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00:06 Greetings. Welcome to the ASGN Incorporated First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. 00:26 I will now turn the conference over to your host, Kimberly Esterkin.

You may begin..

00:32 Thank you, operator. Good afternoon, and thank you for joining us today for ASGN's first quarter 2022 conference call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Ed Pierce, Chief Financial Officer.

00:46 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.

01:22 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.

01:42 I will now turn the call over to Ted Hanson, Chief Executive Officer..

01:49 Thank you, Kimberly and thank you for joining ASGN's first quarter 2022 earnings call. I am very pleased to report that the momentum we experienced in the fourth quarter of 2021 continued into the first quarter of 2022. Revenues for the first quarter totaled $1.1 billion, up 20.3% year-over-year and surpassing the high end of our guidance range.

02:14 Our Commercial segment accounted for 76.3% of consolidated revenues, with strength across all business units driving the segment's growth.

Our Federal Government segment accounted for the remaining 23.7% of revenues and performed in line with our expectations for the quarter, achieving consistent revenues year-over-year despite the difficult quarterly comparison.

02:32 Adjusted EBITDA also improved significantly and was up 39.1% year-over-year to total $134.8 million, a record for the first quarter. With such strong quarterly results, we continue to trend ahead of the three-year targets we laid out at our Investor & Analyst Day conference this past September.

This performance brings us closer to our goal of $6 billion in revenues by 2024, $4.9 billion of which will come from the organic growth of our existing business.

03:06 It is clear from these aforementioned results and the segment-level detail that I will provide shortly, that ASGN's business model supports the future of work, and that our company continues to be a winner in providing IT services and solutions to the commercial and government end markets.

ASGN’s unique delivery model provides not only critical IT resources, but also consultative solutions with custom fit teams. We are better positioned than any other company to solve for gaps in IT talent, while preparing the future technology workforce for tomorrow’s digital needs.

I'd like to thank our entire team for your exceptional efforts this past quarter. Together, we have enabled ASGN to not only surpass our internal financial targets, but to also reach new company records. 03:57 Our Commercial segment had a very strong quarter with revenues of $832.9 million, an increase of 28.3% over Q1 of last year.

Apex Systems, our largest division, accounting for 82.7% of the segment's revenues for the quarter, reported solid double-digit growth in both IT staffing and consulting services. We also saw a strong uptick in creative digital marketing and permanent placement services for the quarter.

From an industry perspective, all of our five Commercial segment industry verticals achieved double-digit growth for the quarter. 04:34 Financial Services, our largest industry vertical had particularly strong performance across insurance, FinTech, and wealth management accounts.

Growth in our Technology, Media, and Telecommunications or TMT accounts was led by our Technology and Telecommunications accounts. Growth in our commercial and industrial accounts reflected strength across all sectors with particular strength in energy, industrials, and consumer discretionary accounts.

Growth in our healthcare vertical continued to be driven by both provider and payer accounts. 05:11 Finally, growth in our government and business services vertical was led by our business services accounts while, aerospace and defense and government accounts were up mid-single digits versus Q1 of 2021.

Apex Systems' top accounts across all five of the industry verticals we target, along with the unit's retail and branch accounts, all achieved double-digit growth rates for the quarter.

Creative Circle also posted positive growth across their top accounts, while permanent placements at CyberCoders exceeded our expectations, enabling the unit to achieve solid double-digit growth for the quarter.

05:49 Gross margin for the Commercial segment was 32.7%, up 210 basis points from Q1 of last year, due to growth across our high margin, commercial consulting, creative digital marketing, and permanent placement businesses.

This growth in gross margin contributed to a corresponding increase in adjusted EBITDA margin of 140 basis points compared with Q1 2021. We also continued to expand our commercial consulting revenues during the quarter. Commercial consulting revenues totaled $204.7 million, an increase of 74.2% over Q1 of last year.

Revenues derived from our work in digital transformation, workforce management and modern enterprise projects led to the segment's strong performance.

06:40 ASGN's consulting offerings remain an important source of value we provide our clients, so we continue to build out our solution strength and identify acquisition opportunities that expand our consulting capabilities and bring value to our diversified set of clients.

Our digital transformation projects, in particular, which help our clients develop new digital tools and pathways to enhance their customer support, financial transactions, and supply chain are in great demand.

07:13 In order to provide additional color on our consulting business and for industry comparative purposes, starting this quarter, we will also provide our quarterly commercial consulting bookings and book-to-bill results. ASGN defines bookings as the amount of funded work won during any given quarter that will be executed over the ensuing quarters.

Our book-to-bill is a ratio of our total bookings to the commercial consulting revenues for the quarter. 07:41 Commercial consulting bookings for the quarter totaled $297.5 million, up 63.5% over Q1 of last year. This translates into a book-to-bill of 1.5 to 1 for the quarter.

While this ratio continues to trend positively and the outlook for our consulting business remains strong, it is important to keep in mind that as we head into the second quarter, our commercial consulting business and overall Commercial segment faces tougher year-over-year comparisons through the remainder of 2022.

08:18 Now let's turn to our Federal Government segment, which provides mission-critical solutions to the Department of Defense, intelligence agencies, and other civilian agencies. Revenues for the quarter totaled $258.1 million, consistent with Q1 of last year and in line with our expectations.

Gross and adjusted EBITDA margins were up significantly from Q1 of last year related to improvements in business mix, which included a lower mix of revenues from cost reimbursable contracts which carry lower margins than other contract types and the contribution from the higher-margin businesses we acquired in 2021.

08:59 New contract awards for the quarter were approximately $128 million. At quarter end, contract backlog totaled $2.9 billion, a healthy coverage ratio of 2.6 times, the segment's trailing 12-month revenues.

Examples of contracts awarded to our Federal Government segment during the quarter included a contract to support cyber security efforts for the U.S.

Army's Network Enterprise Technology command, the expansion of a contract with the Army Research Lab, and a flagship contract with the Defense Information Systems Agency or DISA to provide the DoD and other federal agency IT services and solutions.

09:44 With that, I will turn the call over to Ed Pierce, our CFO to discuss the first quarter financial results and our second quarter 2022 guidance.

Ed?.

09:54 Thanks, Ted. Good afternoon, everyone. As Ted mentioned earlier, our financial performance for the first quarter exceeded our guidance estimates.

This performance reflected double-digit growth of our Commercial segment, consistent performance of our Federal Government segment, the contribution from acquisitions and the expansion in gross and adjusted EBITDA margins in both segments.

10:17 For the quarter, revenues were $1.1 billion, up 20.3% year-over-year or 18.4% after adjusting for the one additional billable day in the quarter as compared with Q1 of last year. Revenues for the quarter included $40.2 million from acquisitions completed during 2021.

Adjusting for the effects of the additional billable day and the revenue contribution from acquisitions, the organic growth rate for the quarter was 14.4%. 10:49 Gross profit, operating income, and adjusted EBITDA were all up year-over-year and grew at higher rates and revenues.

Revenues from our Commercial segment were $832.9 million, up 28.3% year-over-year. The commercial divisions and revenue streams grew double-digits with the highest growth coming from our commercial consulting, creative digital marketing, and permanent placement services which carry higher gross margins than our IT staffing services.

11:19 Commercial consulting revenues were $204.7 million, up 74.2% over the first quarter last year and accounted for approximately 25% of the segment's revenues. Revenues for our Federal Government segment were $258.1 million, in line with the first quarter of last year in our guidance estimates.

The revenue consistency for the quarter was achieved despite a difficult prior year comparable. The first quarter last year benefited from higher revenues from certain cost reimbursable contracts, including a low margin web services project that the segment chose not to renew in Q3 of last year.

11:57 Revenues for the current quarter included $28.3 million from acquisitions made in 2021, partially offsetting the effects of the difficult prior-year comparable. Gross margin of 29.9% exceeded the high end of our guidance estimates and was up 300 basis points over Q1 of last year.

Both business segments reported year-over-year expansion in gross margin driven by improvements in business mix. Gross margin for the Commercial segment was 32.7%, up 210 basis points year-over-year.

The expansion was the result of double-digit growth of our high margin commercial consulting, creative digital marketing, and permanent placement services. 12:41 Gross margin for the Federal Government segment were 20.9%, up 340 basis points year-over-year as a result of changes in business mix.

This improvement resulted from a lower level of revenues from certain cost reimbursable contracts, including a low margin web services project, which was not renewed in Q3 of last year, and the contribution of high-margin businesses acquired in 2021. 13:08 SG&A expenses were $212.1 million, up 29.1% year-over-year.

The increase was commensurate with the growth in the business, changes in business mix, and investments to support the high growth of the business. These investments were mainly in headcount, employee compensation, and IT application and systems. Income from continuing operations was $67.6 million, up 57.9% year-over-year.

Adjusted EBITDA was up 39.1% year-over-year, reflecting a 170 basis point expansion in our adjusted EBITDA margin to 12.4%. 13:52 At quarter end, cash and cash equivalents were $502.4 million and there were no outstanding borrowings under our $250 million revolving credit facility. Our senior secured debt leverage ratio was 0.96:1.

During the quarter, we spent $76.9 million on the repurchase of approximately 684,000 shares of the company's common stock. Our financial estimates for the quarter are set forth in our earnings release and supplemental earnings materials.

These estimates are based on current production trends, assume 63.5 billable days in the quarter, which is the same number of days as Q2 of last year, and include a revenue contribution of $42.1 million from acquisitions made in 2021.

14:37 For the second quarter of 2022, we're estimating revenues of $1.108 billion to $1.128 billion, an implied growth rate of 13.7% to 15.7% on a difficult prior-year comparable due to the high sequential growth in Q2 of last year of 7.5%.

We're estimating net income of $68.3 million to $71.9 million and adjusted EBITDA of $135 million to $140 million, which reflects year-over-year expansion in gross and adjusted EBITDA margins.

On a sequential basis, we estimate our adjusted EBITDA margin will be flat to slightly down as a result of lower mix of permanent placement revenues and slightly higher consultant employment expenses. 15:29 With respect to the full year 2022, we are updating our high level comments made on our last earnings call.

We project revenues for the year will be up over 12% year-over-year. We are also projecting year-over-year expansion in our gross and adjusted EBITDA margins. We expect our adjusted EBITDA margin will range from 12.1% to 12.3%, up from 12% for last year.

This is driven by a higher mix of commercial consulting and creative digital marketing revenues, partially offset by a lower mix of permanent placement revenues and investments in our operating platform to support high, sustainable growth in the business. 16:16 Thank you for your time, and I'll turn it back over to Ted for some closing remarks.

Ted?.

16:21 Thanks, Ed. Over the past several months, we've announced a number of changes to our executive leadership, as we continue to develop our team as a part of our company's long-term succession planning.

With that said, I'd like to formally announce today that our long-time and well-respected CFO, Ed Pierce will be stepping down as CFO this coming August and will remain in a strategic role with ASGN through the first quarter of 2023.

16:49 Ed has been an integral part of ASGN since 2007, first serving as a member of our Board of Directors and then officially becoming our Executive Vice President and Chief Financial Officer in 2012. On behalf of our entire company, I would like to thank Ed for his outstanding service and leadership.

Ed has been an invaluable partner to me since I assumed the role of CEO, four years ago, and I wish him the very best in his well-deserved retirement. 17:19 Ed's orderly and planned retirement provided us with ample opportunity to be very selective in finding the ideal candidate to fill his shoes.

Along those lines, I'm pleased to announce that we have recently welcomed Marie Perry as an Executive Vice President on our team. Marie will assume the role of ASGN's CFO in August. Marie is an accomplished CFO and proven leader. She joins us from Brink's, where she served as Chief Financial Officer of the company's U.S. division.

Prior to Brink's, Marie was Chief Financial Officer, Executive Vice President, and Chief Administrative Officer at Jamba Juice and held multiple financial roles including Controller, Treasurer, and Interim CFO for Brinker International.

18:04 She also spent nearly 14 years in roles of increasing responsibility within the finance team at American Airlines. Marie began her career in public accounting at KPMG. We are very excited to have Marie on board and hope that many of you have the opportunity to meet her over the coming months.

Marie has hit the ground running and we'll have a great opportunity to shadow Ed for several months before transitioning into her new role. In addition, Marie has the backing of our deep and talented finance team to support her as we continue to execute on our strategic and financial priorities.

I anticipate that her transition into the CFO role will be seamless. 18:43 Speaking of our strategic and financial priorities, I'm pleased to announce that just last week, ASGN issued its third annual environmental, social and governance report.

We made significant progress against our ESG objectives this past year, adhering to the priorities we've laid out in our 2020 report as well as introducing new efforts that push forward our commitment to corporate social responsibility.

In May of this past year, ASGN became a corporate participant in the United Nations Global Compact, joining 13,000 companies in aligning our strategies and operations with universal principles on human rights, labor, environment, and anti-corruption.

19:25 We also augmented our disclosures by leveraging several new reporting frameworks, conducted a baseline greenhouse gas report ahead of the SEC proposals and put in place a robust cybersecurity response plan.

These are just a few of our many accomplishments, and I hope that you will take the opportunity to read our full 2021 ESG report, which we have posted to our website. Our ESG report would not be possible were it not for our incredible team of employees.

I'd like to thank all of ASGN for your commitment to the highest sustainability and corporate purpose standards. We have accomplished a lot and together we remain committed to continually advancing our progress. 20:08 With that, this concludes our prepared remarks for the first quarter.

On behalf of our Board of Directors and the entire ASGN team, we thank you for your continued support of our company. We will now open up the call to your questions.

Operator?.

20:26 At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Maggie Nolan with William Blair. Please proceed with your question..

21:00 Thank you. Congrats to Ed on your retirement, and welcome, Marie. My first question is on the commercial consulting side.

What are you hearing from clients about budgeting considerations given the current environment? And is there any change in tone from what you were hearing three months ago?.

21:22 Hey, Maggie, it's Ted. I'll let Rand take that one..

21:26 Maggie, I don't think we've seen a change in tone. I think most of our clients are committed to a certain IT improvement path, if you will, both around digitization of their business as well as other initiatives.

And as we transition the year from the end of last fiscal year to this fiscal year, we actually saw less drop-off than we normally see as we transition that year and have a quicker pickup, as you can see in our numbers, in the work in the first quarter.

So I don't think you can claim anything other than all of that seems very positive and pretty much still moving forward..

22:04 And I would -- I guess two evidence, but pipeline growth is still accelerating, and then Rand is right, anecdotally, demand seems strong just across the table from clients. So that's what we see..

22:22 Okay. Thanks. And then there's been a couple of quarters here and your guidance commentary as well, where the mix has favorably impacted margins.

So should we start to view these levels as more normalized adjusted EBITDA levels for the business? And then also, what level of kind of impact from wage inflation are you contemplating in that guide?.

22:47 Yeah. Well, let me -- I'll say something, and I'll turn it over to Ed.

But I think in our three-year plan last September, we showed you a progression in margin because we did believe the mix of the business was going to change the growth in the higher-margin parts of the business we're going to continue to accelerate, which affects, Ed, both growth and EBITDA margins, right?.

23:08 Yes. And look, we're fortunate in that we're seeing very high relative growth in our high-margin services on the Commercial side. And in terms of expectations, I think you should think about -- just consider what we said about the full year. We expect our EBITDA margin to range between 12.1 and 12.3.

And that's higher than what we contemplated when we did the three-year plan in terms of the initial year. So things definitely are improving. We'll have more to say about that in later quarters as we see this kind of settle. But for now, things look very good, and we are definitely beneficiaries of the growth that's occurring in the right spots..

23:56 That's helpful. Thanks. And then on the wage inflation? And that's all for me. Thank you..

24:02 I mean this is -- I mean, I think this comes up every quarter. You can see in our gross margins, which I think is the place to pay the most attention that, they're expanding. So by way of that, we're able to, although, there is wage inflation out there, no doubt about it, we're able to deal with that with clients as it relates to the bill rate.

And then, for our own internal workforce, obviously, the increased costs are there, just like they are for everyone else, but we're, again, have been able to deal with that because of increases in productivity.

So I think they're in our numbers if you will, and we feel good that we can both continue to deal with the client piece of this as it relates to bill rate and march on productivity, which is just always a part of who we are..

24:53 Thanks..

24:56 Our next question comes from the line of Tobey Sommer with Truist Securities. Please proceed with your question..

25:02 Thanks. I was wondering if you could start by giving us a little bit of color on your margin guidance for lower perm and higher sort of labor expense. What are the drivers there? Are you seeing a difference in perm or stepping up hiring? A little bit of context would be helpful. Thanks..

25:20 Ed, do you want to take that one?.

25:22 Yeah. Look, Tobey, as it relates to perm, we're not going to give specifics in terms of mix, but I will say that we did see a sequential improvement in the mix of about 80 basis points from Q4 to Q1, and Q1 is an outlier. I mean, what we saw in Q1 is pretty phenomenal in terms of perm and firm growth.

And we expect that in Q2, it's going to return back to more sort of historic norms. And so, that's why we're thinking we had a pop of about 80 basis points sequentially in Q1, and then it's going to dip back down to where it was probably in Q3, Q4 last year. And labor costs, it's our headcount increase..

26:08 Yeah. Tobey, we're -- obviously, demand is in the market. We're investing to be there for it. And so you're going to see us continue to add head count to be able to reach those opportunities as well as work on our own internal IT systems to raise productivity.

And so, I think that was what Ed called out in his section around the higher SG&A expenses, right, from a margin standpoint?.

26:36 Yes..

26:37 Thanks. I'm trying to sneak in another one before we my time.

How are you thinking about the momentum in consulting and the market opportunity as well as your ability and position to process unit? You've had some really heavy high double-digit rates of growth can this continue?.

27:02 Rand?.

27:03 Of course. Listen, I think there's a couple of elements to make it work. First of all, we have a great account base that has their own plans for expansion of their own digital footprint. So that's number one requirement. Number two, we're continuing to add to our strength in the kinds of solution offerings we can bring to those accounts.

We're doing that every quarter as we get stronger, not just in cloud implementation, our digital transformation, data analysis work, and now even some application work. So we have a great account base, we have increasing array of services with strength, and we have access to IT talent like nobody else has as the number two U.S. IT staffing firm.

And we've built that relationship with the contingent employee workforce over lots of years of building what we call contract employee communities. So we have rich databases, we have access to the talent, we have shown to the clients we can bring that talent to bear with the right industry experience and application and solution experience.

And when you have great accounts, increasing services that you can offer, and access to the talent base, it's all kind of working..

28:23 Tobey, maybe one thing I would add to that is we have difficult comps coming up here in, obviously, the second quarter and for the rest of 2022. I don't want anyone to mistake that for lower demand or some deceleration in the business.

We -- our pipeline shows us, our booking numbers that we released to you this quarter show that we're still going to continue to have strong growth. It will be strong double-digit growth. If they'd look less because they are much more difficult comps, but I don't want that to be confused with the lack of demand..

29:00 Thank you. That's helpful..

29:06 Our next question comes from the line of Heather Balsky with Bank of America. Please proceed with your question..

29:13 Hi. Thank you for taking my question. The first one is a little bit sort of the macro and I guess leveraging what Maggie asked.

But how much of your business on the Commercial side do you think is discretionary and in sort of a tighter economic environment? You could see companies pull back versus how much is kind of, I guess, necessary work that companies are in the middle of a project may be or just need to accomplish in their markets? And how are you thinking about sort of the back half and even into next year in a rising rate environment?.

29:58 Right. So I mean I'm going to let Rand answer this one, but I'll say upfront, Heather, that this is really -- our business is driven by our clients' need to accomplish their IT initiatives, right? This is less of an employment story. It's primarily about IT spending by our clients and our ability to help them do what they're doing.

Our view of that, Rand, is that's less discretionary than it's ever been, right, and that there's legs to this, and we're in the early -- still in the early stages of digital transformation, which is so important to these clients..

30:33 Yeah. I mean, look, we recognize you've asked the $60 million question, right? What's coming? If the economy goes down and we -- if the economy moves toward a recession, will the spending curtail because it's considered discretionary? I think there's a couple of factors that have made us withstand that kind of downward pressure in the economy.

If you go back to '08 and '09, in that recession, if you go back to the COVID years, our commercial units, particularly Apex, it held very steady to slightly up in the worst of times. That's a combination of -- a lot of our work is infrastructure. The infrastructure work stays on. It's not discretionary.

Some of the work then is more in the consultative side, let's say, around cloud implementations and/or digital transformation. 31:20 And the question is, is that work discretionary. I don't believe it is, not for a lot of industries. I mean if there's a segment of the industry marketplace, it's on its back, like the airlines were in the COVID period.

Yes, you're going to see them stop all spending. But if you remember, we did have a few sectors that were affected, but the other sectors were very strong and we withstood all of that. So it's the portfolio of strength we have across the accounts. I don't believe digital transformation is considered by our clients as discretionary.

They -- I go back to the numbers we've -- Ted, we pointed out before, in 2019, 30% of all transactions were done electronically.

In '21 -- in 2021, it's emerging, that's 80% of transactions are done electronically, whether they be consumer transactions, marketing actions, supply chain actions, statusing work, communication with the marketplace, I mean all of that is becoming electronic.

32:22 So companies have to continue in their digital transformation journey to size their digital footprint correctly to build on it and to find new and better ways to capture if you will, both revenues, the consumer heart and soul, help their internal workforce to be more productive as well as now supply chain and all the logistics things that have come to the attention of corporate America, I think, in the last 12 months.

So I don't mean to ramble, but I think there -- this is not as discretionary as you think anymore..

32:54 And I would say that large-cap portfolio with industry diversification, like you said, with a 25% of our revenue mix in the Federal Government, which is countercyclical most all times during commercial economic downturn, I mean we saw it play out in the second quarter of 2020.

And so, I don't think we're going to make predictions on the economy, but we think we'll weather whatever is out there very well. And again, our business is driven by IT spending of these Fortune 500 and big federal government agencies..

33:30 By the way, Accenture in their earnings calls said a lot of these same things. They see the same kind of growth.

And by the way, if you're listening to Microsoft and you're listening to Amazon and some of the other technology companies that are just coming out, they continue to point toward growth in their revenues in the cloud space and some of the digital transformation areas with their software that are important to corporate America today.

So, it's not just us saying this. I think we're -- the community is seeing a certain amount of this..

34:02 Now Heather, back to where you started, I mean if the economy were to turn down and would perm placement be a little less than it is today. Well sure, but that's a very small part of our business. That's not really the economic driver of the business..

34:17 Great. I appreciate the thorough answer. I'm going to sneak another one in, though. Can I just ask, with regards to the perm placement in the quarter, you said it was exceptionally strong. Was there anything going on in the environment that you think drove that? Just curious why this quarter was so unique..

34:36 I think it was unique probably that the first quarter had that much strength that was probably what was most unique. I would say, the level of -- the need by clients to build workforce and the activity in that part of the market has been strong in the second half of last year through now.

But typically, in the first quarter, you wouldn't see that kind of strength. So it was more probably just where it fell, Heather, than anything else..

35:03 Okay. That's really helpful. Thank you so much..

35:06 Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question..

35:15 Thanks so much. First of all, Ed, I just wanted to wish you best of luck and thank you for all the help over the years. It's been many years and I really do appreciate it..

35:25 Thank you..

35:27 Sure. In terms of my question, I'm sorry to go back to the macroenvironment, but that seems to be on investors' minds these days. I know you said you're really not seeing a change of tone or slowdown, et cetera.

Some of the other companies in the space though have been citing some projects ending a bit earlier than they expected, I know that happens all the time, but are you seeing that pick up any more than you have been over the past few months or so?.

35:53 Rand?.

35:53 No. If I go back again -- well, look at our bookings number, for example, that we've given you this time. I mean these are pretty large numbers and large growth in bookings and we've not seen a curtailment of existing projects or completion quickly, and we see other projects coming right in behind it.

So no, we haven't seen but maybe some of the others have seen, yet..

36:22 Okay. That's great to hear. And my follow-up question, Ted, has to do with your internal staff in terms of your recruiters. I know we've talked about this in the past in terms of how difficult the market is in terms of both finding and keeping recruiters.

Has that let up at all or is it still difficult that it has been?.

36:41 I think it's still -- I can't say it's let up. I mean, look, we're a top-notch recruiting business, staffing business, and our people are going to be in the light, if you will, and bravo to them.

The key for us to do is to keep them and certainly keep the core and to build through our systems better productivity so that if we do see some shrinkage in that workforce, recruiters, for example, that our productivity can overcome that because we're seeing volumes of work as you can tell, so -- which we're fulfilling, all right? So it's still there, Jeff.

I mean, it hasn't gone away, but at the other side, we are anticipating, we're still hiring. Ted commented a few minutes ago, we have planned and continued increases in headcounts. We've also dealt with our compensation systems over the past 12 months. We didn't wait. It's not happening now. We anticipated some of this in order to keep our best talent.

And of course, we're a high variable comp business and our people make a lot of money when they're performing and doing well and that helped us to keep the core and keep us moving forward..

37:52 Okay. Really appreciate the color. Thank you so much..

37:57 Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question..

38:05 Good afternoon, everybody. First of all, I also want to add my thanks to Ed and best wishes, Ed. It's -- we've worked together for decades. So really appreciate everything that you've done and wish you all the best..

38:24 Thanks, Mark. I don't know if it's more telling about my age or yours..

38:31 I think both. But I remember back in the '90s when [indiscernible] it's been a while. With regards to the consulting business, Ted or Rand. Can you talk a little bit about the penetration with regards to -- of your 300-plus Fortune 500 accounts that you're dealing with Apex Systems.

How many of them are taking you on for consulting? What are we seeing in terms of the penetration rate and the adoption of using you and who are you typically replacing?.

39:19 Well, first of all, we've increased our penetration of the Fortune 500 accounts that we're staffing clients, about a third of them we've reported to you are now consulting clients. So -- and they may be both staffing and consulting depending on the account and their own internal prerogatives. But -- and we increased that number every year, Mark.

So in addition to that, we're out looking for others. We've expanded our targeting to the Fortune 1000 now. So, we've had great success and they're giving us a chance. And as we prove ourselves, we're getting more and more work, as you can tell by our growth in the business. 40:02 Who are we replacing? I don't know who are we replacing necessarily.

We're competing for work and unlike staffing, if you're in their program, you're going to get a certain amount of that work. In consulting, you're competing project by project. So who competes against this? There's a lot of firms we've always mentioned that are competing.

But it depends on the nature of the work and our team's intimacy with their IT environment and their frameworks and our ability to convince them that we can get something done and we can bring the talent.

I think another key thing is because we use a contingent deployment model, we can bring the talent pretty quickly, where the other firms may have to rejigger their lineups and find talent that are on other projects and move them across.

So we have certain advantages that allow us to be a little bit more nimble, a little quicker on the draw, but I wouldn't -- I think there are some areas where we're going to be very good at.

41:04 And the data migration area, workforce management, we've talked about digital transformation because of our road maps in the different industries and sectors, we were able to show them what's going on in the industries in general and things they should consider. We've now added some application capability through a recent acquisition.

And as I said, we continue to build our solution profile or capability, which is helping us also gain more work..

41:34 That's great. And then, it looks like -- on the assignment side, you're -- within Commercial, you're also showing really strong growth. So it's not like it's cannibalizing the business per se. And obviously, you want to shift it given the higher margins.

But what are you seeing just in terms of pure demand for pure IT staffing on a time and materials basis?.

42:00 Well, I think one of you announced our staffing side is growing double-digits as well as our consulting side is growing double-digits. And we're growing in not just the top accounts but also the retail branch-centric accounts double-digits. So it's pretty much across the board growth and in everything we're facing off against..

42:22 I would think about it, Mark, like service offerings, right? It's -- historically, we've been an IT staffing service offering. We continue to do that, invest in it. We are now number two, we want to keep going. And then obviously, we have a higher value service here, which is on the uptake with clients.

And so, we're flying on both of them, if you will, right?.

42:46 And then on the federal side, can you talk a little bit about what you're seeing just in terms of some of the contracts loosening up and coming open for bid and how you're envisioning the next six months on that side?.

43:03 Yes. So I would say, we have new budgets, so that is good. It's matriculating if you will, to the contracting officers. It's a little slow as you go in terms of seeing that hit the streets that they are, and we're going after awards here in the second quarter.

I think activity is going to probably pick up and it's going to be a really busy late second, third quarter as we get to the end of the government fiscal year. But I'd say right now, the good thing is we have a budget and we're beginning to see a little bit of movement..

43:40 That's great to hear. Congrats again, Ed..

43:44 Thank you..

43:49 And our next question comes from the line of Tobey Sommer with Truist Securities. Please proceed with your question..

43:54 Thanks. Just two follow-ups, if I could, and I'll tip my head to Ed as well. Thank you.

Could you update us on what customer concentration and project concentration look like at the company outside of the government or sort of just in the commercial arena? And maybe in that context, describe how you're stepping up the size of contracts in consulting..

44:19 Yes. Well, first, on a concentration standpoint, we don't have any reportable concentration. So there's certainly bigger work. I'll let Rand talk to that going on with these clients, but nothing to call out in terms of concentration..

44:34 I think we talked in the notes though, that if you put our services in three big lumps, workforce management, digital transformation, and modern enterprise, what you'll see is digital transformation work is growing the fastest among those three, but all three are significant parts of our total body of work.

The kinds of work behind that, a lot of work in cloud, a lot of work in software development, DevOps, certainly using agile techniques. Data analysis is emerging as a big part of it. There's a lot of data out there.

How do you use that data to contact and enrich the customer experience or to build our operational efficiencies or to get a handle around supply chain and different options? So I mean, there's a plethora of work that comes in those areas.

We're starting to get some application work now because we've added some capability in that area at the end of last year with the Infor transaction. So I mean to just give you a flavor. So it's a lot of a number of different things..

45:47 And in terms of size, I mean, typically, in the early days of this, it was six-figure kind of work and then progressing to seven-figure work now. Now eight-figure work, work that's longer than 12 months. So the -- if you will, the size of the -- our capability is growing and the size of project is growing with it.

And I think that underlies some of the growth here as well..

46:14 Yes. That's a natural thing. Go ahead..

46:19 I was going to ask another question, my last one on ECS. Growth there has been decelerating for a while, kind of been digging and zagging on an organic basis.

Now that we have a budget and at least from my perspective, more likely to get a budget in a more normal fashion probably next year also as a result of the Russia-Ukraine War and the budget with some growth, let's say.

Do you think that unit is positioned to close the gap with industry rates and growth and maybe get itself on its front foot and be able to try to outpace the industry again?.

46:56 I do, Tobey. If you think about where the government is going to be spending money in the areas that we practice, it's going to be in cyber. It's going to be in AI-machine learning. It's going to be an IT modernization. So we're in the fast currents, if you will, of capabilities.

And I think our customers that are the ones who are winning in the budget world, which is, obviously, on the DoD side, but the most attractive areas of the Fed civilian side, whether that's in Homeland Security or if that's in Justice. Now with our acquisition of ERPi in health, I mean we're in the right spot.

So I think it's the marketplace works itself out and the budget becomes to fruition, I think we're going to be in the right spots there. And we would expect, over time, better than market rates of growth there. I mean, historically, that business has grown better than market, we will grow better than market once we get there.

I would tell you right now, we're probably growing about like market, if you will, on a reported basis, so anyway..

48:12 Thank you..

48:16 And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Ted Hanson for closing remarks..

48:23 Great. Well, we want to thank everybody for being here today and we look forward to talking to you about our second quarter results in July..

48:33 And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation..