Q2 2022 ASGN Inc Earnings Call
Greetings and welcome to a S. J Gann incorporated second quarter 2022 earnings conference 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.
Mind you. This conference is being recorded I would now like to turn the conference over to your host Kimberly Astrachan Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, and thank you for joining us today for <unk> second quarter 2022 Conference call with me are Curt Hartman, Chief Executive Officer Rand Blazer President.
Peer Chief Financial Officer, and Marie Perry Executive Vice President.
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 that S. T N 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 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 Kimberly and thank you for joining <unk> second quarter 2022 earnings call.
As evident from our second quarter results, we had a strong first half to the calendar year revenues for the second quarter surpassed the high end of our guidance range.
<unk> totaled $1 1 billion.
17, 1% year over year and up four 7% sequentially driven by the continued strength of our commercial segment.
Well, it's growth in our federal government segment, despite a difficult year over year comparable <unk>.
Our commercial segment, Kevin first 74, 5% of consolidated revenues.
Our federal government segments accounted for the remaining 25, 5% of revenues.
Adjusted EBITDA also surpassed our estimates for the quarter and was up 27% year over year and up six 8% sequentially to total $144 million with the strong results. We continue to trend ahead of our 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 2024.
An important component to our success and in achieving our three year revenue goal is our unique deployment model and it's a leading provider of it services and solutions to the commercial and government end markets.
First is you have to focus and that's a very steady and predictable trends. These trends include not just our history of achieving above industry revenue growth.
But also our continued margin expansion and free cash flow growth.
For the quarter adjusted EBITDA margins improved 40 basis points year over year to totaled 12, 6% our.
Our free cash flow from continuing operations was $79 6 million an improvement of 10, 1% over the prior year period.
Given our strong free cash flow and the market conditions, we have been actively buying back our shares during the quarter, we purchased $91 $2 million in shares and in today's earnings release, We announced our board of directors approved a new two year 400 million share repurchase plan, which we are.
Places the $350 million plan approved in December 2021, the.
The increased pace of repurchases in the second quarter and new expanded program just approved allows us to take advantage of market conditions, while maintaining our view that thoughtful M&A yields the best long term value for stakeholders.
As we discuss our second quarter performance today, three key themes will remain top of mind. These include one our consistently strong execution, which is evidenced by the growth of our two business segments second the stability and resiliency of our unique deployment model, which positions us to succeed.
Definitely navigate across market cycles.
Third our strong free cash flow generation and balance the flexible capital deployment strategy.
Which enables us to act in the best interest of all our stakeholders. So let's review these things to start by discussing our largest segment commercial with services large enterprises and fortune 1000 companies.
Our commercial segment had another very strong quarter with revenues of $850 6 million an increase of 19, 4% over Q2 of last year with strong growth in both staffing and consulting services apex systems, our largest division accounted for 83.1 person.
This segments revenues for the quarter with top and retail accounts, both achieving double digit growth rates.
From an industry perspective, all five of our commercial segment industry vertical achieved double digit growth for the quarter within apex systems, specifically financial services, our largest industry vertical had strong performance in banking and insurance with even greater year over year increases.
Amongst our Fintech and wealth management accounts.
Growth in our technology media telecommunications, our TMT accounts was again led by technology and telecommunications work.
Progress in our commercial and industrial accounts.
<unk> strength across all sectors with the exception of materials in particular, we achieved double digit growth in energy utilities consumer discretionary and consumer staples.
Improvement in our health care vertical revenues continued to be driven by both provider and payer accounts.
Finally growth in our business and government vertical was led by our business services accounts.
While aerospace and defense accounts were up mid single digits versus the prior year.
Gross margin for the commercial segment was 33, 1% up 110 basis points from the prior year driven by a growing contribution of high margin commercial consulting creative digital marketing and permanent placement businesses.
Adjusted EBITDA.
<unk> were relatively consistent with Q1.
ESPN.
Faulting offerings remain an important source of value, we provide our clients for the quarter commercial consulting revenues totaled $222 2 million an increase of 53, 9% year over year revenues drive from my work in web mobile and application development data analysis and migration.
And cloud architecture engagements led our commercial consulting <unk> quarterly performance.
We had a particularly strong quarter for commercial consulting new bookings, which totaled $346 million.
A 56, 5% year over year. This translates into a book to Bill of one five to one for the quarter consistent with Q1.
As a reminder, we calculate commercial consulting book to Bill as the ratio of our bookings.
The amount of new work won during any given quarter that will be executed over the ensuing quarters to our commercial consulting revenues for that quarter.
Our pipeline of business remained strong improving double digits sequentially.
Actively growing our capabilities.
Speaking of expanding our capabilities at the beginning of July we officially closed our acquisition of glide path and elite service now provider and within their first week as part of the SDN. The glad fast team participated in more than a dozen client pitches with apex consulting services.
We are not surprised by this new business momentum due to the high demand for service now that even prior to acquiring glide past our commercial consulting customers were asking for service now implementations.
Chris that is not yet familiar service now as a cloud based workflow platform.
Quickly become the go to the operating system of the enterprises worldwide.
In essence service now provides a new digital layer throughout as enterprises operations, automating workflows, and streamlining business processes quickly and at scale.
By aligning our current IP consulting offerings without glad fast expertise.
We are jumpstarting, our services business and immediately offering glad fast access to apex systems the account base.
The acquisition of glad fast ideally fits with our M&A strategy of acquiring in demand digital solution capabilities that can be strategically pulled across our large account portfolio.
Like that of apex Systems' cloud first client base spans multiple industries from TMT and financials.
Consumer and business services amongst other vertical.
We see significant revenue synergies with glide path above it standalone anticipated, 30% revenue growth in 2023.
It appears we will provide further detail on glad SaaS revenue contributions later in this call.
Let's now turn to the Federal government segment, which provides mission critical solutions to the department of defense the intelligence community.
Billion agencies revenues for the quarter totaled $291 2 million and <unk>.
Increase of 11% year over year, driven by a combination of organic growth and the impact of businesses, we acquired in 2021.
We also experienced better than expected spending on a cost reimbursable AI ml contract, which was a pull forward from the second half of this year, Ed will speak more on that shortly.
Gross and adjusted EBITDA margins were also up for the quarter related to improvements in the federal government segments best business mix, including a smaller contribution of cost reimbursable contracts, which carried lower margins than other contract types as compared to the prior year and the contribution.
From the higher margin businesses, we acquired in 2021.
New contract awards for the quarter were approximately $263 4 million, which translates to a book to bill ratio of <unk> nine times to one on a trailing 12 months basis.
Awards were speeding up and we're already seeing contracts come through under the new government budget.
Positive signs that government continues to drive spending in each of the areas in which <unk> focus, including cyber security AI ml and digital transformation.
At quarter end contract backlog totaled $2 9 billion.
Healthy coverage ratio of two five times.
<unk> trailing 12 month revenues.
During the quarter some of our contract awards included a contract to support the U S Army cyber security efforts by modernizing and strengthening their tactical networks, a recompete contract supporting Noah's office of Marine and aviation operations.
We help optimize their fleet capabilities.
A new task order to support FCC application development, and lastly, a contract per building, new and improved capabilities within training and readiness for the States Marine Corps.
In addition, justice homeland and law enforcement businesses saw a solid organic growth during the quarter.
This growth was fueled by contracts and cyber security systems Engineering and digital transformation solutions work.
<unk>, a recompete contract with the Doj along with growth in other existing contracts. We also won new work with DHS and state law enforcement agencies.
With that I will turn the call over to Ed Pierce, our CFO to discuss our second quarter financial results.
Third quarter 2022 guidance.
Ed.
Thanks, Ted Good afternoon, everyone as Ted mentioned earlier financial performance for the second quarter exceeded the high end of our guidance estimates.
This performance reflected solid double digit growth of our commercial segment low double digit growth of our federal government segment and expansion of our gross and adjusted EBITDA margins.
For the quarter revenues were $1 1 billion up 17, 1% year over year on a reported basis and 13, 4% organically, which adjust for the $36 3 million contribution from acquired businesses gross profit operating income and adjusted EBITDA were all up year over year and grew.
With higher rates and revenues.
Revenues from our commercial segment were $850 6 million up 19, 4% year over year.
Our commercial divisions grew double digits with the highest growth coming from our commercial consulting creative digital marketing and permanent placement services, which carry higher gross margins at our it staffing services Rev.
It is from commercial consulting the largest of the high margin revenue streams were $222 2 million up 53, 9% year over year.
Revenues for our federal government segment were $291 2 million up 11% year over year revenues for the quarter were higher than expected, mainly because of $16 billion in third party software license purchases under a cost reimbursable contract that were expected to occur.
In the second half of the year, our revenues for the quarter included $27 5 million from acquired businesses and revenues for the second quarter of last year included $11 8 million from our low margin Web services resale program Thats a segment chose not to renew in Q3 of last year.
Gross margin was 31% up 180 basis points over Q2 of last year.
Both business units reported year over year expansion in gross margin driven by improvement in business mix.
Gross margin for the commercial segment was 33, 1% up 110 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 was 21, 4% up three one percentage points year over year as a result of changes in business mix.
This improvement resulted from one the contribution of high margin businesses acquired in 2021 to the lower level of revenues from certain cost reimbursable contracts, including a low margin web services resale program and three higher profitability under certain firm fixed price contracts.
SG&A expenses were $220 4 million up 24, 9% year over year SG&A expenses included $3 1 million in acquisition and integration expenses that we do not include our guidance estimates. Excluding these expenses SG&A expenses were slightly above our guidance estimates primary.
It really.
As a result of higher than expected growth in revenues and gross profit.
Income from continuing operations was $72 6 million up 26, 7% year over year.
Adjusted EBITDA was up 27% year over year, reflecting a 40 basis point improvement in our adjusted EBITDA margin to 12, 6%.
At quarter end cash and cash equivalents were $496 million and there were no outstanding borrowings under our 250 billion revolving credit facility, our senior secured debt leverage ratio was 0.911.
During the quarter, we spent $91 $2 billion on the repurchase of approximately 912000 shares of the company's common stock subs.
Subsequent to the end of the quarter, we spent $350 million on the acquisition that glide first.
Our financial estimates for the third quarter as set forth in our earnings release and supplemental earnings materials.
These estimates are based on current production trends assumes 64 billable days in the quarter and include an estimated revenue contribution of $35 1 billion from the recent acquisition that glide fast in the tooth federal consulting acquisitions made in the second half of last year.
For the third quarter, we're estimating revenues of $1 billion $183 million to 1 billion 203 billion and implied revenue growth rate of 10, 2% to 12%.
Estimated net income of $70 5 million to $74 1 million and adjusted EBITDA of 145 2 million to $150 million.
We're estimating year over year expansion in gross margin and a slight sequential decline as we are projecting a half point drop in the mix of permanent placement revenues.
With respect to the full year 2022, we're updating our high level comments made on our last earnings call. We're currently projecting revenue growth in excess of 13, 5% and then adjusted EBITDA margin above 12.25% compared with 12% for 2021.
The expansion in margin is driven by a higher mix of commercial consulting creative digital marketing and permanent placement revenues, partially offset by investments in our operating platform to support high sustainable growth in the business.
First time, I will turn the call back over to Ted for some closing remarks Ted.
Thanks, Ed following a record setting first half SDN enters the second half of 2022 on solid footing and ready to support our clients' most critical business needs. While we were not necessarily recession. I mean, we've continued to execute strongly the first message of today's call. Our business model has served.
Automatic stabilizers that support a recession resilience the second of today's focus areas last but certainly not least we have managed this business through numerous down cycles, each time performing better than the market and revenues, while also maintaining very solid EBITDA margins and cash flow due to our variable.
Cost structure.
This is the third area, we highlighted throughout todays prepared remarks.
<unk> scale and unique deployment model.
US with the stability throughout market cycles.
<unk> today is better positioned for faster sustained growth in it services and solution and.
It maintains more diverse revenue streams than ever before.
Our U S focused high end service offerings to a large and industry diverse commercial client base combined with our counter cyclical federal government work provides stable sources of revenue and strength during an economic downturn.
These aspects of our operating model enable us to quickly accelerate our business to support each of our clients who.
Who are quick adopters of new technologies is actively looking to pursue their it modernization and digital transformation initiatives.
Importantly, customer IP spend is showing no signs of slowing.
While in past economic cycles, you may have seen some pullback in IP spend the pandemic has taught us that a sustainable business is one that is technologically savvy that has systems in place to protect and secure its networks across multiple locations and that has agile platforms with automated.
That is in place in other words, the pandemic accelerated digital transformation and we do not see that trend changing.
In fact, <unk> and other technologies leaders now see investments in technology as business drivers and not cost centers and they are focusing their companies spend on cloud computing machine learning artificial intelligence and automation all areas in which <unk> sells.
Bill rates are actually increasing as we move up the technology pyramid into higher value work case in point is the strength of our consulting business.
Consulting contracts have stable revenue streams that often extend 12 to 18 months, providing great visibility into the outer months and years, our commercial consulting customers are confident in their digital roadmap and actively bidding new work or.
Our government customers, who also deploy of some long term mission critical solutions contracts are seeing the benefit of the flow through of the new federal budget.
These favorable dynamics for both the commercial and government end markets create consistent demand for the services and solutions that ASTM provides.
Before closing I'd like to note that today's earnings conference call officially marks Ed Pierce last quarterly call as our Chief Financial Officer after nearly a decade as our CFO and will be retiring from his role. This August and he will take on a strategic advisory role with ASD.
And through the end of this year Marie Perry, who has had the great opportunity to work side by side with Ed over the past several months is ready and excited to assume the CFO position.
And it's been a wonderful partner, a resourceful guide and a great friend I cannot thank you enough for all that you have contributed to a S. T. A.
Not only is our CFO for a decade, but also previously as a member of our board of directors.
Behalf of the board and our entire company I wish you the best in your well deserved retirement.
With that let's open up the call to questions operator.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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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.
Our first question comes from Tim Mulrooney with William Blair. Please proceed with your question.
Hey, this is Sam customer I'm on for Tim.
First off just wanted to wish you a happy retirement.
I speak for both him and Maggie here, but we've all appreciate your help over the years and wish you well.
Thank you.
Great. Thanks.
Our first question.
I think this would be a good one for Tad actually you spoken in the past about HCN being less of an appointment story and more about my it spending by your clients.
Was hoping you could just comment on what Youre currently seeing with respect to IC spending relative to a couple of months ago.
Yes.
I would say that it's.
It was strongly a couple of months ago and it remained strong but I don't think there's too much change right now in terms of spending.
You know you're right, we've said many times that the.
Better barometer for our business.
It's less about general employment statistics in more about.
Our customers need for it services, obviously digital transformation is driving that better than commercial in fed and so.
We see a pretty steady landscape, there and I think it's reflected in our performance for the second quarter, but also our guidance for the third.
Great I appreciate that maybe.
Maybe pivoting.
On the commercial side of the business.
I think about your services in the three big areas.
Workforce management digital transformation in modern enterprise, if you were to see a slowdown in it spending which one of these areas would you expect to see it first and then could you also comment about what youre seeing in that particular area right now.
Randy you want to talk about that.
Well I think the answer is I wouldn't see it in workforce management, because they tend to be more infrastructure oriented and would continue on even in good times and bad times, because you have to keep the lights on digital transformation has taken those services have taken the biggest leap over the past year and certainly the last few quarters.
It might slow down a bit but I'd be surprised modern enterprise there are certain apps and other things you could delay.
And I mean, I'm conjecturing that I'm, not saying, we're seeing that necessarily.
But that's probably the one that I would think would slow down, but so far we haven't seen that.
I appreciate the kind of thanks guys.
Our next question is from Tobey Sommer with Truest Securities. Please proceed with your question.
Thanks.
If we look at the complexion of the business now in the kind of mix changes I guess, the most notable ones probably than the <unk>.
<unk> exposure in the consulting area.
From a high level do you think that the collection of businesses and portfolio would perform in a materially different fashion if we.
<unk> created the economic Arca for 2020 downturn.
Well that's a good question Tobey I mean, my sense would be it would be.
The same or slightly better because of the mix, obviously commercial consulting services has been growing much faster than the rest of the business.
The latest ripped.
We reported.
This is the operator did you accidentally get yourself.
Yeah, Ted did you.
Ted off.
Thanks Tobey.
Can I ask another question well.
Well, let me pick that one way or are you just for a minute and then Ted maybe you can hear something from them on that I think that arc was influenced more by certain segments of the economy.
Airlines hospitality energy were all really down in that $2 20 Covid period.
And I think it affected their it spend which is our thesis right at the beginning of this call.
So I think that was what happened there wasn't a need for more digital transformation or the need to continue to.
Digitize your business I think it was just certain industries and if you remember we didn't really get hurt that much in those periods certainly not our not our consulting unit did not.
And so I think that was more industry segment specific.
And you know.
What we would see what industry specific segments today are affected.
Obviously energy is a little bit the gas gas prices actually help them in their spend we see back we've reported again with double digit did everything right and the commercial side industry industry sector and its retail accounts top accounts.
Consulting and staffing also grew double digits in the quarter.
Reported an edge background information so that.
That gives you some sense.
Yes.
The only thing I would add to that just to kind of echo what Brad said, you don't see industry to go to a full stop like you did right I think that was the essence of what Ryan was saying and so we need to get into a recession do you see some industry has pulled back.
But continue to do what they need to do I mean, you had a full stop there for a little while I think that as you know.
A unique event if you will.
Alright, and from your own internal playbook.
Is there anything that you would do.
Currently in terms of the levers at your disposal and the degree.
Sequence in which you would call them.
No I think look I mean, we the business was really well managed and even though we had a.
Pull back in certain parts of our business for the year, we were pretty much flat and.
Revenues in our adjusted EBITDA was actually up in those in that period of the Q.
Q2 Q3.
We continue to invest in our federal which obviously will do if the opportunity is there we've got automatic stabilizers in the <unk>.
Commercial part of our business and we can react pretty quickly to that.
I think we're like we said in our remarks.
This is not the first time, we've been through this.
And so we understand what what to do if we need to.
And so.
I think that I think we managed that well in it.
And I think that we know what the playbook is if something else where it happened here in the near future.
Okay. If I can sneak one last one I think you mentioned as part of guidance.
Is assumed to be lower.
Sure I'm worried about that but if I am can you.
Give us a little bit more color about that assumption does that reflect.
Probably behavior or what you're hearing or is that just <unk>.
Turning to the assumption based on macro.
Yes, I think that's a conservative assumption just based on growth rates, what we expect in growth rates, but Ed do you want to talk about that.
Yeah, I mean look.
We anticipated that Perm would step down in Q2, Q1 was a high watermark for us.
In the Perm placement mix, and it's and it did step down but not to the degree that we originally thought when we put out our guidance estimates and so we're anticipating that that's going to step down.
About a half a point and Q3 and probably another.
Quarter of a point Tobey in Q4.
So that will put us back to probably more historical levels in terms of the mix.
Okay. Thank you very much.
Our next question is from Jeff Silber with BMO capital markets. Please proceed with your question.
Thanks, So much and Ed Let me again, just express my Thanks, and wish you best of luck in your retirement.
I was curious if you could just talk about trends intra quarter, specifically in your commercial business and the reason I asked is the one I think when you announced the glide path acquisition, you came out with expectations for the quarter quite thinking revenues would be in line and I think adjusted EBITDA was going to be.
On the high end of guidance yet the numbers you just reported were much better if things really pick up in June .
I think the well first of all our commercial segment, Jeff is just performing great. The market is good we're capturing it.
And their acceleration continued right through the end of the quarter. So.
I think that certainly it was one contributor Ed mentioned, what was going on in the federal piece of the business and that we got some revenues there thought may fall into the third or the fourth quarter.
It was really the sum of those two things but.
Principally say across the board.
We performed better here than we thought in the last few weeks of the quarter. So I don't know if I would call. It a.
I don't know if I would call. It a surprise I think we gave you our best look when we announced the glad fast piece, but I think the business continued to progress.
On both sides of the house through the last three weeks of the quarter.
Okay. That's really helpful and my follow up question is just about your own internal hiring.
Either from recruiters account managers et cetera, you can just talk about how that's been trending have you slowed down at all is it picking up any color would be great.
Yeah, Ryan do you want to take that one.
Yes, we are.
We added head count in the second quarter.
Both on the account management and consulting and recruiter side.
So.
We believe as Ted said that we're looking at still strong demand as we go through the year and we have obligations with our clients certainly to our bookings and other things and so we needed to continue to add to our head count and we did.
And do you expect that to continue in the second half of the year.
Yes.
Well the answer is yes.
But I would say remember what Ted said, we have what we call automatic stabilizers that mean, we can stop on a dime. If we have to I mean, we have a just in time recruiting workforce second to none right. So that applies to our own internal workforce, So, yes, where we're nimble, but yes, we're at and.
We're ensuring we're expecting net price in our guidance number. So we're going to continue to go we're going to have to add head count.
Okay, great. Thank you so much.
Our next question is from Heather Belsky with Bank of America. Please proceed with your question.
Hi, Thank you.
Yes, My first question, Oh, and first of all congratulations on your retirement and congratulations on the new role.
My question was.
With regard to that.
Permanent staffing and the step down.
Do you think this is a function.
Some of the macro concerns people have do you think this is a natural born normalization and kind of how does that how do you think that business could perform in a downturn, what what's sort of the downside risks on on that permanent piece of it.
Well, let me take the first part of that I mean are our permanent placement revenues. Although they are very small part of the business are steady the reason they're down as a percentage of the total is the rest of the business as you know the biggest part of the business is growing faster. So that's principally while there was a step down.
And just the mix of revenues are permanent versus the total.
You know in historic.
Recessionary periods, you've seen that permanent placement b what are the first to come off.
It would be an early indicator, we're not seeing that again.
For us this is more of a mix of revenues than anything else.
But you traditionally would see that and that's why we've always you know obviously, we want a clear.
<unk> need this service, we want to be able to respond to it.
But we also want to manage it as a piece of our total portfolio because it comes with certain cyclicality to it. So we're aware of that and think about that as we manage the various pieces of where we invest.
Thank you and then a question on the survey now acquisition.
Obviously, the glide pass acquisition and their relationship with service now product.
Hey, guys.
Should we or how are you thinking about demand for service now over longer term and the fact that it's that kind of specific brands.
Just it sounds like your customers are asking for the product, but just your comfort and the.
The durability.
I have the surface now product.
Rand do you want to take that.
Heather listened.
I think if our client base before the acquisition is like even ourselves or looking at Sirius now technology and seeing how it fits we have a vision and if you similar to what service now has and it provides a digital layer that can sit across your environment. Your ERP systems and can provide.
<unk> for smoother and simpler integration of information and data sharing across that so it's a part of the digital transformation.
And he will go through and I think our client basis.
Looking at it and trying to determine where to apply it more than just it project management, which is H routes. What it's early start so if.
If you take the nation of service now and you take what we hear from our clients. It makes sense to go out and acquire more capability here glad fast was one of the best of the non global integrators around their technology.
We are fortunate enough to approach them and get them to join in with us.
So we believe that it's going to have a nice run life.
Bill Macdiarmid from service now and I think his quote is that we're in the second inning or something like that he thinks we're 20% into the application of that technology in corporate America. So now whether he is right or wrong no I think it's clear it's in its early phases and the products going through additional development and usage. So we're.
Hearing it from our clients we hear it from service now we see it in the marketplace and so we made the made the step and I think Ted outlined in his comments.
And the first couple of weeks look we knew we had some potential pipeline here and opportunities when we bought it not to mention their clients and their client base. So it seemed like a really smart decision to move forward with that.
Did I answer your question Heather Yeah, Yeah. Thank you. Thank you for the color is very helpful.
Our next question is from Mark Marcon with Baird. Please proceed with your question.
Hey, good afternoon, and let me start with congratulating Ed again, it's been a pleasure over the decades.
Working with you so wish you all the best.
With regards to.
Apex systems can you talk a little bit about what youre seeing in terms of bill rates and pay rates.
Within core staffing and then.
Any sort of color that you could give us on the bill rate side on the consulting side just in terms of an apples for apples basis, if that's possible.
Well Mark we don't.
Release specific information on Bill and pay a bill and pay rates just maybe to get some color in Rand could add to this as well I mean, obviously, our bill rate is going up but we're doing a lot more high valued work.
As compared to where we were as we're on this journey.
In consulting services.
On the staffing side, there's been wage inflation.
But we've also been able to manage that back to the customer and their bill rate and so in that way kind of inflation has been our friend here is.
As our supply for IC Workforces.
As tight and as we've had to deal wage inflation, we've been able to go back and deal with that with the customer so you.
I don't think the dynamics there have changed any from the prior quarter or the quarter before that.
But you know I think those trends are that what we've seen and we've been able to to kind of manage that and maintain or even expand our gross margins around that work.
Great and then.
Yeah, I mean could you just give us a sense in terms of whether the.
The bill rates for it staffing are going up.
At a level, that's consistent with inflation or even higher than the published you know kind of CPI numbers anything around.
That.
Well look I think you can look at our gross margins, which would imply that they're going up at least at the same rate if not more.
And I think that it's both because remember in the consulting part of our business, we get a higher gross margin because the value proposition of the work is higher.
But obviously, we wouldn't be able to fight decrement.
It staffing part, which is a large still the larger part.
If we were having a eroding gross margin. So you know I think that the some of those things would tell you that we're able to at least get.
Wage inflation and higher margins on our consulting business.
Absolutely.
How did you at creative Circle deal.
Randy you want to talk about creative circle for the quarter, I mean, mark they where they they.
They accelerated through the quarter I mean growth.
Was there I think that's a marketplace that obviously, we're watching I mean their headlines out there about what's going on with the tech companies.
By and large the big Tech companies are not a big part of our portfolio and creative circle. So some of the things that you are seeing specific to them around digital advertising and marketing.
We're not a direct hit if you will on us.
But it is a data point in the marketplace and something we have to continue to watch.
Great and then.
I mean, it didn't accelerate through the quarter, so you're definitely not seeing it.
On the on the commercial side just by industry vertical obviously strong growth across the board.
You know like with TMT pacing.
On the financial services.
You know with rates going up that should be a positive for a lot of banks, but then of course there has been some headlines by some ceos in that space that are basically.
You know besides you know watch out for Hurricanes and stuff like that what what are you seeing on the financial services vertical. So I would I would expect that that would continue to grow nicely but.
Yeah.
Right.
Ted will first Mark can I comment on creative Circle, I mean, it's performed very well in the second quarter and I'll remind you that the comps for creative circle, both in the second quarter third and fourth quarter of last year are very strong.
So there they are performing very well on top of strong quarters a year ago.
So that's one thing I would comment in terms of financial services. So you can see again as an industry vertical that grew we featured this time not just fintech in wealth management, but also the banks.
<unk>.
We've had good growth in the.
What we call the regional bank segment, but the big banks are also.
Growing for us.
So can I read that back to their earnings are better than their opportunities are better and they're in their it needs are still there I guess, so but it has performed well for us in the second quarter and I expect it will continue.
Right and then go out fast.
How much can you accelerate the growth there how much cross selling capabilities do you have how big could that be.
Well, Mark we haven't sized it numerically, but obviously that that's an enormous market you know and and I'll, Let ray comment you know as <unk>.
It's about the number but service now has commented on how big that market places that they believe.
Well glad fast has a nice base of revenues coming into our business. The one thing, we always say and I would say about the first two is the revenue synergy opportunity is bigger for us together going forward because of apex's large account portfolio.
Then the glad fast revenue.
Right right.
Yeah, I think Ted said, it all Mark and if you listen to Bill Mcdermott and glad fat in service now.
You hear all the things he says and I think we obviously our thesis is with our account base.
We can grow glide fast faster they can grow themselves.
Absolutely I mean, we monitor.
Service now for a long period of time as part of our normal coverage.
Obviously, a huge opportunity and that's why I was wondering.
Cause godfest have higher margins than in your core consulting business or can it have higher margins.
Yes, yes, and yes.
Alright.
And then lastly, just on the government side.
It's great to see that the budget has been.
Resolved do you would.
Would you expect it during the second half of the year. The book to Bill will start inflicting more towards one or one to one.
One point that there are here yeah, that's it I think mark that's good.
Good point here, the first thing you're going to see obviously is larger.
Larger new booking numbers and then book to build numbers that are one and above.
And that's our expectation.
Most of the benefit of all of that will come in 2023 there'll be some benefit we hope here later.
And the last part of 2022, but most of the benefit will be in 2020 theory, but to your point, yes look for increased new bookings and.
Book to Bill ratio, that's at one one and above.
Great. Thank you.
Yes.
We have reached the end of the question and answer session I would like to turn the call back to Ted Hanson for closing comments.
Great well, that's the end of our call today, we appreciate everyone's interest in <unk> and we look forward to talking to you.
At the end of our third quarter.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.