Greetings, and welcome to the ASGN Incorporated Second Quarter 2024 Earnings Call. I will now turn the conference over to your host, Kimberly Esterkin of Investor Relations. You may begin.

Good afternoon, and thank you for joining us today for ASGN's Second Quarter 2024 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, Kim. And thank you for joining ASGN's Second Quarter 2024 Earnings Call. ASGN's results for the second quarter confirmed our expectations that macro conditions in Q2 would be consistent with Q1. Revenues were $1.035 billion, while adjusted EBITDA margin of 11.3% was at the top of our expectation. Consistent with the first quarter, in Q2, our clients continue to acutely focus on where and when to spend against our IT budget. Their long-term IT road maps and priorities have not changed. However, concerns about protecting their bottom-line continue to drive cautious execution. This behavior is not unique to ASGN's customer base. On a recent call hosted by the Global ISG Index for the second quarter of 2024, their team of experts concluded that new bookings and hiring remain muted, and headwinds such as high interest rates, inflation, geopolitical unrest, and the impending U.S. Presidential election continue to hinder increased IT spend. IT consulting revenues totaled 57.1% of consolidated revenues for the second quarter of 2024, up from 53.1% in the prior year quarter. The evolution of our revenues is not only reflected in our financial statements, but it has also been acknowledged by equity market indices. In May, in recognition of the pivot in our strategy, the Joint S&P and MSCI Committee responsible for the GICS Code classification, officially switched ASGN's GICS Code from the industrials sector under Human Resources & Employment Services to the information technology sector under IT Consulting & Other Services. With each accomplishment, whether that be increasing our IT consulting revenues and ultimately, overall company margins or receiving a new GICS Code, we are making measured strategic progress toward our goal of moving up the IT services pyramid into higher-end, higher-value IT consulting solutions. Our progress towards this goal will be driven by continuing to nurture our long-standing trusted client relationships, which, like our variable cost structure, form the cornerstone of our business model. Our large account portfolio across six diverse industry verticals offers us first-hand insight into our clients' investments and long-term IT roadmaps. As we position ourselves for the future, we remain committed to fostering these relationships and supporting our clients' most critical IT needs. I'll provide some more details about how we are staying ahead of our clients' IT needs and in particular, those related to AI as we discuss our segment performance. So let's begin with our largest segment by revenue, commercial. Our Commercial segment services Fortune 1000 and large mid-market companies. Commercial Segment revenues for the quarter declined by low double digits year-over-year due to continued softness in the more cyclical areas of our assignment business. Despite a softer macro economy, our strategy to expand our IT commercial consulting business is working. Commercial consulting revenues were essentially flat year-over-year on a difficult prior year comparison but improved 1.6% sequentially. Commercial consulting bookings of $327.4 million put our book-to-bill at 1.2x on a trailing 12-month basis. From an industry perspective, we saw year-over-year growth in one of our five commercial verticals. TMT revenues improved 7.2% compared to the second quarter of 2023 led by double-digit growth in Telecommunications and e-Commerce. Sequentially, TMT revenues improved 8%, while Consumer and Industrial revenues increased 3.1%. Taking into account the additional billable day in Q2 2024, we also saw sequential growth in 10 sub-verticals, including regional banks, diversified financials, utilities, materials, consumer discretionary, telecommunications, e-commerce, tech hardware, software and services, and business services. Although it remains encouraging to see these sequential improvements, we believe we have not yet seen an inflection point in IT spending. As we move up the IT services pyramid toward higher-end consulting work, we are adding new skill sets to our project teams, including solution architects. Our ability to add advanced skill sets to our project teams offers the opportunity to improve our margins, expand our contract sizes and lengths, and enhance our industry vertical performance. It also reflects the high value our clients attribute to ASGN in solving their complex IT problems. Identifying use cases for Gen AI is one of those complex problems. While use cases are growing, we are still in the early stages of AI implementation. ASGN's solution capabilities across disciplines enable us to differentiate our AI services, and so we are deploying a multilayered approach to our AI new business efforts. Data is the fuel for AI, so our Data and Analytics practice is naturally at the forefront of our AI engagement. AI is also compute-intensive, so our Cloud and Infrastructure team is working diligently to create AI solutions that can scale. Finally, AI must be secure, so our cyber practice plays an integral role in use case development. Our clients are readily relying on us to conduct business case and technical assessments to understand where to apply this novel technology. So let me provide some examples of the projects won during the quarter. We provide these engagement examples to give a sense of the work we are performing and ASGN's ability to bring a combination of IT and AI to address our clients' needs. In Q2, for a multinational beauty company, we began implementing a pilot Microsoft Fabric to enhance our client's cloud-based FinOps management solution. By piloting this AI-powered analytics and data platform, our client is gaining actionable insights to better forecast and control their cloud efficiency. Microsoft Fabric is a critical priority across our customer base. And we recently launched our first listing on the Microsoft Azure marketplace, a consulting workshop on Fabric. Participating in the Azure marketplace provides our commercial consulting practice with the opportunity to accelerate growth, increase brand awareness, and importantly, build new client relationships. In another contract won during the quarter, our Data and AI team in Mexico was engaged by a lifestyle brand to develop a roadmap to implement a data solution on Google Cloud. This project involves expertise across several technologies such as GitHub, BigQuery, and a Gemini-based accelerator. By following an agile approach and deploying an AI-powered accelerator, our consulting team improved their velocity of implementation by 3x without sacrificing the quality of service. This project is on track to hit its first milestone in Q3, a complete migration to Google Cloud. Also, during the second quarter, our Mexico Delivery Center supported a Fortune 500 gaming company with application development and modernization. Our technical architects, GitHub-trained Copilot developers, and program managers all collaborated closely with our clients to develop a roadmap for the creation of a custom in-gaming tool. This is a 3-year engagement with our delivery team scaling up over the project lifecycle. Finally, another consulting project won during the quarter was a Threat and Vulnerability Management assessment performed for one of our large healthcare payer clients. Our client was looking to enhance their vulnerability management capabilities and ensure that their operating systems were up to industry standards. By migrating our client's primary threat scanning tool from on-premise to a hybrid cloud solution, our commercial team helped our client mitigate future risks. This cloud solution broadened our client's scanning scope and significantly reduced threat scanning times. Let's now turn to our Federal Government Segment, which provides advanced IT solutions to the Department of Defense, the intelligence community, and federal civilian agencies. Federal segment revenues for the quarter declined low single digits year-over-year but improved on a year-to-date basis. Contract backlog was $2.8 billion at the end of the second quarter or a coverage ratio of 2.2x the segment's trailing 12-month revenues. New contract awards were $194.3 million, putting our book-to-bill at 0.7x on a trailing 12-month basis. Task orders under IDIQs won in Q4 2023 have not materialized as quickly as we originally anticipated. In addition, while our core government services revenues continue to grow, lower-than-expected pass-through licensing fees impacted our second quarter results. Marie will speak further about this topic later in today's call. On a positive note, we are already seeing a greater flow of task orders beginning to be released in the third quarter. I'll provide an update on those shortly. As we prepare for new task orders, like with our Commercial segment, we are actively upscaling our Federal Government professionals in Gen AI. Through our Data and AI Center of Excellence, we are training our professionals in our proprietary large language models, along with publicly available Gen AI services such as ChatGPT, Gemini, and Copilot. Our government teams are also earning in-demand AI professional certifications. These training and certification opportunities expand our professionals' skill set, enhance our technology partnerships, and provide us the ability to create internal use cases to improve ASGN's overall efficiencies. During the second quarter, we began receiving task orders under the $1.25 billion re-compete DARPA IDIQ awarded to our Federal Government Segment at the end of 2023. Our team is supporting DARPA with acquisition lifecycle solutions, program oversight, and expert advisory to meet their dynamic research and development missions. At the start of July, we began receiving task orders on an $88 million single award re-compete contract with the Missile Defense Agency in which we are providing business operations and modernization support services, along with business intelligence and analytics solutions. While work began under this contract in Q3, it is reflected in our Q2 2024 backlog. In addition to those contracts already booked in the backlog in Q2 2024, our Justice Solutions team won a prime spot on a re-compete award with the FBI. This $8 billion 8-year Information Technology Supplies and Support Services contract is the largest contract vehicle ever established by the FBI. This contract allows our Federal Government segment to expand the critical IT services and technology solutions it provides to the FBI to include AI-infused IT and cybersecurity solutions. Our Federal Government Segment has supported the FBI for over three decades, and we look forward to receiving task orders under this contract, which will add to our bookings performance. With that, I'll now turn the call over to Marie to discuss the second quarter results and our third quarter guidance.

Thanks, Ted. It's great to speak with everyone this afternoon. Second quarter revenues were $1.035 billion and reflect the sequential steadiness we expected in our Commercial Segment, offset by lower-than-expected license revenues in our Federal Government Segment. Revenues from the Commercial segment were $725.7 million, down 10.6% compared to the prior year and flat sequentially. Revenues from Commercial Consulting, the largest of our high-margin revenue streams, totaled $281.5 million, essentially flat year-over-year and up 1.6% sequentially. Revenues from our Federal Government Segment were $309 million, a decrease of 3.3% year-over-year. When we spoke last quarter, I noted that we anticipated our Federal Government segment's performance in the second quarter of 2024 would be similar to the prior year quarter. This assumption was based on the belief that we would have a consistent level of software license revenues year-over-year. While our core services revenue for the segment continued to grow, as Ted noted, licensing revenues in the second quarter of 2024 were lower than our expectations. This resulted in the revenue shortfall for the quarter. Our Commercial segment, on the other hand, performed as anticipated. Turning to margins. Gross margins for the second quarter of 2024 were 29.1%, an increase of 20 basis points from the second quarter of last year. Gross margin for the Commercial Segment was 32.7%, up 50 basis points year-over-year, reflecting a higher mix of consulting revenues as well as margin expansion from both consulting and assignment revenues. Gross margin for the Federal Government segment was 20.6%, up 10 basis points year-over-year, primarily due to lower licensing revenues, which carry a lower gross margin. SG&A expenses for the quarter were $205.6 million compared to $210.5 million in the second quarter of 2023. SG&A expenses also included $1.2 million in acquisition, integration, and strategic planning expenses that were not included in our guidance estimates. For the quarter, net income was $47.2 million, adjusted EBITDA was $117.1 million, and adjusted EBITDA margin was 11.3%. Adjusted EBITDA margin was at the top end of our guidance range due to improved business mix and higher gross margins. At quarter end, cash and cash equivalents were $132.2 million, and we had full availability under our $500 million senior secured revolver, and our net leverage ratio was 1.89x. Turning to our cash flow statement. Free cash flow for the quarter was $85.4 million, or a conversion rate of approximately 73% of adjusted EBITDA. Given the market opportunity, we deployed $108 million in a combination of free cash flow and excess cash on the balance sheet for share repurchase. This is the second quarter in a row that share repurchases exceeded our free cash flow. We have $667 million remaining under our $750 million share repurchase authorization. With solid free cash flow generation and full availability under our revolver, we have ample dry powder to make strategic acquisitions when the M&A market improves. In the meantime, we expect to continue to repurchase ASGN shares. Turning to guidance. Our financial estimates for the third quarter of 2024 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and assume 63.5 billable days in the third quarter. We expect market conditions and demand for our services in the third quarter to be similar to that of the second quarter. As it relates to federal government segment revenues, we had a large amount of pass-through licensing revenues in Q3 of 2023, which we are not expecting to repeat. With this background, for Q3 2024, we are estimating revenues of $1.024 billion to $1.044 billion, net income of $45.8 million to $49.4 million, adjusted EBITDA of $114 million to $119 million and adjusted EBITDA margin of 11.1% to 11.4%. Thank you. I'll now turn the call back to Ted for some closing remarks.

Thanks, Marie. We began today's discussion with a review of the macro environment. The second quarter proved much like the first, with clients continuing to position themselves more cautiously than in prior cycles. As evident from the guidance Marie just discussed, we anticipate continued steadiness in the third quarter. On a positive note, as I mentioned previously, government bookings have begun to pick up in the third quarter. In July, we received funding under our re-compete contract with the NYPD for cybersecurity and other system support. In addition, I'm pleased to announce that we just last week were awarded a $1.1 billion IDIQ with the National Institutes of Health or NIH. Our Federal Government Segment is one of seven awardees who have been tasked to support the NIH over a 5-year period with its critical IT needs. Once task orders begin to be released, our team's scope of work will include developing data management and analytics solutions using AI/ML, visualizations, and other advanced analysis techniques. As is evident from these recent awards, despite the current market conditions, we have not shifted our strategy or core belief system. At ASGN, we believe in the IT services sector. We believe in being more consultative, and we believe in large industry diverse enterprise accounts. These three focal areas, along with our variable cost structure, provide support to our business throughout economic cycles. Market headwinds will ultimately reverse and ASGN's business is better positioned than it has ever been to capture in-demand IT consulting opportunities. As we expand our IT consulting business, we are adding directors and advisers to our Board who enhance the strategic vision and operational expertise necessary to forge our path forward. In June, we welcomed Patty Obermaier to our Board of Directors. Patty is the Chief Growth Officer for Microsoft's Global Health Life Sciences Division. She has served as an adviser to our Board since January, and we are excited to officially welcome her and her more than three decades of IT consulting experience to ASGN. Speaking about the topic of governance, in June, ASGN released its Fifth Annual Environmental Social Governance Report. We have made great strides in our ESG reporting over the past year, building upon the foundation we established in prior years while also evolving our capabilities with key sustainability frameworks and regulatory standards. That concludes our prepared remarks. I'd like to express my gratitude to the entire ASGN family for your support this past quarter. Industry dynamics may shift and the macro economy will fluctuate, but your commitment to being one of our clients' most trusted IT partners has not wavered. Thank you again for joining our second quarter 2024 call. Operator, please open the call to questions.

And our first question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

Hey, thanks a lot. This is Ryan on for Jeff. Just a quick question on some of the dynamics around the Federal Government. It sounds like there may be a timing shift in some of the software revenues you didn't get in the quarter. And then it sounds like a tough comp on the pass-through licenses in 3Q. Can you just tell us how we should be thinking about the magnitude of all those together?

Yes. So Ryan, thanks for the question. I think obviously, we've said before, but those software licenses ebb and flow through the quarter. So the timing of that is uncertain. I think Marie said during the script that we had planned on a similar amount of licenses to the prior year quarter and they just didn't come. I mean they will come in future quarters. There are always a certain amount of software licenses that are part of our solutions. And so it's always a component of that, if you will. So I think the good news is here, our core business and what we generate through direct labor is growing, that's certainly positive. That's the most profitable part of the business that we provide, and the software licenses are needed with this solution, but they generate very little gross margin and EBITDA margin. So, but I think the positive thing for ECS during the quarter, even though they were off a little bit on the expectations were in licenses, they delivered all their EBITDA and a little bit more than what was expected during the quarter. And so I think you just have to expect a little bit of ebb and flow in the license revenue.

Got it. And then just for the follow-up, can you give any color on the sequential trends during the quarter and exit rates across your business?

Coming through the first three weeks here of July, business is pretty steady. So I think we had a steady Q2 to Q1. We basically, here in the guide that Marie has given you, we're looking for a similar steadiness in Q3 to Q2. What we saw during the first three weeks has been not marginally up or down for the first three weeks of July. So market conditions are not changing. They are what they are here. And the numbers reflect that, if you will, not only quarter-to-quarter but even for the first few weeks here.

Thank you. Our next question comes from the line of Trevor Romeo with William Blair. Please proceed with your question.

Hi. Good evening. Thanks for taking the questions. First one I had was just on the commercial consulting bookings and the pipeline there. Just wondering if there are kind of any trends you'd call out as far as the size and the scope of projects coming in and the weightings to renewal versus new project activity or any share you might be taking from competitors? And then just finally, I guess, are there any forward-looking indications in your bookings that would suggest any of the kind of sluggishness or caution among clients could change as we move through the next few quarters?

Well, look, I'll let Rand take that one. I'll just pass it to him by saying what 1.2x is a solid book-to-bill for commercial consulting. It's consistent with the past quarters in the trailing 12 months. There's nothing in there that would portend anything that is better news, if you will, than what we've been seeing to date in the future or worse. I think they are more of the same, right, Rand?

Yes. I think, Trevor, a lot of questions there, but size and shape of engagement is about the same as we've had. You heard about four of the engagements we cited in the text. There's some pretty meaty work there. More tending towards what we call AI extended work getting the data and data prep ready for AI, more AI inclusion. I think it's steady as we go, are we beating competitors. We're watching the peer numbers the same as you are. And I think we're steady to them in the consulting world. The fact that we're sequentially up a little bit and the book-to-bill is pretty solid, I think we feel good about it. And if you look at the nature of the work and in fact, one of them is a 3-year project, that's – we're seeing – obviously, any of that we see is good. And it helps us in the long term. Trevor, does that give you color?

Yes, Rand. That's helpful and thanks, Ted too.

And Trevor, could I also add that we were facing a 26% growth comp in Q3 of 2023. So even though we're kind of flattish here on a year-over-year basis for the quarter in Commercial Consulting, we did see a couple of points of sequential growth and the comps are going to kind of change here dramatically. They're going to drop down in the single digits as we get into Q3 and Q4. So the picture there is changing here, but the business is growing and it's growing steadily. And yes, we'll see what we get here.

Yes, and you can see it in our margins, right, gross margins as Consulting increases, right?

Right, okay. And then just maybe a quick follow-up on the assignment business. Is there any kind of way to parse out the performance between kind of the core IT and the more discretionary creative digital and perm businesses? I think we heard from a few others in the industry about some incremental softness in the perm side. So just kind of curious how that's trended as a percentage of your revenue and how that's performed?

Okay. Perm as a percent of total revenue for the quarter was 2.5%. And honestly, that was pretty consistent with prior quarters.

So I wouldn't expect too much more than that. I think I've seen the same thing that – so there's some reporting of kind of softness in that number. Our is already soft. It's gotten down to historic low here. The sum of our creative digital marketing and our permanent placement business, which is predominantly CyberCoders, is still just under 10%. So you're not seeing a lot of change there. So I was just saying that assignment business overall, Trevor, you're just seeing just a little bit of weakness in our guide would imply just a little bit of weakness in those numbers going forward.

Our next question comes from the line of Joseph Vafi with Canaccord. Please proceed with your question.

Hey, guys, good afternoon. Nice to see just the steady results here. Just maybe we've seen some incremental pivot and enterprise spend kind of at least in software towards kind of AI-centric projects. And I know you're working on a lot of that stuff. Just kind of wondering how you're thinking about maybe some of your other service offerings here and maybe some commentary of steady funding in areas away from projects that have kind of an AI kind of focus to them. And if you're worried about sustaining that business? And then I have a quick follow-up.

Yes. So I'll let Rand take that one. Not a big ramp-up in spending, Joe, in AI, which may be distracting, if you will, from what I'll call core normal IT spending. Rand, anything you'd add to that?

No, no. I think Ted, as you said in remarks, the clients are pretty good. Look, we've got good chips, you see the enterprise software guys, like ServiceNow today's report, where they're embedding more for AI in their software. We obviously are astute smart on that capability can help clients bring it to their businesses. The same is true with Microsoft, and those were some of the case studies we featured. So Joe, I would say a lot of our work as Ted said in his remarks, prep work for further AI use cases, which are still being thought through. But all of this is going to contribute toward greater, if you will, enterprise efficiency around these big software products. And then the individual projects will come after that when they begin to translate that into very operating-specific need or problem that's being put on the table for now. It's really dealing with their enterprise systems, which again, whether it's Salesforce, ServiceNow, the ERP systems, financial systems, Microsoft, Google, they're all cloud providers. They're all busily embedding the capability needed in their software. And now it's our job to help the client take advantage of that.

Yes, I apologize for that. I was on mute. Thank you, Rand, for that. Could you provide any updates on the Mexico delivery regarding headcount, additional client volumes, and how you are approaching that situation?

So not a lot of change quarter-to-quarter there, Joe. Headcount has kind of remained where they were, utilization very high. We mentioned some work in the script that was actually assigned to our Mexico delivery center. They're very focused on development of some of the things that Rand just talked about right now in the AI-enhanced area, especially in the data world. So continues to be a good story. But I wouldn't say there's been a lot of change here from last quarter to this quarter.

Got it. And then maybe I'll just sneak one in on cash flow for the year. Maybe, Marie, if you've got some commentary of kind of where we are, if there's any kind of puts and takes we should be thinking about kind of relative to kind of a normalized model on the free cash flow generation for the year?

Our cash flow for the quarter was approximately $85 million, with a conversion rate to EBITDA of 73%. Typically, this figure ranges from 60% to 65%, so it was slightly higher than usual. This deviation was primarily due to fluctuations in working capital. We would likely expect to return to that 60% to 65% range moving forward.

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

This is Emily Marzo on for Heather Balsky. Wondering if you could touch on federal really quick. And I realize it came in a little bit softer than expected. Book-to-bill was a little bit lower and IDIQ came in late. What's going on here? How should we think about those projects being delayed? Or is it more bureaucratic, idiosyncrasies?

Earlier, I mentioned that we were about 10 million off the midpoint of our range for the quarter regarding licenses. Our commercial units performed at or slightly above expectations, which accounts for the discrepancy we saw in software licensing for the quarter. This did not impact EBITDA; it only affected revenue. We expect some fluctuations in that area. Bookings for the quarter were below what we anticipated, but in the first three weeks of July, we have observed an increase in activity and some awards being granted. The second quarter did not reflect lost business; rather, it seemed that everyone was pursuing specific work that is being finalized at different times. It wasn’t a strong quarter in either wins or losses, just a matter of things being delayed. However, the positive news is that we are seeing a strong start in the third quarter, just in those first three weeks, which suggests we will see improvements in our bookings for Q3.

And if I could ask a follow-up on how you see the M&A environment and if you've seen any changes in the challenges in the environment or if it's pretty steady?

No, I believe the factors influencing the M&A environment remain unchanged, primarily spending. The targets are not feeling optimistic about their performance, and we're questioning their figures. With higher interest rates, the required return rates have increased, impacting the multiples. Currently, founders or private equity firms looking to sell their businesses seem to be adopting a cautious approach and can endure this situation for a bit longer. There isn't any new information on that front. We know what we aim to acquire and are keeping tabs on those companies that offer specific solution capabilities we intend to pursue in the future. We're also establishing relationships with the leaders of those organizations. We are definitely acquisition-ready and have the financial resources to proceed. However, we need an improved environment for things to align.

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

Thank you. When I think about just the last few quarters and some of the trends, I think the general high-level commentary has been that not a lot has really changed. So when I look back over that, is that another way to characterize it maybe things are troughing at this point? Or just any color from client conversations and what's holding them back versus maybe what would get them to spend a little bit more?

I will let Rand discuss the second half regarding client trends and conversations. However, our data indicates that the situation is stagnant. It resembles the first half of a bathtub, so to speak. If we look back to the middle of last year, we saw a slowdown in revenue growth, which then plateaued. As we moved into the third and fourth quarters, things remained steady. We experienced a typical seasonal dip at the beginning of the year in the first quarter, and since then, the performance has been flat from the first to the second and from the second to the third quarter on a day-adjusted basis. This trend holds true across the entire business and for individual units. If you want to describe this as a trough, it indeed appears like a bathtub. We are curious about when we might see an improvement from this point, but clearly, certain macroeconomic factors need to change. I’ll pass it over to Rand for insights on client budgets and conversations.

I think the best way to describe the conversations we're having is that there are two levels. The first level involves questions from our clients about their business plans regarding AI, such as understanding the roadmap, identifying necessary actions, best practices in the industry, and determining which strategies are effective. They also want to know what steps they need to take to implement the capabilities offered by software and enterprise vendors, as well as addressing their own requirements. The second level of questions pertains to individual projects that must continue moving forward, particularly those impacting security or important long-term goals, which we've mentioned in our discussions. However, I wouldn't say there's an aggressive push overall, as many questions remain regarding the roadmap for the business. ISG, as Ted noted in his opening remarks, shares a similar perspective on the timeline for when initiatives will fully take root. While some projects are in progress, others require us to carefully outline a roadmap for future success based on what is truly effective. There’s significant change occurring daily, with software vendors introducing new AI capabilities and investments, such as Microsoft's relatively new Fabric capability. They're all trying to integrate these advancements into a cohesive roadmap. The fact that our clients remain engaged suggests they are not yet operating at full capacity. Does that clarify things?

Yes, that does. I mean I appreciate the color there. And then when we think about more than near term and where clients in terms of just Mexico delivery, how should we think about the bookings numbers? Is there increased demand or request for resources out of Mexico at this point? How should we think about that as a percentage of bookings or just other color that you can provide?

Yes. So we don't segment bookings by the Mexico delivery center, Surinder. The Mexico delivery center is working on U.S.-based projects and commercial consulting. So when we give it to you for commercial consulting, that includes that group of delivery professionals, if you will. But demand remains high because clients are really focused on total cost of ownership. And so now more than ever, they're looking at the mix of resources and the price points of those resources. And that's a positive, if you will, for us. Clients, many times, would rather access that as an alternative to offshore, they're still sending stuff offshore, but they get a lot of the advantages here with the nearshore, whether it's communication, really good technical capabilities, same time zone. So we think this is something that's going to continue to build for us. And sometimes the client knows that, that team in Mexico is deployed on a certain project and they've asked for it, and we received the benefits that this went through. Other times, we mix them in as just a part of the project team, and that's up to us in terms of how we put the project team together and execute the work.

Could I also add that Mexico is doing great, and we've got it very involved in certain technologies like Copilot, GitHub, and Fabric. We've also begun, I think Ted's mentioned in a past quarter, to build up a little bit of an Indian offshore capability and the expertise there really around ServiceNow and AI insertion and ServiceNow platform, so which is also building and adding headcount. So to us, it's – we're beginning to build a multidimensional offshore, nearshore capability that's in benefit or client, but it's very much tied to the technology that we can build in each of those locations. So I just didn't want to ignore the Indian piece on this, okay?

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

Thanks. On the Government Consulting business, anything you're changing in the way you manage that. And I ask in the context of the book-to-bill kind of being stubbornly below? And I understand you exclude IDIQs and maybe this is picking up this quarter, but it's a seasonally strong quarter in forecasting the revenue licensing. Any changes there internally that you think are going to improve your sort of the predictability of that business?

We are continuously adding resources to the team where necessary and addressing any performance issues that arise. This has always been our approach, and there hasn’t been any change in that regard. We believe we are well positioned for various opportunities, but we need them to be finalized. We acknowledge that the book-to-bill ratio has been persistently low. However, the market conditions have been challenging. Government contracting offices are not operating as swiftly as they used to, and there is a trend towards consolidating work on IDIQ contracts to expedite processes and reduce the likelihood of lengthy protests. While there are some challenges in the market, we continue to secure contracts and are excited about upcoming projects in July that we will be announcing soon. Overall, we feel optimistic about this quarter and anticipate a strong bookings performance.

Two follow-ups for me in another part of the business. In the assignment business, what's a spree to core like? It's a lot of pretty long string of consecutive quarters of sequential decline. And then separately, but also on the assignment business, if we were to see an uptick in demand how much capacity do you have in recruiting and sales capacity to generate growth before you have to hire in earnest?

This has been a prolonged and challenging downturn, and it's taken a toll on everyone involved. However, this team has shown resilience and dedication to helping our customers succeed, regardless of the current state of the business. It's important to recognize that often the best work isn't done when revenue or earnings are at their peak, but rather during tough times like now. The team is focused on our clients and supporting one another. Despite the current revenue challenges, we are actively building relationships and executing well for our clients. We are managing our headcount to align with demand, but we are maintaining enough personnel to ensure strong client relationships and insight into their spending intentions. When demand increases, we will have the capacity to respond. The timing of necessary hiring is uncertain and would depend on the rate of demand increase. We believe we are in a good position to let our model naturally adjust while remaining prepared for when spending rises, ensuring we are ready to assist our clients effectively with their IT projects.

And our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.

Hi, this is Alex on from Mark. First off, I was just looking at the margins, and obviously, you've had some decline in Federal and some increase otherwise. And I was just kind of wondering if you could give some more color on that? As well as some key drivers with that.

Margins. Yes, margins are steady sequentially here, but year-over-year, there's a little bit of a decline in margins.

Right. Yes.

Now really what's going on, the primary driver of that is business mix. So you're seeing a lower contribution of some of our higher-margin units, which is our creative digital marketing service, our permanent placement services. And you're seeing federal, which is our lower EBITDA margin of business do a better job of maintaining and growing revenues here in the first half versus the mid last year. And so all of that is the primary driver, if you will, of how the EBITDA margin is moving around.

Okay. And then really quickly, I was just kind of wondering, looking forward a little bit further, we have an election year coming up, and we were kind of wondering where you think the election would take IT and federal spending going forward?

I don't think it matters much who is in office; that's a political issue for another discussion. However, the importance of spending on IT for large corporate enterprises and government agencies to achieve their strategic goals, which all involve some form of IT, is significant. Although the spending hasn't occurred yet, the potential is strong. The key is to get the election behind us to eliminate the uncertainty surrounding who will be in office and the second-guessing that accompanies it. Once that's settled and hopefully with a more favorable interest rate environment, we can see increased business confidence among our customers. When they have a clearer understanding of the economic landscape, they will likely return to more typical levels of IT spending, which is essential for driving our business.

Thank you. And we have reached the end of the question-and-answer session. I'll now turn the call back over to Ted Hanson for closing remarks.

Well, just wanted to say thank you for everyone and your attention today and your questions on ASGN, and we look forward to reporting our third quarter here in another 90 days. Be well.

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