ASGN Incorporated (ASGN) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

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.

Key Financial Performance

Revenue $1.01 billion, a decrease of 1.9% year-over-year. The decline was attributed to softness in portions of the Commercial segment sensitive to macroeconomic cycles.

Commercial Segment Revenue $711.3 million, a decrease of 1% year-over-year. Assignment revenues within this segment totaled $376.4 million, a decrease of 13.2% year-over-year, reflecting continued softness in macro-sensitive areas.

Commercial Consulting Revenue $334.9 million, an increase of 17.5% year-over-year. Excluding the acquisition of TopBloc, consulting revenues improved mid-single digits year-over-year.

Federal Government Segment Revenue $300.1 million, a decrease of 3.9% year-over-year. The decline was due to the loss of higher-margin work related to DOGE and the completion of certain projects.

Gross Margin 29.4%, an increase of 30 basis points year-over-year. The improvement was driven by a higher mix of consulting revenues in the Commercial segment.

Commercial Segment Gross Margin 33.2%, up 40 basis points year-over-year, reflecting a higher mix of consulting revenues.

Federal Government Segment Gross Margin 20.3%, a decline of 40 basis points year-over-year, due to the loss of higher-margin work related to DOGE and the completion of certain projects.

SG&A Expenses $212.2 million, compared to $207.5 million in the third quarter of 2024. The increase included $4.2 million in acquisition, integration, and strategic planning expenses.

Net Income $38.1 million for the third quarter.

Adjusted EBITDA $112.6 million, with an adjusted EBITDA margin of 11.1%.

Free Cash Flow $72 million for the third quarter, a conversion rate of approximately 64% of adjusted EBITDA, within the target range of 60%-65%.

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Operating Highlights

AI and Data Solutions: ASGN is deploying a growing number of AI use cases and data initiatives, including a centralized data supply chain platform for a Fortune 500 managed care organization and AI accelerators for a global hospitality company.

Application Development and Engineering: ASGN secured its largest application engineering services contract with a U.S. crop insurance provider, focusing on policy modernization and customer engagement platforms.

Customer Experience Transformation: ASGN is leading a global transformation for a Fortune 250 pharmaceutical company, embedding AI-driven operations into workflows.

Federal Segment Growth: New contract awards totaled $461 million in Q3, with a backlog of $3.1 billion. National security revenues improved 12% year-over-year.

Commercial Segment Growth: Consumer and industrial accounts posted mid-teens growth year-over-year, while healthcare grew in high single digits.

Revenue Performance: Q3 revenues reached $1.01 billion, with adjusted EBITDA margin at 11.1%. Commercial consulting revenues increased by 17.5% year-over-year.

Cost Optimization: Gross margin for Q3 was 29.4%, with a focus on high-margin consulting revenues.

AI and Digital Transformation: ASGN is investing in AI and digital transformation, emphasizing enterprise-wide AI adoption and addressing talent gaps in AI deployment.

Government Contracts: ASGN is leveraging its expertise to secure high-value government contracts, including cybersecurity and data engineering projects.

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Risk or Challenges

Macroeconomic Conditions: Continued softness in portions of the Commercial segment sensitive to macroeconomic cycles, leading to a 13.2% year-over-year decline in assignment revenues.

AI Adoption Challenges: Organizational readiness and operational governance remain hurdles for enterprise-wide AI adoption. Many clients lack the skills and engineering talent needed to deploy AI successfully.

Regulatory Uncertainty: Potential changes to the H-1B Visa application process could impact the availability of specialized skill sets, although the company views this as a potential positive.

Government Shutdown: While the government shutdown has had an immaterial impact so far, it remains a dynamic situation that could affect operations in the Federal segment.

Federal Segment Margins: Decline in gross margin for the Federal Government segment due to the loss of higher-margin work and completion of certain projects.

Financial Services Industry Performance: Revenues from financial services clients declined year-over-year, though new wins in this sector are expected to begin in Q4.

Seasonal Revenue Decline: The fourth quarter typically sees a larger sequential decline in billable days due to holidays, impacting revenue generation.

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Guidance & Outlook

Revenue Guidance for Q4 2025: ASGN estimates revenues of $960 million to $980 million for the fourth quarter of 2025, assuming no further market deterioration and 61 billable days.

Adjusted EBITDA Guidance for Q4 2025: ASGN projects adjusted EBITDA of $102 million to $107 million for the fourth quarter of 2025, with an adjusted EBITDA margin of 10.6% to 10.9%.

Commercial Segment Outlook: A slight sequential improvement is expected in the Commercial segment from Q3 to Q4 2025, based on the same billable day comparison.

Federal Government Segment Outlook: Estimates assume some caution due to uncertainty around the end of the government shutdown, but the segment remains supported by strong bookings and increased defense budgets.

AI and Digital Growth: ASGN anticipates continued growth in AI and digital initiatives, with increasing demand for data and cloud projects as clients prepare for the next phases of digital and AI transformation.

Investor Day Announcement: ASGN will host an Investor Day on November 20, 2025, to unveil new 3-year financial targets and provide an in-depth look at its growth strategy.

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Shareholder Return Plan

Share Repurchase Authorization: At quarter end, we had approximately $423 million remaining under our $750 million share repurchase authorization.

Share Repurchase Activity: We deployed roughly $46 million of our free cash flow to repurchase 0.9 million shares at an average share price of $51.46.

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Key Q&A

Q:What gives you confidence that you're a beneficiary of the H-1B situation, and how do you see the situation evolving in the coming months?

A:The company has confidence because almost all of its delivery is onshore or nearshore, with very little presence in regions like India where most H-1Bs originate. Tightening the H-1B program, such as enforcing regulations, increasing fees, or reducing program size, highlights the importance of onshore and nearshore technical skills, which aligns with the company's services. Better enforcement of regulations could also lead to pricing improvements.

Q:Is the caution in the fourth quarter guidance related to lingering DOGE issues or the government shutdown?

A:The caution is related to the government shutdown, not DOGE issues. The shutdown causes certain nonessential activities to be furloughed and slows down the cycle of new awards and ramp-ups on recently won awards. While this is not seen as a mid- or long-term issue, it could cause near-term caution.

Q:Do you assume the government shutdown extends through the fourth quarter, and how long do you assume it lasts?

A:The company did not make an assumption on the length of the shutdown. However, they refrained from stretching the forecast due to the uncertainty. The impact is considered immaterial at this point.

Q:Which software implementations are experiencing the best demand, and where might you want to add capability?

A:The company sees continued demand in data and AI, particularly with Snowflake and Databricks, as well as enterprise platforms like Workday (via TopBloc) and ServiceNow (via GlideFast). There is also demand in cloud migration, custom app development, and Salesforce capabilities. The company is aligning its partnerships with areas where clients are investing.

Q:Do you expect commercial IT consulting to be a larger percentage of total company sales and a driver of margin expansion over time?

A:Yes, commercial IT consulting is expected to continue being a larger percentage of total sales and a driver of margin expansion. Sequential margin increased by 70 basis points this quarter due to the strength in commercial consulting, and it remains a strategic focus.

Q:Are companies seeing a good ROI on AI projects, and how can you help improve ROI?

A:Many companies are not seeing good ROI on AI projects due to challenges like deeper integration into architectures, data alignment, workflow integration, and technical talent. The company believes the fastest path to ROI is leveraging core capabilities of enterprise platforms where workflows are built, rather than end-to-end process automation or multi-platform AI orchestration.

Q:What is the impact of the 'One Big Beautiful Bill' on federal government bookings and revenue timing?

A:The bill is expected to benefit areas like defense, intel, and national security, which make up 75% of the company's federal business. After the shutdown and continuing resolution are resolved, agencies will be funded at higher levels. Competitions and awards are expected in the first half of next year, contributing to revenue in the second half of the year.

Q:How would you characterize the challenges in the staffing business versus the growth in the consulting business?

A:The staffing business is stable sequentially but declining year-over-year. Clients are shifting towards partners who deliver outcomes and value rather than staff augmentation. This trend benefits the consulting business but creates headwinds for staffing. The macroeconomic environment is driving clients to focus on short time-to-value and outcomes.

Q:What is driving the increase in cost-reimbursable contracts on the federal side, and what is the impact on margins?

A:The increase in cost-reimbursable contracts is due to the natural ebb and flow of contracts ending and being won. There is no significant impact on margins. Federal margins are back to normal levels after a surge in license revenue last quarter.

Q:Who are your competitors for big projects, and how are competitive dynamics affecting pricing?

A:Competitors include Accenture, Big Four firms, India-based pure plays, and smaller competitors depending on the platform. Pricing is holding up well due to the quality of the company's work and its use of assets and accelerators, which differentiate it from competitors.

Q:Has the Mexican facility been impacted by the political climate?

A:No, the Mexican facility has not been impacted by the political climate.

Q:Are there discussions about changes in pricing related to the use of accelerators, and do you expect this to be a future discussion point?

A:Currently, assets and accelerators are used to deliver work more rapidly and effectively, but there is no significant change in pricing. As these tools evolve, there may be opportunities to price them differently, such as on a product basis.

Q:Is the momentum in commercial consulting sustainable, and what are the drivers?

A:Yes, the momentum is sustainable in specific areas like data and AI, custom engineering, and certain platforms (e.g., Workday, ServiceNow, Salesforce). AI is a significant tailwind driving growth in these areas. Clients are investing in modern enterprise platforms to leverage AI capabilities.

Q:Review of Unclear Management Responses

A:Management avoided directly answering the question about the assumed length of the government shutdown, stating they did not make an assumption but refrained from stretching the forecast. This response lacked clarity and specificity.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

ASGN Transcript

ASGN Incorporated (ASGN) Q3 2025 Earnings Call Transcript

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ASGN Incorporated (ASGN) Q2 2025 Earnings Call Transcript

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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.

ASGN Incorporated (NYSE:ASGN) Q4 2024 Earnings Call Transcript

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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.

ASGN Incorporated (ASGN) Q3 2024 Earnings Call Transcript

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The earnings call presents mixed signals: a decrease in overall revenue but stable net income and improved gross margins. The Q&A reveals cautious optimism about IT spending and consulting growth, with concerns about unclear management responses. The share repurchase program is positive, but seasonal demand fluctuations and foundational tech investments pose risks. The market cap suggests moderate reactions, leading to a neutral prediction.

ASGN Slides

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ASGN Q2 2025 slides: revenue stabilizes but earnings pressure continues

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ASGN Report

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