Conference Transcript - EFOR 2026-06-03

Speaker 4

Thank you all for joining.

Speaker 1

I'm Maggie Nolan. I'm the IT services analyst here at William Blair who has the pleasure of covering Everforth.

Speaker 4

We are very excited to have you all here with us today. Thank you for joining us. We have Ted Hansen, the CEO, Marie Perry, the CFO, and Shavire, the president, and they're going to give a little presentation for us. but before that I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest please visit our website at williamblair.com so after the presentation we'll do a little bit of q a in here and then we actually move rooms we'll be in breakout room burnham b to continue the conversation there a little bit less formal setting so ted i'll turn it over to you great thank you maggie for having us it's always a great investment of time and energy to be here and meet with you

Speaker 2

and investors the for those of you who know us but don't recognize everforth we recently rebranded the company from ASGN to everforth and I'll speak about that in a few minutes safe harbor which I won't read I'll just refer you to you know who is everforth at a glance you know if you think about us you've heard me say many times think about IT technology services digital engineering at scale four billion dollar business 70% of which is serving large fortune 1,000 customers here in the US the other 30% serving the most important and attractive federal government agencies Department of Defense Intel and National security agencies more than 400 million EBITDA great free cash flow characteristics about 60 to 65 percent conversion of EBITDA free cash flow a large growing and dynamic and addressable market to say the least and so we're you know obviously very happy you know with business how it's positioned and we'll talk about some of that in the ensuing slides our business has been on a journey the legacy of the business as as one of the largest IT staffing providers in the US if you think about the last I would say five to seven years we've been organically pulled by our clients up the IT pyramid into providing more important higher-end solutions beyond just our IT staffing footprint. We've done most of that organically. We've made some strategic acquisitions along the way to bring certain solution capabilities that are in high demand with our customers that we needed to be at scale with strong technology alliance partnerships and I'll leave that for Shiv to talk about in a few minutes and made a few divestitures of things that were not strategic or core related to our technology services mission last November we had an investor day where we introduced the idea that we were going to rebrand the business and come to the market as one business one brand in an effort to do a couple things one is realize the promise of revenue synergies we have a lot of great solution offerings but we were bringing them to our customers in a little bit of a fragmented way this way we can sit down with the customer talk about a whole portfolio of solutions that would have formerly come from our individual brands we also can be much more efficient as can imagine supporting a plus brands and brand equity and building that brand equity in the marketplace is pretty expensive relative to just really getting behind one brand so so good for our customers uh good for us on the revenue synergy side and good for the p l in terms of being more streamlined and really being able to forcefully back one brand we also said while We do a lot of attractive things for customers. We were really gonna invest around six areas that we thought were gonna be high demand areas for our customer, especially in the age of AI. Solution areas that had large addressable markets and also had great organic growth rates here for the long road. And again, we'll talk about that in a few minutes. So, you know, I think you can see laid out here that this business has really been on a journey here over many years which started with the pull of our customer and now it's been supported by these enterprise customers along the way as we position solutions both organically and by way of M&A to meet what their most important needs are for those of you who have heard me talk before you'll always hear me say that the gold nugget of this entire firm beyond our people is our enterprise account portfolio these relationships have been built over years and decades where we've built a certain trust and set of qualifications with the most important clients in each one of these industries these enterprise accounts are also the largest spender on technology services so obviously you want to you want to face them up in order to get the most attractive opportunities you know they're in all the commercial areas that you would assume would be the places to be consumer technology financial services health care and business services and then on the federal government side which is as i mentioned 30 of the business we're also serving high-end solutions to department of defense intelligence and national security areas which perfectly line up with where all the budget tailwinds are you know from the one big beautiful bill and also where the mission is most critical in terms of client needing us to serve these opportunities up for them. Here I'm going to turn it over to Shiv and and I want to you know Shiv's been with the business a year here comes to us from Accenture is a native here in Chicago and I'm going to let him talk about our solution capabilities and also get into the AI opportunity.

Speaker 1

Sounds good. Thanks, Ted. Look, as Ted said, we've been on this journey of evolution on the commercial side. We've always been a deeply technical engineering firm on the federal side. So we've spent, last year, as Ted said, taking a look at our gold nugget portfolio, putting more industry muscle behind it because that domain expertise, that understanding of the industries was critical as we serve our clients and move up the value chain equally critical for us was to identify the areas that we want to be really good at in terms of what we can be doing and so what you see on this page is a representation of the solution areas that we are we're typically playing in we want to play in and expand it and it's a function of us looking collectively across the enterprise and saying what can we do really well for our customers So I'll start on the right-hand side of the page, right? It's the topic du jour in the minds of every day you wake up and you hear that platforms are gone, but we don't believe that. We have a pretty thriving business. Chris Skinner sitting there is going to be joining you later for Q&A, but we have an enterprise platforms business where we are a leading implementer of Workday. We do a lot of work on ServiceNow. We're building a Salesforce business. We also do some mid-market ERP with Infor. and we think these things are going to stay for a while now how they evolve how they adapt we will see over right at the forefront plugged into that ecosystem when it comes to cyber security we are one of the leading providers of cyber security for the federal government uh one of the largest contracts uh in the dod for endpoint security is delivered by our ecs team and we're now starting to pull that more and more into the the commercial side of the business including things like how do we get clients ready for quantum so we've built our own framework for post-quantum cryptography how do you assess that we've actually executed that for a couple of clients in the commercial sector in the hospitality sector so experience now this is one of those offerings that is emerging for us or one of those solution areas it's built off of the dna of our creative team so we have a creative circle business which was predominantly in the assignment space but is deeply connected into marketing organizations in terms of how they're thinking about the evolution of customer journeys commerce all of those aspects so when we've connected that with the enablement of that with technology we're already streamed this part of the business for us is actually growing multiple high teens to you know low 20s um the the pillar on application and digital engineering is an interesting one right so it's the area where you know there's a lot of questions about what ai is going to do here's what i'll say on that part of the business for us we've got a thriving business there and we've been using ai to deliver but the one thing we have we don't have which encumbers a lot of legacy players is the base of the pyramid because a lot of the work we do there we've delivered through a contractor workforce right so we don't have a workforce that is constantly needing to be reskilled up skilled and everything the other thing that we've done at space to bolster our addressable market at the enterprise level if you think about that piece of the of the capability at the enterprise level there's a lot of movement towards offshore providers that's happened in that space over the years we were not playing in that market or basically precluded from it because we didn't really have a footprint with the quinox acquisition we now have a roughly a 2 000 footprint in india and the interesting thing is it's an organization that has been delivering that work a little ahead of the curve using ai using proprietary ip data and ai were we were built a good book of business around snowflake databricks some industry specific ip and energy and other places and cloud and infrastructure is a space where we're seeing a lot of work and it's interesting work in the sense of it it breaks into two buckets that the traditional work around refactoring moving applications to the cloud we're still seeing that uh you know for a lot of clients but there's this whole new set of work that is emerging for us with the hyperscalers where they're asking us to do truly end-to-end sort of managed services work in scaling up data centers whether it be network operations network setup server operations server management and things of that nature it's a very very fast growing area so as we've looked at this landscape we've said we we're going to be focused on certain things like are we going to implement sap for clients probably not right but we want to be in areas where we see continued growth high growth and areas where we think we will have a right to win with some of the things we're doing Okay. None of that is going to be possible in this day and age. So if you think about client buying patterns that are happening, for everything that I put on the previous page, if you look at the overall IT services market and you think about how clients are buying, there's all these big, large managed services contracts which, you know, a lot of the tier ones play in. and then there's this big piece of the market which is probably 45% of the addressable or even 50% of the addressable market or more, which is the buying patterns have shifted. Clients are buying more and more from specialized, fast, nimble partners. And those partners are effectively tied at the hip to some of these software providers. So if you think about Chris and his business, that's one great example of that. Our Glidefast business is another great example of that. We're building deep relationships with Salesforce. We are the number one provider for Elastic. In fact, we have more Elastic certified engineers than Elastic themselves. They come to us when they need work for themselves. So we're starting to move in some of these places very, very rapidly. And what you see on the right-hand side of the page is we're also constantly looking for innovative partnerships with emerging providers, right? So Amisa is an offshoot from Microsoft. doing agentic work in manufacturing shop floors. Because we think that's a space which requires deep engineering, so we're right there. So we're doing this all the time as we think about expanding our partnership alliances. How do we amplify those? And Everforth actually allows us to do this at a scale, which we weren't doing before. We were talking to them as a federal business, as a commercial business. When you put these two things together, these partners are now looking at us going, you guys are a four billion dollar business and you have a very large enterprise account portfolio that's really really attractive and you can move at speed so AI look I'm not gonna belabor this page I think there's probably 15 different versions of this page you can see anywhere right but but the reality is AI is here to stay we're seeing a lot of demand across the spectrum if you look at you know we're still I believe in the phase where clients haven't effectively moved from a lot of prove the value let me experiment even experiment in multiple domains to really scaling enterprise-wide and we think that's where the big opportunities are it is creating a lot of focus on governance and cybersecurity right as talk about data governance data and regulatory environments how do you protect all of that we talked about alliance partnerships and our philosophy has been also to look at AI from our own business perspective how do we use that as both a growth and a margin driver and I'll talk about that in a minute so we've talked about this at length so I'm just going to talk about what sorry I think I missed the pages so the last point on that page which is the the customer zero idea we're doing a lot of things around customer zero so when we signed our 360 partnership with salesforce we're actually starting to use agents to enable our own team built on a agent force which we want to take the clients with them we've built our own platform which we haven't talked about much but we're going to start talking about called total site which really allows you to go from intake of ai use cases to ai operations with governance and other frameworks built into it right so it allows us to go to a client and talk about taking these use cases and starting to deploy them pretty rapidly for them in their environments so really if I were to summarize all of this we have a unique business model which really is tailor made for this environment where technology is changing very very fast because we can keep up with the pace of change and find the talent that is needed to deliver our client engagements uh we already talked about the account portfolio uh over the years we've demonstrated the ability to to to bring in companies bring in solutions inorganically and you know we're building deep capabilities in in in ai as i've talked about already with our partners so with that i'm gonna turn this over to marie bring us home well i'm gonna cover the

Speaker 3

capital allocation strategy we get asked a lot about it is a key contribution to our business model from a capital allocation strategy first and foremost we focus on organic growth when I say organic growth there's a couple areas that we focused on and so whether that be investing in assets and accelerators to basically expand our solution capabilities to upscale our teams we have a center of excellence in an AI lab, or just continuing to build and strengthen our tech alliance partners. At the Investor and Analyst Day we talked about our Salesforce alliance that we just got into. From a debt repayment perspective, this is really kind of a near-term focus in our capital allocation strategy. We just completed the acquisition of Quinox, but historically we have really had low levels of a debt profile and we're able to quickly, once we lever up, quickly lever back down with our free cash flow characteristics below our 2.5 net leverage target. From a share repurchase perspective, share repurchase for us is truly opportunistic and when we think about share repurchase It really is in the realm of balancing our balance sheet flexibility with share repurchase. And so you'll see us play with share repurchase and debt pay down along with investing in The last pillar that we have here is M&A. And so from a near-term perspective, again with the acquisition of M&A, our focus is is really delivering the performance of Quinox and also integrating Quinox into the business. But from a long-term perspective, we do believe M&A is one of the highest uses of our capital. It allows us to expand our solution capabilities. And it also, we are a choir of choice, right? So we have historically, and so Shiv mentioned Top Block with Chris, recent acquisitions and also Glidefast is another recent acquisition that we just had. So in the next slide it really highlights our free cash flow. Ted mentioned this already. This is a hallmark of our business model and it literally allows us to invest in the business again from an organic or M&A perspective and return capital back to shareholders. Literally we have six years highlighted here. Our free cash flow and then our conversion to EBITDA. As you can see, the last three years, we are at 81, 81, and 68. We have a target of 60 to 65 percent conversion, and so we have exceeded that over the last five years. On the other side of the chart, you see our deployment. We've already talked about that from a capital allocation strategy, but I just wanted to highlight the ability for us to generate this cash flow comes from many areas, right? So we have a flexible cost structure, our capex investment is minimal, we have a scalable labor model, so we use contingent resources, and so we're able to scale our cost of services with our revenues with a thin layer of bench, and we have discipline around our SG&A. A quick highlight of our, oops, should have went too far, of our balance sheet, no, let's see if I can get this one out, going too fast, going the wrong direction, I'll get it.

Speaker 1

I think you're moving forward, Marie, you want to go back.

Speaker 3

I know, apologies, is that it? So for the three-year target, so as reference, we had an investor day, highlighted our three-year targets, from an organic growth perspective, we have a CAGR of four to six percent. Of that four to six percent, five to six percent organic CAGR is really related to our commercial segment with the majority of our growth coming from our commercial consulting area. On federal, our target reflects three to four percent which is at market on a CAGR basis and then literally from a growth perspective, we're expecting moderate growth in 26 with an acceleration in 27 and 28, and this really represents the acceleration of our go-to-market strategy that we highlighted. That is from an organic perspective. When you think about the model and the generation of free cash flow, we are also able to generate additional revenue of 800 to $900 million over that three-year via acquisition. From a margin perspective, the three-year model has 12.5 to 13.5 adjusted EBITDA. That's a 200 to 300 basis point expansion. Over half of that improvement in EBITDA is driven by structural cost savings that we highlighted in Investor Day, which is net $80 million in savings. These savings are well underway and a portion of them will be recognized in 26 with acceleration of those savings in the back half of the year in 27 and 28. And again it's just important to note that the initiatives under these savings are associated with actions that are well underway. From a margin, the remaining of the margin expansion is really driven by business mix. So you've heard us talk about our growth in high margin, high value business, and so over that three year period, we will also see margin expansion as we continue to accelerate into And the last section on here is the billion dollars of free cash flow over that period.

Speaker 4

And this last slide, we'll just leave it up here, but this really is our investment theses. it summarizes everything that you've heard today so i'm going to actually turn it back over to maggie very good thank you all for the presentation so let's start with maybe the the rebrand and how that's progressing i'm curious how you've had to change your go-to-market approach under one brand and then are you seeing evidence of um you know any of the cross-selling opportunities or larger scale engagements showing up in the pipeline yet right so you know the good thing if you think about our business is even though we were a parent company with multiple brands underneath

Speaker 2

as we went to market we were already in the background talking about how do we create synergies in the account portfolio and what have you and sometimes it was more difficult because we had a different the customer viewed the brands as different businesses but our teams were already coming together in that way we didn't have any crossover issues in terms of who was selling an account or not it was you know kind of we had already worked through that to a large degree and and I think the other thing for our teams that they saw just naturally was that you know let's take creative digital for a moment you know as that business has um matured you know the the need for uh all the technology underpinning for the creative digital uh customer experience is more critical today than it ever was so naturally it's a good example of how those teams were already coming together so um i think culturally everybody was there of course everyone loves their brand but they see the higher opportunity you know of coming together as one business and matter of fact you know as we rolled this out you know they've kind of taken to it immediately and and really you know have been able to you know exhibit what they already felt was that they work for one company and we're in this together and we're in it to you know both win for our clients in greater ways and win for ourselves as ever before.

Speaker 1

So Ted if I may just Maggie you know it's I can illustrate it with a real example. So we just want a body of work for a client which was about redesigning their entire web properties to enable a more seamless user journey. In the past we would have approached that as saying let's go to all the technical work and there's a lot of work at the front end of that to actually identify what those user journeys are or the people who are going to be using the properties how are they going to be using them that's the work that our creative digital team is used to doing with our marketing clients we've we brought these teams together we were able to solution it together and what would have been a smaller piece of work obviously expanded for us but it also allowed us to differentiate so it's not just about the synergies of expanding the size of the work it's actually improving our win rates because we're differentiating ourselves by demonstrating a better understanding of the end-to-end problem we're solving for our

Speaker 4

clients well it's a it's a good time you know to to rebrand the company and reimagine the company in this way just given all the disruption that's coming from ai certainly and so i'm curious you know we've talked a lot in the past about the strategy of pushing further into commercial consulting um there's obviously disruption in that space as well related to ai so has it changed in your point of view kind of the long-term vision or the structural thesis for the company as you had it in the past mixing further into that commercial consulting no not at all in fact i actually think that our structural model is tailor-made for building the professional

Speaker 1

services company of the future if you think about over the last year what's happened with all this disruption right uh the number one question that everybody is asking in this space is what's going to happen to all those legacy pyramids that have been driving work for clients structural advantage number one we don't have that what we've now done is acquired a footprint in india which we didn't have which now allows us to play in a different addressable market within our enterprise clients but we have the ability to scale that with AI first approaches versus having to reskill half a million people which is a very different problem to have so we're already starting to talk to clients and saying hey look you had 70 people doing this work before we can do it with 25 people with AI and we don't have to worry about what the other 45 are gonna do because we don't have the other 45. So it allows us to create a scaled business in a very different way than what other companies would have done. So it doesn't change your thesis at all. It actually thinks, I actually think it's to our advantage and amplifies our structural advantages a certain way.

Speaker 4

So you continue to push further into consulting. There's a lot of confusion out there amongst your client base right now.

Speaker 2

So what are you hearing, you know, you had the slide up there that listed all the different partnerships what are you hearing from customers on their perception of the impact of ai on enterprise software and how does that impact your business well look i mean i think chris for sessions we can get chris's two cents on this as well since he's not mic'd up but i think enterprise software solutions for the major platforms remain as as important as ever A lot of the AI that's going to make an impact on our customers is going to be delivered through those platforms. And I think the conversation is starting to become a little more rational in that AI is not going to jump out of another box and just run around and get all of these things done. that it's gonna take quality technology services and digital engineering firms like us to pull those things down into business processes and workflows and really ring out the promise of Agenic AI within our customer's platforms.

Speaker 4

Very good. So one more on strategy. I know we're up against the clock here, so kind of 60 seconds or less. You referenced India as a delivery location. Can you give us an update on how the model is evolving in terms of the nearshore and offshore resources and where that can go from here?

Speaker 1

We see continued demand for resources at both ends of the spectrum. So there's a distinct, as we evolve our delivery model for the future, there's a distinct role that we see nearshore playing for us. there are certain clients who prefer time zone proximity but want to take advantage of the engineering talent that sits in mexico and other parts of latin america and there are clients who want the the factor cost advantages of india so it's if you look at capability by capability an example is in the experience capability for example there's a lot of demand for near shore because those are agile teams which are constantly working whereas when it comes to the typical application modernization where you can do a lot of the back-end work it's much more India-centric so each of our capabilities we're constantly evolving the mix based on what we see the clients wanting so both are very much a part of the future and you know we'll continue to ebb and flow as the balance of our solutions evolves.

Speaker 4

Very good we are out of time so thank you Marie, Ted, Shif, we'll continue in Burnham B. Thank you. Thank you.