Q1 2024 ASGN Inc Earnings Call
[music].
Greetings and welcome to the <unk> incorporated first quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
I'll now turn the conference over to your House, Kimberly Astrachan, Vice President of Investor Relations you may begin.
Good afternoon. Thank you for joining us today for <unk> first quarter 2024 conference call with me are Ted Hanson, Chief Executive Officer, Rand Blazer, President and Marie Perry Chief Financial Officer.
Before we get started I would like to remind everyone that our commentary contains forward looking statements.
We believe these statements are reasonable they are subject to risks and uncertainties and as such our actual results could differ materially from those statements.
Certain of these risks and uncertainties are described in today's press release.
And in our SEC filings, we do not assume any obligation to update statements made on this call.
For your convenience our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors that S. 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 use 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> first quarter 2024 earnings call.
<unk> achieved solid results for the first quarter revenues of one point you were at 5 billion and adjusted EBITDA of 108 3 million were both near the top end of our guidance ranges.
When we spoke last quarter.
We expected our commercial segment with fee revenue trends in Q1 comparable to that of Q4.
Federal government segment continued to achieve year over year topline growth.
As evident from our segment results, which I'll review in detail shortly market conditions, whereas we predicted.
Our commercial clients continue to be cautious and acutely focused on where and when they will spend importantly, despite it budgets being slow to be executed.
Our clients continue to leverage our high end consulting capabilities. So our commercial consulting revenues increased both year over year and sequentially.
On the government side of our business revenues improved year over year and disability began to build towards the end of the quarter with the passage of the appropriations Bill in late March.
Our release and federal spend will not happen automatically the approval of the budget is a step in the right direction.
Speaking of living in the right direction.
You need to proactively shape and evolve our operations to position our business for continued growth our industry diverse large account portfolio not only serves us well in good times.
Also a more difficult macro condition.
Our federal government services provides counter cyclical support to balance out our five diverse commercial industry verticals.
We are also focusing on the right types of services that have higher value higher margin consulting.
Consulting projects and visibility are longer and client relationships are stickier, providing our business with enhanced stability across market cycles, a highlight of our quarterly results I T consulting revenues comprised approximately 57% of Q1 2024 revenues as compared.
Roughly 50% in the prior year period.
In addition, adjusted EBITDA benefits from higher commercial consulting margin.
<unk> has made great strides in growing our it consulting business. It was the vast addressable market. There are many more opportunities for further growth.
This growth will be driven in part by continuing to develop and foster the right customer relationships with a fortune 1000 and government clients.
Our long standing trusted client relationships are what drove our progression Intel it consulting and these hires will continue to pull this up.
Services pyramid.
Importantly, as we await increased spending we are making the right investments in our people training and Upskilling, our teams and the latest technological developments, including key areas such as cyber security data analytics cloud and AI, all with our customers need to mine.
Technology is shifting at a rapid pace.
And it is essential that we stay ahead of this change to remain competitive we.
We're also executing on the right strategic decisions when it comes to our capital allocation.
Marie will discuss our recent term loan b refinancing shortly.
Pleased to announce that just this week our board of directors approved a new two year $750 million share repurchase authorization.
This authorization is the largest in <unk> history.
<unk>, our commitment to deliver value to our stockholders by using our solid free cash flow to buy back shares while at the same time, ensuring that we remain ready to execute on the right strategic acquisition.
With that as a background, let's turn to our segment performance beginning with our largest segment by revenue commercial.
Our commercial segment services large mid market accounts and Fortune 1000 companies commercial segment revenues for the quarter declined by low double digits year over year.
Revenues for this segment benefited from the growth in our consulting business offset by continued softness in the more cyclical areas of our assignment business.
Commercial consulting revenues increased 2% for the quarter compared to the year ago period, and we were also up three 2% sequentially.
Commercial consulting bookings of approximately $323 2 million translated to a book to Bill of one two times on a trailing 12 months basis.
Bookings were again weighted towards renewals in the first quarter.
Even if it budgets continue to be prioritized and manage our customers are actively spending in the areas of cyber security cloud and data analytics.
Since in cloud and data infrastructure are often considered a precursor to investments in the AI space and we are actively working with our clients to solidify their AI Foundation.
Turning to our vertical performance all five commercial industry verticals declined year over year.
That said, we saw year over year growth in three sub verticals, including utilities healthcare providers in telecom accounts.
Yeah.
On a sequential basis, two verticals TMT business and government services appear to be stabilizing on a same billable day adjusted basis.
We also saw sequential growth in several sub verticals on a same billable day adjusted basis.
Including regional banks Telecom media healthcare, Payors energy consumer Staples, and aerospace and defense.
While it's encouraging to see the sequential improvements we have not yet seen an inflection point in it spending.
Nevertheless, our commercial consulting bookings remained solid and during the first quarter. Our teams won work across multiple service areas.
Cyber security continues to be an area of growth for our commercial segment.
As discussed last quarter collaboration with our federal government segment.
Cyber security services has only added to this strength during the quarter, we won a contract delivering technical remediation and advisory services to a fortune 500 insurance client.
Our comprehensive governance risk and compliance solutions helped our client mature their security operations and determine improved governance and oversight focused organization.
On cyber security, our product and application services are resonating with clients, they're looking for opportunities to scale and become more efficient.
One way, we've delivered efficiency to clients as we are world class near shore delivery Center in Mexico.
In the first quarter global leader in medical transportation approached our commercial team following difficulties they were having with their current offshore provider are.
Mexico delivery centers stepped in to offer a team of experts from developers testers.
<unk> experience working together in a much more convenient time zone for our clients.
Our near shore consultants are not only in pricing our client base, but they are also enjoying the projects. They are performing and their work environment. In fact, I'm very pleased to report that earlier. This month, our commercial segment brand apex systems was recognized as one of the best places to work for women in Mexico for the second year.
Rose.
Providing an inclusive multicultural environment is core to SCM belief systems and corporate policies and this award is a testament to our continued commitment to career development for all.
Along the lines of career development, our growing data and AI practice is being supported by internal investments in talent technology partnerships intellectual property and training.
We are proactively training our workforce in the U S and Mexico and the latest <unk> technology.
But one of the world's largest telecommunications providers for example, or.
Our skill sets enabled us to win a 12 month consulting engagement supporting edge AI application development program, we are providing our clients with scalable access to talent technical leadership and large language model trainings and another instance for an oil and gas company that ranks amongst the top.
10 of the Fortune 500, we are leading and implementation of the data bricks unity catalog a cloud based platform at.
It offers a unified governance layer for enterprise data and AI. Our client has over 100 data Brits workspaces for deployments in the cloud and our project team is tasked with helping our clients develop a governance structure.
Related around the audit stability security posture and cost allocation of these workspaces.
Our team of consultants is currently collaborating with data breaks in our clients' internal IP team to build automation to onboard these data bricks workspaces with ease and repeatability.
Our pipeline of data and AI work continues to grow and we look forward to supporting our clients as they focus on data preparation developing use cases.
Ultimately implementing their own AI platforms.
Yeah.
Now, let's turn to our federal government segment, which provides mission critical solutions to the department of defense, The intelligence community and federal civilian agencies Federal segment revenues for the first quarter were up solidly year over year contract backlog was $2 9 billion at the end of the first quarter.
Our coverage ratio of two two times. This segment's trailing 12 month revenues with contract awards were approximately $197 3 million translating to a book to Bill of <unk> nine times on a trailing 12 month basis.
With the recent passage of the Federal budget Awards previously deferred by the continuing resolution are beginning to work their way through the procurement system. We have been in pursuit of New awards throughout the budgeting process and now hope that with the recent appropriations bill or proposals submitted and awaiting award.
I'll begin to convert at a higher velocity.
The recently passed federal budget allocates funds to several key service areas in which our government teams have an established leadership present, one of which is the area of cyber security in the first quarter, our federal government segment, one of $120 million five year Recompete cyber security contracts.
With the department of Health and human services.
Under this contract our team will provide comprehensive advanced managed cyber security services threat intelligence analytics and data forensics to the centers for Medicare and Medicaid services and their healthcare marketplace.
The newly approved federal budget also allocates increased funds towards responsible AI applications.
In addition to our growing presence on the commercial side of our business. Our federal government segment remains recognized as one of the U S government, the leading AI contractors in both mission and enterprise IP.
During the first quarter, our National Security and intelligence business received additional funding to support the Dod and developing deploy and integrating its nexgen AI capabilities.
We also won a new contract to support AI enabled open source intelligence solutions for which our team will provide extensive training and program support.
We continue to win contracts focused on digital transformation and emerging technology services, leveraging more than two decades of experience as a leading Microsoft solutions partner and observed during the first quarter, we expanded our contracts dealing with the IRS to provide digital transfer.
<unk> services, it operations application management and engineering services.
We also broadened our work with the Army program Executive office for simulation training and instrumentation.
<unk>.
For this particular Army office, we provide full project lifecycle services, ranging from project management modeling and simulation to emerging technology integration and logistics support.
With that I will turn the call over to Marie to discuss the first quarter results and our second quarter 2020 forward guidance.
Thanks, Ted it's great to speak with everyone. This afternoon.
First quarter revenues of 1.05 billion were near the top end of our guidance range and reflects growth in our commercial consulting and federal government business.
Revenues from the commercial segment were $731 5 million down 12, 1% compared to the prior year.
Revenues from commercial consulting our largest of our high margin revenue streams totaled 277 million up 2% year over year at three 2% sequentially.
<unk> from our federal government segment were $317 5 million up 7% year over year.
Turning to margins gross margin for the first quarter of 2024 was 28, 2% down 70 basis points from the first quarter of last year due to a higher mix of revenues from our federal government sector, which has a lower gross margin than commercial.
Gross margin for the commercial segment was 32% up 50 basis points year over year due to growth in our commercial consulting revenues.
Gross margin for the federal government segment with 19, 7% down 190 basis points year over year, primarily due to contract mix as well as the higher volume a firm fixed price project that were ramping in the prior year, creating a difficult comp.
SG&A expense for the quarter was $210 2 million or 20% of revenues compared to $224 1 million or 19, 9% of revenues in the prior year.
G&A expense also included $1 2 million in acquisition integration and strategic planning expenses that were not included in our guidance estimates.
As expected interest expense increased year over year related to rising interest rates and our refinancing this past August.
Going forward. However, we will see a reduction in our interest expense in mid March we successfully refinanced our term loan b.
This refinancing closed on March 13, and the first high yield repricing at the year to price at <unk>, plus 175 basis points, a 50 basis point reduction from our prior rate spread.
As a result of this repricing for the full year of 2024, we anticipate cash interest savings of $1 1 million net of transaction fee followed by cash interest savings of approximately $2 5 million per year thereafter.
For the quarter net income was $38 1 million adjusted EBITDA was $108 3 million and adjusted EBITDA margin was 10, 3% our adjusted EBITDA margin reflects the payroll tax reset which occurs at the beginning of every calendar.
It has an approximate 100 basis point downward impact as we move from the fourth to the first quarter.
At quarter end cash and cash equivalents were $158 4 million and we had full availability under our 500 million senior secured revolver and our net leverage ratio was 177 times turning to our cash flow statement free cash flow for the quarter was 62 five.
We deployed $79 7 million in cash to repurchase approximately 800000 shares at an average price of $96 63 per share.
Also as Ted noted earlier this week, our board of directors approved a new two year $750 million share repurchase plan, replacing and upsizing the prior 500 million optimization.
We believe this increase in the size of our share repurchase program indicates our confidence in our continued ability to generate free cash flow with solid free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisitions when the M&A market improves in the meantime, we expect.
To continue to repurchase shares given the attractive valuation.
Turning to guidance.
Our financial estimates for the second quarter of 2024 are set forth in our earnings release and supplemental materials.
Estimates are based on current market conditions, our estimates of $63 five billable days in the second quarter, which is two five billable days more than a year ago period, and 75 billable days more in Q1 of 2024.
We expect market conditions and demand for it services in the second quarter to be similar to that of the first in.
In the commercial segment, we anticipate revenues will remain steady to Q1, while the federal government segment revenues will be relatively consistent year over year.
With this background, we are estimating revenues at 1.035 billion to 1.055 billion for the second quarter.
We are estimating net income of $44 7 million to $48 3 million and adjusted EBITDA of $114 million to $119 million and adjusted EBITDA margin of 11% to 11, 3%. Thank you I'll now turn the call back to Ted for some closing remarks.
Yes.
Thanks free.
As is clear from today's discussion our clients remain cautious with their it spend.
They look for more certainty in their business performance against a challenging macro backdrop.
It was a little less we continue to proactively shape, our operating model to be resilient in the current market as well as be ready for when it spend accelerates.
To ensure our service offerings and capabilities match, the evolving needs of our clients in our industries.
The essential that we maintain our solid foundation of client support.
With that in mind, I am grateful to our entire team for your hard work.
<unk> over the past quarter.
Our efforts are deeply appreciated I am honored to be part of such a talented client focused team.
Sourcing exceptional IC talent on adjusting time basis.
One of the many ways in which <unk> differentiates itself in the IP marketplace.
Our differentiated recruiting model that relies on contingent labor onshore and nearshore provides a scalable flexible solution.
It sets <unk> apart from traditional consulting companies that rely on a permanent bench.
Leveraging our contingent labor force enables us to tailor our offerings and provide our clients across six diverse industry verticals with the exact skill sets pricing and industry based talent they need.
Whether for short term data review project or a longer term platform integration.
Our pivotal aspects of our model is that our contingent labor force flexes with revenue.
This along with our variable SG&A cost structure allows us to deliver solid margins and cash flow.
As is evident from our go to market strategy I. Just described ASTM has the right building blocks in place that said as Mario discussed we do not anticipate the seasonal uptick we have historically seen in our revenues in the second quarter due in large part to the lack of ramp in <unk>.
It spend and budget releases that we've typically seen during the first quarter.
Nevertheless, our it consulting and pipeline is growing.
Kings remains solid and the projects, we are winning are longer in duration and more consultative way.
We have weathered many economic cycles throughout our company's history, and I'm confident that when it spend against to accelerate our teams will be at the forefront to lead our clients. So their next phases of technological innovation productivity and growth.
Thank you again for joining our first quarter 2024 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 star keys.
One moment, please while we poll for question.
Yeah.
And our first question comes from the line of Trevor Romeo Romeo William Blair. Please proceed with your question.
Hi, good afternoon. Thanks, so much for taking the questions first one I was kind of just wondering if you could maybe speak to demand trends throughout the quarter I guess it seemed like last quarter. The message was maybe a good degree of stability I think as you said you typically see a revenue uptick in Q2, it doesn't sound like that's likely.
At this point. So it was just kind of wondering if you could comment on how demand and client conversations had the bulk of the past few months and how that informs your outlook going forward.
Yes, Trevor thanks for the question.
Commercial I would say it just remain steady.
When kind of it here from the third quarter ended before.
Now the fourth into the first you know adjusted for billing days and seasonality have just really CMO, but I'll say, just a steady trend no real change in client.
Tone or conversations.
And here in the first three weeks of the second.
Second quarter more than say so its a little out of the norm. If you will there is typically some seasonality here, where when you move out of the person into the second your volumes are ramping up but we don't see that right now we just see a steadiness.
On the federal side, we have really solid growth quarter.
In the first quarter.
Take that where you know her.
Fully here now going to see our procurement officials began to.
<unk> taken action on some of these things that we have is submitted awaiting awards.
So while bookings were a little muted in the first quarter.
We're hoping the pace of that will pick up here in the second and into the third.
Okay. Thank you Ted that's helpful.
And then just one on AI demand I was just wondering for some of the foundational cloud and data work, even starting for clients kind of trying to prep for AI and both projects evolved or changed in any way as they've moved along I guess have any of your clients move closer toward the use case stage, there just trying to get a sense of how.
That demand trend could continue to drive new business various yen good accident years.
Yeah, Randy I'll take that one.
Yeah, I'll start and Trevor I like the way you worded. The question because you have it exactly right first of all a lot of work going on in the cloud structures and the data side of the business that continues.
Those are <unk>.
Our highest solutions in terms of consulting and even in staffing that we place.
The use case side of it is in discussion mode contemplation, if you will but but not yet I think taking off and I think thats. Just a question of you know.
Setting their governance policies. They are setting their data sets appropriately they must have they do have a mind of use cases, and eventually because they're prepping the data in a way that would support that so I think there is progress, but it's slow and I'd say slow and steady, but not nothing robust we definitely I think had.
More AI engagements in the first quarter one.
There was one of those engagements featured and Ted script.
Thank you Richie a short while ago on one of our telecommunications clients. So.
That was a nice thing to see but it's not at the scale that it would certainly at reach any of the work we're doing in cloud data cyber security those areas.
Okay. Thank you very much.
Thank you. Our next question comes from the line of surrender then with Jefferies. Please proceed with your question.
Thank you.
For the first question can you maybe provide some color around the commercial consulting revenue growth that was quarter over quarter, where there were a few large projects that that kind of.
That you started in the quarter because.
It looks like in the subsequent quarter that things are going to be relatively stable. So I'm just trying to understand the trends within.
The commercial consulting segments.
Well look surrender. If you go back I think you're seeing consistent bookings right in that unit and while we're booking a $1 two which was.
Which was.
That leads you to some growth rate. We're also seeing elongation of those projects. So there is a slower burn of those bookings. We also as I've mentioned that it's more heavily weighted to renewals and it has to.
Two new work and so I think clients continue on with mission critical things that they were working on it and so that's why we see extensions of this work, but I think back to the original part of your question was there any one big thing or two big things that got started here that were difference maker.
Got it and then I guess.
Maybe some additional color on the sub segments within the.
The commercial the contingent labor part of the business, maybe specifically like the assignment business versus creative circle and Perm placement.
And specifically how are they doing beyond the assignment revenue growth number we gave you or what would be.
Beyond the topline number in terms of just trying to understand.
<unk>.
If there is things that maybe have started to maybe stabilize relative to last quarter. Just any additional color that you can provide that it can help us understand where we are in the cycle.
Yeah.
Speaker Change: I'd say that they're stabilizing.
Quarter to quarter here I don't think that's totally new but I think it continues.
The <unk>.
If you look at the foreign metrics for the business, they're not telling you. There is some inflection here for a slope up but performance week to week month to month throughout.
Throughout the first quarter into the first piece of the second.
Tells you that that assignment part of the business as steady as well.
Thank you.
Thank you. Our next question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.
Jeffrey Marc Silber: Hey, Thanks, a lot just Ryan on for Jeff was curious as we move throughout the year.
From just the automatic stabilizers, what levers do you have to pull in terms of the margin defense and how does that really relate with the negative mix element of the federal government strength in coming quarters.
Well good question I think on the last piece of that you're going to continue as long as we're growing in federal and not growing Inc.
And commercially youre going to see the effects of business mix play out.
Jeffrey Marc Silber: If you think about levers to the first part of your question that we have to pull look I mean, our business model is mostly a variable cost model so more than 80%.
Of our SG&A is in compensation incentives commissions bonuses those type of things. So not only are we not dealing with the big bench on the.
Gross margin side and its revenues move the cost of goods their cost of sales is moving and resetting itself. We're also seeing lower incentives and natural attrition industrial continues to be the levers at.
Play out here, if we see something different for now things are kind of stable. So I would say, we're letting attrition work were back filling it in certain areas, where we see demand other other areas that don't have demand, we may not be replacing.
As those resources and just continues to be a week to week thing that we monitor.
Got it thank you and just a follow up.
It seems like some of the larger.
Jeffrey Marc Silber: Service providers have started to see a leg down in a little bit more weakness over the last couple of months. It seems like your consulting business is relatively stable.
Jeffrey Marc Silber: Is there anything you'd like to call out on kind of that divergence there between the two.
Well look on the.
On the <unk>.
As it relates to our offering versus theirs.
We are I think you've heard me say many times before a real productive way for clients to continue to get really critical projects and initiatives done and keep their spend.
At at a lower rate than maybe some of the big traditional consulting firm. So I think youre seeing that play out here.
I will tell you I think all the there is a.
Lead lag here, while the assignment business was the first in the fastest to fall during the quarter and 23 until it some stability in the latter part of it.
23.
<unk> seen the consulting trail that not just for us, but for the peer group as well and I think that's natural we would've told we would say we did say.
To expect that so.
Go back and just say we have a we have a very capable high end solution.
Our solution for the client in these areas that are most critical and important to them we come at a very productive price point in order to get these things done.
Jeffrey Marc Silber: So theyre pulling our lever if you will in order to stay with it and I think that's what you can see playing out in the numbers.
Hey, Hey, Ted is it worth mentioning also Ryan that we're not over.
Weighted in any one industry.
Sometimes other consulting businesses are heavily weighted in one or two industries, where pretty much spread across the six industries. We talked to you about and I think that helps us as well there are certain industries are still wind up in spending in the area and while we are affected by that as well as some of the others. They may be more weighted in those industries.
So.
Yeah.
Understood. Thank you very much.
Thank you. Our next question comes from the line of Kevin Mcveigh with UBS. Please proceed with your question.
Great. Thanks, so much and congratulations on the buyback.
I Wonder could you give us a sense I know it's over two years any sense of the sequencing on the buyback and if I.
I had to kind of materially it sounds like maybe the M&A market isn't as appealing as you thought.
Any thoughts around that I guess, just again switching on the buyback and then is it.
It replaces 750 ship can you help us just rather replace to $500 million. So what was the net step up so I guess what was it in the 750. It is today. So I guess, it's a couple of questions.
Okay.
Okay.
Yeah.
Hey, Ted.
You may be on mute.
Yes.
Oh, yeah, sorry about that I'll start over.
Yeah My apologies.
Not at all.
So.
I mean to your point the original authorization was $500 million.
And we are replacing that with the 750 $750 million for two year period.
But what was your was your question really more of we had.
Yeah.
$77 million and so the 750 replaces replace about 500.
Yeah.
And just a way to have at least a year if not more of the authorization on the books and so typically you would see us at this time increase it to your point, we actually did increase it.
Jeffrey Marc Silber: Higher than what we typically would do.
Terrific. That's helpful. And then just in terms of the lack of normal seasonal uptick.
Jeffrey Marc Silber: Is that did you expect that going into the year or is that something new and is that the macro or is that a function of.
Any anything that kind of drove that.
And youre, saying, the uptick uptake Kevin and what.
So you said if I heard you right that normally you would see some seasonal uptick into Q2.
That hasnt surfaced, yet is that the macro or is there anything else driving that right now.
Taking some macro Kevin I mean look you know this when you come across the holidays, you kind of reset that's naturally as projects and things get restarted you started out in the first couple of weeks of January and the lower level of volumes that maybe you finish that.
For the holidays in December and he spent January kind of recouping that volume.
Through the end of the quarter and by the time, you get to the second quarter Youre kind of moving on to.
Surpass where you were and grow higher.
What youre seeing here is just the steadiness of not that normal seasonal trend because the client is not back to any acceleration in it spending I mean, my my take in Rands is that they have budgets to spend but they're holding them very tight and close.
Their training trying to gain confidence.
And their own business performance, and where interest rates are headed and what does that mean for their business.
And the outlook here as we go. So this is all a macro issue.
The underpinnings for spending more on it or there everybody is set to start line ready to go and I think we're just a little bit of a waiting game here as we watch those things in the macro play out.
Speaker Change: Very helpful and just one more if I could in the sense of can you dimensionalize how much.
The work's been G&A I related whether it's through bookings or what percentage of the revenue I know, it's still relatively early but just any way to think about how much it scope of what's been G&A huh.
Very little you know I think where you see conversation activity.
See some bookings of small projects to get started in conversations or looking at data or think about where does that need to be in the cloud those kind of things, but the while theres. Some kind of a lot of conversation going on around that stuff, Kevin there's no real material spend going we have bookings around that it's.
Growing very fast, but it's a very small number.
And I think that the real push on that is yet to come which is a good thing.
This is not this is not a false promise this is just.
Bobby getting kind of teed up and ready to go.
Super helpful. Thank you.
Yeah.
Thank you. Our next question comes from the line of Heather <unk> with Bank of America. Please proceed with your question.
Alright, Thank you very much.
I'm just curious.
Especially on the back of the question about about buybacks.
And as you kind of think of ease of use of cash it near term and also for the midterm. How are you thinking about your M&A strategy, especially given that you know some of the challenges in the environment that are still out there and what does your pipeline look like and where would you want to kind of fill in your portfolio.
Yeah, well look Heather I mean, we saw.
Still believe M&A is the highest and best return on capital when we deploy it the way we do.
Strategic tuck ins that bring capabilities.
So our business that are very important to our clients that we can pull it crosses the account portfolio is really the name of the game there are certain areas, where we can organically build capability and we're doing that there are other places where we're better off.
An acquisition or acquisition of glad fast in this service now area to become a premier North American partner is a great example of that and you know.
I think when we go when we go through that exercise, we have a lot of confidence by the time, we get to the decision point because we have really good insights into what our clients are thinking about whats in their pipeline in terms of work to get done and so we can if you will work backwards from that.
We measure and know that we have certain opportunities that we can immediately begin to sell so that is the premise that remains the premise.
It will remain important as we go forward I think we're in a moment here where.
Especially in the commercial market, where you're just not seeing many if any.
Quality assets come to market and it's for all kinds of reasons you know, there's there's a pause here in.
And it spending to a large degree.
I think you know these these companies are able to hang on here for a little while longer.
They're not willing to reset their expectations down in terms of evaluation with.
Speaker Change: Maybe where market valuations are it's not just one thing it's a combination of all those things if you will so in the meantime, as Murray mentioned.
No.
Resetting our share repurchase authorization.
And we sized it like we normally do we looked out two years, it's about two years' worth.
Free cash flow and.
Right now our our head as to while Theres not any meaningful M&A opportunities to continue to dedicate quarterly free cash flow to repurchases. Because this is a very attractive valuation point.
<unk>.
Speaker Change: More of the same if you will from where we've been in the last few quarters.
Thank you that's really helpful. Thank you very much.
Thank you. Our next question comes from the line of Tobey Sommer with Securities. Please proceed with your question.
Thanks.
If you look at forecasting the business.
Example, your guidance so far.
Tobey Sommer: Easier or harder than it was three or six months ago, and maybe could you comment.
Across the.
The business segments in that regard.
Well look Tobey I guess I wouldn't say, it's any more difficult I'm kind of looking around the room here than it was three or six months ago.
If you go back.
Years ago, several years ago, when we didnt have as larger footprint and consulting.
I'd say it was a little more difficult to forecast because of it.
It staffing side of the business.
That kind of comes in shorter increments volumes had kind of quickly move up and down on you, but in consulting when you win a booking in commercial and you know you're going to work. It over the next 12 months to 18 months you have really good certainty in that and in federal you have really good certainty when you when things that youre going to be working it.
For the next five years, so I think over the long haul forecasting of the business has improved we've gotten better visibility and transparency, we have more confidence in.
In the bookings that are in our backlog and so that's played itself out I would say the last two or three quarters hasnt been too much change I mean, we've gotten.
Little more in one area than we expected or a little less.
In commercial and federal has played out about like we thought and really the only variable there sometimes we get.
A few million dollars more in.
Maybe licenses that are part of our solution that we expected one quarter and it came in another but that's that's just incremental stuff around the edges. If you will.
Makes sense thanks with.
With respect to the commercial I can focus what is the mix of full time versus.
<unk> flexible labor stand today.
And how does that compare.
Choose one or two reference points from the past, maybe let us know where you sit today because one of the strategies of the company with the lean more heavily on flex.
Hello.
Yes, so we've pretty consistently seen is that of the.
The projects that we're working within our commercial consulting business about 80% to 85% of it is contingent labor from our it staffing capabilities and about 15 to 20 are there any one time is subject matter expertise with industry.
The experience that we have in house, plus our near shore delivery Center in Guadalajara, Mexico.
And.
Yes.
I wanted to follow up on the capital allocation question.
Share repurchase.
It's just down.
This lethargic.
Tobey Sommer: Any environment it doesn't last.
Too much longer meaning more than.
Four or five quarters more.
How do you guys go through the analysis.
Husband, a little cash to have more dry powder.
Acquisitions of consequence, when the market is more fertile.
And I guess part of it.
Yes.
Tobey Sommer: Share repurchase is not a commitment.
To repurchase our stock and you could.
Slow it down.
If the environment improves and we see those opportunities.
We came out a little.
Yes, I think that last part is the key Toby I mean, we've got when we see the pipeline still with M&A opportunities to evaluate we've got plenty of time to toggle, what we're doing on a share repurchase standpoint.
And also if you've noticed we've although we desire to spend a quarter of free cash flow, except in the last quarter. We've had a hard time kind of getting there. If you will just because were purchasing at a very programmatic way. So we've been building some cash on the balance sheet.
Last piece here is we've got plenty of room.
For <unk>.
Leverage in order to bulk up and do a what I'll say a much more sizeable acquisition, we've got great support from our banking partners.
And I think if you look at our net leverage which is now about $1 77.
Tobey Sommer: We have many times in the past levered up to about three eight times.
Total debt to EBITDA in order to get an acquisition done and so that leaves you with about two turns beyond.
Beyond where we are now and that's really without even counting their EBITDA that they might contribute. So so I think we've got the firepower here to do anything that we feel we need to do and we would like to do acquisitions that still fit the same pattern that we've been doing in.
Terms of capabilities that we can pull across.
Our current account portfolio, but if it were a little bit larger scale that would be a good thing.
Thank you very much.
Thank you. Our next question comes from the line of Mark Morris Hong with Baird. Please proceed with your question.
Hey, good afternoon, and thanks for taking my questions.
So.
Kind of curious when you talk to your to your clients and we are hearing the same consistent message.
Ross this space about the budgets are there, but they're still waiting.
It probably varies by client and by specific elements.
Yeah.
Are you getting a sense for exactly what you're waiting for or is it something that's specific to their company.
And just feeling like a level of confidence that they're going to make their budget forecast.
From a macro perspective in terms of intra.
Interest rates is there a concern that.
And we haven't had a recession, yet, but we've got an inverted yield curve, so perhaps that could occur.
Just wondering what the what the trigger would be that would.
Lead to some.
Tobey Sommer: Some improvement with regards to the confidence to spend.
Brian you want to try that one and I'll jump, yes, let me.
Yes, Mark let me start first of all very senior clients, we typically avoid the conversation because theyre not going to say anything anyway.
But when you get down in the trenches to the technical managers, who are assigned responsibility for these projects.
We do hear a lot of our clients, saying, we're going to open up.
The lay out of date in.
In the third quarter or at the end of the year or whether this is important we're going to move on this but we're gonna chunk it up a little bit and kind of go slow, which we've said in the past so at the technical manager and the execution level. There is a sense of in that population.
Tobey Sommer: There is a day coming when theyre going to have more latitude, but it's.
There's no reason given for why that is I mean look we know what we have booked we know what the projects that are in play are how they're playing out if you will even if they are stretching out or slowing down.
We do know.
Tobey Sommer: What their it initiatives are that they want to get done that they have stacked up in their budget. Once money gets released and this is federal or commercial okay. What we don't know is that the convert the federal procurement officials are very slow of getting money out not sure why is that something coming from high on it.
Australian coming because of continuing resolution is it becoming coming because they're worried about having to save her position money for a two four and.
Foreign countries.
No and the commercial side you can go through the same thing what that buyer behavior that trigger don't know what comes down, but we do get a sense that they're coming.
Okay, it's coming.
So to that.
Ken anything you want to add to that yeah, I would just as one of those people who is watching this and moderating our own it spend mark I would say all three matter right I mean, I think as we we have amber.
Ken: Envision to invest harder than our own.
Certainly going ask the most critical things, but we're worried about where the economy may be going for all the reasons that you just said, we're worried about our own bottom line and that we do a good job of finding a balance here in terms of continuing to invest versus perm.
Ken: Performing at a level, we would expect to on the bottom line and so I think all three of the things that you said matter.
Speaker Change: Okay I appreciate the color and then one thing that was really interesting was the discussion around the.
Speaker Change: The data bridge project.
That you had before.
A large oil and gas company can you talk a little bit about like.
What sort of premium pricing, you're able to get how attractive are those we're obviously hearing a lot about those sorts of things to starting up I'm wondering how big that could that.
Sort of practice can end up becoming.
Yeah, you want to talk about our data practice ran what yes.
Oh.
Oh geez.
Things, we've talked about over the past year, we've made a hefty.
<unk> with service now with data Brink's pay to bricks technology Snowflake, certainly the cloud providers.
Both Microsoft and Amazon and Google So it's.
And salesforce. So we're watching those technologies they seem to be the hottest technologies, we want to be in position to support them in certain industries, where moneys flowing or maybe it's by necessity like healthcare, we reported that our healthcare business is doing fine quarter after quarter after quarter.
Well some of that is they need the technology. These are technologies that play in their world and part of it is because the baby boomers are aging.
And putting a greater demand on our healthcare system. So you can see you can see certain things unfolding.
It's interesting that we see telecommunications and we know what they're going through between the cable fight in streaming services and how they are positioning for greater volume. There's work. There there was work in which the streaming services have to be in a position to pick up at huge volumes with certain pricing.
And Ted and I have even commented that tech.
Technology, and telecommunications sort of led us into this.
Speaker Change: This problem over a year ago, and now they seem to be coming out of it a little bit and we've mentioned them featured them in our in our.
Speaker Change: And our techs so.
Banks different question is different story so.
Mark I guess I'm, just trying to give you some sense of what we're watching same as everybody else and.
And.
And these technologies, we know are critical critically important to the whole data structure and to the mapping of data to potentially use cases in AI, which is the game. That's the game right now.
Great and then you did mention earlier in the discussion that consulting kind of follows some of the trends that you see on the on the assignment side.
Okay.
Speaker Change: Obviously assignment is still tough you wouldn't expect consulting to I mean, given the momentum that you have there the way that you're reconfiguring things Youre relationships you wouldn't anticipate that.
Consulting would actually end up declining.
Declining.
Some point this year would you.
Speaker Change: We do rely on that bookings number because that gives us really good visibility into that work that's going to be completed over the next 12 to 18 months could a client could something happen in the world, where where they really kind of don't just slow it down but they really slow it down and then ramp it back up will sure Budd.
Speaker Change: There's no indication of that right now.
Great: Great I just wanted to make sure nobody misinterpreted.
Speaker Change: Hey, Ted and Mark instead worth mentioning Ted has said many times in the past year year and a half. The first to go is perm placement the second ago are discretionary.
Speaker Change: Then around things like creative HR that sort of thing. The next to go we'd be staffing. The last thing to go would be it consulting well. If you think about what's going to happen as we start seeing the world come out of it youre, probably going to see the reverse of that Youll start seeing it consulting going up now I'll work in Kuwait is staffing.
Speaker Change: Then ultimately to the discretionary areas and two to Perm placement.
Speaker Change: If you believe that's the way it is.
Speaker Change: Unfolds going down it presumably reverse is that when we are going back up.
Speaker Change: So that's another evidence besides bookings Ted mentioned.
Speaker Change: That gives us confidence in the consulting side.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and we have reached the end of the question and answer session. I will now turn the call back over to you to enhancing for closing remarks great.
Speaker Change: Great well I want to thank everyone for being here this evening for our quarter one.
Speaker Change: Our earnings release and conversation and we look forward to speaking with you soon about quarter to have a great evening.
Speaker Change: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].