Tobey Sommer

Tobey Sommer asked for examples of how the combined entity could accelerate AMS and DRS growth post-combination, specifically in spurring bank outsourcing or tackling white space in the retail customer segment.

Answer

CEO Mark Eubanks explained that leveraging strong existing customer relationships and offering a single, integrated solution will de-risk outsourcing for clients and simplify commercial discussions, as Brink's currently relies on partners for ATM software. CFO Kurt McMaken provided a specific example, noting that combining DRS devices with ATMs in retail locations creates a compelling cash ecosystem, which the acquisition will enable to scale more rapidly.

Tobey Sommer asked about the risks and benefits of integrating NCR Atleos' specific hardware with Brink's' services, contrasting it with Brink's' previous hardware-agnostic approach, and how the combination might accelerate AMS/DRS growth.

Answer

CEO Mark Eubanks explained that customers prioritize outcomes like reliability and security, suggesting no inherent conflict with hardware. He identified the primary risk as distraction during the 12-month closing period, which they plan to mitigate by ring-fencing teams. CFO Kurt McMaken added that the combined entity can offer a more compelling, integrated cash ecosystem solution for retailers, accelerating customer solutioning.

Tobey Sommer inquired about Brink's midterm goals for free cash conversion from EBITDA and the specific drivers behind the recent DSO improvement. He also asked about potential future geographic growth trajectories and the implications of ongoing bank consolidation for the business.

Answer

CFO Kurt McMaken affirmed the 40-45% free cash conversion framework for the near and midterm. He cited the favorable DSO profile of subscription-based AMS DRS, broad-based leadership incentives tied to free cash flow, and enhanced collection efforts as key drivers for DSO improvement, alongside a 4-day improvement in DPO and reduced capital intensity from AMS DRS. CEO Mark Eubanks stated he doesn't foresee significant dispersion in geographic growth, expecting continued opportunities across all regions, particularly in unvended retail and bank outsourcing. He views bank consolidation as a net opportunity due to AMS solutions offering unique value and cost synergies, noting increased AMS discussions in North America.

Tobey Sommer of Truist inquired about Brink's midterm goals for free cash flow conversion from EBITDA and the specific drivers behind the recent DSO improvement, distinguishing between mix shift and discrete actions. He also asked about the geographic balance of organic growth and potential future dispersion, and the net implications of ongoing bank consolidation for Brink's business, particularly regarding AMS solutions.

Answer

CFO Kurt McMaken stated that Brink's is confident in its 40-45% free cash flow conversion framework for the near and midterm. He attributed DSO improvement (5 days better) to the favorable profile of subscription-based AMS/DRS, broad-based leadership incentives tied to free cash flow, and intensified collection efforts. He also noted a 4-day improvement in DPOs and reduced capital intensity from AMS/DRS. CEO Mark Eubanks expects continued balanced organic growth across all regions, seeing no market changes to alter the mid-single-digit organic growth framework. Regarding bank consolidation, Mr. Eubanks views it as a net opportunity for AMS solutions, enabling cost synergies for consolidators and increasing AMS discussions in North America, despite potential short-term traditional business impacts.

A representative for Tobey Sommer of Truist Securities questioned the mix of AMS/DRS growth between legacy conversions and new business, the potential impact of tariffs and rising gold prices, and whether the discontinuation of the U.S. penny would affect the business.

Answer

CEO Mark Eubanks clarified that new business, from unvended or competitive accounts, constitutes the majority of AMS/DRS growth, with legacy conversions being less than a third. He noted that volatility in precious metals markets, driven by global factors, is beneficial for their global services business due to its large, fixed-cost infrastructure. CFO Kurt McMaken and CEO Mark Eubanks both stated that the discontinuation of the penny is an immaterial event for the company's operations.

Tobey Sommer from Truist inquired about the Sustainable Technology Solutions (STS) pipeline for sizable projects, specifically how KBR plans to fill the gap as Plaquemines concludes and achieve growth. He also asked for color on the drivers behind the 15% growth in Mission Technology Solutions (MTS) backlog and options, and the most exciting areas within bids awaiting award.

Answer

President and CEO Stuart Bradie highlighted strong Q3 and Q4 book-to-bill performance in STS, particularly in the Global South and OpEx areas, noting a strong start to Q1 bookings. He mentioned opportunities in ammonia, broader technology, and Mura projects, as well as LNG front-end designs. Bradie also emphasized the increasing contribution and transparency from the BRIS joint venture, especially with the SWAT acquisition. For MTS, Bradie attributed backlog growth to wins like HHPC and Djibouti, recent Space Force and Air Force awards in digital areas, and strong international performance, particularly in Australia and the UK. He also noted the potential from work under protest and the SHIELD IDIQ award.

Tobey Sommer followed up on Mission Technology Solutions (MTS), inquiring about the drivers behind the substantial mid-teens growth in backlog and options, and identifying the most exciting areas among bids awaiting award.

Answer

Stuart Bradie (President and Chief Executive Officer, KBR) attributed MTS backlog growth to key wins like HHPC and Djibouti, recent high-end digital awards from the Space Force and Air Force, and robust international performance, particularly in Australia. He also mentioned significant work under protest in areas like missile defense and Space Force, including the SHIELD IDIQ award, which positions KBR well for future workflows. Bradie highlighted the strong and better-margin performance of the international portfolio, including Australia and the U.K., as key contributors.

Tobey Sommer of Truist Securities asked about the primary upside and downside risks considered in KBR's updated 2025 guidance and long-term targets, and also questioned the potential reputational impact from the HomeSafe contract termination on future government contract wins.

Answer

President & CEO Stuart Bradie identified key factors for the outlook as the conversion rate of the company's record pipeline, the flow of funding from the new defense budget, and geopolitical stability. He emphasized the long-term targets are 'floor numbers'. Regarding HomeSafe, Bradie stated that KBR was a partner in a joint venture and the company does not anticipate any negative reputational impact on its ability to win new business, citing strong and increasing customer engagement.

Tobey Sommer asked for an outlook on performance fees for the current year compared to the previous year.

Answer

CFO John Kelly anticipated a 'little bit of an uptick' in performance fees. He provided historical context, noting that contingent-based revenue in the healthcare segment was in the mid-20% range in 2024, slightly lower in the low 20% range in 2025, and is expected to return to the mid-20% range in 2026.

Tobey Sommer asked for more context on the statement about having the highest backlog coverage of initial RBR guidance in five years, seeking to understand what would be typical or average for comparison. He also inquired about the specific areas within Huron's portfolio where headcount additions are anticipated to be fastest in 2026. Additionally, he asked about hospital customers' primary focus over the next 6-18 months that influences their decisions on performance improvement (PI) projects. Lastly, he requested an expectation for performance fees this year compared to the previous year.

Answer

CFO John Kelly explained that while visibility is typically high in the first half of the year, the current backlog coverage is several percentage points higher than the usual 40% visibility for the back half, driven by larger, multi-quarter projects. CEO Mark Hussey added that this solid coverage is broad across all three segments. John Kelly noted that significant healthcare headcount investment occurred in the latter half of 2025. Fastest headcount additions for 2026 are expected in strategy and innovation (across healthcare and commercial), digital (especially advanced technologies and AI skills), and managed services. Mark Hussey summarized hospital clients' focus as 'financial health transformation,' encompassing broad performance improvement, financial advisory, managed services, and growth strategies, emphasizing a shift from incremental to enterprise-wide transformational thinking. John Kelly expects a 'little bit of an uptick' in performance fees, anticipating a return to the mid-20% range of healthcare contingent-based revenue, compared to the low 20% range in 2025 and mid-20% in 2024.

Tobey Sommer asked about the outlook for performance-based fee arrangements in the healthcare segment, considering the accelerating demand and typical favorable mix shift.

Answer

John Kelly, CFO, noted that despite strong growth, the percentage of contingent-based fees in healthcare was lower in 2025 than in 2024 due to client preference for fixed-fee work. However, recent sales activity suggests increased client interest in performance-based fees, potentially increasing their percentage of revenue in 2026.

Tobey Sommer inquired about Huron's hiring capabilities and infrastructure to support rapid growth, the stability of customer decision-making in the education segment, and the absorption and long-term utilization outlook for the high headcount growth in managed services. He also asked about winning larger restructuring jobs and the trend for performance-based fee arrangements in healthcare.

Answer

CFO John Kelly and CEO Mark Hussey emphasized Huron's strong culture, leading to lower attrition and effective talent attraction, supporting hiring needs. Mark Hussey described education customer decision-making as reaching an equilibrium, with a focus on long-term digital transformation. John Kelly explained that managed services headcount growth is tightly correlated with sales conversions, ensuring high utilization. Mark Hussey noted that restructuring wins are driven by Huron's quality reputation and strong referral relationships. John Kelly stated that while 2025 saw a lower percentage of contingent fees, 2026 is expected to see an increase in performance-based fee arrangements in healthcare.

Tobey Sommer from Truist Securities requested more detail on why management is confident that delays in healthcare digital pipeline conversion are temporary. He also asked about the drivers of headcount growth and the status of M&A activity relative to annual goals.

Answer

CEO Mark Hussey reiterated that clients are prioritizing immediate financial stability, delaying, but not canceling, digital projects. CFO John Kelly added that the Healthcare segment's guidance was raised due to strength in higher-margin consulting. Kelly attributed headcount growth to the managed services business, the Eclipse acquisition, and aggressive hiring in healthcare consulting to meet strong demand. Hussey noted that M&A progress is strong and they may pursue one or two more tuck-in deals this year.

Tobey Sommer asked about new business trends in April for the Education and Healthcare segments, the impact of policy changes on private universities, assessment activity for performance improvement projects, and trends in project size and duration.

Answer

Chief Financial Officer John Kelly reported no notable change in business trends in April, highlighting that Q1 sales conversions were up meaningfully year-over-year with no cancellations. Executive C. Hussey added that work with private universities affected by policy changes continues, with the nature of the work shifting but without dramatic impact. Kelly also confirmed a robust environment for performance improvement assessments due to client financial strains and no significant shift in the use of performance-based fees. He concluded that average project size and duration have been increasing, driven by client complexity and the integration of multiple Huron capabilities.

Tobey Sommer asked about the trajectory of V2X's intel business, including recent classified work and its potential as a source of accretive growth.

Answer

CEO Jeremy Wensinger expressed excitement about the intel business, noting that the QinetiQ acquisition has positioned V2X well and is contributing to a growing pipeline, indicating it as a source of accretive growth.

Tobey Sommer asked about the trajectory of V2X's revenue and activity in the Middle East region, considering the shifting resources towards Iran. He also inquired about the expected contribution from the T-6 contract and potential legal hurdles, as well as the growth trajectory of the company's intel business.

Answer

CFO Shawn Mural and CEO Jeremy Wensinger addressed the Middle East situation, highlighting its fluidity, the priority of employee safety, and V2X's strategic presence in the region. For the T-6 contract, Shawn Mural stated an expected revenue contribution of $140 million to $160 million for the year, with the program resuming March 1st, and an inherent 90-120 day material receipts lag. Jeremy Wensinger expressed excitement about the intel business, noting its strong pipeline and ability to augment existing operations.

Tobey Sommer asked for the principal drivers of the expected back-half revenue growth, whether recent policy decisions from Washington have affected international opportunities, and if the company is now at a point to deploy capital for acquisitions.

Answer

SVP and CFO Shawn Mural identified the WTRS program ramp (~$125M incremental revenue) and a full half-year of the F5 program (~$50M) as the key drivers for second-half growth. President and CEO Jeremy Wensinger noted persistent demand in international markets. Both executives reiterated that while they are constantly evaluating M&A, their current focus is on patience and identifying the best options for shareholder value creation.

Tobey Sommer of Truist Securities inquired about the potential organic growth rate for 2025, the scale of the INDOPACOM business and its opportunities, and the nature of overseas expansion prospects.

Answer

SVP & CFO Shawn Mural stated that while V2X will grow in 2025, specific figures are premature as planning is ongoing, noting potential headwinds from program sunsets. He quantified INDOPACOM revenue at over $80 million for the quarter. President & CEO Jeremy Wensinger added that the Pacific Deterrence Initiative and the company's strong regional presence create significant opportunities. Wensinger also highlighted expanding opportunities for assured communications in Europe, the Middle East, and INDOPACOM, driven by evolving geopolitical situations.

Tobey Sommer inquired about the decision to maintain profit guidance despite a higher revenue outlook, the forecast for contract awards and book-to-bill, potential revenue tapering from specific programs, and any significant contract protests or recompetes.

Answer

SVP and CFO Shawn Mural explained that the higher revenue is driven by lower-margin contingency support work, which restrains profit metric growth. He anticipates a full-year book-to-bill of around 1.0, weighted to the second half. He confirmed that while some programs are winding down, new wins like F-5 will ramp up. He also noted the F-5 protest was resolved and there are no other material protests or near-term recompetes.

Tobey Sommer of Truist asked about AMN Healthcare's expected seasonal patterns for the balance of the year, particularly for Travel Nurse and Allied in Q2. He also sought clarification on how to interpret the $600 million labor disruption revenue guidance relative to the strike's duration and asked about expectations for bill rates for contingent Travel Nurses given recent studies showing parity with full-time nurse labor costs.

Answer

Brian Scott, Chief Financial and Operating Officer, projected a normal sequential decline for Nurse and Allied in Q2 due to winter orders coming off, while Physician and Leadership Solutions and Language Services are expected to see sequential growth, leading to a "pretty flattish" overall Q2 ex-strike. Regarding the $600 million, Mr. Scott advised against simple revenue-per-day calculations due to dynamic strike conditions. Cary Grace, President and CEO, noted that data shows contingent labor costs are near parity with full-time, making it attractive for clients. She expressed a desire to see consistent increases in bill rates in 2026 to reflect underlying wage expectations.

Tobey Sommer of Truist Securities asked for clarification on the Q3 guidance, specifically why SG&A is projected to be better despite lower revenue and gross margin. He also inquired about the strategy for the labor disruption business and the growth outlook for language services.

Answer

CFO & COO Brian Scott explained the SG&A improvement is due to cost management, process automation, and the sale of SmartSquare, while the gross margin decline reflects the divestiture and some favorable one-time items in Q2 not recurring. President & CEO Cary Grace stated the strike business now uses technology to scale support for clients without disrupting core operations. She added that for language services, the focus is on a strong sales pipeline to counteract competitive pricing pressure.

Tobey Sommer sought clarity on whether order volume data is filtered for pricing, asked about EBITDA-to-cash conversion and future CapEx, and inquired about traction from sales re-engagement efforts.

Answer

Executive Randle Reece confirmed order data is not filtered and that 14% of vendor-neutral/VMS orders were unfilled in Q3. He projected a normal 65% EBITDA-to-operating cash flow conversion. President and CEO Cary Grace stated CapEx will be lower next year as major tech projects like ShiftWise Flex are near completion. She added that sales re-engagement is in a 'ramping phase' with positive indicators like pipeline growth and a net win position for MSPs.

Tobey Sommer asked for a description of Clean Harbors' revenue and EBITDA growth in a 'good industrial economy year' and how that would contrast with the current guidance. He also inquired which specific parts of the business portfolio would likely show improvements first in the event of an industrial recovery. Finally, he asked about the most impactful catalyst for accelerating PFAS growth, such as a specific regulatory framework or action from the Department of Defense (DOD).

Answer

Co-CEO Mike Battles recalled double-digit ES revenue growth in past strong industrial economies, contrasting it with the current conservative guidance, expressing hope for future 'beat and raise' quarters. He expects all four Environmental Services segments (TS, FS, IS, SK brand) to benefit from increased industrial production, with TS and IS potentially seeing it first, and SKSS benefiting from base oil price improvements. Co-CEO Eric Gerstenberg identified a clear regulatory framework around PFAS contamination thresholds for industrial waters, soils, and solids, driving remediation, as the greatest catalyst for growth.

Tobey Sommer asked for a reminder of what revenue and EBITDA growth would look like in a 'good industrial economy year' and how that contrasts with the current guidance. He also inquired which parts of the business portfolio would likely see improvements first in an industrial recovery, leading to greater confidence. Finally, he asked about the 'dream scenario' for PFAS, specifically what regulatory or DOD event could truly catalyze growth in that area.

Answer

Co-CEO Mike Battles recalled past years with double-digit Environmental Services revenue growth during periods of strong industrial production, which initiated the company's consistent EBITDA growth. He expressed hope for beat-and-raise quarters in 2026 if industrial production improves. Mike Battles expects all four parts of the Environmental Services segment (Technical Services, Field Services, Industrial Services, and Safety-Kleen Environmental) to benefit from increased industrial production, with Technical Services and Industrial Services potentially seeing more significant impacts. He also noted that improved base oil pricing would lead to embedded growth in the Safety-Kleen Environmental Services business. Co-CEO Eric Gerstenberg identified the best catalyst for PFAS growth as a clear regulatory framework establishing thresholds for PFAS contamination in industrial waters, soils, and solids, which would drive remediation efforts.

Tobey Sommer asked for a comparison of Clean Harbors' current capital allocation profile (acquisitions, share repurchase, internal investments) against what was envisioned two and a half years ago at the investor day, particularly given the cited $500 million in internal investments. He also inquired whether healthcare expense growth is anticipated to increase or accelerate further next year, referencing industry surveys suggesting a tougher outlook.

Answer

Mike Battles (Co-CEO) stated that there has been no change in the company's consistent posture on internal investments (like Kimble and SDA) or share repurchases, which have seen steady growth. He reiterated that M&A is lumpy and requires financial sense, with the company remaining disciplined. Eric Dugas (EVP and CFO) acknowledged that gross healthcare costs would likely increase next year but anticipated that the frequency of high-cost claims, which drove this year's unusual spike, would normalize. He also mentioned internal mitigation efforts to offset future increases.

Tobey Sommer asked for a comparison of Clean Harbors' current capital allocation profile (acquisitions, share repurchase, internal investments) against what was envisioned two and a half years ago at the investor day. He also inquired about the anticipation for healthcare expense growth in the upcoming year, specifically if an acceleration is expected given industry surveys.

Answer

Co-CEO Mike Battles stated there has been no fundamental change in the company's capital deployment strategy regarding internal investments or buybacks, maintaining a consistent posture. He reiterated that M&A is lumpy and requires financial sense, and the company remains disciplined in pursuing deals. EVP and CFO Eric Dugas acknowledged that healthcare costs will likely continue to increase at a gross level but does not anticipate the same acceleration seen in Q3 2025, which was impacted by a higher frequency of high-cost claims. He mentioned internal mitigation efforts are underway to manage future increases.

Asked for details on the strategic and financial benefits of their "hub concept" and about the current competitive pricing environment in the Environmental Services segment.

Answer

The hub concept drives financial and operational leverage through co-location of business units, cross-selling, shared resources, and real estate consolidation, while also improving employee retention. The competitive pricing environment in ES is more disciplined than ever, with competitors understanding the value of the difficult services provided.

Tobey Sommer of Truist Securities asked about the company's ability to adjust its pricing to protect margins if inflation, particularly in labor costs, were to accelerate.

Answer

Co-CEO Eric Gerstenberg affirmed that the company will continue to use pricing initiatives to outpace any increased labor costs. Co-CEO Mike Battles added that voluntary turnover for direct labor is at a three-year low, which supports their ability to price effectively and maintain strong customer service.

Tobey Sommer asked about the company's ability to adjust pricing to counteract a potential pickup in inflation, particularly regarding labor expenses, to protect margins.

Answer

Co-CEO Eric Gerstenberg affirmed that the company will continue to use pricing initiatives to outpace any increased labor costs. Co-CEO Mike Battles added that voluntary turnover for direct labor is at a three-year low, which supports their ability to be aggressive on pricing and service, creating a 'virtuous cycle.'

Tyler Barishaw, on for Tobey Sommer, inquired about the potential impact of a Trump administration's tariff policy on the business and current demand trends by customer vertical, such as refineries and chemical companies.

Answer

Co-CEO Eric Gerstenberg stated they do not anticipate any material effect from a change in administration, as foundational environmental regulations are long-standing and not expected to be rolled back. He described demand as 'very strong across the board,' with containerized waste collection volumes up high-single-digits to start 2025 and a stronger outlook for refinery turnarounds.

Tobey Sommer asked if the overstocking issue in the re-refinery market is an industry-wide problem. He also inquired about the total expected increase in North American incineration capacity and the state of customer churn and price sensitivity in the Environmental Services (ES) segment.

Answer

Co-CEO Michael Battles suggested the oversupply is an industry-wide issue, citing actions by other major refinery operators. Co-CEO Eric Gerstenberg detailed that new capacity from their Kimball facility and another unit will add 140,000-160,000 tons of capacity to the market over time. He also stated that customer churn in the ES segment is 'very low' and that price increases are sticking due to robust demand and the value of their service network.

Tobey Sommer inquired about Republic Services' visibility and activity within the healthcare vertical, given the sector's robust activity. He also asked about the company's strategy to leverage technology and AI to further restrain expense growth and enhance margin expansion, specifically focusing on opportunities to invest more in tech and extract efficiencies.

Answer

CEO Jon Vander Ark noted that Republic Services competes on the margin in the healthcare sector, servicing hospitals with recycling and waste, which has been a growth driver but not a meaningful one, as they do not have a dedicated medical waste business. Regarding technology, Mr. Vander Ark emphasized significant investments in AI and system modernization, projecting 'nine figures' of cost improvements over time through productivity gains in areas like routing optimization. He highlighted AI's power in designing more efficient routes, optimizing back-office operations, and enabling surgical pricing strategies to compress inflation and drive future growth.

Tobey Sommer of Truist Securities asked about the potential for further reductions in employee turnover and whether competitor behavior in the Environmental Solutions (ES) market is impacting the M&A outlook.

Answer

CEO Jon Vander Ark expressed confidence in managing labor costs even in a stronger economy, citing the company's strong culture, employee engagement, and competitive compensation. He does not see a major risk of rising labor expenses offsetting volume gains. In the ES market, he acknowledged that some competitors are trading price for volume in the current environment, but Republic will remain disciplined. He confirmed this dynamic does not negatively impact the strong M&A outlook.

Tobey Sommer of Truist Securities asked if there is further room for improvement in employee turnover or if a stronger economy might reverse recent gains. He also questioned if competitor behavior in the ES market is affecting the M&A outlook.

Answer

CEO Jon Vander Ark expressed confidence in managing labor in a stronger economy, citing the company's focus on culture, engagement, and competitive compensation. He does not see a hotter economy causing a labor pinch. On the ES market, he acknowledged that in a challenging demand environment, some competitors trade price for volume, but this is a marginal issue. He stated this behavior does not change the M&A outlook, which remains strong.

Tobey Sommer asked if there have been any changes in the motivations of M&A sellers and if the company is observing any shifts in customer behavior related to political developments in Washington D.C.

Answer

CEO Jon Vander Ark stated that there has been no real change in the motivations of sellers for the high-quality assets Republic Services targets, although he noted that broader uncertainty can be marginally helpful for M&A activity. He also said he has not observed any notable changes in customer behavior tied to the political environment.

Tobey Sommer followed up on the 'decade low' employee attrition, asking how much further improvement is possible and what leading indicators might signal a change in this trend.

Answer

CEO Jon Vander Ark attributed the low turnover to strong employee engagement and management incentives, rather than just macroeconomic conditions. He believes that while the rate of improvement will slow, the company can still make further progress, as the achievement was made in a tight labor market.

Tobey Sommer from Truist Securities inquired about the long-term margin potential for the Environmental Solutions business and the market impact of new incineration capacity. He also asked about the slower pace of M&A and the margin profile of acquisition targets.

Answer

CEO Jon Vander Ark stated that over the long term, there's no reason the Environmental Solutions EBITDA margin couldn't be similar to the core waste business, viewing new incineration capacity as a welcome opportunity to meet pent-up demand. Regarding M&A, he reiterated the company's disciplined approach, focusing on the post-synergy potential of targets rather than their current margin profile, as RSG typically recapitalizes and integrates them into its more efficient systems.

Tobey Sommer with Truist Financial Corporation requested an update on Leidos' product and defense technology portfolio, specifically identifying areas that have achieved program of record status and those still in development with anticipated progress in 2026.

Answer

CEO Thomas Bell provided updates on IFPC (ramping production, $4.1B IDIQ), Hypersonics (fast-tracking, recent awards), ABADS (base defense), and Wide Field of View (Space Development Agency tranches). He also highlighted the Shield and Microelectronics IDIQs. CFO Chris Cage added Maritime capabilities, including CDAR and unmanned surface vessels, as key developing areas.

Tobey Sommer with Truist requested an update on Leidos's product and defense tech areas, specifically identifying which programs have achieved 'programs of record' status and are gaining traction, versus those still developing but expected to show progress in 2026.

Answer

CEO Thomas Bell highlighted IFPC with a $4.1 billion IDIQ and a target of 317 systems by 2030, noting customer investment in a second interceptor. He mentioned hypersonics (SLCM-N, JHTO OTAs) as fast-tracked by the Department of War, mirroring Dark Eagle's success. ABADS for homeland security and base defense was also noted. In space, Wide Field of View opportunities were discussed, with successful Tranche 0, Tranche 1 payload deliveries, and 18 satellites for Tranche 2 by year-end, positioning for Tranche 3 and 4. He also mentioned the SHIELD and Microelectronics IDIQs as areas of investment. CFO Chris Cage added maritime, with CDAR product, ADC MK5, and medium unmanned surface vessels, as having significant runway.

Tobey Sommer sought insight into Leidos' submitted bid expectations for the upcoming year, comparing current bid volumes and projecting potential growth into 2026, despite the ongoing government shutdown.

Answer

CEO Tom Bell reported a strong pipeline with $69 billion in near-term opportunities and $24 billion awaiting adjudication. He acknowledged a slowdown in customer decisions due to the shutdown but anticipated a dramatic pickup in orders post-shutdown, expecting 2026 to be a significant book-to-bill year. CFO Chris Cage added that activity levels have been elevated, with expectations for next year's submittals to exceed this year's, driven by a mix of recompetes and new work, supported by strong win rates.

Tobey Sommer sought Leidos' view on submitted bid expectations for the upcoming year, comparing current bid amounts and providing an indication of potential growth in these numbers for 2026.

Answer

CEO Tom Bell highlighted a $69 billion pipeline of near-term opportunities, with $24 billion awaiting adjudication, and anticipates a dramatic pickup in orders post-government shutdown, leading to a 'big book-to-bill year' in 2026 across various government agencies. CFO Chris Cage added that next year's submittal volume is expected to exceed this year's, with a healthy mix of recompetes and new work, supported by strong win rates.

Tobey Sommer of Truist Securities inquired about the potential financial impact on Leidos from the new GSA initiative to purchase commercial software and services directly from vendors rather than through integrators.

Answer

CEO Thomas Bell stated that Leidos views this GSA initiative as a positive trend, as it aligns with their preference for outcome-based commercial contracts and allows more budget for their core value-add in mission systems. CFO Chris Cage added that pass-through hardware and software sales constitute several hundred million dollars in revenue but contribute minimally to earnings and cash flow due to very low or zero margins.

An analyst on behalf of Tobey Sommer of Truist Securities asked about the drivers of the 12% growth in the Commercial & International segment and its sustainability.

Answer

CFO Chris Cage cited a milestone payment on a U.K. program, progress in security solutions, and continued strength in commercial energy. CEO Tom Bell added that this was just a 'down payment' on future growth, expressing strong optimism for opportunities in AUKUS, grid resilience, and port and border security.

Tobey Sommer requested an update on the Buckeye program for unclassified data collection, asking about the utilization of company-owned assets and its prospects for growth.

Answer

CEO Thomas Bell confirmed that Buckeye remains a strong business within the Defense segment, with its assets being "fully utilized." He noted that capital is being deployed in Q4 for down payments on future growth in this area. While acknowledging manned ISR assets may eventually be replaced, he stressed their critical importance in the near term. CFO Chris Cage added that Leidos will continue to seek select, high-return investment opportunities in airborne ISR support.

Tobey Sommer inquired about the specific drivers behind the company's ability to achieve lower-than-inflation expense growth and whether this trend is sustainable beyond 2026. He also asked about any changes in the composition of the acquisition pipeline, particularly if larger deals might be anticipated this year.

Answer

Tom Ryan, Chairman and CEO, identified key drivers for expense management: supply chain enhancements led by Michael Johnson, focusing on product sourcing and pricing; labor efficiency through proactive staffing management, overtime optimization, and part-time roles, supported by daily dashboards and shared best practices; and a cross-functional margin improvement committee. He noted that sustainability beyond 2026 depends on future volume trends. Eric Tanzberger, CFO, stated that the acquisition pipeline remains similar, primarily consisting of larger, independent funeral and cemetery transactions in existing markets to leverage local scale. He described the pipeline as healthy and active.

Tobey Sommer inquired about the drivers behind the company's ability to achieve lower-than-inflation expense growth and whether this trend is sustainable beyond 2026. He also asked about any changes in the composition of the acquisition pipeline, particularly if larger deals are anticipated.

Answer

Chairman and CEO Tom Ryan identified supply chain enhancements, led by Michael Johnson, in merchandising costs (products, pricing, sourcing) as a key driver. He highlighted labor efficiency, with operators proactively managing staffing levels using daily dashboards and metrics, as the most powerful factor. A cross-functional margin improvement committee also disseminates best practices. Mr. Ryan indicated that this cost management is largely a 'one year at a time' achievement, as rising volumes would likely lead to increased variable staffing costs. CFO Eric Tanzberger stated that the acquisition pipeline remains similar, focusing on larger, independent funeral and cemetery transactions in existing markets to leverage local scale. He described the pipeline as healthy and busy.

Tobey Sommer asked about the company's confidence in extending low expense growth into 2026 and identified any areas experiencing cost pressure.

Answer

Tom Ryan, Chairman and CEO, Service Corporation International, acknowledged historical pressure on cemetery maintenance costs (water, labor) but noted new strategies to manage these. He emphasized leveraging staffing metrics, including part-time staff and technology, to flex costs with volume, and utilizing AI and technology at the home office to manage headcount. Tobey also inquired about customer awareness of cemetery options versus cremation and the speed at which the company can effect change in this area. Tom Ryan explained that burial customers often have pre-arrangements, making the cremation opportunity at combo facilities easier. He detailed initiatives to increase visibility online, on websites, and in lobbies, along with training for standalone funeral homes to standardize the educational process across the network.

Tobey Sommer commended the company's expense control and asked about the confidence in extending low expense growth into 2026, identifying any areas of cost pressure. He also sought clarification on the company's strategy to educate prospective customers about cremation options and the expected speed of change.

Answer

Tom Ryan, Chairman and CEO, Service Corporation International, acknowledged pressure on cemetery maintenance costs (water, labor) but highlighted new strategies and the leverage of staffing metrics, part-time personnel, and technology to manage costs. He noted that higher volume in 2026 might increase costs but would be supported by revenue. For cremation, he outlined plans to increase visibility online, on websites, in lobbies, and through training to standardize the educational process across the network, aiming for quick and impactful change.

Tobey Sommer of Truist Securities asked about the ongoing financial benefit from the new preneed life insurance partner now that the transition is lapped, seeking to quantify the potential future benefit, and also inquired about any changes to down payment requirements.

Answer

Chairman, President & CEO Thomas Ryan explained that future benefits will stem from the mix of insurance products sold and improved sales counselor execution, rather than favorable rate comparisons. He estimated a potential incremental benefit of a "couple of points" in growth but cautioned against expecting the large year-over-year increases seen during the transition. He also confirmed there have been no changes to preneed down payment requirements.

Tobey Sommer asked about new sales force initiatives, the outlook for cemetery preneed delivery and revenue recognition, and any updates on potential changes to the FTC's Funeral Rule.

Answer

CEO Thomas Ryan highlighted new initiatives focused on improving the lead pipeline and sales force retention through technology and data. He also confirmed the typical seasonal cadence for cemetery construction, with stronger deliveries in the second half of the year. CFO Eric Tanzberger added that the annual revenue recognition rate should remain stable at 95-97% and stated there are no new updates on the Funeral Rule, but the company is well-prepared for any changes.

Tobey Sommer of Truist Securities requested an update on the FTC's Funeral Rule, inquired about expense trends in the cemetery segment, particularly labor, and asked about the expected timing of the baby boomer demographic impact on service volumes.

Answer

Executive Eric Tanzberger stated there have been no new developments on the FTC Funeral Rule but reiterated that proposed changes are not expected to materially affect the business. He noted that while labor pressure exists, it has moderated from post-COVID highs, with mid-single-digit pressure on the cemetery side. Chairman and CEO Tom Ryan added that the first baby boomers turn 80 in 2025, and he expects to see a slow, stair-step increase in service volumes over the next 3 to 5 years.

Tobey Sommer asked for more detail on the new insurance relationships, including near-term sales force efficiency and the potential sales delta in the coming year, and also inquired about the strength of the acquisition pipeline following a strong quarter.

Answer

Chairman and CEO Thomas Ryan explained that the company is transitioning to a new insurance product, which caused a temporary slowdown but will set up future growth, with contracts growing in value. He expects core funeral preneed sales to return to low to mid-single-digit growth and SCI Direct to return to mid- to high-single-digit growth in the latter half of 2025. Executive Vice President and CFO Eric Tanzberger added that the acquisition pipeline remains healthy with opportunities in major metropolitan markets. While official guidance for next year returns to the typical $75M-$125M range, he hopes to exceed it again, supported by $1.5 billion in liquidity.

Tobey Sommer inquired about the momentum in the Asset Lifecycle Management (ALM) business for organic growth in the current year and the potential for expanding its global footprint through acquisitions.

Answer

President and CEO Bill Meaney noted a more than 20% increase in Fortune 1000 ALM logos, now serving over 300 of their largest customers, with significant room for growth within existing accounts. Executive Vice President and CFO Barry Hytinen added that the ALM business is operating in a large, fragmented market and is projected to achieve upwards of 20% organic growth in its enterprise segment for 2026. He also mentioned that the company's M&A engine is crucial for expanding its global footprint across 61 countries, with acquisitions typically valued at mid-to-high single-digit EBITDA multiples, quickly dropping below 5x with synergies.

Tobey Sommer asked for more color on the momentum in the ALM business, focusing on organic growth for the current year and the potential for expanding its global footprint through acquisitions.

Answer

Bill Meaney and Barry Hytinen emphasized the significant growth among Fortune 1000 customers, with over 20% increase in logos and substantial room for growth within existing accounts. Barry Hytinen added that the 2026 ALM revenue guidance includes about $20 million inorganic growth, with enterprise business forecasting upwards of 20% organic growth, and noted the large, fragmented market offers attractive M&A opportunities at mid-to-high single-digit EBITDA multiples.

Tobey Sommer asked for more details on the data center pipeline and demand, specifically across both enterprise and hyperscaler customers, looking ahead into the next year.

Answer

President and CEO Bill Meaney noted a definite uptick in demand from largest hyperscale customers, shifting back to inference and cloud buildout, which was evident in Q3 and Q4 leasing. He highlighted a strong pipeline for the 450 MW expected to be energized over the next 24 months.

Tobey Sommer asked for more details on the data center pipeline and demand, specifically across both enterprise and hyperscalers, looking ahead into the next year.

Answer

President and CEO Bill Meaney stated that there has been a definite uptick in hyperscale customers returning to inference and cloud buildout since August. He highlighted the depth of the pipeline for the 450 megawatts to be energized over the next 24 months, with strong customer interest for cloud and inference buildout.

Tobey Sommer from Truist Securities questioned the strong 47% incremental flow-through margin, asking if it was unusual and what the trajectory looks like going forward.

Answer

EVP & CFO Barry Hytinen stated the high flow-through has been consistent for several quarters. He attributed it to a combination of factors: the high-margin Global RIM business, rising data center margins to over 50% driven by strong pricing on new leases, and significant operating leverage and mix improvements in the ALM business.

Tobey Sommer asked about the company's most important sales strategy initiatives and how management is tracking progress against them for this year and the next.

Answer

CEO William Meaney identified the core of the 'Matterhorn' strategy as the key initiative: a centralized commercial team providing a single point of contact for customers. He explained this enables cross-selling across Iron Mountain's entire product suite, which has been crucial in transforming the company into a consistent double-digit growth performer.

Tobey Sommer inquired about the expected changes in revenue and profit from the FAA customer in 2026. He also asked if the areas driving Federal Solutions' greater-than-one book-to-bill in H1 would align with previously mentioned programs like Joint Cyber Hunt Kit and GSA schedules. Finally, Sommer questioned the most attractive areas for M&A over the year and Parsons' interest in expanding its Critical Infrastructure capabilities in nuclear energy.

Answer

Carey Smith, Chair, President, and CEO, confirmed expected growth from the FAA technical support services contract, noting the early exercise of a $593 million option and Parsons' five-decade support for FAA modernization. He affirmed that Federal Solutions' H1 book-to-bill would be driven by areas like Joint Cyber Hunt Kit, FAA awards, and growth across cyber, space, and Critical Infrastructure protection. For M&A, Smith indicated continued focus on Federal (cyber, signals, space, intelligence community) and Critical Infrastructure (water, transportation engineering in Tier 1 states). He acknowledged a small but growing footprint in nuclear, including Department of Energy contracts and microreactor projects, with discussions ongoing in the Middle East.

Tobey Sommer asked about the expected changes in revenue and profit from the FAA customer in 2026, the specific areas driving the federal segment's anticipated greater-than-one book-to-bill in the first half, and the most attractive areas for capital deployment through acquisitions. He also inquired about Parsons' interest in expanding its capabilities in nuclear energy given the global increase in demand.

Answer

Carey Smith, Chair, President, and CEO, expects growth from the FAA technical support services contract, noting the early exercise of a $593 million option. He confirmed that the federal segment's strong book-to-bill in the first half will be driven by areas like the Joint Cyber Hunt Kit, the FAA award, cyber and electronic warfare, Space and Missile Defense, and critical infrastructure protection. For M&A, Smith indicated a focus on federal areas similar to Altamira (cyber, signals intelligence, space, broader IC/NASIC customer reach) and critical infrastructure (water, transportation engineering in Tier 1 states). He acknowledged Parsons' small but growing nuclear footprint, including Department of Energy/NNSA work, microreactor projects, microgrid work, and discussions in the Middle East.

Tobey Sommer of Truist Securities inquired about Parsons' near-term opportunities related to the Golden Dome and FAA procurement programs, asking about the company's pursuit strategy and expectations for Q3 bookings.

Answer

Chair, President & CEO Cary Smith detailed Parsons' strong positioning for both the FAA and Golden Dome initiatives, citing deep experience, key partnerships like with IBM, and significant funding from the recent reconciliation bill. CFO Matt Ophelis added that nearly $3 billion in ceiling remains on existing contract vehicles for these areas. Regarding bookings, Ms. Smith anticipates a robust Q3, in line with seasonal trends, and a full-year book-to-bill ratio of 1.0 for both business segments.

Tobey Sommer asked about any potential negative impacts from the Department of Government Efficiency (DOGE), the likelihood of a material shift toward fixed-price contracting, and the company's M&A expectations for the year.

Answer

CEO Carey Smith stated that Parsons has seen minimal impact from DOGE, as the company is not a consulting firm and does not work with the primary agencies being targeted. She noted discussions with DOGE have been positive, focusing on accelerating FAA modernization. While comfortable with fixed-price work, she has not seen a material shift in contracting. For M&A, the company still expects to complete 2-3 acquisitions this year, with a robust pipeline in both segments.

Tobey Sommer of Truist Securities inquired about the procurement environment, specifically the impact of a paused program on new contract awards, and asked for clarification on the nature of the $29 million in charges taken during the quarter.

Answer

CEO Carey Smith explained that while the procurement cadence is slightly slower, it's offset by more contract extensions and ceiling increases, with less than 5% of 2025 business up for recompete. She also clarified the $29 million in charges were related to two specific programs: one being the company's final legacy contract which is now complete, and the other a settled claim on a separate project that is now executing ahead of schedule. Both issues are now considered resolved.

Tobey Sommer asked for a breakdown of the guidance increase between organic performance and acquisitions. He also inquired about the expected revenue contribution from acquisitions in 2025 and the potential for revenue synergies from the recent BlackSignal and BCC deals.

Answer

CFO Matt Ofilos stated that Q4 growth is about 12% organic and for 2025, BlackSignal is expected to contribute over $100 million and BCC over $100 million. CEO Carey Smith detailed synergy opportunities, noting BlackSignal complements Parsons' existing EW and cyber capabilities for different customers, while BCC strengthens their transportation engineering footprint in the Southeast, particularly in Florida and Georgia, and brings a favorable 50% fixed-price contract mix.

Tobey Sommer inquired about the cash flow expectations for 2026, specifically how the shift of investment from OpEx to capitalized costs influences the EBITDA number. He also asked about the long-term value proposition to customers if the firm reduces its exposure to healthcare risk.

Answer

Jim Allison, Executive Vice President of Finance, Chief Financial Officer and Treasurer, projected CapEx to return to pre-Workday levels of $40 million-$45 million annually, with potentially lower interest expense. He mentioned monitoring cash flow and the possibility of using the credit line. Paul Sarvadi, Chairman of the Board and Chief Executive Officer, emphasized that HR services are the core value, and while benefits are important, the demand for Insperity's service is broader, allowing for purposeful risk reduction in healthcare without compromising the value proposition.

Tobey Sommer questioned the cash flow expectations for 2026, specifically how the shift from OpEx to capitalized investment influences the EBITDA number. He also asked about the long-term impact on the customer value proposition from reducing the firm's exposure to healthcare risk.

Answer

Jim Allison, Executive Vice President of Finance, CFO and Treasurer, indicated that CapEx is expected to return to pre-Workday levels of $40 million-$45 million annually as HRScale investment winds down. He mentioned lower interest expense due to rate cuts and a slightly lower adjusted cash balance, noting the possibility of borrowing on the credit line. Paul Sarvadi, Chairman of the Board and CEO, added that dividends remain a high priority. Regarding healthcare exposure, Jim Allison emphasized that HR services are the core value, and while benefits are important, the demand for services is broader. He noted that the company can purposefully lower benefit risk while maintaining a strong value proposition, similar to its approach with retirement services.

Tobey Sommer from Truist Securities asked if the original $150 million investment forecast for the Workday partnership remains accurate and questioned the long-term margin profile of the business after the new solution is fully implemented.

Answer

James Allison, EVP & CFO, indicated that the total investment in the Workday product over five years might slightly exceed the initial $150 million estimate, but the impact on the income statement is expected to decrease as expenses become capitalizable near launch. Paul Sarvadi, Chairman & CEO, added that he expects the company's long-term margin profile to be better than historical levels, driven by improved client retention, higher pricing for larger clients via the new offering, and enhanced operating leverage.

Tobey Sommer inquired about potential actions from Washington that could improve client confidence and asked how the upcoming fall selling season might be impacted by the progress with the Workday partnership.

Answer

Executive Paul Sarvadi suggested that increased certainty from Washington, particularly regarding the tax system and regulations, could significantly boost client confidence. He expressed optimism for the fall selling campaign, stating that momentum from sales realignments and the tangible progress with Workday could create a more favorable environment compared to the previous year, positioning the company well for 2026.

Tobey Sommer asked for an update on the timeline for both the corporate and client-facing Workday platform launches, questioning if there had been any delays. He also inquired about the potential impact on the selling season, weighing whether prospective clients might delay signing up versus the retention benefits for existing clients.

Answer

CEO Paul Sarvadi stated that while he is not providing a pinpoint launch date to maintain development focus, progress is strong. He clarified that the corporate deployment is a foundational step for the client solution, making their concurrent timing important. Sarvadi also noted that the prospect of the new solution has been a net positive, creating excitement for both prospects and clients without causing sales delays, as it reinforces Insperity's value as a comprehensive technology and service provider.

Tobey Sommer inquired about how Amentum's recent nuclear business announcements will contribute to the P&L, revenue, and profit growth, and whether the nuclear bids and pipeline indicate more rapid growth for this segment compared to the overall firm.

Answer

CEO John Heller highlighted $1 billion in Q1 nuclear awards, noting that while nuclear is a $2 billion business within a $14 billion firm, it shows significant progress and acceleration. He expects accelerating growth markets, including nuclear, space, and digital, to positively impact year-over-year margins. John Heller detailed robust European market activity and accelerating U.S. market opportunities (new starts, SMRs), emphasizing the long-term nature of nuclear projects, with peak revenue typically taking two to five years. CFO Travis Johnson added that Amentum is strategically prioritizing higher-margin work in both accelerated growth and core markets, leading to a shift towards a higher percentage of fixed-price work in the contract mix, which is expected to favorably impact margins.

Tobey Sommer asked about the integration of Amentum's recent nuclear business awards into the P&L, their contribution to revenue and profit growth, and the outlook for nuclear bids and pipeline, specifically if it indicates more rapid growth than the overall firm.

Answer

CEO John Heller highlighted $1 billion in nuclear awards in Q1, noting that while nuclear is a $2 billion segment of Amentum's $14 billion business, it shows significant acceleration. He expects accelerating growth markets, including nuclear, space, and digital, to positively impact year-over-year margins. Heller detailed robust European market activity and accelerating U.S. market momentum in new starts, existing plant extensions, and Small Modular Reactors (SMRs), with projects typically taking 2-5 years to reach peak revenue. Sommer also inquired if the firm's overall bids and pipeline suggest an embedded favorable mix shift from a margin perspective. CFO Travis Johnson confirmed a strategic prioritization of higher-margin work in both accelerated growth and core markets, leading to a gradual shift towards a higher percentage of fixed-price contracts over time.

Tobey Sommer asked about the company's faster-than-anticipated leverage reduction and when Amentum might be in a position to pursue inorganic growth through capital deployment. He also requested clarification on any timing or mixed issues to consider when modeling the quarterly cadence of revenue and EBITDA for fiscal year 2026.

Answer

COO Steve Arnette confirmed Amentum's net leverage at 3.2 times, ahead of schedule, and reiterated the target of less than 3 times by the end of FY26, driven by second-half weighted cash flow. He outlined future capital deployment options including M&A, debt paydown, or share buybacks. CEO John Heller emphasized organic growth opportunities in accelerating markets (space, digital infrastructure, nuclear) but acknowledged M&A could accelerate these. Steve Arnette detailed the FY26 quarterly cadence, expecting a Q1 impact from the government shutdown, followed by sequential increases in revenue, profitability, and cash flow. He noted Digital Solutions would be the predominant growth driver, with Global Engineering Solutions contributing to margin expansion.

Tobey Sommer inquired about the company's accelerated leverage reduction, asking when Amentum anticipates being in a position to pursue inorganic growth and other capital deployment strategies. He also requested insights into any timing or mixed issues that should be considered when modeling the quarterly cadence of revenue and EBITDA across fiscal year 2026.

Answer

CFO Travis Johnson expressed satisfaction with the leverage trajectory, currently at 3.2 times, and reiterated the target of less than three times net leverage by the end of FY26, with the majority of cash flow generated in the second half. He noted a shift in focus towards capital deployment post-FY26, considering options like M&A, further debt reduction, or share buybacks, aiming to maximize free cash flow per share. CEO John Heller added that organic growth opportunities in accelerating markets (space, digital infrastructure, nuclear) are a priority, though M&A could accelerate these. Travis Johnson also outlined that Q1 FY26 would see the impact of the government shutdown, with expected quarterly sequential increases in revenue, profitability, and cash flow throughout the year, driven predominantly by digital solutions and margin expansion in global engineering solutions.

Tobey Sommer inquired about the global demand for Amentum's nuclear solutions and asked for clarification on whether the upcoming divestiture of the Rapid Solutions business was included in the current fiscal year guidance.

Answer

CEO John Heller and COO Stephen Arnette detailed the growing nuclear opportunities in the U.S., U.K., and Australia, driven by energy needs for AI and national security initiatives like AUKUS. They highlighted key projects like Sizewell C. Regarding guidance, John Heller confirmed that due to the expected closing timeline, the divestiture is not expected to have a significant impact on the FY25 forecast.

Representing Tobey Sommer of Truist Securities, an analyst asked about the potential for a Q4 'budget flush' given the slow procurement environment and any related headwinds. They also sought details on the 'Golden Dome' opportunity, specifically the funding and ramp timeline for the 'Shield' initiative.

Answer

CEO John Heller stated that the government is currently working efficiently with a sense of urgency, and he does not anticipate unusual Q4 procurement impacts. COO Steve Arnette elaborated on the Golden Dome initiative, explaining that Amentum's existing work with the Missile Defense Agency on key technologies like hypersonic tracking and digital twins positions them perfectly for the project's rapid deployment focus, which has already received a $25 billion initial investment.

Tobey Sommer of Truist Securities inquired about demand trends in the commercial business, potential involvement in Gaza operations, the current functioning of government payment offices, and the budget outlook for NASA-related activities.

Answer

COO Steve Arnette highlighted strong commercial momentum, particularly with hyperscalers and in the automotive sector, noting a book-to-bill greater than 1. CEO John Heller affirmed Amentum's readiness to support any U.S. government mission globally, while CFO Travis Johnson added that such opportunities represent potential upside not included in current guidance. Johnson also confirmed no slowdowns in government payments. Both Heller and Arnette stressed the strategic importance and resilience of their NASA work, citing the Artemis program and its connection to commercial space.

Tobey Sommer asked for details on Amentum's nuclear energy opportunities, including demand drivers across different geographies, and inquired if the FY2025 guidance includes the recently announced divestiture.

Answer

CEO John Heller and COO Stephen Arnette detailed significant global opportunities in the nuclear sector, driven by the Jacobs acquisition and rising energy demand from AI and data centers. They highlighted key projects like Sizewell C in the U.K., support for SMR developers, and involvement in Australia's AUKUS program. Regarding guidance, John Heller clarified that due to the expected closing timeline in H2 2025, the divestiture is not expected to have a significant impact on FY2025 results and any potential impact would be within the current guidance range.

Asked about the commercial business performance, potential involvement in Gaza operations, the status of government payment processing, and the outlook for their NASA-related business.

Answer

The commercial business is growing with a book-to-bill over 1, driven by AI infrastructure and smart asset management. The company is prepared to support government missions as needed, but such potential is not in guidance. Payment offices are functioning normally. The NASA business is considered resilient and critical for national strategic objectives like the Artemis program and overall space superiority.

Tobey Sommer from Truist Securities asked for details on the commercial business's demand and book-to-bill, the company's potential role in supporting operations in Gaza, the current functioning of government payment offices, and the budget resilience for its NASA-related activities.

Answer

COO Steve Arnette described strong momentum in the commercial sector, with a book-to-bill greater than one, driven by work with hyperscalers on AI, automotive R&D, and smart infrastructure. CEO John Heller affirmed Amentum's readiness to support U.S. government missions globally as needed, while CFO Travis Johnson clarified that such potential opportunities are not included in current guidance. Johnson also confirmed no slowdowns in government payments. Arnette and Heller both expressed high confidence in the NASA portfolio, citing the strategic importance of the Artemis program and NASA's role in national space superiority.

Tobey Sommer with Truist inquired about Exponent's net headcount growth expectations for 2026, specifying which areas would see the most or fewest additions. He also asked if the pace of headcount growth would lead to negative margin implications or if such concerns were behind the company. Additionally, he sought clarification on whether AI is a net benefit or drag to total company growth in the near term and when it became a net contributor, including its impact on recent double-digit year-over-year growth.

Answer

Rich Schlenker, Executive Vice President and CFO, projected 40-60 net headcount additions in 2026, primarily in transportation, energy, battery storage, automation, cybersecurity, and chemicals, while expecting margins to remain flat or improve due to demand-driven hiring and maintained utilization. Catherine Corrigan, President and CEO, affirmed AI as a net benefit, citing its direct impact on failure analysis in automated vehicles, user research for AI devices, and driving energy demand. Rich Schlenker added that Exponent has leveraged AI for over a decade, with mid-teens percent of current business directly or indirectly related to AI, as clients increasingly seek Exponent's expertise to refine AI models for safety-critical applications.

Tobey Sommer inquired about Exponent's expectations for net headcount growth in 2026, highlighting specific areas of focus, and whether this growth would have negative margin implications. He also asked when AI became a net contributor to growth and its impact on recent double-digit growth.

Answer

Rich Schlenker, Executive Vice President and CFO, Exponent, projected net headcount growth of 40-50 (potentially up to 60) in 2026, focusing on transportation, energy, battery storage, automation, cybersecurity, and chemicals (PFAS). He affirmed expectations for flat or improved margins, as hiring aligns with demand and utilization is maintained or improved. Schlenker explained Exponent has leveraged early AI/machine learning for over a decade, with AI now directly driving growth in transportation, user research, and utilities, estimating mid-teens% of the business is AI-related.

Tobey Sommer asked for details on the energy infrastructure business, the size and sustainability of the rebound in the chemicals business, and how AI is impacting the company, particularly regarding the use of AI-driven data in legal settings.

Answer

Executive Catherine Corrigan detailed that the energy business is robust, with proactive risk work for utilities and reactive failure analysis for oil & gas and renewables. Executive Richard Schlenker quantified the chemicals business as low-double-digits of revenue, with Q4 growth in the low-to-mid-teens, driven by a broad-based return of long-term litigation work. Regarding AI, Corrigan explained that while it presents opportunities in areas like advanced driver assistance systems, any AI-based data used in litigation will face the same high level of court scrutiny as any other evidence, a complex environment where Exponent excels.

Tobey Sommer asked about ASGN's capital allocation strategy, balancing stock buybacks with acquisitions, the outlook for the government consulting business, and sustainable gross margins for the federal segment.

Answer

Theodore Hanson, CEO, noted that both share repurchases and strategic acquisitions are accretive, with M&A positioning the firm for future growth and enhancing margins and cash flow. For government consulting, Mr. Hanson expects strong award activity in H1 2026, with growth realized in H2, despite prior shutdown delays. Marie Perry, CFO, added that federal gross margins, post-DOGE contract anniversary in March 2026, are expected to stabilize closer to 20% or slightly more.

Tobey Sommer inquired about ASGN's capital allocation strategy, specifically the balance between stock buybacks and acquiring commercial IT consulting businesses. He also asked for the outlook on the government consulting business, potential book-to-bill improvement, and a sustainable gross margin range for the segment.

Answer

Theodore Hanson, CEO, noted that both share repurchases and strategic acquisitions are accretive and necessary for future positioning, allowing ASGN to do both. For government consulting, Mr. Hanson expects strong award activity in H1 2026, with growth realized in H2, particularly in defense, security, and intelligence. Marie Perry, CFO, added that federal gross margins are expected to stabilize closer to 20% post-March 2026, when the impact of higher-margin contract losses related to DOGE anniversaries.

Tobey Sommer asked about ASGN's assumptions regarding the duration of the government shutdown in its Q4 guidance. He also sought information on which software implementations are driving the best demand in commercial consulting and potential areas for ASGN to add capabilities. Finally, Mr. Sommer questioned if commercial IT consulting is expected to continue growing as a percentage of total sales and drive margin expansion.

Answer

CEO Ted Hanson stated that ASGN did not make a specific assumption on the shutdown's length but it prevented 'stretching' the forecast. President Shiv Iyer highlighted continued demand in data and AI (Snowflake, Databricks), enterprise platforms (Workday, ServiceNow), cloud, and Salesforce capabilities. Mr. Hanson affirmed that commercial IT consulting is expected to remain a key driver of margin expansion and a focus for capital allocation, continuing to grow as a percentage of total sales.

Tobey Sommer asked about ASGN's assumptions regarding the duration of the government shutdown, the specific software implementations driving demand in commercial consulting, and whether commercial IT consulting is expected to continue growing as a percentage of total sales and drive margin expansion.

Answer

CEO Ted Hanson stated that ASGN did not assume a specific shutdown length but it prevented 'stretching' the forecast, noting its immaterial impact so far. President Shiv Iyer highlighted strong demand in data and AI (Snowflake, Databricks), enterprise platforms (Workday, ServiceNow, Salesforce), and cloud services. Ted Hanson confirmed that commercial IT consulting is absolutely expected to be a larger percentage of sales and a key driver of margin expansion and capital allocation.

Tobey Sommer of Truist Securities inquired about the performance of the recent TopLock acquisition, the impact of AI on the cyclical Creative Circle business, and the long-term margin profile and growth outlook for the federal government segment.

Answer

CEO Ted Hanson confirmed that TopLock is performing ahead of revenue and bookings expectations, with EBITDA margins in the high teens. Both Hanson and President Shiv Iyer attributed the softness in the Creative Circle business to macroeconomic cyclicality rather than AI, noting underlying stability. Regarding the federal business, Hanson expressed optimism for Q3 contract awards, while he and CFO Marie Perry projected long-term gross margins would remain in the 20-21% range despite the loss of certain high-margin contracts.

Tobey Sommer of Baird inquired about the composition of recent bookings, asking for a breakdown between new projects and renewals, and sought details on the specific impact of the Directive on Government Efficiency (DOGE) on the Federal business.

Answer

CEO Ted Hanson clarified that commercial bookings consist of a healthy mix of renewal and new work, with renewals being a larger but stable percentage. For the Federal segment, he noted that strong bookings included both recompetes and new work, with no significant change in trends. Regarding DOGE, Hanson specified that the impact was concentrated on the Federal civilian side in traditional management consulting roles, which represent a small portion of ASGN's technical-focused federal portfolio.

Tobey Sommer sought more detail on the federal civilian business exposure, the TopBloc deal process, and strategic actions taken to drive growth. He also asked about the performance of the Creative Circle business.

Answer

CEO Theodore Hanson clarified that federal civilian exposure is dispersed with no large client concentration and focuses on high-end IT services. He and President Randolph Blazer highlighted key growth strategies including strengthening solution capabilities, enhancing tech alliances, and focusing on key accounts. Hanson noted that Creative Circle's revenue declined in the low to mid-teens but is showing the same positive leading indicators as the broader business.

An associate for Tobey Sommer asked about the drivers behind the strong 2.1x book-to-bill in the Federal segment, how much of a large DHS contract was booked, and if the consulting personnel mix has changed.

Answer

Executive Theodore Hanson attributed the strong federal bookings to focused execution and the realization of task orders from previously won IDIQs. He declined to specify the net amount booked from the DHS contract. Regarding personnel, both Hanson and Executive Randolph Blazer emphasized the flexibility of their model, which utilizes contingent labor from their staffing business, avoiding a large, fixed bench.

Tobey Sommer asked about Robert Half's historical incremental margins during a recovery and any anticipated nuances compared to past cycles. He also inquired about the leading and lagging industry verticals within Protiviti, specifically addressing the performance of financial services.

Answer

CEO Keith Waddell stated that Robert Half expects to retrace its incremental margins during recovery, similar to the deleveraging seen during downturns, with easier releveraging in corporate services and field management. For Protiviti, he noted that Financial Services (FSI), its largest group, faces a modest headwind in the U.S. due to a benign regulatory environment. This is offset by strong growth in technology modernization, data optimization, and platform modernization, with increasing traction in the PE/IPO transaction market, making Protiviti's pipeline disproportionately tech-related.

Tobey Sommer asked about the historical incremental margins during a recovery period and any anticipated nuances or differences in the current recovery. He also inquired about the industry verticals driving growth and lagging within Protiviti, specifically touching on financial services.

Answer

CEO Keith Waddell suggested that a conservative approach to incremental margins in a recovery would be to retrace the deleveraging seen during the downturn, particularly in corporate services and field management. For Protiviti, Mr. Waddell noted that Financial Services (FSI), while its largest group, faces a modest headwind in the U.S. due to a more benign regulatory environment. This is offset by strong demand in technology consulting (platform modernization, data optimization) and emerging traction in the PE/IPO transaction market, making Protiviti's pipeline disproportionately tech-related.

Tobey Sommer inquired about the performance of Protiviti's financial services clients and asked about the company's internal hiring posture for its own staff given the current environment.

Answer

President & CEO M. Keith Waddell explained that since financial services constitute nearly half of Protiviti's revenue, its performance mirrors the division's overall trends, including extended decision cycles. Regarding internal hiring, he stated the company believes it has unused capacity and is holding the line on adding staff, confident it can participate in an upswing without immediate hires.

Tobey Sommer of Truist Securities asked which potential policy changes would be most critical in converting small business optimism into actual hiring. He also inquired about trends Protiviti is seeing related to capital markets and M&A activity, as well as the performance of its financial services vertical.

Answer

Executive M. Waddell identified less regulation, more M&A-friendly policies, and stable or lower tax rates as key drivers. Regarding Protiviti, he noted a slight uptick in M&A/IPO-related work and stated the division would be a big beneficiary of a recovery in that area. He described the financial services vertical, which is 40% of Protiviti's revenue, as 'very strong' across solutions like anti-money laundering and internal audit.

Tobey Sommer requested an update on the company's government business since its expansion during the pandemic and asked about differing trends within the technology staffing segment.

Answer

CEO M. Waddell confirmed the government business has performed well, successfully transitioning pandemic-era projects to ongoing work without a 'cliff event'. In technology, he noted that the high-end software and applications sub-segment (driven by data, cloud, and security) is showing more strength than the operational and infrastructure side, contributing to tech's overall better relative performance.

Tobey Sommer asked about capital deployment, specifically if there's a shift towards share repurchase and how the projected $12 billion in free cash over 2027-2028 would be split between core acquisitions, non-core investments, and repurchase. He also inquired about healthcare customers' tolerance for price increases given federal funding declines, and the palpable industrial optimism in the hazardous waste business.

Answer

EVP and CFO David Reed described 2026 as a year of harvest with a balanced capital allocation program, expecting continued share repurchases alongside disciplined investment opportunities. CEO Jim Fish stated he hasn't heard intolerance for price increases from healthcare customers, emphasizing the value proposition of combined services. President and COO John Morris pointed to the strong special waste pipeline as a barometer for industrial optimism.

Tobey Sommer, Managing Director at Truist, questioned WM's capital deployment strategy, asking if there's a broad shift towards share repurchase, and how the projected $12 billion in free cash flow over 2027-2028 will be allocated between core acquisitions, non-core investments, and share repurchases. He also inquired about healthcare customers' tolerance for price increases given federal funding declines, and whether the industrial optimism is palpable in the hazardous waste business.

Answer

CFO David Reed emphasized a "balanced approach" to capital allocation, with 2026 being a "year of harvest," and confirmed that the share repurchase program will continue, governed by investment opportunities. CEO Jim Fish and President John Morris noted no expressed intolerance for price increases from healthcare customers, citing the strong value proposition of WM's integrated services. John Morris pointed to the strong and unslowing special waste pipeline as a barometer for industrial optimism, which is closely aligned with hazardous waste.

Tobey Sommer of Truist Securities asked about the timing and financial impact of WM's landfill advantage, as discussed at its Investor Day, and inquired about plans for internalizing the Healthcare Solutions fleet.

Answer

CEO Jim Fish stated the landfill advantage is already manifesting and will become more acute as industry capacity gets constrained, pointing to the early 2030s as a key period. Regarding the fleet, SVP Rafael Carrasco explained that they will strategically replace leased vehicles with owned ones over time to smooth out capital spending, rather than accelerating lease payments, and will realize OpEx synergies from internal maintenance.

Tobey Sommer asked for high-level learnings and any major surprises from the Stericycle acquisition since the deal was initiated. As a follow-up, he inquired whether the market should anticipate further international divestitures from the acquired portfolio.

Answer

Executive Rafael Carrasco and CEO Jim Fish both stated there have been no negative surprises. They highlighted the resiliency of the Stericycle network and customer base, affirming the strategic rationale of acquiring a business with a strong growth trajectory. On divestitures, Carrasco noted they are pleased with the UK and Ireland business and are currently evaluating the smaller Western Europe operations.

Tobey Sommer of Truist asked how current returns on RNG and recycling projects compare to the targets set at the last Investor Day and whether immigration trends are a relevant factor for WM's business and labor force.

Answer

EVP and CFO Devina Rankin stated that project returns are tracking closely to Investor Day models, with RNG EBITDA flow-through at the expected 75% and recycling performing as modeled. The main change has been higher capital costs, though still within the original payback period. President and CEO Jim Fish asserted that immigration is not a relevant factor for WM, as all employees are documented and paid a good wage, and he could not comment on smaller competitors.

Tobey Sommer asked about the potential for further improvement in employee retention, how acquisition targets compare on operational metrics, and the strategy for investing in the company's remaining landfill gas resources.

Answer

EVP & COO John Morris noted that retention for drivers and technicians continues to improve despite wage pressures, and that acquisitions benefit from applying the 'WM Way' playbook. SVP & Chief Sustainability Officer Tara Hemmer said the company is evaluating its next tranche of RNG projects and may partner on smaller sites, with a decision expected in 2025. EVP & CFO Devina Rankin highlighted that strong free cash flow provides flexibility for future growth investments post-Stericycle.

Tobey Sommer asked about the interplay between a potential substantial increase in defense spending and offsetting fiscal restraint, specifically whether the civil sector might be a source of such restraint. He also inquired about capital deployment, asking if Booz Allen Hamilton plans to utilize its strong balance sheet more for portfolio changes, and about the impact of the Executive Order (EO) on share repurchases and potential constraints.

Answer

Chairman, CEO, and President Horacio Rozanski noted that fiscal restraint in civil has been a trend, with the Department of Defense also reprogramming funds towards key priorities. He stated that the administration is focusing national investment on specific areas, and Booz Allen is anticipating this by positioning capabilities and investing in growth vectors, while building agility into its system. Executive Vice President and Chief Operating Officer Kristine Martin Anderson added that civil missions are enduring, but the approach and focus areas change, now ready to move forward. Horacio Rozanski stated that the EO is not expected to negatively apply to Booz Allen due to its less capital-intensive work and strong performance. He confirmed unchanged capital deployment priorities, including seeking smaller, impactful M&A in growth vectors, supporting dividends, and opportunistic share repurchases, with a focus on reaccelerating growth.

Tobey Sommer inquired about the potential interplay between a substantial increase in defense spending and offsetting fiscal restraint, specifically asking if the Civil sector might be a source of such restraint. He also questioned Booz Allen Hamilton's capital deployment strategy, asking if the company plans to utilize its strong balance sheet more for portfolio changes and if the recent Executive Order (EO) constrains future share repurchases.

Answer

Chairman, CEO, and President Horacio Rozanski and Executive Vice President and COO Kristine Martin Anderson noted that fiscal restraint has been a trend, with defense funding focused on key priorities and reprogramming efforts. Horacio Rozanski clarified that the EO primarily targets underperforming defense contractors, which does not apply to Booz Allen due to its less capital-intensive work and strong delivery. He affirmed unchanged capital deployment priorities, including strategic M&A in growth vectors, continued dividends, and opportunistic share repurchases, leveraging the strong balance sheet as a strategic asset.

Tobey Sommer asked about Booz Allen Hamilton's process for balancing growth investment allocation against near-term profitability and headcount cuts, and how decisions are made on this 'tightrope.' He also inquired whether the civil business margin is expected to hold amid significant top-line changes, given that margin compression often accompanies such shifts.

Answer

Horacio Rozanski (Chairman, CEO and President) explained that the company manages for the medium and long term, making investments for future growth while undertaking cost reductions to ensure short-term delivery and capacity for nimble investment. Matt Calderone (EVP and CFO) added that the $150 million cost reduction is driven by numerous investment opportunities in a dynamic environment, prioritizing growth vectors. Kristine Anderson (EVP and COO) acknowledged expected pricing competition in civil due to fewer bids and more aggressive pricing but noted the ability to use technology to innovate delivery and preserve margin.

Tobey Sommer asked about Booz Allen Hamilton's process for balancing growth investments against near-term profitability targets and headcount reductions, and whether the civil business margins are expected to hold steady despite significant top-line changes.

Answer

Horacio Rozanski (Chairman, CEO and President) emphasized managing for the medium and long term, making prudent investments for future growth while undertaking cost reductions to ensure short-term delivery and capacity for investment. Matt Calderone (EVP and CFO) added that the $150 million cost reduction is driven by numerous investment opportunities in a dynamic market. Kristine Anderson (EVP and COO) acknowledged expected pricing competition in civil due to fewer bids and more aggressive pricing, but noted the ability to preserve margins through technology-driven innovation in delivery.

Tobey Sommer of Truist requested more detail on which Civil clients are exhibiting changes in behavior and asked about the potential for increased outsourcing if a significant number of government employees resign.

Answer

CEO Horacio Rozanski clarified that Booz Allen's Civil business is focused on key agencies like the VA and Treasury (IRS), which are ripe for transformation, and has moved away from smaller agencies now seeing the most disruption. He emphasized that the company is not in the staff augmentation business but focuses on bringing technology to bear on client missions, which is where they see the primary opportunity.

Tobey Sommer of Truist Securities inquired about the difference in growth rates between total and funded backlog, the potential business impact if current global conflicts were resolved, and the current state of the recruiting and retention environment.

Answer

CFO Matt Calderone attributed the backlog growth difference to the longer duration of new contracts and stated it was not a concern. CEO Horacio Rozanski noted that if conflicts were resolved, the highly skilled staff could be redeployed to new work. Both executives described the recruiting environment as very strong, citing the power of the Booz Allen brand, strong employee referrals, and receiving over 100,000 applicants in a single month.

Tobey Sommer asked if CACI anticipates another strong year of defense spending growth in 2027, given recent presidential indications, and inquired about the remaining incremental program ramp from large marquee contract wins over the last few years to support future growth.

Answer

CEO John S. Mengucci acknowledged the $1.5 trillion FY27 defense spending indication but noted uncertainty regarding appropriator support and the early stage of the budget request. He reiterated CACI's focus on its $300 billion total addressable market (TAM) and ability to grow regardless of top-line budget fluctuations. CEO John S. Mengucci and CFO Jeffrey D. MacLauchlan confirmed significant remaining ramp from recent wins, with early program phases focused on design and development. They cited ITAS, NASA, NCAPS, and Spectral as examples of programs still ramping, often reaching maximum growth three to four years into the program.

Tobey Sommer from Truist Securities, Inc. asked for a characterization of CACI's pipeline, distinguishing between work that is entirely new to the market versus work taken from incumbents. He also inquired about the role of outcome-based pricing in these opportunities.

Answer

President and CEO John Mengucci estimated that new-to-market work is roughly 60-70% of the pipeline, but stressed that CACI focuses on bringing new, better solutions to customers regardless of whether it's a new program or a takeaway. CFO Jeffrey MacLauchlan added that these opportunities align well with designing successor programs that incorporate more outcome-based content, moving away from traditional contracting models.

Tobey Sommer inquired about the biggest opportunities for CACI from the potential $1 trillion DoD budget and increased border security funding, and requested an update on the production ramp of the optical communications business.

Answer

CEO John Mengucci highlighted electronic warfare, INDOPACOM readiness, and border protection technologies like counter-drone systems as key opportunity areas. Regarding optical communications, he stated CACI is on track to deliver at least 6 times more terminals in FY25 than in FY24, having overcome significant production challenges and is confident in hitting its delivery goals for the year.

Tobey Sommer of Truist Financial Corporation inquired about the impact of the government's return-to-office mandate on CACI and asked what proportion of the company's revenue is priced on outcomes.

Answer

CEO John Mengucci stated that CACI's remote work policies are determined at the program level based on customer and security needs, and it's too early to assess the full impact of the government mandate. He estimated that 85-90% of CACI's work is outcome-based, reflecting the company's strategic shift from labor-hour support to technology-driven solutions.

Speaking on behalf of Tobey Sommer, an analyst asked for details on CACI's recent win rates and any specific factors driving its business development performance compared to historical trends.

Answer

CEO John Mengucci did not provide specific win rate percentages but emphasized a strong focus on recompetes, which are traditionally above 90%. He attributed overall success to CACI's strategy of 'bid less and win more' and focusing on larger, longer-duration programs. He noted that more detail on their successful business development engine would be provided at the upcoming Investor Day.

Tobey Sommer inquired about the time savings and efficiencies gained from using AI tools in the search business, asking if it shortens fulfillment time or if clients are requesting more, thus keeping the time equivalent.

Answer

CEO Gary Burnison confirmed that the process is definitely more efficient, partly due to technology and changes in work methods post-COVID, such as increased use of Zoom. He noted that AI has had a much bigger impact on the RPO business. CFO Bob Rozek elaborated that AI has been utilized in RPO for several years, primarily in the research phase for candidate identification and sourcing, mentioning a tool called KF Nimble Recruit for 'recruiterless recruiting.' Mr. Sommer also asked about the sunsetting of an old system and its accounting impact related to the Talent Suite launch. Mr. Rozek explained that the Talent Suite, launched on November 17th, consolidates foundational assets into a single repository with harmonized data, replacing the older 'Talent Hub' system. The sunsetting of the old system in July led to an acceleration of its remaining undepreciated cost in the quarter. Regarding the financial impact of Talent Suite, Mr. Burnison expects it to be incredibly positive, enabling clients to license all of Korn Ferry's IP and providing deep analytics, particularly highlighting a multi-billion dollar opportunity in pay transparency. Mr. Rozek provided an example of how Talent Suite streamlines the assessment and development content delivery process. Finally, Mr. Sommer asked if there had been any change in behavior since Heidrick & Struggles agreed to go private, to which Mr. Burnison responded, 'No, not at all.'

Tobey Sommer inquired about the time savings and efficiencies gained from AI tools in the search business, the details and accounting impact of sunsetting an old system related to the Talent Suite launch, the expected financial impact of Talent Suite, and any observed changes in competitor behavior since Heidrick & Struggles agreed to go private.

Answer

CEO Gary Burnison noted AI's limited but growing impact on executive search efficiency, with COVID-era remote work being a larger driver, while AI has had a much bigger impact on RPO. CFO Bob Rozek explained Talent Suite's role in consolidating foundational assets, harmonizing data, and enabling analytics, leading to accelerated depreciation of the old 'Talent Hub.' Both executives expressed excitement about Talent Suite's potential for cross-selling IP and addressing market opportunities like pay transparency, but acknowledged it will take time. CEO Gary Burnison reported no observed change in competitor behavior.

Tobey Sommer asked about current client sentiment amidst economic uncertainty, recent BLS job revisions, and potential Fed rate cuts, specifically inquiring about regional differences and the long-term impact of AI on workforce strategies. He also questioned the firm's participation in merger and divestiture consulting services, particularly corporate breakups, and whether there is excess capacity to meet an appreciable uptick in demand without impacting margins.

Answer

CEO Gary Burnison noted varying client optimism by region, with strong rebounds in Europe and Asia, while the Americas grapple with pricing power and escalating costs. He highlighted a two-year labor recession, natural attrition, and AI's potential to reduce workforce size as major themes. Burnison confirmed participation in some M&A-related consulting but emphasized private equity as a larger driver. He stated the firm has capacity to meet increased demand, linking a significant economic turnaround to substantial Fed rate cuts. CFO Bob Rozek added that AI and GenAI initiatives are expected to enhance capacity and efficiency.

Tobey Sommer asked about client sentiment amidst economic uncertainty, BLS job creation revisions, and potential Fed rate cuts. He also questioned the company's participation in M&A and divestiture consulting, particularly corporate breakups, and whether there is excess capacity to meet an appreciable uptick in demand without impacting margins.

Answer

CEO Gary Burnison described varying client optimism regionally, noting optimism in the Americas, a rebound in Asia and Europe, and challenges in life sciences/healthcare. He highlighted strength in industrial and private equity sectors. Regarding M&A, he mentioned participation in a couple of corporate breakups but emphasized greater activity on the private equity side due to longer portfolio company hold times. Gary Burnison also stated that there is capacity to meet increased demand, but significant Fed rate cuts would be needed for a dramatic economic shift. CFO Bob Rozek added that the company's formal organization around AI/GenAI is expected to help manage any rapid rebound in demand.

Tobey Sommer from Truist Securities questioned the impact of historically low employee turnover on the labor market, the drivers of corporate productivity, and the internal strategies being used to accelerate the Digital business.

Answer

CEO Gary Burnison stated that low turnover is a negative sign, driven by an anemic labor market where people are hesitant to leave jobs. He identified monetizing the company's vast IP as the biggest wildcard for future scalability and productivity. To accelerate Digital, he mentioned focusing on a 'one firm' mindset, targeting marquee accounts, and implementing programmatic cross-selling.

Tobey Sommer of Truist inquired about the nature of recent fee-earner hiring, the specifics of the strategic pivot to more profitable work in Professional Search and Interim, and the context behind the tripling of large consulting engagements.

Answer

Executives Gary Burnison and Robert Rozek clarified that the 50 recent hires were a gross number, concentrated in Executive Search and Consulting, and that the firm intends to be a net hirer. The profitability pivot involves focusing on specific industries, geographies (EMEA), and marquee clients. Rozek specified that the value of consulting engagements over $2.5 million grew from approximately $3.5 million to over $12 million in a single quarter.

Tobey Sommer asked if the current U.S. antitrust posture could lead to larger deals for GFL or within the industry over the next three years. Sommer also inquired about the upper bound for commodity-related areas as a percentage of sales that GFL's portfolio could sustain while still warranting a higher valuation multiple.

Answer

Patrick Dovigi, CEO and Founder of GFL, stated that for GFL's typical deals, the HSR and regulatory environment hasn't significantly changed, but acknowledged that the current administration might be opportune for 'mega-mergers.' He indicated that commodity-related areas (R&G, recycling) are currently 'sub 10%' of revenue, and a 10-15% range would be comfortable, as these assets are margin-accretive and meet ROI thresholds.

Tobey Sommer asked about the impact of a more permissive U.S. antitrust posture on the potential for larger deals for GFL or within the industry over the next three years. Sommer also inquired about the upper bound, as a percentage of sales, that commodity-related areas within the portfolio could reach while still warranting a higher multiple compared to the current dislocated price.

Answer

Patrick Dovigi (CEO and Founder, GFL) believes that if a mega-merger were to happen, now would be the time, but he hasn't seen much change in the HSR and regulatory environment for the 95%-99% of deals GFL does, which are below the HSR threshold. Dovigi stated that commodity-related areas (R&G, recycling) are currently sub-10% of sales for the industry. He considers these good margin-accretive assets that meet ROI thresholds, and while he wouldn't want this number at 20%, he finds 10-15% comfortable, especially with current structures.

Representing Tobey Sommer of Truist Securities, an analyst asked for the outlook on industrial and construction activity for the remainder of the year and into 2026. He also inquired if the new U.S. administration is creating an easier path for M&A.

Answer

Founder, Chairman, President & CEO Patrick Dovigi stated that he does not anticipate a material recovery in C&D or industrial volumes this year due to political and tariff uncertainty. Regarding M&A, he noted that since the lion's share of GFL's deals are below the HSR threshold, a change in administration does not create a huge differentiator for their acquisition strategy.

On behalf of Tobey Sommer, Sidney Schultz asked if GFL is observing any changes in the M&A market or seller behavior due to broader macroeconomic uncertainty.

Answer

CEO Patrick Dovigi stated that seller behavior has not materially changed, as the waste industry is resilient in both good and uncertain economic times. He noted that while uncertainty can sometimes create incremental opportunities, the M&A pipeline and market dynamics are currently proceeding as normal.

On behalf of Tobey Sommer, his associate asked if the guided low-to-mid 4% cost inflation for 2025 reflects an easing from Q4 2024 levels.

Answer

Executive Luke Pelosi responded that while they have seen sequential easing in cost inflation through 2024, the 2025 guide is appropriately conservative and based on current exit rates. He stated it does not assume further reductions from here, meaning if inflation eases more than expected, it could yield upside to the guide. He sees de minimis risk of inflation being materially higher than the guided range.

Tobey Sommer inquired about recent trends in employee attrition and safety expenses, as well as any potential loss of cross-selling benefits between the Solid Waste and Environmental Services (ES) segments if ES were sold.

Answer

CEO Patrick Dovigi noted that employee turnover is trending down towards pre-COVID levels, currently just above 20%. Regarding cross-selling, he explained that the existing 'buddy-buddy' sales system is beneficial to both business lines and he believes it would likely remain in place through a commercial agreement post-transaction, as customers are already invoiced separately.

Tobey Sommer questioned how social costs would re-inflate gross margins if employer optimism improves, given that unemployment rates did not significantly rise. He also asked about ManpowerGroup's competitive positioning from an internal IT perspective, considering its process improvement and global standardization efforts for large enterprise customers.

Answer

Chairman and CEO Jonas Prising stated that changes in gross margin are primarily business mix-related, and social costs are not expected to be a major factor in gross profit margin differences, barring legislative changes, as employment levels haven't significantly declined. He believes ManpowerGroup is very well-positioned competitively with 90% of revenues flowing through a common global front office platform and an extensive data lake, aiming to leverage scale for efficient transactional activity and enhanced human interactions.

Tobey Sommer asked about the potential re-inflation of social costs impacting gross margin if employers become more optimistic, given that unemployment rates haven't significantly risen. He also questioned ManpowerGroup's competitive position from an IT perspective, specifically regarding process improvement and global standardization, relative to its largest enterprise competitors.

Answer

Chairman and CEO Jonas Prising stated that social costs are not expected to significantly impact gross margin due to stable employment, barring legislative changes, and emphasized that increased permanent recruitment would positively affect gross profit. He asserted ManpowerGroup's strong competitive position, highlighting that 90% of revenues flow through a common global front office platform and an extensive data lake. He stressed that the focus is on leveraging this platform for efficient transactional activity and enhanced human interactions, which is where true value is created.

Tobey Sommer asked about the company's capital deployment strategy, potential M&A targets, and what kind of upskilling services customers are demanding in the context of AI's growing influence.

Answer

CFO Jack McGinnis stated that the capital allocation strategy is unchanged, prioritizing share repurchases and internal investment in growth markets like Italy and Japan. He noted M&A is more likely after a market inflection, with a focus on Experis (IT services) and Talent Solutions (RPO). CEO Jonas Prising added that upskilling demand is focused on augmenting human capabilities to work with AI, with specific needs in full-stack development, cybersecurity, and data analytics, leveraging their Experis Academy and Manpower MyPath programs.

Tobey Sommer asked for specifics on European policy changes aimed at improving competitiveness and whether restructuring in Germany is sufficient for profitability at current demand levels.

Answer

Chief Executive Officer Jonas Prising highlighted a 5-pillar European plan focusing on areas like developing a skilled workforce, which he sees as a direct opportunity. Regarding Germany, he stated that the market remains in a 'big slump' and that while progress has been made, the company still has a 'long way to go' and 'more work to do,' implying that both further actions and improved demand are needed.

Tobey Sommer inquired about the potential shape of a recovery for the staffing industry, given the current cycle's unique characteristics, and asked for more detail on the U.S. Experis business trends.

Answer

CEO Jonas Prising stated that a recovery is a matter of when, not if, and highlighted that key sectors for staffing, like manufacturing, have been weak and thus have significant rebound potential. He noted that within U.S. Experis, large enterprise clients are still pausing projects, with demand shifting to smaller-scale AI and cyber initiatives, while the convenience side is also facing headwinds.

Tobey Sommer from Truist Securities asked about the drivers behind the regional margin variations in Executive Search. He also inquired about client sentiment in capital markets-related sectors, the most promising industry verticals for growth, and the sustainability of the improved profitability in the Heidrick Consulting segment.

Answer

CFO Nirupam Sinha attributed the strong European margin to significant revenue growth and scale, while the Americas margin was impacted by the timing of bonus accruals for high-producing consultants, noting no structural change. CEO Tom Monahan described the current environment as a series of 'microclimates,' stating the firm is built to be 'all-weather' and that growth is more thematic (e.g., AI, restructuring) than industry-specific. Regarding consulting margins, Monahan expressed pleasure with the quarterly progress but emphasized focusing on the long-term trajectory rather than a single quarter's results.

Tobey Sommer of Truist Securities inquired about client confidence amid political and economic uncertainty, the company's strategy for managing its sales-generating headcount, and any notable pockets of strength or weakness across geographic and industry verticals.

Answer

CEO Tom Monahan stated that volatility and change create opportunities, as clients question their leadership needs, which has translated into business growth. He also noted that headcount growth will likely align with the long-term revenue growth targets from their Investor Day. CFO Nirupam Sinha added that performance has been strong across the board geographically, with particular momentum in North America, and that most industry sectors were robust, though consumer comps were less so in 2024.

Tobey Sommer inquired about the drivers of the Executive Search market, questioning if growth stems from higher fees or volume, and asked about October's performance. He also asked if demand is from new role creation versus turnover, and questioned the firm's management philosophy on profitability for its newer business segments.

Answer

VP & Controller Steve Bondi stated that confirmation growth was strong, particularly in October, and that client demand remains robust despite economic uncertainty. CEO Thomas Monahan added that while turnover from the 'great resignation' has normalized, new trends like AI are creating novel executive roles. Regarding newer segments, Monahan emphasized a focus on 'disciplined execution' to achieve profitable growth, not choosing one over the other, by scaling the most advantageous offerings.

Representing Tobey Sommer of Truist, an analyst asked about the potential risk that lower staffing levels among federal contracting officers could pose to the upcoming Q3 budget flush season. The analyst also inquired about the commercial energy segment, specifically asking how much of its growth is being driven by the build-out of data centers and whether utility growth plans for this demand are stabilizing or still increasing.

Answer

CEO John Wasson acknowledged that procurement staff turnover is a risk but affirmed his expectation that Q3 will still be a seasonally strong sales quarter. On commercial energy, Wasson characterized the electricity demand growth from data centers as "unprecedented" and a "ten to twenty year challenge." He stated this will require an "all of the above" approach to energy solutions, including renewables, natural gas, and energy efficiency, creating enormous and sustained opportunities for ICF.

Tobey Sommer asked about the maturation of the commercial energy business beyond efficiency projects, the growth outlook for the state and local disaster recovery business given potential FEMA changes, and the strategic rationale for keeping the federal and commercial energy businesses integrated.

Answer

Executive John Wasson explained that commercial energy clients are increasingly adopting a broader suite of services like flexible load management and electrification, which are scaling from successful pilots. He affirmed a positive growth outlook for the disaster recovery business, driven by a strong pipeline. Wasson also stated that the energy business is an integrated set of capabilities sold across federal, state, and commercial clients, and the company sees value in this integrated portfolio.

Tobey Sommer from Truist asked for details on the programmatic work not at risk, the customer overlap between IT and programmatic segments, the impact of potential FEMA staff cuts on disaster recovery work, and how the company plans to maintain employee morale.

Answer

Executive John Wasson explained that programmatic impacts would likely be proportional to the revenue mix across civilian agencies, though he noted IT and domain work often serve different client leaders within the same agency. He does not expect federal staff cuts at FEMA to adversely impact ICF's state and local disaster recovery business. Wasson also stated the company will leverage its diversified portfolio to manage staff, while Executive Barry Broadus added that the goal is to maintain margins by managing the cost structure.

Tobey Sommer of Truist Securities inquired about the expected impact of elevated utility demand on the growth rate and duration for ICF's commercial energy business. He also asked about the sustainability of the higher direct labor mix and whether the new lower tax rate is a reliable proxy for the future.

Answer

CEO John Wasson described the rising utility demand as a 'once in 100-year trend' that will create long-term opportunities for ICF's advisory and implementation services for decades. CFO Barry Broadus confirmed the new, lower tax rate of approximately 21% is expected to be sustainable for the next couple of years due to optimization strategies. Both executives affirmed that the profitable shift towards more direct ICF labor is expected to continue, driven by the high-growth energy business.

Tobey Sommer of Truist Securities questioned if Kforce's offshore capabilities provide a sufficient range of price points for clients. He also asked how the Q3 guidance compares to historical seasonality and requested quantification of expected cost savings from the Workday implementation and other internal investments.

Answer

COO David Kelly explained that Kforce's Pune development center complements its U.S. offerings with blended, cost-effective models focused on existing skill sets. CFO Jeffrey Hackman provided context that pre-COVID, typical Q3 sequential tech growth was around 2%. Hackman reiterated that the Workday implementation is expected to yield 100 basis points of operating margin benefit by 2027, with other initiatives also contributing to long-term profitability goals.

Tobey Sommer asked for a status update on the timelines for key internal initiatives like the Workday implementation and the India development center. He also questioned the nature of higher healthcare costs and sought more detail on Kforce's exposure to government system integrators and the financial services vertical.

Answer

COO David Kelly confirmed the Workday project is on schedule for a Q1 2026 go-live and the India center became operational in early 2025. CFO Jeff Hackman attributed higher healthcare costs to claim severity, not volume. Kelly described the firm's indirect government exposure via large system integrators as nominal (mid-single digits) and noted that performance in the financial services vertical was mixed on a client-by-client basis, making it an unreliable industry bellwether.

Tobey Sommer requested a breakdown of the key drivers behind the expected 100 basis point operating margin improvement at prior peak revenues. He also asked for more color on the financial services vertical's recovery and the firm's experience with demand from systems integrators.

Answer

CFO Jeff Hackman identified the main drivers for margin improvement as scale benefits, productivity gains from internal tools, the back-office transformation program (expected to yield ~90 basis points), and an improved mix of higher-margin solutions offerings. COO David Kelly added that the improvement in financial services is broad-based across traditional work like data, digital, and application development. He also noted that systems integrators represent less than 10% of the business and their needs are similar to other industries.

Tobey Sommer of Truist Securities asked about the pace of senior professional hiring for the remainder of the year, the net positive or negative impact of the current U.S. regulatory environment, and for clarification on whether the expected 'low point' for the Economics segment referred to revenue, margin, or EBITDA.

Answer

CEO Steven Gunby described the record first-half hiring as opportunistic and supply-driven, dependent on talent availability from competitor disruptions rather than a set forecast. On regulation, Mr. Gunby assessed the net impact as likely 'more headwinds overall this year,' negatively affecting FLC, Tech, and Econ, though CFO Ajay Sabherwal noted FLC's remarkable resilience. Mr. Sabherwal clarified his 'low point' comment for the Econ segment referred specifically to adjusted EBITDA, which is expected to bottom in the coming months as cost pressures from hiring peak and revenue stabilizes, before beginning a gradual recovery.

Tobey Sommer inquired about the annualized revenue headwind from departures in the Economic Consulting segment, its long-term margin profile, trends in the healthcare business, the proportion of business driven by regulators, and details on recent headcount actions.

Answer

CEO Steve Gunby stated the bottom-line impact on Economic Consulting would be substantial and likely higher than his previous $35 million estimate due to retention costs and new affiliate hires. CFO Ajay Sabherwal added that the revenue impact is already visible in Q1 results and that cost impacts from forgivable loans will be significant in Q2. Regarding healthcare, both executives confirmed the practice had a strong quarter. Sabherwal found it difficult to precisely size the regulator-led portion of the business but noted practitioners remain positive. He also detailed that the headcount actions affected over 400 people across all levels and geographies.

Tobey Sommer inquired about the senior departures in the competition practice, asking if they were concentrated in a specific industry vertical. He also asked about FTI's value proposition for recruiting new economists and the potential impact of a change in government administration on the business.

Answer

President and CEO Steve Gunby explained that the departures were not industry-specific but rather driven by personal relationships with a single individual. He stressed that the remaining team is exceptionally strong. Gunby outlined FTI's recruiting appeal, which is based on its reputation for academic rigor, the quality of its professional support staff, and the integrity of the Compass Lexecon brand. Regarding potential administration changes, he acknowledged the uncertainty but stated the firm's long-term success is based on its fundamental strengths, not short-term policy shifts.

Representing Tobey Sommer, Tyler Barish asked about potential business headwinds and tailwinds for 2025, the company's strategy for using cash, including share buybacks, and the primary drivers for future margin expansion.

Answer

President and CEO Steve Gunby declined to predict election impacts, stating the company focuses on positioning itself to meet client needs that arise from major events. On cash deployment, he emphasized a long-term value creation approach, using cash for strategic acquisitions, debt management, or opportunistic share repurchases when the stock is significantly undervalued, rather than feeling compelled to act quarterly. He explained that margin expansion is primarily a function of revenue growth, given the business's fixed-cost structure in the short term.

Tobey Sommer from Truist Securities asked about the risk from the recent DevSec memo suggesting federal customers might contract directly with service providers, and how government efficiency initiatives have shaped SAIC's business capture strategy.

Answer

CEO Toni Townes-Whitley stated that SAIC's work is not the "management consulting" or "reseller" role targeted by the memo, but rather direct solution delivery. She explained that SAIC's 18-month-old strategy to pivot to enterprise and mission IT already aligns with the DoD's direction, and the current environment is accelerating this existing strategy rather than causing a change in path.

Tobey Sommer of Truist inquired about the trend in SAIC's CPAR scores as a driver for recompete wins and asked about the stability of its business with NASA, specifically mentioning the MESA contract.

Answer

CEO Toni Townes-Whitley explained that their program review process now goes beyond CPARs to include broader customer feedback, particularly on innovation, to better predict and secure recompete wins. CFO Prabu Natarajan added that customers expect continuous innovation. Regarding NASA, Toni stated they have not received any signals of greater volatility in their work there and are not concerned about their positioning.

Tobey Sommer asked about the potential impacts of a change in presidential administration on the business, including M&A, regulations, and taxes.

Answer

Executive Ronald Mittelstaedt stated that he sees no negatives for acquisition activity from a potential change in administration, suggesting that improvements in tax rates, interest rates, and the overall economy would be accelerants for M&A. He also noted that potential immigration reform that provides a legal path for workers would be a benefit to the entire service sector by improving labor availability.

Asked detailed questions about current bill rate trends, comparing new production to the existing book of business, the impact of renewals on rates, the historical precedent for winter orders, and whether prior market share losses are still impacting results.

Answer

Executives stated that new production bill rates are improving by low-single-digits compared to the prior quarter and that the negative effect of lower-rate renewals is nearing its end. Historically, winter orders represented a 20-30% increase in demand, which would be upside to the current model. Finally, the impact from prior client losses is now "mostly out" of the financial results.

Tobey Sommer asked how recent production bill rates compare to the average for travelers on assignment, the proportion of renewals, and when the negative blend-down effect on rates might end. He also asked about historical winter order patterns.

Answer

CFO William Burns reported that recent production bill rates are improving, up about 2% in Q3 vs Q2, and that the negative blend-down effect from renewals is 'nearing the end.' CEO John Martins added that renewal rates have been stable around two-thirds. Regarding seasonality, Martins recalled that historically a 20-30% increase in winter orders would arrive in the summer, a pattern that did not occur last year.

Tobey Sommer from Truist Securities asked for details on bill rate trends, comparing recent production to the average rate for travelers on assignment. He also inquired about traveler renewal rates, the potential for continued rate blend-down, and whether the impact of prior market share losses is now fully reflected in results.

Answer

CFO William Burns stated that bill rates on new production are improving by a low-single-digit percentage compared to Q2, suggesting the rate backdrop is getting better. CEO John Martins and Burns confirmed traveler renewal rates are stable at around two-thirds. Burns believes the negative effect of rate 'blend-down' from renewals is nearing its end. Both executives affirmed that the impact from prior client losses is now 'mostly out' of the financials, with support levels having stabilized.

Tobey Sommer of Truist Securities asked if the impact of past market share losses has fully worked through the financials and whether Q3 is expected to show sequential growth. He also inquired about the mix of new Intellify customers, specifically regarding MSP versus vendor-neutral models.

Answer

CEO John Martins asserted that the impact of prior losses is 'mostly baked out' and that recent wins now outweigh them. He expressed optimism for month-over-month volume growth within Q3. Regarding Intellify, Martins described a 'blurring line' where clients increasingly seek a hybrid model that offers a vendor-neutral feel with the accountability of a strategic staffing partner like Cross Country.

Sought to understand market share trends, the appropriateness of G&A spending for current volumes, overall industry capacity, and market trends for MSP/VMS fees charged to subcontractors.

Answer

The company stated they are gaining market share, evidenced by spend under management nearly doubling since pre-COVID. G&A is intentionally not fully rightsized to maintain capacity for a market rebound. They believe third-party dependent firms are most affected by overcapacity, and noted that fees to subcontractors are rising industry-wide as MSPs offer more services to win competitive bids.

Tobey Sommer inquired about the key drivers behind the Healthcare segment's revenue growth, asking if it was primarily the HSS joint venture or new business wins. He also asked for an update on the business pipeline for both the JV and the consulting side, the reasons for reduced spending from financial services clients, and the expected end date for the Ankura services agreement.

Answer

CEO Julie Howard explained that the Healthcare growth was a combination of both improved performance in the core consulting business and the ramp-up of the HSS joint venture. She noted a strong consulting pipeline with better conversion rates. Regarding the Financial Services segment, she cited the accelerated wind-down of a large monitorship and some clients curtailing spending. CFO Stephen Lieberman added that the Ankura TSA is scheduled to conclude around September.

Tobey Sommer of SunTrust Robinson Humphrey asked about the cultural impact of the SaleCo divestiture, the pricing structure of the new FSAC managed services deal, the ranking of segments by managed services growth opportunity, and the company's G&A expense target and timeline.

Answer

CEO Julie Howard stated the divestiture simplifies the firm but core values and mission remain unchanged, so no significant cultural transformation is expected. CFO Stephen Lieberman described the new managed services deal as having a slightly lower margin than consulting but still being very healthy. He and Chief Growth and Transformation Officer Lee Spirer identified Healthcare as the largest managed services opportunity, followed by FSAC, with Energy being more nascent. Mr. Lieberman reiterated the goal to return G&A to its historical range of 17-18% of RBR by 2019.

Tobey Sommer of SunTrust asked for an update on the company's financial metrics and philosophy for capital deployment through acquisitions, given the significant capital available post-divestiture. He also inquired about the business pipeline for the Health System Solutions JV versus other revenue cycle management opportunities.

Answer

CFO Stephen Lieberman described a disciplined M&A approach focused on ROI and strategic fit. EVP Lee Spirer added that they target a 20-25% ROI as a minimum. CEO Julie Howard explained the JV pipeline includes organic growth within the Baptist Health System and expansion to other regional health systems. She noted that outside the JV, the company is focused on more profitable, modular contracts and that both paths are being pursued concurrently as they see strong opportunities in each.