ASGN Inc (ASGN) 2024 Q2 法說會逐字稿

Greetings and welcome to the ASGN Incorporated second quarter 2024 earnings call. (Operator Instructions). I will now turn the conference over to your host Kimberly Esterkin of Investor Relations. You may begin.

Good afternoon, and thank you for joining us today for ASGN's second quarter 2024 conference call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Marie 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.asgm.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 Ted Hanson, Chief Executive Officer.

Thank you, Kim. And thank you for joining ASGN second quarter 2024 earnings call. ASGN's results for second quarter confirmed our expectations that macro conditions in Q2 would be consistent with Q1. Revenues were $1,035 billion, while adjusted EBITDA margin of 11.3% was at the top of our expectations. Consistent with the first quarter in Q2, our clients continue to acutely focus on where and when to spend against their IT budgets. Their long-term IT roadmaps and priorities have not changed.

However, concerns about protecting their bottom lines continued to drive cautious execution. This behavior is not unique to ASGN customer base. On a recent call hosted by the Global ISG Index for the second quarter of 2024. Their team of experts concluded that new bookings and hiring remain muted and headwinds such as high interest rates inflation, geopolitical unrest in the impending US presidential election continue to hinder increased IT spend.

It consulting revenues totaled 57.1% of consolidated revenues for the second quarter of 2024, up from 53.1% in the prior year quarter. The evolution of our revenues is not reflected in our financial statements, but has also been acknowledged by equity market indices. In May, in recognition of the pivot in our strategy, the joint S&P and MSCI committee responsible for the GICS Code classifications, officially switched ASGN's GICS Code from the industrial sector under human resources and employment services to the information technology sector under IT consulting and other services.

With each accomplishment, whether that be increasing our IT consulting revenues and ultimately overall company margins or receiving a new GICS Code. We're making measured strategic progress toward our goal of moving up the IT services pyramid into higher end, higher value IT consulting solutions.

Our progress towards this goal will be driven by continuing to nurture our long-standing trusted client relationships, which like our variable cost structure our cornerstone of our business model. Our large account portfolio across six diverse industry verticals offers us first-hand insight into our clients' investments and long term IT roadmap.

As we position ourselves for the future. We remain committed to fostering these relationships and supporting our clients with critical IT needs. I'll provide some more details about how we are staying ahead of our clients' IT needs and in particular, those related to AI as we discuss our segment performance. Let's begin with our largest segment by revenue, commercial.

Our commercial segment services Fortune 1,000 and large mid-market companies. Commercial segment revenues for the quarter declined by low double digits year-over-year due to continued softness in the more cyclical areas of our assignment business. Despite a softer macro economy, our strategy to expand our IT commercial consulting business is working.

Commercial consulting revenues were essentially flat year-over-year on a difficult prior-year comparison, but improved 1.6% sequentially. Commercial consulting bookings of $327.4 million, plus our book to bill at 1.2 times on a trailing 12-month basis.

From an industry perspective, we saw year-over-year growth in one of our five commercial verticals. TMT revenues improved 7.2% compared to the second quarter of 2023, led by double digit growth in telecommunications and e-commerce. Sequentially, TMT revenues improved 8%, while consumer and industrial revenues increased 3.1%.

Taking into account the additional billable day in Q2 2024, we also saw sequential growth in 10 sub-verticals, including regional banks, diversified financials, utilities, materials, consumer discretionary telecommunications, e-commerce, tech hardware, software and services, and business services. Although it remains encouraging to see these sequential improvements, we believe we have not yet seen an inflection point in IT spending.

As we move up the IT services pyramid toward higher end consulting work. We are adding new skill sets to our project teams, including solution architects. Our ability to add advanced skill sets to our project teams offers the opportunity to improve our margins, expand our contract sizes in lengths and enhance our industry vertical performance. It also reflects the high value our clients attribute ASGN to solve their complex IT problems.

Identifying use cases for Gen AI is one of those complex problems. While use cases are growing, we are still in the early stages of AI implementation. ASGN's solution capabilities across disciplined enables us to differentiate our AI services and so we are deploying a multilayered approach to our AI new business efforts. Data is the fuel for AI, so our data and analytics practices naturally at the forefront of our AI engagements, AI is also compute intensive, so our Cloud and Infrastructure team is working diligently to create AI solution that can scale.

Finally, AI must to be secure. So our cyber practice plays an integral role in use case development. Our clients are readily relying on us to conduct business case and technical assessments to understand where to apply this novel technology. So let me provide some examples of the projects won during the quarter. We provide these engagement examples to give a sense of the work we are performing and ASGN's ability to bring a combination of IT and AI to address our clients' needs.

In Q2 for our multinational beauty company, we began implementing a pilot Microsoft fabric to enhance our clients' cloud-based [FinOps] management solution. By piloting this AI powered analytics and data platform. Our client is gaining actionable insights to better forecast and control their cloud efficiency. Microsoft Fabric is a critical priority across our customer base.

And we recently launched our first listing on the Microsoft Azure marketplace, a consulting workshop on Fabric. Participating in the Azure marketplace provides our commercial consulting practice with the opportunity to accelerate growth, increase brand awareness and importantly, build new client relationships.

In another contract won during the quarter. Our data and AI team in Mexico was engaged by lifestyle brands to develop a roadmap to implement a data solution on Google Cloud. This project involves expertise across several technologies such as GitHub, BigQuery, and Gemin-based accelerator. By following an agile approach in deploying in AI powered accelerator. Our consulting team and improve their velocity of implementation by 3 times, without sacrificing quality of service. This project is on track to hit its first milestone in Q3, a complete migration to Google Cloud.

Also during the second quarter, our Mexican delivery center supported a Fortune 500 gaming company with application development and modernization. Our technical architects GitHub trained copilot developers and program managers all collaborated closely with our clients to develop a roadmap for the creation of a custom in gaming tool. This is a three year engagement with our delivery team scaling up over the project life cycle.

Finally, another consulting project won during the quarter was a Threat and Vulnerability Management assessment performed for one of our large healthcare payer clients. Our client was looking to enhance their vulnerability management capabilities and ensure that their operating systems were up to industry standards. By migrating our clients primarily threat scanning tool from on-premise to a hybrid cloud solution. Our commercial team helped our clients mitigate future risks. This cloud solution broadened our client scanning scope and significantly reduced threat scanning time.

Let's now turn to our federal government segment, which provides advanced IT solutions to the Department of Defense, the intelligence community, and federal civilian agencies. Federal segment revenues for the quarter declined low single digits year-over-year, but improved on a year to date basis. Contract backlog was $2.8 billion at the end of the second quarter for a coverage ratio of 2.2 times. The segment's trailing 12 month revenues.

New contract awards were $194.3 million, putting our book-to-bill at 0.7 times on a trailing 12 month basis. Task orders under IDIQs won in Q4 2023 have not materialized as quickly as we originally anticipated. In addition, while our core government services revenues continue to grow lower than expected pass through licensing fees impacted our second quarter results. Marie will speak further about this topic later in today's call. On a positive note, we are already seeing a greater flow of task orders begin to be released in the third quarter. I'll provide an update on those shortly.

As we prepare for new task quarters, like with our commercial segment, we are actively upskilling our federal government professionals in Gen AI. Through our data and AI center of excellence. We are training our professionals in our proprietary large language models, along with publicly available Gen AI services such as ChatGPT, Gemini, and Copilot.

Our government teams are also earning in-demand, AI professional certification. These training and certification opportunities expand our professional skill set, enhanced our technology partnerships and provide us the ability to create internal use cases to improve ASGN's overall efficiencies.

During the second quarter, we began receiving task orders under the $1.25 billion re-compete DARPA IDIQ, awarded to our federal government segment, at the end of 2023. Our team was supporting DARPA with acquisition lifecycle solutions program oversight and expert advisory to meet their dynamic research and development missions.

At the start of July, we began receiving task orders on an $88 million single award re-compete contract with the Missile Defense Agency in which we are providing business operation and modernization support services, along with business intelligence and analytic solutions. While work began under this contract in Q3, it is reflected in our Q2 2024 backlog.

In addition to those contracts already booked in the backlog in Q2 2024, our justice solutions team won a prime spot or a re-compete award with the FBI. This [$8 billion], 8 year Information Technology Supplies and Support Services contract is the largest contract vehicle ever established by the FBI. This contract allows our federal government segment to expand the critical IT services and technology solutions. It provides to the FBI to include AI, infused IT and cybersecurity solutions. Our federal government segment has supported the FBI for over three decades, and we look forward to receiving task orders under this contract, which will add to our bookings performance.

With that, I'll now turn the call over to Marie to discuss the second quarter results in our third quarter guidance.

Thanks, Ted. It's great to speak with everyone this afternoon. Second quarter revenues were $1.035 billion and reflect the sequential steadiness we expected in our commercial segment, offset by lower than expected license revenues in our federal government segment. Revenues from the commercial segment were $725.7 million, down 10.6% compared to the prior year and flat sequentially.

Revenues from commercial consulting, the largest of our high margin revenue stream totaled $281.5 million, essentially flat year-over-year and up 1.6% sequentially. Revenues from our federal government segment were $309 million, a decrease of 3.3% year-over-year. When we spoke last quarter, I noted that we anticipated our federal government segment's performance in the second quarter of 2024 would be similar to the prior year quarter.

This assumption was based on the belief that we would have consistent level of software license revenues year-over-year, while our core services revenue for this segment continued to grow. As Ted noted, licensing revenues in the second quarter of 2024 were lower than our expectations. This resulted in the revenue shortfall for the quarter. Our commercial segment, on the other hand performed as anticipated.

Turning to margins. Gross margins for the second quarter of 2024 was 29.1%, an increase of 20 basis points from the second quarter of last year. Gross margin for the commercial segment was 32.7%, up 50 basis points year-over-year, reflecting a higher mix of consulting revenues as well as margin expansion from both consulting and assignment revenues.

Gross margin for the federal government segment was 20.6% at 10 basis points year-over-year, primarily due to lower licensing revenues, which carry a lower gross margin. SG&A expenses for the quarter were $205.6 million compared to $210.5 million in the second quarter of 2023. SG&A expenses also included $1.2 million of acquisition integration and strategic planning expenses that were not included in our guidance estimates.

For the quarter, net income was $47.2 million. Adjusted EBITDA was $117.1 million and adjusted EBITDA margin was 11.3%. Adjusted EBITDA margin was at the top end of our guidance range due to improved business mix and higher gross margins. At quarter end, cash and cash equivalents, $132.2 million, and we had full availability under our $500 million senior secured revolver. And our net leverage ratio was 1.89 times.

Turning to our cash flow statement, free cash flow for the quarter was $85.4 million for a conversion rate of approximately 73% of adjusted EBITDA. Given the market opportunity, we deployed $108 million and a combination of free cash flow and excess cash on the balance sheet for share repurchase. This is the second quarter in a row that share repurchases exceeded our free cash flow. We have $667 million remaining under our $750 million share repurchase authorization.

With solid free cash flow generation and full availability under the revolver, we have ample dry powder to make strategic acquisitions when the M&A market improves. In the meantime, we expect to continue to repurchase ASGN shares.

Turning to guidance, our financial estimates for the third quarter of 2024 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and assumes 63.5 billable days in the third quarter.

We expect market conditions and demand for our services in the third quarter to be similar to that of the second quarter. As it relates to federal government segment revenues, we had a large amount of pass-through licensing revenues in Q3 of 2023, which we are not expecting to repeat. With this background for Q3 2024, we are estimating revenues of $1.024 billion to $1.044 billion, net income of $45.8 million to $49.4 million. Adjusted EBITDA of $114 million to $119 million and adjusted EBITDA margin of 11.1% to 11.4%.

I'll now turn the call back to Ted for some closing remarks.

Thanks, Marie. We begin today's discussion with a review of the macro environment. The second quarter proved much like the first with clients continuing to position themselves more cautiously than in prior cycles. As evident from the guidance Marie just discussed, we anticipate a continued steadiness in the third quarter.

On a positive note, as I mentioned previously, government bookings have begun to pick up in the third quarter. In July, we received funding under a re-compete contract with the NYPD for cybersecurity and other system support. In addition I'm pleased to announce that we just last week were awarded a $1.1 billion IDIQ with the National Institutes of Health for NIH.

Our federal government segment is one of seven awardees who have been tasked to support the NIH over a five-year period with its critical IT needs. Once task orders begin to be released, our team scope of work will include developing data management and analytic solutions, use of AI/ML, visualizations and other advanced analysis techniques.

As is evident from these recent awards, despite the current market conditions. We have not shifted our strategy or core belief system. At ASGM we believe in the IT services sector, we believe in being more consultative, and we believe in large industry diverse enterprise accounts. These three focal areas, along with our variable cost structure, provide support to our business throughout economic cycles. Market headwinds will ultimately reverse and ASGN's business is better positioned than it has ever been to capture in-demand IT consulting opportunities.

As we expand our IT consulting business, we are adding directors and advisors to our Board to enhance the strategic vision and operational expertise necessary to forge our path forward. In June, we welcomed Patty Obermaier to our Board of Directors. Patty is the Chief Growth Officer for Microsoft's Global Health Life Sciences division. She has served as an advisor to our Board since January, and we are excited to officially welcome her and her more than three decades of IT consulting experience to ASGN.

Speaking about the topic of governance. In June, ASGN released its fifth annual environmental social governance report. We've made great strides in our ESG reporting over the past year, building upon the foundation we established in prior years, while also evolving our capabilities with key sustainability frameworks and regulatory standards.

That concludes our prepared remarks. I'd like to express my gratitude to the entire ASGN family for your support this past quarter, industry dynamics may shift and the macro economy will fluctuate, but your commitment to be one of our client's most trusted IT partners has not wavered. Thank you again for joining our second quarter 2024 call.

Operator, please open the call to questions.

(Operator Instructions) Jeffrey Silber, BMO Capital Markets.

Hey, thanks a lot. This is Ryan on for Jeff. Just a quick question on some of the dynamics around the federal government. Seems like there may be a timing shift in some of the software revenues you didn't get in the quarter and then it sounds like a tough comp on the pass through licenses in 3Q. Can you just tell us how we should be thinking about the magnitude of all those together?

So Ryan, thanks for the question. I think, obviously we've said before, but those software licenses are they ebb and flow through the quarter. So the timing of that is uncertain. I think Marie said during the script that we had planned on a similar amount of licenses to the past quarter -- prior year quarter, excuse me, and they just didn't come.

I mean, they'll come in future quarters. There always a certain amount of software licenses are part of our solutions. And so it's always a, you know, a component of that, if you will. So I think the good news is here our core business. And you know what we generate through direct labor is growing. That's certainly positive. That's the most profitable part. The business that we provide and the software licenses are needed with this solution, but they generate very little gross margin and EBITDA margin.

So, you know, but I think the positive thing for ECS here during the quarter, even though they were off a little bit on the what our expectation were in licenses. They delivered all their EBITDA and a little bit more of that expected during the quarter. And so I think you just have to expect a little bit of ebb and flow in the license revenue.

Got it. Thank you. And then just for the follow-up, can you. Can you give any color on the sequential trends during the quarter and exit rates across your business?

Coming through the first three weeks here of July business is pretty steady. So, you know, I think we had a steady Q2 to Q. We basically have here in the guide summaries giving you were looking for a similar steadiness in Q3 to Q2. What we saw during the first three weeks has been not marginally up or down for the first through three weeks of July. So you know, market conditions are not changing. They are what they are here. And so when the numbers reflect that, if you will not only quarter-to-quarter, but even for the first few weeks here.

Understood. Thank you so much.

Trevor Romeo, William Blair.

Hi, good evening. Thanks for taking the questions. First one I had was just on the commercial consulting bookings and the pipeline there. Just wondering if there kind of any trends you'd call out as far as the size and the scope of projects coming in and the weightings to renewals versus new project activity or any share you might be taking from competitors?

And then just finally, I guess are there any forward-looking indications in your bookings that would suggest any of the kind of sluggishness or caution among clients could change as we move through the next few quarters?

Well, look, I'll let Rand take that one. I'll just pass it to him by saying, what [1.2] is a solid book-to-bill for commercial consulting. It's consistent with the past quarters and the trailing 12 months, there's nothing in there that would portend anything that is better news, if you will, than what we've been seeing to date in the future or works, I think they have more of the same right Rand?

Yeah, I think Trevor a lot of question there, but size and shape of engagements about same as we've had you heard about four of the engagements we cited in the text. There's some pretty meaty work there. More tending toward what we call AI extended work getting the data and data prep ready for AI, more AI inclusion. I think it's steady as we go. We are we beating competitors, we're watching the peer numbers the same as you are and I think we're steady to them in the consulting world. The fact that we're sequentially up a little bit in the book-to-bills pretty solid I think we feel good about it. And if you look at the nature of the work and in fact, one of them is a three year project that's we're seeing, obviously, any of that we see is good and it helps us in the long term. Trevor, that give you color.

Yes, Rand, thank you. That was helpful and thanks, Ted, too...

And Trevor, could I also add that we were facing a 26% growth comp in Q3 of 2023. So even though we're kind of flattish year-on-year basis for the quarter in commercial consulting, we did see a couple of points of sequential growth and the comps are going to have kind of changed here dramatically bigger drop down in the single digits as we get into Q3 and Q4. So the picture there, as you know, is changing here, but the business is growing. It's growing steadily and we'll see what we get here.

And you can see it in our margins, right? Gross margins as consulting increases.

Right. Okay. Thank you both for that. And then just maybe a quick follow-up on the assignment business. Is there any kind of way to parse out the performance between kind of the core IT and the more discretionary creative digital and perm businesses. I think we heard from a few others in the industry about some incremental softness in on the perm side. So just kind of curious how that's trended as a percentage of your revenue and how that's performed?

Okay. Perm as a percentage of total revenue for the quarter was 2.5%, and honestly, that was pretty consistent with prior quarters.

So I wouldn't expect too much more than that. I think I've seen the same thing that so there are some reporting of kind of softness in that number, our is already soft. It's gotten down to historic lows here. The some of our creative digital marketing and our permanent placement business, which is predominantly CyberCoders, is still just under 10%. So you're not seeing a lot of change there.

So, I would just say in that assignment business overall, Trevor, you're just seeing just a little bit of weakness in our guide. What would imply just a little bit of weakness in those numbers going forward.

Okay, understood. Thank you all for the color.

Joseph VafI, Canaccord.

Hey, guys, good afternoon. Nice to see just the steady results here. Just, you know, maybe we've seen some incremental pivot and enterprise spend kind of at least in software towards kind of AI centric projects, I know you're working on a lot of that stuff.

Just kind of wondering how you're thinking about maybe some of your other service offerings here and maybe some commentary of, you know, steady funding in areas away from projects that have kind of AI kind of focus to them. And if you're worried about sustaining that business? And then I'll have a quick follow-up.

Yeah. So I'll let Rand take that one. Not a big ramp up in spending, Joe in AI, which may be distracting, if you will, from what I'll call core normal IT spending from Rand, anything you'd add to that.

No, no. I think Ted, as you said in remarks, the clients are pretty good. Look, we've got good chip. You see in the enterprise software guys like ServiceNow, today's report where they're embedding more or AI in their software we obviously are astute smart on that capability can help clients bring it to their businesses. The same is true with Microsoft and those were some of the case studies we featured.

So Joe, I would say a lot of our work, as Ted said in his remarks, prep work for further AI use cases, which are still being thought through, but all of this is going to contribute toward greater, if you will, enterprise efficiency around these big software products. And then the individual projects will come after that when they begin to translate that into a very operating specific need or problem that's being put on the table for now, it's really dealing with their enterprise systems, which again, whether it's Salesforce, ServiceNow, the ERP systems, financial systems, Microsoft, Google, they're all cloud providers. They're all visibly embedding the capability needed in their software. And now it's our job to help the client take advantage of that.

Thanks for that Rand and much appreciate it. And then just on -- and then maybe any incremental update you might have on Mexico delivery in terms of headcount, you know, additional client volumes, how you're kind of thinking that. Is there any kind of update for us there. Thanks very much.

So not a lot of change quarter-to-quarter there, Joe. Headcount kind of remain where they were utilization very high. We mentioned some work in the script that was actually assigned to Mexico delivery center. They're very focused on development of some of the things that Rand just talked about, right now, you know, in the AI enhanced area, especially in the data world. So that continues to be a good story. But I wouldn't say there's been a lot of change here from last quarter to this quarter.

Got it. And then maybe I'll just sneak one in on cash flow for the year, maybe Maria, if you've got some commentary of kind of where we are. If there's any kind of puts and takes, we should be thinking about kind of relative to kind of a normalized model on the free cash flow generation for the year? Thanks a lot.

Absolutely, Joe. Our cash flow for the quarter was approximately $85 million and the conversion rate to EBITDA was 73%. More traditionally, it's like 60% to 65% it was a little north of that. But it was really work because that was related this quarter to fluxes in working capital. And so we would probably anticipate kind of some that -- more that target that 60% to 65%.

Great. Thanks very much, guys.

Heather Balsky, Bank of America.

This is Emily Marzo on for Heather Balsky, thank you for taking the question. Wondering if you could touch on federal really quick and realize it came in a little bit softer than expected. Book-to-bill was a little bit lower and IDIQ came in late. What's going on here. How should we think about this? Are projects being delayed or is it more bureaucratic, idiosyncrasies?

So look, it's a, like I said earlier in the licenses were about $10 million off the midpoint of our range for the quarter, our commercial units delivered at or slightly above what we said. So that's kind of the delta, if you will, that we were like in the software license area for the quarter. Didn't affect EBITDA it was just purely an impact on revenues that will come in -- that will ebb and flow a little bit.

Bookings during the quarter were below our expectations. But we noted in the first three weeks here in July that we're really seeing some velocity pickup and some awards being made. Q2 wasn't about lost business, if you will, with just I think everyone pursuing certain work and it's getting adjudicated at different times. Q2 was not our moment. We didn't have a lot of stuff that was won or lost. It was just pushed off to the right a little bit. But the good news is we see a good start here in the third quarter on just in the first three weeks. And so portends that we'll get through some stuff here from a bookings standpoint. So we're expecting a good bookings a quarter here in Q3.

And if I could ask a follow-up on how you see the M&A environment and if you've seen any changes in the challenges in the environment of if it's pretty steady?

No. I think the same things that are affecting the M&A environment remain the same. It's spending. So the targets aren't feeling great about their numbers. We are questioning their numbers. You've got higher interest rates or the hurdle rates are higher on what returns need to be in order to support certain multiples so you have a discount there with the multiples.

And I think for now still, founders or private equity firms that want to sell their businesses have decided to batten down the hatches here and have some -- can sustain this for a little bit longer. So there's really no new news there, if you will.

I mean, we clearly know what we want to add by acquisition. We're monitoring those companies that we've identified that bring certain solution capabilities that weren't going to acquire in the future. We're building relationships with the principals of those organizations. So were acquisition ready for sure, Emily and have the balance sheet to do it. It's just we need the right environment here. We need to improve a little bit to that. Things can come together.

Thank you.

Surinder Thind, Jefferies.

Thank you. When I think about just the last few quarters and some of the trends, I think the general high-level commentary has been not a lot has really changed. So when I look back over that, is that another way to characterize it may be things are troughing at this point? Or just any color from client conversations in what's holding them back versus maybe what would get them to and a little bit more.

So I'll let Rand take the second half then on client trends and conversations. But our numbers surrender would tell you that things our flat, it almost looks like the first half of the bathtub, if you will. We if you go back into the middle part of last year, we had a revenue growth was decelerating and then not growing. We got into the third to the fourth quarter and things kind of flattened out. We had kind of a seasonal -- seasonably normal opening to the year in the first quarter, we will take a slight step down and things have just been flat year first to second, second to third on adjust, adjusted basis, if you will.

And I would say that's a not even that is that true for the whole business, but it's certainly true for the units individually. So there's not much change there. So if you want to call that a trough, I'd say it looks like a bathtub, if you will, and we're wondering, do we get a slope up for here -- from here when that is. But obviously, there are things here in the macro that need to improve.

Rand on the client budget and conversations side.

I think the best way to characterize the conversations are, there's two levels of conversations. The first is questions our clients have within their businesses for what's the roadmap for AI? What are the things I need to do? What's the best practice in the industry? What's working? What's not, where should we be going and thinking about it?

The second question is -- and as part of that question is what are the things we need to do to be ready to go and implement the capability we're seeing in the software vendors, the enterprise vendors as well as our own needs. The second level of questions are I've got some individual projects. We just can't stop on. We just need to keep moving.

You read about -- you heard about four of them in our text. When those projects, particularly when they're affecting security when they're instrumental to what maybe I would call longer term path, they're acting on at least what we see.

But I wouldn't say overall, they're going full force because the nature of the first set of questions. Still a lot of questions in building the roadmap as to where we're really going as a business. I think the ISG, Ted mentioned ISG in his opening remarks, they've said the same thing they had a certain outlook for when they thought things would take root. But I think our stations reflect that thinking some things have to get going and we're doing them and you read about those and other than that, it's a question of really laying out a roadmap for the future based on what really is working.

Listen, there's a lot of change. Every day, the software enterprise vendors are counting new capability, new investment in AI capability, the Fabric capability in Microsoft, for example, which is relatively new and they're all trying to take hold of that and say, how does this piece together into a true roadmap. So I think the fact that the Quest clients are still there is indicative that they're not going full force yet. Does helps?

Yeah, that does. I mean, I appreciate the color there. And then when we think about more the near term and where clients in terms of just Mexico delivery, how should we think about the bookings numbers? Is there increased demand or requests for resources out of Mexico at this point? How should we think about that as a percentage of bookings or just other color that you can provide?

Yeah. So we don't segment bookings by the Mexico delivery center surrender. The Mexican delivery center are working on US-based projects and commercial consulting. So when we give it to for commercial consulting, that includes that group of delivery professionals, if you will. But demand remains high because clients are really focused on total cost of ownership.

And so now more than ever they're looking at the mix of resources and the price points of those resources and that's a positive, if you will, for us clients many times would rather access that as an alternative to offshore, they're still selling stuff offshore but they give a lot of advantages here with the nearshore, whether it's communication, really good technical capabilities, same time zone.

So we think this is something that's going to continue to build for us. And sometimes the client knows that that team in Mexico is deployed on a certain project and they've asked for was the unit received the benefits of this went through other times, we mixed demand as just a part of the project team, and that's up to us in terms of how we put the project team together, execute the work.

Could I have also a little bit. Mexico is doing great. And we've got very involved in certain technologies like Copilot, GitHub, Fabric. We've also begun, I think Ted's mentioned past quarter to build up a little bit of an Indian offshore capability and the expertise there really around ServiceNow and AI insertions and ServiceNow platform, so which is also building and adding headcount. So to us, it's a -- we're beginning to build a multi dimensional offshore, nearshore capability that's invented or client, but it's very much tied to the technology that we can build in each of those locations. So I just didn't want to ignore the Indian piece on this.

Okay. Thank you.

Tobey Sommer, Truist Securities.

On the government consulting business, anything you're changing in the way you manage that. And I ask in the context of the book-to-bill kind of been stubbornly below and I understand you exclude IDIQs and maybe this is picking up this quarter. But it's a seasonally strong quarter in the forecasting the revenue licensing? Any changes there internally that you think are going to improve your sort of the predictability of that business?

Well, look, Tobey, we're always -- we're adding resources to the team where we think they need to be added. If we see a performance issue, we're addressing it. So that's always been the case. I don't think that that's if there's any kind of change there.

I mean, look, I think we're really well positioned on some of these opportunities. We just did for them to get adjudicated. And we agree with you, it's been as a book-to-bill there. It's been stubbornly low. But I won't dismiss the backdrop here has been kind of stubborn to deal with, if you will.

And so the pieces around the government contracting offices that working as quickly as they once did you know, the trend towards putting these large amounts of work together on IDIQs so that the government customer can get them out there and avoid a long and difficult long and difficult -- what's word I'm looking for -- protest period.

So there are things that are going on in that market that are a little bit of a headwind, but still we're winning our work, and we're pleased to see that we're going to get some things done here early in July that are already kind of hit landing, and we're looking forward to getting press releases out on those things. It's a little bit too soon now, but they'll be coming. So I think we feel good about this quarter, and we're going to have a good bookings quarter.

Two follow-ups for me and another part of the business. The assignment business. What's a spree to core like it's a lot of pretty long, a string of consecutive quarters of sequential decline. And then separately, but also on the assignment business, if we were to see an uptick in demand. How much capacity do you have recruiting in sales capacity to generate growth before you have to hire in earnest?

Well, look, this has been a long and protracted downturn, there's no doubt about it. And I'd say it's wearing on the -- it is worn on the team and team I say, all of us, you know, with worn on all of us. At the same time, this group has more fight and stick to it at this and are in it to help their customer with whether the business is at its highest point today or not.

And we talk a lot around here about most of the time you're not doing your best work the moment that revenue or EBITDA is at its highest point. Because that's just a reflection of everything you did when you were in the more difficult times, which is now.

So I think everyone's got their head on, right? Everybody said it for the client and for each other. The amount of work, even though the revenue picture may not be there and the relationship building and the execution for clients is very strong. And we have capacity, Tobey, I think look -- we're kind of letting our headcount down naturally in places where there we don't think the demand picture is there right now, but we're leaving enough of it in place that we're maintaining great relationships with these clients that we know exactly what's going on, that we know where their head is in terms of when they'll be spending. To the extent we can understand that.

And when it ticks up, we have capacity. Now when we have to add, we'll that's a question that needs a crystal ball because we'd have to know him with the slope up and the velocity of that. But we do believe we're kind of picking the right spot here as we let our model work, if you will, but also make sure we're there for clients because that's critical. It has been it comes we are the first and fastest way that clients can engage with more effort and intensity on their IT projects, and we need to be ready for that we are.

Thank you.

Mark Marcon, Baird.

Hi, this is Alex on for Mark. First off, I was just looking at the margins and obviously you've had some decline in federal and some increase otherwise. And I was just kind of wondering if you could give some more color on that? As well as some key drivers with that?

Margins are steady sequentially here. But year-over-year, there's a little bit of decline in margins. Now really what's going on. The primary driver of that is business mix. So you're seeing a lower contribution of some of our higher margin units, which is our creative digital marketing service, our permanent placement services. And here's the and you're seeing federal, which is our lower EBITDA margin of business do a better job of maintaining and growing revenues here the first half versus the mix last year. And so all of that is the primary driver, if you will, of how the EBITDA margin is moving around.

Okay, guys. And then really quickly, I was just kind of wondering, looking forward little bit further, we have an election year coming up and we were kind of wondering where you think the election would take IT and federal spending going forward?

Well look it doesn't -- I don't think it matters to us so much about who's in office. I mean, that's a political question for another conversation. But I think the criticality around spending on IT for big corporate enterprise and government agencies to accomplish their strategic initiatives that all evolve IT in one shape or form of another is very strong. It's suspending stuff, they're on it yet, but it's very strong.

So I think the most important thing is getting the election behind us so that the uncertainty of who's going to be in offices is not a part of the headlines every day in the second guessing that goes along with that. And once we get that asset behind us and you know, hopefully we get a little bit better interest rate environment here and you get most importantly from all that more business confidence where our customers feel like they understand what the environment looks like and where it's going, then they will begin to return to more normal levels of IT spending, and that's what drives our business.

Okay. Thank you.

Thank you. And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Ted Hanson for closing remarks.

Well, just wanted to say thank you for everyone for your attention today and your questions on ASGN we look forward to reporting our third quarter here in another 90 days. Be well.

And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.