Revenues in line with, and Adj. EBITDA
Margin exceeds, Company's Guidance
ASGN Incorporated (NYSE: ASGN), a leading provider of IT
services and solutions to the commercial and government sectors,
reported financial results for the quarter ended September 30,
2023.
Q3 2023 Highlights
- Revenues were $1.12 billion
- Net income was $59.4 million
- Adjusted EBITDA (a non-GAAP measure) was $137.5 million (12.3
percent of revenues)
- Operating cash flows were $147.5 million and Free Cash Flow (a
non-GAAP measure) was $137.7 million
- Repurchased 1.1 million shares of the Company's common stock
for $91.3 million
- Increased the capacity of the Senior Secured Revolving Credit
Facility to $500.0 million and extended its maturity date to 2028;
also extended maturity date of the Senior Secured Debt to 2030
IT Consulting Revenues - Approximately 55 percent of
total revenues
- Commercial Segment - New bookings for the trailing-twelve-month
period ("TTM") were $1.3 billion and book-to-bill ratio was 1.2 to
1
- Federal Government Segment - New contract awards for the TTM
were $1.1 billion and book-to-bill ratio was 0.9 to 1
Management Commentary
“The resiliency of ASGN’s business model continued to play out
as designed in the third quarter of 2023,” said ASGN Chief
Executive Officer, Ted Hanson. “Revenues of $1.12 billion surpassed
the midpoint of our guidance range. IT consulting revenues across
our commercial and government businesses reached approximately 55
percent of consolidated revenues, ahead of our 2024 goal. Adjusted
EBITDA margin of 12.3 percent surpassed the top-end of our guidance
range for the quarter, benefiting from the variable nature of our
cost structure.”
Mr. Hanson continued, “The strength of ASGN’s business lies in
our large enterprise account base in six critical industry
verticals. This diversified account base provides support and
stability throughout market cycles, as is evident in the
double-digit year-over-year revenue growth of our countercyclical
federal government business this past quarter. Consistent with our
peer set and our client base, we remain cautious about the
near-term market demand. Nevertheless, with great qualifications
across sought-after IT solutions and skillsets, ASGN is ready to
leverage the growth in IT spend when demand improves.”
Third Quarter 2023 Financial Results - Summary
Three Months Ended
(In millions, except per share data)
Q3 2023
Q3 2022
Q2 2023
Revenues
Commercial Segment
$
782.4
$
900.0
$
811.3
Federal Government Segment
334.4
297.9
319.6
1,116.8
1,197.9
1,130.9
Gross Margin
Commercial Segment
32.5
%
33.1
%
32.2
%
Federal Government Segment
20.4
%
20.5
%
20.5
%
Consolidated
28.9
%
30.0
%
28.9
%
Income from continuing operations
$
59.4
$
71.1
$
60.1
Income from discontinued operations
—
2.1
—
Net Income
$
59.4
$
73.2
$
60.1
Earnings per share - Diluted
Continuing operations
$
1.23
$
1.40
$
1.22
Discontinued operations
—
0.04
—
$
1.23
$
1.44
$
1.22
Non-GAAP Financial Measures
Adjusted Net Income
$
81.1
$
90.7
$
78.2
Adjusted Net Income per diluted share
$
1.68
$
1.79
$
1.59
Adjusted EBITDA
$
137.5
$
148.7
$
135.2
Adjusted EBITDA margin
12.3
%
12.4
%
12.0
%
__________
Notes:
Definitions of non-GAAP measures and
reconciliation to GAAP measurements are included in the tables that
accompany this release.
Consolidated revenues were $1.12 billion, down 6.8 percent over
the third quarter of 2022. From an industry perspective, the
Company operates in six broad industry verticals. Commercial
Segment revenues (70.1 percent of total revenues), were down 13.1
percent year-over-year and are categorized in five verticals: (i)
Financial Services, (ii) Consumer and Industrial, (iii) Technology,
Media and Telecom ("TMT"), (iv) Healthcare, and (v) Business and
Government Services. Consumer and Industrial and Healthcare
verticals saw low single-digit revenue declines year-over-year and
the remaining three verticals saw double-digit declines
year-over-year. Federal Government Segment revenues (29.9 percent
of total revenues), the sixth industry vertical, were up 12.3
percent year-over-year and included $24.6 million from Iron Vine,
which was acquired in October 2022.
Total IT consulting services revenues were $608.6 million (54.5
percent of total revenues), up 7.4 percent year-over-year. Federal
Government Segment revenues, which are all consulting revenues,
were $334.4 million, up 12.3 percent year-over-year as stated
above, and Commercial Segment consulting revenues were $274.2
million, up 2.1 percent year-over-year. The growth in IT consulting
services revenues was offset by a 19.5 percent year-over-year
decline in assignment revenues which totaled $508.2 million (45.5
percent of total revenues), reflecting continued softness in the
more discretionary and cyclical portions of the Commercial Segment
business. On a same Billable Day basis, adjusting for 1.5 fewer
Billable Days in the third quarter of 2023 compared to the third
quarter of 2022, assignment revenues declined 17.6 percent.
Gross margin for the third quarter of 2023 was 28.9 percent,
down 110 basis points from the third quarter of 2022. The
compression mainly related to business mix: (i) within the
Commercial Segment, a lower mix of certain high-margin assignment
revenues, namely, creative digital marketing and permanent
placement revenues, which was partially offset by a higher mix of
high-margin IT consulting revenues with a year-over-year expansion
in margin and (ii) a higher mix of revenues from the Federal
Government Segment, which have a lower gross margin than commercial
revenues.
Selling, general and administrative (“SG&A”) expenses were
$206.0 million (18.4 percent of revenues), compared with $232.6
million (19.4 percent of revenues) from the third quarter of 2022.
This improvement was primarily due to lower incentive compensation
expense. SG&A expenses included $1.1 million in acquisition,
integration and strategic planning expenses and a $2.7 million
tentative legal settlement, both of which were not included in the
Company's previously-announced guidance estimates.
Income from continuing operations was $59.4 million ($1.23 per
diluted share), compared with $71.1 million ($1.40 per diluted
share) from the third quarter of 2022.
Adjusted EBITDA (a non-GAAP measure) was $137.5 million, or 12.3
percent of revenues ("Adjusted EBITDA margin", a non-GAAP measure),
compared with $148.7 million or 12.4 percent of revenues in the
third quarter of 2022.
Capital Resources and Capital Allocation
At September 30, 2023, the Company had:
- Cash and cash equivalents of $145.6 million
- Full availability under its $500.0 million Senior Secured
Revolving Credit Facility (due 2028)
- Senior Secured Debt of $500.0 million (term loan B facility due
2030)
- Senior unsecured notes totaling $550.0 million at 4.625 percent
(due 2028)
During the quarter, the Company refinanced its existing $460
million, five-year Senior Secured Revolving Credit facility, with a
new upsized, five-year, $500.0 million facility. The maturity of
the facility has been extended to 2028. The Company also refinanced
its secured $500.0 million term loan B with the issuance of a new
$500.0 million, seven-year term loan B maturing in 2030.
In the third quarter of 2023 the Company repurchased 1.1 million
shares of its common stock for $91.3 million at an average price of
$79.63 per share. Approximately $349.1 million remained available
at quarter end for repurchases under the Company's stock repurchase
plan.
Leverage Ratio was 2.0 to 1 at September 30, 2023.
Fourth Quarter 2023 Financial Estimates
The Company's financial estimates for the fourth quarter of
2023, which are set forth below, are based on current operating
trends and assume no significant deterioration in the markets ASGN
serves nor any possible revenue declines associated with a
potential government shutdown. These estimates do not include any
acquisition, integration or strategic planning expenses.
Reconciliations of estimated net income to the estimated non-GAAP
financial measures are included in the tables that accompany this
release.
(In millions, except per share data)
Low
High
Revenues
$
1,042.5
$
1,062.5
SG&A expenses(1)
193.0
197.8
Amortization of intangible assets
17.9
17.9
Net income
46.2
49.1
Earnings per share - Diluted:
$
0.97
$
1.03
Diluted shares outstanding
47.8
47.8
Gross margin
28.0
%
28.3
%
Effective tax rate(2)
28.0
%
28.0
%
Non-GAAP Financial Measures:
Adjusted EBITDA
$
115.5
$
119.5
Adjusted Net Income(3)
$
63.4
$
66.3
Adjusted Net Income per diluted
share(3)
$
1.33
$
1.39
Adjusted EBITDA Margin
11.1
%
11.3
%
___________
(1) Includes non-cash expenses totaling
$16.3 million, comprised of: (i) $10.3 million in stock-based
compensation and (ii) $6.0 million in depreciation.
(2) Estimated effective tax rate before
any excess tax benefits related to stock-based compensation.
(3) Does not include the “Cash Tax Savings
on Indefinite-lived Intangible Assets.” These savings total $8.5
million each quarter, or $0.18 per diluted share, and represent the
benefit of the tax deduction that ASGN receives from the
amortization of goodwill and trademarks.
The financial estimates above are based on an estimate of
“Billable Days”, which are Business Days (calendar days for the
period less weekends and holidays) adjusted for other factors, such
as the day of the week a holiday occurs, additional time taken off
around holidays, year-end client furloughs and inclement weather.
There are 60.0 Billable Days in the fourth quarter of 2023, which
is the same as the year ago period and 2.5 fewer days than Q3
2023.
Conference Call
The Company will hold a conference call today at 4:30 p.m. ET to
review its financial results for the third quarter of 2023 and to
provide fourth quarter estimates. The dial-in number is
877-407-0792 (+1-201-689-8263 for callers outside the United
States), and the conference ID number is 13740634. Participants
should dial in ten minutes before the call. The prepared remarks,
supplemental materials and webcast for this call can be accessed at
www.asgn.com.
A replay of the conference call will be available beginning
today at 7:30 p.m. ET until November 8, 2023. The access number for
the replay is 844-512-2921 (+1-412-317-6671 for callers outside the
United States) and the conference ID number is 13740634.
About ASGN Incorporated
ASGN Incorporated (NYSE: ASGN) is a leading provider of IT
services and solutions to the commercial and government sectors.
ASGN helps corporate enterprises and government organizations
develop, implement and operate critical IT and business solutions
through its integrated offering of professional staffing and IT
consulting. For more information, please visit asgn.com.
Safe Harbor
Certain statements made in this news release are
“forward-looking statements” within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and involve a high
degree of risk and uncertainty. Forward-looking statements include
statements regarding our anticipated financial and operating
performance.
All statements in this news release, other than those setting
forth strictly historical information, are forward-looking
statements. Forward-looking statements are not guarantees of future
performance and actual results might differ materially. In
particular, we make no assurances that the proposed revenue,
expense and profit estimates outlined above will be achieved.
Additional examples of forward-looking statements in this press
release include, without limitation, statements regarding our
ability to attract, train and retain qualified staffing
consultants, the availability of qualified contract professionals,
management of our growth, continued performance and improvement of
our enterprise-wide information systems, our ability to manage our
litigation matters, the successful integration of acquisitions and
other risks detailed from time to time in our reports filed with
the SEC, including our Annual Report on Form 10-K for the year
ended December 31, 2022 as filed with the SEC on February 27, 2023.
We specifically disclaim any intention or duty to update any
forward-looking statements contained in this news release.
CONSOLIDATED SELECTED
FINANCIAL DATA (Unaudited)
(In millions, except per share
data)
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
2023
2022
2023
2023
2022
Results of Operations:
Revenues
$
1,116.8
$
1,197.9
$
1,130.9
$
3,376.5
$
3,430.7
Costs of services
794.4
839.0
804.6
2,401.4
2,401.2
Gross profit
322.4
358.9
326.3
975.1
1,029.5
Selling, general and administrative
expenses
206.0
232.6
210.5
640.6
665.1
Amortization of intangible assets
17.8
17.9
17.9
53.8
45.3
Operating income
98.6
108.4
97.9
280.7
319.1
Interest expense
(18.5
)
(12.1
)
(15.8
)
(49.7
)
(31.5
)
Income before income taxes
80.1
96.3
82.1
231.0
287.6
Provision for income taxes
20.7
25.2
22.0
62.0
76.3
Income from continuing operations
59.4
71.1
60.1
169.0
211.3
Income from discontinued operations, net
of income taxes
—
2.1
—
—
1.2
Net income
$
59.4
$
73.2
$
60.1
$
169.0
$
212.5
Basic earnings per common share:
Continuing operations
$
1.23
$
1.42
$
1.23
$
3.46
$
4.15
Discontinued operations
—
0.04
—
—
0.02
Net income
$
1.23
$
1.46
$
1.23
$
3.46
$
4.17
Diluted earnings per common share:
Continuing operations
$
1.23
$
1.40
$
1.22
$
3.43
$
4.09
Discontinued operations
—
0.04
—
—
0.02
Net income
$
1.23
$
1.44
$
1.22
$
3.43
$
4.11
Number of shares and share equivalents
used to calculate earnings per share:
Basic
48.1
50.1
49.0
48.8
50.9
Diluted
48.4
50.7
49.2
49.2
51.6
CONSOLIDATED SELECTED
FINANCIAL DATA (Continued) (Unaudited)
(In millions)
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
2023
2022
2023
2023
2022
Summary Statements of Cash Flow
Data:
Cash provided by operating activities
$
147.5
$
88.1
$
112.5
$
340.5
$
232.5
Cash used in investing activities
(9.8
)
(360.5
)
(11.2
)
(33.3
)
(366.6
)
Cash used in financing activities
(85.6
)
(6.6
)
(72.6
)
(231.6
)
(183.7
)
Reconciliation of GAAP to Non-GAAP
Measure:
Cash provided by operating activities
$
147.5
$
88.1
$
112.5
$
340.5
$
232.5
Capital expenditures
(9.8
)
(8.6
)
(11.2
)
(32.7
)
(27.0
)
Free Cash Flow (non-GAAP measure)
$
137.7
$
79.5
$
101.3
$
307.8
$
205.5
September 30,
December 31,
2023
2022
Summary Balance Sheet Data:
Cash and cash equivalents
$
145.6
$
70.3
Working capital
550.7
539.2
Goodwill and intangible assets, net
2,409.2
2,461.6
Total assets
3,578.9
3,585.7
Long-term debt
1,037.5
1,066.6
Total liabilities
1,670.2
1,684.4
Total stockholders’ equity
1,908.7
1,901.3
RECONCILIATIONS OF GAAP TO
NON-GAAP MEASURES (Unaudited)
(In millions, except per share
data)
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
2023
2022
2023
2023
2022
Net income
$
59.4
$
73.2
$
60.1
$
169.0
$
212.5
Income from discontinued operations, net
of tax
—
2.1
—
—
1.2
Income from continuing operations
59.4
71.1
60.1
169.0
211.3
Interest expense
18.5
12.1
15.8
49.7
31.5
Provision for income taxes
20.7
25.2
22.0
62.0
76.3
Depreciation
7.0
7.2
7.0
20.8
19.5
Amortization of intangible assets
17.8
17.9
17.9
53.8
45.3
EBITDA (non-GAAP measure)
123.4
133.5
122.8
355.3
383.9
Stock-based compensation
10.3
11.9
11.3
33.7
35.9
Legal settlement expense
2.7
—
—
2.7
—
Acquisition, integration and strategic
planning expenses
1.1
3.3
1.1
4.5
7.7
Adjusted EBITDA (non-GAAP measure)
$
137.5
$
148.7
$
135.2
$
396.2
$
427.5
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
2023
2022
2023
2023
2022
Net income
$
59.4
$
73.2
$
60.1
$
169.0
$
212.5
Income from discontinued operations, net
of tax
—
2.1
—
—
1.2
Income from continuing operations
59.4
71.1
60.1
169.0
211.3
Credit facility amendment expenses
2.3
—
—
2.3
—
Legal settlement expense
2.7
—
—
2.7
—
Acquisition, integration and strategic
planning expenses
1.1
3.3
1.1
4.5
7.7
Tax effect on adjustments
(1.6
)
(0.9
)
(0.3
)
(2.5
)
(2.0
)
Non-GAAP net income
63.9
73.5
60.9
176.0
217.0
Amortization of intangible assets
17.8
17.9
17.9
53.8
45.3
Other
(0.6
)
(0.7
)
(0.6
)
(1.8
)
(1.5
)
Adjusted Net Income (non-GAAP
measure)(1)
$
81.1
$
90.7
$
78.2
$
228.0
$
260.8
Per diluted share:
Net income
$
1.23
$
1.44
$
1.22
$
3.43
$
4.11
Adjustments
0.45
0.35
0.37
1.20
0.94
Adjusted Net Income (non-GAAP
measure)(1)
$
1.68
$
1.79
$
1.59
$
4.63
$
5.05
Common shares and share equivalents
(diluted)
48.4
50.7
49.2
49.2
51.6
_________
(1) Does not include the “Cash Tax Savings
on Indefinite-lived Intangible Assets,” which currently total
approximately $8.5 million per quarter (approximately $0.18 per
diluted share) and represent the benefit of the tax deduction for
amortization of goodwill and trademarks.
FINANCIAL ESTIMATES FOR THE
FOURTH QUARTER OF 2023
RECONCILIATIONS OF ESTIMATED
GAAP TO NON-GAAP MEASURES
(In millions, except per share
data)
Low
High
Net income(1)
$
46.2
$
49.1
Interest expense
16.8
16.8
Provision for income taxes
17.9
19.0
Depreciation expense(2)
6.4
6.4
Amortization of intangible assets
17.9
17.9
EBITDA (non-GAAP measure)
105.2
109.2
Stock-based compensation
10.3
10.3
Adjusted EBITDA (non-GAAP measure)
$
115.5
$
119.5
Low
High
Net income(1)
$
46.2
$
49.1
Amortization of intangible assets
17.9
17.9
Other
(0.7
)
(0.7
)
Adjusted Net Income (non-GAAP
measure)(3)
$
63.4
$
66.3
Per diluted share:
Net income
$
0.97
$
1.03
Adjustments
0.36
0.36
Adjusted Net Income (non-GAAP
measure)(3)
$
1.33
$
1.39
Common shares and share equivalents
(diluted)
47.8
47.8
_______
(1) Does not include acquisition,
integration and strategic planning expenses, or excess tax benefits
related to stock-based compensation.
(2) Comprised of (i) $6.0 million of
depreciation included in SG&A expenses and (ii) $0.4 million of
depreciation included in costs of services.
(3) Does not include the "Cash Tax Savings
on Indefinite-lived Intangible Assets". These savings total $8.5
million per quarter ($0.18 per diluted share) and represent the
benefit of the tax deduction for amortization of goodwill and
trademarks.
Non-GAAP Financial Measures
Statements in this release and the accompanying financial
information include non-GAAP financial measures that are provided
as additional information to enhance the overall understanding of
the Company's current financial performance and not as an
alternative to the consolidated interim financial statements
presented in accordance with accounting principles generally
accepted in the United States ("GAAP"). Management uses these
non-GAAP measures (EBITDA, Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted Net Income, Adjusted Net Income per diluted share, Free
Cash Flow, Leverage Ratio and Revenues on a same Billable Days
basis) to evaluate the Company's financial performance. These terms
might not be calculated in the same manner as, and thus might not
be comparable to, similarly titled measures reported by other
companies. The financial information tables that accompany this
press release include reconciliations of net income to non-GAAP
financial measures.
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide a
measure of the Company's operating results in a manner that is
focused on the performance of the Company's core business on an
ongoing basis, by removing the effects of non-operating and certain
non-cash expenses. These non-operating and non-cash items are
specifically identified in the reconciliations of GAAP measures to
Non-GAAP measures that accompany this release.
Adjusted Net Income provides a method for assessing the
Company's operating results in a manner that is focused on the
performance of the Company's core business on an ongoing basis by
removing the effects of non-operating and certain non-cash
expenses, adjusted for some of the cash flows associated with
amortization of intangible assets to more fully present the
performance of the Company's acquisitions. The calculation of
Adjusted Net Income is presented in the reconciliations of GAAP
measures to Non-GAAP measures that accompany this release.
Free Cash Flow provides useful information to investors about
the amount of cash generated by the business that can be used for
strategic opportunities and is computed as presented in the tables
that accompany this release.
Leverage Ratio is the ratio of the Company's total debt to
trailing-twelve-months (“TTM”) Adjusted EBITDA, further adjusted
for the inclusion of estimated performance from acquisitions made
in the TTM period as if those acquisitions had occurred at the
beginning of that period.
Commercial consulting bookings are defined as the value of new
contracts entered into during a specified period, including
adjustments for the effects of changes in contract scope and
contract terminations.
Federal Government Segment new contract awards are defined as
the estimated amount of future revenues to be recognized under
contracts awarded during a specified period, including adjustments
to estimates for contracts awarded in previous periods.
The book-to-bill ratio for the Federal Government Segment is the
ratio of New Contract Awards to revenues for a specified
period.
Revenues calculated on a Same Billable Days basis provide more
comparable information by removing the effect of differences in the
number of billable days on a year-over-year basis. Revenues on a
Same Billable Days basis are adjusted for the following items:
differences in billable days during the period by taking the
current-period average revenue per billable day, multiplied by the
number of billable days from the same period in the prior year;
Billable Days are business days (calendar days for the period less
weekends and holidays) adjusted for other factors, such as the day
of the week a holiday occurs, additional time taken off around
holidays, year-end client furloughs and inclement weather.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231024036825/en/
Kimberly Esterkin Vice President, Investor Relations
kimberly.esterkin@asgn.com
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