Q4 2024 ASGN Inc Earnings Call
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Greetings and welcome to the a S. G N incorporated fourth quarter and full year 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. Please press star zero on your telephone keypad. It is now my pleasure to introduce you.
Your host Kimberly asked the heating up of Investor Relations. Thank you you may begin.
Speaker Change: Good afternoon. Thank you for joining us today for <unk> fourth quarter and full year 2024 conference call with me are Ted Hanson, Chief Executive Officer ran Blazer, President and Marie Perry Chief Financial Officer.
Speaker Change: Before we get started I would like to remind everyone that our commentary contains forward looking statements. Although we believe these statements are reasonable they are subject to risks and uncertainties and as such our actual results could differ materially from those statements certain of these.
Speaker Change: These risks and uncertainties are described in today's press release.
Speaker Change: 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 got S. G M Dot com.
Speaker Change: 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.
Speaker Change: non-GAAP measures are intended to supplement the comparable GAAP measures.
Speaker Change: And some of the issues between GAAP and non-GAAP measures are included in today's press release.
Speaker Change: I will now turn the call over to Ted Hanson, Chief Executive Officer.
Ted Hanson: Thank you Kim and thank you for joining <unk> fourth quarter and full year 2024 earnings call.
Ted Hanson: Throughout 2024, we remain committed to advancing espn's business towards higher end high value consulting solutions.
Ted Hanson: This commitment is reflected in the growth of our I T consulting revenues for the year IP consulting revenues from both the commercial and government sectors comprised approximately 58% of total revenues up from roughly 53% in the prior year period.
Ted Hanson: While Q4 revenue was slightly below expectations I highlighted the quarter was once again gross and adjusted EBITDA margin, which exceeded our expectations.
Ted Hanson: I T budgets remaining constrained our pipeline of work has continued to expand.
Ted Hanson: Double digit year over year growth in commercial consulting bookings in the fourth quarter underscores our participation and our clients' long term IP strategies.
Ted Hanson: As we transition into 2025, we are beginning to see an improvement in business confidence, although we believe a turnaround in <unk> spending has yet to materialize.
Ted Hanson: To meet the anticipated growing demand for it services, we remain closely aligned with our enterprise and federal government customers understanding their strategic needs and positioning our solutions accordingly in key areas, such as AI and cyber security and data.
Ted Hanson: Maintaining deep customer relationships with Fortune 1000, and key defense and intelligence agencies is essential to espn's market differentiation.
Ted Hanson: Also important to driving the underpinnings of our long term strategy is the depth and breadth of our leadership team.
Ted Hanson: As part of a planned succession, we recently announced that our president Rand Blazer will transition to the role of executive Vice Chairman. This March.
Speaker Change: I will elaborate on <unk> continued commitment to our company as well as welcome our newest executive team edition ship Eyer, who will be joining us from Accenture later in today's call.
Speaker Change: Beyond a forward thinking leadership team successful tuck in acquisitions are core to enhancing our organic consulting growth.
Speaker Change: We continued our M&A efforts in 2025, and now saying just yesterday, our definitive agreement to acquire top block a preferred certified workday services partner.
Speaker Change: I'll discuss the strategy behind the top block acquisition, shortly but first let's turn to our segment performance for the quarter.
Speaker Change: Our commercial segment services Fortune 1000, and large mid market companies revenues for this segment were again driven by growth in our consulting business, which improved 6% year over year consulting.
Speaker Change: Consulting bookings of $348 2 million put our book to Bill at one two times for the quarter and 1.1 times on a trailing 12 month basis.
Speaker Change: The consulting bookings remain weighted towards renewals a reflection of our strong client relationships, our new work continues to grow each quarter.
Speaker Change: From an industry perspective growth for the quarter was led by our TMT and consumer and industrial verticals. The TMT vertical improved mid single digits compared to the fourth quarter of 2023, and also improved to low single digits for the full year.
Proven and TMT revenues were led by growth in E Commerce, and media and entertainment accounts.
Speaker Change: Sumer and industrial accounts improved low single digits as compared to the prior year quarter.
Speaker Change: By double digit improvements in utilities, a material accounts, along with mid single digit growth in consumer staples and consumer discretionary accounts.
Speaker Change: While the financial services vertical declined every year within the vertical big banks, Fintech and diversified financials, all improved low single digits on a billable day adjusted basis.
Speaker Change: That's one of the largest spenders on I T. This improvement within the financial services vertical, especially amongst our big banking clients is a move in the right direction.
Speaker Change: On a sequential basis adjusting for the two and a half fewer billable days in the quarter consumer industrial accounts improved the low single digits with growth in the utility consumer staples consumer discretionary and industrial sectors.
Speaker Change: We also achieved a low single digit growth in the health care vertical with advancements in both payer and provider accounts.
Speaker Change: Consulting engagements for the fourth quarter focused on our cloud and data infrastructure cyber security and AI solution capabilities, Let me provide a few noteworthy examples.
Speaker Change: In the fourth quarter, a prominent freight and transportation quiet engaged asked again to migrate their legacy on premise data management center to the cloud.
Speaker Change: Our team of data experts conducted a comprehensive assessment of our clients 25 year old system developed architectural roadmaps and consulted our client on their migration to AWS cloud.
Speaker Change: Once fully migrated to AWS. We will proceed to modernize our clients architecture by adopting cloud native practices that provide enhanced agility scalability and it.
Speaker Change: Robust foundation to leverage advanced services, such as data analytics and AI.
With vast amounts of data and moving to the cloud theres, an increasing need to protect sensitive enterprise information as noted last quarter, we continue to fortify our governance risk and compliance or G. R. C practice, which leverages, our commercial and government cyber security resources.
Speaker Change: To support our commercial industry clients in the fourth quarter. Our G. R. C consultants partnering with a medical technology company to help them achieve high Trust certification.
Speaker Change: Our client was looking to achieve this cyber security certification, which combines regulatory and industry standards by year end.
Speaker Change: Our combined commercial and government team seamlessly collaborated with our clients quickly developing the domain knowledge needed to achieve the high trust certification and prompting our client to extend our engagement into 2020 five or ongoing advisory support.
Speaker Change: Also during the quarter, we were engaged by a technology company to establish a center of excellence to streamline the onboarding of various retailers onto their platform.
Speaker Change: By identifying Onboarding commonalities.
Speaker Change: Eloping best practices and addressing procedural anomalies are.
Speaker Change: Our solution architects collaborated with our clients to create a gold standard for retail.
Speaker Change: <unk>.
Speaker Change: As this project continues we will create more automation surround the monitoring compliance and securing of sensitive data.
Speaker Change: Importantly, as the creator of this center of excellence, we've become an integral part of our clients' professional services organization, assuming responsibility for the onboarding of their retail partners.
Speaker Change: Our I T consulting solutions create efficiencies that help our clients deliver more value to their customers, while also improving outcomes for their internal teams.
Speaker Change: A fortune 500 energy company test, our AI consultants with developing a cutting edge conversational Gen AI chat bot custom built and Microsoft deserves cloud.
Speaker Change: This multi year gestation application provides a real time I T support via a connection back end knowledge repositories that empower our chatbot to troubleshoot a wide range of technical issues in record time.
Speaker Change: When the chatbot cannot independently resolve the I T issue. It seamlessly integrates with service now to create a ticket ensuring an efficient and timely resolution.
Speaker Change: What will likely be several quarters before we see enterprise wide applications of jenney, a many companies like our energy clients are implementing targeted AI models that focus on high impact use cases to improve efficiency reduce costs and provide deeper data insights.
Speaker Change: As we evolve our business, we're not only upscaling our teams and the latest Chennai applications, but we're also strategically partnering with industry leaders.
Speaker Change: Knowing that these tech partnerships are integral to our continued success.
Speaker Change: Thus far today I've highlighted projects in which our consulting teams are partnering with Amazon Web services, Microsoft Azure and service now each of which amongst other tech innovators comprised our core group of technology partners as.
As we enter 2025 I am pleased to welcome more and more technology partnership to that list workday.
Speaker Change: As I noted at the beginning of the call a S T and signed a definitive agreement to acquire top block a leading high growth Tech enabled workday consultancy.
While Marie will provide further details on the acquisition financials I'll focus my commentary on our strategy and market opportunity.
Speaker Change: Recognizing a growing customer demand for ERP implementations and related services, we identified workday a leader in enterprise cloud applications with over 60% of the Fortune 500 as customers. This led us to top block accompany purposefully built to partner with the workday platform.
Speaker Change: An industry innovator top blocks team of over 500 consultants leverage a proprietary deployment model that accelerates customer time to value. In addition by increasingly incorporating AI into its offerings top block improves efficiency for its customers and differentiate its implementation.
Speaker Change: Some processes.
Speaker Change: Beyond the initial implementation of Workday top block also provides post deployment services that foster long term customer relationships.
Speaker Change: With more than 300 workday installations over the past five years top blocks consultants are well positioned to gain immediate scale in the ERP market, which workday has identified it's 160 billion in size and growing.
Speaker Change: We anticipate top blocks innovative solutions will seamlessly integrate with our commercial consulting customer base as well as provide significant opportunities within the federal government sector.
Speaker Change: Speaking of our government customers, let's now turn to our federal government segment, whose services include advanced I T solutions for the Department of Defense, the intelligence community and other critical agencies that support our national security.
Speaker Change: The federal government segment win rate remained robust for the fourth quarter at approximately 90% for a recompete contract.
Speaker Change: Although revenues fell below expectations predominantly due to the lower than expected software licenses net new contract awards.
Speaker Change: 283 million put our book to Bill at one <unk> times for the quarter and back to our target of one one times on a trailing 12 month basis.
Speaker Change: In addition to booking strength at year end contract backlog was over $3 1 billion or a coverage ratio of 2.5 times the segment's trailing 12 month revenues.
Speaker Change: Discuss into backlog and thus indications of future performance lead me to a topic gaining a lot of attention of late that of the new administration spending initiatives and in particular, the department of government efficiency or does.
She has been tasked with modernizing federal technology and software, including upgrading network I T systems, ensuring data integrity and facilitating responsible data collection all with the end goal of maximizing governmental efficiency and productivity.
Speaker Change: While it's still in early days, we believe that his priorities could lead to an increased emphasis on our core solutions and capabilities and AI cyber security and digital modernization services, which comprise the vast majority of our federal government revenues.
Speaker Change: Alongside the solutions, we offer the agencies. We support are also strongly aligned with the government's budget priorities.
Speaker Change: Two thirds of our federal government revenues are derived from contracts with the department of Defense intelligence agencies, and the department of Homeland Security.
Speaker Change: The remaining one third of revenues comes from more high end IC business operations and modernization services for civilian and state and local agencies. This includes cloud data management and cyber security services, all aimed at automating and modernizing governmental processes.
So let me provide a few examples of contracts we won during the fourth quarter that further underscore our commitment to upgrading and enhancing government I T infrastructure.
Speaker Change: For the U S. Navy, we were awarded additional work on an existing defense and intelligence contract in which our teams are providing data center management to two Navy installations, one in Norfolk, Virginia, and the other in Coronado, California as part of this new fixed price contract we will support.
Speaker Change: The Navy secure global public safety network and manage their data center, which provides essential naval business functions worldwide.
Speaker Change: Beyond defense and cyber security. We are also seeing sizable bookings to support health care. It modernization in December we were awarded our first task order under a four year Prime contract with the department of Health and human services by providing program and financial management services, we will assist.
Speaker Change: The advanced research projects agency for health to address scalability and global supply chain challenges to increase the efficacy and productivity up their future programs.
Speaker Change: As we improve efficiency for our government clients. We also continue to invest in our own technological capabilities for instance for the past two years, we've been building a differentiated solution at the intersection of AI and cyber security.
Speaker Change: This solution helps organizations identify and prioritize remediation of security vulnerabilities using advanced mathematical AI models.
Speaker Change: Our clients and our internal cyber security team time, and money and the protection against cyber attacks.
Speaker Change: In addition, during the fourth quarter, we successfully deployed an in house AI platform that enhances our business development capture and proposal workflows, we plan to expand the use of this platform to other operational workflows throughout 'twenty 'twenty five in order to drive measurable gains in <unk>.
Activity and quality for our internal teams and our costs.
Speaker Change: With that I'll turn the call over to Marie to discuss our fourth quarter results in our first quarter 2025 guidance.
Marie: Thanks, Ted it's great to speak with everyone. This afternoon for.
Marie: For the fourth quarter revenues totaled 985 million a decrease of eight 3% year over year, but essentially flat to the third quarter on the same number of billable days.
Marie: Revenue from the commercial segment were $692 7 million a decrease of seven 5% as compared to the prior year assignment revenues totaled 408 million a decline of 15% year over year due to continued softness in the more cyclical portion of our commercial.
Marie: Yes.
Marie: Revenue for the commercial consulting the largest of our high margin revenue streams outpaced our expectations and totaled $284 7 million up 6% year over year and flat sequentially.
Marie: Revenues from our federal government segment were $292 3 million a decrease of 10, 2% year over year.
Marie: When we prepared our guidance for the fourth quarter, we anticipated we would have a consistent level of software licenses year over year as Ted noted license revenues were lower than our expectations by approximately $20 million to $30 million for the quarter.
Marie: Lower license revenues as well as the delay in certain research and development projects due to the continuing resolution led to the revenue shortfall for the quarter, our commercial segment on the other hand outperformed our expectations.
Marie: Turning to margins gross margin for the fourth quarter of 'twenty 'twenty four it was 29% an increase of 60 basis points from the fourth quarter of last year and exceeded our expectations gross.
Marie: Gross margin for the commercial segment was 32, 6% up 50 basis points year over year, reflecting a higher mix of consulting revenues as well as margin expansion in these revenues.
Marie: Gross margin for the federal government segment with 25% at 60 basis points year over year, primarily due to higher mix of fixed price and time and materials contracts.
Marie: SG&A expense for the quarter was $197 9 million compared to $203 6 million in the fourth quarter of 'twenty twenty-three SG&A expense also included $1 9 million in acquisition integration and strategic planning expenses not included in our guidance.
Marie: Yes.
Marie: For the fourth quarter net income was $42 4 million adjusted EBITDA was $109 7 million and adjusted EBITDA margin was 11, 1%.
Marie: Adjusted EBITDA margin also exceeded our guidance expectations for the quarter due to the outperformance of our commercial segment, which resulted in a higher mix of commercial revenues and.
Marie: In addition to this favorable business mix, we saw the expansion of margins within the commercial consulting revenues for the quarter.
Marie: At quarter end cash and cash equivalents was $205 2 million, we had full availability on our 500 million senior secured revolver and our net leverage ratio was 1.86 times.
Marie: Free cash flow was $88 9 million for the fourth quarter, our conversion rate of approximately 81% of adjusted EBITDA.
Marie: In the quarter, we deployed $43 9 million to repurchase one 5 million shares at an average price of $90.45.
Marie: On a full year basis free cash flow totaled $364 7 million also a conversion rate of approximately 81% of adjusted EBITDA.
With active share repurchase in the first three quarters of the year, even with the slowdown in Q4 repurchases in advance at the due diligence for the top block acquisition in 2024, we deployed $327 2 million to repurchase three 5 million shares.
Marie: At an average price of $94 and six that.
Marie: We have approximately $529 million remaining under our $750 million share repurchase authorization.
Marie: Our strong free cash flow provides a strategic advantage that enables a S T and to find key growth initiatives opportunistically repurchase shares and invest in strategic M&A, all while maintaining a healthy balance sheet by following a disciplined and balanced approach to capital allocation, we can invest in.
Marie: In high return opportunities and prudently manage our leverage driving sustainable long term value to our shareholders.
Marie: As Ted mentioned earlier, we signed a definitive purchase agreement to acquire top lot for 340 million, consisting of 90% cash and 10% equity the acquisition, which remains subject to HSR approval is anticipated to close late in the first quarter post close we anticipate our net leverage.
Marie: Ratio will be approximately two four times after borrowing approximately $200 million on the revolver related to the acquisition.
Marie: With our acquisition of Tokbox, we will begin to allocate free cash flow towards paying down the revolver.
Marie: Turning to guidance, our financial estimates for the first quarter of 2025 are set forth in the earnings release and supplemental materials. These estimates are based on current market conditions and it seems 62 billable days in the first quarter, which is 0.75 fewer than a year ago period.
Marie: And one day more in the fourth quarter.
Marie: Our first quarter guidance incorporates three main considerations first small business optimism is improving we expect market conditions and demand for our services in the first quarter of 'twenty 25 will be similar to that in the fourth quarter of 2024.
Second with.
Marie: With regards to EBITDA margin the first quarter typically sees approximately 100 basis point decrease sequentially related to the annual payroll tax reset.
Marie: Third.
Marie: Our first quarter guidance does not include contribution from talk lot.
Marie: For the full year 2025 top bucket is expected to generate approximately 150 million of revenue, which represents year over year revenue growth in excess of 20%.
Marie: We anticipate roughly nine months of Tokbox full year revenues will be incorporated in our 2025 financials, given the timing of the close.
Marie: <unk> also anticipates EBITDA margin in the high teens for 2025.
Marie: With this background.
Marie: For Q1, 2025, we are estimating revenues of $950 million to $970 million net income of $27 8 million to $30 7 million and adjusted EBITDA of 91 million to 95 million and adjusted EBITDA margin of nine 6% to nine.
Marie: 8%.
Marie: Thank you I'll now turn the call back over to Ted for closing remarks.
Ted Hanson: Thanks Marie.
Speaker Change: As I mentioned at the start of the call at the beginning of March our current President ran blazer will be transitioning to the role of executive Vice Chairman.
Speaker Change: In rands place as precedent, we're thrilled to welcome ship ire formerly of Accenture.
Speaker Change: Over the past 12 years Rand has played a pivotal role in driving Astm's impressive growth and transformation is leadership in conjunction with our broader executive team has been key and evolving S. T N from a diversified staffing player to a top tier provider of higher and high value services.
Speaker Change: Brand is not only spearheaded our go to market strategy, but he has helped to elevate the quality of our broader leadership team prioritizing their development and success.
Speaker Change: As both my long term colleague and close friend I'm very grateful for his continued involvement with I S. T N and for the strong Foundation. He has helped build for our company.
Speaker Change: And Ray and his new role he will advise the S. T on key strategic initiatives, while helping ensure a seamless handover in leadership to ship.
Chip: Chip brings over two decades of consulting experienced a S. T N at having most recently led accenture consulting in industry X solutions across the Americas.
Chip: His experience, leading large scale consulting businesses in combination with his industry and M&A expertise make him an excellent fit for E. S. P. N. As we continue to move up the I T services pyramid.
Chip: I am confident that shift will help propel our company to new Heights, and we are very excited to have him on board.
Chip: We look forward to having shipped join us on our first quarter 2025 earnings call in April.
Chip: As we wrap up our prepared remarks I'd like to reflect on some of the most important points. We covered today, we're committed to building a S. GM for the future and continue to position our business towards higher end high value I T consulting services and solutions, we are achieving our long term goals through the <unk>.
Chip: Expansion of our I T consulting revenues bookings and margins the introduction of new leadership as just discussed and the addition of strategic tuck in acquisitions, such as top plot solutions can be sold across our commercial and government customer base.
Chip: Additionally, we maintain a robust portfolio of enterprise and federal government clients in six key industries to whom we offer innovative solutions aligned with the demand for cost savings and efficiency.
Chip: Of note, we demonstrated strength in the TMT vertical throughout 'twenty 'twenty, four and as we exited the year, we began to see improvements with our big banking clients, which are some of the biggest investors in information technology as business confidence definitely increases we are certain that we have strategically positioned our business.
Chip: For sustained growth.
Chip: Before opening up the call to questions I'd like to extend our deepest sympathies to our Los Angeles teammates and their families impacted by the recent wildfires.
Chip: Our thoughts are with all of those impacted and we are committed to supporting the affected communities. During this difficult time.
Speaker Change: I also want to thank everyone at a S. Yearn for your dedication and hard work this past year.
Speaker Change: Together, we move forward into the new year with a collective determination to advance a S T N toward even greater success.
Speaker Change: Thank you again for joining our fourth quarter and full year 'twenty 'twenty four call operator, please open the call to questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd 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 to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please.
Speaker Change: Call for questions.
Speaker Change: Our first question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.
Jeff Silber: Thank you so much wanted to focus first on federal government not surprising them can we get a little bit more color in terms of the types of conversations that you're having with folks I'm. Just wondering I know, it's still early but what are they saying about what the potential impacts might be in the new administration.
Speaker Change: Yeah, Jeff Thanks for the question.
Speaker Change: I think frankly, everyone in that marketplace is trying to figure out exactly.
Speaker Change: Exactly what the impact might be.
Speaker Change: Even our clients who are still trying to learn there's just a lot going on and then things are breaking.
Speaker Change: You know here by the hour and the day.
Speaker Change: If I sit back and look at our portfolio of business.
Speaker Change: If you think about services and cyber AI data cloud I T modernization those are all things that the government.
Speaker Change: As in high need of and it's gonna be durable here and while there may be some bumps in the road here a week to week month to month quarter to quarter as we work through what's going on with the New administration that does obviously the answer for the federal government long term is to modernize systems to take advantage of.
Speaker Change: All it seemed to be a more efficient and then if you think about our customer set.
Speaker Change: The Intel Oh.
Speaker Change: Hamlin.
Speaker Change: Security and Justice is about two thirds of our revenue.
Speaker Change: If you add to that the cyber work, we do in commercial and sled.
Speaker Change: I don't know government units all of a sudden you're at greater than 75% and again, we think those things are fairly durable.
Speaker Change: But I would not ignore the fact that there.
Speaker Change: A lot of arm waving going on in that marketplace right now and set a pea for us is to stay close to our customer.
Speaker Change: And to help them. If you will in terms of bringing services that help automate a use technology modernize their operations. So that they can ultimately protect us and also be more efficient and productive.
Speaker Change: Alright, that's helpful.
So beyond the I guess, you called that arm waiting and have you seen any slowdown either in terms of awarding contracts are paying contractors I'm just wondering with all the disruption that's going down there. If it's just business as usual if there's all there's been some issues already.
Speaker Change: Yeah. So I think it's too early to say is there a slowdown in payments, we haven't seen that so I would say.
Speaker Change: No sign of that right now as it relates to New awards. It's a mixed bag. If you will by area of the government and customer we've actually won some things here.
Speaker Change: And the recent a couple three weeks.
Speaker Change: We were waiting on which is a positive sign I think in other areas. Obviously, there is an edict out there in certain agencies a pause on the award of new work or new Rfps and so we're watching that closely so I'd say, it's a little bit agency by agency, but we're seeing.
Seeing a little bit about some new awards and some slowdowns.
Speaker Change: Okay. Appreciate the color. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Trevor Romeo with William Blair. Please proceed with your question.
Trevor Romeo: That's an N team. Thanks, so much for taking the questions first just wanted to say random, but great working with you best of luck in the new role.
Trevor Romeo: Also look forward to working with sugar as well and then in terms of questions.
Speaker Change: First one is on the top block seems like will be nicely accretive to growth and margins just kind of wondering from a strategy perspective.
Speaker Change: Love any thoughts you have specifically on the workday ecosystem, how you evaluated the long term opportunity in kind of a strategic importance. There and then maybe what kind of potential synergy opportunities could you see materializing with your existing business.
Speaker Change: Great well I'll start and I'll, let Rand jumped at it first of all Trevor you can say goodbye to ramp yeah, obviously, it's gonna be here, which we're excited about it.
Speaker Change: Combination of brand ramp being here with all his institutional knowledge and deep experience.
Speaker Change: And the sector combined with ship now coming with his background and our existing leadership team across our commercial and federal units. I mean, we're just really adding strength here. If you will to the leadership team as we go forward.
Speaker Change: On the top line question you know we talked about this as we communicate with you.
Speaker Change: Think about capital allocation M&A, the right strategic M&A has been the highest and best return of.
Speaker Change: Of invested capital for our shareholders, we still see that and we see it in this case.
Speaker Change: We have a shopping list if you will which are our solution capabilities that we see our customers are indeed up today and in the future. So that's a great.
Speaker Change: Go buy if you will for what needs to be at the top of our list and enterprise our enterprise system capabilities.
Speaker Change: Specifically in Workday was one of the few things at the top of the list. So.
Speaker Change: As always we're working the market developing pipeline in these areas.
Speaker Change: And think that there's a lot of room to go for top block.
Speaker Change: It's in the mid market, which is a lot of its customer base and then the enterprise, which is a lot of our customer base in commercial and for the federal government, which is obviously a big initiative of Workday overall, I think workday here on their last earnings reported about 15% growth.
Speaker Change: Year over year. So there is certainly strong demand.
Speaker Change: For their software.
Speaker Change: And then I think last I would just say if you think about the world in terms of where we're going with data and AI.
Speaker Change: The ERP systems.
Speaker Change: Our house, both financials and human capital management really own the data set if you will inside of our large enterprise accounts and so you know two to deploy AI.
Speaker Change: Effectively across an organization you've got to have access and expertise around the data and enterprise system and our view of data and AI, where we'd like to do with it. We felt like this was an important capability. If you will in that way as well. So it was really all of those things and then as we all.
Speaker Change: We say you know it has to be accretive to growth, which this obviously is it has to be accretive to our margin profile.
Speaker Change: This definitely is and we like that.
Speaker Change: You know, we think we've got one of the best businesses in the eco workday system to partner with now.
Speaker Change: And it's only going to be a much bigger business in the future because of our combined efforts.
Speaker Change: Excellent well, thanks for that color Ted.
Speaker Change: And then.
Speaker Change: And my second one I guess, just maybe one on sort of the overall demand client budget environment in commercial I think Ted you did mention the increase in business confidence and I think we've all kind of seen in the last few months.
So are you starting you know there's still a lot of uncertainty out there, but are you starting to see any initial signs of improving activity or willingness to take meetings or anything like that.
Speaker Change: This acceleration in your bookings this quarter or is it just too early to say or are you actually starting to see any encouraging signs at this point, yeah, I'll, let Brian take that one Randy you want to take that.
Speaker Change: [laughter] well listen I think we do we look at a number of markers. We look at backlog, we look at our pipeline, we look at the bookings and where the bookings are coming we look at the sectors, which Ted pointed out in your earnings call, where we're seeing sequential growth.
Speaker Change: We look at.
Speaker Change: Generally our activity levels and and the flow of business, which maybe not has yet.
Speaker Change: Ladies into revenue, but we can see the precursors for that so that's what gives us confidence and it's come in in certain sectors. As Ted mentioned that we know are good bellwethers for it spend financial services wanted them. So.
Trevor Romeo: Do you sense Trevor.
Trevor Romeo: The plethora of things we look at.
Speaker Change: Yes. Thank you round out that was helpful really appreciate it guys. Thanks.
Trevor Romeo: Mhm.
Trevor Romeo: Thank you.
Trevor Romeo: Our next question comes from the line of Joseph.
Speaker Change: Canaccord. Please proceed with your question.
Speaker Change: Everyone. Good afternoon, thanks for the questions on land Ah Congrats.
Speaker Change: We're going to Miss you on these calls and she is a welcome on board as well.
Speaker Change: Maybe we can kind of I know, we've been talking about financial services here for Beth maybe we drill down into it a little bit and maybe it would be interesting kind of at a high level I mean, you're kind of talking about big banks.
Speaker Change: If we kind of rewind the clock kind of them.
Speaker Change: Normalized environment, we were in kind of.
Speaker Change: Where it was you know big Bank mix and you know that vertical versus where it is now just trying to get a feel for you know kind of how much upside there is back to a normalized level. There and then I'll have a follow up.
Speaker Change: So Joe if you think that.
Speaker Change: Obviously, when we got into a at the end of 'twenty two.
Speaker Change: Things began to decelerate.
Speaker Change: Big Tech was the first one down.
Speaker Change: Financial services, and big banks, not too far thereafter.
Speaker Change: Positioning more defensively, obviously for what they thought it might be a recession in the economy.
Speaker Change: During the course of 'twenty 'twenty four is returned.
Speaker Change: Now now financial services and Big banks look like there.
Speaker Change: Have bottomed out and we're starting to see a little bit of a tick up here.
Speaker Change: It typically of our commercial business.
Speaker Change: I don't have this in probably ramp, but it would've been 20% to 25% of the revenue mix about correct about <unk> 20 in the low twenties mhm right.
Speaker Change: So it's obviously in the high teens right now of commercial Joe just to put it in perspective and 15%.
Speaker Change: The total <unk> revenues.
Speaker Change: And maybe that gives you order of magnitude.
Speaker Change: Sure that's that's very helpful.
Kevin: Thanks, Kevin wrap on that and then some.
Kevin: And I want to kind of just looking at the business you know a little more broadly obviously, it's great to see the consulting bookings continue showing resilience.
Kevin: But kind of looking at the broader business.
Kevin: It kind of feels like maybe we should have seen some of the assignment business, which is a leading indicator start to.
Kevin: Start to have you know a little more sequential strength.
Kevin: Just wondering if youre seeing kind of a structural change in the market out there where you know maybe firms are going to be your clients are gone up maybe up for more consulting revenue.
Kevin: Not kind of lean on you know the assignment side of the business as much.
Kevin: In this cycle versus others. Thanks, a lot.
Kevin: Yeah, well, Joe I mean, obviously, we've talked about this a lot in prior cycles.
Kevin: The it staffing.
Kevin: And the creative digital marketing staffing that's allowed US up here is theres been a return.
Kevin: The rep flow would tell you.
Kevin: It kind of built into the through the fourth quarter.
Kevin: The I'll call it the need from clients is there, but theres a little bit of a lead lag to it. So we just havent quite seen that yet.
And then structurally has something changed I mean, I think we'll have to watch that and see.
Kevin: <unk>.
Kevin: I don't think that's our sense anything structurally has changed but obviously, we're positioned for any kind of change I mean, we're here to serve them. Both on this on the <unk>.
Kevin: Staffing and creative digital side and on the consulting side.
Kevin: Yeah.
Kevin: You may remind people that we typically see a falloff of business revenue do we go from Q4 to Q1 of about 4% I think we've said many times in the past. So some of that is just people ending the first year the.
Kevin: Previous year of work and then you have to gear up and start the second year and the following years. So we're going through that lead lag process right now, but I think as you said Ted our wrap flows is generally a positive can be certain sectors and sale.
Ted Hanson: Yes, I think that's a good thing to point out broadly from if you went back and looked at last year Q4 to Q1. If you look at this year Q4 to Q1 something in the low to mid single digits as a normal kind of.
Seasonable reset from the fourth quarter ended the first.
Ted Hanson: Sure great Thanks for that color.
Ted Hanson: Yeah.
Ted Hanson: 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 and Ryan Thank you for your service.
Speaker Change: And continued service.
Speaker Change: Hey, I wanted to I guess.
Speaker Change: Couple of quick questions just on the top block acquisition interested tend to some quick math I don't know if the revenues of about 150 million and I think you said 500 consultants.
Speaker Change: That imply you know maybe a build rate of about.
Speaker Change: 150 to $200 an hour is that a fair way to think about it in terms of what the bill rates go off at.
Speaker Change: That would be that that would be the math of it Kevin we're not going to disclose bill rates and somewhat not today here going forward, but obviously, there's the math there that you can do and it's probably you're probably.
Speaker Change: Probably in that range.
Speaker Change: Okay. Thanks, and then I guess.
Speaker Change: Yeah.
Speaker Change: With the acquisition and in the leverage loan on our balance sheet does that impact the buyback at all going.
Speaker Change: Going forward.
Speaker Change: Well look I think we can we we obviously at today's size and scale are don't have to exclusively follow one path I mean, we'll be focused on deleveraging.
I think Murray our leverage post transaction is four times two point for them in that basis Thats right right. So it's modest.
Speaker Change: Based on where we've been historically, we've always said that we are below two and a half.
Speaker Change: We can.
Speaker Change: Pursue whenever the next capital allocation activity is whether that's repurchasing shares towards acquisitions. So we've only got a couple of quarters here of needed free cash flow to work into the Delever. So I would expect you'll see us pursue both but it will depend on.
Speaker Change: What's the best allocation of that next dollar of capital.
Speaker Change: That's helpful.
Speaker Change: And I guess.
Speaker Change: In terms of the federal business that you have.
Speaker Change: It sounds like if there was anything relative to expectations in the quarter that it didn't come in it was was it the license sales and the fed.
Speaker Change: Side is that right.
Speaker Change: And just remind us what percentage of that can you just remind us what percentage of the federal business is license versus managed services versus consulting.
Speaker Change: Yes, so we don't release that number Kevin, but the Miss on revenues was solely.
Speaker Change: You know that unexpected realization of the software licenses.
Speaker Change: Specific to a client it was $20 million to $30 million of revenue.
Speaker Change: And so obviously, we still delivered on the bottom line that stuff carries very little margin to it.
Speaker Change: Software license stuff can be a little whimsical, but.
Speaker Change: That was the that was the only thing behind the Miss on the revenue side.
Speaker Change: And again with that was that a federal license.
Speaker Change: Correct.
Speaker Change: Licenses associated with some of our it.
Speaker Change: Work some of our cyber work.
Speaker Change: Some of our other it modernization work and so the client determines when theyre going to pull on those as needed. They were a part of the implementation and then there are part of the obviously the ongoing.
Speaker Change: Use of the system.
Speaker Change: Understood It and again not to and it has to be my last question, there's a lot of questions about it.
Speaker Change: And that had anything to do with some of the pause at the federal level.
Speaker Change: Okay.
Speaker Change: Not related.
Speaker Change: And I, probably mentioned Ted you should probably mentioned that sometimes the contracting officer prefers to go direct to the vendor for those licenses and going through some intermediary like us and we see that maybe more of the trends in anything.
Speaker Change: And what what would determine that ran whether your directors to you.
Speaker Change: They they can get they can save a little bit of margin, perhaps you know on the pass through or it's really a question of how they want to buy and maybe who the different procuring agents or what could be workload internal workload. I mean, there are a lot of factors would probably play into how they make their decision, but I think that.
Back to the point I think you can read into it they decided to go directly by the license instead of through US. That's what's happened in the recent and I don't think that's a matter of any slowdown or anything else. It's just.
Speaker Change: Different different path for procurement.
Speaker Change: Okay understood.
Speaker Change: Got it okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tobey Sommer with through Securities. Please proceed with your question.
Speaker Change: Thank you.
Tobey Sommer: I was wondering if you could dig in and give us a little bit more color on your fed Shiv exposure within the ECS government business.
Tobey Sommer: I know when we think about it from an activity basis, you do provide higher end cloud Ikea modernization et cetera, but.
Tobey Sommer: Somebody was probably providing some of those services that are objectively.
Tobey Sommer: Fishing, you driving services at USA I D and everything is passed there. So could you give us little more color and granularity on the civil side.
Tobey Sommer: You know probably the best way Tobey to speak about it is.
<unk>.
Speaker Change: You know there is not any client in that group, that's more than single digits of revenue and it's fairly dispersed.
Tobey Sommer: It really doesn't cover.
Tobey Sommer: Many if any of the regulatory agencies.
Tobey Sommer:
Tobey Sommer: Without getting into too much detail I mean, I think I think obviously any any of these agencies could be exam.
Tobey Sommer: Examine but those but.
Tobey Sommer: But I think we don't have a concentration of revenue even in the 33% that we would call that civilian and honestly, it's really only.
Tobey Sommer: 10% of that as I mentioned early areas commercial and fled so really youre down to about 23% of that and so.
Tobey Sommer: There's no concentration and it's all higher and it modernization cyber security data and AI cloud work and.
Tobey Sommer: While we don't know what we don't know.
Tobey Sommer: I think whereas about as well positioned as we can be.
Tobey Sommer: Vis vis the services there.
Tobey Sommer: The revenues.
Tobey Sommer: Could you talk to us about the the deal how you.
Tobey Sommer: Came to know.
Hum.
Tobey Sommer: It wasn't an auction process and how did our equity you become a component of.
Tobey Sommer: The value.
Tobey Sommer: Sure It was.
Tobey Sommer: Firm that we had met.
Tobey Sommer: And new.
Tobey Sommer: A couple of years ago.
Tobey Sommer: Actually at the same time, we were making our cloud fast acquisition and we at that time prioritize service now.
Tobey Sommer: The very top of our list.
Tobey Sommer: We've been watching this firm we've got re engaged with top block here.
Tobey Sommer: In the last number of months going back to the middle of last year.
Tobey Sommer: We've seen their progress you know obviously, our list had been refined to polished and workday kind of stood up there with a couple of other things at the top of the list.
Tobey Sommer: It was.
Tobey Sommer: A minority ownership by a private equity.
Tobey Sommer: And there are partners that has the majority of the ownership so still founders in the business.
Tobey Sommer:
Tobey Sommer: And we.
Tobey Sommer: We when we thought about the.
Tobey Sommer: The mix of proceeds and how to go about that we felt like.
Tobey Sommer: Having a little mix of equity and there would be.
Tobey Sommer: The right alignment if you will between that firm in the us.
Tobey Sommer: So it wasn't too much more than that.
Tobey Sommer: Okay.
Tobey Sommer: One follow up on the software licenses.
Tobey Sommer: Since they there can be like.
Tobey Sommer: Variability in how the customers procure those.
Speaker Change: Have you included software licenses in your guide is it at all.
Speaker Change: Lower level than would have been typical historically just any.
Speaker Change: Anything you can give us there.
Yes, and yes, there is a little bit in our guide it's lower than it would historically be and there's no bulk purchases in that number it's fairly despair.
Speaker Change: Okay.
Ted Hanson: So I'm curious from a big picture standpoint, Ted.
Ted Hanson: The industry and the company had three years of revenue declines what what actions have you taken strategically to be.
Ted Hanson: Be able to grow more quickly and sort of strengthen the organization once demand increases and I'll put top blocks to the side for now because we've discussed that almost all of it.
Ted Hanson: Yeah, well look I mean, I think the top block is one example of things that we've done here, which is to really.
Ted Hanson: Only in build more strength and muscle in our solution set so that we are there ready for what our customer needs today and in the future so more sudden than ever.
Ted Hanson: There is a strength and solution capabilities that lives up with what our customers need even if the revenue isn't quite there today, that's the thing that I would say.
Ted Hanson: Furthest on.
Ted Hanson: Over the last two to three years.
Ted Hanson: The other thing is we're kind of honing in and I've put this with solutions strength, but a collaboration between our federal.
Ted Hanson: Units in our commercial units because theres, some things that federal we do really well in AI data and cyber security at the top of that list.
Ted Hanson: And so I would say the biggest thing would be.
Ted Hanson: That just <unk>.
Ted Hanson: <unk> to build that solution strength here, Brad would you add anything else.
Brad: Well I will because you had it in the remarks, Toby if you don't mind, our alliance relationships with the Big technology players has gotten a lot stronger in the last two years, where we have not just support to our technical strengths solution strength, but also lead flow strengths.
Ted Hanson: The.
Ted Hanson: Second thing I had mentioned it really comes first and foremost is to continue to stay focused on the great set of accounts the right set of accounts within the segments of the marketplace. We think are growing and the productivity of our team both in the client space as well as in our solutions and back office team. So.
Haven't missed a beat in terms of productivity as you can see by our margins.
Speaker Change: <unk> maintained first and foremost focus on these accounts and stay with them. So when they returned to spend and need need US were there and then yes, as Ted said strengthening solutions strength in internal it and strengthening alliance relationships.
Speaker Change: Last question for me could you how did creative circle perform in the quarter, how big growth compare to the rest of the assignment business.
Bill: Yeah. Thanks Bill.
Speaker Change: The cyber I'd say that.
Speaker Change: The cyber coders, which as most of our Perm placement at creative circle together about 9% of the revenue mix now are down more than our.
Speaker Change: IP offering.
Speaker Change: So so think about that as kind of low to mid teens.
Speaker Change: On that side and that's been kind of consistent with where we were so not much change there.
Speaker Change: Although I will say tobey in those areas. We are seeing some of the same good leading indicators.
Speaker Change: Within those two.
Speaker Change: Right.
Speaker Change: That we're seeing.
Speaker Change: Overall in the IP, Eric commercial IP areas that Ray mentioned earlier.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Mark Morris along with Baird. Please proceed with your question.
Speaker Change: Hey, good afternoon, Thanks for taking my questions Randy Congratulations on.
Speaker Change: On the new position and really glad to hear that youre going to continue to be part of the organization and hopefully actually joined the calls as well.
Speaker Change: And then.
Speaker Change: Sure.
Speaker Change: Welcome to T cells.
Speaker Change: You've been doing a great job on the margins.
Speaker Change: Despite the challenging environment, how much excess capacity do you currently have and can you give us an update with regards to the.
Speaker Change: Internal head count in terms of where it stands today relative to a year ago.
Speaker Change: Well look Mark our head count is pretty steady right now you know it's down a little from where it was last year, but our capacity is there I mean in and we're seeing it I mean look you can see it here in the numbers I mean, our bookings were up.
Speaker Change: 23% zinc.
Speaker Change: <unk> from the third quarter to the fourth and commercial.
Speaker Change: They were up about 12% year over year.
Speaker Change: And our team still is able to absorb this and.
Speaker Change: <unk> positioned ourselves to begin to work here as we get into the first quarter end.
Speaker Change: We're not seeing a capacity problem if you will.
Speaker Change: Great.
Speaker Change: I didn't think you'd have a problem I just meant from the perspective of you know if business really picks up how much excess capacity do you have or are you going to need to add head count.
Speaker Change: Microsoft.
Speaker Change: Well look obviously at some point, we will return to adding head count today.
Speaker Change: Today like I said were pretty steady, but we've got capacity and I think you'll you know again the other thing that's going to happen here as we go Mark issue.
Speaker Change: Hopefully as these leading indicators show if we begin to get a steady pick up here in commercial youre going to see our EBITDA or gross and EBITDA margins inflect up.
Speaker Change: Overall, because of the mix of business, where for the last few years the commercial has been in.
Speaker Change: More of a decline in the federal.
Speaker Change: It comes at a slightly less margin so you'll see in our business mix impact youll see that turnaround of the year.
Speaker Change: You know as we go forward.
Speaker Change: Great and then you're not kidding.
Speaker Change: The guidance, but I'm just wondering should we kind of expect the same level of decline in the government side.
Speaker Change: In the first.
Speaker Change: First quarter does this so much uncertainty out there I just wanted to see if there's a.
Speaker Change: A rough range that you could.
Speaker Change: Pegasus down with regards to the government side.
Speaker Change: I mean look I think we've given you are our guide is is based on everything we see today Mark you know what could happen here in that marketplace.
Speaker Change: We're not aware of anything that's in our guide that's going to be problematic.
Speaker Change: But at the same time, there's just still a lot moving moving around there so.
Speaker Change: We've scrubbed our guide pretty hard to that then I couldnt bracket. It for you because I don't think anybody knows what they know.
Speaker Change: Okay, and then pop block.
Speaker Change: The graphs on that.
Speaker Change: I've followed workday for.
Speaker Change: Prior to the IPO, so I know them fairly well in terms of top block specifically.
Speaker Change: What do you know, which exact sectors. There the most focused on with regards to implementations and how much of the business do they have is kind of a recurring versus purely implementations.
Mark Morris: So mark there.
Mark Morris: Their market is it cross the same diverse industries that we serve so that's a positive.
The one place where they've done less which obviously we have the position is in the federal government and as you know.
Mark Morris: Following workday like you do that's a big initiative, if you will inside of.
Mark Morris: Inside.
Mark Morris: As a as an end customer.
Mark Morris: The piece of the market they serve that would say our general market up too.
Mark Morris: The.
Mark Morris: Bottom half of the Fortune five fortune 1000, so call. It Fortunately 600 to 1000, so between that group of players and large middle market accounts, they've got quite a.
Mark Morris: Quite a customer list and then their revenue has a nice mix of implementation work and then what I'll call post production.
Mark Morris: Services that range from.
Mark Morris: Production support.
Mark Morris: Helping to run various services and so they have a nice recurring revenue stream beyond just the one time implementation and that work is growing for them quite nicely.
Mark Morris: Great and then.
Speaker Change: Do you know if they are on boats finance as well as HR or just primarily EHR.
Mark Morris: Finance plus HR full suite.
Speaker Change: Excellent.
Speaker Change: That should be a really nice complement to what you're already doing with service smell and position you well.
Speaker Change: Hate to ask this question, but just because it keeps coming up.
Speaker Change: It's the tariff question, how how do we think about.
Enersys.
Speaker Change: And your Mexican delivery center is that.
Speaker Change: How how are you thinking about that just based on the chatter that's out there.
Speaker Change: Well based on what we know today and what we've seen in the past those type of services are not subject have not been subject to tariffs and the way that goods are.
Speaker Change: So on that front, that's a positive that's just new York right.
Speaker Change: Do you think about the need for technical talent.
Speaker Change: Here for U S based clients, obviously, everyone wants to maintain a competitive position here and have access to that talent. So you've seen a little bit of a conversation between big Tech and the new administration to make sure that pathway stay open.
Speaker Change: To offshore locations in order to continue to be able to access.
Speaker Change: Technical talent not just here in the U S, but all over the world. So that's that's a positive but tear and you know at the end I'll say you know tariffs can have an indirect.
Speaker Change: Back on all kinds of things that we could see costs rise in other parts of the world, where there is a tariff implemented but those are smaller indirect things and so I think for US we feel good about it right now, but we have to keep watching.
Speaker Change: All of this goes with the <unk>.
Speaker Change: And the new administration.
Speaker Change: Super Thank you.
Yeah.
Speaker Change: Thank you.
Speaker Change: And we have reached the end of the question and answer session I would like to turn the floor back over to CEO, Dan Hansen for closing remarks.
Speaker Change: Great well. Thank you operator, I appreciate I appreciate everybody's time and attention today.
Speaker Change: Our fourth quarter earnings release, and we look forward to speaking with you again in April to discuss our first quarter of 2025.
Speaker Change: Thank you and this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
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