ASGN INCORPORATED The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, as well as management's beliefs and assumptions and involve a high degree of risk and uncertainty. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Statements that include the words "believes," "anticipates," "plans," "expects," "intends," and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Our actual results could differ materially from those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to such differences include those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year endedDecember 31, 2022 ("2022 10-K"). In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements in this document are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q and we assume no obligation to update any forward-looking statements or the reasons why our actual results may differ. OVERVIEW ASGN provides information technology ("IT") services and professional solutions, including technology and creative digital marketing, across the commercial and government sectors. We operate through two segments, Commercial and Federal Government. The Commercial Segment, which is the largest segment, provides consulting, creative digital marketing and permanent placement services primarily to large enterprises and Fortune 1000 companies. Our Federal Government Segment provides mission-critical solutions to theDepartment of Defense , the intelligence community and federal civilian agencies. Virtually all of the Company's revenues are generated inthe United States .
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
Revenues
Revenues for the quarter were
% of Total
2023 2022 Change 2023 2022 Change
Commercial
Assignment $ 560.4 $ 628.2 (10.8 %) 49.6 % 57.6 % (8.0 %)
Consulting 271.7 204.7 32.7 % 24.1 % 18.7 % 5.4 %
832.1 832.9 (0.1 %) 73.7 % 76.3 % (2.6 %)
Federal Government 296.7 258.1 15.0 % 26.3 % 23.7 % 2.6 %
Consolidated $ 1,128.8 $ 1,091.0 3.5 % 100.0 % 100.0 %
Commercial Segment - Revenues from our Commercial Segment (73.7 percent of total
revenues) were essentially flat year-over-year. Assignment revenues were $560.4
million (67.3 percent of the segment's revenues), down 10.8 percent
year-over-year. Consulting services revenues were $271.7 million (32.7 percent
of the segment's revenues), up 32.7 percent year-over-year. Excluding the
contribution of $25.9 million from GlideFast, consulting services revenues were
up 20.0 percent.
From an industry perspective, Commercial revenues fall into five broad industry
verticals: (i) Financial Services, (ii) Consumer and Industrials, (iii)
Technology, Media and Telecom ("TMT"), (iv) Healthcare, and (v) Business and
Government Services. Our Financial Services, Consumer and Industrials, and
Healthcare verticals saw single-digit revenue growth year-over-year. The TMT and
Business and Government Services verticals were down compared with the first
quarter of 2022.
Within the Commercial Segment, IT services and solutions revenues, which
accounted for 85.4 percent of the segment's revenues in the quarter, were up 3.1
percent over the first quarter of last year driven by double-digit growth in
consulting services. The segment's more discretionary and cyclical businesses,
creative digital marketing and permanent placement, accounted for 14.6 percent
of the segment's revenues and were down 15.5 percent year-over-year.
Federal Government Segment - Revenues from our Federal Government Segment (26.3
percent of revenues) were up 15.0 percent year-over-year. Excluding the
contribution from Iron Vine of
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--------------------------------------------------------------------------------Gross Profit and Gross Margin
The table below shows gross profit and gross margin by segment for the three
months ended
Gross Profit Gross Margin
2023 2022 Change 2023 2022 Change
Commercial $ 262.4 $ 272.6 (3.7 %) 31.5 % 32.7 % (1.2 %)
Federal Government 64.0 54.0 18.5 % 21.6 % 20.9 % 0.7 %
Consolidated $ 326.4 $ 326.6 (0.1 %) 28.9 % 29.9 % (1.0 %)
Gross profit is comprised of revenues less costs of services, which consist primarily of compensation for our contract professionals, other direct costs and reimbursable out-of-pocket expenses.
Gross margin was 28.9 percent, a reduction of 100 basis points from the first quarter of 2022. The compression mainly related to business mix, including a slightly higher mix of revenues from the Federal Government Segment, which have a lower gross margin than commercial revenues, and, within the Commercial Segment, a lower mix of revenues from the creative digital marketing and permanent placement divisions, which have higher gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of
compensation expense for our field operations and corporate staff, rent,
information systems, marketing, telecommunications, public company expenses and
other general and administrative expenses. SG&A expenses were $224.1 million
(19.9 percent of revenues), compared with $212.1 million (19.4 percent of
revenues) in the first quarter of 2022. This increase reflected investments in
workforce and technology that were made over the course of the prior year, in
support of business growth. Despite attrition during the current quarter, our
workforce was larger than the year ago period.
Amortization of Intangible Assets
Amortization of intangible assets was$18.1 million , up from$13.9 million in the first quarter of 2022. This increase reflects amortization expense related to businesses acquired in the last 12 months.
Interest Expense
Interest expense was$15.4 million , up from$9.3 million in the first quarter of 2022, primarily as a result of higher interest rates on the senior secured credit facility. Interest expense was comprised of$8.5 million of interest on the senior secured credit facility,$6.4 million of interest on the unsecured senior notes, and$0.5 million in amortization of deferred loan costs. The weighted-average outstanding borrowings and interest rate in the first quarter of 2023 and 2022 were$1.1 billion and 5.6 percent, and$1.0 billion and 3.4 percent, respectively. Provision for Income Taxes The provision for income taxes was$19.3 million , down from$23.7 million in the first quarter of 2022 due to lower income before income taxes. The effective tax rate was 28.1 percent, up from 26.0 percent in the first quarter of 2022, which benefited from discrete tax benefits related to stock-based compensation.
Income from Continuing Operations
Income from continuing operations was
Loss from Discontinued Operations
Loss from discontinued operations was
Net Income
Net income was
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--------------------------------------------------------------------------------Commercial Segment - Consulting Metrics
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. The underlying contracts are
terminable by the client on short notice with little or no termination
penalties. The book-to-bill ratio for our commercial consulting revenues is the
ratio of our commercial consulting bookings to the commercial consulting
revenues for a specified period. The average duration of commercial consulting
projects is one year.
Three Months Ended Trailing-Twelve-Months Ended
March 31, March 31,
(Dollars in millions) 2023 2022 2023 2022
Bookings $ 391.9 $ 297.5 $ 1,286.6 $ 925.8
Book-to-Bill Ratio 1.4 to 1 1.5 to 1 1.3 to 1 1.3 to 1
Federal Government Segment Metrics
Contract backlog for our Federal Government Segment represents the estimated
amount of future revenues to be recognized under awarded contracts including
task orders and options. These estimates are subject to change and may be
affected by the execution of new contracts, the extension or early termination
of existing contracts, the non-renewal or completion of current contracts and
adjustments to estimates for previously included contracts. Changes in the
funded contract backlog are also affected by the funding cycles of the
government.
March 31, December 31, March 31,
(Dollars in millions) 2023 2022 2022
Funded Contract Backlog $ 559.8 $ 582.3 $ 488.4
Negotiated Unfunded Contract Backlog 2,482.2 2,681.2 2,382.9
Contract Backlog$ 3,042.0 $ 3,263.5
Contract Backlog Coverage Ratio 2.6 to 1 2.9 to 1
2.6 to 1
___
Contract backlog coverage ratio is calculated as total contract backlog divided by trailing-twelve-months of Federal Government Segment revenues.
The book-to-bill ratio for our Federal Government Segment was 0.9 to 1 for the trailing-twelve-months endedMarch 31, 2023 and 2022. The book-to-bill ratio was calculated as the sum of the change in total contract backlog during the period plus revenues for the period, divided by revenues for the period.
Liquidity and Capital Resources
Our working capital atMarch 31, 2023 was$540.9 million , and our cash and cash equivalents were$65.0 million . Our cash flows from operating activities have been our primary source of liquidity and have been sufficient to meet our working capital and capital expenditure needs. AtMarch 31, 2023 , we had full availability under the$460.0 million revolving credit facility. We believe that our cash and cash equivalents on hand, expected operating cash flows and availability under our revolving credit facility will be sufficient to fulfill our obligations, working capital requirements and capital expenditures for the next 12 months. Net cash provided by operating activities was$80.5 million for the first three months of 2023, compared with$56.0 million in the same period of 2022. The year-over-year increase mainly relates to changes in accounts receivable and accounts receivable days sales outstanding. Net cash used in investing activities was$12.3 million for the first three months of 2023 and included$11.7 million for capital expenditures. Net cash provided by investing activities in the first three months of last year was$0.2 million and was comprised of$9.8 million from the sale of Oxford, partially offset by$9.6 million for capital expenditures. Net cash used in financing activities was$73.4 million for the first three months of 2023 and included$48.8 million to repurchase the Company's common stock, as well as net repayments of borrowings under the revolving credit facility totaling$31.5 million . Net cash used in financing activities in the first three months of last year was$83.4 million and primarily consisted of$76.9 million of stock repurchases.
For details on the Company's senior secured facility, comprised of a revolving credit facility and term B loan, and unsecured senior notes, see Note 3. Long-Term Debt in Part I Item 1.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements that significantly impact the Company.
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--------------------------------------------------------------------------------Critical Accounting Policies
There were no significant changes to our critical accounting policies and estimates during the first quarter of 2023 compared with those disclosed in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2022 10-K. Commitments
There were no material changes to the significant commitments or contractual obligations that were disclosed in our 2022 10-K.
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