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.

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 website 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.

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, a strong balance sheet, and a 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 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 among 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 among 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 strengths 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 OSINT analytic tools and training. ECS provides analysts, operators, and commercially available OSINT 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 Data Center 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.

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 was $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 the 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 the 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.

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?

And our first question comes from Maggie Nolan with William Blair.

It's great to hear that you're progressing well towards the three year targets. It does feel like perhaps some buffer was included when you laid out those expectations for a changing economy, how are you considering that as you kind of look to finish out that three year timeline that you put out there?

If you think about that September 2021 timeframe when we put the targets out, I think they were responsible targets. We finished that year stronger, and so we were naturally ahead when we came into the first year of the plan. I think the second part 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, we feel like we're still tracking towards the targets that we put out there. One thing I'll add, on the margin side, we've seen incremental improvements in margin just based on the mix of business where consulting services bring us much higher margins than the legacy part of our business.

And I know, Marie, you had mentioned maybe some operating leverage that you're expecting to materialize. Can you kind of talk about the extent of that, that you expect to materialize over the course of the next year and the cadence over this year and then out into the future as well?

What we wanted to highlight was related to the SG&A expenses. When looking at SG&A, the non-cash SG&A ended at 18.1% of revenue in Q1. The midpoint guidance is expected to be similar. These SG&A expenses are primarily aimed at supporting future growth. As we progress through the year, those expenses should facilitate operating leverage.

Coming into the second half of the year, the market demand and opportunity were 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 gain from what we've invested in here in the second half of 2022. That's just part of who we are. We continuously gain 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, which helps to continue to elevate our margins. That's why we're in a good place as we move toward the targets that we laid out 18 months ago.

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

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

We're back to the typical seasonality of the business. 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 set in. So it's natural for us to moderate down just a bit, though. One thing I'd like to point out is we're back to that typical pattern. In the past two years, we've seen continuous growth every quarter. That's part of what we've seen there in terms of the sequential moderation. And Rand, do you want to talk about marketplace and customers?

That's the $60 million question, right? 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. Gartner put out a report today that said overall IT spending was up in '22 over the previous year, and CIO responses have indicated they expect to continue investing in IT. When we look at our consulting unit and the bookings and when we look at our relationships in staffing and even in government, we see many companies focused on trying to get IT projects underway and completed to improve multiple things like worker productivity. You can see much work around the cloud. You see that with Microsoft and Amazon and their sales. ServiceNow, in particular, has been a big transformational tool to help our commercial clients. Ted pointed out that we grew in three of the five industries we report on with double digit growth as we go forward. One of the strengths of ASGN is that there is always going to be a sector not performing, but other sectors are thriving. We're watching all the parts of the economy to see what's up, what's down. We see parts of the economy doing very well, while others are a bit more tenuous in terms of our solution offerings, highly in cloud, cybersecurity, and digital transformation, which is the right place to be in support of our clients.

And as a follow-up, permanent placement was down mid to high single digits this quarter. How much of that do you think reflects the economy and a tougher 2023 environment versus normalization given the state of the labor market?

One part of that is just incredibly difficult comparisons from the fourth quarter of last year. For a commercial basis, we were up 24% year-over-year in the fourth quarter of '21, and some parts of our business, were up even more. I think that's the main factor right now. Naturally, you have clients being cautious. They're monitoring their investments and have slowed down some activities on permanent placement, which is natural and typically happens first as part of our guidance for the fourth quarter.

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

In the commercial consulting, IT consulting area, how has your ability to make acquisitions based on customer proximity and relationships accelerated growth? Can you give us a sense of your recent acquisitions and how they compare to your acquisitions two or three years ago when everything was more vibrant?

I'm going to let Rand answer this one. But if I understood you right, you're referring to the synergy aspect, which is Apex and GlideFast playing together versus some of our prior acquisitions.

I think Ted highlighted three of our acquisitions: GlideFast, Iron Vine, and the healthcare ERP, which is an Infor technology that we did just before GlideFast. Our acquisitions are performing very well. As Ted mentioned, both GlideFast and Iron Vine have exceeded our expectations. In six months, GlideFast has been able to generate a lot of bookings and pipeline from the Apex client base. Iron Vine has followed suit as well. We're in joint bids across multiple sectors, and we anticipated some results, and we’re witnessing a solid collaboration yielding positive results together.

As Rand mentioned, the GlideFast has certainly had impressive results in terms of revenue synergy with Apex, which is good to see.

Is this a playbook that you're comfortable repeating this year in a potentially softer environment where new project starts may not occur at the same pace? Or would you feel more comfortable pausing until you have stronger visibility before replicating?

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 monitoring areas of demand and whether there are M&A opportunities that support that. We need to be open-minded. We're working a pipeline and thinking strategically about where our opportunities lie. Are people going to spend more on cybersecurity this year than last? Absolutely. Are there going to be more services moving things to the cloud? Certainly. Are there enterprise software solutions needed in the digital transformation arena? Without question. Our clients are still investing heavily, and we'll have to see what partners are available.

We're very positive about this play in our playbook. You can see that from the results, and as Ted said, there are other ways to unfold things, but this model has worked again and again for us, making it an important part of our strategy.

I think it's a little squirrelly for us in 2022, along with other peers in the GovCon space. We had two quarters where the procurement wheels were slow to turn and we saw a push of awards at the end of the third quarter and are hopeful for more in the fourth. We're experiencing a stickiness in that sector. There's a lot of focus in the GovCon industry around speeding procurement cycles. So that influences the trends we're witnessing right now. The burn rates on our backlog are normal, and we're picking things up as we go. It's just returning to the usual pace of budget distribution and availability for us to book and generate revenues.

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

I wanted to start on the commercial consulting side. The numbers you're putting up have been really strong, much stronger than many other IT services companies. Are you seeing any kind of slowdown? Are clients taking longer to make decisions like others have mentioned?

That's fair, Jeff. When we discuss the pace of growth moderating from Q3 to Q4, part of that is indeed behind it. We are facing tough comparisons right now. But yes, clients are watching closely, and while we booked $300 million of new opportunities last quarter, some of it consisted of extensions of current work. Clients are remaining cautious but recognize the need to get things done.

And then if I can shift gears, can you talk about your internal headcount plans across the three major lines of businesses: Consulting, IT staffing, and Federal Government for this year?

You're always investing where you see opportunity. We see growth in IT commercial consulting, so we're increasing our investment in that area. Yielding towards opportunities in the federal space as well. With the legacy IT staffing side, it’s an industry-specific and account-specific kind of analysis. We monitor headcount allocation closely based on where opportunity lies. For the second half of the year and Q4, our investments remain aligned with growth opportunities.

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

I'd like to start with a question about the consulting business. Can you talk about the level of penetration that you have in terms of overlap with the staffing clients at this point? As well as some of the new project wins or the accelerated growth rates over the past couple of years? Are there any cannibalism effects occurring, or how should we think about that dynamic?

Rand, do you want to take that one?

First, we're growing with greater penetration of our staffing clients into consulting, which continues to increase from the prior reporting of 20%. We focused on the Fortune 1000 and are seeing positive numbers. Regarding cannibalization, clients are getting smarter about their purchasing decisions. It's not a matter of cannibalization but rather a maturing industry. Clients consider the best solutions and are essentially seeing the advantages of our dual approach. Our staff is well-prepared to tackle either consulting or staffing solutions.

As a point of clarification, so that 20% penetration is now higher, and you have the ambition to continue driving that forward, is there a target you are looking to reach?

Yes, we aim to continue improving beyond 50%. There are always additional services and value we can offer our clients, and we're committed to exploring those avenues vigorously.

Procurement processes vary among large enterprise accounts, and they have separate lists for IT staffing and professional services or consulting. We pursue both sides diligently. Our long history in IT staffing benefits us as we advance in consulting, and there's significant potential for further growth.

We have clearly ample room to grow in this area. By growing our work, we enhance client value, increase our own margins, and provide our employees with career opportunities.

I'd like to know about your comfort level in terms of taking on projects within the consulting business. Are there any revenue concentration risks we should be aware of?

There are no revenue concentration risks. We need to ensure we don’t overextend. Complicated architecture projects for Fortune 500 companies require discernment, but we can implement those architectures and have a well-defined digital transformation path. We have strong capabilities in certain areas such as cyber, cloud, and machine learning.

We are careful about our level of engagement regarding significant projects, but we've developed quick ramp-up capabilities since we have an exceptional recruiting force. We need to be cautious but also remain poised to leverage opportunities.

The one thing that we will say around the full year is that we are tracking toward our three-year target. These three-year targets are a great tool to understand our trajectory. We started 2022 stronger and have seen better organic growth, and we feel very comfortable with our current pace. We haven't changed those three-year targets.

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.

Thank you. I appreciate everyone's time this evening and interest in ASGN. 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.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.