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The earnings call highlights strong financial metrics, optimistic guidance, and strategic growth initiatives, such as AI and digital projects, supporting a positive outlook. Share repurchase plans further enhance shareholder value. While there are some uncertainties, such as government shutdown impacts and unclear cost savings details, the company's strategic positioning in AI and government sectors, along with solid commercial growth, suggests a positive sentiment. The market cap suggests moderate stock price movement, leading to a positive prediction (2% to 8%).
Revenue Fourth quarter revenues totaled $980.1 million, at the top end of guidance range and relatively consistent with the prior year period. Revenues from the Commercial segment were $698.6 million, an increase of 0.9% year-over-year, while revenues from the Federal Government segment were $281.5 million, a decrease of 3.7% year-over-year. Assignment revenue declined 12% year-over-year, reflecting continued softness in portions of the commercial segment sensitive to macroeconomic changes. Commercial consulting revenue increased 19.2% year-over-year, driven by high-margin revenue streams.
Adjusted EBITDA Adjusted EBITDA for the fourth quarter was $107.9 million, with an adjusted EBITDA margin of 11%, exceeding expectations. This was driven mainly by a greater mix of commercial segment revenues.
Free Cash Flow Free cash flow for the fourth quarter was $93.7 million, a conversion rate of approximately 87% of adjusted EBITDA, well above the target rate of 60%-65%. On a full-year basis, free cash flow totaled $288.1 million, or 68.2% of adjusted EBITDA.
Gross Margin Gross margin for the fourth quarter of 2025 was 28.9%, consistent with the prior year. Gross margin for the Commercial segment was 32.6%, in line with the prior year, while gross margin for the Federal Government segment was 19.9%, a decline of 60 basis points year-over-year due to the loss of higher-margin contracts.
SG&A Expenses SG&A expenses for the quarter were $210.5 million, compared to $197.9 million in the fourth quarter of 2024. This included $10.7 million in acquisition, integration, and strategic planning expenses.
Net Income Net income for the fourth quarter was $25.2 million. The effective tax rate was 36.4%, above the forecasted 28%, driven by discrete one-time items.
Federal Contract Backlog Federal contract backlog was approximately $3 billion at quarter-end, representing a coverage ratio of 2.5x the segment's trailing 12-month revenues. New contract awards in the Federal segment totaled $144.2 million, with a book-to-bill ratio of 0.9x on a trailing 12-month basis.
Share Repurchase In the fourth quarter, $64.2 million of free cash flow was deployed to repurchase 1.4 million shares at an average share price of $46.05. On a full-year basis, $170.1 million of free cash flow was used to repurchase 3.1 million shares at an average price of $55.
Next Wave Growth Strategy: Showcased significant progress in transitioning towards higher value, higher-margin technology and digital engineering solutions. Introduced advanced capabilities in AI, cybersecurity, and enterprise platforms.
AI Factory: Launched a unified framework to integrate AI into core business strategies, focusing on AI governance and safe deployment.
Quinnox Acquisition: Acquired Quinnox to enhance digital engineering and global delivery capabilities, including AI-first workforce and proprietary assets.
Market Expansion with Quinnox: Broadened market presence through Quinnox's established client connections and global delivery centers in India.
Federal Segment Growth: Increased defense, intelligence, and national security budgets position the federal business strongly for future growth.
Revenue Growth: Fourth quarter revenues reached $980.1 million, with IT consulting revenues comprising 63% of the total, up from 59% in the prior year.
Commercial Consulting Bookings: Achieved record bookings of $444.4 million, translating to a book-to-bill ratio of 1.3x for the quarter.
Free Cash Flow: Generated $93.7 million in free cash flow in Q4, with a conversion rate of 87% of adjusted EBITDA.
Rebranding to Everforth: Unified commercial and federal brands under a single identity to enhance cross-selling and operational efficiency.
M&A Playbook: Continued disciplined acquisition strategy to enhance solutions capabilities and technology partnerships.
Government Shutdown Impact: The lengthy government shutdown delayed new award activity in the fourth quarter, impacting federal contract awards and creating pent-up demand for Q1.
Macroeconomic Sensitivity: Assignment revenue declined 12% year-over-year due to continued softness in portions of the commercial segment sensitive to changes in the macroeconomic cycle.
Federal Segment Margin Decline: Gross margins in the Federal Government segment declined by 60 basis points year-over-year, primarily due to the loss of higher-margin contracts related to DOGE.
Tax Rate Variability: The effective tax rate for Q4 was 36.4%, significantly above the forecasted 28%, driven by discrete one-time items, which impacted net income.
Debt Increase Post-Acquisition: The acquisition of Quinnox will increase the net leverage ratio to approximately 2.9x, above the target of 2.5x, potentially impacting financial flexibility.
Seasonal Revenue Decline: The company typically experiences a low single-digit revenue decline from Q4 to Q1 due to a seasonal reset, despite an increase in billable days.
AI Spending Growth: AI is a dominant driver of demand, with nearly 80% of enterprises planning to increase their AI spending in 2026.
Federal Segment Outlook: Increased defense, intelligence, and national security budgets position the federal business strongly for the future. Solid pent-up demand is expected in Q1 2026.
Rebranding to Everforth: The company will adopt a new brand, Everforth, in the first half of 2026 to unify commercial and federal brands, enhance cross-selling, and support revenue growth and margin expansion.
Strategic Acquisitions: The company will pursue strategic acquisitions to enhance solutions capabilities and technology partnerships. The acquisition of Quinnox is expected to close in March 2026, contributing low to mid-teens revenue growth in 2026.
Quinnox Integration: Quinnox's expertise in application management, analytics, and enterprise platforms will expand market share and delivery capabilities, including offshore operations in India.
AI Factory Launch: The AI Factory framework, launched in November, will empower organizations to integrate AI into core business strategies, focusing on AI governance and secure deployments.
First Quarter 2026 Guidance: Revenues are estimated at $960 million to $980 million, with adjusted EBITDA of $93.5 million to $98.5 million and adjusted EBITDA margin of 9.7% to 10.1%.
Quinnox Financial Contribution: Quinnox is expected to generate low to mid-teens revenue growth in 2026, with adjusted EBITDA margins in the low 20% range.
Share Repurchase Program: In the fourth quarter, the company generated $93.7 million in free cash flow and bought back $64.2 million in shares. They continued to repurchase shares in the first quarter and have a newly approved $1 billion share repurchase program. Approximately $972 million remains on this authorization. For the full year 2025, the company deployed $170.1 million of free cash flow to repurchase 3.1 million shares at an average price of $55.
The earnings call highlights strong financial metrics, optimistic guidance, and strategic growth initiatives, such as AI and digital projects, supporting a positive outlook. Share repurchase plans further enhance shareholder value. While there are some uncertainties, such as government shutdown impacts and unclear cost savings details, the company's strategic positioning in AI and government sectors, along with solid commercial growth, suggests a positive sentiment. The market cap suggests moderate stock price movement, leading to a positive prediction (2% to 8%).
ASGN's earnings call highlights strong commercial consulting growth, strategic AI investments, and an optimistic federal outlook. Despite government shutdown concerns, the impact is deemed immaterial. The AI Innovation Center and increased federal funding are positive catalysts. However, management's unclear response on the shutdown's duration and stable staffing business slightly temper enthusiasm. Given ASGN's market cap, the overall sentiment is positive, suggesting a potential 2% to 8% stock price increase.
The earnings call presents a mixed picture: a slight decline in overall revenue, offset by growth in commercial consulting. The federal segment faces challenges, yet TopBloc is performing well. Margins are pressured, but free cash flow supports share repurchases. The Q&A reveals cautious optimism, with AI investments seen as beneficial. No strong catalysts for significant stock movement are evident, leading to a neutral outlook.
The earnings call reveals mixed results: a decline in total revenues and federal segment revenues, but an increase in commercial consulting revenues and gross margins. The Q&A section reflects uncertainty about government contracts and unclear management responses, slightly dampening sentiment. Despite strong consulting performance, revenue guidance is weak. The TopBloc acquisition is a strategic positive, but overall, the market is expected to react neutrally due to the mixed financial performance and guidance, aligning with the company's mid-cap status.
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