Tobey Sommer

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 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.

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.

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 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.

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.

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 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 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 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 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 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 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.

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.

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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

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.

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 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 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 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 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 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 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 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.

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 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.

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 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.