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Operator: Greetings. Welcome to the ASGN Incorporated Fourth Quarter 2022 Earnings Call . Please note, this conference is being recorded. I will now turn the conference over to your host, Kimberly Esterkin of Investor Relations. You may begin.

Kimberly Esterkin: Thank you, operator. Good afternoon. And thank you for joining us today for ASGN’s fourth quarter and full year 2022 conference call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Marie Perry, Chief Financial Officer. 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 risks and uncertainties are described in today’s press release 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 Web site at investors.asgn.com.

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. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in today’s press release. I will now turn the call over to Ted Hanson, Chief Executive Officer.

Ted Hanson: Thank you, Kimberly, and thank you for joining ASGN’s fourth quarter 2022 earnings call. As we kick off 2023, I’m pleased to report that the past year represented another top line record for ASGN. Our results for the fourth quarter and full year 2022 are indicative of the continued demand for IT services and solutions in the commercial and government end markets we serve. I want to sincerely thank our entire team for your continued efforts, which are the reason ASGN is the leader we are today. We embarked upon the new year positioned exactly where we want to be, with a great team in place, strong balance sheet and proven operational strategy. After a strong fourth quarter that surpassed our revenue expectations, full year revenues of approximately $4.6 billion were up 14.3% year-over-year and represented a new company record.

Included in the annual revenues were $2.1 billion from Commercial and Federal IT consulting. On an organic basis, revenues improved 10.3% versus the prior 12 months. The Commercial segment, our largest segment, represented $3.4 billion or 75% of total revenues for 2022, while the Federal Government segment comprised the remaining $1.1 billion or 25% of revenues. From a profitability perspective, adjusted EBITDA for the year improved 15.8% as compared to 2021 at a margin of 12.2%. These results put us on track to achieve our three year financial targets laid out in September of 2021. As will be apparent in our segment commentary today, ASGN’s business has hit a positive inflection point, with IT consulting services revenues representing 49% of total revenues in Q4.

We are now quickly approaching 50% of our total revenues derived from high end, higher margin consulting work. This movement up the pyramid will remain our focus. With that as a background, let’s review Q4. Our Commercial segment, which predominantly services large enterprises and Fortune 1000 companies had another solid quarter driven largely by growth in consulting revenues. Segment revenues increased 7.8% over Q4 of last year on a difficult comparison. Apex Systems, our largest division, accounted for 84.9% of the Commercial segment’s revenues with top and retail accounts, both achieving double digit growth rates for the quarter. As expected, creative digital marketing and permanent placement revenues experienced year-over-year declines compared with their high growth rates in the prior year period.

From an industry perspective, three out of our five commercial segment industry verticals achieved double digit revenue growth year-over-year, including the technology, media and telecom industry, consumer and industrial industries and the healthcare industry. The financial services industry vertical achieved mid single digit growth year-over-year while business and government services declined low single digits. Growth in technology, media and telecommunications or TMT industry was again led by double digit growth across telecommunications as well as media and entertainment accounts. Progress in our commercial and industrial accounts reflected growth across all sectors as compared to the fourth quarter of 2021 with the exception of materials.

In particular, we achieved double digit year-over-year growth in energy and consumer staples. The healthcare industry revenues also grew double digits, driven by provider accounts. Financial Services had solid performance in banking with the largest growth year-over-year amongst our fintech and wealth management accounts. Finally, our business and government services vertical saw a slight decline for the quarter year-over-year. Within this vertical, we achieved mid single digit growth in aerospace and defense accounts, which was offset by a decline amongst our business services accounts. Our consulting offerings also remain an important source of the value we provide clients and for the fourth quarter, commercial consulting revenues increased 37.8% year-over-year and up 25.7% organically.

Bookings, which totaled $299.8 million also increased and were up 33.3% year-over-year. This translates into a book-to-bill of roughly 1.2:1 on a trailing 12 month basis. ASGN continues to be favored by our clients in the consulting space due to our intimate relationships, which span decades, our solutions portfolio, which continues to expand and our solutions delivery model, which enables us to meet our clients’ demands with the necessary skilled workforce at economical price points. We continue to solidify our role as a go to player for commercial IT consulting services and in 2022, increased our Fortune 1000 customer count by 44% year-over-year within Apex Systems as we actively engage long term IT staffing customers into consulting customers as well.

Let’s speak about some of our commercial consulting wins during the quarter, beginning with our work in ServiceNow through our GlideFast acquisition. In the first six months, as part of ASGN, GlideFast has driven 23 net new wins for Apex Systems, while at the same time, continues to actively service its existing client base. As an additional benefit, GlideFast customers are beginning to embrace Apex Systems’ other solution strength as well. Our clients remain pleased with the work the GlideFast team has been providing. And at the end of January, GlideFast was recognized as the 2023 ServiceNow Americas Elite Segment Partner of the Year for achieving overall excellence in certification and revenue growth. Reviewing our broader consulting work, during the fourth quarter, we won two data and analytics contracts.

The first contract was with a large national banking institution for whom Apex Systems has been expanding its scope of work for the past three years. Now as a part of our new contract, we will help our clients accelerate its growth through process improvements and the development of security and architecture frameworks surrounding their co-branded credit card operations. In addition, we won a second data and analytics contract with a large energy company, a new customer with whom Apex Systems is partnering to assist in the migration and modernization of its data analytics platform in the cloud. This project will enable our clients to have more reliability in their processes as well as to optimize their database. Also, along the lines of cloud implementations, we were very pleased to win a consulting contract with a large regional healthcare provider during the fourth quarter.

This healthcare company will be conducting a cloud ERP implementation in 2023 that covers its finance, supply chain, human resources and payroll departments. Let’s now turn to our Federal Government segment, which provides mission critical solutions to the Department of Defense, the intelligence community and federal civilian agencies. Federal segment revenues for the quarter were up 13.3% compared to the fourth quarter of 2021, driven by a combination of organic growth, license revenues and the impact of our recent Iron Vine acquisition. New contract awards for the quarter were approximately $172 million, which translates to a book-to-bill of 0.9:1 on a trailing 12 month basis. Contract backlog was $3.3 billion at the end of the fourth quarter, or a healthy coverage ratio of 2.9 times, the segment’s trailing 12 month revenues.

Our pipeline of opportunities is at an all time high, an indication that our government segment is well positioned to benefit from the government’s new budget priorities. The recently passed federal omnibus bill for 2023 is 10% higher than that of 2022, including an additional 16% allocated toward the Department of Defense, an incremental 6% allocated toward the Department of Homeland Security and a 20% increase in budget for the Department of Veteran Affairs as compared to the prior year budget. These three agencies are a few of the governmental agencies in which ECS continues to win contracts. So let me provide some examples of work won during the past quarter. In the fourth quarter, we secured a new contract providing the Air Force with open source intelligence or analytic tools and training.

ECS provides analysts, operators and commercially available tools to the Air Force, which are integrated specifically to meet the department’s mission. ECS also began to execute on a sizable amount of new funding for innovative cloud technology applications that help accelerate AI/ML activities and smart sensor work for the Department of Defense in the US and overseas. Speaking of the DoD, in the fourth quarter, ECS won a new contract with the Defense Manpower datacenter to provide full enterprise deployment of ServiceNow. This contract is an example of our ServiceNow capabilities in our federal government segment, which we gained through the 2020 acquisition of ISM. Lastly, our acquisition of Iron Vine is progressing as planned. The Iron Vine team of cybersecurity experts is now fully integrated into ECS and actively pitching new business together.

Over the past three months, Iron Vine and ECS have begun to pursue multiple large scale cybersecurity deals leveraging the full capabilities of both teams. With that, I will turn the call over to Marie Perry, our CFO, to discuss the fourth quarter results and our first quarter 2023 guidance.

Marie Perry: Thanks, Ted. It’s great to speak with everyone again. For the fourth quarter, revenues were $1.2 billion, up 9.2% year-over-year on an as reported basis. Excluding $47.3 million from businesses acquired in the past 12 months and on a same billable day basis, revenue growth was 6.4%. Revenues for the quarter were above the high end of our guidance estimates with both segments contributing to the overperformance and included $7.7 million in license revenues on a federal contract that were not included in our estimates. Now let’s turn to the segments. Revenue from our Commercial segment were $852.2 million, up 7.8% as reported and 4.9% organically on difficult year-over-year comparisons. Revenues from commercial consulting, the largest of our high margin revenue streams, were $264.1 million, up 37.8% year-over-year.

Excluding the contribution of $23.2 million from GlideFast, consulting services revenue improved 25.7% year-over-year. Revenues from our Federal Government segment were $298.2 million, up 13.3% year-over-year. Excluding the contribution from Iron Vine of $24.1 million, revenues for the segment increased 4.1%. Moving on to margins. On a consolidated basis, gross margin was 29.6%, down 20 basis points over the fourth quarter of last year. The slight compression in gross margin was mainly related to business mix, including a slightly higher mix of Federal revenues, which carry lower gross margin than Commercial revenues and the expected decline in the mix of permanent placement revenues, which declined 90 basis points as a percentage of total revenues year-over-year.

Gross margin from the Commercial segment was 32.2%, down 30 basis points year-over-year due to less contribution from permanent placement work as noted. By contrast, gross margin for the Federal Government segment was 22.1%, up 50 basis points year-over-year, primarily due to the contribution from Iron Vine. SG&A expenses for the fourth quarter of 2022 were $229.9 million, up 13.6% year-over-year. This increase in expense is commensurate with the growth in the business and also reflects investment in headcount and technology to support future growth. SG&A expenses also included $1.5 million in acquisition, integration and strategic planning expenses that we do not include in our guidance estimates. Excluding these expenses, SG&A is within our guidance estimates for the fourth quarter.

As expected, interest expense increased related to rising interest rates, which impact roughly half of our debt outstanding. Amortization of intangible assets was higher due to our recent acquisitions. Income from continuing operations was $55.6 million and adjusted EBITDA margin was 11.5%, both are within our guidance estimates for the quarter. At quarter end, cash and cash equivalents were $70.3 million and we had $31.5 million outstanding on our $460 million revolver, which was increased during the quarter from its previous commitment level of $250 million. Free cash flow for the year totaled $270.3 million, an improvement of 9.5% over 2021. We also deployed $53.8 million on repurchases of approximately 621,000 shares of the company’s common stock during the fourth quarter.

For the full year, we repurchased 2.8 million shares for a total of $281.4 million. Approximately $313.9 million remained available at year end for the repurchases of shares under the Board’s prior authorization. Turning to guidance. Our financial estimates for the first quarter of 2023 are set forth in the earnings release and supplemental materials. These estimates are based on our current production trends, assume 63 billable days in the first quarter, which is three days more than the fourth quarter of 2022 but consistent with our Q1 2022, and include an estimated revenue contribution of $54 million from acquisitions made after Q4 of 2021. It is also important to keep in mind that the first quarter faces a tough comparison to the first quarter of 2022, in which both revenues and margins outperformed their traditional seasonality.

In addition, the payroll tax reset occurs at the beginning of every year, absent the first quarter of 2022, when the impact of the payroll tax on margins was masked by the outperformance of permanent placement revenues and lower T&E expense coming out of the pandemic. Historically, ASGN’s adjusted EBITDA margin has declined each year when moving from the fourth quarter to the first quarter due to the payroll tax reset. With that background, for the first quarter, we are estimating revenues of $1.140 billion to $1.160 billion, an implied revenue growth rate of 4.5% to 6.3% on a same number of billable days and a difficult comparable. We are estimating net income of $51.2 million to $54.8 million and adjusted EBITDA of $128.5 million to $133.5 million.

We are expecting growth and adjusted EBITDA margins to decline sequentially from the fourth quarter of 2022 to the first quarter of 2023, primarily due to previously mentioned payroll tax reset. We do, however, expect to benefit from improved operating leverage over time. Thank you. I’ll now turn the call back over to Ted for some closing remarks. Ted?

Ted Hanson: Thanks, Marie. 2022 was another record year of performance for ASGN. Our fourth quarter and full year results are an indication that demand across the commercial and government end markets remain solid. On the commercial side, with a trailing 12 month book to bill of over 1.2:1 portends well for the current year. Nevertheless, commercial market demand did moderate somewhat from the third to the fourth quarter. In the government space, the new federal budget, combined with our strong pipeline of work, which remains at an all time high, opens up an abundance of opportunities. We remain aware of the developing market conditions. And should macro conditions worsen and we find ourselves in a more difficult position than we are experiencing today, I am very confident that our business is well prepared to continue to succeed.

Importantly, we have a number of automatic stabilizers in place, a strong and diversified US focused customer base, countercyclical federal government work and a variable cost structure that supports our continued strong free cash flow generation and margins. Macroeconomic conditions are naturally outside of our control. What is in our control, however, is the quality of service we provide, the high end talent we source, the solutions we offer and the strategic positioning we maintain. When it comes to those factors, ASGN is in control. After a record year performance that has us quickly approaching the inflection point of 50% IT consulting revenues, our company’s future is bright. We are projecting another year of growth and are tracking in the right direction to achieve our three year targets.

Operator?

Operator: And our first question comes from the line of Maggie Nolan with William Blair.

Maggie Nolan: It’s great to hear that you’re progressing well towards the three year targets. It does feel like I think it was maybe September of 2021 feels like a long time ago at this point. So my question is, do you feel like there was perhaps some buffer included when you laid out those expectations for a changing economy, or how are you considering that as you kind of look to finish out that three year time line that you put out there?

Ted Hanson: If you think about that November — I think it was September of ’21 time frame when we put the targets out there, I think they were responsible targets, we finished that year stronger and so we were naturally ahead just a bit when we came into the first year of the plan. I think the second thing is, obviously, we’ve gotten better organic growth in 2022 than we programmed into the model, and we’re about on pace as it relates to M&A for the first year. So I think we’ll figure out what we get in this particular year. But I think being well ahead on an organic basis and also being on pace from an M&A standpoint here, I think we feel like we’re still tracking towards the targets that we put out there. One thing I’ll add too — Maggie, one thing I’ll add on the margin side, which is an important thing here.

I mean, kind of leading up into this, we continue to see kind of incremental improvements in margin just based on the mix of business where consulting services and commercial brings us much higher margin than the legacy part of our business. And so that’s a proof point here that, that continues to work.

Maggie Nolan: And I know, Marie, you had mentioned maybe some operating leverage that you’re expecting to materialize. I think you referred to it in maybe the near term. Can you kind of talk about the extent of that, that you expect to materialize maybe over the course of the next year and the cadence over this year and then out into the future as well?

Marie Perry: I think what we wanted to really highlight there was — and it was really related to the SG&A expenses. And so when you look at SG&A, the noncash SG&A, we ended as a percent of revenue at 18.1%, 18% in Q1. And when you look at the guidance for the midpoint, it’s around the same as well. And so the idea that these SG&A expenses are really to support future growth. And so the idea is, as we kind of go throughout the year, those expenses would help with the operating leverage.

Ted Hanson: And I would say coming into the — through the second half of the year, the market demand and opportunity was there, and we stayed invested in terms of headcount and we’ll have to monitor that going forward, but we certainly have some productivity to ring out of what we’ve invested in here in the second half of 2022. And again, that’s just a part of who we are. We’re always each year gaining in productivity, whether it’s in the IT staffing or the solutions part of our business. And then you have the mix of consulting working together with that to continue to lever up our margins. And I think that’s why we’re in a good place here as we move towards the targets that we laid out 18 months ago.

Operator: Our next question comes from the line of Heather Balsky with Bank of America.

Heather Balsky: I was hoping you could talk a little bit of the moderation in demand on the Commercial side between 3Q and 4Q and what you’re hearing from customers and kind of how that factors into your outlook for 2023 for the full year as well as your first quarter guide?

Ted Hanson: Well, I think you can see that we’re back to the typical seasonality of the business. And so coming from the third quarter to the fourth quarter this year, as we saw in the pre-COVID years, you begin to kind of level off partway through the fourth quarter and then you have the holidays and everything kind of set in. So it’s natural for us to kind of moderate down just a bit though. So the one thing I’d like to point out is we’re back to that, if you will. The COVID of the years of ’20 into ’21 and ’22, where we were up, up and up every quarter, and I think is part of what we’re speaking to there in terms of the sequential moderation. And then, Rand, do you want to talk about it in terms of marketplace and customers.

Rand Blazer: I mean, that’s the $60 million question, right? And we say every quarter that we read the newspapers like our clients do, and we hear a lot about what’s going on in the economy. But Gartner put out a report today that said overall IT spending was up in ’22 over the previous year and CIO responses have been that they expect to continue to invest in IT. And so when we look at our consulting unit and the bookings and when we look at our relationships in the staffing side and even in the government side, we see a lot of people focused on trying to get IT projects underway and completed in order to improve multiple things, worker productivity, big part of it. You can see a lot of work still around the cloud. You can see that with Microsoft and Amazon and their sales.

ServiceNow, we believe, has been a big transformational tool to help with our commercial clients. When you — Ted pointed out, we grew in three of the five industries we report double digit as we go forward. One of the strengths we have inside of ASGN is there’s always going to be a sector, if you will, that’s not performing, but there are other sectors that are. So as you can expect, our energy, and as Ted pointed out, energy, transportation, airlines, consumer material, all that’s still growing pretty strongly. We watch information technology clients, our technology clients. Obviously, big banks have better revenue opportunity with higher interest rates. So they continue to grow and spend. So I think we’re watching all the parts of the economy to see what’s up, what’s down.

And I think for the most part, we see what you can see in the press that there are parts of the economy they’re doing very well. And there are parts that are a little bit more tenuous in terms of our solution offerings, highly in cloud, highly in cybersecurity, highly in digital transformation, it’s kind of the right place to be in support of our clients. So I don’t know if that gave you enough of a flavor there.

Heather Balsky: And as a follow-up was down mid to high single this quarter. How much of that do you think is a reflection of the economy and potentially a tougher 2023 environment versus normalization given that with the labor market kind of where it is. Can you help us kind of think about that?

Ted Hanson: I think that one part of that is just incredibly difficult comps from the fourth quarter of last year. I mean on a commercial basis, we were up 24% year-over-year in the fourth quarter of ’21, and those parts of our business that you mentioned were up even more. So I think that, that right now is the main thing. And then I think, naturally, you have, as Rand pointed out, you have clients being cautious. So they’re watching, they’ve slowed down some of those activities on permanent placement that’s natural that happens first. We called that out in our guidance as we built our guidance for the fourth quarter. So I just think it’s a little bit of getting that cautiousness in the world and it’s a little bit what you said, which is in the labor market that’s how, how these things react as you get into a difficult business cycle.

Operator: Our next question comes from the line of Tobey Sommer with Truist Securities.

Tobey Sommer: In the commercial consulting, IT consulting area, how has your ability to make acquisitions and then based on the customer kind of proximity and relationship accelerate growth? And if you could just kind of maybe give us a sense for your recent acquisitions and the experience versus your acquisition two or three years ago when everything was very vibrant and growth rates were even higher?

Ted Hanson: Tobey, I’m going to let Rand answer this one. But if I understood you right, I think you’re talking about the synergy part of this, which is Apex and GlideFast playing together versus some of our prior acquisitions. Rand?

Tobey Sommer: That’s right. And your ability to induce them into your customer base and accelerate the growth of the acquired business?

Rand Blazer: I think Ted did in his remarks, feature three of our acquisitions, the GlideFast, the Iron Vine and then the healthcare ERP job, which is an Infor technology, which is another acquisition we did just prior to GlideFast. So I’d say our acquisitions are doing very well. From what he showed you in both GlideFast and Iron Vine, the ability to bring the Apex client to the table for GlideFast support in ServiceNow technology has been better than we could have even expected. We’ve only had them for six months, so I guess, when we finished the fourth quarter. And they achieved their numbers with their client base, but we’ve generated an awful lot of bookings and pipeline out of the Apex client base. So Tobey, that’s going very well.

Iron Vine same thing. We’re in joint bids. I think Ted also featured another one of the federal acquisitions we made, that also has a ServiceNow capability, which we’ve been winning work in ECS with them to some of the ECS client base. So we expected that we’re going to do that, that’s part of, I think, the strength of having an account base that we do, that we can bring them to the table. And the results are, I think, very featured in the words that Ted used previously.

Ted Hanson: And I think, Rand — I mean, Tobey, that’s exactly right. And as Rand said, the GlideFast has certainly had a pace here in terms of what we would have thought from a revenue synergy basis, together with Apex, which is good to see.

Tobey Sommer: Is this a playbook that you’re comfortable repeating this year in a potentially softer environment where new project starts may not be occurring at the same pace? Or is it something where you’d feel more comfortable pausing for a bit to get on more solid footing with even stronger visibility before replicating?

Ted Hanson: Both of these businesses as well as all of our other acquisitions are fully integrated. So I think readiness is not an issue. It’s more situational around watching areas of the demand here and are there M&A opportunities that support that and then just where our things. So it’s a little tough to look for Tobey and say we would or we wouldn’t. I think we’re open minded. We’re working pipeline. We’re looking, We’re thinking. Are people going to spend more on cybersecurity this year than I did last? Absolutely. Are there going to be more services on moving things to the cloud and continuing the march to get all your applications into the cloud? Absolutely. Are there certain enterprise software solutions that are needed in the digital transformation game, and this is not about one quarter or one year, it’s a multiyear kind of effort, and our clients are still investing?

Absolutely. So I think we have to watch those things and then have a an opportunity, if you will, to find the right partner. I mean, as Rand said, very eloquently many times, it took us two years to kind of identify the opportunity, not in ServiceNow, we knew that, but to find GlideFast. And good thing we waited. We really found the right partner in that. So we’ll have to play it as it comes.

Rand Blazer: Ted, could I add to that — and Tobey, you’ll anticipate what I’m going to say. But we’re very positive about this play in our playbook, right? You can see that from the results. And so as Ted said, there’s other ways to also unfold things, but this one has worked and is working again and again for us. So it’s obviously part of our playbook.

Tobey Sommer: And if I could ask one last question about ECS. The trailing book to bill 0.9. Are you comfortable — is that indicative of growth? Because you seem to be growing and maybe getting things midstream or drawing down on a backlog? Kind of help us square that sub 1 book to bill and whatever sort of growth outlook or momentum you see in the government side of the business.

Ted Hanson: I think it’s a little bit of a squirrelly 2022 for us at ECS and together with other peers in the GovCon space. I mean we had two quarters where — well, two quarters where you saw it coming, but you just couldn’t get the procurement wheels running fast enough to get stuff out on the Street. Finally, in the third quarter, we saw a nice push of awards at the end of the third quarter and then hoping to get some more in the fourth. But I think what we’re seeing in the fourth quarter and is just, again, a little bit of stickiness here. So there’s a lot of focus in the GovCon industry around procurement, the cycle, encouraging things to move a little bit faster. And so I think that’s what’s mostly behind this, Tobey. I would say our burn rates on our backlog are there’s not anything abnormal there.

We are picking stuff up as we go, that’s not abnormal. It’s just getting back to the kind of more normal pace of getting the budget dollars out there distributed and available for us to book and create revenues.

Operator: Our next question comes from the line of Jeff Silber with BMO Capital Markets.

Jeff Silber: I wanted to start on the commercial consulting side. The numbers you’ve been putting up have been really strong, a lot stronger than a lot of the other IT services companies out there. Are you seeing any kind of slowdown, are clients taking longer to make decisions. Some of the other companies have been talking about that.

Ted Hanson: I think that’s fair, Jeff. I mean, I think when we say that the pace of growth moderating from the third into the fourth, part of that is behind it. We’re definitely finding tough comps. So I always point that out. I mean that’s a thing right now. But I think, yes, clients are — I mean, look, on the commercial consulting side, we booked $300 million of new opportunity in the last quarter. Some of that is extensions of current work and some of that is numeric one, a balance always. But I think that’s just indicative here. The clients are sticking with it, if you will. And we’ll have to see where that goes. And I think as it relates to January, our bookings in that area were as we would expect for the quarter and for the guide that we put out there.

So I think, again, that’s just another data point that tells us that clients are watching. They’re wary, but they need to get things done. They’re not going to pull something off the shelf here across the board, if you will. And so that gives us confidence that there’s going to — that it’s going to be a marketplace we can continue to work in.

Jeff Silber: And then if I can just shift gears, can we talk about your internal headcount plans by the three major lines of businesses, Simon Consulting and Federal Government for this year?

Ted Hanson: Well, I think — look, you’re always investing where you see there’s opportunity, right? And so naturally, we see opportunity in the IT commercial consulting and so we’re investing into that. We did in the second half of the year and we continue to do that. We have an improving market in the federal space. And so we’re continuing to invest into that opportunity. And then as it relates to the legacy part of the business, the IT staffing part of the business, it’s an industry by industry and an account by account kind of analysis. And so we’ve got kind of always kind of watch where we’re allocating headcount in. But again, I think if you just look at our SG&A, there’s opportunity through the second half in the fourth quarter, and so we stuck with it. And here we are sticking with it because we see the same thing, and we’ll have to monitor it as we go.

Operator: Our next question comes from the line of Surinder Thind with Jefferies.

Surinder Thind: I’d like to start with a question about the consulting business. Can you maybe talk about the level of penetration that you have in terms of overlap with the staffing clients at this point? And in terms of some of the new project wins or the accelerated growth rates that you’ve seen over the past couple of years to where you are at this point. Is there any cannibalism occurring, or how should we think about that dynamic with the staffing business?

Ted Hanson: Rand, do you want to take that one?

Rand Blazer: Well, first of all, I think, Ted, in your comments, you commented that we’re growing with greater penetration of our staffing clients into consulting. So I think we reported in the past, we were in a like a 20% penetration of staffing accounts for consulting services, that number continues to go up. And we focused on the Fortune 1000 now as opposed to the 500, we’ve expanded out and we are definitely getting more penetration into that client base, that staffing client base. In terms of cannibalization, Surinder, I understand the way you’re asking the question. I don’t think that’s what’s going on. I think clients are getting smarter at how they buy things. So do I need a body or do I need a work product? Do I — what’s the best way for me to get this particular problem solved.

And Jeff, on the previous call, had asked about workforce. We don’t have a staffing workforce and a consulting workforce. We have a group of account managers that service all of our accounts, be it staffing or consultative services. And they’re supported by the technical muscle that we have in our consulting unit and supported by all of our recruiters. So when we’re approaching a client, we’re approaching the client from the point of view of, what are you trying to accomplish, how can we best accomplish that? And that will end up with a work package, it could be a staffing work package or could be a consultative work package. And it’s really the best way to solve the client’s ultimate problem and gives the client credit, they’re sitting back saying, what is the best way for me to get results out of this piece of work.

So I see it as a maturing of the industry and the maturing of our role in this industry. We’re not a 100 year old consulting business like we were a KPMG or Accenture is that sort of thing. So we’re 10 years into it, we’re getting smarter with the client, and we’re having them sit down. And that’s why we always kind of know what they’re thinking about and what they’re trying to accomplish. So does that answer your question, does that give you a feel for

Surinder Thind: Yes, I think that’s helpful. Just as a point of clarification, just following up on the 20% penetration comment. Is the idea that is there a number that maybe given you have clients of all sorts of different sizes, consulting, I assume, tends to be bigger projects. So is there — maybe you can get to a 50% penetration rate? Or if that was kind of the context of where we are in that journey, I realize there’s still a long road ahead, but just some sort of idea of what the current

Rand Blazer: Ted, if I want, I think 20% was the number we put out many, many quarters ago. And I will tell you, we’re north of that number now. And I think the goal is why would we stop at 50%, right? Why wouldn’t we keep driving? I mean every client, I’m sure there are services we can provide, value we can provide our clients, every one of them.

Ted Hanson: Surinder, you know the procurement process is such with these large enterprise accounts that they have an IT staffing approved vendor opportunity or list and then they have a professional services or consulting. And sometimes as they’re knitted together more tightly, sometimes they’re dramatically separate, and we’re pursuing both. We’ve been on the IT staffing side, pursuing that vendor opportunity for — I have lost count of the years, 28 years now or whatever the number is. It only like for the last 10, are we pursuing this other and we’re winning pretty well and there’s no reason to stop at a certain number. It’s a wide open opportunity. We just have to keep at it.

Rand Blazer: There’s clearly room to grow. And by the way, by growing this kind of work, we’re improving and increasing the value we bring to the client, helping our own margins, giving our people career opportunities and career path, and our people are trained to think more widespread than just the staffing component, if you will, although, that’s still important as well to many of our clients. We want to make sure we pay attention to that as well.

Surinder Thind: And then in terms of a related question here. Any color on maybe the scale at which you’re comfortable taking on projects within the consulting business, or are there any revenue concentration elements that we should be aware of?

Ted Hanson: So no revenue concentration. But Rand, in terms of the type of opportunities?

Rand Blazer: I think, Surinder, we’ve said in the past, there’s this pyramid of services and on the top is architecture. And then below that, you begin to get into applications and the data formats and the datasets and that sort of thing and the implementations. I would say a complicated architecture for a Fortune 500 company, we need to be a little careful, okay? Let Accenture do that, but we can certainly implement, help implement that architecture. And look, most clients have an architecture and they have a path forward. We had our own ideas on digital transformation of different industries. We’ve shared that with the clients. So I think we have to be careful we don’t get over our skis, if you will, in a piece of work or in a technology that we’re not familiar with.

But we can also ramp up pretty quickly, because we have a recruiting force second to none, right, in which we can find talent and build that talent base for the client industry specific. But I think we’re also mindful of the risks. So Surinder, the issue, the only thing would keep us is the big risk can we really deliver on that and maybe the architecture level is the area that we would certainly ask ourselves a lot of questions first.

Ted Hanson: And I think it depends on the type of work too, obviously, in ServiceNow, we have that capability. And so we’re very comfortable in that area around digital, creating that digital enterprise layer, as an example and really good on architecture in that. In the Federal business, we’re really good on architecture in certain areas, cyber, cloud, our work in AI, machine learning. And so those are areas we’re very comfortable. There are others that are just not our sweet spot, and so I think Rand put that exactly right.

Operator: Our next question comes from the line of Heather Balsky with Bank of America.

Heather Balsky: I put myself back in the queue with just one other follow-up. So last year, you guys gave some framework for full year in terms of margin and sales. And you didn’t do it on this call, but I just wanted to ask if there is any sort of I guess, higher level framework you can provide for how you’re thinking about the year, or just kind of any help with that.

Marie Perry: The one thing that we will say around the full year is that we are tracking toward our three year target. And so it’s just a great tool to have these three year targets to know kind of where you’re going. And so as Ted mentioned earlier, we started out 2022, we ended 2021 stronger, started out 2022 with more organic growth. And so we feel very comfortable with where we’re tracking. And so we haven’t really changed those three year targets.

Operator: And we have reached the end of the question-and-answer session. And I’ll turn the call back over to Ted Hanson for closing remarks.

Ted Hanson: Thank you. Well, I appreciate everyone’s time this evening and interest in ASGN, and we look forward to speaking with you after our first quarter comes to an end and we announce results shortly thereafter. Have a great evening.

Operator: And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.