ASGN Inc. (ASGN) Q1 2026 Earnings Call Transcript

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Date

Wednesday, April 22, 2026, at 4:30 p.m. ET

Call participants

• Chief Executive Officer — Theodore S. Hanson
• President, Commercial North America — Ashish Janyal
• President, Indian International — Sangeetha Singh
• President, Federal Government Segment — Donnie Scott
• Executive Vice President and Chief Financial Officer — Marie L. Perry
• President, Consulting and Solutions — Sadasivam Iyer

Takeaways

• Name and ticker change -- The company will transition to the Everfor brand and begin trading under a new ticker on Friday, signaling a rebranding and integrated operating model shift.
• Total revenue -- $968.3 million, flat year over year and within previously communicated guidance.
• Commercial segment revenue -- $675.5 million, up 0.5% year over year; driven by demand in AI and data, cloud and infrastructure, and application engineering and modernization.
• Federal segment revenue -- $292.8 million, down 1.1% year over year.
• AI and data pipeline -- Pipelines in both commercial and federal segments are "building," driven by client demand for AI and data solutions.
• Book-to-bill (commercial consulting) -- 1.1 times on a trailing 12‑month basis, indicating broad‑based bookings momentum and longer average project durations due to increased cloud and infrastructure contracts.
• Book-to-bill (federal) -- 0.7 times on a trailing 12‑month basis; new federal contract awards totaled $151.3 million.
• Federal backlog -- Approximately $2.8 billion, representing a 2.4 times coverage ratio to trailing 12‑month federal revenues.
• Gross margin -- 27.5% (down 90 basis points year over year); commercial segment gross margin 31% (down 140 basis points), federal segment 19.6% (up 10 basis points).
• Adjusted EBITDA and margin -- Adjusted EBITDA was $83.6 million and margin was 8.6% (below guidance), primarily due to lower contribution from higher‑margin commercial solutions and mix shift in federal cost‑plus contracts.
• Net income -- $5.5 million for the quarter.
• SG&A expenses -- $224.4 million, including $12.8 million in integration and strategic planning not in prior guidance; excluding these, SG&A was consistent with the previous year.
• Free cash flow -- $9.1 million, seasonally soft and impacted by higher days sales outstanding (DSO).
• Cash position -- $143.6 million in cash and cash equivalents at quarter end; $934 million remaining under repurchase authorization and $160 million available on the revolver.
• Leverage ratio -- Net leverage of 3.1 times, with an ongoing target to reduce to 2.5 times.
• Share repurchases -- Deployed $39 million for 800,000 shares at an average price of $47.69 during the quarter.
• Quinox acquisition -- Closed Quinox purchase for $290 million; contributed less than one month of revenue in the quarter, with a projected full‑year revenue contribution of $100 million (low- to mid-teens percent growth), and low 20% EBITDA margin profile.
• Effective tax rate -- 48.1% due to one‑time discrete items; previous guidance assumed 28%.
• Healthcare growth -- High single-digit growth in healthcare, driven by payer engagements and modernization projects.
• Consumer & industrial and TMT growth -- Mid single-digit growth in both segments, mainly from AI, data, and cloud-driven demand.
• Financial services -- Declined mid single digits, attributed to muted spending at large banks; insurance showed high single-digit growth.
• Federal segment industry mix -- Defense, intelligence, and national security comprised approximately 70% of segment revenue, with national security yielding the strongest segment growth year over year and sequentially.
• Key federal program awards -- Notable growth linked to cybersecurity (DHS CDM), USPS AI application deployments, and increased award activity post‑budget passage.
• Recognition and partnerships -- Commercial team recognized as Databricks Silver Tier Partner; became a Snowflake Cortex Code Preferred Partner and is a top 10 global partner for ServiceNow EmployeeWorks launch.
• Guidance for next quarter -- Q2 2026 revenue expected at $970 million to $1 billion; net income $8 million to $13.7 million; adjusted EBITDA $85 million to $95 million; adjusted EBITDA margin 8.8% to 9.5%.
• Strategic leadership additions -- Appointed new presidents for Commercial North America, Indian International, and Federal segments to drive execution of the "Next Wave" growth strategy.
• Strategic expense outlook -- Q2 will include $8 million to $10 million in strategic planning expenses for the new operating strategy, with declines expected in subsequent quarters.

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Risks

• Gross margin and adjusted EBITDA margin were below expectations, attributed to "lower-than-expected contribution from some of our higher-margin solutions within the commercial segment," mix shift to cost-plus federal contracts, and negative impact from foreign exchange.
• Continued compressed or stagnant IT spending in large-bank financial services produced a mid-single-digit decline within the segment, described as "continued tight management of expenditure in the largest piece of financial services for us, which is the big banks" with no near-term increase expected.
• Free cash flow came in seasonally soft and was "lower than we typically see in past quarters primarily due to an increase in DSO," though management described this as consistent with seasonal patterns and not a credit concern.

Summary

ASGN’s (NYSE:ASGN) upcoming transition to the Everfor brand and updated segment reporting underscore a commitment to an industry-led, higher‑value solutions strategy. The acquisition of Quinox is positioned to expand offshore capabilities and margins, with early co-selling already underway. Commercial consulting saw broad-based demand — particularly in AI, data, and cloud — while federal award activity accelerated following recent budget approvals, despite some agency-specific delays. Executive appointments align leadership with the next growth phase, targeting expanded industry verticals and advanced digital modernization capabilities. Margin compression was traced by management to revenue mix and the slower ramp of high-margin solutions, while guidance anticipates margin improvements as these projects accelerate.

• The commercial pipeline for longer-term cloud and infrastructure work continues to build, supporting an outlook for steadier project cycles and improved revenue visibility in future quarters.
• Enterprise platform work is shifting with customers taking a more measured approach to implementations, resulting in lengthened sales and project cycles, yet the management team asserted, "AI is increasing their relevance. Enterprise platforms remain."
• Federal segment growth remains concentrated within defense and national security, with incremental contract activity expected as agency funding flows stabilize further.
• Management indicated no material pricing compression in consulting practices; margin headwinds stemmed primarily from timing and mix shifts, not bill rates or pricing declines.
• Capital allocation remains disciplined: debt reduction is a stated priority, with ongoing share repurchases and a robust authorization balance available.

Industry Glossary

• Book-to-bill: A ratio comparing new contract bookings to revenue recognized over a given period, indicating the pace of future revenue generation relative to current performance.
• Cost-plus contract: A type of government contract where the customer reimburses the service provider for allowable costs plus a negotiated fee, generally producing lower gross margins than fixed-price arrangements.
• CDM (Continuous Diagnostics and Mitigation): A U.S. Department of Homeland Security cybersecurity initiative to provide continuous monitoring and mitigation of threats across federal IT infrastructure.
• Agentic AI: AI systems capable of autonomous actions and decision-making, often embedded in analytics or workflow platforms; referenced in connection with Databricks Genie and other partner solutions.
• DSO (Days sales outstanding): The average number of days required to collect payment after a sale is made; higher DSO can indicate delays in payment collection.

Full Conference Call Transcript

Theodore S. Hanson: Thank you, Kimberly, and thank you for joining our first quarter 2026 earnings call. Today marks an important milestone for our company. This will be our final earnings call under the ASGN Incorporated name, and on Friday, we will officially begin operating as Everport and trading under our new stock ticker e f o r e four. This transition reflects the continued transformation of our business, bringing our capabilities together under the Everforth brand to support a more integrated operating model focused on higher-value solutions and deeper client relationships. By pursuing this path, we will unlock further scale and increase our cross-selling opportunities.

As part of this evolution, we are also updating our commercial segment reporting to more clearly reflect how we are evolving the business, which is by industry rather than mode of delivery. This change is intentional and aligns with our next wave growth strategy, an industry-led approach which we previewed at our Investor Day this past November. Ultimately, the delivery structure of our engagements is much less meaningful than the outcomes we drive and the strong value we create for our clients. We will, therefore, provide color through the lenses that matter most to how we compete in the commercial space: our five industries and our six solution capabilities.

In addition, to help track demand for our higher-value work and our ability to win in the marketplace, we will disclose our commercial consulting book-to-bill consistent with what we have shared in prior quarters. With that background, let us discuss our first quarter results. Revenues for the first quarter were $968.3 million, in line with the prior year and our guidance. Commercial segment revenues were driven by demand in AI and data, cloud and infrastructure, and application engineering and modernization. Our AI and data and cloud and infrastructure pipelines continue to build, reinforcing momentum in these areas of our business. Commercial consulting book-to-bill was 1.1 times on a trailing 12-month basis.

Federal segment new contract awards totaled $151.3 million, or a book-to-bill of 0.7 times on a trailing 12-month basis. Federal contract backlog was approximately $2.8 billion at quarter end, or a coverage ratio of 2.4 times the segment’s trailing 12-month revenues. Similar to the commercial segment, AI and data work was a solid contributor to revenues, bookings, and pipeline within our federal business. Cybersecurity contracts also nicely contributed to revenue and bookings in the quarter. We are beginning to see award activity in many government agencies pick up following the passage of the federal budget in early February.

That said, we experienced some funding delays at the Department of Homeland Security, which is navigating both a shutdown and a leadership transition. Importantly, we have not seen any disruption to award funding related to the conflict in Iran. Instead, we are seeing evolving requirements of partner collaboration, particularly around cyber threat analysis and data management and analytics, as agencies seek to strengthen decision-making expertise. While our revenues were within guidance, adjusted EBITDA margin of 8.6% was below our expectations for the quarter. This was driven largely by business mix related to lower-than-expected contribution of some of our higher-margin solutions within the commercial segment. Nevertheless, we continue to closely manage our expenses.

As discussed during our Investor Day, we are making strategic pivots in our business that will position us well for the long term. Those changes are being shaped by how our clients themselves are evolving and the expectations they have for partners that can support them through that change. Our clients are navigating a very volatile macro environment with continued uncertainty around how technologies such as AI and enterprise software will ultimately impact the technology landscape and influence their IT spending. While this dynamic can create some near-term variability, we are focused on strengthening our foundation by building a more unified brand, enhancing our go-to-market approach, and maintaining disciplined expense management and capital allocation.

These actions give us conviction that we are building a stronger, more resilient platform aligned with client demand and positioned to drive top-line growth and margin expansion. Against this backdrop, I want to step back and revisit our next wave growth strategy. We continue to make progress executing our long-term initiatives, and during the first quarter, we took several important actions that reinforced our strategic priorities. First, we announced key leadership appointments across both our commercial and federal government segments to support our next phase of growth. We welcome Ashish Janyal as President of Commercial North America, Sangeetha Singh as President of Indian International, and Donnie Scott as President of our federal government segment.

Each leader brings deep experience scaling global service organizations, driving AI-enabled digital transformations, and building delivery platforms designed for long-term value creation. Collectively, this team enhances our ability to execute our strategy while building on the solid foundation already in place. We also successfully closed the acquisition of Quinox, marking another important milestone in advancing our strategy toward enhancing our solutions capabilities and margins. Quinox meaningfully expands our ability to deliver technical, end-to-end application engineering and modernization solutions for our commercial clients, while establishing a strong foundation for our offshore delivery platform in India. Although still early, integration is progressing well, and we are already co-selling their services.

Ultimately, these actions enhance our ability to support growing client demand for AI-led transformation, scalable delivery, and outcomes-based solutions across industries. We remain focused on executing with discipline and building a higher-value, more integrated Everfor. With that, I will turn the call over to Sadasivam Iyer. Thanks, everyone.

Sadasivam Iyer: Good afternoon, everyone. As Theodore noted, we go to market through a combination of industry and solutions expertise. We believe industry is the most meaningful lens for understanding where client demand is emerging and how our customers are prioritizing their IT investments. With that in mind, I will begin with our industry performance for the first quarter. Within our commercial segment, we delivered year-on-year growth in the healthcare, consumer and industrial, and TMT industries, reflecting broad-based demand in AI and data, cloud and infrastructure, application engineering and modernization, and enterprise platforms.

Healthcare grew at a high single-digit rate driven by increased engagement from healthcare payers, while the consumer and industrial and TMT industries achieved mid single-digit growth supported by software, utilities, and industrial customers leveraging our capabilities across AI and data, cloud, experience, and cybersecurity. Though the financial services industry—one of the biggest spenders on IT—declined mid single digits year over year, we saw high single-digit growth amongst insurance customers where application engineering and AI engagements continue to gain traction. Consistent with the typical first quarter seasonality in which certain projects conclude at year end, most industries softened sequentially with TMT relatively flat. That said, we saw pockets of strength within several industries.

In consumer and industrial, for example, utilities delivered low single-digit growth supported by demand in application engineering, cloud and infrastructure, and AI and data. Turning to our federal segment, we track our federal revenues across four customer types, including defense and intelligence, national security, civilian, and other clients. Defense, intelligence, and national security customers continue to comprise approximately 70% of our total federal revenues, the remaining balance coming from civilian agencies, government-sponsored entities, state and local agencies, and select commercial customers. National security customers delivered the strongest growth for the segment both year over year and sequentially. This was primarily driven by cybersecurity work supporting the Continuous Diagnostics and Mitigation, or CDM, service program within DHS.

We also saw mid single-digit growth in our other clients year over year, led by the USPS, where we deployed a purpose-built AI application designed to significantly reduce undeliverable mail and improve operational efficiency. Building on the industry discussion, I would like to transition to our solutions performance, which provides a clear view of where the client demand is strongest today and how it is evolving. AI and data remain a significant driver of demand across our portfolio. Our clients are increasingly focused on modernizing data foundations to support analytics, AI-enabled decision-making, and operational agility. Let me provide a few examples.

In the consumer industry, we partnered with a leading global athletic apparel and footwear company to design and deploy a unified analytics platform powered by Databricks Genie, an agentic AI interface that enables secure access to governed data. By consolidating product assortment planning, demand, bookings, and sales into a single governed experience, our client improved product creation decisioning and speed to market, while also establishing a reusable foundation to scale across broader demand planning and supply chain use cases. Databricks is one of our core strategic partners, and during the quarter, our commercial business was recognized as a Databricks Silver Tier Partner.

Leveraging that partnership, our industrial team supported a Fortune 100 energy and utilities company in migrating from legacy architectures to a Databricks-based integration. This effort aligned the client with enterprise data strategy, while also reducing long-term risk and strengthening governance. Following the success of this project, our client is engaging our teams to support legacy migrations into Databricks across other areas of the organization. We are also helping customers unlock the full value of modern hyper AI services in the cloud. In the TMT vertical, for example, our AI and cloud teams partnered with AWS to support a Fortune 50 media company in building a digital twin of its streaming platform.

This solution combines advanced cloud engineering with AI cloud simulations to help our client identify performance risks ahead of some of the largest global streaming sporting events that commonly draw over 100 million viewers. A successful project, we now have a repeatable use case that can be extended across TMT clients with similar streaming and gaming environments. As AI adoption and data volumes accelerate, cybersecurity has become an increasingly integral component of nearly every client engagement. In the healthcare industry, we secured an extension with a large national insurance payer to modernize their identity governance using SailPoint. This work established a central identity framework that supports regulatory compliance, while safeguarding sensitive patient and member data.

Alongside this modernization work, we continue to provide ongoing SailPoint platform support, reinforcing our long-term client relationship. In the federal market, we are supporting the Cybersecurity and Infrastructure Security Agency, or CISA, through the aforementioned CDM program by delivering security information and event management as a service. This capability standardizes security data collection across federal agencies and enables real-time threat detection and rapid response. We also delivered a first-of-its-kind ATO-accredited development environment for the U.S. Navy—a secure, government-approved workspace where teams can safely build, test, and manage software and data. By combining our dev labs and software factory with Elastic’s cloud infrastructure and AI-enabled automation, we created a development environment that aligns with the DOD’s zero trust requirements.

Enterprise platforms also remain central to our clients’ digital transformation, particularly as organizations look to embed AI into their systems of record. We continue to advance co-selling and co-development efforts across our partner ecosystem, with a focus on accelerating time to value through automation, data readiness, and agent-enabled workflows. In our commercial business, we are helping clients embed agentic capabilities across core data platforms, hyperscaler cloud environments, and enterprise systems of record. During the quarter, we became a Snowflake’s Cortex Code Preferred Partner, working closely with Snowflake to build hands-on labs, develop AI readiness case studies, and create customer-facing applications leveraging Cortex, Snowflake’s native agentic engineering capability.

Similarly, with AWS, we are partnering to build a Workday data learning agent that combines AWS’s agentic technology with TopLog’s proprietary Smart Loader tools. With Salesforce, we are investing in Agentforce to enable AI-driven digital work that supports faster delivery cycles and improved testing outcomes. And with ServiceNow, we were one of the top 10 global partners selected for the launch of EmployeeWorks, a new offering that integrates AI assistance with workflow automation. Although we are seeing progress in our enterprise platforms work, we are operating in a more deliberate buying environment. Decision cycles have lengthened as customers take a more measured approach to large, long-term initiatives while they assess how AI fits into their broader technology road maps.

The enterprise software market is also undergoing change, from evolving go-to-market models focused on consumption rather than per-seat to organizational realignments with changes in sales and executive leadership. That said, we view this as a moment in time. While customers are being more deliberate about how, when, and where they invest, we do not see them stepping away from enterprise platforms, nor do we see AI displacing these systems of record. In fact, AI is increasing their relevance. Enterprise platforms remain where data, workflows, and governance reside, and without that foundation, AI lacks context and scale. Our role is to help clients modernize, integrate, and optimize these platforms while enabling practical AI applications that drive measurable business outcomes.

As spending normalizes and IT programs move forward, we are well positioned to support our clients across this ecosystem. With that, I will turn the call over to our CFO, Marie L. Perry, to discuss our first quarter 2026 performance and second quarter guidance.

Marie L. Perry: Thanks, everyone. For the first quarter, revenues totaled $968.3 million, within our guidance range and consistent with the prior-year period. Given the timing of the acquisition close, Quinox contributed less than one month to the quarterly results. Revenues from our commercial segment were $675.5 million, an increase of 0.5% compared to the prior year. Revenues from our federal government segment were $292.8 million, a decrease of 1.1% year over year. Turning to margins, gross margins for 2026 Q1 were 27.5%, a decrease of 90 basis points from the prior year. Commercial segment gross margins totaled 31%, a decrease of 140 basis points year over year.

Gross margins for the federal government segment were 19.6%, an increase of 10 basis points year over year, but slightly lower than our expectations due to a higher-than-anticipated contribution of cost-plus revenues in the quarter. As Theodore mentioned, this decline in margin was primarily driven by business mix related to a lower-than-expected contribution from some of our higher-margin solutions within the commercial segment. We also experienced a headwind from changes in our foreign exchange rates related to our delivery center in Mexico. SG&A for the quarter was $224.4 million compared to $214.5 million in 2025. SG&A expenses included $12.8 million in integration and strategic planning expenses that were not included in our previously announced guidance estimates.

Excluding these expenses, SG&A expenses were relatively consistent with prior year. For the first quarter, net income was $5.5 million, adjusted EBITDA was $83.6 million, and adjusted EBITDA margin was 8.6%. Adjusted EBITDA margin was below our guidance range due to the lower gross margin just discussed. In addition, our estimates assumed an effective tax rate of 28% for the quarter; the effective tax rate was 48.1%, reflecting one-time discrete items not included in our guidance. As previously noted, in March we completed our acquisition of Quinox for $290 million. We also deployed $39 million in cash to repurchase 800 thousand shares at an average share price of $47.69.

At quarter end, we had approximately $934 million remaining under our $1 billion share repurchase authorization. Cash and cash equivalents were $143.6 million at quarter end. We had approximately $160 million available on our $500 million senior secured revolver. Our net leverage ratio was 3.1 times at the end of the quarter. We are committed to reducing our debt over time in order to bring our net leverage ratio closer to our 2.5 times target. We will continue to opportunistically balance capital deployment with organic investment and share repurchase, and have remained active in buying back our shares in the second quarter. Free cash flow was $9.1 million.

While free cash flow is generally seasonally softer in the first quarter, it was lower than we typically see in past quarters primarily due to an increase in DSO. Turning to guidance, our financial estimates for 2026 Q2 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 that we serve. As we execute against our strategic plan, we expect some continued upfront investments. Our second quarter estimates include $8 million to $10 million in strategic planning expenses related to the implementation of our Next Wave growth strategy, which we expect will decline over the coming quarters.

Alongside these investments, as we highlighted at Investor Day, we are implementing targeted initiatives that will generate meaningful structural cost savings for the business. These efforts are progressing as planned. With that as background, for 2026 Q2 we are estimating revenues of $970 million to $1 billion, net income of $8 million to $13.7 million, adjusted EBITDA of $85 million to $95 million, and adjusted EBITDA margin of 8.8% to 9.5%. Thank you. I will now turn the call back over to Theodore.

Theodore S. Hanson: Thanks, Marie. As we step back from the quarter, the most important takeaway is the consistency between our strategy and our actions. The projects Sadasivam walked through today illustrate how our industry depth and solution capabilities are translating into meaningful outcomes for clients navigating increasingly complex environments. The acquisition of Quinox strengthens our ability to deliver end-to-end application engineering and modernization at scale, while the leadership additions we made earlier this year further align our company to execute our next wave growth strategy. These are deliberate actions focused on building a higher-value, more unified company positioned for durable, long-term growth and expanded margins.

This long-term orientation is a central theme in our annual shareholder letter, which will be released later this week. This letter discusses the evolution of enterprise technology and how those shifts are shaping our strategic priorities. As AI moves from experimentation towards broader enterprise adoption, it is driving greater integration and modernization across IT environments and increasing the need for sophisticated services to support that transition. Solution providers that can modernize data and embed AI into real-life business processes and workflows are best positioned to succeed. And these are the areas where we have a clear position and right to win.

Our diversified client base, differentiated delivery models, deep industry relationships, and portfolio of in-demand solutions collectively create structural advantages in an AI-driven world. Before we open the call for questions, I want to thank our employees for their dedication this past quarter. Your adaptability and commitment to our clients is the foundation of our progress and our future. As I noted at the start of today’s discussion, this call marks an important transition as we prepare to operate and report as Everfor. I look forward to continuing the conversation with you next quarter under our new name. We will now open the call for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 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 Jeffrey Marc Silber with BMO Capital Markets. Please proceed with your question.

Jeffrey Marc Silber: Thank you so much. A couple of times in your prepared comments you talked about lower-than-expected contribution from some higher-margin commercial solutions. Can we get a little bit more color on that? And I am just curious because you typically have really good visibility. I am just still wondering what happened here.

Theodore S. Hanson: Thanks, Jeff. Coming out of the fourth quarter, you naturally have certain projects come to their conclusion and you have a start-up of new work during the first quarter. In this quarter, while that is always a thing, the ramp-up of higher-margin solutions, especially in our enterprise software areas, was slower and later into the quarter than what our expectation was when we set the guidance. So really what we are seeing here in terms of the EBITDA margin miss is a gross margin issue; it is not an expense issue.

We were, on an adjusted basis, below our expectations on the cash SG&A side, but on the commercial side within our consulting business, we did see a larger change than normal of the profile of the margin of the projects that contributed during the quarter. Second piece of that, Jeff, was in our federal business, we overperformed the revenue expectation, and the meat of that was in the cost-plus area. You have heard us say before that cost-plus contracts come in at lower gross margin. Typically, we run 20% to 20.5% gross margins overall; those cost-plus contracts can be high single-digit to low double-digit gross margins. And so that was certainly an influence.

While we did a good job on the revenue on the federal side, the gross margin came in lower than what our expectations were at the forecast. And then, as Marie said, we had a little bit of contribution of negative impact from FX. So it is really the sum of those three things.

Jeffrey Marc Silber: Okay. That is helpful. Let me play devil’s advocate here. You mentioned some softness in the enterprise software area, and I know the stock market seems to view a lot of AI disruption risk there. How do we know that is not a structural issue?

Theodore S. Hanson: We came out of the fourth quarter with what I would call record bookings, especially in the Workday area, and solid bookings in ServiceNow and Salesforce—our three primary enterprise software practices. We just did not see the conversion to revenue at historical rates. Those are our highest-margin solution areas, and the delta between what we expected through the quarter and what actually happened was that the ramp-up of those was a lot slower from the bookings that we came out of the fourth quarter with.

I do think the customers are watching very closely the AI story and making sure that if they are doing a new implementation or a significant upgrade or taking on new SKUs, that is money well invested. What we saw exiting the quarter and into April is a little bit more normal patterns in terms of both getting bookings and beginning to see the conversion of that. I think it was temporary, Jeff, because there was a lot of negative commentary and, obviously, a lot of negative play on those enterprise software stocks, and I think customers reacted accordingly. We are looking for better contribution here.

The first few weeks of the quarter here in April are telling us that will be the case. I do not think it is going to be a rubber band, but I think it will build, and we will see a better margin profile. We gave you a better margin profile in our Q2 guidance, which is solely on the back of improving gross margins in both commercial consulting and federal consulting in the second quarter.

Jeffrey Marc Silber: Alright. Appreciate the color. Thanks so much.

Operator: Thank you. Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Maggie Nolan: Hi. Thank you. What should we read into the financial services year-over-year decline as it relates to maybe the balance of the year? And have you seen any change in the first couple of weeks of the second quarter here? And then, just given that is a segment with typically large spend on IT, any read-throughs to the other segments?

Sadasivam Iyer: Maggie, as we mentioned in the remarks, what we are seeing is just continued tight management of expenditure in the largest piece of financial services for us, which is the big banks. They have stabilized, but there is really not an increase in spending that we are seeing at any measurable rate in that segment. That being said, we are seeing some green shoots in insurance and also some green shoots in diversified financials, which we expect will turn into revenue upticks for us in the second quarter.

But the continued compression, or rather lack of uptick, we see in the big banks is why we see the continued decline, because they are the largest spender in the financial services industry.

Theodore S. Hanson: And I think, Maggie, if you look at the sequential growth in supplemental for that industry, we always have a negative 3% to 5% from Q4 to Q1 for all the seasonal reasons that we talk about all the time. I would say Sadasivam is right on. There is a lot of caution there on behalf of those customers, but it is in line with what we would see seasonally. The real message is you are not seeing a surge or a pickup there; it is less about a sequential decline.

Maggie Nolan: Okay. Great. Thank you. And then on the commercial IT book-to-bill of 1.1, I thought that was encouraging. Can you give a little bit more color on that—maybe the quality and duration of recent wins? Are you seeing shorter cycle projects versus what mix is longer-term solution-led work, and then just how that translates into your visibility for the remainder of the year?

Sadasivam Iyer: If you think about the strength we are seeing from a bookings perspective, it is relatively broad-based across several areas. Other than some of the enterprise platform dynamic that Theodore alluded to, we are seeing a pretty big uptick in some of our cloud and infrastructure-type work in the technology verticals, especially around services we provide to our software companies. Those are generally longer-term bookings, so that is healthy from a mix perspective. We are also seeing longer-term bookings in cybersecurity and continued strength in our application modernization and engineering capabilities.

I do not believe the durations have materially shifted, but overall durations are lengthening because of some of the cloud and infrastructure work and the volumes we see associated with that with our software providers.

Operator: Thank you. Our next question is coming from the line of Kevin McVeigh with UBS. Please proceed with your question.

Kevin McVeigh: Great. Thanks so much. I think you alluded to some unanticipated expenses in the quarter. Can you help us dimensionalize that a little bit? And coming out of Investor Day, I do not remember them being referenced. Is that something new, or did I miss it at Investor Day?

Marie L. Perry: Hi, Kevin. The $12.8 million that we referenced are add-backs to EBITDA. When we talk about the $80 million of savings that we are going to achieve over the three-year period, those dollars that we provided for Q1 relate to the implementation of those. There is a component that is Quinox—costs associated with the Quinox transaction—and also our go-to-market, our back-office outsourcing, and then our ERP. In our guide for Q2, we gave a range of $8 million to $10 million, and those costs will come down throughout 2026.

Theodore S. Hanson: Typically, Kevin, those strategic integration and acquisition expenses are immaterial. Since they are a little higher now for a few quarters and more known, Marie has been able to call them out and also give you a range for the next quarter.

Kevin McVeigh: Okay. And then, Marie, can you remind us how much Quinox contributed to the Q2 guidance on revenue and EBITDA?

Theodore S. Hanson: We only had them for a few weeks in Q1, so just a few million.

Kevin McVeigh: No, for the next quarter.

Theodore S. Hanson: For the next quarter—Marie?

Marie L. Perry: Similar to how we treated TopLog, Kevin, we gave the full-year revenue contribution. For Quinox, it is $100 million, with growth of low to mid teens, and then EBITDA margin of low 20%.

Theodore S. Hanson: So 2025 just at or just under $100 million, and we are expecting low double-digit growth rate in 2026.

Kevin McVeigh: Right. Figure about $25 million in Q2. Is that fair?

Theodore S. Hanson: That is about the math.

Kevin McVeigh: Thank you.

Marie L. Perry: Thank you.

Operator: Thank you. Our next question comes from the line of Tobey O’Brien Sommer with Truist Securities. Please proceed with your question.

Tobey O’Brien Sommer: Thanks. I was wondering if you could give us some color on the assignment business and get a sense for the trends there. And then on the government consulting side, with the presidential budget request, what are the implications for the business if you could—maybe think about it from a defense and intel and then also a civil perspective where there are some agencies with cuts? And then, last, on your transition towards consulting more broadly throughout the organization: you have had several executive hires announced recently. How is the sales force absorbing that? Are there any changes you are making internally to better align incentives and compensation to drive that change going forward?

Theodore S. Hanson: On assignment, just Q4 to Q1, I would say sequentially it performed about like we expected. It was down low to mid single digits quarter to quarter. That is seasonally about what we see every year, so no surprises there. Pay-to-bill margins were pretty steady, and contribution of perm was pretty flat. So no surprises on the assignment side. On the government side, I think we are pretty well positioned with where the budget money is flowing. Obviously, there is a watch item for us with DHS, although all our contracts are being supported, but I do not think there is going to be a net increase there commensurate with what is going on in defense.

On the defense side, there is a big new chunk coming. AI is going to be a big part of that. Data is going to be a big part of that. Cybersecurity is going to continue to be a big part of that. In those areas where we play, we are pretty well positioned. The money has been slow to roll out. In the first quarter—or at least the first two months—there was not a lot of activity because it really did not happen until the middle of the quarter. Not a lot happened in the second half of the quarter because there were plenty of other things the government was focused on.

But now you are seeing a better release. We are seeing the cycle on new award activity pick up with volume, and we are expecting, at least in our projected pipeline of bookings, a better second quarter than first quarter in that area. As for incentives and sales force alignment, we have a normal amount of change going on. We are bringing more to bear for all these accounts, so the sales team is having to adapt—doing a lot more than just bringing IT staffing to these big clients. Our sales teams are getting used to bringing everything that is in the toolbox.

Incentives change every year based on what we are trying to attack: how we allocate bonuses to certain objectives, what commission schemes may be, how we resource against account opportunities. If you have certain industries with really good growth prospects, then you are feeding resources into that. If you have other industries where you want to be for the long haul but it is not working as well right now, you may subtract resources. At the beginning of the year, that activity is always going on, so people see the normal ebb and flow of all of that.

Sadasivam Iyer: As Theodore said, you are always looking to make tweaks and adjustments to incent the right behaviors aligned to your strategy, but a core tenet of that plan has not shifted.

Operator: Thank you. Our next question comes from the line of Jason Daniel Haas with Wells Fargo. Please proceed with your question.

Jason Daniel Haas: Great. Thanks for taking my question. We have seen the nonfarm payrolls index for temporary help bounce off the bottom a little bit in Q1. I am curious if you are seeing any green shoots in your business on the assignment side. And as a follow-up, you mentioned earlier that some of the sales of higher-margin solutions were slower and later in the quarter. Did any of that push into Q2?

Theodore S. Hanson: Honestly, my experience is that IT really tracks IT spending. If our clients are spending on their tech stack, then that is a driver of our business. If they are more muted, then that is a tougher environment. Broadly in staffing, if you went down to the lower end like commercial, you would see that has been resilient through all this. But on the white-collar piece and especially on the IT piece, it has about the same trend as IT spending.

Sadasivam Iyer: Just to clarify the dynamic: we had record bookings in Q4, and our guide for Q1 assumed historical conversion. Two dynamics in Q1—ramp-up time for those projects was slower than anticipated, so how quickly those sales turned into revenue was not at the rate we expected. From a sales perspective in Q1, clients are deliberating longer before they pull the trigger on projects, so sales cycles are getting slightly longer. We are not seeing a material impact, and some of that has been factored into the Q2 guide. We see the recovery happening throughout the year.

As Theodore said, it is not a rubber band because there is still a lot of uncertainty around macro topics, and that is what we are seeing in both buying cycles and conversion cycles.

Operator: Thank you. Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.

Mark Marcon: Good afternoon, and thanks for taking my question. Following up on the last point, you mentioned the gross margins are down. It seems like, on the consulting side, financial services clearly had a deceleration and was a weak spot. But coming off these high bookings, aside from mix, is there any way to disaggregate the gross margin compression and EBIT margin compression that we saw on the commercial side between pure mix versus any change with regards to bill rates or how profitable the actual contracts were? Are you seeing any pricing pressure? And how do you expect that to flow as these clients become more deliberative as the year unfolds?

And then can you explain what is going on with the DSO, and how should we think about the free cash flow conversion relative to EBITDA over the course of this year?

Sadasivam Iyer: We are not seeing a material compression in pricing. The most important thing that drove the gross margins down was really timing. As some of our higher-margin pieces of the business did not ramp up at the same rate, the solutions mix that drives our consulting revenue was different than what we thought it would be. We have higher-margin solutions and lower-margin solutions, and when the mix gets off kilter on some of the higher-margin pieces, it drives margins down. But unit pricing on GlideFast, Workday, and similar practices is not changing, which is why we said we will see the recovery in margin gradually throughout the year.

It will not rubber band, but we are not seeing any deterioration in pricing.

Marie L. Perry: On DSO and free cash flow conversion, a good rule of thumb is 60% of our adjusted EBITDA converting to free cash flow for the full year. There is seasonality around free cash flow and DSO. Last year, 2025, our free cash flow was actually slightly lower than what we are reporting this quarter in Q1. We ended the full year 2025 at 68% conversion. It is not 60% every quarter; it gradually gets there for the full year.

Theodore S. Hanson: So the DSO is just a normal seasonal thing; we are not seeing any change in behavior with regards to how quickly clients are paying.

Marie L. Perry: Correct. No change in behavior and no increase in bad debt.

Mark Marcon: Okay. Great. Thank you.

Operator: We have reached the end of the question-and-answer session. I would like to turn the floor back over to CEO Theodore S. Hanson for closing remarks.

Theodore S. Hanson: Great. I want to thank everyone for being here with us today and for your questions, and we look forward to speaking to you next quarter at Everfor for our second quarter earnings release. Have a great evening.

Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.

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