Q3 2023 ASGN Inc Earnings Call

Greetings welcome to the a S. G N incorporated third quarter 2023 earnings call. At this time, all participants are in a listen only mode.

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 would now turn the conference over to your host Kimberly Astrachan, Vice President of Investor Relations you may begin.

Good afternoon, and thank you for joining us today for <unk> third quarter 2023 Conference call with me are Cat 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 uncertainty 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 these 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.

Other investors Dot 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 measure.

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 <unk> third quarter 2023 earnings call.

<unk> performance for the third quarter 2023 was in line with our expectation.

But we had or within our guidance ranges.

Third quarter 2023 revenues of 1.12 billion were above the midpoint of our guidance with consulting revenues, reaching approximately 55% of the total it had about 2024 goal.

Adjusted EBITDA margin was 12, 3% for the third quarter above the top end of our guidance range. We continue to see opportunities for margin expansion as our consulting revenues.

With that as a background on our consolidated results I'd like to turn to our industry.

As we review our performance three key things will be consistent throughout the discussion.

First while the market for ITT spin remains difficult these headwinds will reverse in <unk>.

<unk> business is better positioned as it's ever been to capture in Dubai I see opportunity.

Second the strength of our business was in our large domestic enterprises and cafes are diversified client base across six critical industry verticals.

Stability throughout market cycles.

Our business continues to evolve toward IP consulting with more than half of our consolidated revenues now in the higher end higher value project and solution capabilities.

This is Greg.

Talking revenues.

What was the variable nature of our cost structure supports our margin.

It's more about each of these topics as we review our quarterly performance. So let's begin by discussing the five industry verticals that comprise our commercial segment.

Our commercial segment predominantly serving large enterprise and fortune 1000 companies commercial segment revenues for the quarter declined by low teen a difficult year over year comparison.

Revenues for the segment benefited from growth in our consulting business offset by double digit declines in the more discretionary areas of ourselves.

For the quarter commercial consulting revenues increased two 1% year over year.

Commercial consulting bookings of 291 million translated to a book to Bill of one one times.

Quarter, one two times on a trailing 12 month basis.

Of the consulting work one during the quarter bookings were again weighted toward renewals on existing projects with a large portion of bookings coming in at the end of the third quarter, an indication that our clients remain cautious in their spend.

Sales cycles are slow and project duration continued to be elongated.

Retention rates on existing deals remains strong as our clients continue to recognize the high value of a need for ESPN and services.

We are seeing anything with an immediate return on investment specifically project aimed at cost containment and those generate operational efficiencies getting.

Getting the green light from clients.

I'll speak more on the work won during the quarter shortly.

Turning to our vertical performance, our consumer and industrial and health care verticals saw low single digit revenue declines year over year.

Consumer and industrial consumer Staples and utilities for bright spot.

Each experienced low single digit growth as compared to the third quarter of 2022.

And the health care vertical provider accounts maintained their strength that revenues were up double digits year over year.

Technology media and telecommunications or T N T.

And government services and financial services, our three remaining commercial industry verticals. All saw continued revenue declines year over year.

Each of these verticals display some resiliency in certain areas on a sequential basis.

With the MTA Tea for example, media and entertainment account revenues remain relatively consistent with the second quarter of 2023 with the rate of decline falling within our financials vertical Big Bank revenues were relatively flat sequentially with a small sequential revenue growth.

In diversified financials.

Even in these more challenging macroeconomic conditions.

Please note that our commercial bookings remain solid.

Continue to make progress on the AI front across the commercial segment with generative AI counting for many of the new opportunities in our pipeline followed closely by work in machine learning.

The vast majority of the generative AI projects for clients our exploratory at this time, we expect larger AI programs to follow once used cases that demonstrate value creation have been identified for our clients.

At the same time the exploration work is taking place.

We're seeing strong demand for data engineering and data governance and support.

Cases.

These infrastructure needs are being driven by the desire to ensure that data is complete accurate handle for training testing and deploying AI models in the future.

One example of workers that consulting project one during the third quarter with a leading north American pet supply company.

Our team was brought on to build out in India and freight management system for our clients.

Putting the full cloud data platform for managing analytics, and future AI and automation capability.

We are responsible for ensuring the architecture configuration reporting and analytics are properly set up at Newport news that tool.

At the same time, we must ensure that the data is extracted correctly from the old tool and ingest it into their new tool, we're using technology solutions such as snowflake.

Ada bricks and Google cloud.

Part of it and then architecture to ensure the best outcome for our clients.

We also continued to excel in projects involving engineering robotics and machine learning capabilities.

And another consulting project one during the third quarter, we were hired to provide services to them either an E grocery technology.

Under this contract were helping to drive the deployment of our clients for our bodies grocery fulfillment system.

Which are used to stock the warehouses.

A major retailers nationwide.

We are providing end to end provisioning installation quality assessment and support for each warehouse deploying the new E grocery technology.

Let's now turn to our federal government segment or industry vertical which provides mission critical solutions to the department of defense.

Intelligence community.

Civilian agencies.

Federal segment revenues for the quarter were up 12, 3% year over year on an as reported basis and up 4% organically.

Contract backlog was roughly $3 3 billion at the end of the third quarter or a healthy coverage ratio of two six times the segment's trailing 12 month revenues.

Awards were approximately 500, and the $1 2 million.

Which translates to a book to Bill of one five times for the quarter.

Nine times on a trailing 12 month basis.

As we continue to secure work during the third quarter, we recognized the potential for some disruption in the procurement process should the government shutdown occurred following the end of Q3.

Our government team proactively engaged in discussions with clients for several weeks, leading up to October 1st.

I confirm that the vast majority of our work is mission critical.

We believe that 10% or less of our federal government work could be impacted.

<unk> and extended government shutdown, we're keeping track of budgetary developments in the meantime, we remain heads down on providing leading IP solutions to our government client base.

Speaking of supporting our clients in the third quarter.

A combination of new and Recompete contract amongst the new work secured.

Two new cyber security contracts with the U S House of Representatives and the census Bureau.

In addition, we secured a five year data and AI contract to support the National Geospatial Intelligence Agency.

The chief digital artificial intelligence office or <unk>.

And the Army Research laboratory.

We also want a smaller contract from the San Diego to help establish a global AI innovation lab.

We'll support academic research and artificial intelligence worldwide.

Similar to the commercial segment much of our work in general with AI and the government space remains exploratory at present.

Excellent qualifications and traditional forms of artificial intelligence.

And civilian customers continue to look to us.

Operator: Greetings. Welcome to the ASGN Incorporated Third Quarter 2023 Ernie's call. At this time, all participants on a listen-only mode.

If I use cases that will increase their operational efficiency.

In fact on several do you get the AI research and development programs, we are integrating generative AI and large language model into current solutions.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on its phone keypad. Please note, this conference is being recorded.

With regard to the project extension, one worked with U S Postal service supporting several key areas.

Kimberly Esterkin: I will now turn the conference over to your host, Kimberly Esterkin, Vice President of Invest Relations. You may begin.

Including advanced data management, and cyber security and continue to support the department of veteran affairs, while adding new work and strategic play in cloud Advisory services and technology implementation.

Kimberly Esterkin: Good afternoon, and thank you for joining us today for ASGN's third quarter 2023 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 four booking 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.

The breadth of work just described is that the base of that counter.

Counter cyclical balance the government industry vertical provides star overall account portfolio.

With that I'll turn the call over to Marie to discuss the third quarter results and our fourth quarter 2023 guidance.

Thanks, Ted it's great to speak with everyone. This afternoon.

Kimberly Esterkin: 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 these statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors.asgn.com. Please also note that on this call, we will be referencing certain non-gap measures, such as Adjust to Beveda, Adjusted Net Income, and Free Cash Flow. These non-gap measures are intended to supplement the comparable gap measures. Reconciliation between gap and non-gap measures are included in today's press release.

As.

Our results for the quarter were in line with or exceeded our expectations the third quarter revenue.

112 billion were down six 8% year over year.

Revenues for the commercial segment.

$782 4 million down 13, 1% compared to the prior year quarter.

Revenue from commercial consulting the largest of our high margin revenue stream of about $274 2 million up two 1% year over year on a tough comparison at 43, 2% growth in it.

Third quarter of 2022.

Ted Hanson: I will now turn the call over to Ted Hanson, Chief Executive Officer. Thank you, Ken. And thank you for joining ASGN's third quarter 2023 earnings call. ASGN's performance for the third quarter 2023 was in line with our expectation with results slightly ahead of or within our guidance ranges. Third quarter 2023 revenues of 1.12 billion, where above the midpoint of our guidance with IT consulting revenues reaching approximately 55 percent of the total ahead of our 2024 goals. Adjusted EBITDA margin was 12.3 percent for the third quarter, above the top end of our guidance range. We continue to see opportunities for margin expansion as our consulting revenue grows.

Commercial consulting revenue was offset by 19, 5% year over year decline on assignment.

Reflecting the continued stocking in England, questionnaires and cyclical parts of the market.

On a same billable day basis adjusting for 1.5 fewer billable days in Q3 of 2023 compared to the prior year quarter.

Revenues declining.

6%.

Revenue from our government segment were 334.

At 12, 3% year over year.

Including a $24 6 million consciousness.

I am fine.

The growth in our federal government segment, our sixth vertical speaks directly to the benefits of maintaining a diverse client base across industries.

Ted Hanson: With that as a background on our consolidated results, I'd like to turn to our industry performance. As we review our performance, the re-key things will be consistent throughout the discussion. First, while the market price has been remains difficult, these headwinds will reverse. And ASGN's business is better position than it's ever been to capture in demand IT opportunities. Second, the strength of our business lies in our large domestic enterprise account base. Our diversified client base across six critical industry verticals provides stability throughout market cycles.

Turning to margin on a consolidated basis.

Gross margin was 28, 9% down 110 basis over the third quarter of last year and flat sequentially.

Over here compression in gross margin, but mainly related to business mix.

Including a lower mix of certain high margin revenue within our commercial thing.

A higher mix of revenue from our federal government segment, which carries a lower gross margin in commercial banking.

Gross margin for the commercial segment was 32, 5% down 60 basis points year over year, primarily due to the lower mix of certain high margin assignment revenue stream.

Ted Hanson: Third, our business continues to evolve toward IT consulting with more than half of our consolidated revenues now in the higher end, higher value project and solution case. Billings. This grows in consulting revenues, along with the variable nature of our cost structure, supports our margins. I'll speak more about each of these topics as we review our quarterly performance.

Maintenance creative digital marketing and permanent placement revenue.

Which was partially offset by a higher mix of high margin <unk> consulting revenue.

The year over year expansion in gross margin.

Ted Hanson: So let's begin by discussing the five industry verticals that comprise our commercial segments. Our commercial segment predominantly services large enterprise and fortune 1000 companies. Commercial segment revenues for the corner declined by proteins on a difficult year-to-year comparison. Revenues for the segment benefited from growth in our consulting business, offset a double-digit decline in the more discretionary areas of our family business. For the corner, commercial consulting revenues increased 2.1% year-to-year. Commercial consulting bookings of 291 million translated to a book to bill at 1.1 times for the quarter and 1.2 times on the trail in 12 month basis.

Margin for the Federal government segment was 24% down 10 basis points year over year.

SG&A expense for the third quarter were $206 million.

Or 18, 4%.

As compared to 230 262.

A 19, 4% of revenues in the prior year period.

SG&A expenses included $1 1 million in acquisition integration and strategic planning expenses, and a $2 7 million tentative legal settlements both of which were not included in our guidance estimates.

As expected interest expense increased year over year related to rising interest rates and our recent refinancing.

Ted Hanson: Of the consulting work one during the quarter, bookings were again weighted toward renewals on existing projects with a large portion of bookings coming in at the end of the third quarter, an indication that our clients remain cautious in their spend. Fail cycles are slow and project durations continue to be elongated, but our retention rates on existing deals remain strong as our clients continue to recognize the high value of a need for ASCN services.

And in August we completed a successful transaction upsized and extended the maturity of our revolving credit facility and term loan.

Our revolving credit facility is now 500 million with a five year maturity extending to 2020 and our term loan B and also 500 million.

And seven years maturing in 2030.

It was transaction our net leverage remains low at two times adjusted EBITDA 10 will speak further about this transaction shortly.

Ted Hanson: We are seeing anything within immediate return on investment specifically projects the aim that caused containment and those generating operational efficiency, getting the green line from clients. I'll speak more on the work one during the quarter shortly. Turning to our vertical performance, our consumer and industrial and healthcare verticals saw low single-digit revenue declines every year. Within consumer and industrial, consumer staples and utilities were bright spot. Each experience in the low single-digit growth has compared to the third quarter of 2022.

Income from continuing operations was $59 4 million.

Adjusted EBITDA was $137 5 million and adjusted EBITDA margin was 12, 3%.

Ted Hanson: And the healthcare vertical provider accounts maintain the strength that revenues were out couple visits every year. Technology, median telecommunications, or TNT, business and government services, and financial services are three remaining commercial industry verticals all saw continued revenue declines every year. Though each of these verticals displayed some resiliency in certain areas on a sequential basis. Within TNT, for example, media and entertainment account revenues remain relatively consistent with the second quarter of 2023 with the rate of decline flowing.

At quarter end cash and cash equivalent of $145 6 million.

We had full availability under our new 500 million senior secured revolver.

Free cash flow for the quarter with $137 7 million, an increase of 77, 2% year over year, we deployed $91 3 million in cash on the repurchase of one 1 million shares during the third quarter at an average price of $79.

<unk> 53 per share.

Roughly $349 1 million remaining under our share repurchase authorization.

With strong free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisition once the M&A market increase.

Ted Hanson: Within our financials vertical, big bank revenues were relatively flat sequentially with small sequential revenue growth in diversified financials. Even in these more challenging macroeconomic conditions, as previously noted, our commercial bookings remain valid. We continue to make progress on the AI front across the commercial segment. With generative AI counting for many of the new opportunities in our pipeline followed closely by working machinery. The vast majority of the generative AI projects for clients are explored toward a discount.

Turning to our guidance.

Our financial estimates for the fourth quarter of 2023 are set forth in our earnings release and supplemental materials.

Estimates are based on current market conditions, and do not take into account any possible revenue decline associated with a potential government shutdown any of that stuff.

Our estimate this thing 60 billable days in the fourth quarter, which is the same as a year ago period and two five.

Okay than Q3 of 2020.

Guidance also takes into account seasonality.

Ted Hanson: We expect larger AI programs to follow on to use cases that demonstrate value creation. I then identified for our clients. At the same time as AI exploration work is taking place, we're seeing strong demand for data engineering and data governance and support of AI use cases. These infrastructure needs are being driven by the desire to ensure that data is complete, accurate and handling for training testing and deploying AI models in the future.

Fourth quarter traditionally the second lowest quarter after the first quarter.

We expect macro conditions some challenge in the fourth quarter in our commercial segment, we anticipate revenue to remain soft across assignment and consulting.

These declines are expected to be partially offset by growth in our federal government segment.

We are expecting gross margin will decline year over year due to business mix similar to the more recent trends.

Ted Hanson: One example of work is the consulting project that we wonder in the third quarter with and leading North American tech supply companies.

And a greater mix of federal government work and continued softness in our more cyclical and discretionary commercial businesses.

Ted Hanson: Our team was brought on to build out an end-to-end freight management system for our clients, including the full-cloud data platform for managing analytics and future AI and automation capabilities. We're responsible for ensuring the architecture, configuration, reporting, and analytics are properly set up in the new freight management tools. At the same time, we must ensure that the data is extracted correctly from the old tool and ingested into the new tool. We're using technology solutions such as snowflake, data bricks, and Google Cloud as part of this end-to-end architecture to ensure the best outcome for our clients. We also continue to excel in projects involving engineering, robotics, and machine learning capabilities.

This shouldn't partially upset by an improvement in our year over year cash SG&A expense margin.

With this as background.

In the fourth quarter, we are estimating revenue.

1.0 to.

106.

We are estimating net income of $46 2 million to $49 1 million.

Adjusted EBITDA of $115 5 million to 119 five.

And adjusted EBITDA margin of 11, 1% to 11, 3%.

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

Thanks Laurie.

<unk> is very well positioned with market demand and the overall economy improves.

Ted Hanson: In another consulting project, one during the third quarter, we were hired to provide services to a leader in e-grorcery technology. Under this contract, we're helping to drop the deployment of our clients' robotic grocery fulfillment system, which are used to stock the warehouses of a major retailer nationwide. We are providing end-to-end provisioning, installation, quality assessment, and support for each warehouse deploying the new e-grorcery technology.

Consistent with our peer set and our clients we remain cautious about the near term market demand given the uncertain macroeconomic condition.

With great qualifications or go up across sought after solution and skill sets SDN is ready to leverage growth in each.

And in the future.

As we proactively position our company for the future as Murray noted in the third quarter, we successfully completed a transaction to upsize and extend the maturities of our revolving credit facility and term loan b.

Ted Hanson: Let's now turn to our federal government segment, our sixth industry vertical, which provides mission-critical solutions to the department of defense, the intelligence community, and best civilian agencies. Federal segment revenues for the quarter were up 12.3% year-to-year on an ash reported basis, and up 4% organically. Contract backlog was roughly $3.3 billion at the end of the third quarter, or a healthy coverage ratio of 2.6 times with segments traveling 12 month revenues. New awards were approximately $501.2 million, which translates to a book a bill of 1.5 times for the quarter and 0.9 times on a trail in 12 month basis.

This transaction increased our financial flexibility.

And provided us with significant dry powder for acquisitions is the M&A market strength.

We continue to believe M&A is the best use and highest return on their capital.

Both the revolver and term loan B, we're oversubscribed, which we can attribute to the strength of our underlying business.

Success with this refinancing was also due to the efforts of our Treasury team led by Jim Brill, Jim has been an integral part of the S T and family for the past 16 years, but we knew that they would come with Jim would retire.

Jim it's been a pleasure to work alongside you all these years.

Ted Hanson: As we continue to secure work during the third quarter, we recognize the potential for some destruction and the procurement process should the government shut down a curve following the end of P3. Our government team proactively engaged in discussions with clients for several weeks, leading up to October 1st, and reconfirmed that the best majority of our work is mission-critical. We believe that 10% or less of our federal government work to be impacted in the case of an extended government shutdown.

Half of our entire company.

Thank you for your exceptional leadership and dedication to ask yet.

Be missed and we wish you the very best in your well deserved retirement.

Transitioning into Jim's role as Treasurer, we welcome Krista Amazing who has served as our VP of finance and treasury role or the S. T is that still what Chris has been shadowing, Jim since day, one with an extensive background in finance and Treasury for a publicly traded company Chris brings a wealth of experience to a S.

Ted Hanson: We're keeping track of budgetary developments. In the meantime, we remain head down on providing ready IP solutions to our government client base. Meetings of supporting our clients in the third quarter, we won a combination of new and recompete contract. A month the new work secured, we won two new cybersecurity contracts with that U.S. House of Representatives and the Census Bureau. In addition, we secured a five-year data and AI contract to support the national, just-spatial, intelligence agency, the chief digital, artificial, and intelligence office for CBIO and the Army Research Laboratory.

Yeah.

We're excited to have Chris on board and hope that many of you have the opportunity to meet him in the near future.

That concludes our prepared remarks I'd like to thank our entire <unk> team for your continued efforts this past quarter, our ability to remain in the SaaS currency, where spend is today and in the future.

The result of your dedication and unwavering commitment to our clients. Thank.

Thank you again for joining our third quarter call operator, please open the call to questions.

Thank you 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 <unk>.

Ted Hanson: We also won a smaller contract from the CBIO to help establish a global AI innovation lab that will support academic research in artificial intelligence worldwide. Similar to the commercial segment, much far work in general that the AI and the government space remained exploratory but with excellent qualifications and traditional forms of artificial intelligence, our federal and civilian customers continued to look to us to identify use cases that will increase their operational efficiency.

Sorry, Keith.

Our first question comes from the line of Tobey Sommer with Chewy Securities.

Please proceed with your question.

Thank you I was wondering if you could give us a little bit more color on what youre seeing in the commercial consulting arena in terms of elongation of decision, making and maybe the size.

The size of projects are they are they are diminishing outright or are customers sort of piece mealing them out.

Ted Hanson: In fact, on several DOD AI research and development programs, we are integrating generative AI and large language models into current solutions. With regards to project extensions, we won work with U.S. Postal Service supporting several key areas, including advanced data management and cybersecurity, and continue to support the Department of Veteran Affairs while adding new work in strategic planning, cloud advisory services, and AI technology implementation. The breadth of work just described the events of the countercyclical balance, the government industry vertical provides to our overall account portfolio.

And modules are phases as opposed to signing up for sort of the whole end to end period for you. Thank you.

Yes. So thanks for the question Tobey I'll, let rand kind of jump in here too, but I'll tell you I think in general what we're seeing is.

They're solid bookings a little bit more renewals than new work.

But what I would call very solid bookings.

For this quarter it was 291.

We were at a one one book to Bill, which Q3 is always seasonally a little lighter. So I think we were generally pleased with that.

Marie Perry: With that, I'll turn the call over to Marie to discuss with our quarter results in our fourth quarter 2023 guidance. Thanks, Ted. It's great to speak with everyone this afternoon. As said noted, our results for the quarter were in line with or exceeded our expectations. The third quarter revenue of 1.12 billion were down 6.8 percent year over year. Revenues for the commercial segment were 782.4 million, down 13.1 percent compared to the prior year quarter.

Definitely seeing clients elongate those that reduces their spend if you will and our revenue.

It's not a bill rate or a margin issue, it's mostly embedded in that and Rand size of project is generally similar right.

Yeah.

Except for the AI work, which you noted Ted tends to be smaller, but the normal flow of our consulting work is the larger now seven figure projects.

They have a nine to 12 month duration and Toby to your question of is the client Pete.

Marie Perry: Revenues from commercial consulting, the largest of our high margin revenue stream, total 274.2 million, of 2.1 percent year over year on a trust comparison of 43.2 percent growth in the third quarter of 2022. Revening commercial consulting revenue was offset by 19.5 percent year over year decline in assignment revenue, reflecting the continuous documents in the discretionary and cyclical parts of our business. On the same the local day basis, adjusting for 1.5 zero bill of the day in Q3 of 2023 compared to the prior year quarter, assignment revenues declined 17.6 percent.

Piecing it out if you will to us I think it's more us.

On the go scenario in other words as projects mature they come to a different milestones.

I think the clients generally and some of this is seasonal is not in a rush to finish if you will I'm not suggesting that they don't think it's a priority but it's.

It's just it's just being cautious which they've been for some time now in the last quarter or two.

So it's it's not so much the way it's contracted it's more of the way it's executed.

Did that answer your question.

I'm sure that that provides helpful color and then as a follow up on the same theme.

Within that rate of bookings and I understand most of its renewals do you think you're holding serve gaming.

Marie Perry: Revenues from our federal government segment were 334.4 million, 12.3 percent year over year on a trust comparison of 12.3 percent year over year on a trust year, including a 24.6 million contribution from iron buying. The growth in a federal government segment are six verticals, speaks directly to the benefits of maintaining a diverse client base across industries. Turning to margin, on a consolidated basis, growth margin was 28.9%, down 110 basis means over the third quarter of last year and flat sequentially.

Gaining share how do you think youre doing relative to the market in the areas that you play.

And.

Ted I'll take the first shot and we'll wait for our peer group to report Tobey over the next days and weeks, but I.

I mean, I I feel like we're holding court if not expanding.

Just a bit most of the work that we're seeing by the way is a lot in that data that Ted mentioned in the notes the data area.

Data aggregate aggregation data consolidation data cleansing data mapping. These are fundamental steps you take in any kind of systems development. If you will and I think a lot of clients are recognizing that this data where is takes time has to be pulled together has to be meticulous.

Marie Perry: The year over year compression in growth margins was mainly related to business links, including a lower mix of certain high margin revenues within our commercial segments, an entire mix of revenues from our federal government segments, which carry a lower growth margin than commercial segment revenues. Growth margins for the commercial segment was 32.5%, down 60 basis point zero year, primarily due to the lower mix of certain high margin assignment revenue streams, mainly creative digital marketing and permanent placement revenues, which was partially austenic by a higher mix of high margin IT consulting revenues with a year over year expansion in growth margins.

And it guess what this all sets the stage for AI technology when it comes in.

And Toby one other thing we watch is the technology that supports data mapping and data cleansing there are beginning to pop up on the horizon new.

New pieces of technology to support that effort, but for the most part it's still methodology and labor intensive.

And.

And it's prep work important prep work for AI implementation.

Marie Perry: Growth margin for the federal government segment was 20.4% down 10 basis points year over year. SGNA expense for the third quarter were 206 million or 18.4% of revenues as compared to 232.6 million or 19.4% of revenues in the prior year period. SGNA expenses included 1.1 million in acquisition, integration, and strategic planning expenses, and a 2.7 million tentative legal settlement, both of which were not included in our guidance estimates. Unaccepted interest expense increased year over year related to rising interest rates and our recent refinances.

Thank you if I could ask a question about M&A I think you said.

Prepared remarks, when M&A when sort of markets.

Reopened resume revive something like that did well.

What do you mean by that because certainly it seems based on your financing you have the capital and appetite is it a question of multiples or fewer assets available out in the market.

For many perspectives one might think this would be a sort of a good time for you to lean in a bit.

Well I would agree with that I would say Tobey, we still see that high quality assets are not stepping into the market because they still have it in their own mind, maybe reconcile solve the valuation question.

Marie Perry: At the end of August, we completed a successful transaction that upsized and extended the maturity of our revolving credit facility and termed one B. Our revolving credit facility is now 500 million with a five year maturity extending to 2028. Our term loan being is also 500 million and extends seven years maturity in 2030. Both transactions are net leverage remains low at two times adjusted EBITDA. 10 would be further about this transaction shortly.

So you.

While we see things flowing through the pipeline that we're prosecuting all of it.

Lesser quality I would say more of a lesser quality assets than we would typically see so you know I think it's more that than anything else for us for a company that has great solution capabilities in some high demand areas that we want to be in their performing maybe that was going to say a word.

But they are performing well and I think they can afford to wait here.

It's mostly around that.

That makes perfect sense last question for me could I get.

Marie Perry: Income from continuing operations was 59.4 million, adjusted EBITDA was 137.5 million and adjusted EBITDA margins was 12.3%. At quarter end cash and cash equivalent were 145.5 million and we had full availability under our new 500 million senior secured revolving. Three cash ones for the quarter was 137.7 million and increased to 73.2% over year. We deployed 91.3 million in cash on the repurchase of 1.1 million shares during the third quarter at an average price of $79.53 per cent per cent.

Maybe give us a history lesson and how.

The government business performed and what the impacts were the top line.

<unk> Awards and book to Bill as near as you could isolate those in the last shutdown in 2018 that straddled into 19, because that may be informative as we perhaps experience.

Some sort of volatility in government staying open over the next several months.

Yes, Tobey that's pretty far back so I Couldnt clearly give you an answer on that but let us let us follow up with you offline on that if that's okay terrific.

Terrific. Thank you very much.

And our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Marie Perry: Share. We have roughly 349.1 million remaining under our share of repurchase authentication. With strong free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisition once the M&A market improves.

Hi, Todd and Marine ran thanks for taking my questions.

My first one is on the commercial side.

Side of things can you share your initial impressions about the.

The clients budgeting processes for 2024, and what that might mean for spending potential next year.

Marie Perry: Turning to our guidance, our financial estimates for the fourth quarter of 2023 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and you're not taking to account any possible revenues declined associated with the potential government shutdown in November. Our estimates assume 60 billable days in the fourth quarter which is the same as a year ago period and 2.5 fewer billable days than Q3 of 2023, guidance also takes into account seedinality with the fourth quarter traditionally the second lowest quarter after the first quarter.

Well, we're in the middle of that right now.

Alright, I will tell you on a macro basis not client by client, but I mean, if you kind of followed Gartner theyre lowering.

It spending growth here and this year, they're kind of down to three or 4% now.

And they are expecting a higher number next year right. So I think that's an overall market comment brand or we are we really kind of into that on the client side here enough to make a comment.

Well I would say, there's two levels of client here the technical client that runs the projects and has to get things accomplished and the executive team that has to make a decision relative to their financials and their own outlook for the future I can tell you the technical client level Maggie it's it's let's talk about it let's get the <unk>.

Marie Perry: We expect macro conditions to remain challenging in the fourth quarter and our commercial estimates we anticipate revenues to remain dropped across both assignment and consulting. These declines are expected to be partially upset by growth in our federal government segment. We are expecting Gwen's margins will decline year over year due to business mix to merge the more recent trends including a greater mix of federal government work and continued softness and on more cyclical and discretionary commercial businesses. This should be partially upset by improvement in our year over year's cash SGMA expense margin.

Next stage going as I just mentioned a lot of the work is in what I call the prep phase for AI.

Four use cases get layered on so there is a lot of discussion at the technical level I think the executive level I can't speak to that but I would if I were an executive if some of these businesses if I'm a provider. It's full steam ahead, if I'm a big bank earnings looking up maybe I'm thinking positively.

<unk> technology in the AD.

And the results we're seeing now that are coming out in the market are kind of giving us the indicators that are any juror moving up so we our thesis as you know has always been that it spends a function of earnings of the company. So I think executives are watching what happens with.

Marie Perry: With this background for the fourth quarter we are estimating revenues of 1.04 billion to 1.06 billion. We are estimating that income of 46.2 million to 49.1 million. Adjust the bidat of 115.5 million to 119.5 million and adjust the bidat margin of 11.1 percent to 11.3 percent.

Marie Perry: Thank you.

I'm sure the.

Continuing resolution with what's going on in the house.

Obviously, you're going to be money spent on aid for foreign world.

I mean, I just think it's too early quite tell but we're optimistic I would say.

Ted Hanson: I'll now turn the call back over to Ted for some closing remarks. Thanks for these. ASTM's business is very well positioned with IT market demand and the overall economy improves.

The bookings gives us some indicators lagging a little bit right. I mean, we've had pretty solid bookings and even as Ted said the Q3 bookings were quite good T. Eastern lowest commercial quarter. The government side also had great bookings in the third quarter. So.

Ted Hanson: Consistent with our peer set and our clients we remain cautious about the near term market demand given the uncertain macro economic condition. Nevertheless the great qualifications across sought after IT solutions and skillsets ASTM is ready to leverage growth in IT trend in the future. As we proactively position our company for the future as Marie noted in the third quarter we successfully completed a transaction to upside and extend the majority of our revolving credit facility and term 1B.

Yes.

That's helpful. Thank you and then I think it was Ted in your prepared remarks, you mentioned.

Maybe some opportunities for more margin expansion.

Is that anything incremental to some of the opportunities that you've laid out in the past like at your Investor day or was that a comment on expected mix shift over time or any comments you would have there.

Ted Hanson: This transaction increased our financial flexibility and provided us with significant drop powder for acquisition of the M&A market strengthen. We continue to believe M&A is the best use of and highest return on our cap. Both the revolver and Term 1B were ever subscribed, which we can attribute to the strength of our underlying business. The success of this refinancing was also due to the efforts of our Treasury team, led by Jim Brill.

I have a multiyear timeframe. That's helpful. Yeah, I think it's both of those Maggie I mean, we still we see in our numbers and we still believe that is a consultative part of our business becomes bigger it comes at a better gross margin and EBITDA margin and that's the levering up our margin profile.

Even here where.

Some of our more cyclical businesses that have higher margins are down we're still doing a good job if that's the right way to say it.

Generating a plus 12% EBITDA margin here in the third quarter. So.

I think it's mostly around that I mean.

Ted Hanson: Jim has been an integral part of the ASEAN family for the past 16 years, but we need the day would come when Jim was retired. Jim has been a pleasure to work alongside you all these years. And on behalf of our entire company, I want to thank you for your exceptional leadership and dedication to ASEAN.

I've said before our range that we gave at our three year plan, which was about 12 months to 12 and a half as a short term target but.

And we most quarters, we play within that range, but.

There's nothing that says in the future. It will continue to grow higher because of the things we laid out in our investor day, and because of the kind of quarter to quarter mix shifts that you can see in our consulting business.

Ted Hanson: You will be missed, and we wish you the very best in your well-deserved retirement. Transitioning into Jim's role as Treasurer, we welcome Chris Denining with a certain of E.T, of financial treasury role at ASEAN since July. Chris has been shadowing Jim since day one, with an extensive background in financial treasury for public who traded companies. Chris brings a wealth of experience to ASEAN. We're excited to have Chris on board and hope that many of you have the opportunity to meet him in the near future.

Got it thank you so much.

Our next question comes from the line of Mark Mark Hahn with Baird. Please proceed with your question.

Good afternoon, and thanks for taking my questions.

On the margins I mean, you've done a really nice job here in terms of protecting the EBITA margins I'm wondering how you're thinking about internal head count.

Ted Hanson: That concludes our prepared remarks. I'd like to thank our entire ASEAN team for your continued efforts this past quarter. Our ability to remain in the fast current of where I.T, spend is today and in the future is the result of your dedication and unwavering commitment to our clients. Thank you again for joining our third quarter call.

Going forward.

Over the course of this coming year, how should we think about you know your priorities with regards to preserving the margin strength relative to build.

Building out capabilities that will probably benefit whenever the environment truly improves.

Operator: Operator, please welcome the call to question. Thank you. At this time, we will be conducting a question and answer session.

Yeah. Good question Mark I mean, that's a brand that does believe that we can pace. This out I mean, I don't think we have to sabotage margin to invest ahead of something.

Operator: If you would like to ask a question, please press the star one on your telephone keypad. A confirmation tone will indicate a line 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.

R.

Our.

Right now our head counts are.

Coming down incentives coming down those are some of the stabilizers that are part of our.

Tobey Sommer: Our first question comes from the line of Toby Somer, which is with securities. Please proceed with your question. Thank you. I was wondering if you could give us a little bit more color on what you're seeing in the commercial consultant arena in terms of the elongation of decision making and maybe the size of projects. Are they diminishing outright or are customers sort of peace-mealing them out in modules or phases as opposed to signing up for sort of the whole end to end period for you?

Get our business stabilizers and it helps us protect the margin, but as incentives come back and we need to add his head count either in solution areas or in certain other areas I think will paces out we've done it before we saw this in OE. So nine so again I don't think.

Tobey Sommer: Thank you. Yes, so thanks for the question, Toby, let Rand kind of jump in here too, but I'll tell you, I think in general what we're seeing is their solid bookings, a little bit more renewals than new work, but what I would call very solid bookings, you know, for this quarter it was 291 million. We were at a 1.1 book to bill, which Q3 is always seasonably a little lighter, so I think we were, you know, generally pleased with that.

Where I don't think we're cutting our nose off despite FX here I mean this is this is something we feel pretty good about the balance and the attrition that we're seeing is the natural attrition that's built into the business and.

We're watching it there are some areas, where we're investing today.

Frankly, you know there are other areas, where we're letting natural attrition work and so we're monitoring.

Monitoring and wary of all that.

That's great Mark 10, 10, and Mark can add real quickly you can't talk about head count without talking about productivity and quietly we've been continuing to upgrade our <unk>.

We fit some of the technology, we use in our area and recruiting area and certainly in our methodologies and the way we go to work.

Tobey Sommer: We're definitely seeing clients elongate those that reduces their spend, if you will, in our revenue. It's not a bill rate or a margin issue, it's mostly embedded in that. And Rand, size of project is generally similar, right? Yes, except for the AI work, which you noted, tends to be smaller, but the normal flow of our consulting work is the larger and now seven figure projects, that have a 9-12-month duration. And Toby, your question of, is the client piecing it out, if you will, to us?

With the engagement so.

There is room here also in productivity improvement to absorb.

Some of the growth so we're watching both of those things, okay and investing in it in fact.

That's great.

Do you have any more perspective with regards to and I know, it's early days, but when.

When the AI work could you know transition from being exploratory to larger engagements and when it does become larger engagements like.

What sort of magnitude are you thinking about and would you be in a good position to be a prime on some of those.

Tobey Sommer: I think it's more on the ghost scenario. In other words, it has projects mature. They come to different milestones. I think the clients generally, and some of this is seasonal, is not in a rush to finish, if you will. I'm not suggesting that they don't think it's a priority. But it's just being cautious, which they've been for some time now in the last quarter or two. So it's not so much the way it's contracted.

Right.

Well the answer is yes mark.

With you and others, we've talked about three layers of that.

The road to AI and that's the processing power and the work that's happening not just in chips, but also in the software enterprise software World and you see and then the next layers cloud and the data and the data preparation and the data readiness and the third is use cases, so there's a lot of work obviously for companies like.

Tobey Sommer: It's more the way it's executed. Did that answer your question? Sure, that's my topical color. And then as a follow-up on the same theme, within that rate of bookings, and I understand most of its renewals, do you think you're holding serve, you know, gaining share, or how do you think you're doing relative to the market in the areas that you play? Right. Ted, I'll take the first shot, and we'll wait for our peer group to report Toby over the next wood days and weeks.

US in that middle layer and the data side. The use cases will be an application of that data. So I would think if I were a client.

I'm presuming this wap and the client says look you've done some great work with our data work I need you to now extended to our use cases and what we're trying to accomplish at the end of the day by the way we're building the data in a way that supports some of these use cases that our vision envision so should we be a prime yes, because of our inroads with data in the cloud.

And the infrastructure of data and should we also be smart on on the technologies that continue to emerge not just the enterprise technology, but these newer technologies that are coming out and we're doing both not just through our alliance relationships, but our our experience. So I I hope we are in great position to.

Tobey Sommer: But I mean, I feel like we're holding court, if not expanding, just a bit. Most of the work that we're seeing, by the way, is a lot in that data that Ted mentioned in the notes, the data area. Data aggregation, data consolidation, data cleansing, data mapping. You know, these are fundamental steps you take in any kind of systems development, if you will. And I think a lot of clients are recognizing that this data work is take time, has to be pulled together, has to be meticulous.

To support them.

We go.

And if you remember Gardner pointed out that they thought the customer experience is going to be the highest best use cases for AI in the future and our creative marketing team has done cyber.

Tobey Sommer: And guess what, this all sets the stage for AI technology when it comes in. And Toby, one other thing we watch is the technology that supports data mapping and data cleansing. There are beginning to pop up on the horizon, new pieces of technology to support that effort. But for the most part, it's still methodology and labor intensive. And it's prep work, important prep work for AI implementation to come. Thank you. If I could ask a question about M&A, I think you said in your program, Mark, when M&A, when sort of markets reopen, resume, revive, something like that.

Chris Circle is kind of a lot of work with pioneering working articulating in helping clients think about their use case strategy. So I'm, hoping we're in good position, but importantly, we're doing the building block, where we need to do to be in that position.

I think one more point is remember remember Barclays now for several years running have been identified as the number one provider of.

AI capabilities in the federal government space. So that's what I meant.

Internal solution capability that not only supports our federal customer, but we can leverage that knowhow and certain commercial areas.

That's terrific and then can you talk a little bit about like the supply side in terms of obviously you know the.

Tobey Sommer: What do you mean by that? Because certainly it seems based on your financing, you have the capital and appetite. Is it a question of multiples or fewer assets available out in the market? From from many perspectives, one might think this would be a sort of a good time for you to lean in a bit. Well, I would agree with that. I would say Toby, we still see that high quality assets are not stepping into the market because they still haven't in their own mind, maybe reconcile the valuation question.

His skills are in really high demand I'm wondering like what is the pipeline what are where are you getting the contractors that truly have.

The knowledge what level do they have and how are you thinking about the bill rates.

And the margins given the scarcity.

Relative to the demand.

It sounds like this should be over.

Who knows whether it's a year from now or three years from now, but a really promising area.

Tobey Sommer: So while we see things flowing through the pipeline and we're prosecuting all of it, it's lesser quality assets than we would typically see. So I think it's more that than anything else. For a company that has great IT solution capabilities and some high demand areas that we want to be in, they're performing, maybe not as good as they were, but they're performing well. And I think they can afford to wait here. I think it's mostly around. That makes perfect sense.

Yeah, well remember, we're not just hiring one AI expert right, there's multiple facets of layers to this as Ryan mentioned shortening.

Today in the data World, we have many of these in our organization. Many of these people into our organization and working on other data type projects that can port too.

These AI use cases and be effective there. So I mean, I think a lot of these players will come from pools of solution capabilities that.

Tobey Sommer: The last question from me, could I get you to maybe give us a history lesson in how the government business performed and what the impacts were the top line contract awards and book to Bill as near as you could isolate those in the last shutdown in 2018 that straddled into 19 because that may be informative as we perhaps experience some sort of volatility and government staying open over the next several months. Yeah we'll tell you that's pretty far back so I couldn't clearly give you an answer on that but let us let us follow up with the offline on that if that's okay. Terrific. Thank you very much.

That we already have in our business today.

Will.

Great.

In terms of TMT.

You mentioned that you know.

The accounts look like they're a little bit stable, but TMT was down 27% versus 18% are you seeing sequential stability like on a week to week basis, just wondering how you're how you're thinking about that.

Yeah, I'd say the answer is yes, but Rand do you want to comment on that one.

Yeah, I think we're watching both and we're watching what what I call micro indicators. So.

We watch certain things in the marketplace things, we've mentioned whether companies are having your earnings are they growing themselves, which which products. If you will in the technology and telecommunications area growing whereas AD spending being added in media to help those businesses and youre seeing some of that starting to turn.

Margaret Nolan: And our next question comes from the line of Maggie Nolan with William Blair.

Margaret Nolan: Please will see what your question. Hi Ted and Marie and Rand thanks for taking my questions. My first one is on the commercial side of things. Can you share your initial impressions about the client's budgeting processes for 2024 and what that might mean for spending potential next year. Well we're in the middle of that right now. I will tell you on a macro basis not client by client but I mean if you kind of follow gardener there lowering IT spending growth here in this year they're kind of down to three or four percent now and they're expecting a higher number next year right so I think that's an overall market comment.

Around when we look at stability.

Obviously, we've declined through the year keep in mind, our comps from a year ago or were quite high.

But definitely as we exited Q3 and we started in Q4, we see.

Which to US is a step in the right directions to the steadiness in the work and the workflow, but I think you'd looked at each other indicators and you see that.

Oh, there's a maybe a light at the end of the tunnel coming.

Great and then one last.

Tobey asked the history question I've got one as well.

Ran Ted <unk> you both.

Margaret Nolan: Rand or we are we really kind of into that on the client side here enough to make a comment. Well I would say there's two levels of client here the technical client that runs the projects and has to get things accomplished and the executive team that has to make a decision relative to their financials and their own outlook for the future. I can tell you the technical client level Maggie it's it's let's talk about it let's get the next stage going as I just mentioned a lot of the work is in what I call the prep phase for AI before use cases get layered on so there's a lot of discussion at the technical level.

Been involved in this business for multiple cycles, how would you compare what we're seeing on the commercial side in terms of the trends.

Right now relative to prior cycles.

What elements feel different from your perspective, my recollection was you know apex actually navigated.

You know the.

The Dfc.

Well.

And so I'm just wondering how you or how does this compare how are you.

Thinking about it.

Yeah, well, it's different for sure right the business cycles of business cycle, but no two are kind of based on the <unk>.

Margaret Nolan: I think the executive level I can't speak to that but I would sense if I were an executive of some of these businesses if I'm a provider it's full steam ahead if I'm a big bank earnings and looking up maybe I'm thinking positively if I'm technology the add money and the results we're seeing now that are coming out in the market are kind of goodness indicator that earnings are moving up so we are faces as you know has always been that IT spends a function of earning. So I think executives are watching what happens with the I'm sure the continued resolution with what's going on in the house there's obviously going to be money spent on aid for in the foreign world and I mean I I just think it's too early quite tell but we're optimistic I would say the bookings give us an indicator Maggie a little bit right. I mean we've had pre solid bookings and even as Ted said the Q3 bookings were quite good usually it's our lowest commercial quarter the government side also had great bookings in the third quarter.

<unk> Foundation are acting the same way if you think about the great financial crisis, certainly that affect that.

Big banks of the financial services industry things related to the banks predominantly.

Housing and mortgage if you will and and.

And the retailer and the consumer got caught.

And some of that stuff and I think that what's different. This time is it's been two years now that we've been watching this interest rate.

Increase in term been talking about an impending recession and large enterprise accounts have slowly position themselves in a much more cautious way and that's happened broadly across the board over a long period of time, and so instead of seeing kind of a faster rippled through certain industry.

You've seen it broad based over a long period of time and enterprise accounts. So I think that makes this.

Cycle, if you will a little more different you know that being said, how we made it through this is not too different.

Margaret Nolan: That's helpful, thank you, and then I think it was Ted and your prepared remarks. You mentioned maybe some opportunities for more margin expansion. Is that anything incremental to some of the opportunities that you've laid out in the past like at your investor day or was that a comment on expected mixed shift over time or any comments you would have there over kind of a multi-year timeframe? Yeah, I think it's better. That is Maggie.

Definitely done this at various times before so.

Haven't understanding about how that business should operate and what the management <unk>.

Actions are that we need to take and we also kind of realize the things that sometimes lead you into these downturns are the are the things that we do out so.

Certainly you know are.

Margaret Nolan: I mean, we still we see in our number person, we still believe that as a consultant, a part of our business becomes bigger. It comes at about a gross margin and EBITDA margin, and that's levering up our margin profile. You know, even here where some of our more cyclical businesses that have higher margins are down, we're still doing a good job. If that's the right way to say it of generating plus 12% EBITDA margin here in the third quarter.

TMT industry was one that really led I think you know for many of us into the into this cycle and while it is still not there you may be seeing.

Signs that there.

Businesses are returning to growth and better profitability and that'll be good for us because they'll want to lean into more IP initiatives that they need us to be a part of so that'll be a positive thing for us.

Great really appreciate the thoughtful answers thank you.

Margaret Nolan: So, I think it's the most important. I mean, I've said before our range that we gave in our three year plan, which was about 12 to 12 and a half is a short term target, but and we most quarters we play within that range, but you know, there's nothing that says in the future, it won't continue to grow higher because of the things we laid out in our investor day and because of the kind of quarter to quarter mixed shift that you can see in our consulting business.

Margaret Nolan: Got it. Thank you so much.

Our next question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.

Thank you so much in your prepared remarks, and I'm going to quote it says in our commercial segment, we anticipate revenues to remain soft for both across both assignment and consulting and this is referring to your guidance for the fourth quarter.

Should I assume that means that you think both assignment and consulting will be down on a year over year basis in the fourth quarter.

So Jeff. Thanks for the question you know I think that our guidance kind of reflects what I would call flat to very slightly down in the commercial and up in the federal.

Mark Marcon: Our next question comes from the line of mark, mark on with Baird, please, we'll see with your question. Good afternoon and thanks for taking my questions on the margins. I mean, you've done a really nice job here in terms of protecting the EBITDA margins, wondering how you're thinking about internal headcounts going forward over the course of this coming year.

If we were talking to you that's what she would say and then.

Secondarily I think we're taking a also a little bit more conservative view of permanent placement and how that could influence the margins. So I think those are the are the components on the commercial side look there's although there's no real material change to the operating environment. The fourth quarter is always lower than this.

Mark Marcon: How should we think about, you know, your priorities with regards to preserving the margin strength relative to building out capabilities that, you know, will probably benefit whenever the environment truly improves. Yeah, well, good question, Mark. I mean, I think we believe that we can pace this out. I mean, I don't think we have to sabotage margin to weigh invest that ahead of something. Right now, our headcounts are coming down and incentives coming down.

Third quarter. So the third quarter is always the strongest and in the fourth quarter, you see a little a little softening and that's because you've got holidays in less billable days. You also have various projects come to a natural end customers working on budgets on things that they may not start until the next year and then.

You know you have some clients, who will get kind of into December and say look I'm not going to finish. This by January one less just shut the lights off here for a week or 10 days, but let's come back at it.

Mark Marcon: Those are some of the stabilizers that are a part of our, you know, our business stabilizers and the helps us protect the margin. But as incentives come back and we need to add headcount either in solution areas or in certain other areas that think will pace us out. We've done it before, you know, we saw this in 0809. So again, I don't think where, I don't think we're cutting our nose off despite our face here.

After the holidays and so those are all natural things that happen here in the fourth quarter. So that's what's underneath the guidance I'll tell you at a macro level you know in the commercial markets.

No real change in the operating environment I think that's one thing that is kind of clear here and we coming out of Q3 and Q4 things are what we would say it's fairly steady.

Mark Marcon: I mean, this is, this is something we feel pretty good about the balance and the attrition that we're seeing is a natural attrition that's built into the business and, you know, we're watching it. There's some areas where we're investing today, frankly, you know, there are other areas where we're letting natural attrition work. And so we're, you know, monitoring and wary of all that.

Our Q3 was a little bit better than expected and that then translates into how we set Q4 guidance.

No term yet in the commercial market the commercial market is still not found an inflection point.

You know it was talked about little things on the call here that we are hopeful that they begin to lead us as Rand said too a little bit of life, but no term yeah.

Mark Marcon: Mark, Ted and Mark, I had it real quickly. You can't talk about headcount without talking about productivity. And quietly, we've been continuing to upgrade, refit some of the technology we use in our areas and recruiting area and certainly in our methodologies and the way we go to work with the engagement. So there's room here also in productivity improvement to absorb some of the growth. So we're watching both of those things and investing in it. In fact, that's great.

And the business stabilized since obviously you are working on our business and continue to work and we feel good about the.

Maintaining.

EBITDA margin for us even in the face of a really difficult commercial market.

Okay.

Maybe I can shift gears to the federal government business.

You know I know you mentioned in terms of a potential government shutdown. Its you know I think it was less than 10% of your business will be impacted but can we just talk about the mechanics, I mean, what what happens if god forbid we do get a shutdown and do all the project stop.

Mark Marcon: Give any more perspective with regards to, and I know it's early days, but when the AI work could transition from being exploratory to larger engagements and when it does become larger engagements, what sort of magnitudes are you thinking about, and would you be in a good position to be a prime on this? And some of those right. Well, the answer is yes, Mark, you know, we've with you and others, we've talked about three layers of the road to AI and that's the processing power and the work that's happening, not just in chips, but also in the software enterprise software world, and you see in the next layers cloud and the data and the data preparation and the data readiness and the third is use cases.

Contract negotiation stopped if you could just help me walk through what we could expect if that does happen.

Well I think in that the first thing that happens is that as we.

<unk> kind of come together close with your clients you need to determine what's critical and what's not right and thankfully we've already started that process based on.

Some of what was going on in that market leading into October. So here, where we've got to put ahead on that if you will and we have a pretty good idea.

Once you go through that you continue to work on their mission critical stuff and you make a determination of the client makes a determination on the few things that may not appear to be mission critical and so the client will do that in concert with us and so we'll know that and then what happens on new work is it pushes.

Mark Marcon: So there's a lot of work, obviously, for companies like us in that middle layer in the data side, the use cases will be an application of that data. So I would think if I were a client, I'm presuming this will happen. The client says, look, you've done some great work with our data work. I need you to now extend it to our use cases and what we're trying to accomplish at the end of the day.

As to the right. So you know awards that are in process gets delayed a little bit the adjudication of those no matter what stage they are in and things just slightly.

Flip out into the first quarter or the first half.

Okay.

Okay. That's really helpful. Thanks, so much.

Mark Marcon: By the way, we're building the data in a way that supports some of these use cases that are visioned and envisioned. So should we be a prime? Yes, because of our inroads with data and the cloud and the infrastructure of data. And should we also be smart on on the technologies that continue to emerge, not just the enterprise technology, but these newer technologies that are coming out. And we're doing both, you know, not just through our lines relationships, but our experience.

Jeff maybe one thing too to note here and you know who knows it's been such a crazy turn of events here over the last few weeks and the federal government space with what's going on with the house, but you know it.

It's not pre suppose theres going to be a shutdown I mean, we mentioned that in our as a as a caveat in our guide, but you know it looks like we could be moving here towards another.

Continued resolution of some period of time, whether that's a short window in Longwood.

Mark Marcon: So I hope we are in great position to support them as we go. And if you remember, Gardner pointed out that they thought the customer experience was going to be the highest best use cases for AI in the future. And our creative marketing team has done cyber craze circles done a lot of work, both pioneering, working, articulating, and helping clients think about their use case strategy. So I'm hoping we're in good position, but importantly, we're doing the building block work that we need to do to be in that position.

Were in one right now and so you know, we'll see how things develop on that front as we get a few more weeks down the road.

Yeah, we finally have a speaker so that's a good sign alright. Thanks, so much.

Our next question comes from the line of Seth Weber.

With Wells Fargo. Please proceed with your question.

Hi afternoon, everybody. Thank you.

Randy I appreciate the comments about kind of stability here at the end of the third quarter I'm. Just wondering would you be would you be willing to talk to you.

Kind of cadence of business through through the quarter like if things where things are sort of stable through the third quarter or did they go down and then it gets a little better or do they get a little bit worse.

Mark Marcon: I think one more point is remember, remember, Mark, we've now for several years running have been identified as the number one provider of AI capabilities in the federal government space. So that internal solution capability that not only supports our federal customer, but we can leverage that know how, you know, in certain commercial areas.

I'm wondering if you could give any color on sort of the intra quarter.

Mark Marcon: That's terrific.

Victory on the commercial side. Thanks.

Tangible I'm talking about Q3, you talked about Q3.

Mark Marcon: And then talk a little bit about like the supply side in terms of obviously, you know, these skills are in really high demand. And I'm wondering, like what is the pipeline, where are you getting the contractors that, you know, truly have the knowledge, what level do they have, and how are you thinking about the bill rates. And the margins given the scarcity relative to the demand. You know, it sounds like this should be over who knows whether it's a year from now or three years from now, but a really promising area.

Talking about Q3, yeah, just the you know kind of July August September trend lines.

Ted I would say light waves would you actually we'd have sectors and client sectors, where you'd have a little wave up and then you have other sectors, where the little way down but nothing too.

Too dramatic.

I would say so there's more rolling waves.

Through the quarter, but I think we were pleased particularly.

Yes, I'd make this comment.

Our more discretionary areas like that.

Staffing in the Perm placement work the creative marketing work.

Fact that it it it becomes a little more stable towards the end of the quarter and you could almost predict week to week, what you guys see and that that was a good sign.

Mark Marcon: Well, remember, we're not just hiring one AI expert, right? There's multiple facets and layers to this, as Ryan mentioned. Today in the data world, we have many of these in our organizations, many of these people in our organization, and working on other data type projects that can port to these AI use cases and be affected there. So, I mean, I think a lot of these players will come from pools of pollution capabilities that we already have in our business today, if you will.

Okay.

And then I just wanted to go back to the comment that Gartner forecast comment relative to.

Your your business I mean, they are Gartner is projecting a pretty big uptick next over the next couple of years.

I'm just trying to tie that together are you alright.

Or you're just not confident youre not ready to make that call. Yet are you seeing any kind of green shoots that would.

Mark Marcon: And in terms of PMT, you know, you've mentioned that, you know, the accounts look like they're a little bit stable, but TMT was down 27% versus 18%. Are you seeing sequential stability, like on a week to week basis, just wondering how you're, how you're thinking about that. Yeah, I'd say the answer is yes, but Rand, you want to comment on that one. Yeah, I think we're watching both, and we're watching what I call micro indicators.

But when do you have confidence that that's the actual right way to think about it or it's just too soon to make that call. Because I mean, Gartner has does have that forecast out there.

Right, it's such a broad forecast, but if you start to break it down into areas the software companies and the big Tech companies.

Providing cloud and now and now generative AI capabilities and other things, they're seeing pretty good growth rates you know the consulting services in the it services behind that are a little bit of a lead lag. So I guess that that would probably lay it more on that right and I think with garden.

Mark Marcon: So, we watch certain things in the marketplace, things we've mentioned, you know, whether companies are having their earnings or they growing themselves, which products, if you will, in the technology and telecommunications area growing. Whereas ad spending being added in media to help those businesses, and you're seeing some of that starting to turn around, when we look at stability, you know, obviously we've declined to the year, keep in mind our comps from a year ago were quite high.

<unk>, capturing it's a big broad spend and all of those categories brand would you say anything else.

I think Seth we look at it by industry.

Appreciate with Gardner, saying, but we watch, particularly the earnings.

Of different industries.

Mark Marcon: But definitely as we actually did Q3 and we started Q4, we see which to us is a step in the right directions to, you know, steadiness in the work in the workflow. But I think you look at these other indicators and you see that, you know, there's, there's maybe a light at the end of the tunnel coming.

Companies within these industries so.

We were pleased that the banks had a good quarter. This past quarter. It looks like big technology had a good quarter I'm not sure telco is where they are for sure.

I'm not worried we're not worried about providers because the baby the baby boomers demanding more services and you have the flu season, and so I mean, if you watch the earnings.

Mark Marcon: Right, and then one last to be asked the history question, I've got one as well, you know, Rand had you, you've both, you know, been involved in this business for multiple cycles, how would you compare, you know, what we're seeing on the commercial side in terms of the trends. Right now, relative to prior cycles, what elements feel different from your perspective, my recollection was, you know, Apex actually navigated, you know, the, the, the, the GFC really well.

It's utilities, it's oil and gas assets.

This consumer staples, assuming a consumer stays strong.

Doing well and by the way we're doing well.

If you believe that the banks can continue to improve there.

Build on their performance I wouldn't say improve build on it then that's four turns a good thing.

I think technology is claiming they're getting better and better advertising dollars.

And they're getting better reach and Theyre coming back obviously, the enterprise software guys are doing really well right.

Mostly because they are embedding AI and they're raising the rate structure around that AI, which clients have to spend now even if theyre not pretty to fully use till later.

Mark Marcon: And so I'm just wondering how you, how does this compare, how are you thinking about it? Yeah, well, it's different for sure, right, the business cycle to business cycles, but no two are kind of based on the same foundation or act in the same way. If you think about the great financial crisis, certainly that affect the big banks and the financial services industry things related to the banks, predominantly housing and mortgage, if you will.

And that goes back to those three layers, we talked about processing power data and use cases. So there are certainly indicators, we watch in a macro sense around the industries could give us a sense of what the client spend will be and we also know what they're worried about and what they're thinking about in terms of their initiatives, particularly in that middle layer of the day.

Mark Marcon: And, and the retail and the consumer got caught, you know, in, in some of that stuff. And I think that, you know, what's different this time is it's been two years now that we've been watching this interest rate increase and in terms of talking about an impending recession. And large enterprise accounts have slowly positioned themselves in a much more cautious way. And that's happened broadly across the board over a long period of time.

Adam there. So I mean, I think those are things, we look at Ted right and it's it's.

Is there anything conclusive yet from all of that.

Data I think with stability in the federal government in interest rates I think we might see something doesn't what do I know I mean, I'm I'm certainly not a professional economist.

Right Okay.

Helpful perspective, guys. Thank you.

Our next question comes from the line of Josh Chan with UBS. Please proceed with your question.

Mark Marcon: And so instead of seeing kind of a faster ripple through certain industries, you've seen it, you know, broad based over a long period of time in enterprise accounts. And I think that makes this cycle, if you will, a little more different. You know, that being said, how we manage through this is not too different. I mean, we've definitely done this the various times before. So, you know, we have an understanding about how the business should operate and what the management actions are that we need to take.

Hey, Good afternoon, 10 Marine ran thanks for taking my questions.

I guess, you mentioned that you know under.

On the consulting side Theres, some elongation of project and that's causing some of the softness so historically, what typically gets the clients more confident that they will I guess re compressed those project pipelines again like what are you looking for there.

Well look I think it goes back to what Randy said when when Rand is.

Speaking about it they're watching their bottom line and they're measuring how much they're willing to burn and spend on projects in order to get to certain outcomes. They have to be feel better about their own growth and you know pick up the pace if you will.

Mark Marcon: And we also kind of realize the things that, you know, sometimes leave you into these downturns are the things that leave you out. So, you know, certainly, you know, our PMT industry was one that really led, I think, you know, for many of us into this cycle. And while it's still not there, you know, you may be seeing, you know, signs that their businesses are returning to growth and better profitability, and that'll be good for us because they'll want to lean into more IT initiatives that they need us to be a part of. So, that'll be a positive thing for us.

Investments and initiatives in it so you know they're hanging in there with the critical stuff, they're trying to measure it out and watch that but I think it goes back to again was said a few times a day and I think it applies to your question Josh They just have to feel better about where theyre headed quarter to quarter and into 2024.

To really lean in harder and speed up and you know.

Mark Marcon: Thank you for joining us. Really appreciate the thoughtful answers.

Take on more spend in I T.

Jeffrey Silber: Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please we'll see what your question. Thanks so much. In your prepared remarks and I'm going to quote it says in our commercial segment, we anticipate revenues to remain soft across both assignment and consulting and this is referring to your guidance for the fourth quarter. Should I assume that means that you think both assignment and consulting will be down on a year-over-year basis in the fourth quarter?

Thanks Ted.

That's good color. Thank you.

I guess I've got it my second question on margins. So it looks like your SG&A is going down more than your revenue is that just a function of mix as some of the businesses that are down more have higher SG&A. You know competition I guess could you talk to the SG&A the.

Client there.

Okay.

So Josh on in SG&A.

Jeffrey Silber: So Jeff, thanks for the question. You know, I think that our guidance kind of reflects what I would call flat to very slightly down in the commercial and up in the federal. You know, if Marie were talking to you, that's what she would say. And then, you know, secondarily, I think we're taking also a little bit more conservative view of permanent placement and how that could influence the margins. I think those are the are the components on the commercial set.

It's a kind of you're talking about year over year.

Correct, yes.

Yeah.

So we kind of noted that as well so it really is on lower incentive comp assess.

Associated really with our business stabilizers.

So kind of just the right.

Around the incentive comp is.

It's really what the changes on a year over year basis, and I think you know I think to maybe just a second.

Piece of detail under Murray's point is if you think about last year, we were at full incentive levels and all kinds of different ways, you know and so that that itself is a is a difficult comp on the expense side right. So you were at full kind of Max and <unk> and now.

Jeffrey Silber: Look, there's although there's no real material change in the operating environment. You know, the fourth quarter is always lower than the third quarter. So the third quarter is always the strongest. And in the fourth quarter, you see a little, a little softening. And that's because you've got holidays and less billable days. You also have various projects coming to natural end customers working on budgets on things that they may not start until the next year.

Incentives are properly coming down with the you know to where the performance of the businesses.

Okay that makes a lot of changes it Josh Josh is it worth mentioning we don't have two different workforces one for staffing one for consulting that was sort of embedded in your question. We have one workforce our account managers provide support to our clients across the array of services. Our recruiting team supports not just staffing requirements.

Jeffrey Silber: And then, you know, you have some clients who will get kind of into December and say, look, I'm not going to finish this by January 1. Let's just shut the lights off here for a week or 10 days and let's come back at it after the holidays. And so those are all natural things that happen here in the fourth quarter. So that's what's underneath the guidance. I'll tell you at a macro level, you know, in the commercial markets, there's no real change in the operating environment.

Our consulting team requirements.

Our back office certainly does both so don't think of it as two different workforces, it's one workforce.

Jeffrey Silber: And I think that's one thing that is kind of clear here. And we coming out of Q3 and then to Q4 things are what we would say is fairly steady. Our Q3 was a little bit better than expected. And, you know, that then translates into how we set Q4 guidance. No turn yet in the commercial market. You know, commercial market is still not found an inflection point. You know, we've talked about little things on the call here that we are hopeful that, you know, they begin to lead us as Ram said to a little bit of life, but no turn yet.

Marie and Ted said, it's just what's happening across the board.

Oh, okay. Thanks for the color there I mean, okay I appreciate it.

Our next question comes from Heather <unk> with Bank of America. Please proceed with your question.

Hi, Thanks for taking my question I wanted to quickly ask about permanent staffing.

Including creative Circle if.

If you compare kind of where you are.

Terms are I guess normalized trend marriott's pre COVID-19 that'd be helpful.

Jeffrey Silber: And the business stabilizers obviously are working in our business and continue to work. And we feel good about them, maintaining, you know, even that March and for us, even in the face of a, you know, really difficult commercial market. Okay.

Hi, there how are you so for Perm placement in Q3, it represents two 6% of total revenues.

Jeffrey Silber: And maybe I can shift gears to the federal government business. You know, I know you mentioned in terms of potential government shutdown. I think it was less than 10% of your business will be impacted.

If you kind of just look at from a dollar perspective were down 42% last year, we were at four 2%.

Total revenues.

Jeffrey Silber: But can we just talk about the mechanics? I mean, what what happens if God forbid we do get a shutdown? Do all the project stop contract negotiation stop? If you could just help me walk through what we could expect if that has to happen? Well, I think in that the first thing that happens in that is we you immediately kind of come together close with your clients and need to determine what's critical and what's not right.

So and honestly when you when you look at excuse me just one other point during COVID-19.

Two 6% as it's almost kind of close to our COVID-19 levels.

That's really helpful.

And then my other question is actually on copper man.

<unk>.

Current toward a potential shutdown aside it's Josh.

Jeffrey Silber: And thankfully, we've already started that process based on, you know, some of what was going on in that market, you know, leading into October. So we're where we've got a foot ahead on that, if you will, and we have a pretty good idea. Once you go through that, you continue work on the mission critical stuff and you make a determination. The client makes a determination on the few things that may not appear to be mission critical.

My first skiing in terms.

Spend and procurement I know if you go back a year ago, there had been some delays in procurement I'm curious.

If theres been any kind of an improvement are they kind of back to a more normalized spending cycle.

Or.

Maybe bringing in that potential sat down it is all that kind of stuff going on creating some disruption and how.

Jeffrey Silber: And so the client will do that in concert with us and so we'll know that. And then what happens on new work is it pushes to the right. So, you know, awards that are in process get delayed a little bit the adjudication of those no matter what states they're in and things just slightly slip out into the first quarter of the first happening. Thank you. Okay, that's really helpful. Thanks so much.

How are their spending.

I don't think the continuing resolutions have caused that we're under right now any kind of disruption. If you will I think we saw a normal cube.

As much as we could it could be normal up fairly normal into the government fiscal year in Q3, we are.

Our bookings were higher.

At $500 million, our book to Bill at 1.5 was a good number and a very good number and higher than we've been running in about as we anticipated.

Jeffrey Silber: Hey, Jeff, maybe one thing, too, to note here, and, you know, who knows, it's been such a crazy turn of events here for the last few weeks in that federal government space with what's going on with the house, but, you know, it's not free. Suppose there's going to be a shutdown. I mean, we mentioned that in our as a caveat in our guide, but, you know, it looks like we could be moving here towards another continued resolution.

We will watch the other peer groups.

Peer companies release, but I expect them to have good results as it relates to new bookings. So I think on that front have there even though we've got some will I believe miss here going on in you know what's going on with the continuing resolution and some of those uncertainties you saw a pretty healthy and good.

Jeffrey Silber: We're in one right now, and so, you know, we'll see how things develop on that front as we get a few more weeks down the road. Yeah, we finally have a speaker, so that's a good sign. All right, thanks so much.

Flow of contract awards in the federal government space during the third quarter at the end of the government fiscal year.

That's helpful. Thank you.

Seth Weber: Our next question comes from the line of Seth Weber with Wells Fargo. Please, we'll see with your questions.

And our next question coming from Surinder <unk> with Jefferies. Please proceed with your question.

Seth Weber: Afternoon, everybody. Thank you. Rand, appreciate the comments about kind of stability here at the end of the third quarter. I'm just wondering, would you be, would you be willing to talk to, you know, kind of cadence of business through through the quarter? Like, if things were things just sort of stable through the third quarter, did they go down and get a little better? Did they get a little bit worse? I'm just wondering if you give any color on sort of the intro quarter trajectory on the commercial side.

Thank you.

I guess, just a couple of clarifications on some earlier commentary.

The first being the the comments around just kind of clients elong getting projects at this point.

Are you able to quantify that in any manner or these nine to 12 months projects that are now maybe being realized over 15 months or so.

How should we think about that.

In terms of the context, obviously wrong with how to interpret the bookings number there.

Yeah, well I think that.

Seth Weber: Thanks. Ted, you're talking about Q3. You're talking about Q3. I was talking about Q3. Yeah, just the, you know, July, August, September, trend lines. Ted, I would say light waves would do that. You know, we'd have sectors and client sectors where you have a little wave up, and then you'd have other sectors with a little wave down. But nothing too, too dramatic, I would say. So it was more rolling waves through the quarter, but I think we were pleased, particularly.

You for sure seeing something like that we've seen that typically were around 12 months on these projects on average for the commercial consulting team that now is leaking further out whether it's 15 months or 16 months or what have you it's definitely.

Slowing and I think it correlates with the fact that we're still getting solid bookings and book to Bill numbers.

But it's just yielding a lower growth rate and our bill rates.

Seth Weber: And I guess I'd make this comment in our more discretionary areas, like the, you know, the staffing, the pern placement work, the creative marketing work, the fact that it, it becomes a little more stable toward the end of the quarter. And you could almost predict week to week what you're going to see. And that, that was a good sign.

I'll just tell you anecdotally are slightly up so it's not a bill rate issue, where it's a hours.

Applied or hours billed.

Phenomenon there.

Got it and is it also surrender worth mentioning that none of this is new when you reported the same thing in the second quarter and by the way as quickly as it could slow down it could also accelerate.

Seth Weber: Okay. And then I just wanted to go back to the, to the comment, the gardener forecast comment, relative to, you know, your, your business. I mean, they are, gardener is projecting a pretty big uptick next, you know, over the next couple of years. And so I'm just trying to tie that together. Are you, are you're just not confident? You're not ready to make that call yet? Are you seeing any kind of green shoots that would, you know, let lend you confidence that that's the actual right way to think about it or it's just too soon to make that call because I mean gardener has does have that forecast out there.

Got it so is the idea that the elongation process has stayed.

Stabilized at this point or is it that you know if we were to rewind a year ago. When this first started.

The 12 months was 13 14 months in now and last quarter was 14 15 months announce 15 16 months.

How should we think about that or is this.

That's.

That would take a crystal ball right I think that's up to the client I mean, I think we've seen for two quarters here, a similar trend to ramp point.

Seth Weber: Right. It's such a broad forecast. I mean, if you start to break it down into areas, the software companies and the big tech companies, you know, providing cloud and now, and now generative AI capabilities and other things, they're seeing pretty good growth rates, you know, the consulting services and the IT services behind that are a little bit of a lead lag. So I guess that that would probably lay it more on that, right?

We don't see that it will change in the fourth quarter.

That will be three quarters. Although this this again more to come we'll have to watch this fourth quarter and see if it's consistent with the second and third but we've got two quarters here, where we've seen a fairly consistent trend.

Understood.

And then just follow up on the bill rate talked about a lot of renewal projects.

It sounds like you are able to hold the line on pricing here.

Seth Weber: And I think what gardeners capturing is the big broad spend in all those categories. And Rand, would you say anything else? I think, Seth, we look at it by industry. You know, I appreciate what Gardner is saying, but we watched particularly the earnings of different industries and companies within these industries. So, you know, we were pleased that the banks had a good quarter, this past quarter. It looks like big technology had a good quarter.

Maybe you can squeeze out a little bit more is that the right way to think about it what exactly is the conversation. There is there some CPI is theres some negotiation here.

Is there a lot of pushback, how should we think about that part of the growth algorithm. So is that adding maybe a percentage point of growth at this point, how should we think about that.

So youre seeing.

Very slightly very slight increases and bill rate, but but a slight increase youre seeing maintaining to slightly more in margin.

Seth Weber: I'm not sure Telco is, you know, where they are for sure. We're not worried about providers because we the baby boomers are demanding more services and you have the flu season. And so, I mean, if you watch the earnings, you know, it's utilities, it's oil and gas, it's, this consumer staple is assuming the consumer stays strong are doing well. And by the way, we're doing well. If you believe that the banks can continue to improve their, you know, build on their performance, I wouldn't say improve, build on it, then that's for tens of good things.

Rand, what would you say that the back and forth with the client.

Well some of our work a good portion of the work are set except bill rates that have escalators to them as you go out into the future and then some of the escalation could be some change in the mix of the project during the course of the execution of the project.

Maybe adding somebody with certain expertise or dropping somebody else out. So there's a number of factors that go into it but it's not not really negotiation at that point, it's a matter of what's the right skill set to finish the job.

Seth Weber: I think technology is claiming they're getting better and advertising dollars and they're getting better reach and they're coming back. Obviously, the enterprise software guys are doing really well, right? Mostly because they're embedding AI and they're raising the rate structure around that AI, which clients have to spend now, even if they're not putting it to full use till later. And that goes back to those three layers we talked about processing power data and use cases.

Our convention mix or under one thing that I would just add at a high level is there.

In demand it professionals in all of these critical skill areas the.

The client is still realizes that they have to pay a market rate in order to get them their starter sale going on if you will.

Seth Weber: So, there are certainly indicators we watching a macro sense around the industries to give us a sense of what the client spend will be. And we also know what they're worried about and what they're thinking about in terms of their initiatives, particularly in that middle layer, the data layer. So, I mean, I think those are things we look at, Ted Wright, and it's, you know, is anything conclusive yet from all that data? I think with stability in the federal government and interest rates, I think we might see something good, but what do I know? I mean, I'm certainly not a professional economist.

Yeah.

So in those areas. There is a there is a productive understanding between us and the clients that those are to get those the best capabilities. There that there is a certain rate for that.

That's helpful and then kind of the final question here, just revisiting commercial consulting.

Revenues were down a few percentage points quarter over quarter that was a surprise to me to see that given how strong that business has been in the fact that it showed strong sequential growth last quarter.

Seth Weber: Okay, that's a helpful, helpful perspective, guys. Thank you.

Any color there is that maybe.

Maybe a few projects that maybe kind of ended near the same time.

Joshua Chan: All right, next question comes from the line of Josh Chan with UBS. Please, we'll see what your question is. Pack the destiny in 10, Marie and Rand. Thanks for taking my questions. I guess you mentioned that, you know, on the consulting side, there's some elongation of projects and that's causing some of the softness. So, historically, what typically gets the clients more confident that they will, I guess, recompress those project timelines again.

Or did clients just push out some work or is it more broad based than that I'm, just trying to understand how to interpret that.

And how we should think about that on a go forward basis.

Well, Ted let me start.

Well I've got commercial consulting kind of flat quarter to quarter.

Sequentially.

Great.

Joshua Chan: What are you looking for there? Well, look, I think in fact, what Rand said, when Rand is, you know, speaking about, hey, they're watching their bottom line and they're measuring how much they're willing to burn and spend on projects in order to get to certain outcomes, they have to be feel better about their own growth and, you know, pick up the pace if you will of investments and initiatives than IT. So, you know, they're hanging in there with the critical stuff.

Sure.

So and surrender tell me the rest of your question there.

Just.

The color around that I mean, I'm trying to pull up a slide deck here.

When I see the commercial segment I see Q2 of 281.1 in your slide deck in Q3 at 272.

So I see that down three percentage points quarter over quarter.

For commercial congrats slightly down, yes, yes, and I think I think it can almost best explained by summertime.

Joshua Chan: They're trying to measure it out and watch that, but I think it goes back to, again, we've studied a few times today and I think it applies to your question. Josh, they just have to feel better about where they had a quarter to quarter and then to 2024 to really lean in harder and speed up and, you know, take on more spend in IT. Thanks, Ted. Yeah, that's good to know, thank you.

Okay, Q3 has summertime and people take time off and it's just and the.

<unk> of projects that may be decisions that they make in summer just like theyre going to make in the fourth quarter around the holiday period. Ted mentioned earlier there are some companies will make a decision here in the next three or four weeks to.

To furlough people for five days or 10 days just.

Just to kind of put a pause and let people enjoy the holiday and get started again in January 1st.

Joshua Chan: I guess I got my second question on margins. So it looks like your SGNA is going down more than your revenue is. Is that just a function of mix as some of the businesses that are down more have higher SGNA, you know, composition? I guess could you talk to the SGNA, the client there? So Josh, on an SGNA, it's a car. Can you turn them at your over here? Correct, yes. Yeah.

Our second so it's I think it's nothing to read into it other than that.

Yeah, and I would tell you once you adjust for days, so minimal surrender, they're no good.

No.

There would be no discerning fact, there'd be no big thing around bill rates or.

No.

Hours or anything like that I think it's just the vagaries of one quarter to another.

Okay. Thank you.

Joshua Chan: So we kind of noted that as well. So it really is a lower incentive comp associated really with our business stabilizers. Right. So kind of just the rate around the incentive comp is really what the change is on a European basis. And I think we're, you know, I think to maybe just a second, you know, piece of detail under Marie's point is, if you think about last year, we were at full incentive levels in all kinds of different ways, you know.

Yes.

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

Great well I want to thank everyone for their time and attention and questions today, and we look forward to speaking.

Joshua Chan: And so is that, that in and of itself is a is a difficult comp on the expense that right. So you were at full kind of max incentives. And now incentives are properly coming down with the, you know, to wear the performance of the businesses. Okay. That makes sense. Josh, Josh is the worth mentioning we don't have two different work forces, one for staffing, one for consulting. That was sort of embedded in your question.

With you about our fourth quarter and full year 'twenty three.

You know at the beginning of February Thank you very much.

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

Okay.

Yeah.

[music].

Joshua Chan: We have one workforce. Our account managers provide support to our client to cross the array of services, our recruiting team supports not just staffing requirements, but our consulting team requirements. And our back office certainly does both. So don't think of it as two different work forces. It's one workforce. And then what Marie and Ted said is just what's happening across the board. Okay. Thanks for the color there. Okay. I appreciate it.

Heather Balsky: Our next question comes from Heather Balsky with Bank of America. Please will see with your question. Hi, thanks for taking my question. I wanted to first quickly ask about permanent staffing, including create a circle. Just if you could care kind of where you are in terms of, I guess, normalize trend, community pre COVID, that would be helpful. Hi Heather, how are you? So for permanent placement in Q3, it represents 2.6% of total revenues.

Heather Balsky: If you kind of just look at from a dollar perspective, we're down 42%. Last year we were at 4.2% of total revenues. So, and honestly, when you when you look at it, if you can just one other point during COVID, the 2.6% is almost kind of close to our COVID levels.

Heather Balsky: That's really helpful. And the matter of question is actually on government current sort of potential shutdown aside, just what you're seeing in terms of spend and procurement. I know if you go back a year ago, there have been some delays in procurement. I'm curious if there's been any kind of improvement, you know, are they kind of back to a more normalized sending cycle, or it's all, you know, maybe bringing in the potential shutdown is all the kind of stuff going on creating some disruption and how they're sending it.

Heather Balsky: I don't think the continuing resolutions have caused that we're under right now any kind of disruption if you will. I think we saw a normal cube as much as we could, it could be normal, a fairly normal into the government fiscal year in Q3. And about as we anticipated, and we'll watch the other peer groups, peer companies release, but I expect them to have good results as it relates to new bookings.

Heather Balsky: So I think on that broad, Heather, even though we've got some wobblyness here going on and what's going on with the continuing resolution and some of those uncertainties that you saw are pretty healthy and good flow of contract awards in that federal government space. You know, during the third quarter at the end of the government fiscal year.

Heather Balsky: Thank you.

Surinder Thind: And our next question coming from Surinder Thind with Jeffries, please we'll see what your question is. Thank you.

Surinder Thind: I guess just a couple of clarification on some earlier commentary. The first thing, the comments around just kind of clients elongating projects at this point. Are you able to quantify that in any manner are these nine to 12 months projects that are now maybe being realized over 15 months or just how should we think about that? And then in terms of the context, obviously around what pattern interpret the bookings number there.

Surinder Thind: Yeah, well, I think that you for sure are seeing something like that. We've seen that typically we're around 12 months on these projects on average for the commercial consulting team. That now is leaking further out whether it's 15 months or 16 months or would have you. It's definitely slowing and I think it correlates with the fact that we're still getting solid bookings and book to bill numbers. But it's just yielding a lower growth rate.

Surinder Thind: And our bill rates, I will just tell you anecdotally, are slightly up. So it's not a bill rate issue with it's a hours applied or hours billed phenomena there. Got it. Is it also surrender worth mentioning that none of this is new? We reported the same thing in the second quarter. And by the way, as quickly as it could slow down, it could also accelerate. Got it. So it's the idea that the elongation process has stabilized at this point or is it that we were to rewind a year ago when this first kind of started.

Surinder Thind: You know, the 12 months was 13 or 14 months and now and then last quarter was 14, 15 months and now it's 15, 16 months. How should we think about that or is this? That's that would take the crystal ball, right? I think that's up to the client. I mean, I think we've seen for two quarters here a similar trend to Rand's point. We don't see that it'll change in the fourth quarter.

Surinder Thind: So that will be three quarters. Although this again, more to come, we'll have to watch this fourth quarter and see if it's consistent with the second and third. But we've got two quarters here where we've seen a fairly consistent trend. Understood. And then just follow up on the bill rates, talked about a lot of renewal projects. It sounds like you're able to hold the line on pricing here. Maybe even squeeze out a little bit more.

Surinder Thind: Is that the right way to think about it? What exactly is the conversation there? Is there some CPI? Is there some negotiation here? Is there a lot of pushback? How should we think about that part of the growth algorithm? So is that adding maybe a percentage point to growth at this point? How should we think about that? So you're seeing very slightly, very slight increases in bill rate, but a slight increase.

Surinder Thind: You're seeing maintaining to slightly more in margin. And Rand, what would you say that the back and forth with the client? Well, some of our work, a good portion of the work, are set bill rates that are set to have escalators to them as you go out into the future. And then some of the escalation could be some change in the mix of the project during the course of the execution of the project.

Surinder Thind: Maybe adding somebody with certain expertise or dropping somebody else out. So there's a number of factors that go into it, but it's not not really negotiation at that point. It's a matter of what's the right skill set to finish the job. And I think surrender one thing I would just add at a high level is there, you know, for in demand, IT professionals in all these critical skill areas, the client still realizes that they have to pay a market rate in order to get them.

Surinder Thind: There's not a sale going on, if you will. And so in those areas, there's a there's a productive understanding between us and the client that those are to get those the best capabilities there that there's a sort of right for that. That's helpful. And then kind of the final question here, just revisiting commercial consulting. Revenees were down a few percentage points quarter of a quarter. That was a surprise to me to see that given how strong that business has been in the fact that it showed strong some cultural growth last quarter.

Surinder Thind: Does any color there is that maybe a few projects that maybe kind of ended near the same time or did clients just push out some work or is it more fraud based than that? I'm just trying to understand how to interpret that and how we should think about that on a go forward basis. Okay, so let me start. Well, I've got commercial consulting kind of flat quarter to quarter, sequentially. So, and surrender, tell me the rest of your question there.

Surinder Thind: Just just the color around that. I mean, I'm trying to put the slide deck here. When I see the commercial segment, I see Q2 at 281.1 in your slide deck and Q3 at 2.4.2. So, I see that down three percentage points quarter of a quarter. Work commercial. Correct. Slightly down. Yeah. Yes. And I think I think it can almost best be explained by summertime. Okay, Q3 has summertime and people take time off and it's just and the elongation of projects, you know, that may be decisions that they make in the summer.

Surinder Thind: Just like they're going to make in the fourth quarter around the holiday period that had mentioned earlier, there some companies will make a decision here in the next three or four weeks to furlough people for five days or ten days, just to kind of put a pause in it, let people enjoy the holiday and get started again. January 1st or 2nd, so I think it's nothing to read into it other than that.

Surinder Thind: Yeah, now I would tell you once you adjust for days it's a minimal surrender there, you know, there would be no just starting fact, there would be no big thing around bill rates or, you know, you know, hours or anything like that, I think it's just a vagaries of one quarter to another. Okay, thank you. And we have reached the end of the question and answer session, I'll now turn the call back over to CEO Ted Hansen for close remarks.

Surinder Thind: Great, well, I want to thank everyone for their time and attention and questions today and we look forward to speaking with you about our fourth quarter in full year 23, you know, at the beginning of February. Thank you very much. And this concludes today's conference and you made this in July of this time. Thank you for your participation.