asgn-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-35636

ASGN Incorporated

(Exact name of registrant as specified in its charter)

Delaware

95-4023433

(State of Incorporation)

(I.R.S. Employer Identification No.)

4400 Cox Road, Suite 110

Glen Allen, Virginia 23060

(Address, including zip code, of Principal Executive Offices)

(888) 482-8068

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock

ASGN

NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

At April 28, 2023, the total number of outstanding shares of the Common Stock of ASGN Incorporated (the "Company") ($0.01 par value) was 49.3 million.

ASGN INCORPORATED AND SUBSIDIARIES

INDEX


PART I — FINANCIAL INFORMATION

Item 1 — Condensed Consolidated Financial Statements (Unaudited)			3

Condensed Consolidated Balance Sheets			3

Condensed Consolidated Statements of Operations and Comprehensive Income			4

Condensed Consolidated Statements of Stockholders’ Equity			5

Condensed Consolidated Statements of Cash Flows			6

Notes to Condensed Consolidated Financial Statements			7

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			12

Item 3 — Quantitative and Qualitative Disclosures about Market Risks			15

Item 4 — Controls and Procedures			15

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings			16

Item 1A — Risk Factors			16

Item 2 — Unregistered Sales of Securities and Use of Proceeds			16

Item 3 — Defaults Upon Senior Securities			16

Item 4 — Mine Safety Disclosures			16

Item 5 — Other Information			16

Item 6 — Exhibits			17

Signature			18

PART I — FINANCIAL INFORMATION

Item 1 — Condensed Consolidated Financial Statements (Unaudited)

ASGN INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except share data)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	65.0	$	70.3
Accounts receivable, net	822.8		853.6
Prepaid expenses and income taxes	23.5		39.9
Other current assets	15.5		17.3
Total current assets	926.8		981.1
Property and equipment, net	71.8		66.3
Operating lease right-of-use assets	52.5		51.1
Identifiable intangible assets, net	551.5		569.6
Goodwill	1,893.5		1,892.0
Other non-current assets	29.2		25.6
Total assets	$	3,525.3	$	3,585.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	34.0	$	35.2
Accrued payroll	251.6		285.1
Operating lease liabilities	21.1		22.9

Other current liabilities	79.2		98.7
Total current liabilities	385.9		441.9
Long-term debt	1,035.4		1,066.6
Operating lease liabilities	36.2		32.3
Deferred income tax liabilities	129.2		129.2
Other long-term liabilities	15.1		14.4
Total liabilities	1,601.8		1,684.4
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 1.0 million shares authorized; no shares issued	—		—
Common stock, $0.01 par value; 75.0 million shares authorized; 49.2 million and 49.5 million shares outstanding at March 31, 2023 and December 31, 2022, respectively	0.5		0.5
Paid-in capital	714.4		703.5
Retained earnings	1,210.3		1,200.0
Accumulated other comprehensive loss	(1.7)		(2.7)
Total stockholders’ equity	1,923.5		1,901.3
Total liabilities and stockholders’ equity	$	3,525.3	$	3,585.7

See notes to condensed consolidated financial statements.

ASGN INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

(in millions, except per share data)


	Three Months Ended
	March 31,
	2023		2022
Revenues	$	1,128.8	$	1,091.0
Costs of services	802.4		764.4
Gross profit	326.4		326.6
Selling, general and administrative expenses	224.1		212.1
Amortization of intangible assets	18.1		13.9
Operating income	84.2		100.6
Interest expense	(15.4)		(9.3)
Income before income taxes	68.8		91.3
Provision for income taxes	19.3		23.7
Income from continuing operations	49.5		67.6

Income from discontinued operations, net of income taxes	—		(0.8)
Net income	$	49.5	$	66.8

Earnings per share:
Basic —
Continuing operations	$	1.00	$	1.31
Discontinued operations	—		(0.01)
	$	1.00	$	1.30
Diluted —
Continuing operations	$	0.99	$	1.29
Discontinued operations	—		(0.01)
	$	0.99	$	1.28

Shares and share equivalents used to calculate earnings per share:
Basic	49.3		51.6
Diluted	49.8		52.3

Reconciliation of net income to comprehensive income:
Net income	$	49.5	$	66.8
Foreign currency translation adjustment	1.0		—
Comprehensive income	$	50.5	$	66.8

See notes to condensed consolidated financial statements.

ASGN INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in millions)


	Common Stock			Paid-in Capital		Retained Earnings		Other		Total
	Shares	Par Value
Three Months Ended March 31, 2023
Balance at December 31, 2022	49.5	$	0.5	$	703.5	$	1,200.0	$	(2.7)	$	1,901.3
Stock-based compensation expense	—	—		12.1		—		—		12.1
Issuances under equity plans	0.2	—		11.1		—		—		11.1
Tax withholding on restricted stock vesting	—	—		(4.2)		—		—		(4.2)
Stock repurchases and retirement of shares	(0.5)	—		(8.1)		(39.2)		—		(47.3)
Other	—	—		—		—		1.0		1.0
Net income	—	—		—		49.5		—		49.5
Balance at March 31, 2023	49.2	$	0.5	$	714.4	$	1,210.3	$	(1.7)	$	1,923.5

Three Months Ended March 31, 2022
Balance at December 31, 2021	51.8	$	0.5	$	690.8	$	1,174.4	$	(0.3)	$	1,865.4
Stock-based compensation expense	—	—		12.8		—		—		12.8
Issuances under equity plans	0.2	—		10.4		—		—		10.4
Tax withholding on restricted stock vesting	—	—		(8.8)		—		—		(8.8)
Stock repurchases and retirement of shares	(0.7)	—		(9.2)		(68.2)		—		(77.4)

Net income	—	—		—		66.8		—		66.8
Balance at March 31, 2022	51.3	$	0.5	$	696.0	$	1,173.0	$	(0.3)	$	1,869.2

See notes to condensed consolidated financial statements.

ASGN INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


	Three Months Ended
	March 31,
	2023		2022
Cash Flows from Operating Activities
Net income	$	49.5	$	66.8
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	24.9		20.1
Stock-based compensation	12.1		12.8

Other	1.5		2.8
Changes in operating assets and liabilities, net of effects of acquisitions and divestiture:
Accounts receivable	31.0		(67.7)
Prepaid expenses and income taxes	16.5		23.1
Accounts payable	(1.2)		(0.5)
Accrued payroll	(33.8)		6.6

Other	(20.0)		(8.0)
Net cash provided by operating activities	80.5		56.0
Cash Flows from Investing Activities
Cash paid for property and equipment	(11.7)		(9.6)

Cash received from sale of the Oxford business	—		9.8
Other	(0.6)		—
Net cash provided by (used in) investing activities	(12.3)		0.2
Cash Flows from Financing Activities


Proceeds from long term debt	36.0		—
Principal payments of long term debt	(67.5)		—
Proceeds from employee stock purchase plan	11.1		10.4
Repurchases of common stock	(48.8)		(76.9)
Payment of employment taxes related to release of restricted stock awards	(4.2)		(8.8)
Payment of contingent consideration	—		(8.1)

Net cash used in financing activities	(73.4)		(83.4)
Effect of exchange rate changes on cash and cash equivalents	(0.1)		—
Net decrease in cash and cash equivalents	(5.3)		(27.2)

Cash and cash equivalents at beginning of year	70.3		529.6
Cash and cash equivalents at end of period	$	65.0	$	502.4


Supplemental Disclosure of Cash Flow Information
Cash paid for —
Income taxes	$	2.0	$	1.9
Interest	$	8.6	$	2.4
Operating leases	$	6.6	$	6.9
Noncash transactions —



Operating lease right of use assets obtained in exchange for operating lease liabilities	$	7.7	$	2.5

See notes to condensed consolidated financial statements.

ASGN INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. General

Basis of presentation — The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The December 31, 2022 balance sheet was derived from audited financial statements. The financial statements include adjustments consisting of normal recurring items, which, in the opinion of management, are necessary for a fair presentation of the financial position of ASGN Incorporated and its subsidiaries ("ASGN" or the "Company") and its results of operations for the interim dates and periods set forth herein. The results for any of the interim periods are not necessarily indicative of the results to be expected for the full year or any other period. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 10-K").

2. Goodwill and Identifiable Intangible Assets

The following table summarizes the activity related to the carrying amount of goodwill by segment since December 31, 2021 (in millions).


	Commercial		Federal Government		Total




Balance as of December 31, 2021	$	829.3	$	740.2	$	1,569.5
2022 acquisitions	246.4		85.5		331.9
Purchase price adjustments	0.4		(8.5)		(8.1)
Translation adjustment	(1.4)		—		(1.4)
Balance as of December 31, 2022	1,074.7		817.2		1,891.9

Purchase price adjustments	—		1.1		1.1
Translation adjustment	0.5		—		0.5


Balance as of March 31, 2023	$	1,075.2	$	818.3	$	1,893.5

________________________________

Approximately $250.7 million of the goodwill for the 2022 acquisitions is deductible for income tax purposes.

Acquired identifiable intangible assets consisted of the following (in millions):


		March 31, 2023						December 31, 2022
	Estimated Useful Life in Years	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer and contractual relationships	1 - 13	$	589.3	$	330.8	$	258.5	$	589.3	$	315.7	$	273.6

Contract backlog	1 - 3	44.1		38.4		5.7		44.1		36.5		7.6
Non-compete agreements	1 - 7	41.2		26.7		14.5		41.2		25.6		15.6

		674.6		395.9		278.7		674.6		377.8		296.8
Not subject to amortization:
Trademarks		272.8		—		272.8		272.8		—		272.8
Total		$	947.4	$	395.9	$	551.5	$	947.4	$	377.8	$	569.6

Estimated future amortization expense follows (in millions):


Remainder of 2023	$	53.7
2024	58.1
2025	48.8
2026	41.8
2027	32.0
Thereafter	44.3
	$	278.7

3. Long-Term Debt

Long-term debt consisted of the following (in millions):


	March 31, 2023		December 31, 2022
Senior Secured Credit Facility:
Borrowings under $460 million revolving credit facility, due November 2024	$	—	$	31.5
Term B loan facility, due April 2025	490.8		490.8

Unsecured Senior Notes, due May 2028	550.0		550.0
	1,040.8		1,072.3
Unamortized deferred loan costs	(5.4)		(5.7)
	$	1,035.4	$	1,066.6

Senior Secured Credit Facility — The senior secured credit facility (the "facility") consists of a term B loan and a $460.0 million revolving credit facility (the "revolver"). Borrowings under the term B loan bear interest at the secured overnight financing rate plus a 10 basis points adjustment ("SOFR") plus 1.75 percent, or the bank’s base rate plus 0.75 percent. Borrowings under the revolver bear interest at SOFR plus 1.25 to 2.25 percent, or the bank’s base rate plus 0.25 to 1.25 percent, depending on leverage levels. A commitment fee of 0.20 to 0.35 percent is payable on the undrawn portion of the revolver. There are no required minimum payments on the facility. The revolver is limited to a maximum ratio of senior secured debt to trailing-twelve-months of lender-defined consolidated EBITDA of 3.75 to 1, which was 0.90 to 1 at March 31, 2023. The facility is secured by substantially all of the Company's assets and includes various restrictive covenants. At March 31, 2023, the Company was in compliance with its debt covenants.

Unsecured Senior Notes — The Company has $550.0 million of unsecured senior notes, which bear interest at 4.625 percent payable semiannually in arrears on May 15 and November 15. These notes are unsecured obligations and are subordinate to the senior secured credit facility. These notes also contain certain customary limitations including, the Company's ability to incur additional indebtedness, engage in mergers and acquisitions, transfer or sell assets and make certain distributions.

4. Commitments and Contingencies

The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business, and collective class and Private Attorneys General Act ("PAGA") actions alleging violations of wage and hour laws. The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its consolidated financial statements.

5. Income Taxes

For interim reporting periods, the Company’s provision for income taxes is calculated using its annualized estimated effective tax rate for the year. This rate is based on its estimated full year income and the related income tax expense for each jurisdiction in which the Company operates. The effective tax rate can be affected by changes in the geographical mix, permanent differences and the estimate of full year pretax accounting income. This rate is adjusted for the effects of discrete items occurring in the period.

6. Earnings per Share

The following table shows the calculation of basic and diluted earnings per share (in millions, except per share data).


	Three Months Ended
	March 31,
	2023		2022
Income from continuing operations	$	49.5	$	67.6
Income from discontinued operations, net of income taxes	—		(0.8)
Net income	$	49.5	$	66.8

Weighted-average number of common shares outstanding — basic	49.3		51.6
Dilutive effect of common share equivalents	0.5		0.7
Weighted-average number of common shares and share equivalents outstanding — diluted	49.8		52.3

Basic earnings per share:
Continuing operations	$	1.00	$	1.31
Discontinued operations	—		(0.01)
	$	1.00	$	1.30
Diluted earnings per share:
Continuing operations	$	0.99	$	1.29
Discontinued operations	—		(0.01)
	$	0.99	$	1.28

7. Segment Reporting

ASGN provides information technology ("IT") services and professional solutions, including technology and creative digital marketing, across the commercial and government sectors. ASGN operates through two segments, Commercial and Federal Government. The Commercial Segment, which is the largest segment, provides consulting, creative digital marketing and permanent placement services primarily to large enterprises and Fortune 1000 companies. The Federal Government Segment provides mission-critical solutions to the Department of Defense, the intelligence community and federal civilian agencies. Virtually all of the Company's revenues are generated in the United States.

Management evaluates the performance of each segment primarily based on revenues, gross profit and operating income derived directly from internal financial reporting of the segments used for corporate management purposes, which is presented below by segment (in millions):


	Three Months Ended
	March 31,
	2023		2022
Commercial
Revenues	$	832.1	$	832.9
Gross profit	262.4		272.6
Operating income	83.9		104.9
Depreciation	4.6		3.5
Amortization	8.8		5.6
Federal Government
Revenues	$	296.7	$	258.1
Gross profit	64.0		54.0
Operating income	22.6		17.3
Depreciation	1.4		1.5
Amortization	9.3		8.3
Consolidated
Revenues	$	1,128.8	$	1,091.0
Gross profit	326.4		326.6
Operating income	84.2		100.6
Depreciation	6.8		6.2
Amortization	18.1		13.9
_______
Consolidated operating income includes corporate operating expenses, which are not allocated to the segments. These include stock-based compensation expense, depreciation expense, compensation for corporate employees, acquisition, integration and strategic planning expenses and public company expenses.

The majority of the revenues from the Commercial Segment are generated from time-and-materials ("T&M") contracts where payments are based on fixed hourly rates for each direct labor hour expended and reimbursements for allowable material costs and out-of-pocket expenses. Revenues from the Federal Government Segment are generated from: (i) firm-fixed-price, (ii) T&M and (iii) cost reimbursable contracts. Revenues by segment and by type are as follows (in millions):


	Three Months Ended
	March 31,
	2023		2022
Commercial
Assignment	$	560.4	$	628.2
Consulting	271.7		204.7
	832.1		832.9
Federal Government
Firm-fixed-price	92.8		76.9
Time and materials	121.9		107.0
Cost reimbursable	82.0		74.2
	296.7		258.1
Consolidated	$	1,128.8	$	1,091.0

Federal Government Segment revenues by customer type are as follows (in millions):


	Three Months Ended
	March 31,
	2023		2022
Department of Defense and Intelligence Agencies	$	132.9	$	133.6
Federal Civilian	153.1		116.4
Other	10.7		8.1
	$	296.7	$