Hi, good afternoon. This is Heather Balsky, BofA's Business and Information Services analyst. I want to welcome you all to our fireside chat with ASGN CEO, Ted Hanson, and CFO, Marie Perry. It's really great to have you both at our conference. We appreciate it. Before we start, if anyone has a question, we'll check in, but otherwise we've got plenty to cover. Let's get started. I want to kick off by asking you to walk us through your key verticals and the type of work you do and how your business is different than your typical staffing company. Okay. First of all, thanks for having us. We're happy to be here to talk about ASGN. ASGN is an IT services player at scale in both the commercial and Federal Government markets. About 80% of our revenues are in the commercial market and about excuse me, 75% in the commercial and about 25% in the federal market. Our customers are typically large enterprise accounts, really good, solid industry diversification in those large accounts. Financial Services, TMT, Healthcare, Consumer Industrials, Business Services and Aerospace Defense, which all break out into about 50 subsegments. No one industry is more than another. I think providing technology services, doing it to large enterprise accounts who are the biggest and most stable spenders on IT is a good place to be. Our business, our legacy business grew up as an IT staffing company, but we've evolved into IT solutions and consulting, you know, there are those components as well. About 50% of our business is IT consulting in federal and commercial, and about 50% is our legacy IT staffing business. It's helpful. On the consulting side, you work alongside some very large players. Can you help us understand where ASGN fits into the competitive landscape? Sure. Well, if you think about the pyramid of technology, you know, there's strategy, architecture, and design at the top. There's what I call technical support or technical resources at the bottom, which is where we grew up. Now we're being pulled up into the middle of the pyramid. Often, some of our consulting competitors, whether it's the Big Four firms or someone like Accenture or others, are helping clients with their digital roadmap and the strategy, architecture, and design. The client is then pulling us up into the pyramid to help execute the work. There'll be projects and steps along the way to accomplish that roadmap. Customer is making decisions on who they wanna use based on capability and price points and other things. We're getting access to that, which is a lot bigger marketplace, than our traditional business in IT staffing. That's helpful. Then in your commercial business, what are the types of projects that are fueling your sales right now? On the IT staffing side, we provide technical resources of every skill set to large Fortune 500 and 1000 accounts. It's really everything, if you will, there. If you think about the commercial consulting side, we have a practice in what I call workforce mobilization, or we call that, which is bringing project teams together to accomplish a certain piece of work. Think about service centers, software development centers, that kind of thing. We have practice in modern enterprise, which is working on enterprise applications. Could be upgrades, playing a part in an implementation, optimizing, those type of things. We have practices in digital transformation. Think about ServiceNow. We're one of the largest Elite Partners of ServiceNow in the U.S. Cybersecurity, right? Mobile applications, moving things to the cloud. Those are all about today's kind of evolving digital transformation marketplace, customers trying to automate workflows and build systems that help them be more efficient but also reach their customer. Great. There's been a lot of disruption in the tech industry recently, including layoffs. Is that relevant to what you do? Does it impact demand? Does that impact demand from your customers? Look, it can. I think a lot of what's been in the news around the layoffs in the tech sector have been about tech accounts, not necessarily in-demand technical skill sets that they need in their organization. The tech company's clearly overbuilt. That's all you hear from them these days. A lot of that was in sales and marketing, corporate administration, recruiters, all kinds of different things. Our view is that's most of what's falling out in these layoffs. There could be some technical workers who were focused on legacy or less important areas of the business, and they could be coming out as well, but it's more the former than the latter at this point. It has made that industry difficult because they're going through a transition here. As a piece of our business, there's a little softness in the TMT vertical, and we'll just have to see how that develops from here. Got it. What about loosening of the job market? Are you seeing less labor tightness for tech workers? You know, if so, is that a positive or a negative for you guys? What's the general environment for labor availability? Kind of related to the last question. As we do see some technical talent coming out of sectors like TMT, they're quickly being absorbed into other places, right? Financial Services kinda take the news about one or two banks this week has been a strong place to be, you know, and still is a productive part of our business. Think about Healthcare, that's certainly a good industry to be in. The government is on a much better footing this year than they were last year. That's a good place. You're seeing these various other industry verticals suck up any talent that may be out there. I would say there's some loosening, but it's a transition, if you will, maybe of workers from one industry to another. Whether that's good for our business, I mean, that's just part of the business. We would always say that industry view is the best way to think about the business. Economic times, good times and bad, ripple through industries at different rates, right? The Financial Services sector is always the biggest, fastest, most consistent spender in IT, right? Followed by TMT, followed by Healthcare and Consumer Industrials, and the last, obviously, is the government, woefully behind, right, in IT modernization. I think we're seeing that kind of pattern play out today within the, you know, the industry perspective of our business. That makes sense. You know, you talked about softness on the TMT side. You know, within your commercial segment, there's been some deceleration in sales. You know, where are customers pulling back? Why? On the flip side, where is demand still strong? Yeah. Maybe a couple dynamics at play here. First of all, in our commercial segment, right now we're fighting incredible comps. You know, we grew over 20% in the first quarter of last year in commercial. In certain parts of that business, we're in excess of 25%. I think that's a thing here. I think also here in the first quarter, everybody is kind of wary, all businesses. I know in our business we're wary, right? We're watching spend, seeing how the year's gonna develop. Is there gonna be a major event here that we need to deal with and not get ahead of ourselves? I think our clients, by and large, have some of that same posture on new work, right? On existing work, they continue on, you know, if you will. Some of the customers that we have in our portfolio that you read about in the news, in the tech sector that you would think would be down, they're still there spending. They're just doing different things. They're transitioning from legacy areas to more important areas. I think it's a mix of all those things, if you will. You think about our business, get away from the industry piece for a second and think about the services or solutions we offer to the client, we have high-end IT solutions to the Federal Government, that is, very strong. There's good budget there. We practice in cyber, AI, machine learning, cloud, IT modernization, which are all in high demand in the government. That's 50% of our consulting business. The other 50% of our consulting business is Commercial IT consulting. Demand there remains good. You know, it's across sectors. It's in areas that we talked about earlier, bookings and revenue flow there this quarter have been as we expected. The piece of our business that's more likely to have a softness to it in the service offerings is our legacy staffing business, that's because it's a little bit more transactional, right? The customer has more discretion to just say, "Hey, I'm gonna slow this down," there's a more immediate impact of that. They have a chance here to pick and choose what do they continue and what do they slow down on. That's kind of how we see it ripple through the business. Yeah. You know what? That kind of bridges to my next question, which is, if the environment stays difficult and if it worsens, like there's still talk about recession, hard landing, all that stuff, you know, where is there resiliency in your business? Go back to the order I just went through. The most resiliency in the federal part of the business. When you have a disruption in the commercial market, right, a dip in the economy or business cycle, then naturally the government continues to spend and even spends more to try to spur the rest of the economy. You're seeing that kind of play out right now. Next would be commercial consulting. Those are projects that are under contract, funded, and we're working them over a period of 12 to 18 months after we win. When you see our bookings number in commercial consulting, you know, every quarter, you can kinda use that as a forward indicator of what's the next 12 to 18 months look like for that piece of the business. Then the other piece of the business, which is the legacy staffing piece, IT is gonna be a little bit more stable, but it is expected to be softer and down. Then creative and our permanent placement business both are gonna be more discretionary to the client, so there's gonna be more pressure on those pieces of the business. The good thing is they are only about 15% of our commercial segment. So, you know, it's a thing, but it's not a big thing, if you will. Yeah. Just on the consulting side, I think we've talked about this in the past, you know, just your confidence that your consulting business can grow even in a recession and how what we saw in 2020 and even going back as far as the financial crisis before H&N bought the consulting business, like how does that inform your view? Yeah. Good question. One thing I try to remind investors and you as you look backwards, there's not a dollar of revenue in ASGN today that was there in 2008, 2009, right? When Apex came into the business, which is how I got here in 2012, we totally pivoted the business away from its historic business and more focused on technology. My two data points, if you will, are being with Apex during 2008 and 2009 during the great recession or financial crisis. We had a flat two years there, and then in 2010 grew 40% coming out of that. All right? In COVID as another data point, we saw something play out similar to what we're seeing today, softness in creative and permanent placement, better stability in IT staffing, but strong contribution from consulting, both commercial and gov. We basically were slightly up for the year and maintained a flat EBITDA margin profile, right? I know that's not, you know, what we went through in 2020 is not what we're going through today, but I think it's a data point, if you will. You know, that kind of informs how we think the business will perform through the next few quarters. That's helpful. You brought up permanent staffing. You know, it is generally the most cyclical part of staffing business. You know, how should we think about that risk from a sales perspective? Then also, how do we think about it from a margin perspective? Right. We're very careful here with that part of the business because it's very vital both ways. Our path here has been, it's a service offering the client wants at times. We need to be able to deliver it. It's about 3.5% of the business right now. That's a pretty good spot to be. If it goes down as it did during COVID and during the great financial recession, so be it. You may have a little bit of a business mix issue on the margin, but it works itself out over a period of time. Okay. In November, you talked about getting to $6 billion in revenue and Adjusted EBITDA margins of 12.1%-12.4% by 2024. You're almost there. Exiting 2022, you're at 12.2%. What are the key drivers for revenue and margin expansion through 2024 to get to your three-year goal? Right. overall, it's driving our consulting strategy forward and leveraging our IT staffing capability to fulfill that, which differentiates us from the big traditional consulting firms. When we have a similar capability to bid and win work. We have great sets of quals like the big traditional staffing consulting firms, but we deliver our project teams on a contingent basis, not permanent. We don't have to deal with big issues around utilization and other things. That allows us to be more price competitive and also bring resources that are a more perfect fit to each project, right? That's how we differentiate ourselves. If we continue to drive... Today, when we started this plan, I think 40% of our business was in consulting between commercial and fed. Today, it's 50%, right? Tomorrow, we're on our way in this plan to something like 55% or closer to 60% consulting versus staffing. As that happens, those are higher value, higher margin services that we're providing to the customer. They come at better gross margins and EBITDA margins, and they have the fastest growth rates, if you will. I think that that not only is gonna, you know, obviously this is important to the customer and raises our profile with them, but also as it relates to our growth and margin story and our targets, allows us to kinda continue to lever into those ranges and then above. It's helpful. I wanna touch on your government business, which you've, you know, talked about a little bit today. It seems like that line of business is starting to pick up as RFPs ramp. There was a press release, I think, this week. Right. I think it was this week. It was. It's been a long week. Yeah. What does your pipeline look like, and how do you feel about growth over the next few years? If you go back into 2020 was a big year for the government, because again, this dynamic was playing out where you had the commercial marketplace down in some industry sectors. The government was spending heavily in certain IT areas and to support kinda pandemic tracking and response and what have you. Coming out of that, there weren't favorable budget trends in the Federal Government. It was a pretty tough 2021 and 2022. In 2022, we got a new federal budget in place. It was up 7%-10%, depending what area of the government you're looking at, defense civilian, etc. Those awards began to hit the street in the middle of 2022 and big awards at the end of the government fiscal year at the end of Q3, calendar Q3. We, like some of our peer group, had really good booking, new bookings numbers for that quarter. It was about a 2.1 book-to-bill for us. What you've seen in the fourth quarter of last year and now in the first quarter is a ramping up of that work. We've got organic growth rates going in our federal business, and our guidance implied the same going into the first quarter. It's a, there's a much better marketplace because of the budget that's in place. We're in the right spots. We call it the fast currents of where IT is gonna be invested in by the government. We look for a good growth year this year and beyond. You know, you recently... It feels less recently, again, it's been a very long year, or 2022 into 2023 has been. You recently acquired GlideFast, which provided you exposure to ServiceNow offerings. Can you talk about first what attracted you to GlideFast? Sure. Well, I mean, this is a great example of, I think, acquisitions that you see us will follow in the future. We had ServiceNow as an enterprise application on our shopping list for M&A. We had it on the list because we see all of our clients' needs in these large enterprise accounts, and we can make decisions about what hot, what's hot, what has legs for the future, what can we add to the portfolio by building it organically, and what do we need to go out and acquire, right? A ServiceNow Elite Partner status was something we knew we needed to acquire. It took about two years, but we met GlideFast at a mutual customer sitting side by side, so it was a proprietary deal. We're able to close that last July, and they are now two years running the North America Elite Partner of the Year for ServiceNow. It's a, it's a very high-end business and an application that's being used by every one of our customers, and it's still on the front end of customers using this particular piece of technology to really provide the digital layer in front of all their other e-enterprise applications in a, in a, you know, to automate workflows, to tie applications together, to get single sign-on into environments to use so that you have better workflow automation. We think that this business has a lot of legs for the future. They're, you know, now three quarters integrated, doing great, hitting numbers, you know. I think that's going very well. I was gonna ask you how the integration is going. Yeah, yeah. It's pretty good. I think we also said in the fourth quarter, in the first six months, we won 25 new deals together between Apex and GlideFast. You know, everybody needs to hit their own numbers when they come into the portfolio of ASGN. The end game is to get these capabilities and pull them across the account base that we already own, right? We work with 60% of the Fortune 500 and 1,000. That's where the real future is, and it was good to see that hit early and, you know, in a substantial way. Yeah. you know, in terms of your M&A plan, are you still planning to spend $1.25 billion, $2.1 billion on M&A? you know, within that question, how does your pipeline look today? If you go back and think back to those three-year targets, I think we said organically we would have 7%-8% growth rates on our organic, then we would add that amount of capital deployed on M&A. I would say through the first year, so 2022, ahead on organic growth pretty well, and right on pace as it related to acquisitions. We spent about $500 million of capital in 2022 on acquisitions. The first piece of that was GlideFast, then in the fourth quarter, we purchased a cybersecurity firm in the Federal Government marketplace who serves mostly fed civilian agencies. We already had a business that was serving the Department of Defense in Cybersecurity. Now we're able to put those two together as a center of excellence and serve more customers across the whole government. If you think about 2022, I'd say that part was right on path. This year, obviously, deal flow is slow for all kinds of reasons. It's not rocket science. It's dislocation between valuation of buyers and sellers. It's the financing markets. It's wariness of both parties about what's gonna happen this year. There are still things coming through the pipeline, but the volume is less, and so we'll have to see what we can get done this year. You're the second person I've talked to today who mentioned the dislocation is still there. Has it narrowed a bit, or is it still kind of where it was? You know, it's not a perfect analysis every day like the equity market. You kinda see it and it's chunky, and you see it when you see a deal and see what expectations are. I would just say, have they narrowed? Probably. Are they all the way there yet? No. Yeah. You know, there's probably more room to go. Makes sense. By the way, the best businesses that have 20% plus growth rates and 20% EBITDA margins in high, high-value solution areas like we were talking about earlier, are still worth, maybe what they were before, but there's still just a disruption there that, you know, businesses are not wanting to come to market and buyers are being very cautious. Yeah. Yeah. Makes sense. I guess you just mentioned the sort of growth type numbers and margin numbers. You know, what are your priorities in terms of acquisition targets? You know, are there specific product areas where you see white space opportunities right now? We're always looking for really good solution capabilities with industry expertise. For example, LeapFrog was an acquisition that we made in 2000 actually, after later in the year after the second and third quarter disruption. Really good capabilities in digital transformation in wealth management. After that, acquired a business called Avaap, which was focused on healthcare enterprise solutions. So brought us really good capabilities there. Service, the GlideFast business is more unique in that we typically don't acquire elite partners, you know, of individual software packages. We did in this case just because of the uniqueness of ServiceNow. I think you'll continue to see us pursue consultative capabilities with industry expertise in the areas that we serve that I mentioned earlier. In the Federal Government space, we're trying to build on the pillars that we already have, which are cyber, AI machine learning, cloud, and IT modernization, but also get attractive customers and contract vehicles when we do make those acquisitions, putting all that together. AI machine learning obviously would be an area we have a real pillar of strength there and that we would like to add to. Those are some examples. That's helpful. Just in case, I wanted to see if anyone might have a question. Otherwise, I'll keep going. I'm gonna keep going. You know, we talked about consulting, but your 2024 targets, they assume commercial consulting get to 29% of your sales mix. What gets you there? Do you think commercial consulting can become a bigger part of your business than assignment over time? The answer to the second part is absolutely, and it's already happening. Right? Our business in consulting is now 50% of our revenues. It's growing faster than the legacy IT staffing part, just naturally, it's gonna be the biggest part of the business. The second thing is the addressable market. When we were a best-in-class IT staffing firm, still are today, it's about a $35 billion marketplace across the U.S., we're one of a, what I'll call the big three providers, if you will. The growth there is kinda single-digit type of growth. When we entered into the IT consulting market in the commercial space, it opened up a $300 billion total addressable market to us. When we made our acquisition in federal of ECS back in 2018, it gave us a prime player in high-end IT solutions in a $180 billion marketplace in the government. We have more than 10 times expanded our total addressable market, and for sure that's gonna be the biggest part of the business in the future. I wanna ask another question for your commercial business, and this may relate more to your staffing, you tell me, but I think something that's come up when I've talked to you in the past is your customer relationships and who your customers are. You know, there's some interesting dynamics there, I think, in terms of your ability to kinda sell to them. Just give it, especially as a lot of companies, you know, narrow in on the number of vendors that they work with. Right. You know, I'd love to hear you talk about that a little bit because I think it's interesting. Yeah. I don't think I'd be starting an IT staffing business today. 25 years ago, when the business was started, I think there were really no barriers to entry. If you could go knock on the door and build a relationship, you could do business. That's not today. Today in the Fortune 1,000, not only are you serving the CIO or CTO and all of their organization, but you're also serving procurement, right? What procurement's done is put a lasso around all the spend in a particular area and tried to manage it in a more efficient way. What that has done is build barriers to entry to have others enter in. Being a business as large as we are, being in all these programs, we're getting access to more flow, if you will. The competitor set is not growing, it's actually shrinking as the procurement teams try to select out players that don't have size, scale, and capability, if you will. I think that's not a new dynamic that's been going on for a few years here. I think it supports the business in the future as well. Because not only in the current accounts do we have a much bigger opportunity to increase market share, and that's where most of our growth is gonna come to from during this three-year plan, but we're winning accounts, the other part of the Fortune 500 we're not serving today, because of our size and scale, and we'll be part of the growth story in the future. Kind of moving from revenue and drivers of growth there, you know, there's capital allocation, you know, your capital allocation strategy. You know, in 2022, you acquired two businesses, as you mentioned earlier, and you also bought back about $2.8 million shares. You also generated $270 million in free cash flow for the year. You know, where do you see the company focusing its spend going forward? You know, we talked about the M&A budget. Is that still a Is that still top of mind in 2023, or where else might you put excess cash? You wanna take that one? Yeah. We say our best use of capital is acquisition. You heard Ted talk about the two acquisitions that we did in 2022, prior to that. We've proven that that is truly our best use of capital. With that said, and Heather provided the numbers, $270 million in free cash flow, we say about 60% of our EBITDA converts into free cash flow. We have significant cash flow. There's actually the opportunity to do both. Acquisition, when the markets are available, then the opportunity to buy back our shares. Pretty good move on share repurchase, bigger than we probably thought going into the year last year. Yeah. We still have a large authorization open and ready. We think our shares are an attractive and certainly accretive place right now to be buying back shares. You'll see us do both, you know, to Marie's point. Really for the future of the firm, the growth and the return for shareholders, M&A is, you know, our highest and best use. Yeah. I wanna ask just another question. We touched on margins, but on, you know, uncertain environment right now, it's been a, you know, common theme this week in particular. You know, what are the levers you guys have in an uncertain environment in terms of, you know, your business and where do you have a little bit of control and resiliency? Yeah. We talk about our automatic stabilizers. Yeah. One of our automatic stabilizers is our variable cost structure. When you look at our SG&A line, around 80%-85% is compensation. It's salary, it's commission, it's bonus. That actually adjusts when revenue adjusts. We have the ability to have natural attrition in that line as well. We saw it in 2020, and I know that was a very V-shaped kind of recovery, but you saw from Q1 to Q2 revenue softening, but our margins actually stayed relatively the same. Yeah. Right? As a result of that, it actually just helps stabilize our P&L. There's a bit of a timing, right? It doesn't like if your revenue soften in one quarter, you might not see it exactly in that quarter, and it might take, up to the second quarter to happen. That variable cost structure. Makes sense. That's really helpful. I wanna thank you both for participating in the conference and for your time. This was really helpful. It's great to have you. Thanks, Heather. Thank you. All right. Thank you. Yeah. Thank Yeah. Thank you.