ASGN Inc (ASGN) 2002 Q1 法說會逐字稿

... of this year versus 5.3 percent a year ago.

Conversion fees as a percentage of revenue increased from 2.1 percent to 2.2 percent. The nominal dollars from conversion fees decreased from Q4 but were still relatively high at $927,000 during the recently-completed quarter for an average of $5,500 per conversion.

Employees were down 19 percent from a year ago. Bill rates were up approximately 1 percent from a year ago. We had two -- actually one and a half fewer days in the quarter than we did a year ago.

On the margin front, our consolidated gross margin decreased about 50 basis points from 32.7 to 32.2 comparing the quarters. The lab segment dropped from 33.0 to 32.2, and the healthcare segment from 32.0 actually increased to 32.2.

The breakdown of the factors that contributed to those changes in the consolidated gross margin were, comparing the quarter this year versus a year ago, the actual spread between bill and pay rates expanded. So we had a markup impact of plus 16 basis points.

We had a positive impact on the conversion fees since they went up as a percentage of revenue, of 5 basis points. And worker's comp and other benefits offset that to the tune of 73 basis points for a net swing of 52 basis points to the negative.

Comparing the quarters sequentially, the markup -- the points -- the basis point increase from the spread between bill and pay rates added 8 basis points. The fee impact was a positive 3 basis points offset by 72 basis points for worker's comp and other benefits.

On the operating expense, SG&A line, our consolidated percentage of revenues associated with operating expenses increased from 19.4 percent to 22.2 percent in the recent quarter. Overall, it was down in dollar terms by 6 percent, all of that in support costs in .

The account manager expenses were flat from a year ago. Account managers in total were up 15 percent from a year ago quarter for a total of 205 on average which is down from the 232 average of the fourth quarter.

Sequentially, operating expenses increased from 21.1 percent to 22.2 percent, but were down $528,000, or approximately 5 percent sequentially reflecting reductions in -- both in the field and in support costs.

Operating margins decreased from 13.3 percent to 10 percent. Net margin, as noted before, from 9.4 to 6.8 percent.

Cash and equivalents pre-acquisition basis are up to almost 100,000 -- $100 million, $99,776,000 which is up 31 percent from a year ago excluding the money that we spent on the stock repurchase in the summer and the beginning of -- the end of the third quarter. We have not repurchased any stock since September.

Accounts receivable is down 21 percent to $21,665,000 from a year ago. Days sales outstanding has decreased, however, from 52 to 50 comparing the year-ago quarter to the current quarter.

Stockholders' equity is up to -- up 16 percent to $121 million. Capital expense during the quarter was $469,000. Depreciation was $351,000. Goodwill on the books at the moment is $1.5 million.

And that's it as far as the recap.

In terms of guidance, we're not updating the guidance that we gave on March 28. And just to reiterate what that guidance was, it was for standalone revenues for the year of 185 to $190 million with earnings per share of 60 to 65 cents on a revenue split of 70 percent coming from lab segment and 30 percent from the health segment -- healthcare segment.

Combined with HPO for the period running from May 1 through the end of the year, our guidance is still 245 to $255 million with earnings per share of 70 to 75 cents with revenue split of 50 percent from the lab segment and 50 percent from the healthcare segment.

, I'd now like to ask you to open it up for questions. And we'd be happy to take those questions at this time.

At this time, I'd like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. P

lease hold for your first question.

Your first question comes from , Lehman Brothers.

I'm sorry, sir. He has withdrawn his question. Please hold for your next question.

Your next question comes from , Robert W. Baird.

Good afternoon.

Hi .

I was hoping -- you talked a little bit about the demand moving away from some metropolitan areas. Could you elaborate a little bit on that in terms of what you feel is happening there and is it a function of the market or more a function of repositioning what you need to do.

Well I mean I think it is the feel of the market, and we are responding to it by repositioning. We touched on it relatively briefly because I didn't want to be redundant with past comments made.

We certainly have industrial markets where we have had a high number of working employees in the past that have sustained low demand. And that's our primary movement of account managers at this time.

And we're moving -- those account managers really are following first, biotechnology second, and then personal products and personal care products third. That's the demand we're trying to follow.

And on the Lab Support side, in terms of trying to follow your resources and dedicating them along those lines?

That's right. I mean some of -- we've been -- this is a process that takes some time. Because within our model when you deploy a new account manager, or even transfer a trained and skilled account manager, there is some two to three quarters of delay until they get back up to a target level of working employees.

So it's a process that we began in the fourth quarter of last year, and it's ongoing.

OK, and then switching gears a bit, over on the healthcare side, I know that you've talked in the past of your desire to look at healthcare outside the U.S.

I'm wondering if you could just characterize a bit what you're seeing in the marketplace and if this is something where you believe you can do it organically or if you really need to anchor on some sort of acquisition.

You know, I think it's fair to say that at least our internal jury is still out on the question of strategy. There are healthcare markets, particularly in the U.K., where temporary staffing in the occupations that we are focused upon are growth markets.

And I don't mean to be circumspect in any way in saying outside the U.S. we're heavily focused on the U.K. temporary staffing market.

...I'm sorry?

I said we're heavily focused on our ability to grow in our next step, if you will, in the healthcare temporary staffing market in the U.K.

OK and in terms of the competition over there, I understand there's, you know, two rather large competitors, one very big one and then beyond that.

Is that something that, you know, when you compare it to the U.S. market do you see basically a similar opportunity? Or is it more difficult, less difficult? Just trying to size up, you know, relatively where you see the opportunity compared to the U.S.

Well I don't think you'd respect me tomorrow if I told you that I ever thought that the opportunity to grow and make money overseas is easier than in the U.S.

I think English-speaking countries are the easiest place to grow service versus product businesses and to translate success from the U.S. So we're focused very much on the U.K. I think there is an expanding opportunity there.

So there are a couple of bigger competitors. There are also smaller shops as well. I think the markets are similar in dynamic, just different in size.

OK great. Thank you.

Your next question comes from , Lehman Brothers.

Good afternoon, and . I apologize for the strange technical difficulties on my way in. Hope you're well.

We had our own strange technical difficulties at the start of this thing. So might as well continue the trend here.

Well maybe we'll get a little better capital situation in the telecom industry one of these days.

Anyway, turning to your business, which is much stronger, I wonder if you can just update us a little bit on HPO as it closed the quarter. Did you see revenue pick up sequentially from the $26 million quarterly run rate that I believe you exited the fourth quarter on?

Yeah, yes . They had a nice recovery...

HPO brings additional management depth, particularly in local office staffing. They have local office business today, as do we. So we believe that there's a natural synergy in local staffing.

HPO also brings more experience than we have in centralized creation of an employee database. Now that in and of itself doesn't make our business, because as you know from studying On Assignment, our account managers interview every candidate that they place before they ever place them.

That said, there are aspects of centralized recruiting that HPO does very well that we can help to increase the pipeline of candidates to our account managers.

I think right now those are our two primary areas of synergy save the fact that we are, purely by circumstance of the acquisition, increasing our product density in many of our existing clients. And that's never a bad thing.

OK, thanks.

And maybe just one last thing, I don't know if you can. Can we get the average daily sales number for January, February, and March. I think you had given those last quarter.

We didn't -- I can give it to you for the quarter. I don't have it for the months -- month by month. It was $677,000 for the quarter.

OK. Well, then, I guess directionally though, can you just say what the trend was monthly in the quarter?

The quarter was pretty flat, . I mean we really didn't see any, you know -- I mean the positive up -- the positive momentum was in the newer allied healthcare areas with clinical and diagnostics with Lab Support and Healthcare Financial, you know, being most of the business were flat. And that contributed to a pretty flat quarter.

OK thank you.

Your next question comes from gold:, Sidoti & Company.

Hi.

Good afternoon.

Hi, .

First question was for . In the way of SG&A cuts, do you think we're at a sustainable level? Or are you still looking to cut a little bit more out there?

Oh, gosh , we're going to have -- I mean there'll be some growth from -- just that, you know, the account manager level is part -- I mean part of the revenue growth comes from additional productivity, and part of it will come at some point from staffing back up.

We intend to average, you know, close to ten, maybe ten more account managers in this quarter than we did first quarter.

I think at the corporate level we can sustain at the point where we are now and probably not get much more in the way of cuts at corporate or what we call the support -- you know, field support line item.

But so I think we -- you know, we -- you know, being down over half a million sequentially, and that being both in the field and at the support level is quite an accomplishment. But I don't think there's a lot more room to make cuts in that. It was always a very thin organization, very flat.

We've added people -- we've added senior people that are more expensive. So I think we're kind of there in terms of the level of -- you know, on the SG&A line.

Oh.

Yeah.

OK and then also, I guess the plans on the January call were to end the year up about 10 percent account manager wise. I guess you say you're looking to add 10 or so for the next quarter. Is that still about right for your end, that up about 10 percent from where we are?

Right. I mean I'm just looking at our projection now. The average for the fourth quarter in our internal plan is 226, that being almost exactly 10 percent from where we are now.

Oh.

Yeah.

OK and then also if you can just comment, either or , incrementally -- I know you talked a little bit about some potential new business launches on the last call. I'm sure that HPO has tied up a lot of your attention. And I'm just, you know, curious if you're still looking in that direction of a couple more small new business launches there or new lines.

We are. I'm going to be discreet at this point. We kind of made an internal agreement that we wouldn't announce specific new divisions until we had some of the competitive factors better sorted out than we do.

Sure.

But we are -- we have started to make assignments in a new vertical. And we're going to be talking about that sometime in the second quarter.

OK very good.

Thanks.

Thank you, .

Thanks, .

Your next question comes from , .

Yes, good afternoon. A couple of quick questions, following up on the movement of account managers primarily in Lab Support, , you had said it takes about two to three quarters for these account managers to kind of hit the ground running or get back to peak levels of productivity.

Is that true?

That's about right. I mean in the traditional account manager model -- traditional meaning the way the model performed in the ten years leading up to the year 2000 -- an account manager's target, if you will, for a good solid account manager was 30 working employees spread across 15 clients.

Right, right.

So for a division average, we're at 24. But when you take somebody -- well I'll give you an example. We're highly underrepresented, and have been for some time, in San Diego.

What happens in that marketplace when we're highly underrepresented there is the competition becomes well represented there. And so as I put, which we will do over the next quarter, account managers in San Diego, then they have to learn the local market, get orientated to the office, start to hit the pavement, and find clients, and then the additional hurdle of overcoming the competition.

Now I don't want to sort of play my fiddle about how hard it is to get a business started. But in order to do all those things and get somewhere between twenty and thirty working employees usually takes some six to nine months.

OK and with that in mind and, you know, the fact that you said, you know, a lot of that had gone on since the December quarter, where are you in the process of moving people, particularly in Lab Support, from where they are to where they're needed?

Are you -- you know, is that half done? Or what would you say?

You know, actually I think someone asked me this before and I didn't have the percentage. And I may have even committed to have it. I would say half done is about right. We have made a lot of changes so far, and we continue to do so.

As you know, in healthcare and in labs I'm much more focused on growing by focusing on large metropolitan areas rather than starting what I've come to call the Fort Apache offices with one account manager on their own in a secondary or tertiary city. And we continue to do that.

As I've explained in previous quarters, the trick to -- sort of the Chinese finger trap to all this is what you do with an account manager who is in a secondary or tertiary city with 15 working employees which is a lower level of productivity than you'd like to have, but you don't really want to double up on the headcount. But as soon as you move that person, you lose those 15 working employees.

Right.

That's why we're doing it in a progressive way instead of kind of a thunderclap reorganization.

So that'll continue throughout 2002?

That'll continue throughout 2002.

OK, I know it's very early in the June quarter, but if you had to give a direction for account manager productivity from the 20 that you ended the March quarter at, what would your best guess be now? Flat, up, or down?

I think near term, flat. And, you know, we don't expect to get back to the 30 level by the end of this year. You know, we'd certainly like to be, you know, pushing for the mid 20s by the end of this year. But I think near term it's going to be 20, 21, at that level.

OK, OK, and then you've also moved and hired a number of senior people. For example, you know, you talked about movement from international to Cincinnati to work with HPO. You've hired some new people on board, you know, at a very senior level.

Where are you in that process in terms of completing that and having everyone in place?

Well, short of any additional acquisition activity that might occur in 2002 -- and there is none actively underway -- we're done.

OK.

We're done. And we have the managers we want everywhere. And rather than review each person's resume, which I'm happy to do, it's fair to say that what we've -- you know, what I've created or tried to create is a mix of staffing and On Assignment experienced executives with executives whose skill set lies in scaling and large management -- large organization management.

Right. OK great. Thank you very much.

Thanks, .

At this time, I would like to remind everyone in order to ask a question please press star, one on your telephone keypad.

Your next question comes from , Bank of America Securities.

Good afternoon. Thanks.

I'm wondering if you can go back to...

Your next question comes from , Lehman Brothers.

Yes, just one follow up on this bill rate issue, gents. One percent inflation on a consolidated basis in the first quarter, I think you were mid-single digits in the fourth. Can you try to give us a little bit more sense for what has changed, if anything, in the competitive environment or what we should infer from that sort of sequential change?

Is it something, you know, by some of the big integrated staffing companies who have divisions in your space? Is it maybe just the organization focused on other matters than bill rate inflation at the moment? Could you give us a little more color on that?

Well the markups haven't -- the spreads have expanded, .

OK, OK.

So it's not a competitive issue or a...

OK good.

... issue. It's really that the wage rates aren't going up.

OK.

And so, you know, we've always just passed along full markup, you know, whatever we had to do in terms of paying employees to attract employees. So all I would read into that slowdown in the bill rate expansion is that there is a corresponding slowdown in the wage payments.

As you rolled from 2001 into 2002?

Yeah.

That's very interesting.

Yes.

OK thanks.

All right.

Your final question comes from , .

Yeah, going back to your gross margin comment, , if I caught that correctly you said you expect that to come in somewhere around 32.5 percent for all of 2002?

Yeah.

Is that...

Well 32.4 percent is the plan at the moment. So thirty -- first quarter was a little bit under...

Not 32.35, but 32.4.

Right, well no. But I mean -- but the first quarter was, you know, 32.2 was under our plan. And a lot of it had to do with this -- you know, with bumping up the worker's comp reserves and things like that. That won't happen every quarter. So we're projecting getting back to the mid 32.5 range ...

Absolutely. Thanks for being so specific.

I guess my question comes -- is that including HPO or is that just for your core business?

No, that's just the core business.

Oh OK because HPO's gross margins are in the upper 20s, right?

That's correct.

OK, I just wanted to clarify that. And on the cap ex, is that $3 million that you would expect to report for the year? Or is that -- would that be, you know, if you were combined together for the whole year?

No, that's just a real rough guess over the next 12 months, not just this calendar year. We haven't sat down -- you know, obviously we're going -- we have -- you know, obviously the -- one of the synergies we have -- opportunities for synergy we have with HPO is integrating the enterprise system and doing things...

Yes.

...together that we would have done separately. So I just don't know how to add our -- you know, our budgets which are about equal and tell you how much of that will drop out through overlap. But I -- so it was a wild guess over 12 months to say it's $3 million.

OK thanks. That's very helpful.

OK.

At this time, there are no further questions.

OK thanks everyone. We appreciate your attention as always. We look forward to our open day -- our investor day on May 15 and to reporting our results through the second quarter as we make progress.

Thanks, .

You're welcome, sir.

Thanks, everyone.

Thank you for participating in today's On Assignment conference call. You may now disconnect.

END