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(Exact
name of registrant as specified in its charter)
iDelaware
i95-4023433
(State
of Incorporation)
(I.R.S. Employer Identification No.)
i4400 Cox Road, Suite 110
iGlen
Allen, iVirginiai23060
(Address, including zip code, of Principal Executive Offices)
(i888)
i482-8068
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name
of exchange on which registered
iCommon Stock
iASGN
iNYSE
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒iYes☐ No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒iYes☐ No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
i☐ Yes ☒ No
At October 31, 2022, the total number of outstanding shares of the Common Stock of ASGN Incorporated (the "Company") ($0.01 par value) was i49.9
million.
Preferred
stock, $ii0.01/ par value; ii1.0/
million shares authorized; iino/ shares issued
i—
i—
Common
stock, $ii0.01/ par value; ii75.0/
million shares authorized; i50.0 million and i51.8 million shares outstanding at September 30, 2022 and December 31, 2021, respectively
i0.5
i0.5
Paid-in
capital
i702.7
i690.8
Retained
earnings
i1,190.1
i1,174.4
Accumulated
other comprehensive loss
(i4.2)
(i0.3)
Total
stockholders’ equity
i1,889.1
i1,865.4
Total
liabilities and stockholders’ equity
$
i3,611.2
$
i3,502.8
See
notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. General
iBasis
of presentation — The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The December 31, 2021 balance sheet was derived from audited financial statements. The financial statements include adjustments consisting of normal recurring items, which, in the opinion of management, are necessary for a fair presentation of the financial position of ASGN Incorporated and its subsidiaries ("ASGN" or the "Company") and its results
of operations for the interim dates and periods set forth herein. The results for any of the interim periods are not necessarily indicative of the results to be expected for the full year or any other period. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 10-K").
2. iAccounting
Standards Update
In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-08, Business Combinations (Topic 805) Accounting for Acquired Contract Assets and Contract Liabilities, which requires an acquirer to recognize and measure contract assets and liabilities in a business combination in accordance with Accounting Standards Codification Topic 606 Revenue from Contracts with Customers, rather than adjust them to fair value at the acquisition date.
The Company early adopted this standard and it had no impact on the condensed consolidated financial statements.
3. iAcquisitions
On July 6, 2022, the
Company acquired GlideFast Holdings, LLC and affiliated entities ("GlideFast"), a ServiceNow consulting company, for $i351.8 million in cash. GlideFast is part of the Commercial Segment and its results of operations are included in the consolidated results of the Company from the date of its acquisition. The purchase accounting for this acquisition remains incomplete with respect to the provisional fair value of assets acquired and liabilities assumed, as management continues to
gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively within 12 months from the date of acquisition. The preliminary fair value of the identifiable intangible assets related to this acquisition totaled $i102.8 million, including a trademark of $i30.2
million which has an indefinite life. Other acquired identifiable intangible assets have useful lives ranging from three to nine years.
In 2021, the Company acquired three consulting services businesses for $i221.3 million in cash. These acquisitions increased the Company's investment in IT consulting
in its Commercial and Federal Government segments. The fair values allocated to the assets and liabilities for these acquisitions have been finalized.
4. iGoodwill and Identifiable Intangible Assets
i
The
following table summarizes the activity related to the carrying amount of goodwill by segment since December 31, 2020 (in millions).
Approximately
$i163.6 million and $i127.2
million of the goodwill for the 2022 and 2021 acquisitions, respectively, is deductible for income tax purposes.
/
7
i
Acquired identifiable intangible assets consisted of the following
(in millions):
Estimated
future amortization expense follows (in millions):
Remainder of 2022
$
i17.8
2023
i59.3
2024
i49.8
2025
i41.8
2026
i35.4
Thereafter
i68.5
$
i272.6
/
5.
iDiscontinued Operations
On August 17, 2021, the Company sold its Oxford business to an affiliate of H.I.G. Capital for $i525.0
million. Included in the nine months ended September 30, 2021, was a $i218.6 million ($i149.3
million net of income taxes) gain from the sale. The financial results of that business are reported as discontinued operations in the accompanying condensed consolidated statements of operations.
i
There were no significant operating results from discontinued operations subsequent to December
31, 2021.The following table summarizes the results of operations of the Oxford business (in millions):
Income
from discontinued operations, net of income taxes
$
i145.7
$
i158.5
/
8
During
the nine months ended September 30, 2022, the Company received $i9.8 million related to the finalization of the purchase price. The following table provides select cash flow information related to the Oxford business for the nine months ended September 30, 2021 (in millions):
Net
cash provided by operating activities
$
i8.2
Net cash provided by (used in) investing activities
Cash received from sale of discontinued
operations
i499.1
Other
(i3.9)
$
i495.2
6.
Long-Term Debt
ii
Long-term debt consisted of the following (in millions):
Borrowings under $250 million revolving credit facility, due 2024
$
i46.0
$
i—
Term
B loan facility, due 2025
i490.8
i490.8
Unsecured
Senior Notes, due 2028
i550.0
i550.0
i1,086.8
i1,040.8
Unamortized
deferred loan costs
(i6.0)
(i6.9)
$
i1,080.8
$
i1,033.9
/
Senior
Secured Credit Facility — The senior secured credit facility consists of a term B loan and a $i250.0 million revolving credit facility. Borrowings under the term B loan bear interest at LIBOR plus i1.75
percent, or the bank’s base rate plus i0.75 percent. Borrowings under the revolver bear interest at LIBOR plus i1.25
to i2.25 percent, or the bank’s base rate plus i0.25 to i1.25
percent, depending on leverage levels. A commitment fee of i0.20 to i0.35
percent is payable on the undrawn portion of the revolver. There are no required minimum payments on the facility. The revolver is limited to a maximum ratio of senior secured debt to trailing 12-months of lender-defined consolidated EBITDA of i3.75 to 1, which was i0.96
to 1 at September 30, 2022. The facility is secured by substantially all of the Company's assets and includes various restrictive covenants. At September 30, 2022, the Company was in compliance with its debt covenants. In July 2021, the Company amended its facility to, among other things, permit the sale of its Oxford business and allow the net cash proceeds (approximately $i0.4
billion) to be used for future acquisitions and other permitted investments. With the acquisition of GlideFast on July 6, 2022 (see Note 3. Acquisitions) and other investments of the net cash proceeds, no debt prepayments were required.
/
Unsecured Senior Notes — The Company has $i550.0
million of unsecured senior notes, which bear interest at i4.625 percent payable semiannually in arrears on May 15 and November 15. These notes are unsecured obligations and are subordinate to the senior secured credit facility. These notes also contain certain customary limitations including, the Company's ability to incur additional indebtedness, engage in mergers and acquisitions, transfer or sell assets and make certain distributions.
7.Commitments and Contingencies
iThe Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its financial statements.
8.
Income Taxes
iFor interim reporting periods, the Company’s provision for income taxes is calculated using its annualized estimated effective tax rate for the year. This rate is based on its estimated full year income and the related income tax expense for each jurisdiction in which the Company operates. The effective tax rate can be affected by changes in the geographical mix, permanent differences and the estimate
of full year pretax accounting income. This rate is adjusted for the effects of discrete items occurring in the period.
9
9. Earnings per Share
ii
The
following table shows the calculation of basic and diluted earnings per share (in millions, except per share data).
Income
from discontinued operations, net of income taxes
i2.1
i145.7
i1.2
i158.5
Net
income
$
i73.2
$
i212.0
$
i212.5
$
i324.9
Weighted-average
number of common shares outstanding — basic
i50.1
i52.7
i50.9
i53.0
Dilutive
effect of common share equivalents
i0.6
i0.7
i0.7
i0.7
Weighted-average
number of common shares and share equivalents outstanding — diluted
i50.7
i53.4
i51.6
i53.7
Basic
earnings per share:
Continuing operations
$
i1.42
$
i1.26
$
i4.15
$
i3.14
Discontinued
operations
i0.04
i2.76
i0.02
i2.99
$
i1.46
$
i4.02
$
i4.17
$
i6.13
Diluted
earnings per share:
Continuing operations
$
i1.40
$
i1.24
$
i4.09
$
i3.10
Discontinued
operations
i0.04
i2.73
i0.02
i2.95
$
i1.44
$
i3.97
$
i4.11
$
i6.05
//
10
10.
Segment Reporting
i
ASGN provides IT services and solutions and creative digital marketing services across the commercial and government sectors. ASGN operates through its Commercial and Federal Government segments. Virtually all of the Company's revenues are generated in the United States.
The Commercial Segment provides IT services and solutions,
and creative digital marketing services to Fortune 1000 and mid-market clients across the United States, Canada and Europe. The Federal Government Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization, science and engineering to defense, intelligence and federal civilian agencies. Management evaluates the performance of each segment primarily based on revenues, gross profit and operating income derived directly from internal financial reporting of the segments used for corporate management purposes, which is presented below by segment (in millions):
Consolidated
operating income includes corporate operating expenses, which are not allocated to the segments. These include stock-based compensation expense, depreciation expense, compensation for corporate employees, acquisition, integration and strategic planning expenses and public company expenses.
/
/
11
Substantially
all of the revenues from the Commercial Segment are generated from time-and-materials ("T&M") contracts where payments are based on fixed hourly rates for each direct labor hour expended and reimbursements for allowable material costs and out-of-pocket expenses. Revenues from the Federal Government Segment are generated from: (i) firm-fixed-price, (ii) T&M and (iii) cost reimbursable contracts. Virtually all of the Company's revenues are recognized over time. iRevenues
by segment and by type are as follows (in millions):
Recurring Fair Value Measurements — The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued payroll and contract professional pay approximate their fair value based on their short-term nature. The carrying amount of long-term debt recorded in the
Company’s accompanying condensed consolidated balance sheet at September 30, 2022 was $i1.1 billion (see Note 6. Long-Term Debt) and its fair value was $i1.0
billion. The fair value for the term B loan and senior notes was determined using iquoted prices in active markets for identical liabilities (Level 1 inputs) and the carrying value of the revolving credit facility approximates its fair value.
Certain acquisition agreements contained provisions requiring the Company to pay contingent consideration in the event the underlying acquired business achieved certain specified earnings results or obtained certain contract
awards. Contingent consideration liabilities had a fair value of $i15.1 million at December 31, 2021, of which $i8.1
million was paid and the remaining amount was reduced to izero as a measurement period adjustment, with no effect on results of operations. There were no contingent consideration liabilities at September 30, 2022.
Nonrecurring Fair Value Measurements — Certain assets, such as goodwill and trademarks, are not measured at fair value on an ongoing basis but are subject to
fair value adjustments in certain circumstances, such as, when there is evidence of impairment. There were no fair value adjustments for non-financial assets or liabilities during the three and nine months ended September 30, 2022.
12. iSubsequent Events
On October
3, 2022, the Company acquired Iron Vine Security, LLC ("Iron Vine") a leading cybersecurity company that designs, implements and executes cybersecurity programs for federal customers. The results of operations of Iron Vine will be included in the Federal Government Segment from the date of acquisition.
12
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, as well as management's beliefs and assumptions and involve a high degree of risk and uncertainty. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Statements that include the words "believes,""anticipates,""plans,""expects,""intends," and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Our actual results could differ materially from those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to such differences include those described in Item 1A. Risk Factors of our
Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 10-K"). In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements in this document are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q and we assume no obligation to update any forward-looking statements or the reasons why our actual results may differ.
OVERVIEW
ASGN provides IT services and solutions and creative digital marketing services across the commercial and government sectors. ASGN operates through
its Commercial and Federal Government segments. Virtually all of the Company's revenues are generated in the United States.
The Commercial Segment provides IT services and solutions, and creative digital marketing services to Fortune 1000 and mid-market clients across the United States, Canada and Europe. The Federal Government Segment delivers advanced solutions in cloud, cybersecurity, artificial intelligence, machine learning, application and IT modernization, science and engineering to defense, intelligence and federal civilian agencies.
Revenues for the quarter were $1.2 billion, up 11.6 percent over the third quarter of last year. Revenues for the quarter included approximately $34.2 million from businesses acquired in the last twelve months. Excluding the contributions from acquisitions, revenue growth was 8.4 percent year-over-year. The table below shows our revenues by segment for the three months ended September 30, 2022 and 2021 (in millions).
%
of Total
2022
2021
Change
2022
2021
Change
Commercial
Assignment
$
631.4
$
587.3
7.5
%
52.7
%
54.7
%
-2.0
%
Consulting
268.6
187.6
43.2
%
22.4
%
17.5
%
4.9
%
900.0
774.9
16.1
%
75.1
%
72.2
%
2.9
%
Federal
Government
297.9
298.9
-0.3
%
24.9
%
27.8
%
-2.9
%
Consolidated
$
1,197.9
$
1,073.8
11.6
%
100.0
%
100.0
%
Commercial
Segment — Revenues from our Commercial Segment (75.1 percent of total revenues) were up 16.1 percent over the third quarter of last year. Assignment revenues were $631.4 million (70.2 percent of the segment's revenues), up 7.5 percent year-over-year. Consulting services revenues were $268.6 million (29.8 percent of the segment's revenues), up 43.2 percent year-over-year. Excluding the contribution of $25.1 million from GlideFast, which was acquired on July 6, 2022, consulting services revenues were up 29.8 percent year-over-year.
From an industry perspective, Commercial revenues fall into five broad industry verticals: (i) Financial Services, (ii) Consumer and Industrials, (iii) Healthcare, (iv) Technology, Media and Telecom and (v) Business and Government Services. Four out of our five industry verticals achieved
double-digit growth over the third quarter of last year, while our Business and Government Services vertical was slightly up over last year.
Within the Commercial Segment, IT services and solutions revenues, which accounted for 84.1 percent of the segment's revenues in the quarter, were up 18.3 percent over the third quarter of last year driven by double-digit growth in consulting services, the contribution from GlideFast and high single-digit growth in IT staffing services. Creative digital marketing and permanent placement revenues, which combined accounted for 15.9 percent of the segment's revenues in the quarter, were up 6.1 percent over the third quarter of last year.
Federal Government Segment — Revenues from our Federal Government Segment (24.9 percent of revenues) were
down slightly year-over-year and included $9.1 million from the two businesses acquired subsequent to June 30, 2021. The third quarter of last year benefited from approximately $13.4 million in low-margin revenues under a web services resale program the segment elected not to renew in the third quarter of last year.
13
Gross Profit and Gross Margin
The table below shows gross profit and gross margin by segment for the three months ended September 30, 2022 and 2021 (in millions).
Gross
Profit
Gross Margin
2022
2021
Change
2022
2021
Change
Commercial
$
297.8
$
251.1
18.6
%
33.1
%
32.4
%
0.7
%
Federal
Government
61.1
57.6
6.1
%
20.5
%
19.3
%
1.2
%
Consolidated
$
358.9
$
308.7
16.3
%
30.0
%
28.7
%
1.3
%
Gross profit is comprised of revenues less costs of services, which consist primarily of compensation for our contract professionals, allowable materials and reimbursable out-of-pocket expenses. Consolidated gross profit was up 16.3 percent on revenue growth of 11.6 percent.
Gross margin was 30.0 percent, an expansion of 130 basis points over the third quarter of 2021. Both business segments and all operating divisions reported year-over-year expansion in gross margin. The expansion in gross margin of the Commercial Segment was driven by double-digit growth of its high-margin commercial consulting and permanent placement services. The expansion in gross margin of the Federal
Government Segment was driven by changes in business mix, including a lower contribution from cost reimbursable contracts, which carry a lower margin than other contract types, the contribution from higher-margin businesses acquired subsequent to June 30, 2021, and the decision not to renew a low-margin web services resale program in the third quarter of last year.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of compensation expense for our field operations and corporate staff, rent, information
systems, marketing, telecommunications, public company expenses and other general and administrative expenses. SG&A expenses were $232.6 million (19.4 percent of revenues), compared with $192.7 million (17.9 percent of revenues) in the third quarter of 2021. This increase was commensurate with the growth in the business and also included investments in headcount to support future growth.
Amortization of Intangible Assets
Amortization of intangible assets was $17.9 million, up from $15.9 million in the third quarter of 2021. This increase relates to the effects of businesses acquired.
Interest Expense
Interest expense was $12.1 million
and was comprised of $5.2 million of interest on the senior secured credit facility, $6.4 million of interest on the unsecured senior notes, and $0.5 million in amortization of deferred loan costs. The weighted-average outstanding borrowings were $1.0 billion in both periods and the weighted-average interest rate was 4.4 percent, up from 3.4 percent in the third quarter of 2021.
Provision for Income Taxes
The provision for income taxes was $25.2 million, up from $24.2 million in the third quarter of 2021. The increase was related to the growth in income before income taxes as the effective tax rate for the current quarter was slightly lower than in the third quarter of 2021.
Income from Continuing Operations
Income
from continuing operations was $71.1 million, up from $66.3 million in the third quarter of 2021 driven by the growth in the business and the expansion of our gross margin.
Income from Discontinued Operations
Income from discontinued operations was $2.1 million, compared with $145.7 million in the third quarter of 2021. In the prior year, virtually all of the income from discontinued operations related to the gain, net of income taxes, on the sale of the Oxford business.
Net Income
Net income of $73.2 million was comprised of income from continuing operations of $71.1 million and discontinued operations of $2.1 million.
Revenues for the first nine months of the year were $3.4 billion, up 16.1 percent year-over-year. Revenues for the nine-month period included approximately $110.7 million from businesses acquired during the last twelve months. Excluding the contributions from acquisitions, revenue growth was 12.3 percent year-over-year. The table below shows our revenues by segment for the nine months ended September 30, 2022 and 2021 (in millions).
%
of Total
2022
2021
Change
2022
2021
Change
Commercial
Assignment
$
1,888.0
$
1,687.2
11.9
%
55.0
%
57.1
%
-2.1
%
Consulting
695.5
449.5
54.7
%
20.3
%
15.2
%
5.1
%
2,583.5
2,136.7
20.9
%
75.3
%
72.3
%
3.0
%
Federal
Government
847.2
819.0
3.4
%
24.7
%
27.7
%
-3.0
%
Consolidated
$
3,430.7
$
2,955.7
16.1
%
100.0
%
100.0
%
Commercial
Segment — Revenues from our Commercial Segment (75.3 percent of total revenues) were up 20.9 percent over the first nine months of last year. Assignment revenues were $1.9 billion (73.1 percent of the segment's revenues), up 11.9 percent year-over-year. Consulting services revenues were $695.5 million (26.9 percent of the segment's revenues), up 54.7 percent year-over-year. Excluding the contribution of $45.8 million from GlideFast, consulting services revenues were up 44.5 percent year-over-year. All five industry verticals were up double-digits year-over-year.
Within the Commercial Segment, IT services and solutions revenues, which accounted for 83.3 percent of the segment's revenues in the first nine months of 2022, were up 20.9 percent over the same period last year driven by high growth in consulting services, the contribution from GlideFast and high single-digit
growth in IT staffing services. Creative digital marketing and permanent placement revenues, which combined accounted for 16.7 percent of the segment's revenues, were up 21.1 percent over the same period last year.
Federal Government Segment — Revenues from our Federal Government Segment (24.7 percent of revenues) were up 3.4 percent year-over-year. Revenues for the first nine months of 2022 included $64.9 million from the two businesses acquired subsequent to June 30, 2021. Last year benefited from higher spending levels on certain cost reimbursable contracts and approximately $38.6 million in revenues from a low-margin web services contract
that the segment elected to not renew in the third quarter of last year.
Gross Profit and Gross Margin
The table below shows gross profit and gross margin by segment for the nine months ended September 30, 2022 and 2021 (in millions).
Gross
Profit
Gross Margin
2022
2021
Change
2022
2021
Change
Commercial
$
852.1
$
678.1
25.7
%
33.0
%
31.7
%
1.3
%
Federal
Government
177.4
150.6
17.8
%
20.9
%
18.4
%
2.5
%
Consolidated
$
1,029.5
$
828.7
24.2
%
30.0
%
28.0
%
2.0
%
Consolidated
gross profit was up 24.2 percent on revenue growth of 16.1 percent. Gross margin was 30.0 percent, an expansion of 200 basis points over the first nine months of 2021. Both segments reported expansion in gross margin. The expansion in gross margin of the Commercial Segment was driven by double-digit growth of its high-margin services (commercial consulting, creative digital marketing and permanent placement services). The expansion in gross margin of the Federal Government Segment was driven by changes in business mix, including a lower contribution from cost reimbursable contracts, which carry a lower margin than other contract types, the contribution from higher-margin businesses acquired subsequent to June 30, 2021, and the decision not
to renew a low-margin web services resale program in the third quarter of last year.
Selling, General and Administrative Expenses
SG&A expenses were $665.1 million (19.4 percent of revenues), compared with $533.4 million (18.0 percent of revenues) in the first nine months of 2021. This increase was commensurate with the growth in the business, including growth of high-margin commercial revenue streams (which carry a higher SG&A expense component than IT staffing and federal government services revenues).
Amortization of Intangible Assets
Amortization of intangible assets was $45.3 million, up from $39.9 million in the first
nine months of 2021. This increase related to the effects of businesses acquired.
15
Interest Expense
Interest expense was $31.5 million and was comprised of $10.9 million of interest on the senior secured credit facility, $19.1 million of interest on the unsecured senior notes, and $1.5 million in amortization of deferred loan costs. The weighted-average outstanding borrowings were $1.0 billion in both periods and the weighted-average interest rate was 3.8 percent, up from 3.4 percent in the first nine months of 2021.
Provision for Income Taxes
The
provision for income taxes was $76.3 million, up from $60.8 million in the first nine months of 2021. The increase related to the growth in income before income taxes as the effective tax rate for the first nine months of the year was slightly lower than the first nine months of 2021.
Income from Continuing Operations
Income from continuing operations was $211.3 million, up from $166.4 million in the first nine months of 2021 driven by the growth in the business and the expansion of our gross margin.
Income from Discontinued Operations
Income from discontinued operations was $1.2 million, compared with $158.5 million in the first nine months
of 2021. In the prior year, virtually all of the income from discontinued operations related to the gain, net of income taxes, on the sale of the Oxford business.
Net Income
Net income of $212.5 million was comprised of income from continuing operations of $211.3 million and discontinued operations of $1.2 million.
Commercial Segment - Consulting Metrics
Commercial consulting bookings are defined as the value of new contracts
entered into during a specified period, including adjustments for the effects of changes in contract scope and contract terminations. The underlying contracts are terminable by the client on short notice with little or no termination penalties. The book-to-bill ratio for our commercial consulting revenues is the ratio of our commercial consulting bookings to the commercial consulting revenues for a specified period. The average duration of commercial consulting projects is one year.
Three
Months Ended
Nine Months Ended
Trailing-Twelve-Months Ended
September 30,
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
2022
2021
Bookings
$
254.3
$
185.7
$
892.4
$
585.4
$
887.2
$
558.9
Book-to-Bill
Ratio
0.9 to 1
1.0 to 1
1.3 to 1
1.3 to 1
1.3 to 1
1.3 to 1
Federal Government Segment Metrics
Contract backlog for our Federal Government Segment represents the estimated amount of future revenues to be recognized
under awarded contracts including task orders and options. These estimates are subject to change and may be affected by the execution of new contracts, the extension or early termination of existing contracts, the non-renewal or completion of current contracts and adjustments to estimates for previously included contracts. Changes in the funded contract backlog are also affected by the funding cycles of the government.
Contract backlog coverage ratio is calculated as total contract backlog divided by trailing-twelve-months of Federal Government Segment revenues.
The book-to-bill ratio for our Federal Government Segment was 1.0 to 1 and 1.1 to 1 for the trailing-twelve-months ended September
30, 2022 and 2021, respectively. The book-to-bill ratio was calculated as the sum of the change in total contract backlog during the period plus revenues for the period, divided by revenues for the period.
16
Liquidity and Capital Resources
Our working capital at September 30, 2022 was $627.7 million, and our cash and cash equivalents were
$211.2 million. Our cash flows from operating activities have been our primary source of liquidity and have been sufficient to meet our working capital and capital expenditure needs. At September 30, 2022, we had $204.0 million available under the $250.0 million revolving credit facility. We believe that our cash and cash equivalents on hand, expected operating cash flows and availability under our revolving credit facility will be sufficient to fulfill our obligations, working capital requirements and capital expenditures for the next 12 months.
Net cash provided by operating activities was $232.5 million for the first nine months of 2022, compared with $275.9 million in the same period of 2021. This change mainly related to an increase in accounts receivable days sales outstanding and timing of certain payments.
Net
cash used in investing activities was $366.6 million for the first nine months of 2022 and included $351.8 million for the acquisition of GlideFast and $27.0 million for capital expenditures, partially offset by $9.8 million in cash received related to the finalization of the purchase price for the sale of the Oxford business. Net cash provided by investing activities in the first nine months of last year was $249.2 million and was comprised of $499.1 million from the sale of Oxford, partially offset by $224.4 million for acquisitions and $25.6 million for capital expenditures.
Net cash used in financing activities was $183.7 million for the first nine months of 2022, compared with net cash used of $119.4 million in the same period of 2021. Net cash used in financing activities for the first nine months of 2022 was primarily comprised of $227.6 million to repurchase the
Company's common stock, partially offset by $46.0 million of borrowings under the revolving credit facility. There were $118.4 million of common stock repurchases in the first nine months of last year.
Senior Secured Credit Facility — The senior secured credit facility consists of a term B loan and a $250.0 million revolving credit facility. At September 30, 2022, the Company had $490.8 million outstanding under the term B loan and $46.0 million outstanding under the revolver. Borrowings under the term B loan bear interest at LIBOR plus 1.75 percent, or the bank’s base rate plus 0.75 percent. Borrowings under the revolver bear interest at LIBOR plus 1.25 to 2.25 percent, or the bank’s base rate plus 0.25 to 1.25 percent, depending
on leverage levels. A commitment fee of 0.20 to 0.35 percent is payable on the undrawn portion of the revolver. There are no required minimum principal payments on the facility until maturity. The facility is secured by substantially all of the Company's assets and includes various restrictive covenants. At September 30, 2022, the Company was in compliance with its debt covenants. In July 2021, the Company amended its facility to, among other things, permit the sale of its Oxford business and allow the net cash proceeds (approximately $0.4 billion) to be used for future acquisitions and other permitted investments. With the acquisition of GlideFast on July
6, 2022 (see Note 3. Acquisitions to the condensed consolidated financial statements in Part I, Item 1.) and other investments of the net cash proceeds, no debt prepayments were required.
Unsecured Senior Notes — The Company has $550.0 million of unsecured senior notes due in 2028, which bear interest at 4.625 percent payable semiannually in arrears on May 15 and November 15. These notes are unsecured obligations and subordinate to the senior secured credit facility. These notes contain certain customary limitations including, among other terms and conditions, our ability to incur additional indebtedness, engage in mergers and acquisitions, transfer or sell assets and make certain distributions.
Recent
Accounting Pronouncements
See “Note 2 - Accounting Standards Update” in the notes to the condensed consolidated financial statements in Part I, Item 1.
Critical Accounting Policies
There were no significant changes to our critical accounting policies and estimates during the third quarter of 2022 compared with those disclosed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 10-K.
Commitments
There
were no material changes to the significant commitments or contractual obligations that were disclosed in our 2021 10-K.
Item 3 — Quantitative and Qualitative Disclosures about Market Risks
With respect to our quantitative and qualitative disclosures about interest rates risks, there have been no material changes to the information included in our 2021 10-K. A hypothetical 100 basis-point change in interest rates on variable-rate debt would have resulted in an interest expense fluctuation of approximately $5.4 million based on $536.8 million of debt outstanding
for any 12-month period.
17
Item 4 — Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation, our Chief Executive Officer and Principal Financial Officer have concluded
that our disclosure controls and procedures are effective as of the end of the period covered by this report. The term "disclosure controls and procedures" means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. We have established disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
18
PART II — OTHER INFORMATION
Item
1 — Legal Proceedings
We are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. However, based on the facts currently available, we do not believe that the disposition of matters that are pending or asserted will have a material effect on our financial position, results of operations or cash flows.
Item 1A — Risk Factors
There have been no material changes to the risk factors previously described in our 2021 10-K.
Item
2 — Unregistered Sales of Securities and Use of Proceeds
On December 9, 2021, the Board of Directors approved a two-year stock repurchase program under which the Company may repurchase up to $350.0 million of its common stock. On July 27, 2022, the Company's Board of Directors approved a new stock repurchase program under which the Company may repurchase up to $400.0 million of its common stock over the next two years. Under terms of the program, purchases can be made in the open market or
under a Rule 10b5-1 trading plan. The stock repurchase program does not obligate the Company to acquire any particular amount of the Company's stock and may be suspended at any time at the Company's discretion. The new program superseded and replaced any remaining availability under the Company's previous $350.0 million stock repurchase program.
The Company's repurchases of its common stock during the three months ended September 30,
2022 are shown in the table below.
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs (in millions)
July
286,580
$
92.85
286,580
$
398.5
August
161,303
$
102.68
161,303
$
381.9
September
145,456
$
92.88
145,456
$
368.4
Total
593,339
$
95.53
593,339
$
368.4
In
connection with our stock-based compensation plans, during the three months ended September 30, 2022, 17,490 shares of our common stock with an aggregate value of $1.6 million were tendered by employees for payment of applicable statutory tax withholding. These shares are excluded from the table above.
The following material from this Quarterly Report on Form 10-Q of ASGN Incorporated, Part I, Item 1 of this Form 10-Q formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income; (iii) Condensed Consolidated Statement of Stockholders’ Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) related notes to these financial statements.
104
Cover page interactive data file (formatted in Inline XBRL and contained in Exhibit 101)
This exhibit originally filed in paper format. Accordingly, a hyperlink has not been provided.
20
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
