Q2 2025 ASGN Inc Earnings Call
Greetings and welcome to the asgn Incorporated second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the form of presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host Kimberly, ikan, vice, president and vice relations. Thank you. You may begin.
Speaker Change: Good afternoon, thank you for joining us today. For asgm second quarter 2025 conference call with me, are Ted Hansen chief executive officer shiv president and Marie Perry Chief Financial Officer.
before we get started, I would like to remind everyone that our commentary contains forward-looking statements
Speaker Change: 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 States.
Certain of these risks and uncertainties are described in. Today's press release. And in our FCC filings, we do not assume any obligation to update statements made on this call.
For your convenience are prepared remarks and supplemental materials can be found in the investor relations section of our website at investors. Asgm
Speaker Change: Please also, note that on this call, we will be referencing certain non-gaap measures such as adjusted. Evida adjust, the net income and free cash flow,
Gap measures. Reconciliations between gaap and non-gaap measures are included in today's press release.
I will now turn the call over to Ted Hansen chief executive officer.
Ted Hansen: Thank you, Kim, and thank you for joining asdn. Second quarter, 20125 earnings call asgn reported solid results for the second quarter revenues of 1.02 billion were above the high end of our guidance range while just an IBA down margin of 10.6% was at the top end of our expectation. For the quarter, Our IT consulting revenues continue to grow reaching approximately 63% of revenues for the second quarter up from 57% in the year ago. Period.
Ted Hansen: Macroeconomic and certainly remains impacting. Discretionary spending still clients are focused on staying competitive driving demand for cloud and Data Solutions, to modernize Legacy systems and capitalize on AI. According to isg, indexes second quarter, 2025 call the demand for AI is overcoming macroeconomic distractions with companies actively investing in generative and agentic. AI deploying cost savings from other areas of their operations, we are experiencing this trend in our commercial Consulting. Bookings where we are seeing continued demand in data, Ai and digital engineering, including custom application and development.
Ted Hansen: Commercial Consulting. Bookings for the quarter total, 417.5 million translating, to a book to Bill of 1.2 times on a trailing 12-month basis. While bookings remain weighted toward renewals, we are increasingly winning larger, more complex, multi capability deals. As we advance our commercial practice areas and Technology Partnerships.
Ted Hansen: Our technology partnership with workday is progressing very well and top block, which continues to perform above our expectations. Contributed to growth of our commercial Consulting, bookings for the second quarter.
Ted Hansen: In our Federal Business new contract Awards totaled, 72 million for the second quarter or a book to build up 1.1 times on a trailing 12-month basis.
Ted Hansen: Contract awards were challenged as anticipated reflecting a slowness and award velocity and the impact of Doge on procurement and approval processes. New federal contract backlog was over 2.9 billion at quarter end, or a coverage ratio of 2.4 times, the federal segments trailing 12-month revenues
Ted Hansen: Despite lower Federal, quarterly bookings are core solution capabilities, and AI, cyber security and digital modernization remained. Well, aligned with the administration's efficiency cost savings priorities. In addition, the recently passed 1, big beautiful Bill represents 1 of the largest single-year increases in US defense.
Ted Hansen: Spending in modern history. Much of this funding focuses on our primary competencies, including Ai, and automation Cloud, migration secure Communications and threat intelligence platforms.
Ultimately a constant among this ongoing transformation is a critical need for skilled. It professionals case in point, isg estimates, that in the next year, 60% of Enterprises plan to expand their it resources to accelerate the capture of AI benefits.
Ted Hansen: Acn's distinctive model which delivers a broad spectrum of skill sets. Just in time on a contingent basis continues to set us apart and will enable us to serve as an excellent partner to Enterprises and public agencies seeking to achieve, their it modernization goals.
We are uniquely positioned to identify the right skill. Sets for our clients and with an industry-led Focus. We deeply understand the nuances of each sector's. It needs with that. Let me turn the call over to our president ship to discuss our industry and solution performance in the second quarter.
Speaker Change: Thanks, Ted. It's great to speak with everyone this afternoon.
Beginning with our commercial segment, verticals consumer and Industrial accounts performed the strongest in the second quarter and were up mid double digits year-over-year Improvement in this vertical, was driven by mid teens or better growth in materials utilities Industrials and consumer discretionary accounts. Our Healthcare vertical was relatively flat compared to the prior year. As a result of double digit growth amongst our pharmaceutical and biotech clients, Financial Services, business services, and TMT accounts declined compared to the year ago period.
Speaker Change: Commercial industry, verticals with consumer and Industrial accounts gain leading our performance, our consumer and Industrial clients have been leveraging. Our Nearshore delivery Center in Mexico as a cost efficient and capable alternative for application development and data modernization.
In the financial services vertical we saw double digit growth amongst our wealth management and insurance clients, both of which were active with our cloud and infrastructure teams in the quarter.
Speaker Change: In our TMT vertical, we saw mid single digit growth in Telecom. E-commerce and software and services.
For clients in this vertical, we supported Enterprise platform implementations including integrating new AI capabilities into existing Cloud platforms and developing solutions to help clients harness, the power of their data, Ai and advanced Analytics.
in our federal business, we track our revenues across 4 end customers defense and intelligence National Security, civilian and other clients
Speaker Change: Pounds was largely driven by work for the Department of Homeland Security, examples of which I will share shortly, as anticipated, our civilian business, for the quarter was impacted by Doge, the impact of which was unchanged and consistent with expectations.
Speaker Change: Defense and intelligent revenues. Go up sequentially by mid single digits for down. Year-on-year your budget constraints.
We remain bullish on the long-term, positioning of our federal government business, particularly with the recent expansion of the defense budget,
Speaker Change: To provide greater Clarity on the Dynamics, driving bookings across our commercial, verticals and government clients. Let's turn to our Solutions capabilities for the quarter Consulting engagements across the company focused on 4 major areas, including cloud and data infrastructure, cyber security and Enterprise platform, advisory and implementation and AI Services. Let me provide a few examples of each beginning with cloud
Speaker Change: For a Global Financial Services Company. We were engaged.
Speaker Change: Assess. The current state of their Cloud operations.
Speaker Change: Evaluate, a newly procured, synops tool and build a multi-year, cloud road map.
Speaker Change: As a result of our advisory services, our client will be able to improve its Cloud. Governance taxonomy capacity, and consumption across its wealth management lines of business. Importantly, this framework provides our clients. The confidence to accelerate their Cloud migration for a Fortune 500 life, insurance and retirement company. Our Consultants were engaged to determine if migrating to Amazon's cloud-based system would provide cost savings, operational efficiency, and improved scalability for the company. Our team delivered a viable migration model in just 8 weeks resulting in query, execution, 3 times faster, and generating significant cost savings for the client by deploying. This model, our client will be able to accelerate their data center exists in Mainframe retirement. While simultaneously unlocking the AI capabilities provided by migrating to AWS.
Speaker Change: We also work side by side with AWS as a premier partner and managed services provider in the federal space.
Similar to the commercial Market federal agencies are looking to modernize Legacy infrastructure. In the second quarter, we partnered with AWS on behalf of National Security and Defense Agency, clients to secure, scalable Cloud, migrations, and continuous compliance in AWS govcloud.
Speaker Change: Alongside Cloud support. Our cyber security expertise was another solution area in demand this past quarter.
Speaker Change: For DHS cyber security and infrastructure Security Agency or CIFA. We were awarded incremental work to deliver essential Technical and digital Engineering Services by through to protecting critical infrastructure and enhancing National cyber security. We also partnered with elastic a leading platform for searched. Power Solutions to add AI search capability into CIS, continuous Diagnostic and mitigation dashboard. Thereby enhancing cross-domain visibility of the agency and reducing National Security vulnerabilities.
Collaboration with our alliance Partners, is critical to Our Success. Our strategic alliances with Partners like AWS and elastic enable us to deliver Cutting Edge Technology Solutions. Tailored to our clients unique business needs. The value of our technology Partnerships is particularly evident in
Speaker Change: Enterprise platform implementations, which represented a third area of focus.
As an example, top block a leading high growth Tech enabled. Workday consultancy recently partnered with a global provider of Insurance Solutions to leverage the full workday Suite across 11 countries. For this client, top block provided end-to-end implementation of the workday human Capital Management and payroll modules. Full service change management manage testing services and post. Go live, support a new win for the quarter. This initiative was designed to centralize our clients, HR operations streamline, its internal processes, and enhance the company's ability to attract and retain top talent.
Speaker Change: Foreman and site managers to enter time on behalf of their crews. In real time, aligning with the unique needs of the construction environment, and showcasing top blocks, ability, to support complex, unionized work environments across multiple implementation phases.
Speaker Change: Our service. Now implementations are also on the rise. Particularly as the company makes a push to become the AI platform for digital business in the quarter. We assisted a prominent Global video game and entertainment company with deploying service. Now's gen AI capabilities within the HR Service delivery environment
This Consulting project focused on increasing Automation and improving user experience by implementing gen AI to automatically, classify HR cases, autogenerate, resolution summaries, and enhance case, documentation, and audit readiness.
Speaker Change: in addition to platform, driven implementations
Speaker Change: We are helping drive to a smarter future for our clients, but providing a comprehensive Suite of AI Services, ranging from advisory and literacy to developing and building agentic architectures powered by our assets and accelerators.
Speaker Change: In The Advisory Space 1 of the world's largest Professional Services firms engaged. Our team of Consultants Architects and cross capability solution leaders, to rethink the process and Technical design of some of their key Knowledge Management workflows, these workflows are currently conducted manually and involve the complex task of updating governing policies in thousands of Downstream documents and systems. The Advisory faith of the engagement was successful and we're now moving into delivery collaboration between our us Consulting team and our Mexico delivery Center.
Speaker Change: We are also leveraging our AI capabilities to improve data management and accelerate model deployment within the federal space.
Speaker Change: During the quarter, our government team used Advanced analytics and machine learning to support the US Navy in processing, vast amounts of Maritime data.
By training and deploying AI models on their behalf for helping the Navy and has this situation, awareness safety and operational efficiency.
Speaker Change: Beyond AI advisory. We are growing. Our agentic AI practice by architecting and building agents to support a myriad of client use cases.
Speaker Change: Just last week we published an agentic AI customer service tool on the new AI agents and tools storefront in the AWS Marketplace. This agent is 1 of the many AI accelerators being built by our teams. Ted will discuss more about our AI accelerators and Investments shortly. But first, I'll turn the call over to our CFO Marie to discuss asgn. Second quarter, segment performance and third quarter guidance.
Speaker Change: For the second quarter.
Speaker Change: 2 billion.
Year, but above our guidance expectations.
Revenues from our commercial. Segments were 7008.1 million, a decrease of 2.4% compared to the prior year.
Speaker Change: Assignment revenues totaled 382.4 million. A decline of 13.9% year-over-year reflecting continued softness in portions of our commercial segments that are more sensitive to changes in macroeconomic Cycles.
Revenues from our commercial Consulting, the largest of our high margin revenue streams totaled, 325.7 million an increase of 15.7% year-over-year and included the contribution from Top locs
Speaker Change: Revenues from our federal government segments were 312.5 million, an increase of 1.1% year-over-year, including approximately 10 million of higher than expected, license Revenue. As shiv noted, the impact on Doge in the second quarter was in line with our expectations.
Speaker Change: Turning to margins. Gross margin for the second quarter of 2025 was 28.7%. A decrease of 40 basis points from the second quarter of last year. Gross margin from our commercial segment was 33% of 30 basis points year-over-year reflecting a higher mix of Consulting revenues, as well as margin expansion in these revenues.
Due to higher volume of low margin software licenses.
Speaker Change: Margin was also impacted by loss of higher margin. Work under Doge, excluding the impact of client-driven licensed revenues that were outside of our guidance estimates Consolidated company, gross margin was within our guidance range for the quarter.
Speaker Change: Sgna expenses for the quarter was 216.8 Million.
Speaker Change: Compared to 250.6 million in the second quarter of 2024 sgna expenses included 8.3 million in acquisition, integration and strategic planning expenses. Inclusive of cost optimization initiatives. These items were not included in our previously announced guidance estimates.
Speaker Change: For the second quarter. Net income was 29.3 Million. Adjusted IBA was 108.5 million and adjusted e. Bam, margin was 10.6%.
Speaker Change: Also, at quarter end, cash and cash, equivalents was 138.9 million, and we have 320 million available on our 500 million. Senior secured revolver. Our net. Leverage ratio was 2.46 times at the end of the quarter.
Speaker Change: Our strong free cash flow provides a strategic advantage that enables asgn to fund growth initiatives, opportunistically repurchase shares and invest in strategic m&a. All while maintaining a healthy balance sheet
Speaker Change: Free cash flow was 115.8 Million for the second quarter. A conversion rate of approximately 107% of adjusted ibaa.
Speaker Change: We deployed 9.5 million of our free cash flow to repurchase, the 200,000 shares and an average share price of 58.69.
Speaker Change: At quarter end, we had approximately 470 million remaining under our 750 million. Share repurchase authorization.
Turning to guidance.
Speaker Change: Our financial estimates for the third quarter of 2025 are set forth in our earnings release and supplemental materials.
Speaker Change: These estimates are based on current market conditions and assume no further deterioration in the markets, we serve
Speaker Change: Guidance also assumes 63.5 billable days in the third quarter which is the same number of billable days as the year ago period and 0.25 more days than in the second quarter.
Speaker Change: Estimates, do not include any acquisition integration or strategic planning expenses.
Speaker Change: With that as background for Q3 2025, we are estimating revenue of 992 million to 1.012 billion net. Income of 35.8, million to 39.4 million adjusted. Eva of 108.5 million, to 113.5 million and adjusted evaa margin of 10.9% to 11.2%. Thank you. I'll now turn the call back over to Ted.
Ted Hansen: Thanks Marie.
Ted Hansen: As discussed at the outset of today's call despite ongoing macroeconomic uncertainties, our clients are continuing to invest in AI, recognizing that maintaining a Competitive Edge requires staying at the Forefront of technological advancements with that in mind. I'd like to take this opportunity to further highlight Asians ongoing AI Investments.
And how like our clients we are strategically positioning our business amid rapid technological change.
Ted Hansen: AI enables our Consultants to work faster smarter, and with more insight driving a higher Roi for our clients.
Ted Hansen: But leveraging our deep expertise and application development and managed Services, we've been able to create relevant AI applications, for our Consultants everyday work. And ultimately share this IP with our Fortune 10000 and defense and intelligence customer base.
Ted Hansen: As part of our commitment to unify our companywide, AI expertise, we launched the asgn, AI Innovation Center a collaborative initiative between our commercial and federal businesses designed to enhance Innovation optimize resource utilization and promote, AI driven business growth for our clients. The Innovation Center offers development environments, the centralized repeatable IP repository documented, best practices thought leadership, and new technology evaluation.
Ted Hansen: At the core of our Innovation Center are the solution accelerators proof of concept developed to quickly solve specific business problems with the help of AI.
Ted Hansen: Accelerators. We create repeatable, lower cost solutions, that can be easily deployed for our clients custom environment.
Ted Hansen: Several accelerators have already been published in many more in the pipeline for launch this year. Some examples of those already in use include Financial Services, agents rapid, code Discovery, tools network, security, assistance and AWS. Agentic AI tool. Previously. Highlighted
Our AI University is also a crucial component of the asgn Innovation Center, our AI University provides resources for upskilling our sales and Technical teams while serving as the launching pad for developing white papers, best practices and trainings for our customers. We found that by incorporating AI understanding and education into ongoing professional development, we can drive continuous innovation on ensuring that our professionals remain relevant in a rapidly evolving Market.
Ted Hansen: Through the establishment of our AI Innovation Center and our many centers of excellence. We are enhancing our Solutions capabilities and positioning ourselves as a leading Authority in all facets of commercial and federal it modernization.
Ted Hansen: Our diverse customer base is equipped us with a deep understanding of the distinct data and it needs across a wide range of sectors and enabling us to effectively support each client's. Long-term, it roadmap
Ted Hansen: Speaking of long-term roadmaps, I'm excited to share today, the asdn will be hosting an investor day in the fourth quarter.
Ted Hansen: During this event, we will speak about our companies near and long-term strategy to unlock the next wave of growth and value creation. We look forward to sharing more details in the coming weeks.
That concludes our prepared remarks. I'd like to extend my gratitude to all of our employees for your unwavering commitment, this past quarter, your ethics have been a valuable to fostering our client relationships, as we continue to evolve our business and to higher end, high value. IT consulting with that. We'd now like to open up the call to questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star to, to remove yourself from the queue. For participants you the speaker equipment and may be necessary to pick up the handset before pressing the star keys.
Ted Hansen: 1 moment, please while we pull for questions.
Our first question comes from the line of Toby Somer with truist Securities. Please proceed with your question.
Toby Somer: Thank you. Um, wanted to start out and asked uh how uh, hot top block is performing, uh relative to your expectations and maybe numerically. What was the
Ted Hansen: Contribution.
Ted Hansen: To uh, to results.
Toby Somer: Yeah. So, Toby, thanks for the the call. And the question, if you, um, remember, we, uh, at the acquisition date said that, uh, top block was going to contribute over the course of the Year 150 million uh in revenues for the full year. Uh, mind you it closed in the first of March and then uh, up margins in the high teens. And to this point I'd say they're tracking uh just ahead of those numbers on Revenue. Um just ahead of those numbers on bookings and kind of in the range on ibida.
Toby Somer: Okay, perfect. Um, you talked a lot about AI in your prepared remarks, in terms of opportunities and described a lot of initiatives and actions that you're helping with customers. Um, could could you talk about the more cyclical part of your um, assignment business specifically sort of the creative service?
Circle 1, uh, piece and
What if any impact are you seeing from AI on that business? Or would you describe the, the the Topline softness as, uh, you know, purely cyclical at this stage?
Toby Somer: Yeah. Well, let should answer that and say, pretty stable, right ship. And yeah, and the cyclicality of it. It is 1 of the more cyclical pieces of the portfolio. Yeah, I think that's spot on Ted. Uh, we're not seeing anything that would indicate that there's a massive impact of AI on that business. I think it's largely the macros and cyclicality at this moment. Uh,
Toby Somer: Business to continue to progress, uh, which we're seeing some uptick on. Yeah. If you think about the opportunity in that business, even though the
Toby Somer: The discretionary piece of this is earning the results of the traditional Staffing. Part the opportunity in uh customer experience is definitely a growth area. We're seeing that to shift point in inside the business and our Consulting work in there is is growing. It's not the biggest part of the business. I call it, maybe 20-ish 25% but it's uh, growing and we think there's big opportunity there as we go forward. So we'll continue to emphasize that and, you know, at some point here the discretionary spending is going to return. And uh, you know, we think both of those things will contribute to creative Circle.
Toby Somer: Okay, thank you. And, and then, um, in the government Consulting area in the ECS business,
Speaker Change: um, a couple of topics on that, what 1? What is the long-term margin profile? Is it any different because of the, the high margin dose contracts? Uh, you know, perhaps no longer being ongoing, and do you think you grow from here? We've heard some other dedicated companies, uh, that that focus on this area of the market exclusively. Talk about, perhaps, an opportunity for calendar, third quarter, um, kind of a bigger than usual,
Toby Somer: Contract award period because of slow Awards. Year-to-date in the federal fiscal year.
Speaker Change: Yeah, I'll take the second part and I'll let Marie talk about the gross margins, but I do think that, you know, there is a lot percolating here for the third quarter. So we're only a few weeks in, we'll have to watch that play out, but it does feel like we're back to kind of a normal cycle there. Um, it has been muted in a second quarter. Uh, as you mentioned, just because of the, you know, I think just the the, um, wait and see approach of the Government Contracting officials in the agency heads. But, you know, I think the positive note is here. We've we've got a new bill out. There's going to be a significant amount of new money in the budget, especially in the defense area, which is where we are embedded. Uh, and so I think all those pertain good for us. Um, so I look for a good third quarter, but I really look for, you know, a good, uh, bookings outcome here as we get a little further down the road because, you know, the government's going to put that money to work.
Speaker Change: They're going to have to get it on the street and um, compete it with us and our peer group uh to be able to get these things done because as you know very well Toby the government doesn't have all these assets inside of their operation to accomplish these things that need to be accomplished in data and Ai and Technology modernization cyber security. And other areas where we play.
Speaker Change: And then Marie on the gross margin. Hi Toby. Um yeah, so you were really referencing kind of gross margin and what the long-term view is. And so when we think about the Federal Business, um, and you alluded this to as well, that, you know, the Doge Revenue that we're losing is higher margin. Um, um, the reality is is some of that, um, is kind of toggling back and forth and so we'll see how that, um, works out. But the leadership at our federal government is also looking at increasing direct labor. So there's opportunities kind of down the road, as we look at the gross margin for federal um to increase our, our direct labor. Um, and then as we've talked about just some diminishing impact on the licensed revenue or the ba, the balance of the licensed Revenue, that's embedded in our, our federal continues to get smaller and smaller
Patina that we've kind of played in a 20 to 21% range, and you have some of these pastors coming in and out. And so that moves up and down, and, but I still think that's a, that's a range, you know, that we expect to be in Toby
Thank you very much.
Thank you. All right, next question comes from the line of Jeff silver with BMO Capital markets. Please proceed with your question.
Speaker Change: Thanks so much. Sorry, just 1 more on federal government, and then I can move on. Um, you said that, the, the Doge impact was enlightened with your expectations, can you remind us what those expectations were, and what do you think? The impact will be on the current quarter?
Speaker Change: Absolutely. Um, we and last quarter, we actually said that, the Doge impact would be less than 2% of total revenues, um, as noted, um, unchanged in line with our expectations for Q2 and we expect that same in Q3.
Or Consulting revenues. I'm just wondering what the tone is, it? It sounds like I'm the Consulting side. There's a lot going on but um, I don't know if you're seeing the same kind of maybe, you know, potential enthusiasm on the assignment basis. Uh, any color would be great.
Speaker Change: Yeah, well, I'll let show comment, but you're, I think coming out of Q2, obviously, we had a a very good bookings quarter and it was Stronger at the end of the quarter than it was at the beginning. And I think here in the first 3 weeks, we're seeing little incremental positive on 4 metrics in the assignment business. So and then should just tone of conversation with clients know. Uh, absolutely Jeff. Uh,
Speaker Change: I think the as, as you can see, from our bookings numbers, there's, you know, we're seeing some positive signs in our commercial Consulting, business specifically in certain areas like cloud data and AI, uh, and then, and it's obviously a tale of different Industries. You can see from our results that's, uh, you know, uh, some of our Industries are doing much better than the others. Uh, the reason why we're out there declaring that there's something majorly under phase. We're still watching some of our larger Industries, like Banking and looking for the turn in those Industries, which is still sort of a wait and watch for us. But overall uh the sentiment at least is we're seeing enough good things to give us you know, cautious optimism.
Speaker Change: And if you think about the places where we have real strength, uh Jeff like data, and AI application development modernization cyber security, Enterprise systems around service now and workday, I mean, those are all kind of developing areas of strength here, as things begin to emerge. And and that's the core of our capabilities if we will. So we I think we, you know, we're positioned pretty well here for things to begin to release and I think should have hit the nail on the head while we're seeing some positive signs of the Ford metrics. We do need a big industry, like banking specifically, you know to begin to turn positive instead of just flash.
Speaker Change: Okay, that's really helpful. Thank you so much.
Speaker Change: Thank you. Our next question, comes from the line of surrender thin with Jeffrey's please. Proceed with your question.
Surrender Thin: Um, thank you. Uh, can you maybe talk a little bit about, um, the AI Investments that you're making and more specifically from the perspective of just kind of building IP um, 1 of the narratives more broadly as we speak to cross it Services? Is that in this next wave of growth? I guess the idea is that
Surrender Thin: Firms will need to build more IP than they have in the past. Can you comment on that or your thoughts and Views? And
how that fits into your business model in which, um, you use more
Surrender Thin: um,
Surrender Thin: temporary workers to to provide some of the consulting services on the commercial side.
Ted Hansen: Right? Well, I think you're on the right, track shift, absolutely. Uh, certain that, that's very much part of the, the strategy for us and the Evolution for us. Uh, we think about, you know, let me talk about the fact that, you know, we are, we're doing, uh, making investments in AI as, as Ted would say, which is very focused on account and Deals specific, IP development. That doesn't mean. We're not investing in just broader platforms. We are, we've got things like code, Discovery and open-source Tools around code discovery, which is our own it. We've got open-source Tools around, uh, applying AI to cyber security which were blood deploying for clients as well. So, we're doing all of that. But more and more, what we're doing is we're working with Partners like AWS, like uh, work data, start to build IP specific to client requirements, which in many cases, tends to be ours but we can rapidly then scale them across multitudes of clients. So that's very much.
Ted Hansen: What's a foot here? And
Ted Hansen: I think, shift, right while we haven't taken the hill yet. You do see that this, the technology cycle here is emerging, you know, there's been there has been and remains an enormous amount of money spent on the compute part of this, with the chips. Uh, now we're moving to, you know, obviously we're in the middle of data center and power, which we need to power all this stuff. You can already see the Investments by big Tech into software Enterprise, uh, to try to bring a genetic AI into their products. So then they can bring that in the customer Market. Our piece of that is laying down all those AI capabilities into our C you know into our customers technology environment which nobody knows better than us since we've been there. Uh, for so long years here, kind of helping them along, uh, their road map. So, I, I would say that's developing, it's not fully emerged, but I think this is playing out as we've been speaking about over the past quarters and couple of years.
Speaker Change: That's good from that. No, I was just going to say 1 more thing, which is as a result of what had eluded right. There is a lot of, uh, our clients. A lot of our clients are grappling with what's the best architectural approach to go about doing this. Should we build our own should be integrated? What is existing? And we're also seeing a pretty big uptick in advisory work around those kinds of questions which then allows us to Parlay it right down to how do you not just think about the AR?
Ted Hansen: Architecture, but how do you then build it and deploy it and and integrate it into your environments?
Got it, that's actually. I appreciate the the detail there. Um, and then when we think about uh the the the government segment,
Can we talk a little bit about what is the appropriate baseline or run rate revenues? We saw the tick up um in the Cost Plus segment. This quarter how much of it is is truly just incremental or specific to the quarter. It, it seems like there's obviously a lot of volatility there in that segment and
Ted Hansen: What is the the right? Starting point or right Baseline of revenues.
Yeah. Well I think if you take, if you take what we said in the release about the pass throughs, which were about, you know, 10 to 12 million dollars here during the quarter and back that out of their number. It kind of brings you down into the 300 range. And we also had a surge of some good, but I'll call good direct labor, billable work. So, I have a few million, which contributed to the quarter. So, I mean, I think your Baseline is in the mid to uh you know, 290 to to Mid to 955, something like that, is a good Baseline to think about going forward. Um and obviously we've got a 1.1 book to Bill. I mean that is going to portend here that you know as we go into future quarters. We've got some
Toby Somer: Growth in the backlog and then back to the first question, you know, from Toby, what's going on in that Marketplace? Well, we you know, we now have a bill, we're going to have more money flowing into the defense department. There's money flowing into the areas that we practice, so I I don't want to, you know, use shifts words, say that we've taken the hill, but we've got things developing here and it may take a couple few quarters for them to play themselves out. But we're on a path here. You know, that I think that we're we're going to be in a good spot here based on what the government's initiatives are and where we've got the business positioned.
Toby Somer: Got it. Um,
Toby Somer: I I'll I'll I'll leave it there um, for, for my colleagues. Thank you.
Toby Somer: Thank you.
Speaker Change: Our next question comes from the line of Jason hos with Wells Fargo. Please proceed with your question.
Jason hos: Hey, good afternoon, and thanks for taking my questions. I was curious if you could speak a little bit more about what drove the strength and the consumer and Industrial segments, since that's all my deceleration in the quarter,
Yeah, good. Yeah. I mean I can I can give you some color on on what drove the strength look. We've uh, as we pointed out in, when we talked about our earnings, there were certain sub sectors like materials and utilities, which were a significant part of what, drove our strength in that from a sectoral perspective, from a solution perspective, I think what we're seeing is continued.
Jason hos: Sub sectors of that category, obviously they have checks to right here. Yeah, to to bring themselves forward and meet the needs of the power generation, but for the, but for the people and for the data centers and so, you know, there's kind of opportunity there that, you know, traditionally maybe a little stoic, uh, as an industry. But it's a lot more Dynamic now, over the last year or 2 and and also in certain industries like energy, our partnership strategy is paying out pretty significant dividends where, you know, we've built some assets for very industry specific questions uh on asset utilization predictive maintenance Etc with Partners like data bricks and that's allowing us to scale across the industry. So, uh, you know, it's a different parts of the strategy playing out, but it's essentially continued strength in our solution areas.
That's great to hear that's a great caller as a follow-up, excuse me, if you talk about you, give some good examples of how AI is helping you generate revenue and helping your clients?
Um, you know, leverage and use these AI tools. But I was curious about if you could talk about your internal use of AI and if you've been able to find some efficiencies, um, you know, within your own business from using some of those tools. Thanks.
Yeah, well look, I think that we're, I mean, it should put it, right? You know. We want to be an AI lead organization, both for ourselves and the productivity and opportunity that gives us the end to Showcase that in front of clients, um, you know, all of our enterprise software tools, whether you know, it's our front office systems or our back office systems, or our digital layer with service. Now, there's a genic AI opportunities and all of those Enterprise systems that we're going to you know are beginning to bring to bear and are going to bring to bear further in our um in our own operations. If you think about our our function as an IT staffing company in the recruiting and sales that go along with that, we we've implemented AI techniques in there to make us much more productive. Uh, that's been an ongoing effort here for years. Um, we're developing tools that help us on the, uh, bid proposal and when process, you know, to bring to bring use cases up, you know, very
Jason hos: Efficiently for our team and delay those down into presentations in a way that we used to use, you know, a lot of, uh, pushing of the keyboard to do. So, I think those are just some of the, the opportunities here. I probably should also not Let It Go without saying cyber security has been a big 1, you know, our work, you know, that we've done in cyber security. Um, you know, beginning in the federal government, now, in the commercial Marketplace, the number of threats are so voluminous.
Jason hos: You just can't process at all without AI capabilities. And some of those are bringing brought by the, uh, you know, the security software firms and some of that's being generated by us. So, you know, I think these are all examples across our organization where we're diving in at first into all of these, you know, AI opportunities that make us better, and more productive, uh, more growth and a great quality for our customer.
Jason hos: Greater. Thank you.
Speaker Change: Thank you. All right, next question comes from the line of Alex Sinatra with beard. Please proceed with your question.
Speaker Change: Hi. Uh, I just got a quick 1, uh, just because a lot of things were covered already, but I was just wondering, you know, given this discussion around AI. Uh, and, you know, these big initiatives that you're undergoing with all these Investments, I was wondering, kind of what the cost of that is on your end. Uh, especially for, you know, sending with that code, Discovery, the cyber security, like the agents, just what, you know, that'll end up costing any color on, that would be great.
Yeah, look, I don't think you're seeing it. I guess. Maybe I'll put it this way. You know, we're not quantifying all these costs, but you're not seeing a degree again or marching profiles. If anything, you're seeing, you know, if we're thinking about it, like our clients, which is where can we, you know, make an investment here and see and get an acceleration to a return. And so, in that way, we're able to, you know, meet the business case objective, whatever the case may be. And we're
Continue to see our, you know, our our margins here kind of be creeping up, you know, because of that. So I mean I won't quantify the number for you but I'll just say it's not aggregating, it's adding to um your margin profile will continue to as those things get more mature.
Speaker Change: Great. Thank you.
Thank you. And we have reached the end of the question and answer session. I would like to turn the floor. Back to Ted Hansen. Foreclosure remarks.
Ted Hansen: On our third quarter uh earnings release conference call. Thank you and be well.
Ted Hansen: Thank you. And this is today's conference and you may disconnect your line. At this time, we thank you for your participation.