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DATE
Wednesday, July 23, 2025 at 4:30 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Ted Hanson
President — Shiv Iyer
Chief Financial Officer — Marie Perry
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RISKS
Marie Perry stated, "Assignment revenues totaled $382.4 million in Q2 2025", a decline of 13.9% year over year, reflecting continued softness in portions of the commercial segment that are more sensitive to changes in macroeconomic cycles."
Perry reported, Gross margin from our federal government segment was 19.2% in Q2 2025, a decline of 140 basis points year over year due to a higher volume of low-margin software licenses and the loss of higher-margin Doge work.
TAKEAWAYS
Total Revenues: Revenue was $1.02 billion in Q2 2025, down 1.4% year over year, but above the high end of the guidance range.
Adjusted EBITDA: Adjusted EBITDA was $108.5 million in Q2 2025, with an adjusted EBITDA margin of 10.6%, at the top end of expectations.
Commercial Consulting Revenues: $325.7 million in Q2 2025, up 15.7% year over year, driven in part by TopBloc's contribution.
Commercial Segment Revenues: $708.1 million in Q2 2025, down 2.4% year over year.
Federal Government Segment Revenues: $312.5 million in Q2 2025, up 1.1% year over year, including approximately $10 million in higher-than-expected license revenue.
Gross Margin: Gross margin was 28.7% in Q2 2025, a decrease of 40 basis points year over year from Q2 2024 to Q2 2025.
Commercial Segment Gross Margin: 33%, an increase of 30 basis points year over year from Q2 2024 to Q2 2025. due to margin expansion in consulting revenues.
Federal Government Segment Gross Margin: 19.2%, down 140 basis points year over year from Q2 2024 to Q2 2025. The decline in gross margin for the federal government segment was attributed to increased low-margin software licenses and the loss of higher-margin Doge work.
SG&A Expenses: $216.8 million in Q2 2025, up from $205.6 million in Q2 2024, including $8.3 million in acquisition, integration, and strategic planning expenses not included in guidance.
Free Cash Flow: Free cash flow was $115.8 million in Q2 2025, representing a conversion rate of about 107% of adjusted EBITDA.
Share Repurchases: $9.5 million was deployed to repurchase approximately 200,000 shares at an average price of $58.69 in Q2 2025, with $470 million remaining under the authorization.
Net Leverage Ratio: Net leverage ratio was 2.46 times at the end of the second quarter.
Commercial Consulting Bookings: Commercial consulting bookings were $417.5 million in Q2 2025, with a trailing twelve-month book-to-bill ratio of 1.2 times.
Federal Contract Awards: $72 million in new federal contract awards in Q2 FY2025, book-to-bill ratio of 1.1 times on a trailing twelve-month basis in Q2 FY2025; backlog was over $2.9 billion at quarter-end, equating to 2.4 times the federal segment's trailing twelve-month revenues.
IT Consulting Revenue Mix: IT consulting represented 63% of total revenues in Q2 2025, up from 57% in the second quarter of the prior year.
Guidance for Q3 2025: Expected revenue of $992 million to $1.012 billion in Q3 2025, adjusted EBITDA of $108.5 million to $113.5 million in Q3 2025, adjusted EBITDA margin of 10.9% to 11.2% in Q3 2025, and net income of $35.8 million to $39.4 million in Q3 2025.
Impact of Doge: Perry confirmed, The Doge impact was less than 2% of total revenues in Q2 FY2025. unchanged for Q2 and expected to continue for Q3.
Commercial Segment Industry Insights: Consumer and industrial accounts grew by mid-double digits year over year. Materials, utilities, industrials, and consumer discretionary experienced mid-teens or higher growth. Financial services, business services, and TMT declined year over year.
Technology Partnerships: The partnership with Workday and the performance of TopBloc exceeded expectations, boosting consulting bookings.
AI Initiatives: The ASGN AI Innovation Center was launched to unify AI expertise; "solution accelerators" and the AI University were created to drive repeatable, lower-cost client solutions and internal upskilling.
Internal Use of AI: Hanson detailed the application of AI across enterprise systems, recruiting, sales, proposal generation, and cybersecurity functions to drive operational efficiency.
SUMMARY
ASGN Incorporated (ASGN -2.07%) reported revenue and adjusted EBITDA above guidance in Q2 2025, with consulting revenues showing strong double-digit growth (up 15.7% year over year) despite overall top-line contraction and margin pressure. Management pointed to persistent macroeconomic uncertainty affecting assignment revenue, but emphasized increased demand for cloud, data, AI, and digital modernization solutions in both commercial and federal segments. The company’s technology partnerships and the launch of its AI Innovation Center represent a strategic pivot toward expanding proprietary intellectual property and further embedding AI into both client offerings and internal operations.
Hanson explained that TopBloc’s annualized revenue and bookings are "tracking just ahead" of prior targets for the full year, supporting consulting momentum.
Federal segment contract awards were challenged by award delays, but growth in national security accounts and a substantial backlog suggest potential for future expansion aligned with increased U.S. defense spending.
Iyer identified that AI adoption is driving increased advisory work around technology architecture, creating new consulting opportunities as clients evaluate build-versus-integrate strategies.
Perry clarified that investment in AI is not detracting from margins and may be additive as initiatives scale in maturity.
INDUSTRY GLOSSARY
Doge: A high-margin federal contract referenced during the call as a source of prior-year revenue now diminishing, impacting federal segment margin.
Book-to-bill ratio: The ratio of contract bookings to revenue recognized over a set period, indicating growth or contraction in future revenue pipeline.
TopBloc: An ASGN-owned Workday consultancy contributing to the company’s commercial consulting revenues and platform implementation strength.
AI Innovation Center: ASGN’s internal initiative to unify commercial and federal AI resources, develop repeatable AI solutions, and foster internal training and external client delivery capabilities.
Solution accelerator: Proprietary, reusable technological components developed by ASGN to address client business challenges with AI, speeding deployment and reducing costs.
Full Conference Call Transcript
Ted Hanson: Thank you, Kim, and thank you for joining ASGN's second quarter 2025 earnings call. ASGN reported solid results for the second quarter. Revenues of $1.02 billion were above the high end of our guidance range, while adjusted EBITDA margin of 10.6% was at the top end of our expectations for the quarter. Our IT consulting revenues continue to grow, reaching approximately 63% of revenues for the second quarter, up from 57% in the year-ago period. Macroeconomic uncertainty remains, impacting discretionary spending. Still, clients are focused on staying competitive, driving demand for cloud and data solutions to modernize legacy systems, and capitalize on AI.
According to ISD Index's second quarter 2025 call, the demand for AI is overcoming macroeconomic distractions, with companies actively investing in generative and Aginic AI, deploying cost savings from other areas of their operations. We are experiencing this trend in our commercial consulting bookings, where we are seeing continued demand in data, AI, and digital engineering, including custom application and development. Commercial consulting bookings for the quarter totaled $417.5 million, translating to a book-to-bill of 1.2 times on a trailing twelve-month basis. While bookings remain weighted toward renewals, we are increasingly winning larger, more complex multi-capability deals as we advance our commercial practice areas and technology partnerships.
Our technology partnership with Workday is progressing very well, and TopBloc, which continues to perform above our expectations, contributed to the growth of our commercial consulting bookings for the second quarter. In our federal business, new contract awards totaled $72 million for the second quarter, or a book-to-bill of 1.1 times on a trailing twelve-month basis. Contract awards were challenged as anticipated, reflecting a slowness in award velocity, and the impact of Doge on procurement and approval processes. New federal contract backlog was over $2.9 billion at quarter-end, or a coverage ratio of 2.4 times the federal segment's trailing twelve-month revenues.
Despite lower federal quarterly bookings, our core solution capabilities in AI, cybersecurity, and digital modernization remain well aligned with the administration's efficiency cost savings priorities. In addition, the recently passed One Big Beautiful Bill represents one of the largest single-year increases in US defense spending in modern history. Much of this funding focuses on our primary competencies, including AI and automation, plant migration, secure communications, and threat intelligence platforms. Ultimately, a constant among this ongoing transformation is a critical need for skilled IT professionals. Case in point, ISG estimates that in the next year, 60% of enterprises plan to expand their IT resources to accelerate the capture of AI benefits.
ASGN's distinctive model, which delivers a broad spectrum of skill sets just in time on a contingent basis, continues to set us apart and will enable us to serve as an excellent partner to enterprises and public agencies seeking to achieve their IT modernization goals. We are uniquely positioned to identify the right skill sets for our clients, and with an industry-led focus, we deeply understand the nuances of each sector's IT needs. With that, let me turn the call over to our President, Shiv Iyer, to discuss our industry and solution performance in the second quarter.
Shiv Iyer: Thanks, Ted. It's great to speak with everyone this afternoon. Beginning with our commercial segment verticals, consumer and industrial accounts performed the strongest in the second quarter and were up mid-double digits year over year. Improvement in this vertical was driven by mid-teens or better growth in materials, utilities, industrials, and consumer discretionary accounts. Our healthcare vertical was relatively flat compared to the prior year, as a result of double-digit growth amongst our pharmaceutical and biotech clients. Financial services, business services, and TMT accounts declined compared to the year-ago period. On a sequential basis, we achieved growth in four of our five commercial industry verticals, with consumer and industrial accounts gaining leading outperformance.
Our consumer and industrial clients have been leveraging our nearshore delivery center in Mexico as a cost-efficient and capable alternative for application development and data modernization. In the financial services vertical, we saw double-digit growth amongst our wealth management and insurance clients, both of which were active with our cloud and infrastructure teams in the quarter. In our TMT vertical, we saw mid-single-digit growth in telecom, e-commerce, and software and services. For clients in this vertical, we supported enterprise platform implementations, including integrating new AI capabilities into existing cloud platforms and developing solutions to help clients harness the power of their data, AI, and advanced analytics.
In our federal business, we track our revenues across four end customers: defense and intelligence, national security, civilian, and other clients. Defense, intelligence, and national security accounts comprised approximately 72% of our total government revenues. Growth in national security accounts was largely driven by work for the Department of Homeland Security, examples of which I will share shortly. As anticipated, our civilian business for the quarter was impacted by Doge, the impact of which was unchanged and consistent with expectations. Defense and intelligence revenues, though up sequentially by mid-single digits, were down year on year due to budget constraints. We remain bullish on the long-term positioning of our federal government business, particularly with the recent expansion of the defense budget.
To provide greater clarity on the dynamics driving bookings across our commercial verticals and government clients, let's turn to our solutions capabilities. For the quarter, consulting engagements across the company focused on four major areas, including cloud and data infrastructure, cybersecurity, enterprise platform advisory and implementation, and AI services. Let me provide a few examples of each. Beginning with cloud. For a global financial services company, we were engaged to assess the current state of their cloud operations, evaluate a newly procured FinOps tool, and build a multiyear cloud roadmap. As a result of our advisory services, our client will be able to improve its cloud governance, taxonomy, capacity, and consumption across its wealth management lines of business.
Importantly, this framework provides our clients the confidence to accelerate their cloud migration. For a Fortune 500 life insurance and retirement company, our consultants were engaged to determine if migrating to Amazon's cloud-based system would provide cost savings, operational efficiency, and improved scalability for the company. Our team delivered a viable migration model in just eight weeks, resulting in query execution three times faster and generating significant cost savings for the client. By deploying this model, our client will be able to accelerate their data center exits and mainframe retirement while simultaneously unlocking the AI capabilities provided by migrating to AWS. We also work side by side with AWS as a premier partner and managed services provider.
In the federal space, similar to the commercial market, federal agencies are looking to modernize legacy infrastructure. In the second quarter, we partnered with AWS on behalf of national security and defense agency clients to secure scalable cloud migrations and continuous compliance in AWS GovCloud. Alongside cloud support, our cybersecurity expertise was another solution area in demand this past quarter. For DHS's Cybersecurity and Infrastructure Security Agency, or CISA, we were awarded incremental work to deliver essential technical and digital engineering services vital to protecting critical infrastructure and enhancing national cybersecurity.
We also partnered with Elastic, a leading platform for search-powered solutions, to add AI search capability into CISA's continuous diagnostic and mitigation dashboard, thereby enhancing cross-domain visibility of the agency and reducing national security vulnerabilities. Collaboration with our alliance partners is critical to our success. Our strategic alliances with partners like AWS and Elastic enable us to deliver cutting-edge technology solutions tailored to our clients' unique business needs. The value of our technology partnerships is particularly evident in enterprise platform implementations, which represented a third area of focus. As an example, TopBloc, a leading high-growth tech-enabled Workday consultancy, recently partnered with a global provider of insurance solutions to leverage the full Workday Suite across eleven countries.
For this client, TopBloc provided end-to-end implementation of the Workday human capital management and payroll modules, full-service change management, managed testing services, and post-go-live support. A new win for the quarter, this initiative was designed to centralize our clients' HR operations, streamline its internal processes, and enhance the company's ability to attract and retain top talent. TopBloc was also engaged during the quarter to develop a custom-built Workday application for a national mechanical contractor. This application enables the company's foremen and site managers to enter time on behalf of their crews in real-time, aligning with the unique needs of the construction environment and showcasing TopBloc's ability to support complex unionized work environments across multiple implementation phases.
Our ServiceNow implementations are also on the rise, particularly as the company makes a push to become the AI platform for digital business. In the quarter, we assisted a prominent global video game and entertainment company with deploying ServiceNow's Gen AI capabilities within the HR service delivery environment. This consulting project focused on increasing automation and improving user experience by implementing Gen AI to automatically classify HR cases, auto-generate resolution summaries, and enhance case documentation and audit readiness. In addition to platform-driven implementations, we are helping drive to a smarter future for our clients by providing a comprehensive suite of AI services ranging from advisory and literacy to developing and building agentic architectures powered by our assets and accelerators.
In the advisory space, one of the world's largest professional services firms engaged our team of consultants, architects, and cross-capability solution leaders to rethink the process and technical design of some of their key knowledge management workflows. These workflows are currently conducted manually and involve the complex task of updating governing policies and thousands of downstream documents and systems. The advisory phase of the engagement was successful, and we're now moving into delivery collaboration between our US consulting team and our Mexico delivery center. We are also leveraging our AI capabilities to improve data management and accelerate model deployment within the federal space.
During the quarter, our government team used advanced analytics and machine learning to support the US Navy in processing vast amounts of maritime data. By training and deploying AI models on their behalf, we are helping the Navy enhance its situational awareness, safety, and operational efficiency. Beyond AI advisory, we are growing our agentic AI practice by architecting and building agents to support a myriad of client use cases. Just last week, we published an agentic AI customer service tool on the new AI agents and tools storefront in the AWS marketplace. This agent is one of the many AI accelerators being built by our teams. Ted will discuss more about our AI accelerators and investments shortly.
But first, I'll turn the call over to our CFO, Marie, to discuss ASGN's second quarter segment performance and third quarter guidance.
Marie Perry: Thanks, Shiv. For the second quarter, revenues totaled $1.02 billion, a decrease of 1.4% year over year but above our guidance expectations. Revenues from our commercial segment were $708.1 million, a decrease of 2.4% compared to the prior year. Assignment revenues totaled $382.4 million, a decline of 13.9% year over year, reflecting continued softness in portions of our commercial segment that are more sensitive to changes in macroeconomic cycles. Revenues from our commercial consulting, the largest of our high-margin revenue streams, totaled $325.7 million, an increase of 15.7% year over year and included the contribution from TopBloc.
Revenues from our federal government segment were $312.5 million, an increase of 1.1% year over year, including approximately $10 million of higher-than-expected license revenue. As Shiv noted, the impact from Doge in the second quarter was in line with our expectations. Turning to margins. Gross margin for the second quarter of 2025 was 28.7%, a decrease of 40 basis points from the second quarter of last year. Gross margin from our commercial segment was 33%, up 30 basis points year over year, reflecting a higher mix of consulting revenues, as well as margin expansion in these revenues.
Gross margin from our federal government segment was 19.2%, a decline of 140 basis points year over year due to a higher volume of low-margin software licenses. Gross margin was also impacted by the loss of higher-margin work under Doge. Excluding the impact of client-driven license revenues that were outside of our guidance estimates, consolidated company gross margin was within our guidance range for the quarter. SG&A expenses for the quarter were $216.8 million compared to $205.6 million in the second quarter of 2024. SG&A expenses included $8.3 million in acquisition, integration, and strategic planning expenses, inclusive of cost optimization initiatives. These items were not included in our previously announced guidance estimates.
For the second quarter, net income was $29.3 million, adjusted EBITDA was $108.5 million, and adjusted EBITDA margin was 10.6%. Also, at quarter-end, cash and cash equivalents were $138.9 million, and we had $320 million available on our $500 million senior secured revolver. Our net leverage ratio was 2.46 times at the end of the quarter. Our strong free cash flow provides a strategic advantage that enables ASGN to fund growth initiatives, opportunistically repurchase shares, and invest in strategic M&A, all while maintaining a healthy balance sheet. Free cash flow was $115.8 million for the second quarter, a conversion rate of approximately 107% of adjusted EBITDA.
We deployed $9.5 million of our free cash flow to repurchase approximately 200,000 shares at an average share price of $58.69. At quarter-end, we had approximately $470 million remaining under our $750 million share repurchase authorization. Turning to guidance. Our financial estimates for the third quarter of 2025 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions and assume no further deterioration in the markets we serve. Guidance also assumes 63.5 billable days in the third quarter, which is the same number of billable days as the year-ago period and 0.25 more days than in the second quarter. Estimates do not include any acquisition, integration, or strategic planning expenses.
With that as background, for Q3 2025, we are estimating revenue of $992 million to $1.012 billion, net income of $35.8 million to $39.4 million, adjusted EBITDA of $108.5 million to $113.5 million, and adjusted EBITDA margin of 10.9% to 11.2%. Thank you. I'll now turn the call back over to Ted.
Ted Hanson: Thanks, Marie. As discussed at the outset of today's call, despite ongoing macroeconomic uncertainties, our clients are continuing to invest in AI, recognizing that maintaining a competitive edge requires staying at the forefront of technological advancements. With that in mind, I'd like to take this opportunity to further highlight ASGN's ongoing AI investments and how, like our clients, we are strategically positioning our business amid rapid technological change. AI enables our consultants to work faster, smarter, and with more insight, driving a higher ROI for our clients.
By leveraging our deep expertise in application development and managed services, we've been able to create relevant AI applications for our consultants' everyday work and ultimately share this IP with our Fortune 1000 and defense and intelligence customer base. As part of our commitment to unify our company-wide AI expertise, we launched the ASGN AI Innovation Center, a collaborative between our commercial and federal businesses. Designed to enhance innovation, optimize resource utilization, and promote AI-driven business growth for our clients. The Innovation Center offers development environments, a centralized repeatable IP repository, documented best practices, thought leadership, and new technology evaluation.
At the core of our innovation center are the solution accelerators, proofs of concept developed to quickly solve specific business problems with the help of AI. By building out these accelerators, we create repeatable, lower-cost solutions that can be easily deployed for our client's custom environment. Several accelerators have already been published, and many more are in the pipeline for launch this year. Some examples of those already in use include financial services agents, rapid code discovery tools, network security assistance, and the AWS eGenic AI tool previously highlighted. Our AI University is also a crucial component of the ASGN Innovation Center.
Our AI University provides resources for upskilling our sales and talent technical teams, while serving as a launching pad for developing white papers, best practices, and trainings for our customers. We found that by incorporating AI understanding and education into ongoing professional development, we can drive continuous innovation, ensuring that our professionals remain relevant in a rapidly evolving market. Through the establishment of our AI innovation center and our many centers of excellence, we are enhancing our solutions capabilities and positioning ourselves as a leading authority in all facets of commercial and federal IT modernization.
Our diverse customer base has equipped us with a deep understanding of the distinct data and IT needs across a wide range of sectors, enabling us to effectively support each client's long-term IT roadmap. Speaking of long-term roadmaps, I'm excited to share today that ASGN will be hosting an investor day in the fourth quarter. During this event, we will speak about our company's near and long-term strategy to unlock the next wave of growth and value creation. We look forward to sharing more details in the coming weeks. That concludes our prepared remarks. I'd like to extend my gratitude to all of our employees for your unwavering commitment this past quarter.
Your efforts have been invaluable to fostering our client relationships as we continue to evolve our business into higher-end, high-value IT consulting. With that, we'd now like to open up the call to questions.
Operator: Thank you. We will now be conducting a question and answer session. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Tobey Sommer with Truist Securities. Please proceed with your question.
Tobey Sommer: Thank you. Wanted to start out and ask how TopBloc is performing relative to your expectations and maybe numerically what was the contribution to results?
Ted Hanson: Yes. So, Tobey, thanks for the call and the question. If you remember, we at the acquisition date, said that TopBloc was gonna contribute over the course of the year, $150 million in revenues for the full year. Mind you, it closed on the first of March. And then EBITDA margins in the high teens. And to this point, I'd say they're tracking just ahead of those numbers on revenue, just ahead of those numbers on bookings, and kinda in the range on EBITDA.
Tobey Sommer: Okay. Perfect. You talked a lot about AI in your prepared remarks. In terms of opportunities and described a lot of initiatives and actions that you're helping with customers. Could you talk about the more cyclical part of your assignment business, specifically sort of the Creative Circle one piece? And what, if any, impact are you seeing from AI on that business, or would you describe the top line softness as purely cyclical at this stage?
Ted Hanson: Yeah. Well, let Shiv answer that. I'd say pretty stable. Right, Shiv?
Shiv Iyer: Yeah. And the cyclicality of it, it is one of the more cyclical pieces of the portfolio.
Ted Hanson: Yeah. I think that's spot on, Ted. We're not seeing anything that would indicate that there's a massive impact of AI on that business. I think it's largely the macros and cyclicality at this moment.
Tobey Sommer: Okay. Thank you. And then in the government consulting area and the ECS business, a couple of topics on that. One, what is the long-term margin profile? Is it any different because of the high-margin Doge contracts, you know, perhaps no longer being ongoing? And do you think you'd grow from here? We've heard some other dedicated companies that focus on this area of the market exclusively talk about perhaps an opportunity for calendar third quarter kind of a bigger than usual contract award period because of slow awards year to date in the federal fiscal year.
Ted Hanson: Yeah. I'll take the second part, and I'll let Marie talk about the gross margins. But I do think that, you know, there is a lot percolating here for the third quarter. So we're only a few weeks in. We'll have to watch that play out, but it does feel like we're back to kinda normal cycle there. It has been muted in the second quarter. As you mentioned, just because of the, you know, I think just the wait-and-see approach of the government contracting officials and the agency heads. But, you know, I think the positive note is here we've got a new bill out.
There's gonna be a significant amount of new money in the budget, especially in the defense area, which is where we are embedded. And so I think all those portend good for us. So I look for a good third quarter, but I really look for, you know, a good bookings outcome here as we get a little further down the road because, you know, the government is going to put that money to work. They're gonna have to get it on the street and compete it with us in our peer group to be able to get these things done.
Because as you know very well, Tobey, the government doesn't have all these assets inside of their operation to accomplish these things that need to be accomplished in data and AI and technology modernization, cybersecurity, and other areas where we play. And then Marie on the gross margin.
Marie Perry: Hi, Tobey. Yeah. So you were really referencing kind of gross margin and what the long-term view is. And so when we think about the federal business, you know, you alluded to this too as well that, you know, the Doge revenue that we're losing is higher margin. The reality is some of that is kinda toggling back and forth, and so we'll see how that works out. But the leadership at our federal government is also looking at increasing direct labor. So there's opportunities kind of down the road as we look at the gross margin for federal to increase our direct labor.
And then as we've talked about, just some diminishing impact on the license revenue or the balance of the license revenue that's embedded in our federal continues to get smaller and smaller.
Ted Hanson: Katrina, that we've kinda played in a 20 to 21% range, and you have some of these pass-throughs coming in and out. So that moves up and down. But I still think that's a range, you know, that we expect to be in, Tobey.
Tobey Sommer: Thanks very much. Thanks very much.
Operator: Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.
Jeff Silber: Thanks so much. Sorry. Just one more on federal government, and then I could move on. You said that the Doge impact was in line with your expectations. Can you remind us what those expectations were and what do you think the impact will be on the current quarter?
Marie Perry: Absolutely. We and last quarter, we actually said that the Doge impact would be less than 2% of total revenues. As noted, unchanged in line with our expectations for Q2. And we expect that same in Q3.
Jeff Silber: Okay. Great. Thanks so much. If we and maybe we can segment this between your assignment and your consulting revenues. I'm just wondering what the tone is. It sounds like on the consulting side, there's a lot going on. But I don't know if you're seeing the same kind of maybe, you know, potential enthusiasm on the assignment basis. Any color would be great.
Ted Hanson: Yeah. Well, I'll let Shiv comment, but you're I think coming out of Q2, obviously, we had a very good bookings quarter, and it was stronger at the end of the quarter than it was at the beginning. And I think here in the first three weeks, we're seeing a little increment positive on four metrics in the assignment business. So and then shift just tone of conversation with clients.
Shiv Iyer: No. Absolutely, Jeff. I think the as you can see from our bookings numbers, there's you know, we're seeing some positive signs in our commercial consulting business. Specifically in certain areas like cloud, data, and AI. And then and it's obviously a tale of different industries. You see from our results that some, you know, some of our industries are doing much better than the others. The reason we're not out there declaring that there's something majorly under phase, we're still watching some of our larger industries like banking and looking for the turn in those industries, is still sort of a wait and watch for us.
But overall, the sentiment at least is we're seeing enough good things to give us you know, cautious optimism.
Ted Hanson: And if you think about the places where we have real strength Jeff, like data and AI, application, development modernization, cybersecurity, enterprise systems around ServiceNow and Workday. I mean, those are all kind of developing areas of strength here as things begin to emerge. And that's the core of our capabilities, if we will. So with I think we're you know, we're positioned pretty well here for things to begin to release and I think Shiv hit the nail on the head while we're seeing some positive signs in the board metrics. We do need a big industry like banking specifically, you know, to begin to turn positive instead of just flattish.
Jeff Silber: Okay. It's really helpful. Thanks so much.
Operator: Thank you. Our next question comes from the line of Serena Tinde with Jefferies. Please proceed with your question.
Serena Tinde: Thank you. Can you maybe talk a little bit about the AI investments that you're making and more specifically from the perspective of just kind of building IP? One of the narratives more broadly as we speak across IT services is that in this next wave of growth, I guess, the idea is that firms will need to build more IP than they have in the past. Can you comment on that or your thoughts and views and how that fits into your business model in which you use more temporary workers to provide some of the consulting services on the commercial side?
Ted Hanson: Right. So I think you're on the right track, Shiv.
Shiv Iyer: Absolutely. Certainly, that's very much part of the strategy for us and the evolution for us. We think about you know, let me talk about the fact that, you know, we are making investments in AI, as Ted would say, which is very focused on account and deal-specific IP development. That doesn't mean we're not investing in just broader platforms. We are we've got things like code discovery and open-source tools around code discovery, which is our own IP. We've got open-source tools around applying AI to cybersecurity, which we're deploying for clients as well.
We're doing all of that, but more and more what we're doing is we're working with partners like AWS, like Workday, to start to build IP specific to client requirements, which in many cases tends to be ours, but we can rapidly then scale them across multiple multitudes of clients. And so that's very much part of our strategy. That's one big pillar of how we're doing that. The second big pillar is we call it our own best qual. Kind of idea where we're starting to apply agents within our own business again, with partners with the intent to go sort of go with them to monetize them externally. So you hit the nail on the head.
It's a big part of our strategy. We're not out here declaring that we've taken the hill on this stuff, but we are actively building on all those vectors that you talked about.
Ted Hanson: And remember, our AI capabilities within the federal government, which was our first exposure here, are leading capabilities for many years here. So bringing together our commercial and our federal expertise in our AI innovation lab, training our people, and using that halo to lift us forward on the commercial side is really what's afoot here. And I think Shiv's right. While we haven't taken the hill yet, you do see that this the technology cycle here is emerging. You know, there's been there has been and remains an enormous amount of money spent on the compute part of this with the chips.
Now we're moving to you know, obviously, we're in the middle of data center and power, which we need to power all this stuff. You can already see the investments by Big Tech into software enterprise. To try to bring Aginic AI into their products so then they can bring that in the customer market. Our piece of that is laying down all those AI capabilities into our cost you know, into our customer's technology environment, which nobody knows better than us. Since we've been there for so long years here kind of helping them along their roadmap. So I would say that's developing.
It's not fully emerged, but I think this is playing out as we've been speaking about over the past quarters and couple of years. That's shift from that.
Shiv Iyer: I was just gonna say one more thing, which is as a result of what Ted alluded to. Right? There is a lot of our clients a lot of our clients are grappling with what's the best architectural approach to go about doing this. Should we build our own? Should we integrate what is existing? And we're also seeing a pretty big uptick in advisory work around those kinds of questions, which then allows us to parlay it right down to how do you not just think about the architecture, but how do you then build it and deploy it and integrate it into your environment.
Serena Tinde: Got it. And that's actually I appreciate the detail there. And then when we think about the government segments, we talk a little bit about what is the appropriate baseline or run rate revenues. We saw the tick up in the cost-plus segment this quarter. How much of it is truly just incremental or specific to the quarter? It seems like there's obviously a lot of volatility there in that segment. And what is the right starting point or right baseline of revenues?
Ted Hanson: Yeah. Well, I think if you take if you take what we said in the release about the pass-throughs, which were about, you know, $10 to $12 million here during the quarter. And back that out of their number, it kinda brings you down into the $300 range. And we also had a surge of some good I felt good direct labor billable work. So of a few million, which contributed to the quarter. So I mean, I think your baseline is in the mid $290 to mid $295, something like that is a good baseline to think about going forward. And, obviously, we've got a 1.1 book-to-bill.
I mean, that is gonna portend here that, you know, as we go into future quarters, we've got some growth in the backlog. And then back to the first question, you know, from Tobey, what's going on in that marketplace, but we you know, we now have a bill. We're gonna have more money flowing in the defense department. There's money flowing into the areas that we practice. So I don't wanna, you know, use Shiv's words. Say that we've taken the hill, but we've got things developing here, and it may take a couple few quarters for them to play themselves out. But we're on a path here.
You know, that I think that we're gonna be in a good spot here based on what the government's initiatives are and where we've got the business positioned.
Serena Tinde: Got it. I'll leave it there for my colleagues. Thank you.
Operator: Thank you. Our next question comes from the line of Jason Hines with Wells Fargo. Please proceed with your question.
Jason Hines: Hey. Good afternoon. Thank you for taking my questions. Was curious if you could speak a little bit more about what drove the strength in the consumer and industrial segment since that's a nice acceleration in the quarter?
Shiv Iyer: Yes. Good. Yeah. I mean, I can give you some color on what drove the strength. Look, we've as we pointed out and when we talked about our earnings, there were certain subsectors like materials and utilities, which were a significant part of what drove our strength in that from a sectoral perspective. From a solutions perspective, I think what we're seeing is continued dynamic investments and demand from our clients in spaces like cloud, data and AI, custom software development, and that's where we're seeing the biggest uptick. So we had several areas where we were able to either add new logos or continue to expand our work in those domains.
Ted Hanson: And I'll add, like, in the energy and utilities piece, subsectors of that category, obviously, they have checks to write here to bring themselves forward and meet the needs of the power generation both for the people and for the data centers. And so you know, there's kind of opportunity there that you know, traditionally, maybe a little stoic. As an industry, but it's a lot more dynamic now over the last year to.
Shiv Iyer: And also in certain industries like energy, our partnership strategy is paying out pretty significant dividends where you know, we've built some assets for very industry-specific questions on asset utilization, predictive maintenance, etcetera, with partners like Databricks. And that's allowing us to scale across the industry. So you know, it's different parts of the strategy playing out, but it's essentially continued strength in our solution areas.
Jason Hines: That's great to hear. That's great color. As a follow-up, I'm curious if you talk about you gave some good examples of how AI is helping you generate revenue and helping your clients, you know, leverage and use these AI tools. But I was curious about if you could talk about your internal use of AI and if you've been able to find some efficiencies, you know, within your own business from using some of those tools. Thanks.
Ted Hanson: Yeah. Well, look, I think that we're I mean, should I put it right? You know, we wanna be an AI-led organization both for ourselves and the productivity and clients. All of our enterprise software tools, whether you know, it's our front office systems or our back office systems or our digital layer with ServiceNow. There's a Genic AI opportunities in all of those enterprise systems that we're gonna you know, are beginning to bring to bear and are gonna bring to bear further in our own operations. If you think about our function as an IT staffing company in the recruiting and sales that go along with that.
We've implemented AI techniques in there to make us much more productive. That's been an ongoing effort here for years. We're developing tools that help us on the bid proposal and win process, you know, to bring use cases up, you know, very efficiently for our team and to lay those down into presentations in a way that we used to use, you know, a lot of pushing of the keyboard to do. So I think those are just some of the opportunities here. I probably should also not let it go without saying cybersecurity. Has been a big one.
You know, our work, you know, that we've done in cybersecurity, you know, beginning in the federal government, now in the commercial marketplace. The number of threats are so voluminous that you just can't process it all without AI capabilities. And some of those are being brought by the, you know, the security software firms, and some of that's being generated by us. So, you know, I think these are all examples across our organization where we're diving in headfirst into all of these, you know, AI opportunities that make us better and more productive. More growthy, and a great quality for our customer.
Jason Hines: It's a great color. Thank you.
Operator: Thank you. Our next question comes from the line of Alex Sinatra with Baird. Please proceed with your question.
Alex Sinatra: Hi. I just got a quick one. Just a lot of things were covered already, but I was just wondering, you know, given this discussion around AI, and, you know, this big initiative that you're undergoing with all these investments. I was wondering kind of what the cost of that is on your end, especially for things like that code discovery to cybersecurity like the agents, just what, you know, that'll end up costing. Any color on that would be great.
Ted Hanson: Yeah. Look, I don't think you're seeing it. I guess, maybe I'll put it this way. You know, we're not quantifying all these costs, but you're not seeing it that a or margin profiles. If anything, you're seeing, you know, we're thinking about it like our clients, which is where can we, you know, make an investment here and see and get an acceleration to a return. And so in that way, we're able to, you know, meet the business case objective, whatever the case may be. And we're continuing to see our, you know, our margins here kind of be creeping up. You know, because of that.
So, I mean, I won't quite the number for you, but I'll just say it's not negregating. It's adding to your margin profile and will continue to as those things get more mature.
Alex Sinatra: Great. Thank you.
Operator: Thank you. We have reached the end of the question and answer session. I'd like to turn the floor back to Ted Hanson for closing remarks.
Ted Hanson: Great. Well, I wanna thank everyone for being here this afternoon, and we look forward to speaking with you in October on our third quarter earnings release conference call. Thank you, and be well.
Operator: Thank you. And this does conclude today's conference. You may disconnect your line at this time. We thank you for your participation.