Q1 2022 ASGN Inc Earnings Call
Greetings and welcome to the <unk> incorporated first quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Kimberly extra King you may begin.
Thank you operator, good afternoon, and thank you for joining us today for <unk> first quarter 2022 conference call with me are Ted Hanson, Chief Executive Officer, Rand Blazer, President and Ed Pierce 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 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 that I S. G M Dot 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.
Conciliations 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 Kimberly and thank you for joining <unk> first quarter 2022 earnings call.
I'm very pleased to report that the momentum we experienced in the fourth quarter of 2021 continued into the first quarter of 2022 revenues for the first quarter totaled $1 1 billion up 23% year over year and surpassing the high end of our guidance range.
Our commercial segment accounted for 76, 3% of consolidated revenue.
With strength across all business units driving the segment's growth.
Federal government segment accounted for the remaining 23, 7% of revenues performed in line with our expectations for the quarter, achieving consistent revenues year over year, despite the difficult quarterly comparison.
Adjusted EBITDA also improved significantly it was up 39, 1% year over year to a total of $134 8 million a record for the first quarter with such strong quarterly results will continue to trend ahead of the three year targets, we laid out at our Investor and Analyst Day Conference. This past September .
This performance brings us closer to our goal of 6 billion in revenues by 2020 for $4 9 billion of which will come from the organic growth of our existing business.
It is clear from these aforementioned results in the segment level detail, but I will provide shortly that <unk> business model supports the future of work and that our company continues to be a winner and providing services and solutions to the commercial and government end market.
Cn's unique delivery model provides not only critical IP resources, but also consultative solutions with custom fit teams, we are better positioned than any other company to solve for gas at <unk> talent, while preparing the future technology workforce for Tomorrow's digital neat.
I'd like to thank our entire team for your exceptional efforts. This past quarter together you have enabled a SDN to not only surpassed our internal financial targets, but to also reached New company Records.
Our commercial segment had a very strong quarter with revenues of $832 9 billion, an increase of 28, 3% over Q1 of last year.
Apex systems, our largest division accounted for 82, 7% of the segment's revenues for the quarter reported solid double digit growth in both staffing and consulting services.
We also saw a strong uptick in creative digital marketing.
Permanent placement services for the quarter.
From an industry perspective, all of our five commercial segment industry verticals achieved double digit growth for the quarter.
Financial services, our largest industry vertical have particularly strong performance across the insurance fintech in wealth management accounts.
Growth in our technology media and telecommunications, our TMT accounts was led by our technology and telecommunications accounts growth of our commercial and industrial accounts reflected strength across all sectors with particular strength in energy industrials and consumer discretionary accounts growth in our health.
Care vertical continued to be driven by both provider and payer accounts finally growth in our government and business services vertical was led by our business services accounts, while aerospace and defense and government accounts were up mid single digits versus Q1 of 2021.
<unk> Systems' top accounts across all five of the industry verticals, we target along with the units retail and branch counts all achieved double digit growth rates for the quarter Creative circle also posted positive growth across their top accounts, while permanent placements at cyber terrorist exceeded our expectation.
Enabling the unit to achieve solid double digit growth for the quarter.
Gross margin for the commercial segment was 32, 7% up 210 basis points from Q1 of last year did growth across our high margin commercial consulting creative digital marketing and permanent placement businesses.
This growth in gross margin contributed to a corresponding increase in adjusted EBITDA margin of 140 basis points compared with Q1, 2020 one.
We also continue to expand our commercial consulting revenues during the quarter commercial consulting revenues totaled $204 7 million an increase of 74, 2% over Q1 of last year.
Revenues derived from our work in digital transformation workforce management and modern enterprise projects led to the segment's strong performance.
[noise] Htm's consulting offerings remains an important source of value we provide our clients. So we continue to build out our solution strength and identifying acquisition opportunities that expand our consulting capabilities and bring value to our diversified set of clients or.
Our digital transformation projects in particular, which help our clients to develop new digital tools and pathways to enhance their customer support financial transactions and supply chain are in great demand.
In order to provide additional color on our consulting business.
For industry comparative purposes, starting this quarter, we will also provide our quarterly commercial consulting bookings and book to Bill results.
ASTM defines bookings thats the amount of funded work won during any given quarter that will be executed over the ensuing quarters.
Book to Bill is the ratio of our total bookings to the commercial consulting revenues for the quarter.
Commercial consulting bookings for the quarter totaled $297 5 million up 63, 5% over Q1 of last year.
This translates into a book to Bill of one five to one for the quarter.
While this ratio continues to trend positively and the outlook for our consulting business remains strong. It is important to keep in mind that as we head into the second quarter, our commercial consulting business and overall commercial segment faces tougher year over year comparison through the remainder of 2022.
Now, let's turn to our federal government segment, which provides mission critical solutions to the department of Defense intelligence agencies and other civilian agencies revenues for the quarter totaled $258 1 million consistent with Q1 of last year and in line with our expectations.
Gross and adjusted EBITDA margins were up significantly from Q1 of last year related to improvements in business mix, which included a lower mix of revenues from cost reimbursable contracts, which carried lower margins than other contract types and the contribution from the higher margin businesses, we acquired in 2021.
Yeah.
New contract awards for the quarter were approximately a $128 million.
At quarter end contract backlog totaled $2 9 billion.
Healthy coverage ratio of two six times, the segment's trailing 12 month revenues.
Examples of contracts awarded to our federal government segment during the quarter included a contract to support cyber security efforts for the U S Army Network Enterprise Technology command the expansion of a contract with the Army Research lab and our flagship contract with the defense information systems Agency.
Or DISA to provide the D O D and other federal agency it services and solutions.
With that I will turn the call over to Ed Pierce, our CFO to discuss the first quarter financial results and our second quarter 2022 guidance.
Ed.
Thanks, Kent.
Afternoon, everyone Ted mentioned earlier, our financial performance for the first quarter exceeded our guidance estimates.
<unk> performance reflected double digit growth of our commercial segment consistent performance of our federal government segment, the contribution from acquisitions and the expansion in gross and adjusted EBITDA margins in both segments for.
For the quarter revenues were $1 1 billion up 20.3.
<unk>, 3% year over year or 84% after adjusting for one additional billable day in the quarter.
As compared with Q1 of last year.
Revenues for the quarter included $40 2 million from acquisitions completed during 2021 <unk>.
Adjusting for the effects of the additional billable day.
And the revenue contribution from acquisitions, the organic growth rate for the quarter was 14, 4%.
Gross profit operating income and adjusted EBITDA were all up year over year and grew at higher rates and revenues.
Revenues from our commercial segment were $832 9 million up 28, 3% year over year.
The commercial divisions and revenue streams grew double digits with the highest growth coming from our commercial consulting creative digital marketing and permanent placement services, which carry higher gross margins than our it staffing services.
Commercial consulting revenues were $204 7 million up 74, 2% over the first quarter of last year and accounted for approximately 25% of the segment's revenues.
Revenues from our Federal government segment were $258 1 million in line with the first quarter of last year and our guidance estimates.
The revenue consistency for the quarter was achieved despite a difficult prior year comparable.
First quarter last year benefited from higher revenues from certain cost reimbursable contracts, including a low margin web services project at the segment chose not to renew in Q3 of last year.
Revenues for the current quarter included $28 3 million from acquisitions made in 2021, partially offsetting the effects of the difficult prior year comparable.
Gross margin of 29, 9% exceeded the high end of our guidance estimates it was up 300 basis points over Q1 of last year.
Both business segments reported year over year expansion in gross margin driven by improvements in business mix.
Gross margin for the commercial segment was 32, 7% up 210 basis points year over year.
The expansion was the result of double digit growth.
Of our high margin commercial consulting creative digital marketing and permanent placement services.
Gross margin for the Federal government segment were 29% up 340 basis points year over year as a result of changes in business mix.
This improvement resulted from a lower level revenues from certain cost reimbursable contracts, including a low margin web services project, which was not renewed in Q3 of last year and the contribution of high margin businesses acquired in 2021.
SG&A expenses were $212 1 million up 29, 1% year over year.
Increase was commensurate with the growth in the business changes in business mix and investments to support the high growth of the business.
These investments are mainly in head count and employee compensation and <unk> applications and systems.
Income from continuing operations was $67 6 million up 57, 9% year over year adjusted EBITDA was up 39, 1% year over year, reflecting a 170 basis point in the.
Expansion in our adjusted EBITDA margin to 12, 44%.
At quarter end cash and cash equivalents were $502 4 million and there were no outstanding borrowings under our $250 million revolving credit facility.
Our senior secured debt leverage ratio was <unk> 96 to one during the quarter, we spent $76 $9 million on the repurchase of approximately 684000 shares of the company's common stock.
Our financial estimates for the quarter are set forth in our earnings release and supplemental earnings materials. These estimates are based on current production trends assumed 63, five billable days in the quarter, which is the same number of days as Q2 of last year and includes a revenue contribution of $42 1 billion from ACA.
<unk> made in 2021.
For the second quarter of 2022, we're estimating revenues of $1 billion $108 million to $1 billion $128 million and implied growth rate of 13, 7% to 15, 7% on a difficult prior year comparable due to the highest sequential growth in Q2 of last year of seven 5%.
<unk>.
We're estimating net income of $68 3 million to $71 9 million and adjusted EBITDA of $135 million to $140 million, which reflects year over year expansion in gross and adjusted EBITDA margins.
On a sequential basis, we estimate our adjusted EBITDA margin will be flat to slightly down as a result of lower mix.
Permanent placement revenues and slightly higher consultant employment expenses.
With respect to the full year 2022, we are updating our high level comments made on the last earnings call.
We project revenues for the year will be up over 12% year over year.
We are also projecting year over year expansion in our gross and adjusted EBITDA margins.
We expect our adjusted EBITDA margin will range from 12, 1% to 12, 3% up from 12% from last year.
This is driven by a higher mix of commercial consulting and creative digital marketing revenues, partially offset by a lower mix.
Permanent placement revenues.
And investments in our operating platforms to support high sustainable growth in the business.
Thank you for your time and I'll turn it back over to Ted for some closing remarks.
Thanks, Ed.
Over the past several months, we've announced a number of changes to our executive leadership as we continue to develop our team is a part of our company's long term succession planning, but that said I would like to formally announced today that our longtime and well respected CFO Ed Pierce will be stepping down as CFO . This coming August .
And we will remain in a strategic role with ASTM through the first quarter of 2023.
Ed has been an integral part of the SDN since 2007 first serving as a member of our board of Directors and then officially becoming our executive Vice President and Chief Financial Officer in 2012.
On behalf of our entire company I would like to thank Ed for his outstanding service and leadership.
It's been an invaluable partner to me since I assumed the role as CEO four years ago, and I wish him the very best in his well deserved retirement.
Ed orderly and planned retirement provided us with ample opportunity to be very selective in finding the IPO candidate to fill issues.
Those lines I am pleased to announce that we have recently welcomed Marie Perry as an executive Vice president at our team.
Murray will assume the role of HTM CFO in August .
Marine is an accomplished CFO and proven leader she joins us from brakes, where she served as chief financial Officer of the company for U S Division private brands Marie was Chief Financial Officer, Executive Vice President and Chief administrative officer of Jamba juice and held multiple finance roles, including controller.
Treasurer and interim CFO for Brinker International. She also spent nearly 14 years in roles of increasing responsibility within the finance team at American Airlines Marine began her career in public accounting at KPMG.
We are very excited to have Murray on board and hope that many of you had the opportunity to meet her over the coming months Maria has hit the ground running and well have a great opportunity to shadow Ed for several months before transitioning into her new role. In addition, Murray has the backing of our deep and talented finance team to support her as we continue.
To execute on our strategic and financial priorities I anticipate that our transition into the CFO role will be seamless.
Speaking of our strategic and financial priorities I'm pleased to announce that just last week <unk> issued its third annual environmental social and governance report.
We made significant progress against our ESG objectives. This past year adhering to the priorities we laid out in our 2020 report as well as introducing new efforts to push forward our commitment to corporate social responsibility.
In may of this past year ASTM became a corporate participant in the United Nations Global compact joining.
Joining at 13000 companies and aligning our strategy and operations with Universal principles on human rights labor environment and anti corruption.
We also augmented our disclosures by leveraging several new reporting frameworks conducted a baseline greenhouse gas report ahead of the SEC proposals and put in place a robust cyber security response plan.
These are just a few of our many accomplishments and I hope that you will take the opportunity to read our full 2021, ESG report, which we have posted to our website.
Our ESG report would not be possible were it not for our incredible team of employees I'd like to thank all of <unk> for your commitment to the highest sustainability and corporate purpose standards.
We have accomplished a lot and together we remain committed to continually advancing our progress.
With that this concludes our prepared remarks for the first quarter on behalf of our board of directors and the entire ASTM team. We thank you for your continued support of our company.
We'll now open up the call to your questions.
Operator.
At this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Yes.
And our first question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.
Thank you congrats on your retirement and welcome Marie.
My first question is on the commercial consulting side, what are you hearing from clients about budgeting considerations given the current environment and is there any change in tone from what you were hearing three months ago.
Hey, Matt its Ted I'll, let Brian take that one.
Maggie I don't think we've seen a change in tone I think most of our clients are.
To a certain.
Improvement path, if you will those around digitization of their business as well as other initiatives and.
In the work in the first quarter. So I don't think you can claim anything other than all of that seems very positive and pretty much still moving forward.
I guess, two evidenced by pipeline pipeline growth is still accelerating.
Demand seems strong just across the table from clients. So that's what we see.
Okay. Thanks, and then there's been a couple of quarters here.
Your your guidance commentary as well.
Where the mix has favorably impacted margins should we start to.
I view these levels as more normalized adjusted EBITDA levels for the business and then also what level of I was kind of impact from wage inflation are you contemplating in that guide.
Yes, let me I'll say, something I will turn it over to Ed, but I think in our three year plan last September .
We showed you a progression of margin because we do believe the mix of the business was going to change the growth in the higher margin parts.
The business, we're going to continue to accelerate which effects both growth and EBITDA margins right.
And look we're fortunate in that we're seeing very high relative growth in our high margin services.
On the commercial side.
And in terms of expectations I think you should think about.
Considering what we said about the full year, we expect our EBITDA margin to range between 12, 1% and $12 three and Thats higher than what we contemplated when we did the three year plan in terms of the initial year. So things definitely are improving we will have more to say about that.
In later quarters as we see this kind of settled.
For now things look very good and.
We are definitely beneficiaries of the growth is occurring in the right spots.
That's helpful. Thanks, and then on the wage inflation and that's all for me. Thank you.
I mean this is I think this comes up every quarter.
You can see in our gross margins, which I think is the place to pay the most attention that they are expanding so by way of that we're able to although there is wage inflation out there no doubt about it we're able to deal with that with clients as it relates to the bill rate.
And then for our own internal workforce, obviously the.
The increased costs are there just like they are for everyone else, but we're.
We have been able to deal with that because of increases in productivity. So.
I think they are in our numbers, if you will and we feel good that we can both continue to deal with the climate piece of this as it relates to bill rate and you.
March on productivity, which is just always a part of who we are.
Thanks.
Our next question comes from the line of Tobey Sommer with <unk> Securities. Please proceed with your question.
Thanks. So I was wondering if you could start by giving us a little bit of color on your.
Margin guidance for lower Perm and higher sort of labor expense. What are the drivers are you seeing a difference in perm or or stepping up hiring a little context would be helpful. Thanks.
You want to take that one yes look tobey as it relates to prior we're not getting into specifics in terms of mix, but I will say that we did see a.
Sequential improvement in the mix of about 80 basis points from Q4 to Q1.
Cute Q1, as an outlier I mean, what we saw in Q1 is it's pretty phenomenal in terms of.
Perm in Perm growth.
We expect that in Q2 is going to return back to more sort of historic norms and so that's why we're thinking we had a pop up about 80 basis points sequentially Q1, and that is going to dip back down to where it was probably in Q3 Q4 last year.
And labor costs.
Head Count increase, yes, Tobey, where obviously demand is in the market, we're investing to be there for it and so.
<unk> continued to add headcount to be able to reach those opportunities as well as work on our own internal it systems too.
Raised productivity and so I think that was what I had called out in his section around the higher SG&A expenses.
Margins too.
Yes.
Thanks.
Sneak in another one before.
No.
How are you thinking about the momentum in consulting.
The market opportunity as well as your ability and positioning for processing.
You've had some really heavy high double digit rates of growth and this continues.
Right of course.
Listen I think there's a couple of elements to make it work.
First of all.
Yeah first of all we have a great account base that has their own plans for expansion is around digital footprint. So that's number one requirement number two we're continuing to add to our strength in the kinds of solution offerings. We can bring to those accounts, we're doing that every quarter as we get stronger.
Not just in cloud implementation of digital transformation.
Data analysis work and now even some application work. So we have a great account base, we have increasing array of services with strength and we have access to it talent like nobody else has as the number two U S staffing firm.
And we built that that relationship with the contingent employee workforce over lots of years building, what we call contract employee community. So we have rich databases, we have access to the talent. We have shown to the clients. We can bring that talent to bear with the right industry experienced an application and solution.
<unk> experience and when you have great accounts.
<unk> services that you can offer and access to the talent base, it's all kind of working.
Toby maybe one thing I would add to that is we have difficult comps coming up here.
Obviously, the second quarter and for the rest of 2022.
I don't want anyone to mistake that for lower demand or.
Some deceleration of the business, we our pipeline shows us our booking numbers that we released to you. This quarter show that we're still going to continue to have strong growth it'll be strong double digit growth.
It may look less because they are much more difficult comps, but I don't want that to be confused with a lack of demand.
Thank you that's helpful.
Our next question comes from the line of has a basket.
Bank of America.
Please proceed with your question.
Hi.
Thank you for thank you for taking my question.
The first one is a little of that turnover.
The macro and I guess.
Leveraging what Maggie asked but.
How much of your business on the commercial side do you think is discretionary and in sort of a tighter economic environment you could see.
See companies pull back versus how much.
Is this kind of.
That's the theory work that companies are in the middle of the project, maybe or just need to accomplish.
And their markets.
And how are you thinking about sort of the back half and even into next year and we're in a rising rate environment.
Right. So I mean, I'm going to let Brian to answer this one, but I'll say upfront Heather that.
This is really our business is driven by our clients' need to.
Accomplish their it initiatives right. This is less of an employment storage, primarily about it spending by our clients and our ability to help them do what they are doing our view of that brand is that that's less discretionary than it's ever been right in that there's there's legs to this and we're in the early still in the early stages.
As the digital transformation, which is so important to these clients. Yes, I mean look we recognize you've asked the $60 million question right, what's coming if the economy goes down and we.
The economy moves towards a recession will this spending curtail because it's considered discretionary I think theres a couple of factors that have made us.
Withstand that kind of downward pressure in the economy. If you go back to <unk> nine and that recession. If you go back to the Covid years.
Commercial units, particularly apex held very steady to slightly up in the worst of times. That's a combination of a lot of our work is infrastructure. The infrastructure work stays on it's not discretionary some of the work that is more in the consultative side, let's say around cloud implementations <unk> do.
Digital transformation and the question is is that work discretionary.
I don't believe that it is not for a lot of industries. I mean, if there is a segment of the marketplace. Its on its back like the airlines were and the Covid period, yes, youre going to see them stop off spending, but if you remember we did have a few sectors that were affected but the other sectors were very strong and we withstood all of that so it's the portfolio.
So a strength we have across the account I don't believe digital transformation is considered by our clients as discretionary.
I go back to the numbers, we've Ted we pointed out before.
2019, 30% of all transactions were done electronically in 'twenty, one and 2021 its emerging that's 80% of transactions are done electronically, whether they be consumer transactions marketing actions supply chain actions status scene, where communication with them.
With the marketplace.
All of that is becoming electronics. So companies have to continue in their digital transformation journey to size their digital footprint correctly to build on it and to find new and better ways to capture if you will both revenues the consumer heart and soul help there their internal workforce or be more productive as well as now.
Supply chain and all the logistics things that has come to the attention of corporate America I think in the last 12 months. So I don't mean to ramble, but I think there. This is not as discretionary as you think anymore.
I'd say that large scale portfolio with industry diversification like you said it helped with a 25% of our revenue mix and the federal government, which is counter cyclical most all times during <unk>.
Commercial economic downturn I mean, we saw it play out.
The second quarter of 2020 and.
So you know I don't I don't think we're gonna make predictions on the economy, but we think we'll weather weather whatever is out there very well.
Our business is driven by.
Spending of these fortune 500, and big Federal government agencies.
Hey, Accenture in their earnings calls <unk> said, a lot of the same things they see the same kind of growth and by the way if you're listening to Microsoft and you're listening to Amazon and some of the other technology companies, maybe just coming out they continue to point toward growth in their revenues in the cloud space and some of the digital transformation.
Areas, where their software that are important to corporate America today. So.
It's not just us saying this I think we're the community has seen a certain amount of this.
I'll have there back to where you started I mean, if the economy were to turn down in Perm placement would be a little less than it is today will sure, but that's a very small part of our business that's not really the economic driver of the business.
Okay I appreciate the thorough answer and I'm going to sneak a sneak another one in.
Can I just ask.
With regards to the Perm placement in the quarter. You said it was exceptionally strong was there anything going on in the environment that you think drove that.
Just curious why this quarter is so unique.
I think it was unique probably that the first quarter had that much strength that was probably what was most unique I would say.
Level of the need by clients to build workforce.
And the activity in that part of the market has been strong in the second half of last year through three now, but typically in the first quarter you wouldn't see that kind of strength. So it was more probably just where it fell Heather then than anything else.
Okay. That's really helpful. Thank you so much.
Our next question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.
Thanks, So much first of all Ed I just wanted to wish you best of luck and thank you for all the help over the years, it's been many years and I really do appreciate it.
Thank you.
Sure.
Terms of my question I'm, sorry to go back to the macro environment, but that seems to be on investors' minds. These days I know you said, you're really not seeing a change of tone or slow down et cetera, some of them.
Other companies in this space that have been citing some projects ending a bit earlier than they expected I know that happens all the time, but are you seeing that pick up any more than you have been over the past few months or so.
No.
In fact back looked at our book well look at our bookings number for example that we've given you this time.
I mean, these are pretty large numbers in large growth in bookings and we've not seen a curtailment of existing projects or completion quickly and we see other projects coming right in behind it.
So no we haven't seen that.
Maybe some of the others have seen yet.
Okay, that's great to hear.
And my follow up question has to do with your internal staff in terms of your recruiters I know we've talked about this in the past in terms of how difficult. The market is in terms of both finding and keeping recruiters.
Is that let up at all or is it still a difficult that it hasn't.
I think it's still.
Can't say, it's let up I mean look we are a top notch recruiting business staffing business and our people are going to be in.
If you will and Bravo to them the key for us to do this to keep them and certainly keep the core and to build through our systems better productivity. So that if we do see some shrinkage in that workforce recruiters for example that our productivity can overcome that because we're seeing volumes of work as you can tell so which were.
Alright, so it's still there Jeff I mean, it hasn't gone away, but at the other side. We are anticipating we're still hiring Ted commented a few minutes ago. We have planning continued increases in head count. We've also dealt with our compensation systems over the past 12 months, we didn't wait is not happening now.
We anticipated some of this in order to keep our best talent and of course, we're a high high variable comp business and our people make a lot of money when they are performing and doing well and that has helped us to keep the core and keep keep us moving forward.
Okay really appreciate the color. Thanks, so much.
Our next question comes from the line of Mark.
Mark <unk> with Baird. Please proceed with your question.
Yes.
Hi, good afternoon everybody.
First of all I also want to add my thanks to Ed.
Best wishes edits.
We've worked together for decades.
So really appreciate.
Everything that you've done and wish you all the best.
Thanks Mark.
It's more telling about my age or years so.
I think so.
Uh huh.
But.
And I remember back in the Ninety's in Matamoros.
Uh huh.
It's been a while.
Okay.
With regards to with regards to you know that.
Consulting business.
Ted or Rand.
Can you talk a little bit about the penetration with regards to <unk>.
Your 300 plus.
Fortune 500 accounts that youre dealing with apex systems, how many of them are taking you on for for consulting what are we seeing in terms of the penetration rate and the adoption of using you and who are you typically replacing.
Okay.
Well first of all we've increased our penetration so of the fortune 500 accounts that we're staffing clients.
A third of them we've reported to you are now consulting clients. So.
And they may be both staffing and consulting depending on the account and their own internal progress but.
We increased that number every year Mark. So in addition to that were out looking for others. We've expanded our our targeting to the fortune 1000 now so.
So we've had great success, and they're giving us a chance as we prove ourselves we're getting more and more work as you can tell by our growth in the business.
Who are you replacing.
Aye.
I don't know, who we're replacing necessarily we're competing for work in.
Unlike staffing if youre in their program youre going to get a certain amount of that work in consulting Youre competing project by project, So who competes against US you know theres a lot of firms. We've always mentioned that are competing but it depends on the nature of the work and and you know.
Our teams intimacy with their it.
Meant in their frameworks and our ability to convince them that we can get something done and we can bring the talent I think another key thing is because we use a contingent deployment model. We can bring the talent pretty quickly where are the other firms may have to re rejigger their lineups and find talent that are on other projects and move them across.
We have certain advantages that allow us to be a little bit more nimble little quicker on the draw.
But I wouldn't you know I think there are some areas, where we're going to be very good at and the data migration aerie workforce.
Workforce management, we've talked about digital transformation because of our roadmaps in the different industries and sectors. We are able to show them whats going on in the industries in general and things. They should consider we've now added some application capability through our recent acquisition.
As I said, we continue to build our solution profile, a capability, which is helping US also gained more work.
That's great and then it looks like.
Simon side, you're within commercial Youre also.
Showing really strong growth so it's not like it's Ken.
Cannibalizing the business per Se and obviously you wont have shifted given the higher margins, but what are you seeing just in terms of.
Pure demand for for pure staffing on a time and materials basis.
Well I think to I think one of you announced our staffing side is growing double digits.
As well as our consulting side is growing double digits, and we're growing and not just the top accounts, but also the retail branch centric accounts double digits. So it's pretty much across the board growth.
And everything we're facing off against that.
I would think about it mark like service offerings right.
Historically, we've been in it staffing service offering we continue to do that invest in it.
Number two I would keep going.
Then.
Obviously, we have a higher value service here with.
It is on the uptake with clients and so we're flying a both of them if you will.
Great and then on the federal side can you talk a little bit about what youre seeing just in terms of some of the contracts loosening up and coming open for bid in.
How are you how you're envisioning the next six months on that side.
Yes, so I would say we haven't we haven't had budget so that is good.
It's matriculating if you will to the contracting officers, it's a little slow as you go in terms of.
Seeing that hit the strengths that they are and where we're going after awards here in the second quarter I think activity is going to probably picked up and it's gonna be a really busy late second third quarter.
As we get to the end of the government fiscal year, but I'd say right now the good thing is we have a budget and we're beginning to see a little bit of movement.
That's great to hear.
That's again Ed.
Thank you.
And our next question comes from the line of Tobey Sommer with Securities. Please proceed with your question.
Thanks, just two follow ups, if I could tip my hat to Ed as well. Thank you.
Could you update us on what.
Customer concentration and project concentration look like at the company outside of the governments or sort of just in the commercial arena.
And maybe in that context describe how you're stepping up the size of contracts and consulting.
Yes, well first on the concentration standpoint, yeah, we don't have any reportable concentration so.
There are certainly bigger work I'll, let Brian talk to that going on with these clients, but but nothing to call out in terms of concentration.
I think we've talked in the notes that.
If you put our services in three big lumps workforce management.
Digital transformation and modern enterprise, what Youll see is digital transformation work is growing the fastest among those three.
But all three are significant parts of our total body of work the kinds of work behind that a lot of work in cloud a lot of work in software development Dev ops, certainly using the agile techniques.
Data analysis is emerging as a big part of it there's a lot of data out there how do you use that data to.
Contact and enrich the customer experience or two to build operational efficiencies or to get a handle around supply chain and different options. So I mean, there's a plethora of work that comes in those areas.
<unk>.
We're starting to get some application work now because we've added some capability in that area.
End of last year with the Infor.
Transaction so.
It's just give you a flavor. So it's a lot of number of different things in terms of size I mean typically when the early days of this it was six six figure kind of work and then progressing the seven figure work now now eight figure work work that's longer than 12 months.
The if you will the size of the our capabilities growing and the size of the project has grown with it and I think underlies that underlies some of the growth here as well.
That's really up to naturally.
Go ahead. Thank you I was going to ask another question my last one on ECS.
Growth there has been decelerating for a while I've kind of been digging dragging on a organic basis now that we have a budget in <unk>.
But at least from my perspective, more likely to get a budget in a more normal fashion probably next year also as a result of the Russia Ukraine War.
And about your wisdom growth, let's say.
Do you.
Do you think that the.
That unit is positioned to.
Closed the gap with the industry rates of growth and maybe get itself on its front foot in.
Be able to sort of outpace the industry.
I do Tobey, if you think about where the government is going to be spending money in the areas that we practice.
It's going to be it's going to be in cyber is going to be an AI machine learning is going to be in it modernization, so where in the past currency. If you will of capabilities and I think our customers that are the ones who are winning in the budget world, which is obviously on the Dod side, but the most attractive.
Areas of the civilian side, whether that's in.
Whether that's NDA in.
<unk> security or if thats injustice.
Now with our acquisition of the RPI in.
Health I mean, we're in the right spot. So I think as the marketplace works itself out and the budget becomes becomes too.
Fruition I think we're going to be in the right spots there and we would expect over time better than market rates of growth. There I mean, historically that business has grown better than market.
It will grow better than market once we get there.
I'd tell you right now, we're probably growing about like market. If you will on a reported basis anyway.
Anyway.
Thank you.
Yes.
And we have reached the end of the question and answer session I will now turn the call back over to Ted Hanson for closing remarks.
Great well, we want to thank everybody for being here today.
Look forward to talking to you about our second quarter results in July .
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
So where was surrender.
That's going to look like.
He dropped off.
[music].
Yes.
[music].
Yes.
Sure.
Sure.
[music].
Yes.
Okay.
Okay.