Earnings Call Transcript - ASGN Q2 2022

Operator, Operator

Greetings, and welcome to ASGN Incorporated Second Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kimberly Esterkin, Investor Relations. Thank you. You may begin.

Kimberly Esterkin, Investor Relations

Thank you, operator. Good afternoon, and thank you for joining us today for ASGN's Second Quarter 2022 Conference Call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; Ed Pierce, Chief Financial Officer; and Marie Perry, Executive Vice President. 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.

Ted Hanson, CEO

Thank you, Kimberly, and thank you for joining ASGN's Second Quarter 2022 Earnings Call. As is evident from our second quarter results, we had a strong first half of the calendar year. Revenues for the second quarter surpassed the high end of our guidance range and totaled $1.1 billion, up 17.1% year-over-year and up 4.7% sequentially, driven by the continued strength of our Commercial segment as well as growth in our Federal Government segment despite a difficult year-over-year comparable. Our Commercial segment accounted for 74.5% of consolidated revenues, while our Federal Government segment accounted for the remaining 25.5% of revenues. Adjusted EBITDA also surpassed our estimates for the quarter and was up 20.7% year-over-year and up 6.8% sequentially to total $144 million. With these strong results, we continue to trend ahead of our three-year targets we laid out at our Investor and Analyst Day Conference this past September. This performance brings us closer to our goal of $6 billion in revenues by 2024. An important component of our success in achieving our three-year revenue goal is our unique deployment model. As a leading provider of IT services and solutions to the commercial and government end markets, our business is U.S.-focused and has very steady and predictable trends. These trends include not just our history of achieving above-industry revenue growth but also our continued margin expansion and free cash flow growth. For the quarter, adjusted EBITDA margins improved 40 basis points year-over-year to total 12.6%. Our free cash flow from continuing operations was $79.6 million, an improvement of 10.1% over the prior year period. Given our strong free cash flow and the market conditions, we have been actively buying back our shares. During the quarter, we purchased $91.2 million in shares. And in today's earnings release, we announced our Board of Directors approved a new two-year $400 million share repurchase plan, which replaces the $350 million plan approved in December 2021. The increased pace of repurchases in the second quarter and new expanded program just approved allows us to take advantage of market conditions while maintaining our view that thoughtful M&A yields the best long-term value for stakeholders. As we discuss our second quarter performance today, three key themes will remain top of mind. These include: one, our consistently strong execution, which is evidenced by the growth of our two business segments; second, the stability and resiliency of our unique deployment model, which positions us to successfully navigate across market cycles; and third, our strong free cash flow generation and balanced but flexible capital deployment strategy, which enables us to act in the best interests of all our stakeholders. So let's review these themes and start by discussing our largest segment, Commercial, which services large enterprises and Fortune 1000 companies. Our Commercial segment had another very strong quarter with revenues of $850.6 million, an increase of 19.4% over Q2 of last year, with strong growth in both IT staffing and consulting services. Apex Systems, our largest division, accounted for 83.1% of this segment's revenues for the quarter, with top and retail accounts both achieving double-digit growth rates. From an industry perspective, all five of our Commercial segment industry verticals achieved double-digit growth for the quarter. Within Apex Systems specifically, financial services, our largest industry vertical, had strong performance in banking and insurance with even greater year-over-year increases amongst our fintech and wealth management accounts. Growth in our technology, media and telecommunications, or TMT, accounts was again led by technology and telecommunications work. Progress in our commercial and industrial accounts reflected strength across all sectors, with the exception of materials. In particular, we achieved double-digit growth in energy, utilities, consumer discretionary, and consumer staples. Improvement in our healthcare vertical revenues continued to be driven by both provider and payer accounts. Finally, growth in our business and government vertical was led by our business services accounts, while aerospace and defense accounts were up mid-single digits versus the prior year. Gross margin for the Commercial segment was 33.1%, up 110 basis points from the prior year, driven by our growing contribution of high-margin commercial consulting, creative digital marketing, and permanent placement businesses. Adjusted EBITDA margins were relatively consistent with Q1. ASGN's IT consulting offerings remain an important source of value we provide our clients. For the quarter, commercial consulting revenues totaled $222.2 million, an increase of 53.9% year-over-year. Revenues derived from our work in web, mobile and application development, data analysis and migration, and cloud architecture engagements led our commercial consulting's quarterly performance. We had a particularly strong quarter for commercial consulting new bookings, which totaled $340.6 million, up 56.5% year-over-year. This translates into a book-to-bill ratio of 1.5:1 for the quarter, consistent with Q1. As a reminder, we calculate commercial consulting's book-to-bill as the ratio of our bookings, the amount of new work won during any given quarter that will be executed over the ensuing quarters, to our commercial consulting revenues for that quarter. Our pipeline of business remains strong, improving double digits sequentially, and we are actively growing our capabilities. Speaking of expanding our capabilities, at the beginning of July, we officially closed our acquisition of GlideFast, an Elite ServiceNow provider. And within their first week as part of ASGN, the GlideFast team participated in more than a dozen client pitches with Apex Consulting Services. We are not surprised by this new business momentum due to the high demand for ServiceNow. In fact, even prior to acquiring GlideFast, our commercial consulting customers were asking for ServiceNow implementations. For those not yet familiar, ServiceNow is a cloud-based workflow platform that has quickly become the go-to operating system of enterprises worldwide. In essence, ServiceNow provides a new digital layer throughout the enterprise's operations, automating its workflows and streamlining its business processes quickly and at scale. By aligning our current IT consulting offerings with that of GlideFast's expertise, we are jump-starting our ServiceNow business and immediately offering GlideFast access to Apex Systems' account base. The acquisition of GlideFast ideally fits with our M&A strategy of acquiring in-demand digital solution capabilities that can be strategically pulled across our large account portfolio. Like that of Apex Systems, GlideFast's client base spans multiple industries from TMT and financials to consumer and business services, amongst other verticals. We see significant revenue synergies with GlideFast above its stand-alone anticipated 30% revenue growth in 2023. Ed Pierce will provide further detail on GlideFast's revenue contributions later in this call. Let's now turn to the Federal Government segment, which provides mission-critical solutions to the Department of Defense, the intelligence community, and civilian agencies. Revenues for the quarter totaled $291.2 million, an increase of 11% year-over-year, driven by a combination of organic growth and the impact of businesses we acquired in 2021. We also experienced better-than-expected spending on a cost reimbursable AI/ML contract, which was a pull forward from the second half of this year. Ed will speak more on that shortly. Gross and adjusted EBITDA margins were also up for the quarter related to improvements in the Federal Government segment's business mix, including a smaller contribution of cost reimbursable contracts, which carry lower margins than other contract types, as compared to the prior year and the contribution from the higher-margin businesses we acquired in 2021. New contract awards for the quarter were approximately $263.4 million, which translates to a book-to-bill ratio of 0.9x:1 on a trailing 12-month basis. Awards are speeding up, and we are already seeing contracts come through under the new government budget, a positive sign that government continues to drive spending in each of the areas in which ASGN is focused, including cybersecurity, AI/ML and digital transformation. At quarter end, contract backlog totaled $2.9 billion, a healthy coverage ratio of 2.5x the segment's trailing 12-month revenues. During the quarter, some of our contract awards included a contract to support the U.S. Army's cybersecurity efforts by modernizing and strengthening their tactical networks; a recompete contract supporting NOAA's Office of Marine and Aviation Operations, in which we help optimize their fleet capabilities; a new task order to support FCC application development; and lastly, a contract for building new and improved capabilities within training and readiness for the United States Marine Corps. In addition, justice, homeland and law enforcement businesses saw solid organic growth during the quarter. This growth was fueled by contracts in cybersecurity, systems engineering, and digital transformation solutions work, including a recompete contract with the DOJ, along with growth in other existing contracts. We also won new work with DHS and state law enforcement agencies. With that, I will turn the call over to Ed Pierce, our CFO, to discuss the second quarter financial results and our third quarter 2022 guidance. Ed?

Edward Pierce, CFO

Thanks, Ted. Good afternoon, everyone. As Ted mentioned earlier, our financial performance for the second quarter exceeded the high end of our guidance estimates. This performance reflected solid double-digit growth of our Commercial segment, low double-digit growth of our Federal Government segment, and expansion in our gross and adjusted EBITDA margins. For the quarter, revenues were $1.1 billion, up 17.1% year-over-year on a reported basis and 13.4% organically, which adjusts for the $36.3 million contribution from acquired businesses. Gross profit, operating income, and adjusted EBITDA were all up year-over-year and grew at higher rates than revenues. Revenues from our Commercial segment were $850.6 million, up 19.4% year-over-year. All commercial divisions grew double digits, with the highest growth coming from our commercial consulting, creative digital marketing, and permanent placement services, which carry higher gross margins than our IT staffing services. Revenues from commercial consulting, the largest of the high-margin revenue streams, were $222.2 million, up 53.9% year-over-year. Revenues from our Federal Government segment were $291.2 million, up 11% year-over-year. Revenues for the quarter were higher than expected mainly because of $16 million in third-party software license purchases under a cost reimbursable contract that were expected to occur in the second half of the year. Revenues for the quarter included $27.5 million from acquired businesses, and revenues for the second quarter of last year included $11.8 million from a low-margin web services resale program that the segment chose not to renew in Q3 of last year. Gross margin was 30.1%, up 180 basis points over Q2 of last year. Both business units reported year-over-year expansion in gross margin, driven by improvements in business mix. Gross margin for the Commercial segment was 33.1%, up 110 basis points year-over-year. The expansion was the result of double-digit growth of our high-margin commercial consulting, creative digital marketing, and permanent placement services. Gross margin for the Federal Government segment was 21.4%, up 3.1 percentage points year-over-year as a result of changes in business mix. This improvement resulted from: one, the contribution of high-margin businesses acquired in 2021; two, the lower level of revenues from certain cost reimbursable contracts, including a low-margin web service as a resale program; and three, higher profitability under certain firm fixed price contracts. SG&A expenses were $220.4 million, up 24.9% year-over-year. SG&A expenses included $3.1 million in acquisition and integration expenses that we do not include in our guidance estimates. Excluding these expenses, SG&A expenses were slightly above our guidance estimates primarily as a result of higher-than-expected growth in revenues and gross profit. Income from continuing operations was $72.6 million, up 26.7% year-over-year. Adjusted EBITDA was up 20.7% year-over-year, reflecting a 40 basis point improvement in our adjusted EBITDA margin to 12.6%. At quarter end, cash and cash equivalents were $490.6 million, and there were no outstanding borrowings under our $250 million revolving credit facility. Our senior secured debt leverage ratio was 0.91:1. During the quarter, we spent $91.2 million on the repurchase of approximately 912,000 shares of the company's common stock. Subsequent to the end of the quarter, we spent $350 million on the acquisition of GlideFast. Our financial estimates for the third quarter are set forth in our earnings release and supplemental earnings materials. These estimates are based on current production trends, assume 64 billable days in the quarter, and include an estimated revenue contribution of $35.1 million from the recent acquisition of GlideFast and the two federal consulting acquisitions made in the second half of last year. For the third quarter, we're estimating revenues of $1.183 billion to $1.203 billion, an implied revenue growth rate of 10.2% to 12%. We're estimating net income of $70.5 million to $74.1 million and adjusted EBITDA of $145 million to $150 million. We're estimating year-over-year expansion in gross margin and a slight sequential decline as we're projecting a 0.5 point drop in the mix of permanent placement revenues. With respect to the full year 2022, we're updating our high-level comments made on our last earnings call. We're currently projecting revenue growth in excess of 13.5% and an adjusted EBITDA margin above 12.25% compared with 12% for 2021. The expansion in margin is driven by a higher mix of commercial consulting, creative digital marketing, and permanent placement revenues, partially offset by investments in our operating platform to support high, sustainable growth in the business. Thank you for your time. I'll turn the call back over to Ted for some closing remarks.

Ted Hanson, CEO

Thanks, Ed. Following a record-setting first half, ASGN enters the second half of 2022 on solid footing and ready to support our clients' most critical business needs. While we are not necessarily recession immune, we continue to execute strongly, the first message of today's call. Our business model has several automatic stabilizers that support our recession resilience, the second of today's focus areas. Last but certainly not least, we have managed this business through numerous down cycles, each time performing better than the market in revenues, while also maintaining very solid EBITDA margins and cash flow due to our variable cost structure. This is the third area we highlighted throughout today's prepared remarks. ASGN's scale and unique deployment model provides us with the stability throughout market cycles. The ASGN of today is better positioned for faster sustained growth in IT services and solutions and maintains more diverse revenue streams than ever before. Our U.S.-focused, high-end IT service offerings to a large and industry-diverse commercial client base, combined with our countercyclical federal government work, provide stable sources of revenue and strength during an economic downturn. These aspects of our operating model enable us to quickly accelerate our business to support each of our clients, who are quick adopters of new technologies and actively looking to pursue their IT modernization and digital transformation initiatives. Importantly, customer IT spend is showing no signs of slowing. While in past economic cycles, you may have seen some pullback in IT spend, the pandemic has taught us that a sustainable business is one that is technologically savvy, that has systems in place to protect and secure its networks across multiple locations and that has agile platforms with automated processes in place. In other words, the pandemic accelerated digital transformation, and we do not see that trend changing. In fact, CTOs and other technology leaders now see investments in technology as business drivers and not cost centers. And they are focusing their company's IT spend on cloud computing, machine learning, artificial intelligence, and automation, all areas in which ASGN excels. Bill rates are naturally increasing as we move up the technology pyramid into higher-value work. Case in point is the strength of our consulting business. Consulting contracts have stable revenue streams that often extend 12 to 18 months, providing great visibility into the outer months and years. Our commercial consulting customers are confident in their digital road maps and actively bidding out new work. Our government customers, who also deploy us on long-term, mission-critical solutions contracts, are seeing the benefit of the flow-through of the new federal budget. These favorable dynamics for both the commercial and government end markets create consistent demand for the IT services and solutions that ASGN provides. Before closing, I'd like to note that today's earnings conference call officially marks Ed Pierce's last quarterly call as our Chief Financial Officer. After nearly a decade as our CFO, Ed will be retiring from his role this August, and he will take on a strategic advisory role with ASGN through the end of this year. Marie Perry, who has had the great opportunity to work side by side with Ed over the past several months, is ready and excited to assume the CFO position. Ed, you have been a wonderful partner, a resourceful guide, and a great friend. I cannot thank you enough for all that you have contributed to ASGN, not only as our CFO for a decade but also previously as a member of our Board of Directors. On behalf of the Board and our entire company, I wish you the best in your well-deserved retirement. With that, let's open up the call to questions.

Operator, Operator

Our first question comes from Tim Mulrooney with William Blair.

Samuel Kusswurm, Analyst

This is Sam Kusswurm on for Tim. Just first off, I just wanted to wish you a happy retirement, Ed. I know I speak for both Tim and Maggie here, but we've all appreciated your help over the years and wish you well.

Edward Pierce, CFO

Thank you. Appreciate that. Thanks.

Samuel Kusswurm, Analyst

Our first question, I think this would be a good one for Ted, actually. You spoke in the past about ASGN being less an employment story and more about IT spending by your clients. So I was hoping if you could just comment on what you're currently seeing with respect to IT spending relative to a couple of months ago.

Ted Hanson, CEO

Yes. Well, I would say that it was strong a couple of months ago, and it remains strong. I mean, I don't think there's too much change right now in terms of IT spending. You're right, we've said many times that the better barometer for our business is less about general employment statistics and more about our customers' need for IT services. Obviously, digital transformation is driving that both in Commercial and in Federal. And so we see a pretty steady landscape there. And I think it's reflected in our performance for the second quarter but also our guidance for the third.

Samuel Kusswurm, Analyst

Great. Appreciate that. Maybe pivoting on the Commercial side of the business, if I think about your services in the three big areas, those being workforce management, digital transformation, and modern enterprise, if you were to see a slowdown in IT spending, which one of these areas would you expect to see then first? And then can you also comment about what you're seeing in that particular area right now?

Rand Blazer, President

I think the answer is that I wouldn’t expect to see a slowdown in workforce management because it's more focused on infrastructure, which needs to be maintained in any economic conditions. Digital transformation has made significant progress over the past year and especially in the last few quarters. It might slow down a little, but that would surprise me. In the realm of modern enterprise, there are certain applications and services that could potentially be postponed. I’m speculating on that, not stating that we are currently observing it. However, that would likely be the area where we might see a slowdown. So far, though, we haven't noticed any decline.

Operator, Operator

Our next question is from Tobey Sommer with Truist Securities.

Tobey Sommer, Analyst

If we look at the complexion of the business now and the kind of mix changes, I guess the most notable one is probably the increased exposure in the consulting area. From a high level, do you think that the collection of businesses and portfolio would perform in a materially different fashion if we sort of replicated the economic arc of the 2020 downturn?

Ted Hanson, CEO

Well, that's a good question, Tobey. I mean, my sense would be, it would be the same or slightly better because of the mix. Obviously, commercial consulting services has been growing much faster than the rest of the business. And the latest reported...

Rand Blazer, President

Yes. Tobey, let me address that for a moment. I think that trend was more influenced by specific segments of the economy. Airlines, hospitality, and energy were all significantly down during the COVID period in 2020, which I believe impacted their IT spending. This aligns with our initial observation at the start of this call. It wasn't necessarily a lack of need for digital transformation but rather specific industries facing challenges. It's worth noting that we weren't heavily affected during those times; certainly, our consulting unit remained stable. So, I think this was more of an industry-specific situation. Currently, certain sectors are still affected; energy has some challenges, although rising gas prices may boost their spending. As we've indicated, we've seen double-digit growth across the board in our Commercial segment. Sectors like retail, top accounts, consulting, and staffing also reported double-digit growth in the quarter, as noted in Ed's summary. Does that clarify things for you?

Ted Hanson, CEO

Yes. And Tobey, the only thing I would add to that, and just to kind of echo what Rand said, you don't see industries go to a full stop like you did, right? And I think that was the essence of what Rand was saying. And so when you get into a recession, you see some industries pull back but continue to do what they need to do. I mean, we had a full stop there for a little while. And I think that was a unique event, if you will.

Tobey Sommer, Analyst

Is there anything you would approach differently regarding the actions you can take and the timing and order in which you would implement them?

Ted Hanson, CEO

No. I think the business was really well managed then. Even though we experienced a pullback in certain areas for the year, our revenues were pretty much flat, and our adjusted EBITDA actually increased during that period in Q2 and Q3. We continue to invest in our Federal sector, and we will do so if the opportunity arises. We have automatic stabilizers in our Commercial sector, allowing us to respond quickly. As we've mentioned, this isn’t the first time we've encountered such circumstances, and we know how to respond if necessary. I believe we managed the situation well and are familiar with the approach we should take if anything else were to happen soon.

Tobey Sommer, Analyst

Okay. If I can sneak one last one. I think you mentioned as part of guidance that perm is assumed to be lower. I'm not sure I'm right about that. But if I am, could you give us a little bit more color about that assumption? Does it reflect kind of client behavior, what you're hearing? Or is that just a conservative assumption based on macro?

Ted Hanson, CEO

Yes. I think it's a conservative assumption just based on growth rates, what we expect in growth rates. But Ed, do you want to talk about that?

Edward Pierce, CFO

Yes. I mean, look, we anticipated that perm would step down in Q2. Q1 was a high watermark for us in the perm placement mix. And it did step down but not to the degree that we originally thought when we put out our guidance estimates. And so we're anticipating that it's going to step down about 0.5 point in Q3 and probably another 0.25 point, Tobey, in Q4. So that will put us back to probably more historical levels in terms of the mix.

Operator, Operator

Our next question is from Jeff Silber with BMO Capital Markets.

Jeffrey Silber, Analyst

Ed, I want to express my gratitude and wish you the best in your retirement. Could you share insights about the trends in your Commercial business for the quarter? I ask this because when you announced the GlideFast acquisition, you provided expectations for the quarter. I initially thought revenue would align with those expectations, and that adjusted EBITDA would exceed the high end of guidance. However, the numbers you just reported were significantly better. Did things really improve in June?

Ted Hanson, CEO

I think our Commercial segment is performing exceptionally well. The market conditions are favorable, and we have been able to capture opportunities, with growth continuing right through the end of the quarter. That certainly contributed to our performance. Ed mentioned the developments in the federal sector, where we received some revenues that we expected might come in during the third or fourth quarter. Overall, it was really a combination of those factors. I would primarily say that we exceeded our expectations across the board in the last few weeks of the quarter. While I wouldn't classify it as a surprise, we provided our best insights when we announced the GlideFast acquisition. The business has been advancing on both fronts during the final three weeks of the quarter.

Jeffrey Silber, Analyst

Okay. That's really helpful. And my follow-up question is just about your own internal hiring, either from recruiters, account managers, et cetera. If you can just talk about how that's been trending. Have you slowed down at all? Is it picking up? Any color would be great.

Rand Blazer, President

Yes. We added head count in the second quarter, both on the account management and consulting and recruiter side. So we believe, as Ted said, that we're looking at still strong demand as we go through the year, and we have obligations with our clients certainly through our bookings and other things. And so we needed to continue to add to our head count, and we did.

Jeffrey Silber, Analyst

And do you expect that to continue in the second half of the year?

Rand Blazer, President

Yes, the answer is yes. However, I would like to remind you of what Ted mentioned. We have automatic stabilizers in place, allowing us to adjust quickly if necessary. Our recruiting workforce is highly efficient, which applies to our internal staff as well. So, we are adaptable. Nonetheless, based on our guidance numbers, we anticipate continued growth and will need to increase our headcount.

Operator, Operator

Our next question is from Heather Balsky with Bank of America.

Heather Balsky, Analyst

I would like to first congratulate Ed on his retirement and Marie on her new role. My question is about permanent staffing and the recent decline. Do you believe this is related to some macroeconomic concerns? Is this a natural normalization? Additionally, how do you think that business will perform in a downturn? What are the potential risks for the permanent segment of the business?

Ted Hanson, CEO

Let me address the first part of your question. Our permanent placement revenues, while small, remain steady. The decline as a percentage of total revenue is due to the faster growth of the larger segments of our business. This change in revenue mix explains the decrease in the proportion of permanent placements compared to the total. Historically, during recessions, permanent placements tend to decline first, serving as an early indicator. However, we are not experiencing that trend right now. For us, this situation is primarily about the revenue mix rather than a significant issue. Traditionally, you would expect to see this downturn. We recognize that our clients need this service and we aim to respond, but we also want to manage it within our overall portfolio since it can be affected by cyclical changes. We are mindful of this and consider it as we evaluate our investment strategies across different areas.

Heather Balsky, Analyst

I have a question regarding the GlideFast acquisition and its connection with the ServiceNow product. How do you foresee the demand for ServiceNow evolving over the long term, considering it is a well-defined brand? It seems like your customers are expressing interest in this product, so how confident are you in the lasting appeal of the ServiceNow offering?

Ted Hanson, CEO

Right. Rand, do you want to take that?

Rand Blazer, President

Heather, I believe our client base, even before the acquisition, has been exploring ServiceNow technology and assessing how it fits into their operations. We share a vision similar to ServiceNow's, which is about providing a digital layer that integrates seamlessly with ERP systems, allowing for more efficient information and data sharing. This technology is a vital part of the digital transformation that companies are undergoing. Our clients are evaluating where to implement it, extending beyond just IT project management, which is where it originally began. Considering ServiceNow's vision and the feedback from our clients, it made sense to enhance our capabilities through acquisition. GlideFast was one of the top non-global integrators in this technology, and we were fortunate to collaborate with them. We anticipate a positive growth trajectory from this acquisition. Bill McDermott from ServiceNow mentioned that we're in the early stages of applying this technology in corporate America, estimating we're only about 20% into its potential. Whether that's accurate remains to be seen, but it’s evident that we are in the initial phases, with ongoing product development and increased usage. We're receiving positive feedback from our clients and seeing activity in the marketplace, which prompted us to act. As Ted mentioned earlier, we recognized a promising pipeline and opportunities from the acquisition, which included their client base as well. It truly felt like a strategic decision to proceed with this. Did I address your question, Heather?

Heather Balsky, Analyst

Yes. Yes.

Operator, Operator

Our next question is from Mark Marcon with Baird.

Mark Marcon, Analyst

Let me start with congratulating Ed again. It's been a pleasure over the decades working with you. So I wish you all the best. With regards to Apex Systems, can you talk a little bit about what you're seeing in terms of bill rates and pay rates within core IT staffing? And then any sort of color that you could give us on the bill rate side on the consulting side, just in terms of an apples-for-apples basis, if that's possible?

Ted Hanson, CEO

Well, Mark, we don't release specific information on bill and pay rates. Just maybe to give you some color, and Rand can add to this as well, I mean, obviously, our bill rate is going up. But we're doing a lot more high-value work as compared to where we were, as we're on this journey in consulting services. On the staffing side, there's been wage inflation, but we've also been able to manage that back to the customer and their bill rate. And so in that way, kind of inflation has been our friend here as supply for IT workforce is tight. And as we've had to deal with wage inflation, we've been able to go back and deal with that with the customer. So I don't think the dynamics there have changed any from the prior quarter or the quarter before that. But I think those trends are what we've seen, and we've been able to kind of manage that and maintain or even expand our gross margins around that work.

Mark Marcon, Analyst

Great. Could you provide some insight into whether the bill rates for core IT staffing are increasing at a rate that matches or exceeds inflation, specifically in relation to the published CPI figures? Anything about that would be helpful.

Ted Hanson, CEO

I believe our gross margins indicate that they're increasing at least at the same rate, if not more. It's both factors contributing to this. In our consulting segment, we achieve a higher gross margin due to the significant value of the work we provide. However, we wouldn't be able to offset declines in the IT staffing segment, which remains the larger portion of our business, if we were experiencing reduced gross margins. These elements suggest that we are effectively managing wage inflation while also enhancing margins in our consulting operations.

Mark Marcon, Analyst

Absolutely. How did Creative Circle do?

Ted Hanson, CEO

Rand, would you like to discuss Creative Circle for the quarter? Mark, they showed strong acceleration throughout the quarter, and growth was evident. This is a marketplace we are closely monitoring. There are reports regarding the tech companies, but the major tech firms do not significantly impact our portfolio in Creative Circle. Therefore, the issues they are facing related to digital advertising and marketing do not directly affect us. However, it is an important noted trend in the marketplace that we need to keep an eye on.

Mark Marcon, Analyst

Great. It definitely accelerated throughout the quarter, so you're not experiencing it. On the commercial side, there was strong growth across all industry verticals, particularly with TMT leading the way. In financial services, with rising rates, this should positively impact many banks. However, there have been some warnings from CEOs in that sector regarding potential challenges. What is your perspective on the financial services vertical? I would anticipate that it will continue to grow well.

Ted Hanson, CEO

Rand?

Rand Blazer, President

Well, first, can I comment on Creative Circle? It has performed very well in the second quarter, and I want to highlight that the comparisons for Creative Circle in the second, third, and fourth quarters of last year were very strong. They are doing exceptionally well on top of those strong quarters from a year ago. Regarding financial services, you can see that this industry segment also experienced growth. This time we featured not only fintech and wealth management but also the banks. We had good growth in what we call the regional bank segment, but the larger banks are also seeing growth. I could link this to improved earnings and opportunities for them, as well as their ongoing IT needs. Overall, it has performed well for us in the second quarter, and I expect that trend to continue.

Mark Marcon, Analyst

Great. And then GlideFast, how much can you accelerate the growth there? How much cross-selling capabilities do you have? How big could that be?

Ted Hanson, CEO

Well, Mark, we haven't sized it numerically. But obviously, that's an enormous market, and I'll let Rand comment as he thinks about the number. But ServiceNow has commented on how big that marketplace is that they believe. And while GlideFast has a nice base of revenues coming into our business, the one thing we always say, and I would say about GlideFast too, is the revenue synergy opportunity is bigger for us together going forward because of Apex' large account portfolio than GlideFast's revenue that they bring in alone. Right, Rand?

Rand Blazer, President

Yes, I think Ted covered everything, Mark. If you listen to Bill McDermott and the ServiceNow script, you hear all the points he makes. Our belief is that with our customer base, we can grow GlideFast more quickly than they can grow on their own.

Mark Marcon, Analyst

Absolutely. I mean, we've monitored ServiceNow for a long period of time as part of our normal coverage. And it's obviously a huge opportunity, that's why I was wondering. Does GlideFast have higher margins than your core consulting business? Or can it have higher margins?

Ted Hanson, CEO

Yes.

Rand Blazer, President

Yes and yes.

Mark Marcon, Analyst

Great. And then lastly, just on the government side, it's great to see that the budget has been resolved. Would you expect that during the second half of the year, the book-to-bill will start inflecting more towards 1 or 1:1 or 1.1 or higher?

Ted Hanson, CEO

Yes. I think, Mark, that's a good point here. The first thing you're going to see obviously is larger new booking numbers and then book-to-bill numbers that are at 1 and above, and that's our expectation. Most of the benefit of all that will come in 2023. There will be some benefit, we hope, here later in the last part of 2022, but most of the benefit will be in 2023. But to your point, yes, look for increased new bookings and book-to-bill ratio that's at 1.1 and above.

Operator, Operator

We have reached the end of the question-and-answer session. I would like to turn the call back to Ted Hanson for closing comments.

Ted Hanson, CEO

Great. Well, that's the end of our call today. We appreciate everyone's interest in ASGN, and we look forward to talking to you at the end of our third quarter.

Operator, Operator

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