ASGN Inc

NYSE:ASGN

Earnings Call Analysis

ASGN Q3 2024: Stable Revenue with Cautious IT Spending Outlook

In Q3 2024, ASGN reported revenues of $1.031 billion, unchanged from Q2 but down 7.7% year-over-year. The adjusted EBITDA margin was 11.3%, reflecting a shift towards high-value consulting services. IT consulting now comprises nearly 60% of total revenues, with commercial consulting up 3.9% year-over-year. For Q4 2024, ASGN expects revenue between $990 million and $1.01 billion but anticipates a decline in EBITDA margin to approximately 10.4%-10.6% due to fewer billable days and seasonal factors. The strong demand in digital transformation persists, although clients remain hesitant to increase IT spending significantly amid economic uncertainties.

Stable Financial Performance Amidst Economic Uncertainty

In the third quarter of 2024, ASGN reported revenues of $1.031 billion, remaining consistent with the prior quarter and within the company's guidance range. This marked a decrease of 7.7% compared to the same quarter last year, primarily due to a challenging economic environment that has restrained IT service spending. Notably, the company's commercial consulting segment, which is its largest revenue source, showed growth with revenues of $285 million, up 3.9% year-over-year. The adjusted EBITDA margin was reported at 11.3%, aligning with the midpoint of guidance and reflecting ASGN's transition towards high-value consulting services.

Growth in Consulting Services Boosts Revenue Diversification

ASGN's business model has increasingly leaned towards IT consulting, now making up nearly 60% of total revenues. The growth in the commercial consulting segment has been complemented by strong bookings, revealing a book-to-bill ratio of 1.1 for the trailing twelve months. Although the growth in consulting bookings is still largely anchored in renewals, new engagements are increasing, which bodes well for future revenue generation. The company experienced notable growth in 10.9% in its Software and Services sectors, suggesting a recovery in certain market areas.

Federal Segment Performance Demonstrates Resilience

The federal segment exhibited sequential growth, achieving revenues of $312.2 million, while facing a year-over-year decline of 6.6%. However, the absence of certain license revenues was a primary factor for this year's dip. During the third quarter, net new contract awards reached an impressive $666.4 million, leading to a book-to-bill ratio of 2.1. The contract backlog stood at over $3.1 billion, indicating robust demand and a solid foundation for growth moving forward. Importantly, ASGN has maintained a 100% recompete win rate, showcasing its strong position in federal contracts.

Guidance Points to Modest Revenue Expectations in Q4 2024

Looking ahead, ASGN has provided guidance for the fourth quarter, anticipating revenues between $990 million to $1.01 billion, alongside a projected net income of $39.2 million to $42.1 million. The company expects adjusted EBITDA margins to range from 10.4% to 10.6%, reflecting typical seasonal variations, including fewer billable days and client furloughs. The guidance is underscored by ongoing uncertainty in IT spending, with the expectation of no significant uptick from clients in the near term.

Strategic Focus on Technology and AI Adoption

ASGN's strategic emphasis on technology integration, particularly in areas like AI, data analytics, and cybersecurity, remains a key theme in its operations. The company is actively developing advanced solutions that cater to client demands in these realms. With ongoing initiatives to enhance its technological capabilities and improve client offerings, ASGN is positioning itself to capitalize on the increasing investment in generative AI. The global ISG Index predicts a 50% increase in Gen AI spending by 2025, representing a significant growth opportunity for ASGN and its clients.

Strong Cash Flow and Share Repurchase Strategy

ASGN reported a robust free cash flow of $127.9 million, equivalent to a conversion rate of approximately 109% of adjusted EBITDA. This financial strength has enabled the company to repurchase roughly 1 million shares at an average price of $92.6, utilizing $95.6 million of its funds. ASGN has $573 million remaining under its $750 million share repurchase authorization, providing it with the ability to further enhance shareholder value while maintaining a resilient balance sheet.

Navigating Economic Conditions and Future Growth Drivers

Despite the current economic headwinds and cautious client spending, ASGN's leadership expressed optimism about the company's potential for growth. The declining economic uncertainty, along with a pent-up demand for IT consulting services, suggests that the company could see improved spending and investment in its offerings as clients regain confidence. With an eye on expanding their service capabilities and technology integration, ASGN aims to stay ahead in a competitive market, paving the way for sustainable long-term value.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the ASGN Incorporated Third Quarter 2024 Earnings Call. [Operator Instructions]

It is now my pleasure to introduce your [indiscernible] Kimberly Esterkin, Investor Relations. Thank you. You may begin.

[Kimberly Esterkin]

Good afternoon. Thank you for joining us today for ASGN's Third Quarter 2024 Conference Call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Marie Perry, Chief Financial Officer.

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.

[Theodore Hanson, executive]

Thank you, Kim, and thank you for joining ASGN's Third Quarter 2024 Earnings Call.

Market demand for ASGN services remained stable in the third quarter. Q3 2024 revenues of $1.031 billion were similar to the second quarter and within our guidance range. In terms of profitability, adjusted EBITDA margin of 11.3%, was at the midpoint of our guidance range and reflects the continued evolution of our business towards higher-end, high-value consulting solutions. IT consulting is now approaching 60% of total revenues. We had 57.9% of third quarter 2024 revenues in commercial and government consulting, up from 54.5% of revenues in the year ago period.

Despite relatively consistent top line results, global economic uncertainty remains. As a result, we have yet to see a meaningful increase in client IT services spending. This caution, however, is not meant to imply that our commercial enterprise and federal government customers have deviated from their long-term digital transformation path. Rather, our clients know that advancing their IT road map is crucial to maintaining their competitive advantage.

Strong commercial and government bookings in the third quarter demonstrate the continued need for ASGN's IT services and are a sign of the pent-up demand within our customer base.

As we progress through the final quarter of the year and prepare for an improved IT spending environment, we continue to develop our solutions, capabilities in core areas of interest to our Fortune 1000 and federal government clients, including data and analytics, cloud, cybersecurity and early on AI applications. We are differentiating our business by bringing to bear unique solution capabilities across industry verticals, while at the same time being best adopters of new technologies. I will provide some examples of these efforts as we review ASGN's third quarter segment performance.

So let's begin with our largest segment by revenue, Commercial. Our Commercial segment services Fortune 1000 and large mid-market companies. Commercial segment revenues for the quarter were driven by growth in our Commercial Consulting business. Commercial Consulting revenues improved 3.9% year-over-year and were also up 1.2% sequentially. Commercial Consulting bookings of $282.5 million, [ our ] book-to-bill at 1.1x on a trailing 12-month basis. Although consulting bookings remain more weighted towards renewals than new work, our new work is growing each quarter.

Looking at the Total Commercial segment, from an industry perspective, we saw year-over-year growth in 2 of our 5 commercial verticals. [ EMT ] revenues improved 10.9%, compared with the third quarter of 2023, led by double-digit growth in Software and Services and e-commerce. Consumer and industrial accounts are returning to modest growth year-over-year, driven by double-digit growth in utilities and materials.

On a sequential basis, we also saw growth in 2 commercial industry verticals. Consumer and industrial accounts improved low single digits that was driven by growth in consumer staples and materials, which improved mid-single digits sequentially as well as energy and utilities which were up high single digits from the prior quarter.

The Financial Services vertical also saw a slight growth sequentially. This modest quarter-over-quarter improvement was driven by regional banks, which improved mid-single digits in insurance services, which improved high single digits from the second quarter. Notably, within Financial Services, big banks were flat quarter-over-quarter after 4 consecutive quarters of decline. Although the health care industry vertical remained down year-over-year and sequentially, within the vertical, health care payers were up mid-single digits from the second quarter.

As we continue to mature our consulting practice, we are selectively adding new skill sets to our project teams, including select solution architects. Adding these high-end solution capabilities provides us with the opportunity to strengthen our work and thereby, improve our margins, expand our contract sizes and lengths and enhance the industry vertical performance I just described. We are aligning our solutions architects with services of greatest interest to our clients. Solutions that are seeing the most traction of late include application development and modernization, cloud migration and modernization, data platforms and products and cybersecurity advisory and support. These services are all foundational to realizing the value of generative AI.

While there is still much data readiness and infrastructure work that needs to be completed before clients can deploy enterprise-wide applications of Gen AI, they are, however, beginning to implement specific AI models in portions of their organizations by leveraging ASGN's core data and analytics capabilities. Let me provide a few examples.

During the third quarter, one of our clients, a Fortune 500 multinational department store, came to our data and AI team looking for a way to improve staff utilization at its global distribution centers. Leveraging machine learning and AI to analyze historical and real-time data, our team built a time series model that can produce a 26-week labor forecast compared to the client's legacy manual staffing model. This new model significantly reduces our clients' cost by more accurately forecasting labor demands using internal and industry-wide data.

For another client, a Midwest public utility, our data and AI team was brought in to develop an automated solution to verify customer [ addresses ]. The new system would need to process large data sets with limited manual intervention. With a focus on automation and scalability, our team built a predictive analytics solution that automated the entire address validation process, thereby reducing manual intervention by 50% and enabling better decision-making, smoother logistics and enhanced customer satisfaction.

Achieving customer satisfaction is always top of mind. One key way we are earning accolades from our clients is by providing them with a one-stop shop, onshore and nearshore, for their technical needs. For a large financial advisory client facing data integrity complications, we brought together a team of commercial and government consultants in the U.S., along with engineers out of our Mexico delivery center to assess our clients' data systems security and accuracy as well as to provide GAAP reporting and other strategies to improve their systems integrity. This cross-border cross-segment engagement team combines expertise from application development, data analytics and cybersecurity solutions.

This opportunity offers multiple years of expansion work that will deepen our saturation within the client all while increasing our technical qualification.

Speaking of technical qualifications, we've strengthened our commercial governance, risk and compliance practice or GRC practice by joining the strength of our commercial and government cybersecurity resources to support our commercial industry clients. In our recent GRC engagement, we offered strategic advisory and engineering talent to help a major financial institution fortify its data security defenses. We also renewed a multiyear partnership with a key health care client, working closely to enhance the cybersecurity framework to comply with industry regulation.

Also in the health care industry, one of the largest public hospital systems in the country turn to our consultants at [indiscernible] to reimplement their entire instance of ServiceNow. Our team, one that's highly competitive pursued by understanding the challenges and restraints of the system's prior installation and offering the client a shared vision [indiscernible] deliver value across every phase of the project. This win reinforces GlideFast positions as an elite ServiceNow provider and our team now has the opportunity for continued client partnership by implementing additional ServiceNow modules as the project matures and progresses.

Each of these aforementioned consulting projects illustrates ASGN's unique ability to integrate comprehensive solutions to address our clients' IT needs. We complement our internal capabilities by partnering with technology industry leaders, such as ServiceNow, Salesforce, [indiscernible], [ Databricks ], Microsoft Azure and AWS amongst others, knowing that being a fast adopter of the latest technological advancement is vital to our success. And as we move with the fast currents of IT, we're strategically positioning ourselves within our clients' organizations, enabling us to grow and expand our relationships over years and decades to come.

Let's now turn to our federal government segment, which provides advanced IT solutions to the Department of Defense, the intelligence community and federal civilian agent. The Federal segment revenues for the quarter improved 1% sequentially. Net new contract awards were $666.4 million, putting our book-to-bill at 2.1x for the third quarter, and 0.9x on a trailing 12-month basis. Contract backlog was over $3.1 billion at the end of the third quarter, or a coverage ratio of 2.5x the segment's trailing 12-month revenues.

As is evident from our quarterly book-to-bill the pace of task orders has increased. We began to see this trend in July, at the same time of our second quarter earnings call, and this continued throughout Q3 as we were awarded work under previously won contracts, including several IDIQs. At the same time, past quarter volume increased [indiscernible] a [ recompete ] win rate, which reached 100% for the quarter. By increasing our market focus and rigor, we boosted our win rate and expanded our average deal size.

For example, in September, our federal government team was awarded a $528 million, 6-year single award data services IDIQ with the Department of Homeland Securities, cybersecurity and infrastructure security agency [indiscernible]. Under this new award, a portion of which is included in our third quarter bookings, our team will design, develop and deliver solutions that will standardize the integration of cybersecurity data across dozens of federal civilian executive branch agency. This award is a true testament to our team's exceptional cybersecurity qualifications as well as our long-standing relationship with and institutional knowledge of [indiscernible].

Given our partnership with [indiscernible] and having passed other prerequisite steps, our team is asked to compete against other companies to deliver [ CISA ], a prototype of cybersecurity threat intelligence platform. This platform will allow civilian agencies, along with state and local governments and critical infrastructure [indiscernible] to streamline the generation use and sharing of cybersecurity threat intelligence to increase the resiliencies of U.S. national security. By being a part of this important prototype, ECS has the opportunity to assume a key advantage on a large future contract with [indiscernible] Threat Intelligent Enterprise service program.

During the third quarter, we also won past quarters of a number of previously secured contracts and IDIQs. For premier law enforcement agency, we were awarded our first 2 task orders, which expanded our current work, providing advanced architecture engineering and operation for the agency's important cybersecurity domain. For the National Institutes of Health, we won several task orders to support patient-centric solutions and for [ Veterans Affairs ], we won multiple task orders to provide enhanced veterans experience, including supporting key applications used for accessing veterans health care information.

While it took some time to see task orders flow through. As we predicted, we are gaining traction in our pipeline of new work and recompetes continues to grow. Importantly, our diversified government portfolio of critical customer accounts with national priority, along with our focus on mission-enabling IT solutions, mitigates the potential impact to our business that risk for macroeconomic conditions, geopolitical conditions or the upcoming presidential election may pose.

Before Marie discusses our third quarter results in more detail, I'd be remiss if I did not speak about our growing AIML work for the defense and intelligence community. As one example, in the third quarter, the National Security and Intelligence division provided us with funding for work related to AI-enabled operations and exercises, autonomous systems deployment, AI algorithm and software deployment and AI-enabled publicly available information tool kits and training programs.

ASGN has been a top AIML contractor for the government for many years, and in August, ECS was named a top 5 federal AIML provider by [ Deltek ] for the third year in a row. While our talented professionals and qualifications are certainly being recognized by the industry, to ensure that we stay ahead of the latest development in AI and Gen AI, we continue to expand our core team of practitioners to provide solution architecture, engineering and business growth forth.

With that, I'll now turn the call over to Marie to discuss the third quarter results and our fourth quarter guidance.

[Marie Perry, executive]

Thanks, Ted. It's great to speak to everyone this afternoon.

Third quarter revenues were $1.031 billion, a decrease of 7.7% year-over-year, but essentially flat to the second quarter. Revenues from the Commercial segment were $718.8 million, a decrease of 8.1% as compared to the prior year. As Ted noted, revenues from Commercial Consulting, the largest of our high-margin revenue streams, totaled $285 million, up 3.9% year-over-year and up 1.2% sequentially. Revenues from our federal governance segment were $312.2 million, a decrease of 6.6% year-over-year, but up 1% sequentially.

As we noted in our second quarter call, the year-over-year decline in federal segment revenues can largely be attributed to fewer license revenues compared to the prior year. Excluding these licenses, Federal segment revenues improved low single digits year-over-year.

Turning to margins. Gross margin for the third quarter of 2024 was 29.1%, an increase of 20 basis points from the third quarter of last year and at the top end of our guidance range for the quarter. Gross margin for the Commercial segment was 32.8%, up 30 basis points year-over-year, reflecting a higher mix of consulting revenues as well as margin expansion in these revenues. Gross margin for the federal government segment was 20.7%, also up 30 basis points year-over-year, primarily due to a higher mix of direct labor which is higher margin work, along with lower license revenues mentioned previously.

SG&A expense for the quarter was $207.5 million, compared to $206 million in the third quarter of 2023. SG&A expense also included $1.1 million in acquisition, integration and strategic planning expenses and a $3.6 million legal settlement accrual, both of which were not included in our guidance estimates.

For the quarter, net income was $47.5 million. Adjusted EBITDA was $116.9 million, and adjusted EBITDA margin was 11.3%.

Turning to free cash flow. Free cash flow for the quarter was $127.9 million, or a conversion rate of approximately 109% of adjusted EBITDA. At quarter end, cash and cash equivalents were $166.6 million, and we had full availability under our $500 million senior secured revolver and our net leverage ratio was 1.9x. Our robust free cash flow provides a strategic advantage that enables ASGN to find key growth initiatives and opportunistically repurchase shares to return value to stockholders, while maintaining a healthy and resilient balance sheet. By following a disciplined and balanced approach to capital allocation, we can invest in high-return opportunities and prudently manage our leverage, driving sustainable long-term value to our stockholders.

Given the market opportunity, we deployed $95.6 million for the repurchase of roughly 1 million shares at an average price of $92.6. We have approximately $573 million remaining under our $750 million share repurchase authorization. With solid free cash flow generation and [ total ] availability under our revolver, we have ample dry powder to make strategic acquisitions when opportunities become more readily available.

Turning to guidance. Our financial estimates for the fourth quarter of 2024 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and assumes 61 billable days in the fourth quarter, which is 1 more day than the year ago period and 2.5 days fewer than the third quarter. The fewer billable days in the fourth quarter generates a sequential headwind that equates to about 4% of revenue.

We expect market conditions and demand for our services in the fourth quarter to be similar to that of the third quarter. While third quarter bookings indicate a solid pipeline of work, we do not anticipate an uptick in our clients' IT spend in the fourth quarter.

With regards to EBITDA margin, the fourth quarter typically sees a decrease in margins sequentially due to client furloughs and fewer billable days along with traditional seasonal softness in perm placement revenues. With this background, for Q4 2024, we are estimating revenues of $990 million to $1.01 billion, net income of $39.2 million to $42.1 million, adjusted EBITDA of $103 million to $107 million and adjusted EBITDA margin of 10.4% to 10.6%.

Thank you. I'll now turn the call back to Ted for some closing remarks.

[Theodore Hanson, executive]

Thanks, Marie. Last quarter, I ended our discussion by reviewing ASGN's core values, including our belief in the IT services sector are moved to become more consultative and our focus on supporting large industry-diverse, commercial enterprise and federal government clients.

Another core value to include on that same list that hinted at the start of today's call, is being a fast adopter of new technologies to bring to our clients. A differentiator of our business model, ASGN strategically pivots as technology advances, that we can drive our clients' IT road maps while competitively positioning our own business. AI is undoubtedly a central focus of the IT road map of corporate enterprises and federal agencies alike, making the investment and integration of Gen AI, a top priority for our clients.

The global ISG Index, one of the leading sources of market intelligence on the IT and business services sector, anticipates that global spending on Gen AI will increase by 50% in 2025 and represent upwards of 7% of company's total IT spend by year-end. While leveraging data and AI will enable companies to unlock increased value, before that value can be realized, company tech stacks need to be improved. Businesses must enhance their data management capabilities as well as their cloud and cybersecurity infrastructures in order to fully leverage the benefits of Gen AI across our enterprises.

With that in mind, there remains a lot of foundational work that needs to be completed for modernizing and cleaning up data lakes and enhancing cybersecurity frameworks, to driving automation and ensuring regulatory compliance. All of these areas are core to ASGN's differentiated service offerings and with strong bookings and a diverse client base across 6 key industry verticals, ASGN is positioned to take advantage of the opportunities to support our clients' IT road maps now and for many years to come.

That concludes our prepared remarks. I want to extend my heartfelt gratitude to everyone at ASGN for your support this past quarter, your dedication to fostering deep long-standing client relationships is truly commendable and no doubt places us at the forefront of the IT industry. Thank you again for joining our third quarter 2024 call.

Operator, please open the call to questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Jeff Silber with BMO Capital Markets.

[Unknown Analyst]

This is Ryan on for Jeff. Just curious what you need to see and what trends you are monitoring that would make you more bullish on the IT spending environment and the digital transformation environment ahead?

[Theodore Hanson, executive]

Ryan, thanks for the question. I mean, look, I think in the long term, we're bullish. There's a lot of underpinnings here that are going to be drivers of our business as we help our clients back to the end of the remarks there to drive their IT road maps over a period of time.

I think in the near term, what we're watching here is just -- again, this is confidence, so that our clients have confidence to begin to invest at more normal levels in their IT needs. And so that's a balance of two things here. I think there's -- I think we're making progress. There are some things in the economy overall, like the interest rate cycle, like the elections. Some of the other things going on in inflation and otherwise, that have clients remaining cautious, but are beginning to move through and pass some of those things, hopefully, and that's going to create business confidence, and with business confidence will come a heavier investment in their IT road maps and we'll be right there to serve them.

[Unknown Analyst]

Great. And then just for the follow-up, Do you think the growth trend in commercial consulting has troughed at this point now that you're past kind of the tougher comps from last year? I was just curious how you expect that to trend relative to the core assignment over the next couple of quarters?

[Theodore Hanson, executive]

Well, I think we're at -- we're kind of at low single-digit growth rates here. It seems over the past few quarters that we are in a stable place quarter-to-quarter, if you adjust for billing days and those other things. So bookings also remained very solid. We were at [ 11 ], I think, here in the last quarter, and that portends growth going forward. So I think if you look at the metrics around book-to-bill, and you look at the past performance here over several quarters where we've kind of consistently put up single low single-digit growth that -- we're at a place where we can begin to grow at higher rates. But that, again, goes back to what we just discussed around our customers and for them to be able to open up and invest more fully in all the things they want to accomplish.

So the book-to-bill tells us there's good demand and our pipeline, tells us good demand. So I think it's not if, it's more of a win.

[Operator]

Our next question comes from the line of Maggie Nolan with William Blair.

[Margaret Nolan, analyst]

Can you elaborate on what may be different in terms of your strategy when you emphasize the solution architect additions? Is this representing a shift in go-to-market or how you secure and manage talent for your projects?

[Theodore Hanson, executive]

Well, I'll let Rand take that. I would call it more of an enhancement, Maggie, than anything else, right Rand?

[Randolph Blazer, executive]

There's absolutely our go-to-market features, the accounts we focus on the portfolio and the growth in the accounts and the intimacy with the account. Supporting that is an evolution of our solution strength and that evolves as technology and the needs of our clients change, Maggie.

So for example, AI, we're -- in past quarters was more around governance requirements. And today, as you saw featured in Ted's remarks, we're getting more into actually building algorithms for forecasting, searches and updates, better security and security algorithms. So that just requires continued solution strength in support of that account portfolio. But it's definitely accounts first, solution second, and we have to be good at both.

[Margaret Nolan, analyst]

That's helpful. And then to build on the first set of questions, you kind of alluded to some of this, but maybe I'll just explicitly ask about anything that you can share with us about your expectations for 2025 in terms of that IT spending environment and maybe how you perceive the current client sentiment on 2025 budgets?

[Theodore Hanson, executive]

Yes. Well, I can't really comment on IT spending rates in 2025. But I can tell you that [indiscernible] back to what the first set of questions was, there is good demand, both in our pipeline and in our bookings. So it would portend stronger growth in the future.

I think the question is when and how does that develop? And it's a little early to tell that. But I think the positive news here is that we like what we see in our bookings, and we like what we see in pipeline, and we'll have to keep monitoring this to just begin to see when we can really expect, what I'll call, spending at more normal or higher rates.

[Operator]

Our next question comes from the line of Surinder Thind with Jefferies.

[Surinder Thind, analyst]

Can you maybe provide some additional color on just the assignment business, maybe any signs of stabilization that you might be seeing there or just the trends there, whether it's within the IT business or Creative Circle? Any [indiscernible]

[Theodore Hanson, executive]

Yes. I mean, I would say generally adjusted for billing days, Surinder, we're seeing stability quarter-to-quarter. That's not new. We saw it develop here in the first part of the year. It's kind of carried through perm placement. It's gotten a little bit weaker. So that part of the assignment business, as we've gotten deeper into the year has gotten a little bit weaker. We expect it to be the same in the fourth just because that's not a strong quarter for that part of the business.

But look, I think what we're seeing in the consignment business for customers is, again, that's the primary place where they go to control their spending levels. And so they've continued to keep their foot on the break there for a bit here. And while we're seeing some stability, we're looking for signs that they want to open up spending. Again, this is about IT spending more than anything else, both in the consulting part of the business and in the assignment piece.

[Surinder Thind, analyst]

That's helpful. And then following up on the idea that this is -- the assignment business is an area where, I guess, clients look for efficiencies. How are you thinking about the staffing model going forward in the context of Gen AI productivity improvements? Is there a risk that maybe clients more aggressively look for solutions there to offset some of the cost, meaning less need for head count from a support perspective relative to historical levels?

[Theodore Hanson, executive]

I mean I think always, Surinder, as technologies change, you'll see the clients, the skill sets that they need, change and evolve. Some things will go to legacy. Other things will become more modern and in demand, if you will. But I think the clients need for talent is still going to be there.

Opportunity for us is to deploy some of these next-generation AI opportunities inside of our own business, which we're already doing today in order to make ourselves more productive. And so I think we'll be doing that on behalf of our customers. But our customers are still going to need both great solutions to their business needs and they're also going to need great technical talent to address all of those opportunities.

[Operator]

Our next question comes from the line of Joseph Vafi with Canaccord Genuity.

[Joseph Vafi, analyst]

Nice to see [indiscernible] results. I thought we drill down a little bit more in the financial services vertical and maybe sort of the flip like [indiscernible] incrementally better there. Was that -- is there anything [indiscernible] in terms of consulting or [ assigned ] or any demand drivers? Or is it [indiscernible]

[Theodore Hanson, executive]

Yes. So Joe, I'm going to let Rand take this one. Rand, Joe is asking about financial services and puts and takes or color on performance there in both consulting and in the assignment part of the business.

[Randolph Blazer, executive]

Yes. Joe, yes, and you were breaking up there a little bit. But notwithstanding, as you know, this is a big and important sector, not just for us, but for IT spend. So we're [ buoyed ] by the fact that the big banks have reported recently some pretty good results. We're happy that the Regional Bank segment, which Ted featured was improving.

I think we're -- well, I know we're penetrating these accounts with now consulting and that the, if you will, the tip of the spear. The staffing thing, I think, is a function of just -- that our thesis is that they feel like they can start spending more money, we'll see higher staffing opportunities, which I think we're at the doorstep too. I mean we like the sequential numbers we have in some of these segments. We're still year-over-year down. Ted said in the comments, except for in regional banking.

But we want to capture it on both ends, the staffing side and the consulting and the fact that many of these accounts we've now cracked into the resulting side of the business is important to us, and we're watching that very carefully.

[Joseph Vafi, analyst]

Great. Hopefully, you can hear me a little better. But -- and then also on it does feel like enterprises do have some budget left over for the year just based on your discussions with them, do you think they just kind of kick the can down the road with that budget for next year? Or do you think there's any kind of chance of any year-end flush year or anything? Or how they're kind of thinking about what's remaining in the budget for this year?

[Theodore Hanson, executive]

Yes. Rand, do you want to finish up that one?

[Randolph Blazer, executive]

Well, listen, in the government, we're seeing some spending and hence, our bookings and our -- some emergence of growth. On the commercial side, listen, I think it's -- I don't know what to tell you, Joe, maybe, Ted, you have some other thoughts, but we don't hear anything from our clients that feel like I have to press now in the last 1.5 months of the year, 2 months of the year. I think everybody is kind of assuming there's some things going on in the election, January 1 turns a new page. and off we go.

I think they're doing -- if you look at our AI spend, Joe, for example, the character of the work has changed a little bit, which I featured and [ we ] featured in Ted's comments. I think they're getting themselves in a position where they're getting a better feel for what they want to do, not just what I call desktop productivity using Gen AI, but rather big-ticket AI. Kind of coming up with the ROI associated with that is also part of the drill that they're going through now.

So they're doing the prep work. That's not to mention the data side, which is a tremendous -- that's where all of us are still seeing the bulk of our work in data, data preparation, data validity, data quality, accessibility of data, faster processing of data, mixing internal data with public data and benchmark information is also on their mind. So I think there's a lot on their mind. I don't think the [ spicket ] to spend has necessarily been turned on. Ted, would you add to that?

[Theodore Hanson, executive]

No, I think that's perfect.

[Operator]

Our next question comes from the line of Tobey Sommer with Truist Securities.

[Unknown Analyst]

This is [indiscernible] on for Tobey. Good quarter for ECS bookings, north of 2x book-to-bill there. And obviously, you get some seasonal benefit in the third quarter, but just kind of hoping you could expand on what you've done to boost win rates?

And then separately, maybe you could clarify how much of the $530 million data services [indiscernible] you mentioned was booked in the third quarter?

[Theodore Hanson, executive]

Yes. So I think this has just been really good, hard [ spadework ] and focus on the accounts and the contract opportunities, [ Jasper ], that we've been working on here. We had some nice wins on IDIQ contracts, where we had good client [ intimacy ] at the end of '23. Those were slower to pick up, but we knew task orders would be coming out on that. Finally those began to drop, and we're winning our share of that, which is good to see. It was maybe -- it took a little longer to develop all the way into the third quarter here of this year, but that was our expectation.

We don't talk about gross to net on contracts. Obviously, you book on a net basis, which you think you have a high probability of working through over the life of the contract, and we're middle of the road or conservative on that. And so there's always a certain amount of the total contract value that doesn't get booked. And then in certain situations, if you have a contract that might be a small part of that that's falling off or something that didn't get spent all the way through, you have to realize the net of that as well. So we've done all that. Our bookings presented here are on the net basis. And so that's about all I can say on that.

[Unknown Analyst]

Okay. That makes sense. Just kind of curious, you've been managing capacity levels in your consulting business as growth has moderated there. I guess, has the mix of personnel that are full time versus temp or maybe based out of your offshore delivery [ sellers ] change really in the last couple of quarters?

[Theodore Hanson, executive]

Yes. Rand, do you want to take that? I mean the one thing I'll say, [ Casper ], this is the highlight of our model here that most all of our resources on the consulting work do come on the back of our IT staffing capabilities since that gives us an advantage as our business either slips up or slips down in order to deal with maintaining productivity and profitability in that unit.

Rand, do you want to talk about that?

[Randolph Blazer, executive]

I think, Ted, that's -- [ Jasper ], that says it all. Remember, we're using contingent labor for arms and legs on consulting work. So we don't have an overblown bench that we have to mix and match and reallocate in our professional teams and our leadership team and our SMEs, if you will. The people that are the architects, developers of our methodology are pretty much intact.

On the Mexican side, we've been growing throughout all these quarters. So -- and now, as you know, we've also started some Indian offshore pointed directly towards ServiceNow, which is a capability that we've come into, and it's been more in a growth mode than not.

So I think [indiscernible] right. When you have this model, this is a hallmark of our model. We use contingent labor and from our point of view, it's working very well.

[Unknown Analyst]

If I could slip one more in here at the end. Maybe following up on a prior question. Just hoping you could stratify what you're seeing for demand in [indiscernible] relative to Creative Circle and assignment?

[Theodore Hanson, executive]

Yes. Again, [ Jasper ], I'll just go back and say that this has been fairly consistent. Although our creative digital marketing unit, if you go back into '23 was the first to kind of fall because it's the most sensitive to discretionary spend. It's been as stable as the rest of our assignment business here over the previous few quarters.

[Operator]

Our next question comes from the line of Kevin McVeigh with UBS.

[Kevin McVeigh, analyst]

Great. The 1 million shares repurchased in the quarter, is that a way to think about kind of what the quarterly cadence should look like? Or just any thoughts on that or just congratulations on that, by the way.

[Marie Perry, executive]

Yes. So to think about our share repurchase, our strategy is really to use the free cash flow we generate in the quarter to show [indiscernible] around M&A. So that is probably the right way to think about it.

[Theodore Hanson, executive]

Look, I think, Kevin, that we kind of call that as we go. M&A opportunities have been less. So obviously, we've been kind of working diligently through free cash flow each quarter on our [indiscernible], we'll just have to keep our eyes on that as things develop and see if our posture changes at all. But that's obviously our approach. You know that it's been that for a long time [indiscernible]

[Kevin McVeigh, analyst]

That's helpful. And then just, Ted you mentioned this earlier, but just to follow up. The Gen AI opportunity internally, kind of where are you through that process? And does it vary on the federal side as opposed to commercial as opposed to more the kind of traditional assignment business? Just any thoughts around that?

[Theodore Hanson, executive]

Yes. Rand, do you want to take that one?

[Randolph Blazer, executive]

Well, Kevin, are you asking our internal deployment of AI inside our business? Or are you talking about just generally providing an AI solution to our client base?

[Kevin McVeigh, analyst]

[indiscernible] Internal, internal.

[Randolph Blazer, executive]

Well, the internal -- the AI deployment is happening in both our federal and commercial and where we can, it will benefit both sides. So for example, our cybersecurity AI, which continues to be enhanced internally is provided by ECS for the entire of ASGN. So it supports both the commercial and the government business. We have new proposal development teams at qualification creation capability, which is being spearheaded by our government team, which will be used and is being used by our commercial teams.

In the recruiting area, we use AI to support mixing and matching our searches for the right candidates and building pipeline of different skill bases that's being used more predominantly on our commercial side, but being benefited [indiscernible].

So those are just examples. Our employee center is, again, shared technology across government, commercial and where we can use AI to help respond or anticipate questions and respond to them, whether it's about benefits or other things as being shared. So does that give you a sense?

[Kevin McVeigh, analyst]

Very helpful. And then, I guess, just philosophically, the expense savings, does that go to reinvestment back in the business or to shareholders? I mean that may be a little bit early, but just any thoughts around that?

[Theodore Hanson, executive]

Yes. This is part, Kevin, of just being more productive as a business, right? I mean I think as we -- our strategy is that as we evolve our business to be more consultative, obviously, we're trying to drive both higher growth rate, a higher gross margin profile and a higher EBITDA margin profile. And some of that will come in the value proposition of the work we do down to the EBITDA line [indiscernible] others has to come from being more productive. And so I think these things in AI but contribute to providing better services to whoever our constituent is internally in these areas, to having a foundation of AI learning that we can then translate to our customer and then yes, being able to translate some of those savings and productivity to the bottom line to go together with all the rest of it.

So there's a lot of ends to meet here, but we are where our customers are with these things, where piloting. We're trying things. Some things are going into production, other things we're having to work through further. We're having to think about our own data and security and all the different things they are. So I would say in many ways, we're right where they are.

[Operator]

Our next question comes from the line of Mark Marcon with Baird.

[Mark Marcon, analyst]

On M&A, how are you -- what sort of opportunities are you seeing? Is the pricing getting a little bit more reasonable? I mean, we take a look at your balance sheet, leverage is well controlled. Free cash flow continues to be really strong. Have the prices become more reasonable at this point? Or how are you thinking about that?

[Theodore Hanson, executive]

Well, Mark, there's probably not enough data points out there to say that pricing is becoming more reasonable. There's enough data points to say, there's fewer transactions going on.

Look, we note there's some -- there's a little pickup here and things going on in the M&A market. Most of what we're seeing are small things. They may be more about delivery. They may be non-U.S. focused, but there are some small things getting done. I don't think, generally, there's nothing going on to say there's a new data point on valuations and that sellers are really willing to come off of the type of assets that we would be looking for. But we're seeing a little bit more flow through the pipeline. And so we'll -- we continue to work through those.

We agree with you, the balance sheet is in great shape, where we got some cash on the balance sheet in addition to be modestly leveraged on [ that ] basis. And so -- and we also know exactly what we're looking for. So we're in the market calling through opportunities for those things. But it's a -- we're just -- it's a little bit of a process here for lack of a better word.

[Mark Marcon, analyst]

All right. Appreciate that. And then on the federal government side, I mean, congratulations on the wins and the 100% on the recompete. When do you think these wins would convert to revenue? How should we think about that? And what should investors think about just in terms of the election? Obviously, nobody knows exactly who's going to win, but how would you advise investors to think about how the government business is going to perform over the next year?

[Theodore Hanson, executive]

So two good questions, Mark. I think on the first one, these wins are slowly contributing to revenue here in the [ fourth ], but I wouldn't say materially. So I expect most of the contribution from the various wins that we announced in the third quarter to have a bigger impact on 2025 than they will on the fourth quarter.

As it relates to the election, I mean I think its the thing that everybody is watching, especially enterprise customers in federal and in commercial. But you can see in federal, it didn't slow anything down during the quarter. I think the industry overall is going to have a strong third quarter in bookings leading up to the election.

And I think in the commercial enterprise space, while customers are focused on things like the regulatory environment and the M&A environment and where it's -- where our policy is going to be, there's definitely a pent-up demand around IT spending. And I don't think one party or the other, we don't think is really going to change customer posture on spending on key IT initiatives.

So while it's a little bit slow as we go here through the end of this year, I expect when there's better confidence among our customers and some of these things that are unknowns are water under the bridge, you'll see them offer that confidence, begin to spend more on a lot of these key initiatives.

[Mark Marcon, analyst]

That's great. And then with regards to -- on the commercial consulting side on IT, I know it's still relatively early days, but you have talked a lot about how much you're doing in terms of helping clients clean up the data in preparation for bigger AI initiatives.

Is there any way to quantify like what you're doing on the consulting side that would be either data in -- data cleanup, data restructuring in order to take advantage of AI and then how much you're actually doing in actual AI assignments at this point?

[Theodore Hanson, executive]

Yes. So I'll let Rand take that. We're not releasing bookings or revenue in the AI or AI-enabled category, but Rand can give us some color and speak to data specifically, Rand?

[Randolph Blazer, executive]

Yes, Mark, I'm kind of smiling. It's a good question. We definitely -- we break it into two categories, what we call AI or pure AI and AI extended. So we know when we're doing work that supports AI implementation in the future, if you will, and we know the difference between that and what we call pure AI applications today.

We, I think, as Ted featured in the opening remarks, we're seeing -- AI still a small percent of our total revenues. The data side and the work we're doing on the data side is a much larger [ stock ] part of our revenues. But we definitely watch both, and we need to [ tour ] ourselves to make sure that we can not just prepare data, qualify data, bridge data but actually get it effective use for the client as AI applications come in.

So we're very mindful of the question you asked. We have a way of measuring that in terms of revenue [indiscernible] and we're -- it's slowly moving the way it [ shouldn't ].

[Operator]

We have reached the end of the Q&A session. I would now like to turn the floor back to Ted Hansen for closing remarks.

[Theodore Hanson, executive]

Great. Well, thank you, operator, and thank you, everyone, for participating today. We look forward to being with you in the first quarter of 2025 to talk about our fourth quarter results. Have a great day.

[Operator]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.