They don’t have to have certain developers sitting right in Jersey City at a certain exorbitant price per hour, they’re just thinking differently about all that stuff. So there’s movement going on around that for sure. But I would just reinforce here that clients are taking longer here to fully adjudicate their budgets and their plans for this year and then to begin to release that. But I think it’s only a matter of time.
Randolph Blazer: Ted, can I add something to that? If you wouldn’t mind, Joe?
Theodore Hanson: Yes, sure. Absolutely, Rand.
Randolph Blazer: There is AI insertion in our clients’ enterprise architecture. And then there’s AI insertion in our own services that we have to do to stay competitive, cost competitive for our clients. And everything Ted said is correct. We made a big investment in Mexico. He talked about all that we’ve seen since we’ve done that and the growth of our Mexico Development Center. But we’re now implementing better techniques, AI techniques with which to code in the new languages, the modern language and the large languages. So the fact that our Mexican center is moving out in these AI adoption of these AI techniques makes us even more competitive in Mexico. And it’s interesting, our clients are asking about that. They want to talk about that and understand that, which I think is a good — is a good sign for us that we’re on the right path, not just because we have the center, but we’re keeping the center up to date with the latest technologies, which makes them more efficient for our clients.
Joseph Vafi: That’s helpful. And then maybe I’ll just sneak one more in on capital allocation. The free cash flow is really great here, and it’s great to see the share buybacks. Just wondering it feels like — I know — I heard Marie say that the market wasn’t that good for M&A right now is it just — are you seeing targets not really wanting to kind of sell down here? Or what is the dynamic there? Because it feels like it might be a nice time to do some bolt-ons.
Randolph Blazer: Ted, want me to take it?
Theodore Hanson: So Joe, so I think that — you’re right. I mean, we would love to be allocating capital right now to strategic acquisition opportunities. I think it’s the dearth of opportunities and the real quality opportunities in the market right now. But we’re — we have a very defined shopping list, if you will. We know what we can fulfill and invest in organically. We know what we would like to invest in inorganically to support all the things that Rand was mentioning here earlier around what our clients are thinking about. And that’s going to take just a better flow, which means a little bit more time. And there’s all kinds of underlying reasons, whether it’s private equity still holding on tight and not quite ready to trade assets because the valuation, where the debt markets are and a whole bunch of other things.
But we would kind of remain committed here. We’re just going to be ready. And in the meantime, we’re going to stay focused on share repurchases, which you’ve seen us do. And our Board is supporting wholeheartedly, and we’ll kind of watch and measure this out.
Operator: Our next question comes from the line of Andre Childress with Baird.
Andre Childress: This is Andre on for Mark Marcon. So my first question is just a follow-up to something Rand said earlier about some of the green shoots on the consulting side. It sounds like your clients in general have roadmaps that they want to execute on. But based on your conversations with those clients, what needs to change in the environment for them to actually unleash some of those RFPs and execute on those roadmaps?
Theodore Hanson: Rand, do you want to follow-up on that?
Randolph Blazer: Yes. I mean, our thesis has been ever since we’ve been a public company that IT spends a function of corporate earnings. So I think when companies feel like their earnings are secure and then they have good runway ahead, they’re going to spend more on IT. Ted, I think we would say our hope is that what we saw from the consumer industrial side of our sectors and the healthcare providers as well as the TMB segment that they’re feeling more secure and they’re going to start spending more. We saw that sequentially. That’s a small data point. It’s not conclusive. But I think it all goes back to corporate earnings and the security they feel about that. Ted, do you want to add to that?
Theodore Hanson: No, that’s correct.
Andre Childress: Makes a lot of sense. And then I guess switching over to margins. You guys did a fantastic job at preserving your margins, even considering the mix shift. And you guys talked about your natural or automatic stabilizers, but how should we think about margins for 2024? Should we expect them to be relatively steady as the stabilizers continue to kick in? Or is there anything to call out for the full year?
Theodore Hanson: Marie?
Marie Perry: Yes. So kind of implied in our guidance for Q1, our cash SG&A margin is about 18%. And so as we think about the full year of 2024, that’s probably a pretty good run rate, if you will, from a margin perspective.
Theodore Hanson: You’re doing the first quarter have the payroll tax reset, right? That’s going to influence it a little higher. But look, I mean, our SG&A margins here have been fairly consistent outside of the first quarter. So look to this year, I think they were kind of right at adjusted for below-the-line stuff, just over 17%, and you should expect about the same thing, Andre.
Operator: Our next question comes from the line of Seth Weber with Wells Fargo.
Unidentified Analyst: This is John on for Seth. Maybe if we could just talk a little bit more about TMT. It sounds like the cyber efforts have been bearing fruit. And maybe if you could just give us some more information about kind of the cross-pollination between kind of the federal side and the commercial side with cyber and maybe what clients are looking for as we enter the new year?
Theodore Hanson: Rand, do you want to talk about that?
Randolph Blazer: Well, I’ll start. I think the man on the street would say the federal government is probably stronger cybersecurity and protection of our systems and our data then more in the commercial segment. If you look at the past years, there have been breaches of commercial — big commercial companies. So I guess I’m laying the groundwork here for the federal government has great calls and great track record on cybersecurity. Our ECS team has had great calls and great track record in cybersecurity for some very important agencies in the federal government. That’s transferable to the Commercial sector. And I think when we take our technologies over in our center over to them, it’s resonating with them because of that backdrop that I just mentioned. So I would say it’s simple is that, okay?
Unidentified Analyst: Great. And then maybe a quick follow-up on Creative Circle. Could you just comment on any trends seen in the digital marketing space and potentially any kind of viewing outlook in terms of ’24 given the election year, anything we should be cognizant of?
Theodore Hanson: Rand?
Randolph Blazer: It’s funny. I just got off call the CMO of a company, a Fortune 1000 company a couple of hours ago. And it was interesting to talk to him. I think, first of all, CMOs are also being held tight in their spend as a function of corporate earnings and also depending on what their market position is. But I think that talks to the marketplace that our Creative Circle plays in. It is clear that some of the bread-and-butter kinds of things like creating or being creative is still a part of our great service. Translating that through AI, AI allows you to mass produce it or to personalize it. And I think there are technologies there that we’re well aware of that we’re talking to our clients about imposing. There’s also the whole question of which channels do I use to get my message out there and to make it personal.
And do I have to give it to multiple mediums for that one client. So — there’s a lot of opportunity out there. I think they’re all trying to work their way through it and understand it and figure out the best path. I think you can see that in some of the reporting from technology companies. In some cases, the ad dollars are up. In some cases, they’re not. The whole streaming world is changing and how they’re charging for whether you want streaming with advertisement or without advertisement. So there is a lot going on in the marketing world that has to be digested and recalculated, if you will. And I think we’re going to see a plethora of opportunity once we get past on companies feel that they’re on a good solid footing and they can move forward.
As I said before, in consumer and utilities and in certain media companies, they’re starting to get there.
Operator: Our next question comes from the line of Surinder Thind with Jefferies.
Surinder Thind: Just a big picture question here in terms of the delivery model as you continue to build up the commercial consulting part of the business. Can you maybe talk about how you’re thinking about headcount growth versus the use of temporary resources in terms of delivering those projects. And the reason I ask that is just from a competitive positioning perspective in the sense that you talked earlier about investing in kind of building out your talent pool, but if a large percentage of your delivery is not owned by you guys. How do you guys manage that?
Theodore Hanson: Well, look, Surinder, first of all, we’ve got — today, 600-plus feet on the street with relationships directly into these Fortune 1000 enterprises. And it’s that group that have had these client relationships from the traditional IT staffing business all the way through all of the customers’ IT business, including consulting. So that doesn’t change. And — we don’t need to build that up, if you will. We just need to address client opportunities. And so if it takes a little more, we can obviously scale into that and always have. On the Consulting side, we put project teams together. And again, you note our delivery model is a little different. I mean, we have about 80% to 85% of our team members on these projects come from our contingent workforce, our IT staffing capabilities.
