Q3 2024 ASGN Inc Earnings Call
Greetings and welcome to the <unk> incorporated third 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 it.
Speaker Change: It is now my pleasure to introduce your host Kimberly asked again congratulation.
Speaker Change: You may begin.
Kimberly: Good afternoon. Thank you for joining us today for <unk> third quarter 2024 Conference call with me are Ted Hanson, Chief Executive Officer, Rand Blazer, President and Marie Perry Chief Financial Officer.
Kimberly: Before we get started I would like to remind everyone that our commentary contains forward looking statements.
Kimberly: 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.
Kimberly: And in our SEC filings, we do not assume any obligation to update statements made on this call.
Kimberly: For your convenience our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors that a S. T M Dot com.
Kimberly: 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.
Kimberly: These non-GAAP measures are intended to supplement the comparable GAAP measure.
Kimberly: Conciliation between GAAP and non-GAAP measures are included in today's press release.
Speaker Change: I will now turn the call over to Pat Hampton, Chief Executive Officer.
Pat Hampton: Thank you Kim and.
Pat Hampton: And thank you for joining <unk> third quarter 2024 earnings call market demand for ISDN services remained stable in the third quarter.
Pat Hampton: Q3 2020 for revenues.
Pat Hampton: 1.31 billion were similar to the second quarter and within our guidance range.
Pat Hampton: Terms of profitability adjusted EBITDA margin of 11, 3%, which at the midpoint of our guidance range and reflects the continued evolution of our business toward higher end high valued consulting solutions.
Pat Hampton: Consulting is now approaching 60% of total revenues.
Pat Hampton: With 57, 9% of third quarter 2024 revenues in commercial and government consulting.
Pat Hampton: Up from 54, 5% of revenues in the year ago period.
Pat Hampton: Despite relatively consistent topline results global economic uncertainty remains.
Pat Hampton: As a result, we have yet to see a meaningful increase in client services spending. This caution. However is not meant to imply that our commercial enterprise and federal government customers have deviated from their long term digital transformation pass rather our clients know that advancing their IQ Rev that is crucial to make.
Pat Hampton: Attaining their competitive advantage.
Pat Hampton: On commercial and government bookings in the third quarter demonstrates the continued need for HTS IP services and our size is a pent up demand within our customer base.
Pat Hampton: As we progress through the final quarter of the year and prepare for an improved spending environment, we continue to develop our solutions capabilities.
Pat Hampton: Core areas of interest to our fortune 1000, and federal government clients, including data and analytics cloud cyber security and early on AI applications. We.
Pat Hampton: We are differentiating our business by bringing to bear a unique solution capabilities across industry verticals.
Pat Hampton: At the same time be fast adopters of new technology.
Pat Hampton: I will provide some examples of these efforts as we review <unk> third quarter segment performance.
Pat Hampton: So let's begin with our largest segment by revenue commercial.
Pat Hampton: Our commercial segment services Fortune 1000, and large mid market companies.
Commercial segment revenues for the quarter were driven by growth in our commercial consulting business.
Pat Hampton: Commercial consulting revenues improved three 9% year over year.
Pat Hampton: And were also up one 2% sequentially commercial consulting.
Pat Hampton: Consulting bookings of $282 5 million and our book to Bill at one one times on a trailing 12 months basis.
Pat Hampton: Although our consulting bookings remained more weighted towards renewals and new work or new work is growing each quarter.
Pat Hampton: Looking at the total commercial segment from an industry perspective, we saw year over year growth in two of our five commercial verticals PMT revenues improved 10, 9%.
Pat Hampton: Compared with the third quarter of 2023 led by double digit growth in software and services and E Commerce.
Pat Hampton: Zooming in industrial accounts are returning to modest growth year over year, driven by double digit growth in utilities and materials.
Pat Hampton: On a sequential basis, we also saw growth in two commercial industry verticals.
Pat Hampton: Consumer and industrial accounts improved to low single digits.
Pat Hampton: Given that growth in consumer staples.
Pat Hampton: And materials, which improved mid single digits sequentially as well as energy and utilities, which were up high single digits from the prior quarter.
Pat Hampton: The financial services vertical also saw slight growth sequentially.
Pat Hampton: Modest quarter over quarter improvement was driven by regional banks, which improved mid single digits and insurance services, which improved high single digits from the second quarter.
Pat Hampton: Notably within financial services, Big banks were flat quarter over quarter after four consecutive quarters of decline.
Pat Hampton: Although the health care industry vertical remained down year over year and sequentially within the vertical healthcare payers.
Pat Hampton: Mid single digits from the second quarter.
Pat Hampton: As we continue to mature our consulting practice, we are selectively adding new skill sets to our project teams, including select solution architects.
Pat Hampton: Adding these high end solution capabilities provides us with the opportunity.
Pat Hampton: Strengthen our work and thereby improve our margins.
Pat Hampton: Expand our contract sizes and legs and enhance the industry vertical performance I just described.
Pat Hampton: We are aligning our solutions architects with services of greatest interest to our client solutions that are seeing the most traction of late include application development and modernization.
Pat Hampton: Migration and modernization data platforms and products and cyber security advisory and support.
Pat Hampton: These services are all foundational to realizing the value of generative AI.
Pat Hampton: While there is still much data readiness and infrastructure work that needs to be completed before our clients can deploy enterprise wide applications of <unk>.
Pat Hampton: We are however, beginning to implement specific AI models and portions of their organizations by leveraging <unk> core data and analytics capabilities.
Let me provide a few examples.
Pat Hampton: During the third quarter, one of our clients at Fortune 500 multinational department store.
<unk> to our data and AI team looking for a way to improve staff utilization at its global distribution centers.
Pat Hampton: Bridging machine learning and AI to analyze historical and real time data.
Pat Hampton: Our team built a time series model that can produce a 26 week labor forecast compared to the clients' legacy manual staffing model.
Pat Hampton: This new model significantly reduces our clients' costs by more accurately forecasting labor demands using internal and industry wide data.
Pat Hampton: For another client a Midwest public utility our data and AI team was brought in to develop an automated solution to verify customer addresses.
Pat Hampton: The new system, we need to process large datasets with limited manual intervention.
Pat Hampton: Our focus on automation and scalability.
Pat Hampton: <unk> built a predictive analytic solution.
Automated the entire address validation process, thereby reducing manual intervention by 50% and enabling better decision, making smoother logistics and <unk>.
Pat Hampton: Enhanced customer satisfaction.
Pat Hampton: Achieving customer satisfaction is always top of mind, one key way, we are earning accolades from our clients is by providing them with a one stop shop onshore and near shore or their technical needs or large financial advisory client facing data integrity complications.
Pat Hampton: We brought together a team of commercial and government consultants in the U S. Along with engineers out of our Mexico delivery Center.
Pat Hampton: Our clients data system security and accuracy as well as to provide GAAP reporting and other strategies to improve their systems integrity.
Pat Hampton: This cross border Cross segment engagement team combined expertise from our application development data analytics and cyber security solutions.
Pat Hampton: This opportunity offers multiple years of expansion work that will deepen our saturation within the clients all while increasing our technical qualification.
Pat Hampton: Speaking of technical qualifications, we've strengthened our commercial governance risk and compliance practice or <unk> practice by joining the strengths of our commercial and government cyber security resources to support our commercial industry clients and a reset trc engagement.
Pat Hampton: We offered a strategic advisory and engineering talent to help a major financial institution fortify its data security defenses.
Pat Hampton: We also renewed a multiyear partnership with a key health care client working closely to enhance its hardware security framework.
Pat Hampton: Comply with industry regulation.
Pat Hampton: Also in the healthcare industry.
Pat Hampton: <unk> public hospital systems in the country turned to our consultants that glide path to re implement their entire instance of service now.
Pat Hampton: Our team one that's highly competitive pursued by understanding the challenges and restrained sublease systems prior installation and offering the client a shared vision for how to deliver value across every phase of the project.
Pat Hampton: This win reinforces glad fast position as an elite service now provider and our team now has the opportunity for continued client partnership by implement implementing additional service now modules as a project matures and progresses.
Pat Hampton: Each of these aforementioned consulting projects illustrate <unk> unique ability to integrate comprehensive solutions to address our clients' needs, we complement our internal capabilities by partnering with technology industry leaders such.
Such as service now Salesforce Snowflake data bricks, Microsoft Azure and AWS amongst others, knowing that being a fast adopter of the latest technological advances is vital to our success.
Pat Hampton: And as we move with the fast current suite of IP.
Pat Hampton: <unk> positioning ourselves within our clients' organizations, enabling us to grow and expand our relationships over years and decades to come.
Pat Hampton: Let's now turn to our federal government segment, which provides advanced <unk> solutions to the department of defense.
Pat Hampton: The intelligence community and federal civilian agencies.
Pat Hampton: The federal segment revenues for the quarter improved 1% sequentially.
Pat Hampton: Net new contract awards were a $666 4 million, putting our book to Bill at two one times for the third quarter and nine times on a trailing 12 month basis.
Pat Hampton: Contract backlog was over $3 1 billion at the end of the third quarter, where our coverage ratio of two five times the segment's trailing 12 month revenues.
Pat Hampton: As is evident from our quarterly book to Bill the pace of task orders has increased we began to see this trend in July at the same time of our second quarter earnings call and this continued throughout Q3 as we were awarded work under previously won contracts, including several <unk>.
Pat Hampton: Yes.
Pat Hampton: At the same time past quarter volume increase so too did our recompete win rate, which reached 100% for the quarter.
By increasing our market focus and rigor, we boosted our win rate and expanded our average deal size.
Pat Hampton: For example in September our federal government team was awarded a $528 million six year single Award data services <unk> IQ with the department of Homeland, Security's, cybersecurity and infrastructure Security agency or Cisco.
Pat Hampton: Under this new award a portion of which is included in our third quarter bookings our team will design develop and deliver solutions that will standardize the integration of cyber security data across dozens of federal civilian executive branch agencies.
Pat Hampton: This award is a true testament to our team's exceptional cyber security qualifications as well as our long standing relationship with and institutional knowledge of system.
Pat Hampton: Given our partnership with Sessa and having passed other prerequisite steps our team was asked to compete against other companies to deliver sits.
Prototypes of cyber security threat intelligence platform.
Pat Hampton: This platform will allow civilian agencies, along with state and local governments and critical infrastructure entities.
Pat Hampton: Green line that generation use and sharing of cyber security threat intelligence to increase the resiliency of U S National security.
Pat Hampton: Being a part of this important credit type ECS has the opportunity to assume a key advantage large future contract with threat intelligence Enterprise service program.
Pat Hampton: During the third quarter. We also won task quarters on a number of previously secured contracts and IDI cues for.
Pat Hampton: For our Premier Law enforcement agency, we were awarded our first two task orders, which expanded our current work, providing advanced architecture engineering and operation for the agency's important cyber security domain.
Pat Hampton: For the National Institutes of Health, we won several task orders to support patient centric solutions and for Veterans Affairs. We won multiple task orders to provide enhanced veterans experience, including supporting key application used for accessing veterans' health care information.
Pat Hampton: Took some time to see task orders flow through as we predicted we are gaining traction and our pipeline of new work and re competes continues to growth importantly, our diversified government portfolio of critical customer accounts with national priority, along with our focus on mission enabling.
Pat Hampton: I'd solutions mitigates the potential impact to our business.
Pat Hampton: Risk from macroeconomic conditions geopolitical conditions or the upcoming presidential election may pose.
Speaker Change: Before Murray discusses our third quarter results in more detail I'd be remiss, if I did not speak about our growing AI ml work for the defense and intelligence community.
Speaker Change: As one example in the third quarter, the National Security and Intelligence Division provided us with funding for work related to AI enabled operations and exercises.
Speaker Change: Economists systems deployment.
Speaker Change: Algorithm and software deployment and AI enabled publicly available information Toolkits and training programs.
Speaker Change: And it's been a top AI ml contractor for the government for many years and in August Ecs's named a top five federal AI ml provider by Delta for the third year in a row.
Speaker Change: While our talented professionals and qualifications are certainly being recognized by the industry.
Speaker Change: To ensure that we stay ahead of the latest developments in AI and G&A as.
Speaker Change: We continue to expand our core team of practitioners, who provide solution architecture engineering and business growth.
Speaker Change: With that I'll now turn the call over to Marie to discuss the third quarter results and our fourth quarter guidance.
Marie Perry: Thanks, Ken it's great to speak to everyone. This afternoon.
Marie Perry: Third quarter revenues were 103 1 billion, a decrease of seven 7% year over year, but essentially flat to the second quarter.
Marie Perry: Revenue from the commercial segment were $718 8 million a decrease of eight 1% as compared to the prior year as Ted noted revenues from commercial consulting the largest of our high margin revenue streams.
Marie Perry: Totaled 285 million.
Marie Perry: Three 9% year over year.
Marie Perry: Up one 2% sequentially.
Revenues from our federal government segment were $312 2 million, a decrease of six 6% year over year, but up 1% sequentially.
Marie Perry: As we noted in our second quarter call the year over year decline in federal segment revenues can largely be attributed to fewer license revenues compared to the prior year.
Marie Perry: Including these licenses federal segment revenue improved low single digits year over year.
Marie Perry: Turning to margins gross margin for the third quarter of 2024 was 29, 1% an increase of 20 basis points from the third quarter of last year and at the top end of our guidance range for the quarter.
Marie Perry: Gross margin for the commercial segment was 32, 8% at.
Marie Perry: 30 basis points year over year, reflecting a higher mix of consulting revenues as well as margin expansion in these revenues gross margin for the federal government was 27% also up 30 basis points year over year, primarily due to a higher mix of direct labor, which is higher margin work.
Marie Perry: Along with lower license revenue mentioned previously.
Marie Perry: SG&A expense for the quarter was $207 5 million compared to 206 million in the third quarter of 2023.
Marie Perry: G&A expense also included $1 1 million in acquisition integration and strategic planning expenses and $3 6 million legal settlement accrual both of which were not included in our guidance estimates for.
For the quarter net income was $47 5 million adjusted EBITDA was $116 9 million and adjusted EBITDA margin was 11, 3%.
Marie Perry: Turning to free cash flow free cash flow for the quarter with $127 9 million or a conversion rate of approximately 109% of adjusted EBITDA at.
Marie Perry: At quarter end cash and cash equivalents were $166 6 million and we had full availability under our 500 million senior secured revolver and our net leverage ratio was one nine times.
Marie Perry: Our robust free cash flow and provides a strategic advantage that enables HCN to fund key growth initiatives and opportunistically repurchase shares to return value to stockholders.
Marie Perry: While maintaining a healthy and resilient balance.
Marie Perry: Following a disciplined and balanced approach to capital allocation, we can invest in high return opportunities and prudently manage our leverage driving sustainable long term value to our stockholders.
Marie Perry: Given the market opportunity, we deployed $95 6 million for the repurchase of roughly 1 million shares at an average price of $92 in 2016.
Marie Perry: We have approximately $573 million remaining under our $750 million share repurchase authorization.
With solid free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisitions when opportunities become more readily available.
Marie Perry: Turning to guidance, our financial estimates for the fourth quarter of 2024 are set forth in our earnings release and supplemental materials.
Marie Perry: <unk> are based on current market conditions and assumes 61 billable days in the fourth quarter, which is one more day than the year ago period, and two five days fewer than the third quarter with fewer billable days in the fourth quarter generates a sequential headwind.
Marie Perry: <unk> to about 4% of revenue.
Marie Perry: We expect market conditions and demand for our services in the fourth quarter to be similar to that at the third quarter, while third quarter bookings indicate a solid pipeline of work, we do not anticipate an uptick in our clients spend in the fourth quarter.
Marie Perry: With regards to EBITDA margin the fourth quarter typically sees a decrease in margins sequentially due to client furloughs and fewer billable days, along with traditional seasonal softness and Perm placement revenues.
Marie Perry: With this background for Q4 2024, we are estimating revenues of 990 million to one <unk>.
Marie Perry: Zero 1 billion net income of $39 2 million to $42 1 million adjusted EBITDA of 103 million to $107 million and adjusted EBITDA margin of 10, 4% to 10, 6%.
Speaker Change: I will now turn the call back to Ted for some closing remarks.
Ted Hanson: Thanks, Marie last quarter I ended our discussion by reviewing <unk> core values, including our belief in the it services sector are moved to become more consultative and our focus on supporting large industry diverse commercial enterprise and federal government clients.
Another core value to include on that same list hinted at at the start of today's call is being a fast adopter of new technologies to bring to our clients. The differentiator of our business model HTM strategically pivot as technology advances that we can drive our clients IP roadmaps while.
Passively positioning our own business.
Ted Hanson: AI is undoubtedly a central focus of the IP roadmaps of corporate enterprises, and federal agencies alike, making the investment and the integration of <unk>.
Ted Hanson: A top priority for our clients the global ISG index was the leading sources of market intelligence on the ITM business services sector.
Ted Hanson: We anticipate that global spending on G&A.
Ted Hanson: We will increase by 50% in 2025 and represent upwards of 7% of company's total it spend by year end.
Ted Hanson: While leveraging data and AI will enable companies to unlock increased value before that value can be realized company tech stacks needs to be improved.
Ted Hanson: Suezmax enhance their data management capabilities as well as their cloud and cyber security infrastructures in order to fully leverage the benefits of Gen AI across their enterprises with that in mind. There remains a lot of foundational work that needs to be completed for modernizing and cleaning up data lakes and enhancing cyber.
Ted Hanson: Security frameworks to driving automation and ensuring regulatory compliance.
Ted Hanson: All of these areas are core <unk> differentiated service offerings, and with strong bookings and diverse client base across six key industry verticals ESPN is positioned to take advantage of the opportunities to support our clients. It roadmaps now and for many years to come.
Speaker Change: That concludes our prepared remarks, I want to extend my heartfelt gratitude to everyone at ASTM for your support this past quarter your dedication to posturing deep long standing client relationships is truly commendable and no doubt places us at the forefront of the industry.
Speaker Change: Thank you again for joining our third quarter 2024 call operator, please open the call to questions.
Speaker Change: Okay.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: 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. Keith You May press star two if you'd like to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star one.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Yeah.
Speaker Change: And our first question comes from the line of Jeff Silber with BMO capital markets.
Speaker Change: Please proceed with your question.
Okay.
Speaker Change: Hey, Thanks. So much this is Ryan on for Jeff just curious what you need to see and what trends you are monitoring that would make you more bullish on the it spending environment and the digital transformation environment. Thank you.
Speaker Change: Brian Thanks for the question I mean look I think in the long term more bullish there is a lot of underpinnings here that are going to be.
Speaker Change: Drivers of our business as we help our clients.
Speaker Change: Back to the end of the of the remarks, there to drive their roadmaps over the period of time.
Speaker Change: I think in the near term what we're watching here is just.
Again business confidence so that our clients have confidence to begin to invest at more normal levels.
Speaker Change: Their it needs.
Speaker Change: And so that's a balance of two things here.
I think there's I think we're making progress.
Speaker Change: There are some things in the economy overall.
Speaker Change: The interest rate cycle elections.
Speaker Change: Some of these other things going on in inflation and otherwise.
Speaker Change: Have clients remaining cautious but are beginning to move through and past some of those things hopefully and that's going to create business confidence and lyft business confidence will come at the investor heavier investment in there.
Speaker Change: It Roadmaps and we'll be right there to serve them.
Great. Thank you and then just for the follow up.
Speaker Change: The growth trend in commercial consulting has dropped out at this point now that you're past kind of the tougher comps from last year. I was just curious how you expect that to trend relative to core assignment over the next couple of quarters. Thank you.
Speaker Change: Well I think where we're at.
Speaker Change: We're kind of at low single digit growth rates here. It seems over the past few quarters that we are.
Speaker Change: Stable place quarter to quarter, if you adjust for billing days and those other things.
Speaker Change: So bookings also remain very solid.
Speaker Change: At a one one I think here.
Speaker Change: In the last quarter and that portends growth going forward. So I think if you look at the metrics around book to Bill and you look at the past performance here for several quarters, where we've kind of consistently put up single low single digit growth that we're at a place where we can begin to grow at higher rates, but that again goes back to what we just.
Speaker Change: Discussed around our customers and for them to be able to open up and invest more fully and all the things they want to accomplish so the book to Bill tells US there's good demand in our pipeline tells us good demand. So I think it's not if it's more of a win.
Speaker Change: Understood. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.
Maggie Nolan: Hi, Thank you can you elaborate on what may be different in terms of your strategy. When you emphasize the solution architect additions is that.
Maggie Nolan: Representing a shift and go to market or how do you secure manage talent for their projects.
Speaker Change: Well I'll, let Brian take that I would call it more of an enhancement Maggie than anything else right Ryan.
Speaker Change: Yes, there is absolutely our go to market features the accounts. So we focus on the portfolio and the growth in the accounts and the intimacy with the accounts.
Speaker Change: Supporting that is an evolution of our solution strength and that evolves as technology and the needs of our clients change Maggie So yes. So for example, AI were.
Speaker Change: Past quarters was more around governance.
Requirements and today as you saw feature in Ted's remarks, we're getting more into actually building algorithms for forecasting.
Searches and update better security and security algorithms. So that just requires continued solutions strength in support of that account portfolio, but it's definitely accounts first solutions second and we have to be good at both.
Speaker Change: Thank you that's helpful and then.
Speaker Change: To build on the first set of questions.
Speaker Change: You kind of alluded to some of that but maybe I'll just explicitly asked about anything that you can share with us about your expectations for 2025 in terms of that it spending environment and maybe how you perceive the current client sentiment on 2025 budget.
Speaker Change: Yes, well I can't really comment on.
It spending rates in 2025, but I can't tell you that go back to what the first set of questions was there is good demand both in our pipeline and in our bookings. So it would portend stronger growth in the future I think the question is when and how does that develop and it's a little early to tell that.
Speaker Change: But I think the positive news here is that we like what we see.
Speaker Change: And our bookings and we like what we see in pipeline and we will have to keep monitoring this too.
Speaker Change: To just begin to see when we can really expect.
Speaker Change: What I'll call spending at more normal or higher rates.
Speaker Change: Fair enough. Thanks, Pat Thanks, Brian.
Speaker Change: Thank you.
Our next question comes from the line of Surinder <unk> with Jefferies. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Can you maybe provide some additional color on just the assignment business.
Speaker Change: Maybe any signs of stabilization that you might be seeing there or just the trends there.
Speaker Change: Whether it's within the business or creative circle.
Any color would be helpful.
Speaker Change: Yes.
Speaker Change: I would say generally adjusted for billing days surrender, we're seeing stability quarter to quarter, that's not new.
Speaker Change: We saw it develop here in the first part of the year is kind of carried through Perm Perm placement has gotten a little bit weaker so that part of the assignment business.
Speaker Change: As we've gotten deeper into the year has gotten a little bit weaker we expect it to be the same in the fourth just because thats not a strong quarter.
Speaker Change: For that part of the business, but look I think I think what we're seeing in the assignment business for customers again.
Speaker Change: Primary place, where they go to control their spending levels.
Speaker Change: They've continued to keep their foot on the brake there for a bit here.
Speaker Change: And while we're seeing some stability, we're looking for signs that.
Speaker Change: Want to open up spending again this is about spending more than anything else.
Speaker Change: And the consulting part of the business and in the assignment piece.
Speaker Change: That's helpful and then following up on the.
Speaker Change: Idea that this is the assignment business is an area where.
Speaker Change: I guess clients look for efficiencies.
Speaker Change: How are you thinking about.
The staffing model going forward in the context of.
Speaker Change: Jenny.
Speaker Change: Productivity improvements is there a risk that maybe clients more aggressively look for solutions there to offset some of the cost meeting.
Speaker Change: Less need for head count it from a support perspective relative to historical levels.
I mean ethic always surrender as technologies change, you'll see the clients the skill sets that they need change and evolve some things will go to legacy other things will become more modern and in demand if you will.
Speaker Change: But I think that clients need for talent is still going to be their opportunity for us is to deploy some of these.
Speaker Change: Next generation AI opportunities inside of our own business, which we're already doing today in order to make ourselves more productive and so I think we'll be doing that on behalf of our customers, but our customers are still going to need.
Speaker Change: Great solutions.
Speaker Change: To their business needs and they're also going to need great technical talent to address all of those opportunities.
Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Joseph <unk> with Canaccord Genuity. Please proceed with your question.
Speaker Change: Oh sure.
Speaker Change: Nice to see.
Speaker Change: So if we drill down a little bit more.
Speaker Change: Financial services.
So call it maybe.
Speaker Change: Yes.
Speaker Change: Looks like.
Speaker Change: Incrementally better.
Speaker Change: With that Jonathan.
Speaker Change: Two in terms of.
Speaker Change: So shine.
Speaker Change: <unk>.
Speaker Change: Demand drivers.
Speaker Change: Is it.
Speaker Change: No.
Speaker Change: Yes.
Speaker Change: Yes.
Sure.
Speaker Change: Yes, so Joe I'm going to let Ron take this one ranch is asking about financial services.
Speaker Change: Puts and takes on color on performance there.
Speaker Change: But in both consulting and in the assignment part of the business.
Yeah, Joe Yeah, and you were breaking up there a little bit but notwithstanding.
Speaker Change: As you know this is a big and important sector not just for us but for our it spend.
So were buoyed by the fact that the big banks have reported recently some pretty good results. We're happy that the regional Bank segment, which Ted featured was improving.
Speaker Change: Think we're penetrated no we're penetrating these accounts with now consulting.
Speaker Change: That's the if you will the tip of the spear the staffing thing I think is a function of just the.
Speaker Change: Our thesis is is they feel like they can start spending more money and we will see higher staffing opportunities, which I think we're at the doorstep two.
Speaker Change: We like the sequential numbers, we have in some of these segments were still year over year down Ted said in the comments except for in regional banking.
Speaker Change: But we.
Speaker Change: We want to capture it on both and the staffing side and the consulting and the fact that many of these accounts, we've now cracked into the smelting side of the business.
Speaker Change: It is important to us and we're watching that very carefully.
Great. Thanks for that color around hopefully you can hear me a little better but and then also on.
It does feel like enterprises do have some budget leftover for the year just based on your discussions with them.
Speaker Change: Do you think they just kind of kick the can down the road with that budget for next year or do you think theres any kind of chance of.
On a year and lost share or anything or how they are kind of thinking about that.
Speaker Change: What's remaining in the budget for this year. Thanks, a lot guys.
Yes, Brian do you want to finish up that one.
Speaker Change: Well listen in the government, we're seeing some spending and hence our bookings and our.
Speaker Change: Some emergence of growth on the commercial side.
Speaker Change: And I think its I don't know what to tell you Joe maybe Ted you have some other thoughts, but we don't hear anything from our clients. It feel like I have depressed now in this last month and a half of the year two months of the year.
I think everybody's kind of.
Speaker Change: Assuming there is some things going on the election January 1st turns a new page in.
Speaker Change: And off we go I think Theyre doing if you look at our AI spend Joe for example, the character of the work has changed a little bit which featured and we featured in Ted's comments.
Speaker Change: I think theyre getting themselves in a position where are they getting a better feel for what they want to do not just what I call desktop productivity using gen AI, but rather big ticket AI.
Speaker Change: Coming up with the ROI associated with that is also part of the drill that they're going through now so they're doing the prep work that's not to mention the data side, which is a tremendous that's where all of us are still seeing the bulk of our work.
Speaker Change: Debt and data data preparation data validity data quality.
Speaker Change: <unk> ability of data.
Speaker Change: Faster processing of data.
Speaker Change: <unk> internal data with public data and benchmark information is also on their minds, so I <unk>.
Speaker Change: There's a lot on their mind I don't think the spigot to spend is is necessarily been turned on Ted would you add to that.
That's perfect.
Speaker Change: Great. Thanks for that color and thanks, everyone.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Tobey Sommer with Chewy Securities. Please proceed with your question.
Speaker Change: Sure.
Speaker Change: Hey, good afternoon. This is.
Speaker Change: Chatsworth web on for Tobey good quarter for ECS bookings North of two times book to Bill there.
Obviously, you get some seasonal benefit in the third quarter, but just kind of hoping you could expand on what you've done the boost win rates and then separately maybe you could clarify how much of that 300 $530 million data services IQ you mentioned it was booked in the third quarter.
Speaker Change: Yes so.
Take this has just been really good hard spade work and focus.
Speaker Change: On the accounts and the contract opportunities.
Speaker Change: Jasper that we've been working on here, we had some nice wins on IV IQ contracts, where we had good client intimacy at the end of 'twenty three those were slower to pick up but we knew task orders will be coming out on that finally, those began to drop and we're winning our share of that which is.
Good to see it was maybe took a little longer to develop.
Speaker Change: All the way into the third quarter of this year, but that that was our expectation.
Speaker Change: You know, we don't talk about gross to net on contracts obviously.
Speaker Change: You book.
Speaker Change: On a net basis, which you think you have a high probability of working through over the life of the contract and where.
Speaker Change: Middle of the road are conservative on that and so there's always a certain amount of the total contract value that doesn't get booked and then in certain situations. If you have a contract that might be.
Speaker Change: A small part of that that's falling off or something that didn't get spent all the way through you have to realize the net of that as well. So we've done all of that.
Speaker Change: <unk> presented here are on a net basis and so thats about all I can say on that.
Speaker Change: Okay that makes sense.
Speaker Change: Just kind of curious how you've been managing capacity levels in your consulting business as growth has moderated there.
Speaker Change: I guess it is the mix of personnel that are full time or versus Tam for maybe based out of your offshore delivery centers changed materially in the last couple of quarters.
Speaker Change: Yes, Ryan do you want to take that out I mean, the one thing I will say Josh. This is the highlight of our model here that most all of our resources on this consulting work do come on the back of our it staffing capabilities and so that gives us an advantage.
Speaker Change: As our business either slips up our slips down in order to deal with maintaining productivity and profitability in that unit Bryan you want to talk about that.
I think Ted yesterday that says it all remember we're using contingent labor for our arms and legs on consulting work. So we don't have a overblown bench that we have to mix and match and reallocate.
Speaker Change: In our professional teams and our leadership team is in our Smes, If you will and the people that are the architects developers of our methodology or pretty much intact on the Mexican side, we've been growing throughout all of these quarters. So.
Speaker Change: And now as you know we are also starting some Indian offshore pointed directly towards service now.
Speaker Change: Which is a capability that we've come into an and it's been.
Speaker Change: It's been more in a growth mode than than not so.
Speaker Change: <unk> said it right. When you have contingent. This model. This is a hallmark of our model to use contingent labor in it.
Speaker Change: From our point of view, it's working very well.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Slip one more in here at the end maybe following up on a prior question just hoping you could stratify, what you're seeing for demand at anytime.
Speaker Change: Relative to creative circle of assignment.
Speaker Change: Yes, again, Jasper I'll just go back and say that this has been fairly consistent although our creative digital marketing unit unit. If you go back into 23 was the first to kind of fall because it's the most sensitive to discretionary spend it's been as stable as the rest of our assignment business.
Speaker Change: Here over the previous few quarters.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kevin Mcveigh with UBS. Please proceed with your question.
Speaker Change: Great. Thanks, so much.
Speaker Change: The 1 million shares you purchased in the quarter.
Speaker Change: Is that a way to think about kind of what the quarterly cadence should look like or just any thoughts on that or just.
Speaker Change: Congratulations on that by the way.
Speaker Change: Okay.
Speaker Change: So do you think about like share repurchase our strategy is really to use the free cash that we generate in the quarter to share repurchase.
Speaker Change: Yeah. Thank you Ross.
Speaker Change: <unk>.
Speaker Change: That's probably right.
Speaker Change: Yeah look I think Kevin.
Speaker Change: We kind of call that as we go.
Speaker Change: M&A opportunities have been less so obviously, we've been kind of working diligently through free cash flow each quarter on our authorization. We will just have to keep our eyes.
Speaker Change: On that as things develop and see if our posture changes at all.
Speaker Change: Yes.
Speaker Change: Obviously, our approach you know that it's been that for a long time here.
Speaker Change: Okay. That's helpful. And then just to you mentioned this earlier, but just to follow up on.
Speaker Change: The journey I opportunity internally kind of where are you through that process and does it vary on the federal side as opposed to commercial as opposed to more of that.
The kind of traditional assignment business, just any thoughts around that.
Speaker Change: Yeah, Randy you want to take that one.
Speaker Change: Well, Kevin are you asking our internal deployment of AI inside our business or you're talking about just generally providing an AIG solution to our client base.
Speaker Change: Internal Orient internal internal.
Speaker Change: While the internal.
Speaker Change: The AI deployment is happening in both our federal and commercial and where we can it will benefit both sides. So for example, our cyber security AI, which continues to be enhanced internally is provided by ECS for the entire of ASTM.
Speaker Change: It supports both the commercial and the government business, we have new proposal development teams that qualification.
Speaker Change: Creation capability, which is being spearheaded by our government team, which will be used and is being used by our commercial teams in the recruiting area, we use AI to support mixing and matching our searches for the right candidate to build the pipeline of different skill basis.
Speaker Change: Thats being used more predominantly on a commercial side, but the benefit to us.
Speaker Change: So those are just examples are our employee center is again share technology across government commercial and where we can use AI to help respond or analysts anticipate questions and respond to them, whether it's about benefits or other things is being shared so does that give you a sense.
Speaker Change: Very helpful. And then I guess just philosophically the expense savings does that go to reinvestment back in the business or to shareholders. I mean that may be a little bit early but just any thoughts around that.
Speaker Change: Yes. This is part Kevin of just being more productive as a business right I mean, I think as we.
Speaker Change: Our strategy has been.
Speaker Change: As we evolve our.
Speaker Change: This has to be more consultative, obviously, we're trying to drive both a higher growth rate a higher gross margin profile and a higher EBITDA margin profile in some of that will come and the value proposition of the work, we do down to the EBITDA line and others has to come from being more productive and so.
Speaker Change: I think these things in AI, but contribute to providing better services.
Speaker Change: To whoever our constituent is internally in these areas.
Speaker Change: Two having a foundation of AI learning that we can then translate to our customer then yes being able to translate.
Some of those savings and productivity to the bottom line to go together with all the rest of it. So there is there.
Speaker Change: There is a lot of ins to meet here, but we are offering our customers are with these things. We're piloting we're trying things some things are going into production of the things we're having to work through further we're having to think about it our own data and security and all the different things. They are so I would say.
Any ways, where we are right where they are.
Speaker Change: Very helpful. Thank you.
Speaker Change: Okay.
Thank you.
Speaker Change: Our next question comes from the line of Mark.
Speaker Change: Mark <unk> with Baird. Please proceed with your question.
Speaker Change: Hey, good afternoon everybody.
On M&A.
Mark: How are you what sort of opportunities are you seeing as the pricing getting a little bit more reasonable I mean, we take a look at your balance sheet leverage is well controlled free cash flow continues to be really strong.
Mark: The prices become more reasonable at this point or how are you thinking about that.
Speaker Change: Well, Mark there's probably not enough data points out there to say that pricing is becoming more reasonable there is enough data points to say theres fewer transactions going on look we note there are some.
Speaker Change: Theres, a little pick up here and things.
Speaker Change: Things going on in the M&A market most of what we're seeing are small things that made me more about delivery. They may be non U S focus, but there are some small things getting done I don't think generally there's enough things going on to say there is a new data point on valuations and that sellers are really.
Speaker Change: Willing to come off of.
Speaker Change: The type of assets that we would be looking for but we're seeing a little bit more flow through the pipeline and so we will continue to work through those we agree with you the balance sheet is in great shape.
Speaker Change: Some cash on the balance sheet. In addition to be modestly leveraged on a net basis and so.
Speaker Change: And we also know exactly what we're looking for.
Speaker Change: We're in the market calling through opportunities.
Are those things but.
It's a.
Speaker Change: It's a little bit of a process here for lack of a better word.
Speaker Change: Alright, I appreciate that and then on the.
Speaker Change: The federal government side, I mean, congratulations on the wins in the 100% on the on the Recompete.
Speaker Change: When do you think these wins would convert to revenue how should we think about that and what should investors think about just in terms of.
Speaker Change: The election, obviously.
Speaker Change: Nobody knows exactly who's going to win but.
Speaker Change: How would you.
Speaker Change: Advise investors to think about how the government business is going to.
Speaker Change: Form over the next year.
Speaker Change: So.
Speaker Change: Two good questions Mark I think on the first one.
Speaker Change: These wins are slowly contributing to revenue here in the fourth but I wouldn't say materially. So I expect most of the contribution from the various wins that we announced in the third quarter to have a bigger impact on 2025 than they will on the fourth quarter.
Speaker Change: As it relates to the election.
Speaker Change: I think it's the thing that everybody is watching especially enterprise customers in federal and in commercial.
Speaker Change: But you can see in federal it didn't slow anything down during the quarter I think the industry overall is going to have a strong third quarter.
Speaker Change: And bookings leading up to the election, and I think in the and the commercial enterprise space, while customers are focused on things like the regulatory environment and.
The M&A environment and.
Speaker Change: Where it's where where our policy going to be there is there is definitely a pent up demand around the it spending and I don't think one party or the other we don't think is really going to change customer posture on spending on key initiatives. So while.
Speaker Change: So a little bit slow as we go here through the end of this year I expect when theres better confidence among our customers and some of these things that are unknowns are water under the bridge you will see them.
Speaker Change: Off of that confidence begin to spin more on a lot of these key initiatives.
Speaker Change: That's great and then with regards to on the commercial consulting side.
Speaker Change: On it.
Speaker Change: I know, it's still relatively early days, but you have talked a lot about how much youre doing in terms of helping clients.
Speaker Change: Clean up the data in preparation for bigger AI initiatives is there any way to quantify like what youre doing on the consulting side that would be <unk>.
Speaker Change: Neither data.
Speaker Change: Data cleanup data restructuring in order to take advantage of AI and then how much you're actually doing in an actual.
Speaker Change: AI assignments at this point.
Speaker Change: Yes, so I'll, let ray or takes up we're not releasing bookings or revenue in the AI or AI enabled category, but rain could give us some color and speak to data specifically brand.
Speaker Change: Yeah, Mark I'm kind of smiling that good question, we definitely.
Speaker Change: Breaking into two categories.
Speaker Change: Call AI or pure AI and AI extended.
Speaker Change: So we know when we're doing work that supports AI implementation in the future. If you will and we know the difference between that and what we call pure AI applications today.
Speaker Change: We I think as Ted featured in the in the opening remarks, we're seeing AI still a small percent of our total revenues the data side and the work we're doing on the data side as a much larger part of our revenues, but we definitely watch both.
Speaker Change: And.
Speaker Change: We need to tour selves.
Speaker Change: Sure that we cannot just prepare data qualified data rich data, but actually get it in infective use for the client as AI applications come in so we're very mindful of the question. You asked we have a way of measuring that in terms of revenue.
Speaker Change: And where.
Speaker Change: It's slowly moving the way it should.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you.
Speaker Change: We have reached the end.
Speaker Change: The Q&A session I would now like to turn the floor back to <unk>.
Speaker Change: Dan Hansen for closing remarks.
Dan Hansen: Great well, thank you operator, and thank everyone for participating today, we look forward to being with you.
Dan Hansen: In the first quarter of 2025 to talk about our fourth quarter results have a great day.
Speaker Change: Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Dan Hansen: Okay.
Dan Hansen: Okay.
Dan Hansen: Mhm.
Dan Hansen: Okay.
Dan Hansen: Good.
Dan Hansen: Yes.