IT services company ASGN (ASGN) reported on Thursday that its Q1 revenue fell across both its commercial business and the federal government sector as market conditions worsened.
The company’s total revenue for the quarter was $968.3 million, representing a 7.7% decrease year over year.
This beat the consensus analyst forecast of a 8.3% revenue decline. However, it was higher than the 7.1% decrease ASGN recorded in the same quarter last year.
The company does work with both commercial clients and the U.S. federal government, but saw both segments decline.
Commercial revenue came in at $672.2 million, a decline of 8.1% from the previous year’s quarter.
Revenue from government clients was $296.1 million, dropping 6.7% year over year.
Within its commercial segment, ASGN has clients in consumer and industrial, financial services, healthcare, business services, and technology, media and telecom.
Its revenues for consumer and industrial was up “mid-single digits,” while revenue in the other four vertices declined.
Its adjusted earnings came in at $0.48 per share, a sharp drop below the $0.81 per share it recorded in Q1 of 2024.
Analysts had expected earnings to come in at $0.95 per share.
“Although we began the year with a renewed sense of business optimism, this improvement in client confidence faded as the quarter progressed, with clients remaining cautious about increasing their IT spending,” ASGN CEO Ted Hanson said in a statement.
He added that the company’s “unique business model demonstrates resilience across economic cycles, primarily due to our business stabilizers that support our gross margin, along with our variable cost structure, which aids in safeguarding our operating leverage.”
Shares of ASGN fell 11.6% on Thursday. It is down 37.9% YTD.
Its gross margins for the quarter were 28.4%, an increase of 20 basis points from the previous year.
This was mainly due to its commercial work, where its gross margins came in at 32.4%, up 40 basis points year over year.
The gross margins for its federal government segment were 19.5%, a drop of 20 basis points year over year.
During the earnings call, Hanson attributed the company’s strong margins to the company’s commercial consulting work, which he noted has higher margins and contributes to margin expansion.
ASGN’s IT consulting work grew to 61% of the company’s revenue, up from 57% the previous year.
Hanson also addressed how Elon Musk’s Department of Government Efficiency (DOGE) efforts to slash the federal budget has impacted ASGN’s work with the federal government.
“The impact has been more on the Fed civilian side, particularly in traditional management consulting and program oversight work,” he said. “Our core technical work in AI, data, and cybersecurity remains steady.”
ASGN’s guidance for the second quarter includes a revenue outlook of $985 million on the low end and $1.15 billion on the high.
“Market conditions remain volatile, but we are confident that by nurturing our longstanding client relationships, expanding our technology partnerships, and enhancing our solutions capabilities organically and through strategic acquisitions, we will position ASGN favorably for the future,” Hanson said in a statement.
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