Everforth Inc: Form 10-Q for the period ended Sep 30, 2025

The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements are based upon current expectations, as well as management's beliefs and assumptions, and involve a high degree of risk and uncertainty. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Statements that include the words "believes," "anticipates," "plans," "expects," "intends," and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Our actual results could differ materially from those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to such differences include those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 10-K"). In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements in this document are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q and we assume no obligation to update any forward-looking statements or the reasons why our actual results may differ.

OVERVIEW

ASGN provides IT services and solutions 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 Fortune 1000 and large mid-market companies. The Federal Government Segment provides advanced IT solutions in data and AI, cybersecurity, and enterprise transformation to the following four customer types: (i) Defense and Intelligence, (ii) National Security, (iii) Federal Civilian, and (iv) other clients. Virtually all of the Company's revenues are generated in the United States.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 2024

Revenues

Revenues for the quarter were $1.0 billion, down 1.9 percent year-over-year. The table below shows our revenues by segment for the three months ended September 30, 2025 and 2024 (in millions).

Commercial Segment revenues (70.3 percent of total revenues) were down 1.0 percent year-over-year and are categorized in five industries: (i) Consumer and Industrial, (ii) Financial Services, (iii) Technology, Media, and Telecom ("TMT"), (iv) Healthcare, and (v) Business Services. Consumer and Industrial was up mid-teens, Healthcare was up high single digits, and the remaining three industries declined. Federal Government Segment revenues (29.7 percent of total revenues) were down 3.9 percent year-over-year. Federal Government Segment revenues are categorized into four customer types: (i) Defense and Intelligence, (ii) National Security, (iii) Civilian, and (iv) other clients. Federal Civilian and Defense and Intelligence both declined year-over-year, while National Security was up.

Total IT consulting revenues were $635.0 million (62.8 percent of total revenues), up 6.3 percent year-over-year. Commercial Segment consulting revenues were $334.9 million, up 17.5 percent year-over-year. Federal Government Segment revenues, which are all consulting revenues, were $300.1 million, down 3.9 percent year-over-year as stated above. Assignment revenues, which totaled $376.4 million (37.2 percent of total revenues), were down 13.2 percent year-over-year, reflecting continued softness in the portions of the Commercial Segment business that are more sensitive to changes in macroeconomic cycles.

Gross Profit and Gross Margin

The table below shows gross profit and gross margin by segment for the three months ended September 30, 2025 and 2024 (in millions).

Gross profit is comprised of revenues, less costs of services, which consist primarily of compensation for our contract professionals, other direct costs, and reimbursable out-of-pocket expenses.

Consolidated gross profit declined 1.2 percent year-over-year on a revenue decline of 1.9 percent. Gross margin for the third quarter of 2025 was 29.4 percent, an expansion of 30 basis points compared with the third quarter of 2024. Gross margin for the Commercial Segment was up 40 basis points, reflecting a higher mix of consulting revenues. Gross margin for the Federal Government Segment was down 40 basis points, due to the loss of certain higher margin contracts as a result of initiatives associated with the U.S. Department of Government Efficiency.

Selling, General, and Administrative Expenses

Selling, general, and administrative ("SG&A") expenses consist primarily of compensation expense for our field operations and corporate staff, information systems, rent, public company expenses, and other general and administrative expenses. SG&A expenses were $212.2 million, compared with $207.5 million in the third quarter of 2024. SG&A expenses in the third quarter of 2025 included $4.2 million in acquisition, integration, and strategic planning expenses.

Amortization of Intangible Assets

Amortization of intangible assets was $16.8 million, compared with $14.0 million in the third quarter of 2024. The increase relates to the effects of the TopBloc acquisition, partially offset by older intangibles that have reached the end of their useful lives.

Interest Expense, Net

Interest expense, net, which consists primarily of cash-based interest expense, amortization, adjustments to deferred loan costs, and interest income, was $17.4 million, up from $16.0 million in the third quarter of 2024. The increase was due to higher outstanding borrowings. The weighted-average outstanding borrowings and cash-based interest rates in the third quarter of 2025 and 2024 were $1.22 billion and 5.7 percent, and $1.05 billion and 6.0 percent, respectively.

Provision for Income Taxes

The provision for income taxes was $12.4 million, down from $15.4 million in the third quarter of 2024 due to lower income before income taxes. The effective tax rate was 24.6 percent, up from 24.5 percent in the third quarter of 2024.

Net Income

Net income was $38.1 million, down from $47.5 million in the third quarter of 2024.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2024

Revenues

Revenues for the first nine months of the year were $3.0 billion, down 3.7 percent year-over-year. The table below shows our revenues by segment for the nine months ended September 30, 2025 and 2024 (in millions).

Commercial Segment revenues (69.7 percent of total revenues) were down 3.9 percent year-over-year. Consumer and Industrial revenues were up low double digits, while the remaining four commercial industries declined year-over-year. Federal Government Segment revenues (30.3 percent of total revenues) were down 3.2 percent year-over-year. Federal Civilian and Defense and Intelligence revenues both declined, while National Security revenues were up.

Total IT consulting services revenues were $1.9 billion (62.0 percent of total revenues), up 4.3 percent year-over-year. Commercial Segment consulting revenues were $950.7 million, up 12.7 percent year-over-year. Federal Government Segment revenues, which are all consulting revenues, were $908.7 million, down 3.2 percent year-over-year as stated above. Assignment revenues, which totaled $1.1 billion (38.0 percent of total revenues), were down 14.4 percent year-over-year, reflecting continued softness in the portions of the Commercial Segment business that are more sensitive to changes in macroeconomic cycles.

Gross Profit and Gross Margin

The table below shows gross profit and gross margin by segment for the nine months ended September 30, 2025 and 2024 (in millions).

Consolidated gross profit declined 3.6 percent year-over-year on a revenue decline of 3.7 percent. Gross margin was 28.9 percent, an expansion of 10 basis points from the first nine months of 2024. Gross margin for the Commercial Segment was up 30 basis points, reflecting a higher mix of consulting revenues. Gross margin for the Federal Government Segment was down 60 basis points, primarily due to a higher volume of revenues from low-margin software licenses, the loss of certain higher margin contracts as a result of initiatives associated with the U.S. Department of Government Efficiency, and higher rates of fringe benefits.

Selling, General, and Administrative Expenses

SG&A expenses were $643.5 million, up from $623.3 million in the first nine months of 2024. SG&A expenses in the first nine months of 2025 included $15.8 million in acquisition, integration, and strategic planning expenses, inclusive of $5.2 million in charges related to strategic workforce optimization initiatives. Additionally, in 2025, there was a $4.4 million write-off charge related to previously capitalized costs for software enhancements that will no longer be placed into service.

Amortization of Intangible Assets

Amortization of intangible assets was $48.0 million, compared with $44.2 million in the first nine months of 2024. The increase relates to the effects of the TopBloc acquisition, partially offset by older intangibles that have reached the end of their useful lives.

Interest Expense, Net

Interest expense, net was $51.0 million, up from $49.4 million in the first nine months of 2024. Excluding $1.5 million of costs from the prior year period that related to the March 2024 amendment to the senior secured credit facility, the weighted-average outstanding borrowings and cash-based interest rates in the first nine months of 2025 and 2024 were $1.21 billion and 5.6 percent, and $1.05 billion and 6.1 percent, respectively.

Provision for Income Taxes

The provision for income taxes was $34.8 million, down from $48.0 million in the first nine months of 2024 due to lower income before income taxes. The effective tax rate was 28.3 percent, up from 26.5 percent in the first nine months of 2024. The increase in the effective tax rate relates to shortfalls on stock-based compensation.

Net Income

Net income was $88.3 million, down from $132.8 million in the first nine months of 2024.

Commercial Segment - Consulting Metrics

Commercial consulting bookings are the value of new contracts entered into during a specified period, including adjustments for the effects of changes in contract scope and contract terminations ("Bookings"). The underlying contracts are terminable by the client on short notice with little or no termination penalties. Measuring Bookings involves the use of estimates and judgments and there are no independent standards or requirements governing the calculation of bookings. Information regarding Bookings is not comparable to, nor should it be substituted for, an analysis of reported revenues. The book-to-bill ratio for our commercial consulting revenues is the ratio of Bookings to commercial consulting revenues for a specified period.

(Dollars in millions)

Federal Government Segment Metrics

Contract backlog for our Federal Government Segment represents the estimated amount of future revenues to be recognized under awarded contracts, including task orders and options, at a point in time ("Contract Backlog"). These estimates are subject to change and may be affected by the execution of new contracts, the extension or early termination of existing contracts, the non-renewal or completion of current contracts, and adjustments to estimates for previously included contracts. There is no assurance our contract backlog will result in future revenues. The timing of the execution of new contracts and other changes are affected by the funding cycles of the government and can vary from quarter to quarter. New contract awards are the estimated amount of future revenues to be recognized under contracts awarded during a specified period, including adjustments to estimates for contracts awarded in previous periods (“New Contract Awards”). Information regarding New Contract Awards is not comparable to, nor should it be substituted for, an analysis of reported revenues. Due to variability, New Contract Awards are presented on a trailing-twelve-months (“TTM”) basis. The book-to-bill ratio for our Federal Government Segment is the ratio of New Contract Awards to revenues for a specified period. Contract backlog coverage ratio is calculated as total Contract Backlog divided by TTM revenues.

(Dollars in millions)

(Dollars in millions)

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Liquidity and Capital Resources

Our working capital, which is current assets less current liabilities, at September 30, 2025, was $456.1 million, and our cash and cash equivalents were $126.5 million. Our cash flows from operating activities have been our primary source of liquidity and have been sufficient to meet our working capital and capital expenditure needs. At September 30, 2025, we had approximately $460.0 million available under the $500.0 million revolving credit facility. We believe that our cash and cash equivalents on hand, expected operating cash flows, and availability under our revolving credit facility will be sufficient to fulfill our obligations, working capital requirements, and capital expenditures for the next 12 months and beyond.

Net cash provided by operating activities was $225.6 million for the first nine months of 2025, compared with $299.8 million in the same period of 2024. Net cash provided by operating activities before changes in operating assets and liabilities was $217.9 million, compared with $245.0 million in the same period of 2024. Changes in operating assets and liabilities provided net cash of $7.7 million for the first nine months of 2025, compared with $54.8 million in the same period of 2024. This year-over-year change primarily related to an increase in accounts receivable days sales outstanding in the first nine months of 2025.

Net cash used in investing activities for the first nine months of 2025 was $337.3 million, comprised of $306.1 million used to acquire TopBloc and $31.2 million used for capital expenditures. Net cash used in investing activities for the first nine months of 2024 was $24.0 million and related to capital expenditures.

Net cash provided by financing activities was $31.8 million for the first nine months of 2025 and included net borrowings under the senior secured credit facility totaling $134.6 million, offset by $105.9 million used to repurchase the Company's common stock. Net cash used in financing activities in the first nine months of the prior year was $283.6 million and included $283.3 million used to repurchase the Company's common stock.

For details on the (i) senior secured credit facility, comprised of a revolving credit facility, term loan A, and term loan B, and (ii) unsecured senior notes, see Note 6. Long-Term Debt in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Commitments and Contingencies — There have been no material changes to our contractual cash obligations from those described in our 2024 10-K.

Recent Accounting Pronouncements

All ASUs that are applicable, and not yet adopted, are disclosed in the Company's Annual Report on Form 10-K and in Note 2. Accounting Standards Update in the notes to the condensed consolidated financial statements in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Critical Accounting Policies

There were no material changes to our critical accounting policies and estimates during the third quarter of 2025 compared with those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2024 10-K.

With respect to our quantitative and qualitative disclosures about interest rates risks, there have been no material changes to the information included in our 2024 10-K. Our exposure to interest rate risk is associated with our debt instruments. See Note 6. Long-Term Debt in Part I, Item 1 in this Quarterly Report on Form 10-Q for a further description of our debt instruments. A hypothetical 100 basis-point change in interest rates on variable-rate debt would have resulted in an interest expense fluctuation of approximately $6.3 million based on $628.4 million of debt outstanding for any 12-month period. We have not entered into any market risk sensitive instruments for trading purposes.

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. The term "disclosure controls and procedures" means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. "Disclosure controls and procedures" include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2025 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.