Everforth, Inc. (ASGN) Earnings Call Transcript & Summary

Good morning. My name is Kimberly Esterkin, and welcome to ASGN's 2021 Investor and Analyst Day. Before we get started with the discussion, I would like to remind those listening in that certain information in this presentation is forward-looking within the meaning of Section 21E of the Securities and Exchange Act of 1934 as amended and involves a high degree of risk and uncertainty. Forward-looking information includes estimates of the company's future financial and operating performance. Certain data and statements in this presentation other than those setting forth strictly historical information are forward-looking and are not guarantees of future performance. Actual results from these estimates might differ materially. Forward-looking information includes estimates of future financial and operating performance. Our future performance is subject to various risks and uncertainties, which are set forth in our reports filed with the SEC, including our annual report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021. We specifically disclaim any intention or duty to update any forward-looking information contained in this presentation. Notes to the financial and operating information are an integral part of the information presented. All historical financial information presented treats the Oxford business as discontinued operations. The Oxford business was sold on August 17, 2021. Financial estimates for 2021 pertain only to continuing operations exclude the Oxford business and reflect the midpoints of our estimate ranges for the full year. During today's presentation, we will host 4 Q&A sessions. [Operator Instructions] Thank you for your support, and we hope you enjoy today's discussion. We look forward to an insightful discussion today. Presentations will be led by Ted Hanson, President and CEO; Rand Blazer, President of Apex Systems; George Wilson, President of ECS; and Ed Pierce, Executive Vice President and CFO. The executive team will also be joined by our brand Chief Operating Officers, including Sean Casey, COO of Apex Systems; Matt Riley, COO of Creative Circle; and John Heneghan, COO of ECS. Today's presentation will be broken into 4 sections, each followed by a Q&A session. We also look forward to sharing some short videos on our expertise and our employee base to provide a more in-depth look at our company. We will begin our discussion with a review of our overall strategy and business outlook, including a look back at where ASGN has come since our 2018 Analyst Day. We will then turn the discussion over to each of our business segments, the commercial and federal government segments to provide more details on growth drivers, positioning and go-to-market strategies. We will conclude the presentation with our 3-year financial outlook and overall long-term growth strategy. So with that, let me turn the presentation over to CEO and President, Ted Hanson, to begin today's discussion.

Thank you, Kimberly, and thank all of you for joining us this morning. As we go through the presentation today, there will be many different messages and data points our team will share. While all of this information is important, we want you to focus on the following themes, key takeaways about who ASGN is today. The ASGN of today is positioned for faster sustained growth in IT services. We focus on higher margin work and leverage our large enterprise account portfolio to provide our commercial and government customers with cutting-edge IT services and solutions. With a more diversified revenue stream than in years past, we are better insulated than ever before from adverse economic events as is evident in our continued strong financial performance. As a result, we are able to generate strong free cash flow that supports our flexible capital deployment. One, we are going to talk about successes today against our 2018 objectives. Then we're going to lay out the market position for ASGN today and in the future. And third, we're going to update guidance for Q3, Q4 and 2021 and frame our long-term target opportunity. With these themes in mind, let's begin by first discussing how we got to be the ASGN we are today. Upon becoming ASGN CEO in 2019, I worked with the team to strategically pivot our company strategy to become more narrowly focused on IT services and solution. This transition is evidenced by the rapid growth of our commercial consulting business which has grown from $250 million in 2018 to an estimated $595 million in 2021. During the same time period, we completed 6 acquisitions in the federal government space which supported our federal government segment growth to $1 billion in revenues, well ahead of the 2021 schedule we initially set forth at our last Analyst Day. With a refocused strategy, and strong, more diversified revenue base, we successfully managed through the unknown of COVID-19. Our large account focus, highly technical and experienced workforce, which is more immune to shocks in the labor market and tightly managed variable expenses helped us weather the global pandemic and emerge as an even stronger company. The pandemic tested us all, but in doing so, also helped us continue to refine our overall business strategy. Part of that process, including our more recent decision to divest of our Oxford business. By divesting Oxford, we could place an even sharper focus on higher-growth IT consulting services and solutions, free up capital and management bandwidth to deploy against high volume, scalable clients and projects and ultimately accelerate our strategy to target and support large commercial enterprise accounts and federal government customers. There is no doubt we have come a long way since 2018. So let me share some of our key successes on the next slide. This slide reinforces the success that we have had -- that we have achieved since 2018, including the high growth of our IT services business and the strength of both our commercial and federal segment. The growth was not accident. It was achieved through focused intent and responding proactively and efficiently to our clients' needs. All of our divisions contributed to our success and continue to benefit from rapidly improving client demand as we cycle out of a difficult 2020. Organic growth and acquisitive activity has fueled our above-market performance. We acquired 9 IT services and solution companies since 2019 that are generating more than $400 million in annual revenues. I cannot thank our team enough for their incredible efforts over the past several years and especially during the pandemic. All of their efforts have positioned ASGN to deliver record performance in 2021. So let's now speak a bit about our acquisition path and how our business has evolved over the past several years to become a leading provider of IT services and solutions to the commercial and government end markets. ASGN started out as a life sciences and healthcare staff augmentation provider. We entered the IT staffing market in 2007 and reinforced that position with the subsequent acquisitions of Apex Systems, Creative Circle and CyberCoders over the next 8-year period. We evaluate our portfolio starting in 2013 with the intention of being a #1 or #2 player in any given market and becoming more IT-centric, and this led us to elect to sell our healthcare assets between 2013 and 2015. We then began narrowing our M&A focus to IT services and solutions with tuck-in acquisitions that support our commercial and federal government customer needs in 2019. Now approximately 90% of our revenues are derived from our focused approach on IT services and solution. We carefully shaped our portfolio, acquired companies in areas of interest for our clients that added new services, capabilities and contracts and divested our businesses that no longer fit our growth strategy to become ASGN 2.0. We've gotten this far. So where is our path forward? Who is ASGN 2.0? This slide depicts where we are today. We employ over 3,800 internal employees and approximately 24,000 billable professionals across North America, Europe and India and across 146 branch locations. We have 9,000 clients across the commercial and government end markets and are approaching our 30-year anniversary as a public company. Now headquartered in Virginia, and as I mentioned earlier today, we are setting new estimates for 2021, which Ed will discuss in more detail. Our unique capabilities and delivery model continue to differentiate ASGN from our competition. Our commercial and federal government segments provide overlapping services and solutions that we can leverage across our entire platform. The primary difference only being the end market customer. We have millions of prequalified technology candidates in our database that can be deployed at a moment's known to our commercial and federal government customers, providing everything from technical staffing and systems deployment to advance offerings in design, architecture and strategy. Our differentiation is embedded in how we deliver these services and is dependent upon our flexible labor pool, which allows us to deploy the most qualified talent tailored to fit each client's needs. Our talent pool can be deployed in short-duration, solution-specific engagements or long-term consultative roles. Our organization is built on a model where our sales and delivery teams partner with either the client or the billable professional to provide the right solution the first time. Our clients know they are getting the right talent at the right price, at the right time. All of this is built on deep domain expertise and technical capabilities to create tailored teams to meet the customers' objective. Rand and George will speak further to their individual businesses shortly, but let me provide a high-level overview of each of our segments to get us started. Our Commercial segment, our largest comprising 73% of revenue operates in 5 broad industry verticals: financial services, consumer industrials, healthcare, technology, media, telecom and business government services. We have deep years and decade-long customer relationships in the commercial space with large Fortune 500 companies who have ample and resilient funding to support their IT advancement efforts. Growth in this segment is being driven across industries by durable, digital transformation requirements, workforce mobilization and modern enterprise needs. This demand increase, and in particular, the aforementioned areas of focus will become even more important over the next 5 years. And ASGN possesses both the technical capability and the deep domain expertise to answer these questions for our clients. Our federal government segment represents 27% of revenues and like the commercial segment is part of a massive addressable market. I'll speak to the total addressable market for each of our segments shortly. A hallmark of our federal government segment is our focus on high-end, in-demand IT solutions. We also benefit from its countercyclicality, which helps provide stability to our business during certain macro conditions like the pandemic, which we saw in 2020. The work we do for the Department of Defense, Intelligence, Civilian Agencies and other government entities is supported by resilient funding for durable mission and technology requirements from cloud computing to cyber and AI, all of which continue to receive support by the government budget. Importantly, as contracts are guaranteed by the full faith and credit of the U.S. government, the segment also sees excellent free cash flow. Our federal government team has done a great job attacking these emerging technologies on the front end, and we want to stay in front as demand for these services and solutions increase. Speaking of free cash flow, let me take a moment to discuss our capital allocation strategy. Our strong free cash flow generation and overall borrowing capacity drive our capital allocation decisions between M&A, share repurchase and debt repayment. We will continue to deploy capital where we can achieve the highest rate of return. ASGN's free cash flow was $179 million for the first half of 2021. And we are on track to generate roughly $1.5 billion in free cash flow between 2021 and 2024. When it comes to our leverage ratio over the trailing 12 months ending June 30, 2021, our senior secured leverage ratio totaled 1.17x. We are on track to achieve a leverage rate of approximately 1.09x by year-end, inclusive of the recent acquisitions of IndraSoft, ERPi and Avaap. We do not anticipate that the 3 prongs of our capital allocation formula, M&A, share buyback and debt repayment will change. But where we focus our spend will evolve in the best interest of all our shareholders at any given time. Now let's turn to our near-term focus on M&A. Despite very active M&A markets in both the commercial and government spaces, we have continued to be an acquirer of choice. Companies choose ASGN over other bidders because they know that they're going to be a foundational part of what we're doing while also having access to an exceptional platform of resources, capabilities and talent. And while we naturally have to be competitive with our bids and the acquisition process, our reputation stands for itself, and we don't always have to be the one with the highest bid. Professionals join ASGN through acquisition and stay for the long term. I myself, I'm an example of that. When it comes to acquisitions, we look for companies in North America in near-shore geographies that are well positioned within their individual markets, have strong management teams and similar financial profiles. This strategy has helped us evolve our business towards higher margin, higher growth, higher value work. Our acquisition strategy since 2019 has been focused on strategic tuck-in acquisitions in the commercial and federal end markets. Looking forward, we will pursue not only strategic tuck-ins, but also acquisitions at a larger scale. I want to emphasize that it's not just the intrinsic value of the businesses we acquire that add value to ASGN. It's also the expected revenue synergies we achieved by leveraging their capabilities across the breadth of our own account portfolio and pipeline. And we have proven this to be true time and time again. We will continue to target acquisitions that add technical capabilities with deep domain expertise, and are characterized by higher growth rates and financial margin profiles. What we acquire, where we invest organically and how we bid our work is driven by the overarching industry tailwinds, which is the next focus of our presentation. Our unique position and go-to-market strategy positions us well to deliver record financial performance in 2021. If you look at the left-hand side of this slide, you will see a quadrant that compares our go-to-market strategy with that of traditional outsourcing, consulting and IT staffing firms. Our model benefits from a high level of access to professional talent, while delivering consulting services and solutions to a broad range of commercial and federal customers. We see ourselves as a hybrid between pure staff augmentation and pure-play consulting due to the way in which we provide human capital on a project-by-project basis. We utilize onshore, nearshore and offshore delivery solutions to meet our clients' workforce requirements without the burden of the traditional bench model. From a talent perspective, unlike our competitors. We offer more opportunities for the billable professional and are viewed as a better partner for their career objectives. From a customer perspective, unlike our competitors, we offer a full suite of services from staff augmentation to traditional consulting that's supported by a deep labor pool of highly skilled technical talent. This contingent labor shared resource model provides sophisticated project delivery capabilities that have enabled ASGN to grow at above industry averages. As we look forward to the next 3 years, our continued growth will likely be driven by 5 key tailwinds: Constant technology change and specialization, digital transformation, the future of work, the imbalance between supply and demand for IT professionals and a changing model in terms of how the CIO executes projects. Let's talk about each of these tailwinds. The world of technology is constantly changing, and this need to change and evolve industries through technological advancements has only been fast forwarded by the pandemic. According to the BLS, the IT job market in the U.S. has added an average of about 13,000 positions during each month of 2021 so far, which is up from a typical monthly average of between 5,000 and 8,000 jobs or roughly doubling the average or more. There is no doubt companies are fast forwarding change. And as a result, there's an increased demand for new skill sets. The World Economic Forum ranked the top 20 roles in increasing demand with data analysts, AI and machine learning, Big Data ranking among the top followed by process automation, digital transformation and information security. These are all capabilities ASGN maintains amongst its deep talent pool. Now let's discuss digital transformation further, the second of the 5 tailwinds I mentioned. Digital transformation is a term that is regularly being used today. But what does it mean. In very basic terms, digital transformation, refers to the adoption of digital technologies by a company to improve business process and value for customers and innovation. In 2021 alone, over 80% of CIOs reported increased demand for new digital products or services and ASGN is positioned perfectly to capture those. Customers are asking for more convenience, customization and control of data and digital transformation is making that possible. ASGN helps to drive a vision that supports innovative, metric-driven products and experiences. Our digital transformation solutions meet real-world challenges, enhancing value and driving efficiency, so that our clients can accelerate their own value. Key areas of expertise include AI/ML, cloud, cybersecurity, data and analytics, DevOps, digital and IT modernization. Key to this digital transformation is acceptance of new working models or in other words, the acceptance of the future of work which is a third tailwind I would like to discuss. The terminology, the future of work, like that of digital transformation is becoming more commonplace. The future of work is resilient and adaptable. It offers workers improved wages along with flexible schedules, allowing individuals to work when and where they prefer. In light of the global pandemic, these hybrid working models have surged as a means by which to ensure the health and safety of employees. According to our own proprietary study on remote work, approximately 65% of our clients are expecting their resources to work remotely in a hybrid model. In addition, 90% of contingent workers only want to work remotely. There's also been a 10x increase according to a LinkedIn study of remote application activity since January of 2020. These 2 data points are important because contingent workers are a very critical part of the IT workforce. As we'll discuss in tailwind 4, there is a major labor shortage, which only grew during the pandemic. ASGN's exceptional ability to source IT talent when and where it is needed the most sets our company apart from the competition. We are experiencing one of the most significant workforce transformation since World War 2. In less than a decade, there will be nearly 85 million unfilled roles globally. How big is this shortage in the U.S. alone? In the most recent Department of Labor report from June, job openings in the U.S. reached 10 million, while hires were 6.7 million. In other words, there's a large gap between labor supply and demand. Businesses are trying to rescale their talent and bring in additional talent to fill roles that support the digital transformation of companies. Mackenzie asked respondents in a recent survey, where the greatest talent needs exist. And the top 2 areas identified as having larger skill gaps are that of data analytics and IT. ASGN is positioned better than any other company to solve for these gaps in talent while preparing the future labor force for tomorrow's digital needs. We have a deep talent pool we have developed over decades that provides us with recruiting capabilities that touch all areas of the IT labor market. With the acceptance of remote and hybrid work, we put the right talent with the right project regardless of the location. This can be particularly cost effective for the client while ensuring the highest capabilities are sourced for the project at hand. The increased demand for tech services that has put a strain on U.S. workforces has also led organizations to transfer work to nearshore and offshore locations with many companies choosing to embrace nearshore work in Canada, Mexico and other Latin American countries. Our Mexican delivery center has doubled in growth since our acquisition of Intersys. Nearshore work is more cost effective. The average salary for a software engineer based in Latin America is 25% to 30% lower than the salary of an engineer based in the United States. It's also closer in proximity than traditional outsourced locations with fewer time zone differences, cultural discrepancies and a greater level of control and decision-making processes, easing overall communication. Latin American governments and companies in countries like Mexico are investing extensively in IT education, creating large talent pools with less competitive environment for tech work than in regions such as India. Our Mexican delivery center is right near a major university, which is producing some of today's top IT talent. We expect our nearshore efforts, which are leveraged across our client base to continue to increase in size. ASGN also maintains a number of centers of excellence in areas such as cloud, cybersecurity and agile solutions. The in-demand skill areas to provide our teams to offer innovative and efficient IT service delivery. It's not just about having the resources and the capability, it's also understanding how companies and in particular, CIOs are leveraging and investing in this new talent, which brings me to the fifth and final tailwind on Slide 26. Secular changes continue to influence how CIOs utilize ASGN to accomplish their project execution. Our delivery model continues to be favored based on secular changes that are influencing their preferences. The CIO has always had 5 major paths to execute work. Their own organic full-time employees, project consulting firms, IT staffing, offshore and outsource. ASGN is positioned perfectly between consulting and staffing to be able to deliver the best of both worlds to meet our clients' objectives. Technology is advancing at lightning speed. The world of work has changed forever. And advanced IT talent is in short supply and high demand. These are tailwinds that are and will drive ASGN's long-term growth. I've discussed where we were, where we came from and the trends that will drive us forward. Before we open it up for our first Q&A session, I'd like to offer a few concluding thoughts. I am confident in saying that ASGN has successfully met and exceeded our prior expectations. Our business is very well positioned for the future. We will execute by continuing to deepen our focus and expand our service offerings. We will make strategic acquisitions, adding $1 billion in revenues in 2024. We will scale by growing our customer base, adding new solution capabilities and deepening our penetration with our clients. There is no doubt that we are in the right markets at the right time. Our strategy has allowed us to increase our total addressable market beyond the $34 billion of IT staffing. The IT services space is growing at lightning speed and the pandemic pushed the fast-forward button. Our total addressable market is over $475 billion for IT services and solutions in the commercial and government end markets. It is this sizable TAM that will enable us to reach our ultimate goal of $6 billion in revenue by 2024. Ed Pierce, our CFO, will walk us through our 3-year plan in the final portion of today's presentation. But let me give you a few highlights before we open it up to Q&A. For full year 2021, we are now estimating $3.9 billion in revenues. By leveraging our market position, scaling value-added services and expanding our presence in commercial and federal government IT services and solutions, we expect revenues of $4.9 billion in 2024 from organic growth. In addition, we are expecting to acquire businesses that will contribute $1.1 billion in revenues in 2024 for total revenues of $6 billion. Taking that one step further, we expect commercial and federal government consulting revenues to be approximately 55% of our total revenue. That's a lot to process and by all means, a good time for some Q&A. Kimberly?

As a reminder, those interested in asking a question, can type their questions into the Q&A chat feature on your screen. One moment as we queue for questions.

Thank you, Kimberly. First question from the audience. Do you have a target for long-term revenue split in terms of commercial versus government? When we got into a more forceful position in the federal government with the acquisition of ECS, we did it both for their high-end solution IT capability, which would advance our own ASGN capabilities; and second, to have a bigger part of our revenue mix within this important end market segment. Today, it's 70-30, we're totally comfortable with that. It could ebb up and down based on how things develop both in the commercial market as well as the government market as well as the highest return that we see as we evaluate acquisitions. But we're very comfortable with where it is now. And as I mentioned earlier in the slide deck, it's a very important part of not only the solution capability but also the stability of our business when the commercial marketplace goes through certain economic situations. ASGN is not -- another question. ASGN is clearly not a traditional staffing firm, but you're continuing to compete for business with the typical staffing players, i.e., Kforce, Robert Half, Manpower and others, who are your chief competition in markets and segments? I'll start with Rand, if you want to take that one?

Yes. We do compete with the traditional staffing firms. It does vary by account and certainly segments. Probably the chief competition comes from some of the private staffing firms, which are not in the list in the question, but tech is certainly the #1 player in the marketplace, we're #2. There's a firm called Insight Global, #3. So we see a little bit of all of them in different accounts. I wouldn't say much more than that. I mean, we've had pretty good success over the past. I think we focus on the account and serve the account. And if we do that well, it will take care of itself.

George, do you want to talk a little bit about the competitive landscape in your market? Who you see...

In terms of the competition?

Yes. Who do you see in the market?

Sure. The government space, there's an old saying "Your competitors today are your teammates tomorrow." So we stay very close to your other major federal contractors in terms of teaming as well as in sharing of talent and things like that when we go after large opportunities. Major competitors are the ones that you see often. We go head-to-head with SAIC, Booz Allen, Leidos, Accenture at times as well.

Another question from the audience. In terms of in-person work versus virtual work, are you seeing different trends within the federal and commercial markets? How do you anticipate this will evolve over time? At this point, I think most of the dynamics are similar. We -- if you go back to the middle of 2020, we're virtually all -- I shouldn't reuse that word, but we were pretty much all remote. Some of our workforce has come back on site with our clients to varying degrees. It depends on client and industry. How this evolves will be market-based. And so we're going to pay attention to our clients and what their desires and compliance activities are, and then we'll have to match up with that. But I think for the most part, we'll see similar return to work across both markets. Next question. You talked about your acquisition strategy. What about divestitures? Are you happy with your current portfolio. We're, at this point, pleased with the portfolio, both the mix of service offerings as well as the mix of revenue across industries that provide balance across the portfolio. We're always evaluating it. It's how we got to our strategic decision to sell Oxford. But at this point, we're leaning forward on building pipeline looking at acquisitions, as I mentioned before, that support both our end markets as well as solution capabilities and addressing more of the pipeline that we already have at our fingertips with these existing accounts. Next question, have you seen any impact to your business as a result of the Delta variant? Have any projects been slowed down? Offices closed again? I think that mostly because we were in a remote world or a hybrid world in some areas as we were. Our business has continued to perform as we expected. I think the Delta variant probably is most likely affecting small business again, and that seems to be on the front lines of this. Our large enterprise accounts in the Commercial segment and the federal government segment remained stable. Demand continues to be strong, and that's evidenced by the numbers that we've generated leading up to this and the new guidance that we're going to set here for the third quarter. Okay. Well, with that, if there are no further questions, we're going to move on here to the next segment.

The following short video highlights the expertise of ASGN and its brands. [Presentation]

We hope you enjoyed the short video on our expertise. I will now turn the presentation over to Rand Blazer, President of Apex Systems, to discuss our commercial segment. Rand?

Great. Thank you, Ted, and good morning. It's time to talk a little bit about the commercial segment and drill down a little bit into how we see our path going forward. With me are 2 of our leaders of our commercial segment, Sean Casey with Apex Systems and Matt Riley with Creative Circle. And together, we're going to give you a little glimpse of how we see things going forward. Let me start. Ted talked a little bit about strategic decisions that were made at an ASGN level. Well, some of that routes back in terms of our commercial segment back to 2 decades ago, when we made some decisions around Apex Systems, which has become the forerunner of what we're trying to do in the commercial segment. First, we made a decision to focus on IT services exclusively. The second, we made a conscious decision to rebuild an account base that was more diversified and stronger for the long term. We felt we needed to hit key accounts and top account enterprise accounts in the 5 industry sectors we chose to serve. In addition to that, we want to bolster that, but we knew that would become the flagship for the business, those accounts. And then the third decision we had to make was to continue to expand our solution set so that we could bring more value to our clients. The value that our clients began to ask from us over the past decade or so. And hence, we've evolved into the consulting business. If you look at this slide, what you'll see is, as Ted pointed out, it's a very large addressable market for IT services in the commercial sector. In our old staffing world, it was a much smaller market. So one, we have increased the addressable market we can address. Two, we've built a stronger portfolio of accounts that we think can sustain us over the future and support organic growth. And third, we've had a great track record over the past 20 years for sure and certainly over the past years as we've migrated into this business model around these decisions. Here's a little glimpse of where we are today. Revenue mix, you can see is strongly in the IT services and solutions and the creative and digital marketing solution, which is akin to that still growing in 13% of our business. The composition by industry, you can see here in the middle of the graph, you'll see a very balanced portfolio of accounts within these industries. And we've hand selected the industries we think we can serve. Of these 5 industries, it decomposes down to over 30 sectors of accounts, which I'll show you in a few minutes in terms of the breadth of our exposure and penetration into the marketplace. And finally, in the last slide, you can see the growth of our consulting business now, 21% of our total service mix, coupled with our strong staffing business, for, I think, the basis of a strong enduring business in future years. This is the industry overview, which I think we've all talked about over the past as we've evolved this business. You can see the 5 industry sectors we selected and report on. You can see some of the individual sectors within those 5 industry verticals that help compose and show the focus that we have. And you see some of the trends we're seeing today in terms of IT technology that supports that client base. You'll see a common thread in those trends in that the digitization of their businesses and building the modern enterprise has become paramount to our clients from top to bottom, and it affects all industries certainly. The effect in the industry can be different based on the base of technology that's needed. And hence, we've learned and evolved into industry specialization, which is a cornerstone of our go-to-market approach. We believe that the solution in different industries is different because the technology base can be different and the business process and the customer bases are different. So this is an important part, as I said, IT services-centric industry specialization and expanding set of solutions to support and bring more value to our clients. When we look forward, the question is always, where do we think we're going to grow, where will we see growth? In Ted's presentation, we talked a lot about both organic growth and our acquisition ability over the next 3, 4 years. The commercial segment has typically been an organic growth first business, and we have propelled great numbers over that last decade or so that we've been at this marketplace. But when we, the leaders think forward, we look at it in 3 different ways. First, there are still more accounts we need to penetrate. There's still more accounts we need to add to our portfolio and strength. We're very proud of the 300 of the 500 Fortune 500, which are our accounts, but we'd like to expand that into the Fortune 1000 now, where we can have deeper penetration as well. We've also recognized certain sectors of the economy are beginning to evolve. Certainly, regional banks have really come on in the last couple of years, and we were there to capture it. We thought this was a segment that we needed to focus on and invest in and will propel additional growth. Wealth management, another great sector of growth. The whole infrastructure area with the new administration's infrastructure bill and focus. There's no question that this is a market that we'll see growth and we want to be part of that. The state and local side, just the whole area of what I call community health and community wealth being is a responsibility of state and local authorities. And we can be and need to be a part of that as well as they begin to digitize to support our communities. E-commerce, health care, mid-market, tech manufacturing, particularly mid-market manufacturing, all very strong sectors that we see further penetration and opportunity for us as we grow over the next 3 to 4 years. Obviously, the far right-hand bullet by solution, these are the areas we focus on. We started our business, our consultative business more in workforce mobilization, but digital transformation, modern enterprise have become staples, as Ted pointed out in his previous presentation. And by services, you can see we very much focused and put our investment into building consulting services, which we expect to grow to about $1.5 billion in revenue by 2024. But that's not to take away from strong organic growth nor the relationship between our existing business platform and account base and how that can propel our consulting work. While we have a strong account base, particularly, let's say, in the Fortune 500, only about 1/3 of that account base has embraced us for consulting at this point. That gives us a lot of room to grow, expanding that into the Fortune 1000 into the mid-market also gives us a lot of room to grow. So by service, by industry or by solution, we have a number of irons in the fire to help propel our growth both organically and through acquisition in the coming years. I talk about the solution mix, and I talked about where we started as a natural solution to provide our clients in the workforce mobilization. And I'm not just talking about staffing, I'm talking about building teams and building centers of excellence and support centers where we take the responsibility for that work away from the client or other vendors but we needed to add the digital innovation solutions in the modern enterprise solutions. You can see just 1 year, we've had a 5-point jump in the revenue in our digital innovation type of work. All of these areas have grown over that past year, but obviously, digital innovation is outpacing the growth of workforce mobilization, modern enterprise. And our recent acquisition of Avaap, Infor business unit, I think, gives us a stronger play in the modern enterprise. I'll talk about that in a minute, but we see this still as another area of growth. I think it's an important point, and I know Sean will echo this a little bit when he talks a little bit about Apex Systems. But we are very focused on client value. We have to be able to deliver value to our clients. And we believe the way to do that is not just having the right skills and the right mix of talent, but also have solutions and methodologies that work in these areas of digital transformation and modern enterprise and workforce mobilization. It has to be industry specialized because every industry operates a bit differently. We use the contingent workforce model to support and build our teams. That's because we can bring the right skill at the right time with the right industry expertise that serve our clients' needs. We're not relying on a bench to support that. We're going out and using our database and staffing strength to provide and build teams that bring that value to our client. It's an important part of our of who we are in our go-to-market model. And as Ted showed on his 1 slide, it shows how we fit in between that traditional consulting role and the traditional staffing role. So what I call the hybrid model, where we bring the best of both 2 worlds and make it very clear. Our clients' #1 question today is not just solution capability, but how do I find the workforce to deliver that value to my organization. We can help on both ends of that. I do want to talk for a minute about the small acquisitions we've made over the past few years to give you a sense of how we make what Ted describes as our tuck-ins work for us. In each of these 3 cases, we brought small businesses in that brought specific technical muscle to our business. That technical muscle then explodes when we take it into our account base, into our pipeline and create bookings opportunities with these added solution capabilities. We've done this with Intersys, LeapFrog and now Avaap. And Avaap brings what I call that modern enterprise that enterprise resource planning application model into our business, not just in the Infor capability, but in other packages, like ServiceNow, like Salesforce and like Workday, where we can extend our strength into our clients and bring real capability. And we've done this in a way that's accretive to our business, both in growth rates, gross margin and EBITDA margins. We're very pleased with the work we've done, and it's integrated totally in our business, and we've seen the pull-through that our account base has provided us with these acquisitions. So why do we win? We win for lots of reasons. I wouldn't emphasize any one of these things over anything else, but it goes back to decisions we made, I think, 20 years ago. We're IT centric. We have decided to build and strengthen our account relationships with a certain selective accounts, a portfolio of accounts that are who's who in their industries. And we've continued to expand our solution capability and provided expert work in order to bring value to our clients. All of these things work together, and I'm very proud of what we've accomplished over this past decade. Everyone is always looking for a business case. I thought this business case was a great example to illustrate the work that we do and the progress we get with our client base. So we had a new client in 2019 in the energy industry. They came to us and they saw the need to get the best of both worlds. Somebody to be a partner to their business that could bring the resources to bear, but also the methodologies and solutions and real value to their organization. That work has generated over since 2019, 40 engagements across 11 of our Apex offerings in most of the areas, modern enterprise, digital innovation and workforce mobilization. And you can see here relating that wheel of solutions to the hierarchy of things we do. It may have started with Agile and DevOps, but it's worked its way up into the architecture and design work around key systems and applications for our clients. This is an example of the model that we want to work. And it's enabled by our capabilities. It's enabled by our ability to pull workforce together, but it's enabled also by the clients' confidence and steadfast support for our organization. With that, I'd like to turn it over to Sean Casey, leader of our Apex Systems unit and talk a little bit about Apex Systems.

Thank you, Rand. One of the reasons Apex continues to have so much success is our relentless pursuit of executing our 3 main pillars. These pillars of success are focused on our account relationships. Because we're entrenched in a diverse group of accounts, it gives us the opportunity to more than just staffing. As our clients' needs have evolved, we've been able to expand our services within our accounts. This has only strengthened our relationships. We attack the market from an industry, geographic and service angle. It allows us to provide what our client needs as we work as one team to deliver these services. We will continue to grow as we concentrate on our account relationships with current and future accounts. Now I'll turn it over to Matt Riley.

Thanks, Sean. Hello. I know you've been following us for years, but I'm really excited to share my perspective with you today. Creative Circle remains the #1 player in the creative design and digital marketing space in the U.S. Our established position over the past 20 years has placed us at the forefront of the conversation around digital connections with customers. On the left side, you can see what we do and what our clients need from us. In the most simpler terms, we digitize brands, and we create digital connections and engagement for our clients. From social media to building websites, content development studios, we've been able to really bridge the old way of marketing to the new way of marketing, leaders are now looking to leverage their strong design and digital innovation work inside of their go-to-market strategies. Our digital road map brings our client conversations to deeper levels of understanding their goals and their challenges. It allows for our growing consulting services offering to be yet another solution to support their needs. We continue to grow our large enterprise relationships inside of our national accounts program and have added leverage partnering with Apex. Looking ahead to 2024, we feel very optimistic about our marketplace. It's right with opportunity for Creative Circle as the predominant player in the digital design and marketing space. I'll now hand it back to Ted Hanson.

As a reminder, those interested in asking a question can type their questions into the Q&A chat feature on your screen. [Operator Instructions]

So first question from our audience. Rand, does expansion in IT consulting require ASGN to sell at a different level of customer organization? And if so, do you view that as a positive or negative?

Well, first of all, I guess I would respond and say a lot depends on the client organization and how they're organized. There are technical leaders in these organizations of our client, the CIO and his technical managers. And they're certainly functional leaders that own the business process. Both are people we have to reach out to and connect with. In many of our client organizations, those 2 communities are already enjoined to bring digital transformation into their business. So in the most part, it's already set in motion, and it's easy for us to reach out to both. And if not, then we have to reach out to both and make sure that we can win the war, if you will, or win the battle in showing what we can do to bring value to them on both sides of the process and the technology.

And Rand, as a part of that, do you believe that the growth in IT consulting in the commercial marketplace is going to cause us to assume a bench or more of a bench risk similar to some of the larger consulting players?

I think, Ted, the -- look, we will have some increase in our bench for sure. We use our bench to provide the technical muscle and leadership and the engagement control around our work. But we certainly rely on our hybrid model, deployment model to build the arms and legs of our teams that support the client. People that have direct experience with the technology we're dealing with in the industries we're operating in. So the answer is, well, yes, some, but not at all like a traditional consulting business. Most of you know, I managed traditional consulting business. And if I'd known this 25 years ago, I would have done it this way. I think I've learned a lot in the past decade or so and some of the clients and CIOs they respect and understand the need that we have to have enough bench to provide muscle and solution methodology, but we don't have to have every person. And in terms of risk to us, in terms of work execution, we've seen very little to no hiccups in this process. In terms of maintaining a bench and in terms of managing that resource usage, Ted, it's less risk to us, obviously, with this hybrid model.

So Rand, another question from the audience. You outlined several factors of interest like wealth Management, regional banks, mid-market, manufacturing, what are some of the ways you should cultivate and ensure industry expertise, how important of a differentiator is this?

Well, I think it's a big differentiator. A lot of consulting businesses talk about industry specialization. Many really ever achieved it. We have set up teams. This goes back really 10, 20 years ago, set up teams by industry. We're learning those industries by -- initially through our staffing routes, but we've expanded that. Our workforce has grown within these industries. They've been dedicated and they have developed expertise in the industries and the technologies that support that. We're building around that base or that core of our business. And so when we move into new areas like, for example, infrastructure, a lot of the infrastructure companies are good, old-fashioned consumer industrial businesses and/or other businesses, and we can tap into that. And when we need to, we build bench around it to help bolster our capabilities. So it's a work in process. But I think the fact that we've made this move a long time ago, we have built these core teams. And I think it's working.

So Rand, could you give us an example of expanding into the Fortune 500 in the consulting services in the interplay of staff aug and consulting, how they work together versus being competitive?

Well, first of all, I guess I would go back and say that when we're talking to our clients, we're talking about what their business needs are and what value they need from us or what value we can provide to them. So we don't walk in saying, we're here for staffing or we're here for consulting. We're here because we have some insight on your business. We've been a part of your partner base now for literally a decade. We understand what you're trying to accomplish. We can be a part, a fabric, a piece within the fabric of making this happen. So when we talk about the business need and then that decomposes into the kind of work that we would propose to them. So we don't walk in trying to be a staffing or consulting. We're walking in as a partner to their business and somebody who's been intimate with it and has performed in whatever roles they've asked us and now it's expanding. And the reason I bring up the point about we've only penetrated 1/3 of our Fortune 500 base in consulting, I think it's just work in process in time. We can't do everything all at once, but we certainly are. I think the word we tend to use is chip away. We're continuing to work on it and build that confidence with the client.

We also got a question from the audience of an example or profile of a larger strategic acquisition we could make on the commercial side. And I would go back and remind the audience that for decades, Apex Systems has been an organic growth story as we built the business out. And then beginning in 2019 and then through 2020, we made 3, what I'll call, small strategic tuck-ins, both to get technical muscle and advanced capabilities, but also to provide proof points around strategy, which I think at this point we've developed. We're certainly capable now with our cash on hand on the balance sheet, free cash flow that we're generating each quarter, together with the ability to take on more leverage, if needed, to do more acquisitions at scale in the commercial marketplace. What will matter the most is, do they have the right real, digital solution capabilities and methodologies. Do they add to our domain expertise in the key industries that we serve? And do we see that they're going to bring to us capability to fulfill the revenue synergy opportunity within our existing account portfolio? So that's opportunistic, but certainly something that we're open minded to. Another question from the audience with increased end market demand across the industry on top of wage inflation being played through in the market. Could we provide some color in terms of potential pricing discussion with your end clients. Rand?

I'm sorry, I was focused on another question. But with increased end market demand across the industry, top of wage inflation being played into market, could you provide more color in terms of potential pricing discussions? Well, I think we've had pretty good success over the past years with bill rate expansion. Most of our clients are very well aware of the tightness of the labor market and they know based on where they're looking for talent. By that, I mean by location, what the going pay rates are. So I think it's a matter of it's a more fluid situation with our client base where we're very honest. We have open information about wage rate trends across the market. We're able to, I think, make sure they see that we are trying to make sure they can stay ahead of the curve in terms of building talent and workforce for their work or us building talent to deliver that work to them. So I don't think it's a -- it's not a negotiation. It's more of a reality of looking at the marketplace and responding to it.

Great. And maybe one last question here to Matt Riley. Matt, audience has asked on Creative Circle. How will you describe the demand in your marketplace?

The demand has been fantastic. Certainly, we're optimistic about the future, and we've laid out as part and parcel of the '24 plan, our view, content creation, digitization, UX/UI, all the skill sets that we hear and see about every day, they're not stopping, and we are positioned perfectly to deliver on those.

Great. And maybe something just a finer point on clarification on one of our previous questions. Rand, I think the part of the question was, do we compete between our staffing and consulting business and accounts or in the marketplace?

Ted, I think this is an important question, and I think our response is also critically important. We're not -- as Sean Casey said, we're one team. We're not fielding a staffing business and a consulting business and they can compete. We have all of our team aligned around our account management and national account leaders who represent all of our solutions, whether they're workforce, modern enterprise or digital transformation solutions. And we spend a lot of time educating our own workforce around these solutions and our capabilities. So when we go to market, we go to market as one, and we're discussing the client -- with the client, the business need an opportunity. That's very different than a lot of other firms that have created 2 different business units where this competition or this tug of war may exist. We found its best and it's in best service to our clients to be one team, all focused on the client, where we can deliver value and representing all of our solution set.

Okay. With that, let's continue on to the next segment. Before our next Q&A, we will turn to our second business segment. I'll turn the presentation over to George Wilson, President of ECS. George?

Thanks, Ted. Hello. I'm George Wilson, the President of ECS. ECS has a long history of delivering excellent financial results within the federal marketplace, a large, highly regulated market. Today, I will talk about our approach to delivering high-end solutions tailored to the needs of our customers through our technical talent, centers of excellence, partnerships and deep customer knowledge. Our revenue mix reflects our focus on solutions in the rapidly growing field of data analytics, artificial intelligence, cyber, cloud and enterprise operations. Our prime to sub mix reflects our ability to maintain the contracts, capabilities and customer relationships allowed us to lead as the prime contractor on most of our contracts. Our customer base reflects our preference for working with mission-focused customers such as Defense and the Intel Agencies. Our federal/civilian customer base includes the Department of Homeland Security, Justice and health agencies, all highly mission focused. These logos represent key ongoing partnerships with some of our more recognizable technology leaders. Our approach to technology partnerships is often a key differentiator for our customers. Although we partner, we maintain our independence and always advocate for the customer and mission first when evaluating risk and reward of technologies. Our customers appreciate this independence and our mission-first approach. In addition to working with large technology providers, we are also skilled at working with technology firms that have never worked with the federal government. Many of these technologies are particularly important in the field of artificial intelligence, machine learning and cyber. Navigating a balance between the regulations of federal bureaucracies and the customers need to rapidly deploy advanced technology requires a set of skills that ECS has carefully developed. These franchise programs are a testament to the success of our business approach. Several of these programs reflect years of work across multiple contracts supporting the same mission. Some reflect even 3 or 4 recompetes with expansion of scope and value at each recompete. Sometimes, these long-term relationships allow the customer to migrate to fixed-price, results-based contracts, creating barriers to our competitors and better margins to our shareholders. Our acquisitions strengthen our technical capabilities, open new customer markets and sometimes both. DHA and Blackstone Federal placed ECS directly in support of critical missions working with senior leaders within the FBI and the Department of Homeland Security. Skyris opened our first beachhead at the National Geospatial Agency, applying advanced analytics tools. ISM was primarily a technology and talent acquisition, securing an elite ServiceNow practice applicable to both our federal market customers and commercial clients. IndraSoft and ERPi continued our focus on deepening our technical muscle and digital modernization and advanced analytics while opening new markets within the Air Force and Veterans Affairs. With all acquisitions, we move quickly toward full integration to ensure that we apply every ounce of the new capabilities across our existing customers and apply our proven account strategy and business development approach to capture larger deals within our new markets. We are in the fast-moving market streams, working with technologies that are critical to supporting the federal government. We are also seeing that our technologies, capabilities and solutions are equally applicable to commercial clients. ECS has successfully executed our expansion to $1 billion 1 year ahead of schedule. We added needed scale and gained some entry into some very key markets. We have also deepened our customer relationships and subject matter expertise. We are now executing our plan to further deepen our technical muscle through carefully selected partnerships and continued investments in our centers of excellence. Now I would like to introduce you to John Heneghan, our Chief Operating Officer. I have known and worked closely with John for over 20 years. In addition to day-to-day delivery of our contracts, John also leads our account strategy and business development team. John will provide some detail and additional color on the ECS delivery model. John?

Thank you, George. All of the strategic elements, George, just discussed come together in ECS innovative delivery model. Central to our model is our centers of excellence. These are IT domain-specific teams of experts who drive innovation, build solutions, promote thought leadership, develop technical talent, and speed delivery coordination across the company in order to bring the right talent and the right solutions from across all of ECS to meet both emerging and emergency customer requirements. And this agility is a competitive advantage. The COEs provide best practices and repeatable frameworks. They lead training, certification and employee engagement programs across our workforce to ensure our teams bring the latest and greatest to our clients. This function is key not only to retaining top talent, but to recruiting top talent. People want to work with other talented individuals and they want to work for a company that invest in their professional development, making ECS an employer of choice. Business development is led by the account management teams closest to our customers and is supported by teams of specialists in opportunity capture, solution architecture and proposal development. This group, working closely with the COEs ultimately builds those customer-tailored solutions that increasingly leverage 2 or more of the ECS solution offerings to create integrated, high-value solutions that meet our customers' largest, most complex and most critical challenges. This delivery model sets us apart as customers value the strength and the agility of our solutions and services. We look forward to the Q&A session. Thank you.

As a reminder, those interested in asking a question can type their questions into the Q&A chat feature on your screen. [Operator Instructions]

George, I know our audience is curious about what you're seeing in your market in terms of bid and proposal activity. Can you give a recent on the ground update on how you see that developing here? Maybe how you've seen it over the last quarter or 2 and how you see it going forward?

Sure, Ted. Thank you. So the first half of this year has been very, very light. I think it's a combination of the COVID, which made it more difficult for the government to organize and collaborate across their organizations as well as the shift in there or a change in the administration. What we're seeing in the back half of the year is a pickup in terms of the pipeline of opportunities. We've got about $30 billion in pipeline opportunities. These are specific identified opportunities that we are targeting. A lot of the large percentage of those are for new work. So we expect to see in the second half of the year as well as moving into the first couple of quarters of next year, a healthy pickup in terms of our bids. And hopefully, as a result of that, continued awards.

Great. Thanks, George.

Sure.

John, could you help the audience understand a little bit the nuance of the federal government market as it pertains to new work awarded, what are typical length of contracts? And how does that play out over a period of time.

Sure. Well, the federal market, the average contract length is about 3 to 5 years. So it's really countercyclical in nature and very stable. We have a great line of sight to our backlog and that's really what the strength is of the federal market. We've got to -- as George said, we've got a great pipeline. We know where things are going to lay out from a contract perspective.

Another question from the audience. How big will government be as we get to $6 billion by 2024. If everyone will allow, I'm going to hold off on that until we get to Ed Pierce's section. But maybe another question. George, we identified in our presentation 6 core service areas. What other capabilities are you looking to add? Or is it more about building on the footprint of the capabilities we already own.

It's both. We expect to continue to deepen our technical muscle, particularly in the data analytics, AI/ML. We continue to move into the higher-end solutions, design architecture strategy. And as you do that and as you work with the higher levels of the organizations, you work with them in terms of deploying the technologies, as I mentioned earlier, particularly in AI/ML. We are working very closely with small firms, start-up firms, firms that have not -- never worked with the federal government, and we work closely with them and with our customers to allow them to participate in the solution while not jeopardizing their intellectual property and their data. Those are the kind of things that we do with some of our customers, particularly in the Defense and Intelligence area.

Another question from the audience is there and topical for what's going on in today's world. Is there anything john proposed in the federal infrastructure bill that might be a tailwind to ECS?

The infrastructure bill really will take a while to play out and as procurements come through and a large amount of the infrastructure bill is to -- from the federal government side is to direct work to the state and local side. And so we see limited pickup or effect of the infrastructure bill on the federal business.

George, we've had a great track record of acquisitive growth here over the years that you've now been a part of ASGN and even before. Can you talk a little bit about how you view integration risk that you may be watching for? And how do you think about synergies?

Thanks, Ted. Yes, we take a full integration approach at ECS. We do the acquisition, but we quickly, as we've mentioned in our presentations, bring them into the whole fold of ECS oftentimes within or less than 1 year, they all become ECS employees. They have -- all their systems are integrated with our systems. And then most importantly, you bring them into the centers of excellence that John talked about in his presentation as well as we bring them into our strategic account management process and our business development process. These are 2 things that are very important to us in terms of continuing to build our strength of our centers of excellence as well as applying our strategic approach to winning larger deals. Oftentimes, as you say, these acquisitions are tuck-ins, smaller acquisitions, and they haven't approached their customers with the length of -- with the depth of technical muscle we have as well as with a very orderly approach to move from what they have been doing with their customers up into a strategic approach with the customers because we bring all the talent that these customers need to go ahead and move their organization forward.

And we're always looking for revenue synergies. It's always a big part of this in addition to what capabilities and customer sets, those acquisitions bring in. But I'll remind the audience that while we don't program with the marketplace around cost synergies, we're always looking to take advantage of those as they are available. Let's see, George, could new vaccine mandate for federal contractors further complicate hiring or risk losing key personnel?