Q4 2023 ASGN Inc Earnings Call

Participants

Kimberly Esterkin; Vice President - Investor Relations; ASGN Inc

Ted Hanson; CEO; ASGN Inc

Marie Perry; EVP & CFO; ASGN Inc

Ran Blazer; President; ASGN Inc

Maggie Nolan; Analyst; William Blair & Company LLC.

Jeffrey Silber; Analyst; BMO Capital Markets Equity Research

Tobey Sommer; Analsyt; Truist Securities, Inc.

Joseph VafI; Analyst; Canaccord Genuity-Global Capital Markets

Andre Childress; Analyst; Robert W. Baird & Co. Incorporated

Surinder Thind; Analyst; Jefferies LLC

Emily Marzo; Analyst; Bank of America- Securities

Presentation

Operator

Greetings, welcome to the ASGN Incorporated fourth quarter 2023 earnings call. (Operator Instructions) I would now turn the conference over to your host, Kimberly Esterkin, Vice President of Investor Relations.
You may begin.

Kimberly Esterkin

Good afternoon, and thank you for joining us today for ASGN's Fourth Quarter and full year 2023 conference call. With me are Ted Hanson, Chief Executive Officer. Ran 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 statements.
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 measure. 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.

Ted Hanson

Thank you, Kim, and thank you for joining ASGN's Fourth Quarter and full year 2023 earnings call. ASGN achieved solid results in the fourth quarter with revenues, gross margin and adjusted EBITDA margin all at the top end or above our guidance ranges.
During 2023, revenues totaled approximately $4.5 billion, of which $2.4 billion was in commercial and government IT consulting work, a highlight of our annual performance commercial consulting revenues reached a new high watermark surpassing $1 billion from a profitability perspective, ongoing expense management, along with our business stabilizers, contributed to an adjusted EBITDA margin of 11.6% for the year.
With that as background on our results, I'd like to highlight a few key themes to keep in mind as we review our segment performance start, 2023 was the first time we tested our current revenue mix and operating model in a difficult economy. Today's business is that the same as during the great financial crisis or the pandemic.
Therefore, we had yet to witness our current operations at an economic slowdown. However, as evidenced by our full year results, I could confidently say that ASGN made solid progress despite macro challenges, our unique go-to-market strategy, a variable cost structure supported the business and our margins throughout the year. Second, not only do we demonstrate that our operating model works, but we also show that we have the right mix of businesses.
Our federal government services provided countercyclical support to balance out our five diverse commercial industry verticals. Third, our long-standing trusted client relationships, but the growth of our IT consulting revenues. And in the fourth quarter, we officially surpassed 55% of consolidated revenues in IT Consulting, a full year ahead of our target. These achievements resulted from proactive efforts to strategically shape and purposefully built a business that could perform well throughout market cycles. Our federal government services offer countercyclical balance to our more cyclical commercial businesses.
These cyclical commercial businesses, while leading indicators on the downside have historically seen more sustained rallies as the economy improves. Importantly, we are evolving our revenue mix moving our way up the pyramid to provide higher end higher value IT consulting work that is typically longer in duration and provides us with greater visibility and margin potential. I am certain that our operating model is well positioned as IT services demand recovers.
With these themes in mind, let's turn to our segment performance. Beginning with our largest segment, our revenue, commercial, our commercial segment services, large enterprises and Fortune 1,000 companies across five diverse industry verticals. Commercial segment revenues for the quarter declined by low teens year over year. Revenues for the segment benefited from growth in our consulting business, offset by double digit declines in the more cyclical areas of our cyber business.
Commercial consulting revenues increased roughly 2% for the quarter compared to the year-ago period. Solid growth given the macro challenges and a difficult year-over-year comparison. Favorable commercial consulting bookings of approximately $312 million translated to a book-to-bill of 1.2 times on a trailing 12-month basis, another positive, we continue to add new Fortune 1,000 clients for our consulting roster.
Beyond New Work client retention rates on existing contracts remains strong and customers are engaging our teams on long longer consulting projects. Similar to the third quarter, we saw bookings weighted slightly more towards renewals than new work opportunities as we enter the first quarter of 2020 for many of our clients remain deliberate in their IT investments for the year. So their spending on certain consulting contracts remains extended.
Nevertheless, the growth in our bookings during the fourth quarter clearly indicates that our clients continue to recognize the value of [AXCN] services. Our teams and operating model are well positioned to support our clients' IT roadmaps as they ramp up their spend.
Turning to our vertical performance, all five commercial industry verticals declined year over year. That said, we saw sequential growth on a billable day adjusted basis in two verticals, consumer and industrial and TMT. and relatively flat sequential performance on a billable day adjusted basis in the health care vertical, sequential improvements, some and subpar goals included utilities, consumer discretionary health care providers, telecom media, e-commerce and software and services accounts. Our commercial bookings remain solid with workload across multiple service areas.
Our pipeline of AI work continues to grow as our clients focus on data preparation, developing use cases and implementing their AR platforms. As such, we continue to hire subject matter experts, trained our current teams and develop AI accelerator programs each with our customer needs in mind.
For example, Apex Systems application development team is leveraging our partnership with Microsoft to upskill our developers to become even more productive for our clients, Microsoft technology and another example enabled us to significantly shorten the new co-generation time lines for an automotive and aerospace parts manufacture.
In another instance, with the help of Microsoft copilot our teams substantially reduce date or a time as a digital health services provider. In addition to Microsoft, Apex system is collaborating with several other companies generative ad technology leveraging the Salesforce and ServiceNow generative AI technologies, we've been able to gain a holistic view of our customers' IT journeys to refine their roadmaps, automate solutions and build personalized data-driven marketing campaigns in IT schedules with improved productivity.
Our team of data scientists, engineers, developers and technical contract managers have also used a combination of Microsoft Azure, Databricks and Snowflake to help a Fortune 50 telecom company with personalization, predictive modeling and increase revenue generation for its mass marketing campaign.
With AI gaining traction cyber security needs are also increasing in the fourth quarter we worked with a Fortune 25 healthcare insurer to mitigate cyber security risks associated with its newly acquired entities. We partner closely with our clients' IT integration team to rapidly assess and remediate over 1,000, but all build these cloud plus platforms ahead of their planned integration time line.
By leveraging our deep expertise in Amazon Web Services, Microsoft Azure and Hybrid Cloud environments, we meaningfully reduced our clients' regulatory compliance and data breach risk during this critical transaction period.
We've also integrated our Public Sector cyber security DNA to help grow our commercial work. Our professionals to DCS have developed proprietary methods for intelligence, gathering, security, instrumentation and incident response, each of which has been battle tested by the Department of Defense and is now being leveraged by our commercial clients. We believe that our combined credentials, expertise and past qualifications will continue to drive our cybersecurity efforts to cross-sell for Fortune 1,000 clients list.
Speaking of our public sector services. Let's now turn to our Federal Government Segment, our six industry vertical, which provides mission-critical solutions to the Department of Defense, the intelligence community and federal civilian agencies. Metals segment revenues for the fourth quarter were up 9.2% year over year. Contract backlog was 3 billion at the end of the quarter or a healthy coverage ratio of 2.4 times. The segment's trailing 12-month revenues through awards were approximately $56 million, translating to a book-to-bill of 0.8 times on a trailing 12 month basis.
Bookings this past quarter were soft due to a combination of traditional seasonality and greater than anticipated award deferrals into the first half of 2024. Our pipeline as well as the bids submitted and awaiting award are each near the highest levels they have ever been for lower bookings in Q4 resulted from a timing issue rather than lost work opportunities and we already see a pickup in contract activity in the new year.
We expect stronger bookings in the first half of 2024. In the fourth quarter, bookings were led by work with the US intelligence community and several civilian agencies. For example, we continue to manage the FPI.'s cybersecurity, Red and Blue program. And in Q4, we won additional work under this contract. This mission based work is designed to secure and monitor the FDI. networks from external threats and internal vulnerabilities.
In addition to work booked in the fourth quarter ACS also announced two large multiple award IDIQ contracts this past November that allow our government team to bid on new work in the future with the Veterans Affairs Office of Information Technology. We won a 60.7 billion prime IDIQ contract. PCS has partnered with the FDA since 2009, but this is the first time we won a prime contract with this office.
Under this contract, ECS will provide a full range of IT services, including technical support, project management, strategy, planning, system, software engineering, Enterprise Networking and Cybersecurity amongst other services task. Orders under this item two are expected to come out in the third quarter of this year and be awarded in the fourth quarter.
We also won a 1.25 billion prime IDIQ contract with the Defense Advanced Research Projects Agency, Darko, we provide technical analytical and program support in the agency of the U.S. Department of Defense DARPins initiatives to bill develop breakthrough technologies for national security, but working with partners inside and outside the federal government. ECS has been a well-respected partner, Darko, for more than 30 years in 2018 was one of seven awardees on an 850 million IDIQ success under this previous contract help lead us to our award under this new large prime contract.
With that, I'll now turn the call over to Marie to discuss the fourth quarter results at our first quarter 2024 guidance.

Marie Perry

Thanks Ted. It's great to speak with everyone this afternoon. As Ted noted, revenue exceeded our expectations for the quarter. Fourth quarter revenues of $1.1 billion were above the top end of our guidance range due to continued commercial contract engagements during the holiday season, growth in our commercial consulting business and continued strength in our Federal Government Segment.
Revenues from the commercial segment were $748.6 million, down 12.2% compared to the prior year quarter. Revenue for commercial consulting, the largest of our high margin revenues totaled $268.5 million, up 1.7% year over year despite difficult market conditions and a tough comparison of 37.8% growth in the fourth quarter of 2022.
For the full year, commercial consulting revenues improved 14.2% on an as-reported basis and improved 8.6% organically, with solid growth in our commercial consulting revenues for the year, we reached over $1 billion in commercial consulting revenues in 2023. As Ted previously noted, growth in commercial consulting revenues was offset by an 18.4% year-over-year decline in assignment revenues, reflecting continued softness in the more cyclical parts of our businesses.
For the full year, assignment revenues declined 16% compared to 2022. Revenues from our Federal Government Segment were $325.5 million, up 9.2% year over year. For the full year, Federal Government Segment revenue improved by 11.4% on an as-reported basis at 4.9% organically.
Turning to margins on a consolidated basis, gross margin was 28.4% down 120 basis points over the fourth quarter of last year. The year-over-year compression in gross margin was largely related to business mix, including a lower mix of certain high-margin revenues within our commercial segment at a higher mix of lower margin revenues from our Federal Government Segment.
Gross margin for the commercial segment was 32.1%, down 10 basis points year over year, primarily due to the lower mix of certain high-margin assignment revenue stream, namely creative digital marketing and permanent placement revenue, mostly offset by a higher mix of high-margin IT consulting revenue. Gross margin for the Federal Government Segment was 19.9%, down 220 basis points year over year due to a higher mix of lower-margin licensing revenues.
SG&A expenses for the fourth quarter were $203.6 million or 19% of revenue compared to $229.9 million or 20% of revenues in the prior year. This improvement was mainly due to lower incentive compensation expenses. SG&A expenses also included $1.6 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. Net income was $50.3 million. Adjusted EBITDA was $121 million and adjusted EBITDA margin was 11.3%. At quarter end, cash and cash equivalents $175.9 million, and we had full availability under our new 500 million senior secured revolver.
Free cash flow for the quarter was $109.2 million, an increase of 68.5% year over year. We deployed $75.4 million of cash on the repurchase of approximately 872,000 shares during the fourth quarter at an attractive price of $86.37. For the full year, free cash flow totaled 417 million, an increase of 54.3% year over year. We deployed 273.1 million in cash in 2023 from the repurchase of 3.4 million shares at an average price of $79.89. We had roughly $273.7 million remaining under our share repurchase authorization. The strong free cash flow generation and full availability under our revolver. We have ample dry powder to make strategic acquisition once the M&A market increase.
Turning to guidance, our financial estimates for the first quarter of 2024 are set forth in our earnings release and supplemental materials. These estimates are based on current market conditions. Our estimates of say 62.75 billable days in the first quarter 0.25 billable days fewer than a year ago period and 2.75 billable days more than Q4 2023.
Guidance also considers seasonality with the first quarter traditionally the lowest of the year. It is also important to remember that the payroll tax reset occurs at the beginning of every calendar year, having approximately 100 basis points of downward impact on adjusted EBITDA margins as we move from the fourth to the first quarter, we expect market conditions to remain challenging in the first quarter.
In our Commercial segment, we anticipate revenues will remain soft across assignments and consulting declines in commercial revenues are expected to be partially offset by continued growth in our Federal Government Segment, we expect gross margins to decline year over year due to a business mix similar to current trends, including a greater mix of Federal Government revenues and continued softness in our more cyclical commercial businesses.
Our cash SG&A margin will remain relatively consistent year over year. In lieu of M&A, we expect to continue to allocate our free cash flow towards share repurchase. With this backbone background, we are estimating revenue of $1.032 billion, $1.052 billion for the first quarter. We are estimating net income at $37.7 billion to $41.2 billion, adjusted EBITDA of $104.5 million to $109.5 million and adjusted EBITDA margin of 10.1% to 10.4%.
Thank you. I'll now turn the call back to Ted for some closing remarks.

Ted Hanson

While we are positive about the future. All signs indicate continued softness in the near term. However, difficult market does not mean we've taken a backseat to our client relationships rather as is evident in our resilient financial performance.
This past year, we report ever harder proactively staying close to each of our clients and continuing to hold regular strategic discussions about their IT roadmaps. I cannot thank our teams enough for your hard work. These past 12 months each and every one of you has helped position ASGN as an IT industry leader continuing to develop yourselves and our service offerings so that we are primed to support our clients' ongoing digital transformation needs.
And while certain IT projects have naturally been pushed to the right, they are not completely off the table. The need for IT services will be strong, and I see it as one of the fastest ways for our clients to ramp up their investments and reengage more fully in our IT roadmap. Our domestic footprint is as solid as it has ever been. And now with our nearshore capabilities in Mexico also have scale. We are able to provide a deep talent pool that is highly skilled and competitively priced across multiple geography.
As I highlighted at the start of today's call, ASGN's business today is the result of several years of thoughtful and proactive plan. We've shaped our service offerings and business segments to reflect increasing IT demand and our competitive industry position and differentiated go-to-market strategy are aligned with our clients' needs, we will focus our efforts in 2024 on further strengthening our IT consulting capabilities, taking advantage of opportunities as we pursue higher end higher value projects that drive our clients' IT efforts and position ASGN for success.
Thank you again for joining our fourth quarter and full year 2023 call. Operator, please open the call to questions.

Question and Answer Session

Operator

Thank you. And at this time we will be conducting a question-and-answer session. (Operator Instructions)
Maggie Nolan, William Blair.

Maggie Nolan

Hi, thank you. I'm wondering if you can give us any additional information on how demand and revenue the cadence of that from October through January here and what you've seen and bang?

Ted Hanson

It's Ted. Thanks for the question. I would say demand throughout the fourth quarter. You said October through January was pretty steady. Um, we had program maybe for a little softer last couple of weeks in the firm of furloughs or slowing in spending.
And I would say that for the most part, it hung together better than we thought. And therefore, we were a little bit ahead of our number, you know, not a whole lot other than that. I think the quarter was a similar demand quarter to the third quarter as you can see in our guidance, although seasonally it's a little slower start always in the first quarter, we are predicting about the same based on what we can see right now Got it.

Maggie Nolan

Got it. Thank you. And then, Maria, I think in your prepared remarks, you mentioned some of the gross margin impacts from and the mix within the commercial segment in particular and what surprised you about that mix and what is your outlook for how mix may impact margins over the coming quarters here?

Marie Perry

Maggie, a couple of things as it relates to mix. And so there are some things that will definitely kind of carry forward from what we saw in the fourth quarter to the first quarter of the first is really the higher government segment, which has a lower mix than the commercial and so on with the countercyclical aspect of the government, and we are just seeing that. And then on the commercial side, we've just highlighted, especially those discretionary areas and just softer from a margin perspective,

Ted Hanson

(multiple speakers) But yes, I would highlight what Maurice said, it's mostly being driven by higher than expected growth in the federal segment itself. You'll see that the first quarter.

Marie Perry

Yes.

Maggie Nolan

Thank you.

Operator

Thank you.
Jeff Silber, BMO Capital Markets.

Jeffrey Silber

Much of you cited a couple of verticals.I think it was commercial, industrial and key segments. I might have gotten those wrong, but forgive me on that saw sequential growth on a billable day basis. It is still the day adjusted basis, what's going on in those markets that are different than some of the other verticals that you're seeing?
Yeah Ran, you want to take that one?

Ran Blazer

Yes. Well, I think first of all, if you look within those sectors on gas and you see what comprises them, for example, utilities and energy remained strong and grew sequentially in that quarter. We actually had 12 of our sectors growing mostly in the consumer, industrial and C and the TMT. area of care also kind of held its own, particularly in the provider space.
So I think when you look further below just the general industry and you look at specific areas which we've enumerated some in the text, you can see that those sectors are fairly healthy and continuing to move along. And it was nice to see more of them grow in the fourth quarter sequentially over the third quarter than we saw in previous quarters.

Jeffrey Silber

Okay. That's helpful. And I can move on to the federal government sector. You talked about some projects for some timing of starts being deferred and hopefully you're not going to catch up on those. But I'm just curious, as we go through the rest of the year, considering it is an election year with all the uncertainty going down in Washington do you think that kind of mindset will continue? Should we expect those kind of deferrals and delays the rest of the year?

Ted Hanson

Well, I think on the one hand, the administration would like to get as much out on the street is a parcel does a good job on the other hand there. They're dealing with the continuing resolution. And to the extent they continue to deal with. That will continue to perform on the work that we have, but some of the bigger decisions on new work may be delayed traffic. We saw the start of that year in the fourth quarter.
So as we said in our remarks, it wasn't an issue of lost work are submitted awaiting awards as part of our pipeline is not as high as it's ever been, but we're going to see most of the things that you indicated. We hope in the first two quarters here. Some of those that did not get decided in the fourth.

Jeffrey Silber

Okay. Really appreciate the call and thanks so much.

Operator

Thank you.
Tobey Sommer, Truist Securities.

Tobey Sommer

With your question to sites within the commercial consulting area, you didn't say that renewals running better more than 50% of new business. And is that the same as the recent quarter or two? Or is the mix closer to parity there with new business doing a little bit better than it had three or six months ago?

Ted Hanson

Ran, it's pretty much the same as the previous quarter, right?

Ran Blazer

That's correct. It was a little bit more. It's always been in balance between 50 40 and 40, 60 and maybe earlier in the year 23, there was a little bit new work, which probably is typical of a beginning of a business cycle, but for the year. But yes, it was consistent with Q3.

Tobey Sommer

Project sizes having any variance in there a year or 18 months ago, you saw a project size coming down. Maybe customers were piecemeal in our project Dragon. You don't let it out all at once to any changes that you're actually brand.

Ted Hanson

Ran?

Ran Blazer

And I would say project size is still on a slight upward trend on how much elongating the spend that is stretching out the project. It started at the end of last year and last couple of quarters and continued as to the fourth quarter. So yes, the project sizes are certainly fine.
In fact, I'm I think Ted mentioned in the AI side, we've won some work in this in the third quarter. We won some work in the fourth quarter and we're looking at some larger projects in AI is what I call the you move up the totem pole from looking at we have now processing power and with chip technology, we have the apps embedding AI into their apps.
You have a lot of data migration and cloud building infrastructure going on. So we now we see more data prep use cases and building algorithms we're getting closer to closer to real insertion of AI into our clients' business areas and the more work in the data prep area and use cases in the execution of use cases, the more we're going to see work.

Tobey Sommer

Okay. It is going to kind of double click on the government ECS business. Your treasury outlays have actually been good and several of the larger focus companies on that trade publicly have substantially better book to bills and underlying contracting trends that you're seeing. How do I square the discrepancy between the performance here and what you've seen in it from a broader lens?

Ted Hanson

Tobey, I think you know, we haven't seen other government peers release, but for some of the ones that we track, they are seasonably below one like we are for Q4. I think it's the vagary of what are we bidding on versus what are they bidding on and where our relationships versus theirs.
But you've got to take a lot of confidence in this in the size of our submitted waiting award number and in places where we have real relationships. And so while we might have been a little closer to one to in a typical quarter. We still would have been below it in a fourth quarter. So we're positive about the things that we have out there and that we're waiting have to be adjudicated and we'll have to see how they go here in the first quarter and into the second.

Tobey Sommer

Thank you.

Operator

Thank you.
Joseph Vafi, Canaccord Genuity.

Joseph VafI

Hey, everyone. Thanks for taking my call or and taking my questions here. This afternoon. I just maybe we just start on the assignment side and looking at maybe green shoots or if it's a little early for that, you know, on a sequential basis, I know it's a leading indicator. Maybe, you know, some more commentary there of what you're seeing on assignment across verticals and the like. And then I'll have some follow-ups.

Ted Hanson

So Joe, I think that I'll start and Ray can chip in here. I wouldn't say they're green shoots there. I say they're steadiness, if you will. So, um, we can see that in a couple of ways. One, we see our order flow and then we can index that against the industry performance.
As Ray mentioned it earlier, we now have two industries that are growing sequentially on an adjusted basis and one that's flat. So that's an improvement from nine out of five, but we need more than just to so on. So I would say steady not green shoots, and we'll have to see how this quarter develops. I mean that's typically in the assignment part of the business. You come across seasonably at a slightly lower level coming out of Q4 into Q1. And that's what we saw. And it's about what we saw in the prior year. So I'd say really no difference there. And then you spend the first quarter kind of reclaiming ground, if you will, as clients release budgets and begin to spend.
And so that's kind of what we're monitoring here as we get Rand would you add anything else to that full four 10?

Ran Blazer

Joe, let me just comment in consulting. We see green shoots because there's discussion with clients about their roadmaps about what the next projects are and there's some process leading up to release of an RFP, if you will, or a piece of work that we can bid on and go ahead and potentially win in the staffing assignment side of the business.
It's a very quick transaction type environment. So clients are sitting there with requirements that they will once budgets are approved once they get the green light from corporate, if you will, they'll release requirements and boom, we'll see Erach flow much different than we've seen for the past year.
So it's more transactional and more quick based green shoots really come from where we can see a buildup of thought and proactive working toward. And if that helps at all, Joe, in your in your question certainly perm placement. Part of that revenue is going to be nobody's going to do anything until corporate gives the Go ahead, right and says we can hire internal people.

Joseph VafI

Sure. That's great color. Thank you. And then maybe just drill down a little bit on the Mexico delivery center and know obviously digital transformation can't stand still because the world is not standing still and enterprises need to move forward and maybe you're going to have some more, you know, any evolution in the business model and we're seeing others and services lead with lower-cost geos and how that is maybe helping keeping consulting moving forward on an upward trajectory?

Ted Hanson

I think look, I think that's right, Joe. I mean, our clients are looking for things to either continue that are critical for things that haven't started that are critical away to get them done even in the face of tight budgets to me, they're very wary here that haven't kind of fully release things.
And so they've turned to home delivery opportunities like our Mexican delivery center. We've seen falling utilization plus in that center. And even here over short time, the last a few years. I mean our accounts there have grown by 10x. So I think it's a really good example.
And here in the US, you can see clients much more willing to look broadly across the US to other lower-cost markets system. They're willing to get project teams that are in lower cost areas that don't have to have certain developers sitting right in Jersey City at a certain exorbitant price per hour.
They're just thinking differently about all that stuff. So there's such there's movement going on around that for sure. But I would just reinforce here that your clients are taking longer here to fully adjudicate their budgets and their plans for this year and then to begin to release that, but I think it's only a matter of time.

Ran Blazer

it could take. Can I add something to that in mind, Joe, there sure are fully there and there is a I insertion in our clients and enterprise architecture. And then there is a I insertion in our own services that we have to do to stay competitive cost competitive for our clients and everything Ted said is correct.
We made a big investment in Mexico he talked about all the that we've seen. And since we've done that and the growth in our Mexican development center, but we're now implementing better techniques, AI techniques with which to code in the new languages, modern language in the large languages.
So the fact that our Mexican centers moving out and these AI adoption and these AI techniques makes us even more competitive in Mexico. And it's interesting Our clients are asking about they want to talk about that and understand that, which I think is a good is a good sign for us that we're on the right path, not just because we have the center, but we're keeping the center up-to-date with the latest technologies, which makes them more efficient for our clients.

Joseph VafI

That's helpful. Thank you. And then maybe I'll just sneak one more in on capital allocation. Here that the free cash flow is really great here and it's great to see the share buybacks. Just wondering, you know it. It feels like I know I heard Gary say that the market wasn't that good for M&A right now. Is it just are you seeing targets not really wanting to kind of sell down here or what is the dynamic there because it, you know, it feels like it might be a nice time to do some bolt-ons. Thanks a lot, guys.

Ted Hanson

Well, I will tell you so Hey, Joe. So I think that you're right. I mean, we would love to be allocating capital right now to strategic acquisition opportunities. I think it's the dearth of opportunities and some real quality opportunities in the market right now that where we have a very defined shopping list, if you will, we know what we can fulfill and invest inorganically.
We know what we would like to invest in inorganically to support all the things that Randy was mentioning here earlier around what our clients are thinking about and that's going to take just so I better flow, which means a little bit more time.
And there's all kinds of underlying reasons, whether it's the private equity still holding on tight and not quite ready to trade assets because of valuations where the debt markets are at a whole bunch of other things, but we've kind of remain committed here. We're just going to be ready. And in the meantime, we're going to stay focused on share repurchases, which you've seen us do. And our Board is supporting wholeheartedly, and we'll kind of watch and measure this out.

Joseph VafI

Great. Thanks a lot, guys, much appreciate it.

Operator

Thank you.
Andre Childress, Baird.

Andre Childress

Hey, this is Andrea on for Mark Marco. Thank you for taking our questions. So my first question is just a follow-up to something. Randy said earlier about some of the green shoots on the consulting side. It sounds like your clients in general have, you know, road maps that they want to execute on. But based on your conversations with those clients, what needs to change in the environment for them to actually, you know, on the some of those RFPs and execute on those roadmaps?

Ted Hanson

Ran, I want to follow up on that.

Ran Blazer

Well Yeah. I mean, our thesis has been ever since we've been a public company that IT spend is a function of corporate earnings. So I think when companies feel like their corporate earnings are secure and that they have and runway ahead, they're going to spend more on IT.
As I said, I think we would say our hope is that what we saw from the industrial side of our sectors and the health care providers as well as on the on the TME. segment that they're feeling more secure and they're going to start spending more. We saw that sequentially. That's a small data point it's not conclusive, but I think it all goes back to a corporate journey and security is a feel about that.
Ted, you want to add to that?

Ted Hanson

That's great.

Andre Childress

The growth makes a lot of sense. Thanks for that. And then I guess switching over to margins, you guys did a fantastic job at preserving your margins, even considering the mix shifts and you guys talked about your here, natural or automatic stabilizers, but how should we think about margins for 2024? Should we expect them to be relatively steady as the stabilizers continue to kick in? Or is there anything to call out for the full year?
Thank you.

Ted Hanson

Marie?

Marie Perry

So I'm kind of be implied in our guidance for Q1 our cash SG&A margins about 18%. And so as we think about the full year of 2024, that's probably a pretty good run rate, if you will, from a margin perspective.

Ted Hanson

During the first quarter of the payroll tax reset, right? That's going to influence that a little higher. But look, I mean, our SG&A margins here have been fairly consistent outside of the first quarter. So the growth for this year, I think they were kind of right at the adjusted for below-the-line stuff, just over 17%. You should expect about the same thing, Andre.

Andre Childress

Perfect. Thank you so much, and thank you for answering the questions.

Operator

Thank you.
Seth Weber, Wells Fargo.

Hi, this is John on for Seth. Thanks for taking my question. Maybe if we could just talk a little bit more about TMT. Sounds like the cyber efforts have been bearing fruit. And maybe if you could just give us more information about kind of the cross-pollination between kind of the federal side and the commercial side with cyber and maybe what clients are looking for as we enter the new year? Thanks.

Ran Blazer

Ran, will talk about that. Well, I'll start on that. You know, I think the man on the street would say the Federal Government is probably stronger cyber security and protection of our systems and our data and then more in the commercial segment.
If you look at the past years, there have been breaches of commercial big commercial companies. So I guess I'm laying the groundwork here for the federal government has great calls and great track record on cybersecurity. Our ECS team has had great quality, great track record in cyber security for some very important agencies in the federal defense that's transferable to the commercial sector. And I think when we take our technologies over in our center over to them, it's resonating and with them because of that backdrop that I just mentioned. So I would say it's as simple as that. Okay?

Great. Thanks. And then maybe a quick follow-up on Creative Circle. Could you just comment on any trends you're seeing in the digital marketing space? Essentially, any kind of views on the outlook in terms of 24 given the election year. And I think we should be cognizant , Thanks.

Ted Hanson

Ran?

Ran Blazer

That's funny. I just got off a call with the CMO of one of a company, a Fortune 1,000 company a couple hours ago. And it was interesting to talk to him. I think first of all, CMOs are also being held tight in their spend and it's a function of corporate earnings and also dependent on what their market position is. But I think that talks to the marketplace that our Creative Circle plays.
It is clear that some of the bread and butter kinds of things like creating or being creative is still part of our great service, translating that through AIAI. allows you to mass-produce it or to personalize it. And I think there are technologies there that we're well aware of that we're talking to our clients about imposing them. There's also the whole question of which channels do I use to get my message out there and to make it personal and do I have to give it to multiple our median medians for that one client.
So there's a lot of opportunity out there. I think they're all trying to work their way through it and understand it and figure out the best. And I think you can see that in some of the reportings from technology companies, in some cases, the ad dollars are up. In some cases, they're not the whole streaming world is changing how they're charging for, whether you want streaming with that advertisement or without advertise.
So there is a lot going on in the marketing world that has to be digested and recalculated, if you will, and I think we're going to see, as you know, a matter of opportunity once we get past when companies feel that there. They're on a good, solid footing and they can move forward, as I said before, in consumer and utilities and in in certain media companies, they're starting to get there.

Great. Color. Thank you again.

Operator

Thank you.
Surinder Thind, Jefferies.

Surinder Thind

Thank you and take a big picture question here in terms of the delivery model as you continue to build out the commercial consulting part of the business, can you maybe talk about that, how you're thinking about headcount growth versus the use of on temporary resources in terms of delivering those projects.
And the reason I ask that is just from a competitive positioning perspective in the sense that you talked earlier about investing in kind of building out your talent pool. But if a large percentage of your delivery is not owned by you guys, how do you guys manage that?

Ted Hanson

Well, look surrender first of all, but then we've got, you know, today 600 plus feet on the street with relationships directly into these Fortune 1,000 enterprises and it's that group that have had these client relationships from the traditional IT staffing business all the way through all of the customers' IT business, including consulting.
So that doesn't change and we don't need to build that up, if you will. We just need to address client opportunities. And so that takes a little more. We can obviously scale into that is our only path on the consulting side as we put project teams together.
And again, you know that our delivery model is a little different. I mean we have about 80% to 85% of our team members on these projects come from our contingent workforce or IT staffing capabilities and that we've got a very smart solution oriented with industry expertise team on the top, which are helping architect the solutions to meet the industry needs of the customer.
And that's working just great when So those will continue to build. But I think our model is going to be here that we're definitely on project teams going to bring our contingent labor to bear on it because they are a more perfect fit in there. They're in the right place at the right price point with the more perfect skill set, the right industry experience.
And so we can craft that in every team as we go here so that's been a winning proposition for our customer. And the all in cost of that is really competitive now. And you can see that we win work, you know, not only because of you our price point, but also the expertise we bring to bear. So we'll we're going to stay the course there.

Surinder Thind

Excellent. And then in terms of just I guess, following up on the price point question here. How much of a difference is there between what you're able to bill on for your consulting services versus the staffing services? I assume is it material at this point? And how should we think about the difference? And then maybe just some commentary on kind of the bill rate trends, I guess at this point in terms of know how that maybe trended over '23 and what's your outlook for '24

Ted Hanson

well for sure. The bill rate is better and that's evidenced by the fact, we can get a better margin rates that we tell you that our margin in consulting is 300 or 400 basis points better than what we get in IT staffing and is because we're taking on some E&O responsibility here for a certain amount of life or deliverables or milestones. And so from that, we're able to get a better bill rate. I mean, there's no question about that. What was the second part of your question? (inaudible)

Surinder Thind

in terms of the outlook for 24 pricing in the conversations that you're having with clients and I mean, are clients asking for better rates? Are you able to kind of hold steady or is or as you talked about wanting to do more AI projects that you can maybe use that to your advantage to maybe get a little bit better rate because those are harder skill sets to hire?

Ted Hanson

Well, look, I think anytime it's a harder skill set to find we can get a better rate and it doesn't matter whether it's in and get out of it is drilling the solution orientation right. If it's a higher end solution orientation, we can get a better rate. So all that stands, Pat, our margins, our markups, if you will, have been pretty steady here in our bill rates are slightly rising, and I think that is part and parcel with the mix of more consultative work that we're doing it. And yes, the more work we do in a I hear the units that that will only support and improve those.

Surinder Thind

But so I apologize if I didn't ask the question. I wasn't referring to the mix. I was actually referring to the actual apples to apples comparison of what you could charge for a certain level of engineer in '23 versus what you think you maybe are able to charge them in '24.

Ted Hanson

We're not seeing a trend that is Dale. I made I expect the typically will get a slight increase in our bill rates year over year I would expect it in '24 versus '23. Some we don't see anything underlying that the telesales different, right now.

Ran Blazer

(multiple speakers) Keep in mind is our consulting business grows and grows. It's cost per job, not cost per ounce in staffing, it's cost per hour and there are built-in escalators to bill rates and there are exceptions to the bill rates depending on skill types, status of availability of skills, importance of projects. But, you know, a lot of what you're asking applies more to staffing where bill rates for an individual, a highly discussed and it's consulting. As that grows with us. It's just discussing what the cost of the job is and what are the benefits associated with that.

Surinder Thind

But just a I guess maybe to help me clarify. I just want to make sure I don't misinterpret that comment. Is that implying that you're doing a lot more fixed-price projects because generally, most consulting firms do not want to do fixed-price projects. They want to bill by the hour or so you have engineering --

Ran Blazer

(multiple speakers) does not imply that, but the cost, the conversations with the clients start around what's the total cost of doing taking on this job when we you can build it by looking at a time and material type work, we can build it by time and material. But the ultimate conversation decisions for anti-competitive choices around the cost and the risks associated with delivering that were and we have the benefit of that work.

Surinder Thind

Got it. Thank you.

Operator

Thank you.
Heather Balsky, Bank of America.

Emily Marzo

Hi, this is Emily Marzo on for Heather Balsky. I was wondering if you could talk to us about what you're seeing in permanent staffing and what was the percentage of sales you saw for perm staffing this quarter? Thank you --

Marie Perry

And hello, hello. And so yes, for the fourth quarter, we actually permitted a percent of total revenue was 2.4%.

Ted Hanson

(inaudible) think what you're seeing there have there, again, it's very steady. I mean, I would say it's at a historic low percentage of the mix. And there's really no change, if you will, from the third to the fourth or our expectation here for the first quarter is in similar ranges.

Emily Marzo

Thank you.

Operator

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

Ted Hanson

Great, Well, I appreciate everyone's attention here. Today for the rate release of our fourth quarter and the Q&A that follow that we look forward to being with you very soon to discuss our first quarter 2024 results.

Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.