Kevin Steinke

Kevin Steinke asked for clarification on the relative market sizes of residential versus commercial and industrial energy efficiency, how market share gains expand growth opportunities, and expectations for Adjusted EBITDA margin in 2026.

Answer

Chair and CEO John Wasson and President Anne Choate outlined the total utility program market at $3 billion-$5 billion, with traditional demand-side management at about $2 billion. ICF holds 35% residential and 20% growing commercial/industrial share, with emerging areas like electrification offering rapid growth. CFO Barry Broadus stated that ICF anticipates 10-20 basis points of Adjusted EBITDA margin expansion in 2026, driven by higher-margin commercial growth and operational efficiencies.

Kevin Steinke asked for clarification on the relative market size of residential versus commercial and industrial energy efficiency, and how market share gains in the C&I segment expand ICF's growth runway. He also questioned the outlook for adjusted EBITDA margin in 2026.

Answer

Chair and CEO John Wasson stated that the total utility program market (including residential, C&I, electrification, flexible load management) is estimated at $3 billion-$5 billion. President Anne Choate specified that traditional demand-side management programs (residential and commercial) represent about a $2 billion market, expanding to $3 billion-$5 billion with emerging areas like electrification and demand response. John Wasson noted ICF's 35% residential share and growing 20% C&I share, with significant headroom and share gains. CFO Barry Broadus indicated an expectation for 10-20 basis points of adjusted EBITDA margin improvement year-over-year in 2026, driven by higher-margin commercial growth, economies of scale, and back-office efficiency.

Kevin Steinke from Barrington Research Associates asked for more specific details on which parts of the federal government business are seeing a pickup in activity and are expected to improve in 2026. He also sought more color on the updated 2025 revenue guidance, questioning how much better the company expects to perform than the previously stated floor of a 10% decline.

Answer

CEO John Wasson explained that contract cancellations have flattened and there has been a pickup in contract modifications, led by the IT modernization area but also seen across complex program management. He expressed confidence that the federal technology business will return to growth in 2026. Regarding guidance, Wasson stated that while they are confident the revenue decline will not be as severe as 10%, it is too early to provide a specific number due to ongoing budget uncertainties. However, he noted that EPS is likely to be at the higher end of the guidance range due to strong commercial energy growth and cost management.

Kevin Steinke followed up on the IT modernization business, asking if it was still too early to see new awards from the new administration and if 2025 is viewed as a transition year that will set up for a return to growth in 2026.

Answer

Executive John Wasson confirmed that while the administration is expected to continue investing in IT modernization and AI, new opportunities are likely a second-half 2025 event that would primarily set up for potential growth in 2026. He reiterated that the 2025 forecast remains a 5% to 10% decline for the business, driven by the slow pace of new awards.

Kevin Steinke of Barrington Research Associates questioned the risk to the renewable energy developer business, sought clarity on why 2025 is a 'transition year,' and asked if the recent pace of share repurchases would continue.

Answer

Executive John Wasson noted that the renewable energy business is driven by strong economics and that the most at-risk portion, offshore wind, is not material to ICF's revenue. He described 2025 as a transition year due to a temporary slowdown in IT procurements as the new administration resets its strategy, but he anticipates new opportunities in 2026. Executive Barry Broadus confirmed that ICF will continue to repurchase shares opportunistically, citing the company's balance sheet capacity.

Kevin Steinke inquired about CRA's plans for share repurchases, noting the absence of activity in Q4 2025 but anticipating increased activity given the expanded authorization and recent stock price dislocation.

Answer

President and CEO Paul Maleh confirmed the expectation for active share repurchases. He explained that repurchases are typically front-loaded in the year. Expressing dissatisfaction with the current 'significantly undervalued' stock price, Maleh stated that CRA intends to be an active repurchaser of its shares in the upcoming quarters.

Kevin Steinke asked about the potential for AI to drive margin expansion, especially with the new VP of Artificial Intelligence and the shift towards execution of internal AI initiatives. He also sought more details on the Q4 performance and sustainability of the Forensic Services practice, the drivers behind the expected increase in forgivable loan amortization for 2026, and Charles River Associates' plans for share repurchases given the recent stock price dislocation.

Answer

President and CEO Paul Maleh stated that AI is primarily viewed as a revenue enhancement opportunity rather than a direct margin expansion driver, emphasizing coordination and data confidentiality as key reasons for the VP hire. He confirmed robust lead flow and a bullish outlook for Forensic Services in 2026, while acknowledging that sustained 20%+ growth is challenging. Maleh clarified that the increased forgivable loan amortization is due to the volume of new talent and retention efforts, not higher acquisition costs per consultant, and reiterated that the company is not becoming less profitable. He also indicated that Charles River Associates expects to be an active repurchaser of its shares in the coming quarters, given the perceived undervaluation.

Kevin Steinke from Barrington Research Associates asked about plans to scale the high-demand Energy practice, potentially through acquisitions. He also inquired about the strategic rationale for creating the new Chief Strategy and Business Transformation Officer role and whether the incoming class of over 100 college graduates is a typical size for the firm.

Answer

Paul Maleh, Chairman, President & CEO, praised the Energy practice's remarkable organic growth, led by its internal leadership, and confirmed that while they are actively looking for inorganic opportunities, any acquisition must be a strong strategic fit. Regarding the new executive roles, Maleh explained the promotions aim to elevate the strategic value provided by the corporate team to the consulting practices. He characterized the incoming analyst class as a typical size, clarifying that while aggregate headcount is flat, the company is actively investing in and expanding headcount within its high-growth practices.

Kevin Steinke from Barrington Research requested more details on the small restructuring action that impacted 15 individuals. He also asked about current demand trends in the Antitrust & Competition Economics practice and the significance of cross-practice collaboration on client engagements.

Answer

CEO Paul Maleh declined to provide specific details on the restructuring to respect the individuals and avoid misrepresenting the health of the affected practices, noting the disclosure was for financial clarity. He praised the Antitrust & Competition Economics practice for its consistent record-setting performance, driven by both merger-related work and antitrust investigations. Maleh confirmed that cross-practice and cross-geography collaboration is a frequent and 'underreported' part of CRA's strategy, focused on bringing the best talent to bear on client problems.

Kevin Steinke of Barrington Research asked for details on the fiscal 2025 outlook, including the expected contributions from various practices, the rationale for the EBITDA margin guidance, potential client hesitancy from regulatory shifts, the future target for utilization, and the current market for talent.

Answer

Executive Paul Maleh stated that the strong 2025 guidance builds on a record 2024 and anticipates broad-based growth, with a goal for practices like Life Sciences and Energy to increase their growth rates. He noted the margin guidance reflects confidence in maintaining recent profitability gains. Maleh sees potential for utilization to rise above the mid-70s but acknowledged that faster growth in management consulting could temper this. He described a competitive but opportunity-rich market for senior talent, where CRA aims to be a net gainer from industry disruption.

Kevin Steinke questioned the current trends in consultant attrition, particularly if the previously low rates at the junior level have started to normalize. He also asked for management's perspective on the potential impact of the upcoming U.S. election on the regulatory environment and demand for CRA's services.

Answer

CEO Paul Maleh responded that voluntary attrition rates remain on the low side and the company is planning accordingly, having not yet seen a return to higher historical levels. Regarding the U.S. election, Maleh expressed confidence, stating that the firm has operated successfully under different administrations and is well-positioned to adapt its strong service portfolio to meet evolving client needs, irrespective of the outcome.

Kevin Steinke inquired if Huron plans to accelerate its share repurchase pace, given recent stock price dislocation, or if it will adhere to its target of returning 50% of annual free cash flow to shareholders.

Answer

CFO John Kelly stated that valuation considerations are dynamic for both share repurchases and M&A. He confirmed that stock price dislocation makes it an attractive entry point for buying shares, and he expects a more aggressive buyback pace at current prices, consistent with Q1 actions and the recently authorized board program.

Kevin Steinke followed up on the mention of larger projects, specifically in healthcare, asking if this meant the performance improvement (PI) component was larger upfront, or if more integrated work was being sold initially. He also inquired if the demand for integrated solutions was creating a longer tail of follow-on projects. Additionally, he asked for highlights of specific acquisitions that have been outperforming expectations, leading to the acquisition-related contingent consideration adjustment. Finally, he questioned whether Huron would accelerate its pace of share repurchases given the recent dislocation in the stock price, or if it would adhere to the target of returning 50% of annual free cash flow to shareholders.

Answer

CEO Mark Hussey explained that engagements typically start by addressing a specific business problem, often expanding to adjacent opportunities as client relationships and understanding deepen, which leads to larger engagement sizes and longer client stays. While some projects start integrated, expansion is common. CFO John Kelly declined to provide specific earnout details but highlighted AXIA (Q4 2024), Eclipse Insights (June 2025), and Wilson Perumal (September 2025) as strong performers. He noted Eclipse Insights' capabilities in middle revenue cycle and Wilson Perumal's strategy and performance improvement capabilities, which, combined with Innosight and digital offerings, are resonating in the commercial segment. Regarding share repurchases, John Kelly stated that valuation considerations are dynamic, and the stock dislocation makes it an attractive entry point. He expects more aggressive buybacks at current prices, consistent with Q1 actions and the recent board authorization.

Kevin Steinske asked about the current mix of digital transformation projects in the education segment, specifically whether demand is leaning more towards student lifecycle systems or traditional ERP implementations. He also inquired about the sequential step-down in the consulting utilization rate, its causes, and the prospects for future improvement and margin contribution.

Answer

CEO Mark Hussey stated that the current demand in education digital transformation is primarily for core ERP, financials, and HCM full-suite implementations, with less emphasis on the student side. CFO John Kelly added that these ERP projects are critical for establishing a solid data and technology infrastructure, which is foundational for future AI and automation investments. John Kelly confirmed that the lower utilization rate was due to ramped-up headcount additions to support current and future demand, indicating an investment mode. He expects utilization to return to the upper 70% range long-term, though some pressure might persist for another quarter or two during team build-out.

Kevin Steinski inquired about the sequential step down in consulting utilization rate, its relation to recent hiring, and the opportunity for future utilization improvement and margin expansion.

Answer

John Kelly, CFO, confirmed that the lower utilization was due to headcount additions made to support demand, indicating an investment phase. He expects utilization to return to the upper 70% range long-term but anticipates continued pressure for another quarter or two during the team build-out.

Kevin Steinke from Barrington Research Associates asked for tangible examples of how Huron helps healthcare clients navigate new Medicaid funding constraints and for more detail on how the Trelliant acquisition expands Huron's capabilities.

Answer

CEO Mark Hussey detailed Huron's comprehensive performance improvement offerings, including revenue cycle, supply chain, and clinical operations, which help clients find both cost savings and growth opportunities. Regarding the Trelliant acquisition, Hussey explained that it is highly complementary to Huron's existing financial services practice, adding specialized expertise in risk, compliance, and financial crimes that is aligned with but not overlapping current capabilities, creating a more comprehensive solution.

Kevin Steinke of Barrington Research Associates inquired about the 2025 outlook for the Commercial digital business, the status of previously delayed projects in the Education segment, and specifics on plans to broaden the Healthcare service portfolio.

Answer

CFO John D. Kelly expressed confidence in the Commercial segment's 20%+ guided growth for 2025, driven by the AXIA acquisition and organic growth in digital and financial advisory, supported by a strong backlog. He confirmed that delayed Education projects are now at a run rate. CEO C. Hussey detailed plans to broaden the Healthcare offering by expanding financial advisory services, growing managed services, and pushing further into digital and payer-related services, leveraging deep client relationships.

Kevin Steinke sought to quantify the project work that shifted from Q3 to Q4, asked if Education segment delays were part of this shift, and questioned if Commercial segment clients are now moving past earlier macro-related hesitations.

Answer

Chief Financial Officer John Kelly quantified the project shift from Q3 to Q4 as being in the '$5 million to $10 million range' and confirmed that the majority of these delays occurred in the Education segment. Executive C. Hussey characterized Q3 as an 'inflection point' for the Commercial segment, with a rebuilding pipeline. He expressed optimism for 2025, stating that 'the signs are pointing green and up' as clients appear to be moving forward with investments.

Kevin Steinke asked about Quad's direct mail performance in 2025, its momentum into 2026, the impact of delayed postal rate increases on catalogs, updates on the In-Store Connect initiative, factors influencing the 2026 guidance ranges for sales and Adjusted EBITDA, and the company's balanced capital allocation strategy.

Answer

Joel Quadracci, Chairman and CEO, clarified the distinction between direct mail (DM) and the Direct Marketing Agency of Record (DMAOR), highlighting the strong responsiveness of data-driven personalized direct mail and its role in attracting clients like GEICO. He detailed the significant impact of postal rate increases (35% over CPI since 2021) on catalog declines, particularly prospecting mail, while noting Quad's efforts to offset this through a 50%+ increase in co-mail volumes and enhanced carrier route density. For In-Store Connect, Joel acknowledged the longer sales cycle with retailers but reported accelerating conversations and new opportunities. Tony Staniak, CFO and Treasurer, added that In-Store Connect is a primary driver for the increased 2026 CapEx. Regarding guidance, Joel pointed to postal impacts and momentum in direct mail, in-store, and packaging as key sales drivers, while Tony noted that the shift towards higher-margin targeted print categories and disciplined cost management would boost Adjusted EBITDA margins. Tony also confirmed a continued balanced capital allocation strategy for 2026, including potential tuck-in acquisitions, CapEx for growth, strong shareholder returns, and maintaining low debt leverage.

Kevin Steinke inquired about Quad's capital allocation strategy going forward, specifically asking if it would remain balanced, considering the low net debt leverage, recent dividend increase, share repurchases, and potential tuck-in acquisition opportunities.

Answer

Tony Staniak, CFO and Treasurer, stated that the 2026 capital allocation strategy would be similar to 2025. He confirmed that tuck-in acquisitions are possible if they meet parameters, CapEx remains important for growth (including In-Store Connect and other initiatives), and providing strong shareholder returns through dividends and opportunistic share buybacks is a priority. He emphasized maintaining low debt leverage for prudence and to capitalize on future opportunities.

Kevin Steinke of Barrington Research Associates inquired about the postal rate landscape, the potential for rate relief, and the impact of Quad's new AI tool, Audience Builder 2.0. He also asked for evidence supporting the company's strategic journey toward achieving net sales growth by 2028.

Answer

J. Joel Quadracci, President, CEO, Chairman & Director, expressed cautious optimism regarding the postal service, citing a new Postmaster General, a 10% catalog discount test, and a Postal Regulatory Commission review that could lead to CPI-capped rate increases. He explained that Audience Builder 2.0 democratizes and automates access to Quad's extensive data stack, enabling faster and more accurate audience creation. Mr. Quadracci emphasized that the strategy's success is evident in the growth of targeted print categories like direct mail and packaging, which are benefiting from these advanced data applications, keeping the company on track for its 2028 growth inflection point.

Kevin Steinke of Barrington Research Associates inquired about the postal rate landscape, the potential for relief from the USPS, and the capabilities of the new AI-powered Audience Builder 2.0. He also asked about growth rates in targeted print and the company's confidence in its long-term net sales growth targets.

Answer

J. Joel Quadracci, President, CEO, Chairman & Director, expressed cautious optimism regarding the USPS, citing a new Postmaster General and a Postal Regulatory Commission review that acknowledged the negative impact of rate hikes on volume. He explained that Audience Builder 2.0 automates and simplifies access to Quad's extensive data stack, enabling faster and more precise audience creation for clients. Quadracci highlighted strong year-to-date sales growth in direct mail and in-store marketing, reinforcing the company's strategy to achieve overall net sales growth by 2028 by expanding these targeted offerings.

Kevin Steinke of Barrington Research Associates inquired about the postal rate landscape, the potential for relief from the USPS, and the impact of Quad's new AI-powered tool, Audience Builder 2.0. He also asked about growth rates in targeted print categories and the company's confidence in achieving net sales growth by 2028.

Answer

J. Joel Quadracci, President, CEO, Chairman & Director, expressed cautious optimism regarding the USPS, citing a new Postmaster General and a Postal Regulatory Commission review that acknowledged rising rates negatively impact volume. He detailed how Audience Builder 2.0 democratizes data access for faster, more accurate audience creation, simplifying marketing complexities for clients. Mr. Quadracci confirmed strong growth in targeted print, such as a 7% increase in direct mail and packaging sales, which underpins the strategy to reach net sales growth by 2028 by offsetting declines in large-scale print.

Kevin Steinke of Barrington Research Associates inquired about the postal rate landscape, the potential for rate relief, the impact of the new Audience Builder 2.0 tool, and evidence supporting the company's long-term journey toward net sales growth.

Answer

J. Joel Quadracci, President, CEO, & Chairman, expressed optimism regarding the new Postmaster General and a recent Postal Regulatory Commission review that acknowledged the negative impact of rate hikes on volume. He highlighted a new 10% catalog discount test as a positive step. Quadracci explained that Audience Builder 2.0 democratizes and automates access to their vast data stack, enabling faster and more accurate audience creation for clients. He pointed to strong growth in targeted print categories like direct mail (up 7%) and in-store (up 13%) as tangible evidence that their strategy of integrating complex solutions to drive client ROI is progressing toward the 2028 net sales growth goal.

Kevin Steinke of Barrington Research Associates inquired about the postal rate landscape, the potential for relief under the new Postmaster General, the capabilities of the new Audience Builder 2.0 tool, and the tangible evidence supporting Quad's strategy to achieve net sales growth by 2028.

Answer

J. Joel Quadracci, President, CEO, Chairman & Director, expressed cautious optimism regarding postal rates, citing a new USPS catalog discount test and a regulatory review suggesting a return to CPI-capped increases. He explained that Audience Builder 2.0 democratizes access to Quad's data stack, using AI to automate and accelerate the creation of high-propensity audiences for clients. Quadracci pointed to strong year-to-date sales growth in targeted print areas like direct mail and in-store as concrete evidence of the company's strategic progress toward its long-term growth inflection point.

Kevin Steinke of Barrington Research inquired about the current demand environment, particularly any impacts from tariff uncertainty in the second quarter. He also asked for details on the upcoming postal rate increase, the significance of the Enru co-mailing acquisition, and the recent expansion of the In-Store Connect retail media network.

Answer

J. Joel Quadracci, Chairman, President and CEO, explained that while some clients have made minor marketing adjustments due to tariff-related product uncertainty, a major pullback has not yet occurred. He noted that a new USPS promotion for catalogers starting in October could offset the July rate hike. Quadracci also detailed that the Enru acquisition adds high-density co-mailing capabilities, benefiting the entire industry. He confirmed In-Store Connect has expanded to over 45 stores, with new grocer wins. CFO Anthony Staniak added that the expansion of the Save Mart partnership is a positive development.

Kevin Steinke of Barrington Research inquired about Quad's 2025 capital allocation priorities, the drivers behind the improved organic revenue outlook, the monetization strategy for the new At-Home Connect platform, potential impacts from tariffs, and future cost-saving initiatives.

Answer

CFO Tony Staniak detailed increased capital expenditures for technology like AI and In-Store Connect, alongside higher operating expenses to scale new offerings. CEO J. Joel Quadracci and CFO Tony Staniak explained that growth in Agency Solutions, International Print, and Targeted Print is expected to improve the revenue trend. Quadracci elaborated on the monetization of At-Home Connect as an integrated service driving direct mail volume, addressed tariff risks by noting pre-purchased paper inventory, and highlighted ongoing cost management through AI, labor flexibility, and process automation.

Kevin Steinke inquired about the new partnership with Google Cloud, including initial client feedback and its potential as a market differentiator. He also asked about the drivers behind the reduced year-end leverage ratio target, the outlook for sales guidance considering the European divestiture, the general business climate regarding postal rates and economic factors, and recent trends in the company's Latin American operations.

Answer

J. Joel Quadracci, Chairman, President & CEO, explained that the Google partnership leverages Quad's proprietary data stack with AI to create personalized content at scale, which he sees as a significant differentiator with strong early client interest. He noted the lower leverage target is due to both the European divestiture and the Saratoga Springs asset sale. CFO Anthony Staniak added that the European sale's timing means it won't materially impact 2024 sales guidance and confirmed the company remains bullish on its Americas operations, highlighting a strong quarter in Mexico.

The analyst asked for clarification on contract parking trends, the impact of construction on corporate demand, potential upside in second-half transient performance, key demand drivers for 2026, and the level of market competition for the assets being sold.

Answer

The company clarified that the slower-than-expected contract parking was specific to the timing of residential lease-ups, not the overall trend. The construction impact on corporate demand was primarily concentrated in Detroit. They see the end of construction projects as a key positive driver for transient traffic in the second half. For 2026, Denver and Cincinnati were highlighted as major markets with improving demand drivers. Finally, they confirmed significant market demand from a wide array of buyers for the assets they are selling.

Kevin Steinke of Barrington Research Associates asked for clarification on contract parking growth drivers, the outlook for second-half transient performance, key markets poised for recovery in 2026, and the competitive landscape for the company's asset sales.

Answer

CEO Stephanie Hogue clarified that slower-than-expected contract growth was due to the timing of residential lease-ups and that monthly contract disruption was primarily isolated to the Detroit Renaissance Center redevelopment. She confirmed the second-half outlook for transient traffic is conservative, with potential upside from construction completions in markets like Cincinnati and Denver. Hogue also identified Nashville as another market poised for recovery. Executive Chairman Manuel Chavez added that demand for their parking assets is significant from a wide array of buyers, putting them ahead of schedule on their disposition goals.

Kevin Steinke asked about the sustainability of the recent increase in contract parking demand, the timeline for pricing power to return, and the potential revenue contribution from ancillary initiatives like EV charging.

Answer

President Stephanie Hogue explained that while transient parking rates are holding firm, monthly contract parking is seeing increased inbound demand as return-to-office trends continue. She anticipates that as utilization builds and garages fill up, pricing power will shift back to the company. Regarding ancillary revenue, Ms. Hogue noted that while EV charging stations are being installed, it will likely take several quarters to build customer awareness and utilization to a point where it generates meaningful revenue, with a current focus on garages with residential demand.

Asked about the current business environment, recent demand trends, the forward-looking SG&A expense run rate, and the outlook for workers' compensation costs.

Answer

The demand environment saw its low point in May/June and has stabilized but not fully recovered. The impact from ICE enforcement has been less than hoped, though some client wins are encouraging, and the financial professionals category is a bright spot. SG&A will decrease in Q3 due to a retired executive's salary no longer being on the books. The company continues to work towards making workers' compensation a neutral expense, with more improvement expected.

Kevin Steinke of Barrington Research Associates, Inc. asked for an update on the current business environment and whether demand had stabilized, noting the sequential increase in system-wide sales. He also inquired about the forward-looking SG&A expense run rate, excluding one-time costs, and the outlook for continued reductions in workers' compensation expenses.

Answer

President, CEO & Director Rick Hermanns responded that while the market has improved from a low point in May and early June, a significant recovery has not yet occurred. He noted that the anticipated demand boost from stricter immigration enforcement has been less than expected, though some recent client wins are encouraging. On expenses, Hermanns mentioned that SG&A will see a slight benefit in Q3 from the former CFO's departure, but no other major changes are anticipated. He confirmed the goal for workers' compensation is to reach a neutral expense level, with further, albeit smaller, improvements expected through the rest of 2025 and into 2026.

Kevin Steinke of Barrington Research inquired about recent business trends in early Q2, the tangible impact of stricter immigration policies on new client acquisition, the drivers behind the sequential increase in Q1 SG&A expenses, the strength of the M&A pipeline, and succession plans for the corporate development function following the CFO transition.

Answer

Richard Hermanns (executive) stated that Q2 trends remain consistent with the challenging macroeconomic environment, with no dramatic shifts. He confirmed that stricter immigration enforcement is leading to new business wins as clients seek E-Verify compliant partners. Hermanns attributed the Q1 SG&A increase to timing differences in professional fees and minor RIF costs, which masked underlying progress. He noted the M&A pipeline is strengthening as prolonged weak demand makes potential targets more realistic on pricing. Finally, he explained that while they may hire a junior deal sourcer, they do not plan to backfill the VP of Corporate Development role in the near term.

Kevin Steinke of Barrington Research sought clarity on the optimism for the permanent staffing market, asked for specific figures on workers' compensation and core SG&A expenses, questioned the company's capacity to grow sales without increasing costs, and inquired about the current M&A pipeline and strategy.

Answer

Executive Richard Hermanns and CFO Steven Crane addressed the questions. Hermanns explained that optimism for permanent placement stems from the market being at an abnormally low point with significant room for recovery as hiring normalizes. Crane confirmed Q3 workers' compensation expense was approximately $500,000, a $1 million improvement year-over-year. Hermanns added that the company has capacity for a 5-10% sales increase with minimal SG&A growth, though wage inflation is a potential factor. He also revealed that HireQuest completed two small acquisitions in the quarter and maintains an active pipeline for similar bolt-on deals.

Inquired about the outlook for the permanent staffing business, sought clarification on SG&A and workers' compensation expenses, and asked about future expense control, operating leverage, and the M&A pipeline.

Answer

The executive explained that the permanent placement business has been at an abnormally low level and is expected to rebound. Workers' compensation expense was approximately $500,000, a $1 million improvement year-over-year, while core SG&A remained flat. The company has capacity for a 5-10% sales increase with minimal SG&A growth, though wage inflation could be a factor. The M&A pipeline is active with smaller deals, and two 'on-demand' staffing acquisitions were completed in the quarter.

Kevin Steinke of Barrington Research Associates sought more detail on the growth drivers for Branded Products, the outlook for the Healthcare segment, and what is needed to convert the contact center sales pipeline.

Answer

President of Branded Products Jake Himelstein attributed growth to a combination of strong backlog execution, market share gains, and improving client decision-making. CEO Michael Benstock expressed optimism for the Healthcare segment, expecting an institutional restock cycle and strong consumer demand in H2. He also noted the contact center pipeline is robust, with many deals in the final contract stages, poised to impact Q4 and 2026.

Kevin Steinke inquired about the drivers behind the strong sales pipelines in Branded Products and Contact Centers, the rationale for reducing full-year revenue guidance despite Q2 optimism, and the company's exposure to tariffs and its ability to pass on costs.

Answer

Executive Michael Benstock explained that the Branded Products pipeline is growing due to aggressive recruiting and positioning the company as a tariff expert through webinars and white papers, which is driving new business despite some decision delays. For Contact Centers, a new sales team is bringing in more opportunities. Benstock confirmed the reduced guidance reflects conservatism due to macro uncertainty in the second half. He also stated that the company can pass on most tariff costs through price increases due to contractual allowances and the order-by-order nature of the promotional products business.

Kevin Steinke asked about the general tone among customers amid economic uncertainty, the gross margin outlook for Branded Products in 2025, any significant SG&A investments planned, and what assumptions for debt paydown versus share repurchases are embedded in the 2025 EPS guidance.

Answer

Executive Michael Benstock provided a segment-by-segment breakdown of customer sentiment, noting positive signs mixed with tariff uncertainty in Branded Products, purchasing delays in Healthcare, and a focus on cost containment in Contact Centers. Executive Michael Koempel projected that the Branded Products gross margin would be fairly consistent year-over-year in 2025. He also confirmed no significant new SG&A investments are planned, and that the 2025 EPS guidance assumes an improvement in interest expense from a combination of lower average debt and rate assumptions.

Kevin Steinke asked about the financial impact of revenue shifted from Q2, current customer sentiment and spending plans, the drivers behind lower revenue from existing Contact Center customers, the rationale for the Q4 outlook, and future SG&A leverage.

Answer

Michael Koempel (executive) confirmed the Q2 revenue shift was a few million dollars and explained the Q4 outlook is based on a tough comparison to a strong Q3. Michael Benstock (executive) detailed customer sentiment by segment, noting cautious optimism post-election but ongoing soft decision-making. Koempel added that recent growth-oriented SG&A investments are expected to be leveraged starting in 2025.

Kevin Steinke of Barrington Research Associates sought clarity on the Q3 revenue guidance, asking about seasonality, macro assumptions, and the factors driving the high and low ends of the range. He also questioned the sustainability of the high Executive Search productivity and the breadth of the planned hiring investments.

Answer

CFO Nirupam Sinha stated the Q3 guidance is prudent, with the high end supported by continued demand and cross-selling, while the low end accounts for potential macro-driven project delays. He noted that while Q2 search productivity was high at $2.3M annualized, the trailing twelve-month figure is closer to the $2.0M target, which still signals strong demand. Sinha confirmed hiring is broad-based. CEO Tom Monahan added that unlike last year's single global conference, future team events will be spread more evenly throughout the year.

Kevin Steinke of Barrington Research Associates, Inc. inquired about the plan to simplify Heidrick Consulting's operations to improve profitability, priorities for organic investment beyond hiring, and any shifts in the types of services clients are seeking.

Answer

Executive Nirupam Sinha addressed the consulting question, citing one-time Q1 charges and timing of bonus accruals, while reaffirming the long-term margin guidance of 11-13%. Executive Thomas Monahan described organic investments as focusing on two areas: acquiring top talent and enhancing their success with digital tools and IP. Monahan also noted that while client needs vary, key long-term themes driving demand include supply chain resilience, adapting to higher interest rates, and the expanding strategic role of the Chief People Officer.

Kevin Steinke of Barrington Research sought details on the drivers for the anticipated 2025 adjusted EBITDA margin expansion, particularly in the second half of the year. He also asked for clarification on offsetting variable compensation costs in Heidrick Consulting and whether currency fluctuations were factored into the Q1 2025 revenue guidance.

Answer

CFO Nirupam Sinha explained that the expected margin expansion in 2025 will primarily come from the non-search businesses as they gain leverage from shared corporate costs. Regarding Heidrick Consulting, he clarified that the Q4 variable compensation increase was partly a catch-up for strong full-year performance and is not expected to be a recurring material issue. He also confirmed that no significant currency impact was factored into the Q1 2025 outlook.

Kevin Steinke asked about the company's emphasis on organic growth and its implications for M&A strategy. He also sought clarification on the drivers behind longer contract durations in the On-Demand Talent segment and inquired about the long-term target for G&A expenses as a percentage of revenue.

Answer

CEO Thomas Monahan explained that the focus on organic growth is to fully leverage and scale powerful capabilities acquired in recent years, though selective M&A remains an option. For On-Demand Talent, Monahan cited a differentiated strategy in critical roles, while VP & Controller Steve Bondi noted Europe saw more confirmations and the U.S. saw higher contract values. Regarding G&A, Bondi confirmed it is a source of future leverage but declined to provide a specific 2025 target, linking leverage to successful organic growth.

Kevin Steinke of Barrington Research Associates asked about ACCO's ability to adjust its back-to-school product assortment and price points in the current demand environment. He also questioned the persistence of Chinese competition, the outlook for gross margin given price increases, and the specific foreign currency benefit included in the guidance.

Answer

President & CEO Thomas Tedford affirmed that ACCO has a good range of price points for North America but is actively repositioning products in Brazil to compete with lower-cost Chinese imports. He noted it's hard to predict the sustainability of this competition. EVP & CFO Deborah A. O'Connor added that gross margin is expected to modestly improve in the second half as pricing actions are designed to cover tariff costs and maintain margins. She also confirmed a favorable FX benefit is expected, particularly in Q4.

Kevin Steinke from Barrington Research sought clarification on the drivers of the favorable Q1 sales mix, the rationale for raising the long-term gross margin target, the current scale of U.S.-bound sourcing from China, and an update on the 2025 cost savings target.

Answer

CFO Deb O'Connor attributed the favorable mix to a large Kensington sale and an early pull-forward of profitable back-to-school products. President and CEO Tom Tedford explained the higher gross margin target reflects ongoing cost structure optimization. He also confirmed that U.S.-bound sourcing from China will be 'insignificant' by year-end. O'Connor reaffirmed the full-year cost savings target of $40 million.

Kevin Steinke sought clarification on whether the 2025 sales outlook includes foreign currency impacts. He also asked about the company's scenario planning for potential tariffs and requested an update on the M&A pipeline, including competition and valuations.

Answer

EVP and CFO Deb O'Connor clarified that the comparable sales outlook excludes FX, noting an expected 4% headwind in Q1 tapering to 2% for the full year. President and CEO Tom Tedford addressed tariffs by highlighting ACCO's balanced global supply chain, which is not overly dependent on China. He mentioned that the company is passing on costs via price increases and actively managing its supply sources. Regarding M&A, Tedford described the pipeline as solid but emphasized a disciplined, balanced approach focused on synergistic, strategically relevant deals that would not adversely impact leverage.

Kevin Steinke requested more detail on which specific product categories are seeing stabilizing trends. He also asked for an update on the product development pipeline and whether the growth momentum in computer accessories could continue.

Answer

President and CEO Tom Tedford identified computer accessories (Kensington), business machines, and ergonomics as categories showing positive stabilization. He discussed a major product development review, assisted by a third party, aimed at improving revenue outcomes across the portfolio. He highlighted recent launches like the Kensington EQ line and confirmed he expects continued growth from the computer accessories business.

Kevin Steinke of Barrington Research asked about the long-term adjusted EBITDA margin potential for the Lawson and TestEquity segments, considering ongoing investments and recent leadership changes. He also sought an update on the Lawson military market and the segment's organic performance excluding this headwind.

Answer

Chairman & CEO J. Bryan King addressed the margin goals, stating TestEquity has a clear path to double-digit EBITDA margins, driven by high-value specialty offerings. For Lawson, he explained that current investments in the sales transformation are aimed at achieving structural EBITDA margins in the mid-to-high teens over time, with a long-term goal of over 20%. EVP & CFO Ron Knutson added that while the military market saw a slight Q2 uptick, it remains sporadic; excluding its impact, Lawson's organic sales grew 0.5%. King also highlighted that Lawson's core 'street business' has begun to show positive growth, a key indicator of the transformation's success.

Kevin Steinke from Barrington Research Associates inquired about the long-term adjusted EBITDA margin goals for the Lawson and TestEquity segments, given ongoing investments and new leadership. He also asked for an update on the military market's impact on Lawson's organic performance.

Answer

Chairman & CEO J. Bryan King explained that TestEquity has a clear path to double-digit EBITDA margins by optimizing its high-value specialty offerings. For Lawson, he reiterated a long-term goal of mid-to-high teens or even 20%+ EBITDA margins post-investment cycle. EVP & CFO Ron Knutson added that excluding the military headwind, Lawson's organic ADS grew 0.5% in the quarter. King also highlighted that Lawson's core 'street business' has begun to show positive growth for the first time in years.

Kevin Steinke from Barrington Research asked about the M&A pipeline, the impact of the current economic environment on opportunities and valuations, and any signs of a long-term benefit from manufacturing reshoring.

Answer

Executive John King stated that while the current environment will create more M&A opportunities, DSG is taking a measured approach, preferring to let market complexity from Washington settle. He noted the M&A pipeline is robust but that share buybacks are currently the most attractive use of capital. On reshoring, King confirmed a firm belief in the long-term benefits, stating that DSG's sourcing expertise becomes more valuable in murky times and that the company has been positioning itself for this shift for years.

Kevin Steinke of Barrington Research asked about the stronger-than-expected Q4 organic revenue growth, the margin trajectory for the Lawson segment in 2025, the subdued outlook for military orders, and the expected timeline for improving Source Atlantic's margins to double-digit levels.

Answer

Executive John King confirmed that Q4 organic growth was firmer than anticipated, driven by momentum in the Gexpro Services and Test and Measurement verticals. Regarding Lawson, King detailed the significant investments in the sales force and noted that reducing historical rep turnover is a key to long-term margin improvement, expecting good progress in 2025 but a multi-year journey. He described the military order situation as an 'enigma' with uncertain timing. For Source Atlantic, he explained that margin improvement hinges on cost structure optimization and facility consolidation, which should be completed by mid-year, though seasonality will affect near-term results. Executive Ronald Knutson added color on Lawson's improving rep productivity and the conservative forecasting approach for the military business.

Kevin Steinke asked for details on the 130 new sales territories at Lawson, the hiring pipeline for sales reps, and any early indications of their productivity.

Answer

Executive Ronald Knutson explained that most of the new territories are greenfield opportunities identified through data analysis, and that hiring rates increased by approximately 50% in Q3. Executive John King added that new territories are scoped for higher revenue to improve new rep success, and acknowledged that the company was previously too slow to hire while implementing new sales tools.

Kevin Steinke of Barrington Research Associates sought details on the 1% macroeconomic drag in the Q2 outlook, how the new ETM segment will drive growth, the nature of higher-margin tailored solutions, and the demand opportunity in the semiconductor and renewable sectors.

Answer

Chief Financial Officer Troy Anderson explained the 1% drag is a conservative estimate based on leading indicators and customer uncertainty. Chief Executive Officer Peter Quigley detailed that the new Enterprise Talent Management (ETM) segment combines offerings to provide comprehensive solutions for large customers, expanding market share. He highlighted an example of converting a client to a higher-margin bespoke solution. He also noted strong, long-term opportunities in semiconductors and renewables, where Kelly supports clients from facility construction through production.

Kevin Steinke of Barrington Research questioned the current customer sentiment regarding the macro environment, sought a segment-level breakdown of the organic growth outlook for H1 2025, and asked if the operational combination of the P&I and OCG units would result in a change to segment reporting.

Answer

CEO Peter W. Quigley described customer sentiment as cautious due to policy uncertainty. CFO Troy Anderson detailed the H1 2025 outlook: Education growth will slow due to tough comps, P&I will be flat, SET will see declines similar to Q4, and OCG will see a revenue mix shift to higher-margin MSP/RPO. Anderson also stated that a final decision on segment reporting changes will be announced with Q1 results.

Kevin Steinke asked for more detail on the market dynamics behind the Q3 softness in the SET segment, the drivers of strong sequential growth in P&I, and the factors enabling Kelly to consistently gain market share.

Answer

CEO Peter W. Quigley attributed the SET softness to enterprise caution on large tech projects but noted an encouraging rebound in September. He credited the P&I segment's improvement to the success of its 'omnichannel strategy,' which combines centralized delivery, a focus on local growth markets, and the Kelly Now mobile app. Quigley stated that Kelly is taking market share due to its clear leadership in Education, innovative solutions in P&I and SET, and its technology-driven Helix platform in OCG, which is winning large MSP deals.

Kevin Steinke asked whether the Q2 organic growth was driven by transformation initiatives, sought clarity on the drivers for the higher H2 organic growth forecast, and questioned the expected sequential trend for adjusted SG&A expenses.

Answer

CEO Peter W. Quigley attributed the organic growth to market share gains from transformation efforts, including the omnichannel strategy and a focus on large enterprise clients. CFO Olivier Thirot detailed that the H2 forecast is based on continued double-digit growth in Education, modest sequential improvements elsewhere, and a favorable year-over-year comparison. For SG&A, Thirot clarified that while year-over-year declines will moderate, organic SG&A expenses are expected to be sequentially flat from H1 to H2.

Asked about the potential for gross margin improvement given the better demand environment and inquired about the controllability of rising insurance costs.

Answer

Executives reiterated that significant gross margin improvement from bill-pay spreads is unlikely due to competition. The main drivers will be business mix and operational efficiencies. Regarding insurance costs, some factors are uncontrollable (national trends), while others are related to timing (headcount changes) and annual premium renewals, the outcome of which will be known in Q4.

Kevin Steinke asked about the potential for incremental gross margin improvement given the better demand and rate environment, and whether rising insurance costs are a manageable headwind.

Answer

CFO William Burns stated that significant gross margin improvement from the bill-pay spread will be 'hard to come by' due to competition. He expects gains to come from business mix and operational efficiencies. Regarding insurance costs, Burns noted that while premiums are a factor, recent pressure was partly due to a temporary lag related to a declining headcount, which he expects to normalize.

Kevin Steinke of Barrington Research asked if the improving demand and bill rate picture could lead to incremental gross margin improvement, or if gains would have to come from SG&A. He also inquired whether the pressure from rising insurance costs could be managed.

Answer

CFO William Burns reiterated that the competitive environment makes significant bill-pay spread expansion difficult. He stated the majority of gross margin improvement will come from a favorable business mix and operational efficiencies, not rate leverage. Regarding insurance, Burns explained that costs are driven by both annual premium renewals and experience. He noted that health costs were temporarily elevated relative to a declining headcount but should normalize, though rising national healthcare costs remain a factor.

Kevin Steinke from Barrington Research requested an update on the pipeline for Intellify and MSP solutions. He also sought clarification on comments about the local staffing business, asking if the company might pare back its commitment to that segment.

Answer

CEO John Martins confirmed a new Intellify contract was signed last month and that the pipeline remains one of the largest in the company's history, although client decision-making cycles have slowed. He clarified there is a 'full commitment' to the local staffing business, with the strategy focused on building strategic partnerships with clients that have consistent volume needs rather than sporadic ones.

Kevin Steinke of Barrington Research asked for quantification of the 2019 adjusted EBITDA guidance reduction, commentary on the Healthcare consulting rebound, reasons for the Q4 slowdown in the Financial Services Advisory and Compliance (FSAC) segment, clarification on HSS joint venture costs, insights into the M&A landscape's competitiveness, and the share count target for 2019.

Answer

Chairman and CEO Julie Howard explained the guidance change was due to the Ankura TSA extension, increased organic investments, and a more cautious view on the Healthcare consulting recovery, though she remains confident in its rebound. She attributed the FSAC slowdown to client work pauses and investment timing. CFO Stephen Lieberman clarified that HSS support costs were in line with expectations and noted the company is progressing on its capital return target, which is factored into share count projections. Regarding M&A, management acknowledged a competitive, 'frothy' market but reiterated their commitment to a disciplined approach focusing on strategic, cultural, and financial fit.

Kevin Steinke of Barrington Research asked for clarification on the HSS joint venture rollout, whether G&A reductions had impacted Q3 results, the performance of the base revenue cycle business, the TD&P margin, and details about the new Center of Excellence in India.

Answer

CEO Julie Howard and CFO Stephen Lieberman clarified the HSS venture is currently with Baptist Health South's main hospital, with opportunities to expand to other hospitals in their system and the region. Mr. Lieberman stated that G&A rationalization is an ongoing process with more impact expected in future quarters. He confirmed the base revenue cycle business (excluding HSS) hit its highest margin since 2016 but declined to disclose the specific TD&P margin. He also detailed that the India center is focused on robotic process automation to improve efficiency for both internal operations and client services.

Kevin Steinke of Barrington Research asked about the drivers behind the improved 2018 guidance for continuing operations, the strong sequential growth in the Energy segment, and the health of the healthcare assessment pipeline. He also inquired about the full scope of the JV start-up costs and the progress on margin improvement in the TD&P businesses.

Answer

CFO Stephen Lieberman attributed the guidance improvement to strong performance in the FSAC and Energy segments offsetting softness in healthcare. He noted Energy's growth was broad-based. CEO Julie Howard described the healthcare pipeline as strong but converting to smaller-scoped projects. Lieberman clarified the $5 million JV cost is the expected operating loss for 2018. Howard added that TD&P margin improvement is a work-in-progress, driven by headcount actions, better contract management, and new leadership.