that are getting budget support, particularly Department of Defense, security, and intelligence. We are well-positioned for that. Timing remains the variable; we expected heavy awards in the first half of the year with growth realized in the second half, and I think that remains the case.
Okay. The last one for me, if I can sneak it in. With respect to gross margin, within government consulting, what's a reasonable sustainable range for gross margin here in a, hopefully, a post-Doge world?
To your point, with Doge, we will lap it in March 2026. We've consistently said it represented less than 2% of total revenues, probably equating to about $15 million. On a steady state basis, federal gross margin is probably closer to 20%, and possibly a little above that.
Thank you. Our next question comes from the line of Surinder Singh Thind with Jefferies. Please proceed with your question.
Thank you. Ted, can you provide maybe a bit more color on this idea that the client demand for AI is beginning to pick up, and you're starting to see demand drive on the consulting side of the business? Maybe talk about the push-pull versus are there offsets within the staffing business or how should we think about the clients' desire to really transform and use your consulting side, but then maybe internally they want to use some of the tools to be more efficient. What's the impact on staffing?
On the staffing program, that business is relatively steady. I don't see a lot of movement either way in terms of overall volume. The business is at a moderated level because clients are changing buying behavior. They used to open staffing widely and let resources flood in for internal projects; now they are being more judicious. Controlling spend is also a way they control outcomes. Clients are investing in technology outcomes on an outcome basis with clear scope, delivery, and return. I don't view AI as a direct one-to-one offset to staffing; it's more about how clients structure their investments and the move toward outcome-based engagements. Shiv can add on the demand picture.
You're right that AI is a big driver of demand across a spectrum of use cases, both industry-specific and horizontal like customer service. There is a lot of work around readiness and modernization of the application stack as well as data. Even clients that have done readiness work are finding that scaling is still challenging due to interoperability, lack of a framework to manage massive AI applications, governance, and traceability. Demand exists across the spectrum: getting ready, scaling, governance, and productionizing AI.
That's helpful. And then as a follow-up with Marie, could you maybe elaborate on the cost savings plan and what it means for 2026? I think in the prepared comments, you talked about generating sizable structural cost savings that will ramp up over the coming quarters. Any color around magnitudes, run rates, anything like that would be helpful.
We noted a net $80 million of cost savings over a three-year period. We indicated that the cost savings would be moderate in 2026 but really build in 2027 and 2028. The reference in the prepared remarks was also to the acquisition integration and strategic planning cost of $10.7 million recorded in the quarter.
Thank you. Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.
Thank you. The commercial consulting growth was nearly 20% year over year. Can you talk about the mix of that? What was project-based versus longer duration manager platform-led work? And then tie that into your thinking about revenue visibility in 2026?
We've seen growth across the board. A lot of it is transaction or project-based implementation work, including around our platforms. We've seen significant growth in application engineering and services, and our data and AI work is also growing rapidly. The mix includes longer-term projects and implementation-driven projects. We're also seeing more fixed and fixed-price improvements from a project perspective. Our strong bookings for the fourth quarter, with a book to bill of about 1.3, provide a healthy platform to build on. As we pivot our business, we are improving the longer-term piece of consulting, but it is still ramping. We continue to convert bookings into revenue over time, and that conversion often shows up between Q4 and Q1. The mix is improving, which supports better revenue visibility over time.
Thank you. Can you talk a little bit from an end market perspective? Healthcare and consumer and industrial look pretty good. What are you seeing in terms of financial services or TMT? Any early commentary on budgets for 2026 from clients now that they finished their budgeting processes?
Demand is steady to moderately positive. Sequential improvement was seen in four or five industries from Q3 to Q4. In financial services, the sequential improvement was outside of the big banks, where we are waiting for a pivot. We're still trying to get a better read on big bank demand. On the staffing front, requisitions and flow of demand are holding steady. We are seeing more uptick in TMT and software and services due to data center build-out and demand for those services.
Sequentially, four or five industries were up Q3 to Q4, which is positive. For the fourth quarter, three of the five industries were up year over year. Progress is being made, but we need an inflection in the big bank area to contribute meaningfully to overall growth.
Okay. Thanks, Ted.
Thank you. Our next question comes from the line of Kevin McVeigh with UBS. Please proceed with your question.
Great. Thank you so much. Hey. I just want to clarify. Was there any impact in the quarter from the government shutdown?
There was a small impact from the government shutdown during the quarter. We had mostly programmed for it at the beginning, but it went on a few weeks longer than we thought. It wasn't material to the outcome for the entire quarter.
Got it. It's helpful. And then if you could on the offshore capability through Quinox—are those capabilities enhancing what you have, or are those just new capabilities that you're bringing offshore?
Quinox brings new capabilities offshore. We have a very small presence in India today driven by past acquisitions, largely around platforms like ServiceNow and Infor. Quinox brings a whole new set of complex, mature delivery capabilities across the lifecycle: application modernization and management, modern application development, digital integration capabilities, and platform-specific capabilities around Salesforce, Calypso, and SAP. It's a lot of incremental, advanced capability for a global delivery model.
That's helpful. And then just my last one real quick. Do you have any contracts with DHS?
Yes, DHS is an important pillar customer for us. We do a lot of cybersecurity work and other services for them. As they adjudicate funding, there are certain matters at play, but none of those affect our work materially. We do not operate in areas that touch the contentious elements in that funding conversation.
Great. Thank you.
Thank you. Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.
Hey. Good afternoon, and thanks for taking my questions. Ted, Shiv, I'd like to step back to your initial commentary regarding AI. When you're looking at your client base writ large, to what extent are you seeing them just focus on AI? To what extent are you seeing some clients stall on legacy or traditional SaaS implementations because they wanted to see how AI would shake out and now are proceeding with projects they previously stalled? Are you seeing any release of pent-up demand? When we think about the industry groups that are picking up and seeing good sequential growth, to what extent is that pure AI-type projects versus more legacy or traditional projects?
We're not seeing large client signals that they are stopping implementation projects because AI will replace those platforms. Enterprise platforms remain critical because of their interconnectedness to workflows and where canonical data truth resides. We're seeing healthy demand across our capabilities. Application engineering services cover both legacy technologies and new product development. Data and AI are growing very fast for us with work in data and pure AI use cases, governance, scalability, and trust. Demand patterns are healthy across the solution stack; we are not seeing a massive shift of funds from traditional implementations to AI projects exclusively.
Great. That's what I thought. Then with regards to Quinox, it looks like they have between fifteen hundred and around two thousand people. Is that kind of a bench model? How quickly can that business scale with cross-selling into your base? And what sort of gross margins do they typically produce?
Your numbers are in the right range; Quinox is roughly between 1,500 and 2,000 people. It's a robust platform that can scale rapidly depending on how we choose to deploy it across our base. They run a well-managed talent supply chain with attrition roughly half the industry average, which helps scale. Gross margins are in the high 30s to low 40s, and EBITDA margins are in the 20s.
Mark, compared to past acquisitions, one notable difference is the potential speed of revenue synergies because of Quinox's ability to scale on their platform in India and our client demand for their capabilities. We could move faster on revenue synergies in the first year than with a typical acquisition. We'll be thoughtful about picking targeted opportunities and executing, but the ability to scale quickly was a major attraction of this acquisition. We saw a similar opportunity with our nearshore operation after the EnerSys acquisition.
That's great. Thank you.
Thank you. And 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.
Great. Well, thank you, everyone, for attending our fourth quarter and 2025 earnings release, and we look forward to speaking with you in a short number of weeks in April on our Q1 2026 earnings call. Have a great evening.
Thank you. And this concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.