Q1 2024 ASGN Inc Earnings Call

Participants

Kimberly Esterkin; Vice President - Investor Relations; ASGN Inc

Theodore Hanson; Chief Executive Officer, Director; ASGN Inc

Marie Perry; Chief Financial Officer, Executive Vice President; ASGN Inc

Randolph Blazer; President; ASGN Inc

Trevor Romeo; Analyst; William Blair

Surinder Thind; Analyst; Jefferies LLC

Kevin McVeigh; Analyst; UBS

Heather Balsky; Analyst; BofA Securities

Tobey Sommer; Analyst; Truist Securities

Mark Marcon; Analyst; Robert W. Baird & Co

Presentation

Operator

Greetings. Welcome to the ASGN Incorporated first-quarter 2024 earnings call. (Operator Instructions) I will now turn the conference over to your host Kimberly Esterkin, Vice President of Investor Relations. You may begin.

Kimberly Esterkin

Good afternoon, thank you for joining us today for ASGN's first-quarter 2024 conference call. With me are Ted Hanson, Chief Executive Officer; Rand Blazer, President; and Marie Perry, Chief Financial Officer.
Before we get started, I would like to remind everyone that our commentary contains forward-looking statements. Although we believe these statements are reasonable, they are subject to risks and uncertainties and as such, our actual results could differ materially from those things. Certain of these risks and uncertainties are described in today's press release and in our SEC filings.
We do not assume any obligation to update statements made on this call. For your convenience, our prepared remarks and supplemental materials can be found in the Investor Relations section of our website at investors.asgn.com. Please also note that on this call, we will be referencing certain non-GAAP measures such as adjusted EBITDA, adjusted net income and free cash flow. These non-GAAP measures are intended to supplement the comparable GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in today's press release.
I will now turn the call over to Ted Hanson, Chief Executive Officer.

Theodore Hanson

Thank you, Kim, and thank you for joining ASGN's first-quarter 2024 earnings call. ASGN achieved solid results for the first quarter. Revenues of $1.05 billion and adjusted EBITDA of $108.3 million were both near the top end of our guidance ranges. When we spoke last quarter, we expected our commercial segment would see revenue trends in Q1, comparable to that of Q4. While our Federal Government segment, we continue to achieve year-over-year top line growth as evident from our segment results, which I'll review in detail shortly.
Market conditions were as we predicted, our commercial clients continue to be cautious and acutely focused on where and when they will spend. Importantly, despite IT budgets being slow to be executed, our clients continue to leverage our high end consulting capabilities. So our commercial consulting revenues increased both year-over-year and sequentially.
On the government side of our business, revenues improved year over year and visibility began to build towards the end of the quarter with the passage of the appropriations bill in late March. While our release and federal spend will not happen automatically, the approval of the budget is a step in the right direction, seeking a moving in the right direction.
We continue to proactively shape and evolve our operations to position our business for continued growth. Our industry diverse large account portfolio not only serves us well in good times, but also in more difficult macro conditions. Our federal government services provide countercyclical support to balance out our five diverse commercial industry verticals.
We are also focusing on the right type of services that have higher value, higher margin, IT consulting, where projects and visibility are longer and client relationships are stickier, providing our business with enhanced stability across market cycles.
A highlight of our quarterly results, IT consulting revenues comprised approximately 57% of Q1 2024 revenues as compared to roughly 50% in the prior year period. In addition, adjusted EBITDA benefits from higher commercial consulting margin. ASGN has made great strides in growing our IT consulting business. It was a vast addressable market. There are many more opportunities for further growth.
This growth will be driven in part by continuing to develop and foster the right customer relationships with the Fortune 1,000 and government clients. Our long-standing trusted client relationships are what drove our progression into IT consulting. And these clients will continue to pull us up the IT services pyramid.
Importantly, as we await increased spending, we are making the right investments in our people, training and upskilling our teams in the latest technological development, including key areas such as cyber security, data analytics, cloud and AI. All with our customers need to mine technology is shifting at a rapid pace, and it is essential that we stay ahead of this change to remain competitive.
We are also executing on the right strategic decisions when it comes to our capital allocation flow. Marie will discuss our recent term loan B refinancing shortly. I am pleased to announce that just this week, our Board of Directors approved a new two year $750 million share repurchase authorization. This authorization is the largest in ASGN's history and history, reflecting our commitment to deliver value to our stockholders by using our solid free cash flow to buy back shares while at the same time, ensuring that we remain ready to execute on the right strategic acquisition.
With that as a background, let's turn to our segment performance, beginning with our largest segment by revenue, commercial. Our commercial segment services, large mid-market accounts and Fortune 1,000 companies. Commercial segment revenues for the quarter declined by low double digits year over year.
Revenues for this segment benefited from the growth in our consulting business, offset by continued softness in the more cyclical areas of our assignment business commercial consulting revenues increased 2% for the quarter compared to the year-ago period, and we were also up 3.2% sequentially. Commercial consulting bookings of approximately $323.2 million translated to a book-to-bill of 1.2 times on a trailing 12 month basis.
Bookings were again weighted towards renewals in the first quarter. That said even as IT budgets continue to be prioritized and managed our customers are actively spending in the areas of cyber security, cloud and data analytics. Investments in cloud and data infrastructure are often considered a precursor to investments to AI space and we are actively working with our clients to solidify their a foundation.
Turning to our vertical performance, all five commercial industry verticals declined year over year. That said, we saw year-over-year growth in three sub verticals, including utilities, health care providers and telecom. On a sequential basis to verticals, PMT's business and government services appear to be stabilizing on a same billable day adjusted basis.
We also saw sequential growth in several sub-verticals on a same billable day adjusted basis, including regional bank's telecom media healthcare, payers, energy, consumer, Staples and aerospace and defense scale. While it's encouraging to see the sequential improvements, we have not yet seen an inflection point in IT spending. Nevertheless, our commercial consulting bookings remain solid and during the first quarter, RTH. one work across multiple service areas.
Cyber security continues to be an area of growth for our Commercial segment and as discussed last quarter, collaboration with our federal government segment on cyber security services has only added to this strength. During the quarter, we won a contract delivering technical remediation and advisory services to a Fortune 500 insurance clients.
Our comprehensive governance risk and compliance solutions helped our client mature their security operations and become an improved governance and oversight focused organization beyond cyber security. Our product and application services are resonating with clients. They're looking for opportunities to scale and become more efficient.
One-way leads delivered efficiency to clients as we are world-class nearshore delivery center in Mexico. In the first quarter, a global leader in medical transportation approached our commercial team following difficulties they were having with their current offshore provider, our Mexican delivery center stepped in to offer a team of experts from developers to testers to have extensive experience working together in a much more convenient time zone for our clients.
Our near-shore consultants are not only impressing our client base, but they are also enjoying the projects they're performing and their work environment. In fact, I'm very pleased to report that earlier this month, our commercial segment brand Apex Systems was recognized as one of the best places to work for women in Mexico for the second year in a row, providing an inclusive multicultural environment is core to ASGN's police systems and corporate policies.
And this award is a testament to our continued commitment to career development for all along the lines of career development, our growing data and AI practice is being supported by internal investments in talent, technology, partnerships, intellectual property and training. We are proactively training our workforce in the US and Mexico in the latest gen AI technology, one of the world's largest telecommunications providers, for example, are AI skillset enabled us to win a 12 month consulting engagement supporting gen AI application development program.
We are providing our client with scalable access to talent, technical leadership and large language model training. In another instance, for an oil and gas company that ranks amongst the top 10 of the Fortune 500. We're leading an implementation of the Databricks community catalog, a cloud-based platform that offers a unified governance layer for enterprise data and AI. Our client has over 100 Databricks workspaces for deployments in the cloud.
And our project team is tasked with helping our clients develop a governance structure related around the honest stability security posture and cost allocation of these workspace. Our team of consultants is currently collaborating with Databricks and our clients' internal IT team to build automation to onboard these data breaks workspaces with ease and repeatability. Our pipeline of data and AI work continues to grow, and we look forward to supporting our clients as they focus on data preparation, developing use cases and ultimately implementing their own AI platforms.
Now let's turn to our Federal Government segment, which provides mission-critical solutions to the Department of Defense, the intelligence community and federal civilian agencies. Federal segment revenues for the first quarter were up solidly year over year. Contract backlog was $2.9 billion at the end of the first quarter or a coverage ratio of 2.2 times the segment's trailing 12 month revenues.
New contract awards were approximately $197.3 million, translating to a book-to-bill of 0.9 times on a trailing 12-month basis with the recent passage of the federal budget awards previously deferred by the continuing resolution are beginning to work their way through the procurement system. We have been in pursuit of new awards throughout the budgeting process and now have that with the recent appropriations bill, our proposals submitted and awaiting award will begin to convert at a higher velocity.
The recently passed federal budget allocates funds to several key service areas in which our government teams have established a leadership presence, one of which is the area of cyber security in the first quarter of federal government segment was $120 million 5-year recompete cyber security contract with the Department of Health and Human Services.
Under this contract, our team will provide comprehensive advanced managed cybersecurity services, threat intelligence, analytics and data forensics to the Centers for Medicare & Medicaid Services and their health care marketplace. The newly approved federal budget also allocates increased funds toward responsible AI applications.
In addition to our growing AI presence on the commercial side of our business, our federal government segment remains recognizes one US government, the leading AI contractors in both mission and enterprise IT. During the first quarter, our national security and intelligence business received additional funding to support the DoD in developing, deploying and integrating its next-gen AI capabilities.
We also won a new contract to support AI enabled open-source intelligence solutions for which our team will provide extensive training and program support. We continue to win contracts focused on digital transformation and emerging technology services leveraging more than two decades of experience as the leading Microsoft solutions partner in reserve.
During the first quarter, we expanded our contract ceiling with the IRS to provide digital transformation services, IT operations, application management and engineering services. We also broadened our work with the Army's program, executive office for simulation, training and instrumentation. For this particular Army office we provide full project lifecycle services, ranging from project management, modeling and simulation to emerging technology integration and logistics support.
With that, I will turn the call over to Marie to discuss the first quarter results and our second quarter 2024 guidance.

Marie Perry

Thanks, Ted. It's great to speak with everyone this afternoon. First quarter revenues of $1.05 billion were near the top end of our guidance range and reflects growth in our commercial consulting and federal government business.
Revenues from the commercial segment were $731.5 million, down 12.1% compared to the prior year. Revenues from commercial consulting, the largest of our high-margin revenue streams totaled $277 million, up 2% year over year and up 3.2% sequentially. Revenues from our Federal Government segment were $317.5 million, up 7% year over year.
Turning to margins, gross margin for the first quarter of 2024 was 28.2%, down 70 basis points from the first quarter of last year due to a higher mix of revenues from our Federal Government segment, which had a lower gross margin than commercial segment revenues. Gross margin for the commercial segment was 32%, up 50 basis points year over year due to growth in our commercial consulting revenues.
Gross margin for the federal government segment was 19.7%, down 190 basis points year over year, primarily due to contract mix as well as the higher volume of firm fixed price projects that were ramping up in the prior year, creating a difficult comp. SGA expense for the quarter was $210.2 million or 20% of revenues compared to 224.1 million or 19.9% of revenues in the prior year.
SG&A expense also included $1.2 million in acquisition integration and strategic planning expenses that were not included in our guidance estimates. As expected interest expense increased year over year related to rising interest rates and our refinancing this past August. Going forward, however, we will see a reduction in our interest expense.
In mid-March we successfully refinanced our Term Loan B, this refinancing closed on March 13 and was the first high yield repricing of the year to price it SOFR plus 175 basis points. At 50 basis points reduction from our prior rate spread. As a result of this repricing for the full year of 2024, we anticipate cash interest savings of $1.1 million net of transaction fees followed by cash interest savings of approximately $2.5 million per year thereafter.
For the quarter, net income with $38.1 million. Adjusted EBITDA was $108.3 million and adjusted EBITDA margin was 10.3%. Our adjusted EBITDA margin reflects the payroll tax reset, which occurs at the beginning of every calendar year and have an approximate 100 basis point downward impact as we move from the fourth to the first quarter. At quarter end, cash and cash equivalents were $158.4 million, and we had full availability under our $500 million senior secured revolver. And our net leverage ratio was 1.77 times.
Turning to our cash flow statement, free cash flow for the quarter was $62.5 million. We deployed $79.7 million in cash to repurchase approximately 800,000 shares at an average price of $96.63 per share. Also, as Ted noted earlier this week, our Board of Directors approved a new two year $750 million share repurchase plan replacing and upsizing the prior $500 million authorization.
We believe this increase in the size of our share repurchase program indicates our confidence in our continued ability to generate free cash flow with solid free cash flow generation and full availability under our revolver. We have ample dry powder to make strategic acquisitions when the M&A market improves. In the meantime, we expect to continue to repurchase a GM shares given their attractive valuation.
Turning to guidance, our financial estimates for the second quarter of 2024 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions. Our estimate assumes 63.5 Billable Days in the second quarter, which is 0.25 Billable Days more than a year ago period and 0.75 Billable Days more than Q1 of 2024.
We expect market conditions and demand for IT services in the second quarter to be similar to that of the first. In the commercial segment, we anticipate revenues will remain steady to Q1, while the Federal Government segment revenues will be relatively consistent year over year. With this background, we are estimating revenues of $1.035 billion to $1.055 billion for the second quarter, we are estimating net income of $44.7 million to $48.3 million and adjusted EBITDA of $114 million to $119 million and adjusted EBITDA margin of 11% to 11.3%.
Thank you. I'll now turn the call back to Ted for some closing remarks.

Theodore Hanson

Thanks Marie. As is clear from today's discussion, our clients remain cautious with their IT spend as they look for more certainty in their business performance against a challenging macro backdrop. Nevertheless, we continue to proactively shape our operating model to be resilient in the current market as well as be ready for when IT spend accelerate to ensure service offerings and capabilities match the evolving needs of our clients in our industries. It's essential that we maintain a solid foundation of client support.
With that in mind, I'm grateful to our entire team for your hard work and commitment over the past quarter, your efforts to deeply appreciated. I'm honored to be part of such a talented and client-focused team sourcing exceptional IT talent on a just-in-time basis is one of the many ways in which ACM differentiates itself in IT marketplace.
Our differentiated recruiting model that relies on contingent labor onshore and nearshore provides a scalable, flexible solution that sets a SG. and apart from traditional consulting companies that rely on a permanent bench, leveraging a contingent labor force enables us to tailor our offerings and provide our clients across six diverse industry verticals, but the exact skill sets, pricing and industry-based talent they need, whether for short term data review project or a longer-term platform integration, a pivotal aspect of our model is that our contingent labor force flexes with revenue acting as a stabilizer for gross margin if and when revenues soften.
This, along with our variable SG&A cost structure allows us to deliver solid margins and cash flow as is evident from our go to market strategy. I just described ASGN has the right building blocks in place. That said, Tesma re-discuss. We do not anticipate the seasonal uptick we have historically seen in our revenues in the second quarter due in large part to the lack of ramp in IT spend and budget releases that we typically see during the first quarter.
Nevertheless, our IT consulting pipeline is growing. Bookings remain solid and the projects we are winning are longer duration and more consultative. We have weathered many economic cycles throughout our Company's history, and I am confident that with IT spend begins to accelerate, our teams will be at the forefront to lead our clients to their next phases of technological innovation, productivity and growth.
Thank you again for joining our first quarter 2024 call. Operator, please open the call for questions.

Question and Answer Session

Operator

At this time, we'll be conducting a question-and-answer session. (Operator Instructions)
Trevor Romeo, William Blair.

Trevor Romeo

Good afternoon and thanks so much for taking the questions. First one, I was kind of just wondering if you could maybe speak to demand trends throughout the quarter. I guess it seemed like last quarter, the message was maybe a good degree of stability. I think as you said, you typically see a revenue uptick in Q2, but doesn't sound like that's likely at this point. So we're just kind of wondering if you could comment on how demand and client conversations have evolved the past few months and how that informs your outlook going forward?

Theodore Hanson

Yeah, Trevor, thanks for the question. In commercial, I would say it just remains steady. You know, we've kind of a year from the third quarter into the fourth and now the fourth into the first, you know, adjusted for billing days and seasonality, I've just really seen it, but I'll say just a steady trend, no real change in client tone or conversations.
I'm going to end here in the first three weeks of the second quarter, more than said. So it's a little out of the norm, if you will, there is typically some seasonality here where when you move out of the first into the second, your volumes are ramping up. But we don't see that right now we just see a steadiness.
On the federal side, we have a really solid growth quarter in the first quarter. I think that where hopefully, here now going to see our procurement officials begin to take an action on some of these things that we have is submitted awaiting awards. And so while bookings were a little muted in the first quarter, we're hoping the pace of that will pick up here in the second and into the third.

Trevor Romeo

Okay. Thank you. That's helpful. And then just one on a demand was just wondering for some of the foundational cloud data work even starting for clients, kind of trying to prep for a I have those projects evolved or changed in any way as they move demand, I guess, have any of your clients moved closer toward the use case stage. They're just trying to get a sense of how and that demand trend could continue to drive new business for ASGN through the next several quarters?

Theodore Hanson

Yeah, Randy, you want to take that one?.

Randolph Blazer

Yeah, start and Trevor, I like the way you worded the question because you have it exactly right. First of all, a lot of work going on in the cloud structures and the data side of the business that continues. Those are among our highest solutions in terms of consulting and even staffing that we place of the use case side of it is in discussion mode contemplation, if you will, but not yet, I think taking off and I think that's just a question of them setting their governance policies.
They're setting their data sets appropriately. They must have they do have a mind of use cases and eventually because they're prepping the data in a way that would support that. So I think there's progress, but it's slow and I'd say slow and steady, but not nothing robust. We definitely, I think, had more AI engagements in the first quarter one. And there was one of those engagements featured in Ted's script. They read to short while ago and one of our telecommunications clients. So that was a nice thing to see but it's not of the scale that it would certainly at reach any of the work we're doing in cloud data, cybersecurity, those areas.

Trevor Romeo

Okay. Thank you very much.

Operator

Thank you.
Surinder Thind, Jefferies.

Surinder Thind

Thank you, Tom, for the first question, can you maybe provide some color around the commercial consulting revenue growth that was quarter over quarter, where there are a few large projects that that kind of that you that you started in the quarter because it looks like in the subsequent quarter that things are going to be relatively stable. So just trying to understand the trends within the commercial consulting segment? Thanks

Theodore Hanson

Well, look, surrender, if you go back, I think you're seeing consistent bookings right in that unit. And while we're booking at 1.2, which was which would lead you to some growth rate, we're also seeing a longer duration of those projects have there's a slower burn of those bookings. We also mentioned that it's more heavily weighted to renewals than it is to on to new work. And so I think clients continue on with mission critical things that they were working on it. And that's why we see extension to this work. But I think back to the original part of your question. Was there any one big thing or two big things that got started here that were difference-maker now.

Surinder Thind

Got it. And then I guess on maybe some additional color on the subsegments within the commercial, the contingent labor part of the business, maybe specifically like the assignment business versus Creative Circle and perm placement?

Theodore Hanson

And specifically, how are they doing beyond the assignment revenue growth number we gave you or would you have it would be --

Surinder Thind

beyond the top line number in terms of just trying to understand trends on if there's things that maybe you have started to maybe stabilize relative to last quarter. Just any additional color that you can provide that can help us understand where we are in the cycle?

Theodore Hanson

Yeah, I would I would say that they're stabilizing, you know, from quarter to quarter here. I don't think that's totally new, but I think it continues to season the, um, if you look at the forward metrics for the business. They're not telling you there's some inflection year for a slope up, but performance week-to-week, month-to-month and units throughout the first quarter and into the first piece of the second. It just tells you that that assignment part of the business is steady as well.

Surinder Thind

Thank you.

Operator

Thank you.
Jeff Silber, BMO Capital Markets.

Hi, thanks a lot of it. Just Ryan on for Jeff. Was curious as we move throughout the year aside from just the automatic stabilizers, what levers do you have to pull in terms of the margin defense? And how does that really relate with the negative mix element of the federal government strengthened coming quarters?

Theodore Hanson

Well, good question. I think on the last piece of that, you're going to continue as long as we're growing in federal and not growing that business in commercial, you're going to see the effective business mix play out. And if you think about levers, the first part of your question that we have to pull look and make our business model is mostly a variable cost model.
So more than 80% of our SG&A is in compensation, incentives, commissions, bonuses, those type of things. So not only are we not dealing with the big bench on the gross margin side and as revenues move, the cost of goods, their cost of sales is moving and resetting itself. We're also seeing lower incentives and natural attrition.
And those will continue to be the levers you know that play out a year. If we see something different for now, things are kind of stable. So I would say we're letting attrition work where backfilling it in certain areas where we see demand other other areas that don't have demand, we may not be replacing all of those those resources and it just continues to be a week-to-week thing that we monitor.

Got it. Thank you. And just to follow up on, it seems like some of the larger for IT service providers has started to see a leg down and a little bit more weakness over the last couple of months. It seems like your consulting business is relatively stable. Is there anything you'd like to call out on kind of that divergence there between the two?

Randolph Blazer

Well, look on the, you know, as it relates to our offering versus theirs. Um, you know, we are I think you've heard me say many times before a real productive way for clients to continue to get really critical projects and initiatives done to keep their spend, you know, at a lower rate than maybe some of the big traditional consulting firms.
So I think you're seeing that play out here now I will tell you I think all the there's a lead lag here. While the assignment business was the first and the fastest to fall and during the quarters and '23 until it found some stability in the latter part of '23. You've seen the consulting trap that not just for us, but for the peer group as well ethic, that's natural. We would have told we would say we did say and to expect that.
So I'll go back and just say we have a we have a very capable high end solution for the client in these areas that are most critical and important to them. We come at a very productive price point in order to get these things done. And so they're pulling our lever. If you will in order to stay with it. But I think that's what you can see playing out in the numbers.

Theodore Hanson

Hey, Ted is worth mentioning also, Ryan, that we're not over are weighted in any one industry. So sometimes the consulting businesses are heavily weighted in one or two industries. We're pretty much spread across the six industries we talked to you about and that helps us as well. There are certain industries are still line up and spending in the IT area. And while we're affected by that as well, some of the others, they may be more weighted in those industries so.

Understood. Thank you very much.

Operator

Thank you.
Kevin McVeigh, UBS.

Kevin McVeigh

Great. Thanks so much and congratulations on the buyback. I wondered, could you give us a sense I know it's over two years, any sense of the sequencing on the buyback? And if I had to come materially, it sounds like maybe the M&A market isn't as appealing as you thought. Any thoughts around that? I guess just again, the sequencing of the buyback? And then is it I think it replaced $750 million. Should can you help us just rather replace the $500 million so what was the net step-up so I guess what was it in the $750 million it is today. So I guess there's a couple of questions in there.

Randolph Blazer

Hi Ted, you may be on mute?

Marie Perry

(multiple speakers) Yes, my apologies to my phone that it all of a clip and so on I mean, to your point, the original authorization was $500 million and we are replacing that with the $750 million. It sounds for a two year period.

Surinder Thind

But what was your Was your question really, Mark,

Theodore Hanson

we had Internet down at about [177 million]. And so this that occupancy replaces site replaced about (inaudible)

Marie Perry

And our intention is always to have at least a year, if not more of authorization on the books. And so typically you would see us at this time, increase it up to your point, we actually did increase it higher than what we typically would do.

Kevin McVeigh

That's helpful. And then just in terms of the lack of normal seasonal uptick. Is that did you expect that going into the year or is that something new? And is that the macro or is that a function of anything that kind of drove that.

Theodore Hanson

you're seeing the uptick uptake, Kevin, and what?

Kevin McVeigh

(inaudible) you said that if I heard you right that, you know, normally you'd see some seasonal uptick into Q2 and so that hasn't surfaced yet. Is that the macro? Or is there anything else driving that right now?

Theodore Hanson

No, I think it's a macro, Kevin. I mean, look, you know this when we come across the holidays, you kind of reset as naturally as projects end and things get restarted. You start out in the first couple of weeks of January the lower level of volumes that maybe you finish that before the holidays in December, any spend January kind of recouping that volume through the end of the quarter and by the time you get to the second quarter, you're kind of moving on to have surpassed where you were and grow higher.
But I think what you're seeing here is just the steadiness and not that normal seasonal trend because the clients not back to any acceleration in IT spending, I mean, might might have taken brands that they have budgets to spend, but they're holding them very tight and close on their training, trying to gain confidence and their own business performance and where interest rates are headed and what does that mean for their business and the outlook here as we go.
So this is all macro issue. Certainly the underpinnings for spending more on IT, are there everybody set to start line ready to go and I think we're just a little bit of a waiting game here as we watch these things with a macro player.

Kevin McVeigh

That's very helpful. And just one more, if I could in the sense of can you dimensionalize how much of the work's been gen AI related, whether it's through bookings or what percentage of the revenue? I know it's still relatively early, but just any way to think about how much it is scoreboards in gen AI very little?

Theodore Hanson

You know, I think where you see conversation activity. We see some bookings of small projects to get started and conversations or look at data or think about where does that need to be in the cloud, those kind of things. But the while there's some kind of a lot of conversation going on around that stuff, Kevin, there's no real material spend or we have bookings around that. It's growing very fast, but it's a very small number.
And I think that the real push on that is yet to come, which is a good thing that made us think that this is not this is not a false promise. This is just, you know, everybody getting kind of teed up and ready to go.

Kevin McVeigh

Super helpful. Thank you.

Operator

Thank you.
Heather Balsky, Bank of America.

Heather Balsky

Hi. Thank you very much. I'm just curious as to especially on the back of the question about buybacks. As you kind of think of uses cash use of cash in the near term? And also for the midterm, how are you thinking about your M&A strategy, especially given that you have some of the challenges in the environment that are still out there, what does your pipeline look like? And where would you want to kind of fill in your portfolio?

Theodore Hanson

Yes. Well, look out there. I mean, we still believe M&A is the highest and best return on capital when we deploy it the way we do some strategic tuck-ins that bring capabilities into our business that are very important to our clients that we can pull across this account portfolio is really the name of the game. There are certain areas where we can organically build capability and we're doing that there are other places where we're better off on making an acquisition.
Our acquisition of glide fast in the ServiceNow area to become a premier North American partner is a great example of that. And, you know, I think when we go when we go through that exercise, we have a lot of confidence by the time we get to the decision point because we have really good insights into what our clients are thinking about what's in their pipeline in terms of work to get done. And so we can, if you will work backwards from that.
And we measure and know that we have certain opportunities that we could immediately begin to sell. So that is the premise that remains the premise and it will remain important as we go forward. I think we're in a moment here where especially in the commercial market where you're just not seeing many, if any real quality assets come to market and it's for all kinds of reasons.
You know, there's a there's a pause here in IT spending to a large degree. I think you know these these companies are able to hang on here for a little while longer. They're not willing to reset their expectations down in terms of valuation with maybe where market valuations are. It's not just one thing it's a combination of all those things, if you will.
So in the meantime, as Marie mentioned, you know, resetting our share repurchase authorization and we sized it like we normally do we looked at two years, it's about two years worth of free cash flow. And you know right now are in our head is to while there's not any meaningful M&A opportunities to continue to dedicate quarterly free cash flow to repurchases because this is a very attractive valuation point and so on more of the same, if you will, from where we've been in the last few quarters.

Heather Balsky

Thank you. That's really helpful. Thank you very much.

Operator

Thank you.
Tobey Sommer, Truist Securities.

Tobey Sommer

If you look at the forecasting the business, for example, you're guiding to or I suppose is it easier or harder than it was three or six months ago? And maybe could you comment across the business segments in that regard?

Theodore Hanson

Well, look, Tobey, I guess I wouldn't say it's any more difficult. I'm kind of looking around the room here than it was three or six months ago. If you go back years ago, several years ago when we didn't have as large a footprint in consulting, I would say it was a little more difficult to forecast because on the IT staffing side of the business, that kind of comps in shorter increments volumes who kind of quickly move up and down on you, but in consulting when you win a booking in commercial and you're going to work it over the next 12 to 18 months.
You have really good certainty in that. And in federal, you have really good certainty when you win things that you're going to be working at for the next five years. So I think over the long haul forecasting and the business has improved. We've gotten better visibility and transparency. We have more confidence in the bookings that in our backlog.
And so that's played itself out. I would say the last two or three quarters, has there been too much change? I mean, we've gotten a little more in one area than we had expected or a little less in commercial and federal is played out about like we thought and really the only variable there. Sometimes we get a few million more in maybe licenses that are part of our solution that we expected one quarter and it came in another. But that's that's just incremental stuff around the edges, if you will, on mix.

Tobey Sommer

And especially with respect to the commercial I can control from what is the mix full-time versus flexible labor stand today and how does that compare to choose one or two you referenced comes from the past and maybe let us know where you sit today, there's not one of the strategies of the company. We are more heavily on flexible delivery.

Theodore Hanson

Yeah so we've pretty consistently seen, as said, that of the projects that we're working within our commercial consulting business, about 80% to 85% of it is contingent IT labor from our IT staffing capabilities and about 15 to 20 of that in one time is subject matter expertise with industry experience that we have in house plus our near-shore delivery center in Guadalajara, Mexico.

Kevin McVeigh

And I wanted to follow up on the capital allocation question, share repurchase is just counter this lethargic I T Spending environment doesn't last too much longer, meaning more than four, five quarters more in terms of how do you go through the analysis of candidates and husbanding a little cash to have more dry powder to make acquisitions of consequence when the market is more fertile and I guess that part of the job you announced share repurchase is not a commitment to repurchase that stock and you could kind of slow it down if the environment improves and we see those opportunities. Can you speak about a little?

Theodore Hanson

Yeah I think that last part routine, Tobey. I mean, we've got when we see the pipeline fill with M&A opportunities to evaluate. We've got plenty of time to toggle what we're doing on a share repurchase standpoint. And also, if you've noticed, we've although we desire to spend a quarter of free cash flow, except in the last quarter, we've had a hard time kind of getting there, if you will, just because we're purchasing in a very programmatic way.
So we've been building some cash on the balance sheet. The last piece here is we've got plenty of room for leverage in order to bulk up and do a what I'll say a much more sizable acquisition, but we've got great support from our banking partners.
And I think if you look at our net leverage, which is now about 177, and we have many times in the past, levered up to about 3.8 times total debt to EBITDA in order to get an acquisition done. And so that leaves you with about two turns of beyond and beyond where we are now. And that's really without even counting their EBITDA that they might contribute.
So I think we've got the firepower here to do anything that we feel we need to do and we would like to do acquisitions that still fits the same pattern that we've been doing in terms of capabilities that we can pull across our current account portfolio. But if it were a little bit larger scale, that would be a good thing.

Kevin McVeigh

Thank you very much, Ted.

Operator

Thank you.
Mark Marcon, Baird.

Mark Marcon

Good afternoon and thanks for taking my questions. So Ted and Rand, I'm kind of curious when when you talk to your tier clients and we're hearing the same consistent message, you know, across the space about the budgets are there, but they're still waiting. It probably varies by client and by specific elements.
But are you are you getting a sense for exactly what they're waiting for? Is it something that's specific to their company? And I'm just feeling like a level of confidence that they're going to make their budget forecasts. Is it something from a macro perspective in terms of interest rates? Is there a concern that and we haven't had a recession yet, but we've got an inverted yield curve. So perhaps that could occur. I'm just wondering what the what the trigger would be that would lead to some improvement with regards to the confidence to spend?

Theodore Hanson

Rand, you had tried that one and I'll just --

Randolph Blazer

Let me start first of all, very senior clients. We typically avoid the conversation because they're not going to say anything anyway. But when you get down in the trenches to the technical managers who are assigned responsibility for these projects, we do hear a lot of our clients saying we're going to open up and they'll play out a date the in the third quarter or at the end of the year or where this is important, we're going to move on this, but we're going to chunk it up a little bit and kind of go slow, which we've said in the past.
So at the technical manager and the execution level, there is a sense of in that population that there is a day coming when they're going to have more latitude. But it's you know, there's no reason given for why that is. I mean, look, we know what we have booked. We know what the projects that are in play or how they're playing out if you will, even if they're stretching out or slowing down, we do know what their IT initiatives are that they want to get done, that they have stacked up in their budget once money gets released and this is federal or commercial, okay.
What we don't know is that the commercial, the federal procurement officials are very slow, getting money out, not sure why is that something coming from high on administration that coming because of continuing resolution? Is it becoming coming because they're worried about having to save or reposition money for a to foreign foreign countries, you know, I don't know on the commercial side, you can go through the same thing, what that buyer behavior that trigger. I don't know what comes down, but we do get a sense that they're coming.
Okay, it's coming. Ted you anything you want to add to that?

Theodore Hanson

Yes, just as one of those people who's watching this and moderating our own IT spend more, I would say all three matter, right. I mean, I think as we we have a ambition to invest harder in our own IT, we're certainly going after the most critical things, but we're worried about where the economy may be going for all the reasons that you just said, we're worried about our own bottom line and that we do a good job of finding a balance here in terms of continuing to invest versus performing at a level we would expect to on the bottom line and so I think all three of the things that you said, matter.

Mark Marcon

I appreciate the color. And then one thing that was really interesting was the discussion around the data fixed project that you had for a large oil and gas company. Can you talk a little bit about like what sort of premium pricing you're able to get? How attractive are those we're obviously hearing a lot about those sorts of things starting up. I'm wondering how big that could that sort of practice could end up becoming?

Theodore Hanson

Rand, you wanted to talk about our data practice (multiple speakers)

Randolph Blazer

Yes, Mark, I think look, if you look at our things we've talked about over the past year, we've made a hefty play with ServiceNow with Databricks, Databricks technology, Snowflake, certainly the cloud providers, both Microsoft and Amazon and Google. So it's Tom and sales force. So we're watching those technologies. They seem to be the highest technologies we want to be in position to support them in certain industries where money is flowing or maybe it's by necessity like health care, we reported that our health care business is doing fine quarter after quarter after quarter. Well, some of that is they need the technology.
These are technologies that play in their world. And part of it is because the baby boomers are aging great and putting a greater demand on our healthcare system. So I mean, you can see you can see certain things unfolding. It's interesting that we see telecommunications and we know what they're going through between the cable side and streaming services and how they're positioning for greater volume.
There's work there. There's work in which the streaming services have to be in a position to pick up at huge volumes with certain pricing. And Ted and I have even commented that technology and telecommunications sort of led us into this into this problem over a year ago and now they seem to be coming out of it a little bit. And we've mentioned them featured them in our and our in our tech.
So banks, different question is different story. So Mark, I guess I'm just trying to give you some sense of what we're watching, same as everybody else and and these technologies we know are critical and critically important to the whole data structure and to the mapping of data to potential use cases in AI which is the game. That's the game right now.

Mark Marcon

Great. And then you did mention earlier in the discussion that consulting kind of follows some of the trends that you see on the on the assignment side, you know, obviously assignment is still tough. You wouldn't expect consulting to I mean, given the momentum that you have there, the way that you're reconfiguring things, your relationships, you wouldn't anticipate that and consulting would actually end up declining at some point this year. Would you?

Theodore Hanson

Well, look, Mark port growing given that low single digits unit, could that vary in a quarter? You know to flat or slightly negative. I wouldn't promise that it couldn't. But our bookings trend does not tell us that I it's going to really have significant year-over-year declines.
And so I think you have to rely on that both of them. We do rely on that bookings number because that gives us really good visibility into that work. That's going to be completed over the next 12 to 18 months. Could a client could something happen in the world where where they really kind of don't just slow it down, but they really slow it down and then ramp it back up for sure. But there's no indication of that right now.

Mark Marcon

Great. And I just wanted to check nobody misinterpreted.

Randolph Blazer

Hey, Ted, in what end market is it worth mentioning? Ted has said many times in the past year year. First to go is perm placement. The second ago are discretionary spend around things that creative HR that sort of thing. The next to go would be IT staffing. The last thing to go would be IT consulting will if you think about what's going to happen as we start seeing the world come out of it, you're probably going to see the reverse of that.
You'll start seeing IT consulting going up, then I'll work and creative staffing than ultimately to the discretionary areas and to some perm placement. I mean, if you believe that's the way it unfolds going down and presumably reverses that when we're going back. So that's another evidence besides bookings you had mentioned that gives us confidence in the consulting side.

Mark Marcon

That's great. Thank you.

Operator

Thank you and we have reached the end of the question-and-answer session. I'll now turn the call back over to Ted Hanson for closing remarks.

Theodore Hanson

Great well, want to thank everyone for being here this evening for our quarter one earnings release and conversation and we look forward to speaking with you soon about quarter two. Have a great evening.

Operator

And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.