IT services provider ASGN (NYSE:ASGN) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 7.7% year on year to $968.3 million. Guidance for next quarter’s revenue was better than expected at $1 billion at the midpoint, 0.5% above analysts’ estimates. Its non-GAAP profit of $0.92 per share was 2.8% below analysts’ consensus estimates.
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Revenue: $968.3 million vs analyst estimates of $962.3 million (7.7% year-on-year decline, 0.6% beat)
Adjusted EPS: $0.92 vs analyst expectations of $0.95 (2.8% miss)
Adjusted EBITDA: $93.6 million vs analyst estimates of $94.58 million (9.7% margin, 1% miss)
Revenue Guidance for Q2 CY2025 is $1 billion at the midpoint, roughly in line with what analysts were expecting
Adjusted EPS guidance for Q2 CY2025 is $1.09 at the midpoint, below analyst estimates of $1.25
EBITDA guidance for Q2 CY2025 is $104.5 million at the midpoint, below analyst estimates of $112.5 million
Operating Margin: 4.8%, down from 6.8% in the same quarter last year
Free Cash Flow Margin: 0.7%, down from 6% in the same quarter last year
Market Capitalization: $2.44 billion
ASGN’s first quarter results reflected growth in high-margin IT consulting services, partially offsetting ongoing softness in cyclical commercial assignment revenues and continued caution from clients facing macroeconomic uncertainty. CEO Ted Hanson highlighted the company’s resilience, citing a shift in client demand toward efficiency-driven technology solutions, including artificial intelligence (AI), data modernization, and cybersecurity. The recent integration of TopBloc, a Workday partner acquired in March, was noted as a key development, with Hanson stating, “Our Apex and TopBloc teams have already partnered on a number of new consulting opportunities.”
Looking ahead, management provided cautious guidance, pointing to a stable but uncertain demand environment. CFO Marie Perry explained that the company widened its revenue guidance range to reflect potential volatility, driven by factors such as ongoing government cost-cutting initiatives and client hesitancy to increase IT spending. The company expects consulting and technology partnerships to help sustain margins, but acknowledged risks remain around federal contract adjustments and overall macro conditions.
ASGN’s leadership emphasized the company’s ability to adapt to shifting client needs and macroeconomic headwinds through a diversified service mix and flexible cost structure. The following points summarize management’s key insights:
Consulting Revenue Mix Shift: The proportion of IT consulting services rose to 61% of total revenue, up from 57% a year ago, reflecting client focus on efficiency and modernization over discretionary spending.
Commercial Segment Trends: Consulting bookings improved, especially in consumer, industrial, and healthcare verticals, with demand driven by AI, data solutions, and cloud-based automation projects. Assignment revenues in cyclical areas remained weak, but high-value consulting partially offset this softness.
Federal Government Segment Developments: Federal bookings were strong, with new contract awards and a healthy backlog, but revenue declined due to program completions and cost-cutting initiatives under the Defense Optimization and Government Efficiency (DOGE) program. The segment remains aligned with government priorities in AI and cybersecurity.
TopBloc Acquisition Integration: The acquisition of TopBloc expanded ASGN’s capabilities in Workday consulting. Management reported early cross-selling success between Apex and TopBloc teams, indicating potential for incremental growth in cloud-based enterprise services.
Variable Cost Structure and Margin Management: ASGN’s model, which leverages contingent labor and a flexible SG&A base, helped maintain gross margins despite revenue declines. Management credited the business stabilizers and ongoing realignment of investment toward higher-margin areas for supporting profitability.
Management anticipates that demand for digital transformation and cost-saving solutions will underpin near-term performance, but acknowledges ongoing risks from macroeconomic volatility and federal spending constraints.
Continued Focus on Digital Solutions: ASGN expects sustained demand for AI, data modernization, and cybersecurity services as organizations prioritize efficiency and automation over discretionary IT projects.
Federal Contract Adjustments: The company faces uncertainty from government cost-cutting programs, which may result in further contract modifications or delays, particularly in non-core management consulting work.
Integration of Strategic Acquisitions: Management believes recent acquisitions, such as TopBloc, will drive incremental growth and margin expansion by enhancing the company’s enterprise cloud and Workday consulting offerings.
Tobey Sommer (Truist Securities): Asked about the mix of new versus renewal bookings and the nature of federal business impacted by DOGE. Management replied that renewals still outpace new work, and DOGE mainly affects small, non-technical contracts.
Mark Marcon (Baird): Inquired about the sustainability of gross margin improvements and SG&A flexibility. Leadership highlighted higher consulting mix and contingent labor as key margin drivers, with SG&A remaining highly variable.
Kevin McVeigh (UBS): Sought details on TopBloc’s contribution and DOGE’s ongoing impact. Management said TopBloc’s initial revenue was immaterial but future impact should align with prior guidance, while DOGE effects are mostly limited to less technical federal work.
Trevor Romeo (William Blair): Questioned segment-specific guidance assumptions and resilience of Mexico nearshoring. Management pointed to stable revenue per billable day and noted growing client interest in nearshore solutions for cost savings.
Surinder Thind (Jefferies): Pressed on intra-quarter visibility and muted Q2 margin outlook. Management cited prudence amid daily macro shifts, with Q2 margins reflecting business mix and loss of some high-margin federal contracts.
In upcoming quarters, the StockStory team will monitor (1) whether consulting bookings continue to offset declines in cyclical commercial assignments, (2) the pace and impact of federal contract modifications or reductions under ongoing government efficiency mandates, and (3) early revenue contributions and cross-selling potential from the TopBloc acquisition. Progress in nearshore delivery and the ability to maintain or expand gross margins will also be important markers as client spending priorities evolve.
ASGN currently trades at a forward P/E ratio of 11×. Should you load up, cash out, or stay put? Find out in our free research report.
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