ASGN Inc (ASGN) 2003 Q2 法說會逐字稿

Good afternoon. My name is Jeff, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the On Assignment second quarter Earnings Teleconference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press "*", then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you. I would now like to turn the conference over to Joe Peterson, President and CEO. Please go ahead, sir.

Thank you, Jeff. Good afternoon, everyone. It's Joe Peterson, I'm here with Ron Rudolph, our EVP and CFO. I would like to take this opportunity to welcome everyone to our second quarter 2003 Earnings Call. Before I turn the call over to Ron Rudolph for review of our numbers, I would like to provide some introductory comments.

Similar to our first quarter on assignment in Canada was a difficult operating environment. In light of these circumstances, we are very proud to say that we made steady progress in our goal to become a full service provider to the healthcare staffing industry. We worked hard to closely align our costs with our business opportunities and to evolve our product offering to better serve our clients' needs. As evidence of these efforts, the company generated an operating income before goodwill impairment and positive cash flow from operations during the quarter.

Both our health care and lab support divisions face markets that have not improved, and in some cases weakened from last quarter. Throughout the first half of the year we have addressed this circumstance by reducing our cost doing business. In the second quarter, we made cost reductions in personnel that range from the executive rank to the front line, all done to match internal resources to revenues and real term revenue opportunities. Also during the quarter we completed most of the infrastructure improvements we have engaged over the past 18 months including implementation of PeopleSoft. In terms of its progress, PeopleSoft continues to deliver new benefits and is helping us to realize financial controls and efficiencies as well as commercial value to both our clients and our temporary professionals.

In line with our clients' migration to a single vendor approach to fulfilling temporary staffing requirements, 'On Assignment' continues to execute its strategy to become a full service provider in the healthcare industry. In the past two quarters we have rounded out our product offer to include longer-term travel nurses, respiratory therapists and now, licensed practical nurses to our LPN and as well as locally derived or locally recruited and assigned nurses, sometimes known as local contract or local travel nurses.

Looking forward, we will continue to expand the implementation of our full service strategy to the healthcare industry. Our clients are learning that by engaging On Assignment, they will simplify their task of obtaining quality temporary staff and they will benefit from volume and commitment related reductions in the unit cost of their temporary staff. We are pursuing our model of partnership with clients, a model that decreases their cost and their hassle of obtaining temporary and flexible staff and I believe this is the best strategy for healthcare clients that are taking advantage of this kind of decreased demand to become more effective purchasers.

In order to deliver this solution, we have been developing a single healthcare sales force supported by both local and travel fulfillment operations and I am pleased to announce that we are now in the final phase of this strategy. Our fulfillment operation, centralized travel fulfillment center in Cincinnati, and now, 30 local healthcare offices recruit allied professions, nurses into high value medical financial occupations. In our (Inaudible) headquarters operation our now mature order dispersement team collects orders and qualified leads from the sales force and distributes them to the most proximate local office as well as to our travel operations. For especially hard to find occupations, our client needs will be addressed by multiple local staffing offices and their teams, for each client we work to serve up a cost effective assignment that meets their specific requirements. We solicit their business, deliver temporary professionals and manage their needs on a still uncommon face-to-face basis.

'On Assignment' is deeply committed to delivering value to its clients and shareholders alike and we will continue to evolve our product offering and align our costs accordingly. Those are my introductory remarks today and I'd like to turn the call now over to Ron for a review of the quarter's results.

Thanks, Joe. Before going over the quarter's results, I'd like to read the forward-looking statement disclaimer.

Some statements included in today's conference call are not strictly historical in nature and involve important risks and uncertainties that could significantly affect anticipated results in the future. Such statements are forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 and Section 21(a) of the Securities Exchange Act of 1934. These forward-looking statements are only predictions and actual events and results may differ materially from any forward-looking statements made during today's conference call. Factors that could cause actual results to vary from these forward-looking statements are more fully described and disclosed in our annual report on form 10K as filed with the SEC for the fiscal year ended December 31, 2002, under the heading "Risk Factors".

Forward-looking statements made during today's conference call represent our current outlook only as of today's date. We don't undertake any obligation to update or supplement any forward-looking statements to reflect subsequent events or circumstances. We cannot assure you that projected results will be achieved or that predicted events will occur, and now, to the highlights.

Revenue for the second quarter 2003 is $54,180,000 that's down approximately 20% from the year ago quarter and down 6.3% sequentially. Earnings per share after $79,897,000 goodwill impairment charge was $3.15 per share that's a loss per share of $3.15. And that's also after $349,000 in severance charges and $333,000 in charges relating to intangible assets. In the year ago quarter we reported a profit of 15 cents per share, the first quarter of this year we recorded a loss of 2 cents per share.

The severance costs $349,000 relates to reductions in head count at all levels in the organization and affected labs (Inaudible) travel, allied travel, and corporate head quarter's employees. HPO unit revenues during the quarter of $23,460,000 down approximately 31% on a pro-forma basis from the year ago number and down approximately 10% sequentially. We had a very positive cash flow -- pick up in cash in the quarter of over $2.1 million cash flow from operations specifically was $3,566,000, and we had capital expenditures in the second quarter of $970,000 and stock buyback totaled $810,000 for approximately 218,000 shares at an average price of $3.70 cash at the end of the quarter was 31,650,000 shares, again an increase sequentially $2.16 million.

More details on the segments or some detail on the segments; Lab segment revenue was $24,130,000 down 15% from the year ago quarter, relatively flat from the first quarter down approximately 1.6%, Lab segment revenues represent 45% of total revenues.

Healthcare segment revenues $30,050,000 down 23% from the year ago quarter, down 10% sequentially. Healthcare segment revenues represent the complement of 55% of total revenue.

International revenue during the quarter was $2,800,000, down 16% from a year ago and up slightly from the first quarter, which was $2.7 million.

International revenue represents 5.2% of total revenue, 11.6% of lab segment revenue. Conversion fees during the quarter at a level I can't remember when they were this low, $221,000, down 74% from the year ago figure and down 63% sequentially.

Gross margins on a consolidated basis 28.1% up sequentially from 26.8% in the first quarter, that's a 130 basis points principal components of that increase in gross margin are actually increase in spread and decrease in other costs and benefits and incentives particularly those incentives that we were paying for the first quarter related to the nurse travel operation incentives related to over time and bonuses throughout the holiday period.

Margins for the lab support division; 33.3% in the current quarter, up sequentially 100 basis points from 32.3% in the first quarter, again the same components widening of spreads and the cost of benefits more than offsetting the drop in the conversion fee impact on gross margins.

Healthcare staffing segment's gross margin is 23.9% in the quarter up a 120 basis points sequentially from the first quarter widening -- again wider spread and also decreased indirect costs and other costs of services contributed to that improvement and isolating gross margin on the HPO unit. Those increased a 110 basis point to 21% in the current quarter to $19.9 in the second quarter primarily due to -- somewhat due to widening between bill and pay rates, but also very much impacted by the absence of the incentives that occurred in fourth quarter - of last year in the first quarter of this year.

SG&A expense was $14.79 million in the quarter including $349,000 in severance costs and $333,000 in rank down of identifiable intangibles. That's a sequential decrease of $1.5 million, actually more precisely $1,564,000 primarily due to the cost cuts that have been enacted and principally relating to head count reductions, closure of facilities, that we spoke about in the first quarter and the absence of some non-recurring items that did occur in the first quarter relating to consulting and some start-up cost related to PeopleSoft. Principal components again are people and facilities contributing to that decrease.

Operating income after the impairment charges, a loss of $79,464,000. I've already discussed the severance and the other costs. In terms of EBITDA, EBITDA for the quarter was approximately $2.5 million versus $930,000 in the first quarter, cash and equivalents I have already gone over but again before CAPEX and stock buyback, cash from operations is up over $2 million and accounts receivable contributed -- decrease in accounts receivable contributed significantly to that cash increase sequentially. The receivable balance at the end of the first quarter was $35 million and in the most recent quarter was just under $29 million, so that decrease was primarily due to working through the bulge that we created in the first quarter through some delays in billing and start up of the new PeopleSoft system.

In terms of DSO, DSO for the current quarter in round numbers is 54 days. It's up from a year ago number of 45, but down fairly significantly from 59 in the first quarter. In terms of guidance, we're still not providing any guidance at this time. We're not discussing any trends. And that concludes the overview on the financial results and at this time, Jeff, we'd like to open it up to questions from our listeners.

At this time I would like to remind everyone, in order to ask a question, please press "*" and then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q and A roster. Your first question comes from Jim Janesky of Janney Montgomery Scott.

Yes, good afternoon. Ron, you went through the SG&A numbers rather quickly. I know that you said in the press release that the SG&A included rather the severance charge. Did you say something in your prepared remarks that it also included something else?

I said it included, in terms of non-recurring items, it included $333,000 in write-down of identifiable intangibles, so in the process of doing the goodwill impairment testing, we also reviewed the - in fact- the identifiable intangibles and wrote down some of those principally relating to employment and non-compete agreements.

Okay. Got it. And do you, taking those out of the equation in terms of operating expenses, do you feel that, that's, you know, on a percentage basis a good run rate?

In terms of what the effective operating profit would have been?

No. The operating expense percentage.

Yes. I do.

Okay. And then shifting to the tax rate. I mean is that just kind of, you know, where you're operating kind of a moving target here?

Well. I mean, the tax rate for the quarter reflects, you know, the non-tax incentives and write-off of $80 million. Otherwise our tax rate, we projected our tax rate to be 39%.

Okay. And then on the gross margins, could you go into like what on the spread -- more specifically what improved on the spread? Was pricing up and wages down or what can you give us more color there?

Obviously it's a combination of all of that. In terms of degree of magnitude, the bigger impact came from some of the indirect costs and incentives and other things being reduced. The overall increase of 130 basis points or so over that involved. The spread probably contributed to about half of that as I look at the details here. I don't have -- I don't have details here in front of me to say so much of it's from, you know, moderated wage rates versus increased billing rates. It obviously has to do with the mix of business as well. So I just can't elaborate on that at this time.

Okay. Thank you.

Your next question comes from Brandt Sakakeeny of Deutsche Bank.

Thanks. I had a question for I guess Joe. Joe, obviously, commenting on tough macro environment and certainly is but I think clearly based on at least what we've seen from some competitors (Inaudible) and some of the travel guides, their numbers have been certainly better. Is there something from a micro standpoint, either turnover or targeting or just client mix that's making the numbers to simply not as good as some of the competitors have posted?

You know, it's probably micro, I guess in the industry sense. But internally, I guess the easiest answer is, to say, is that in the time that I've been here, I came to the company when most major lines of revenue were headed down. And since then, we've been doing a variety of things to kind of ride the ship and change the strategy and put new products and programs into place. And as we commented in the first quarter, the organization as a whole has done a terrific job of maintaining the shoulder to the wheel through a lot of changes. But I think, we more than most people, have a series of kind of shock waves the organization had to get through. And I think, you know, we obviously watch very carefully what number moves in what direction. But I think taken as a whole, you know, we started further -- a bit further behind than they did, I think. And, you know, we've made some pretty aggressive moves as to where we want to end up being. So I guess that's my broad answer. But I'm happy to answer on a more specific basis as well.

In terms of some -- a couple of things you mentioned, turnover continues to be superbly down, which is terrific in the healthcare and lab division. That certainly some portion of the improvement in the margin is just from the fact that we now have a stable sales force for the first time in a number of years that is growing and developing selling skills as an example. So I think the organization is settling down and, you know, we certainly look forward to that continuing.

Okay. Thanks. Ron, do you mind just for modeling purposes help us understand sort of how the quarter progressed through the months by segment, did you see things stabilize a little bit at the end or perk up at the end?

Not perk up is a little strong but stabilized over the last few weeks most definitely.

And how are things in July acted to date and the first couple of weeks of August?

I'm sorry. I'm referring to -- I wasn't referring to the end of June quarter as the stability period. Stability has just risen since the end of June through July and into August. We were still trending down at the end of the quarter.

Okay. Great.

We exited the month of June with still, you know, lower velocity than we started the quarter.

Okay. Thank you.

Your next question comes from Marta Nichols of Banc of America Securities.

Good afternoon. Thanks. I'm wondering, Joe, just touching on the comment that you made about the shock waves that have gone through the organization, is it your view at this point that those shock waves are essentially done at this point? Have you done everything you need to do? Is there more severance on the horizon or any specific actions you feel like you still need to take to get the ship righted?

No, I don't think so - we certainly like to see a little more demand to work with would be great, I think in terms of the sort of external business, you know, some of the first business that we lost is, this healthcare economy turned down and were some of the easiest business we ever achieved, but also people who had some of the earliest cessation in their demand of temporary staff because we're supplying a kind of elite core of rapid response travelers so that at least certainly at the end of the last year and in the beginning of first quarter we were doing that. So in part, we weren't well positioned for an economic unexpected downturn in healthcare. Internally, though, even by the middle of the first quarter, our own, I guess, evolutionary shock waves were over. PeopleSoft was in. A single sales force had been created. The new financial processes and controls were in place, etc, etc. The new value proposition was being launched. And I think we entered the 2003 very much confident that the shock waves were over. And that just didn't happen in the first two quarters because we had to take expenses obviously down according to revenue. I think the good news on this is that there isn't anywhere else to go. We are, as Ron points out, we do see some stabilization in this first month of the next quarter. And the only thing we're really looking at now is ways to further reduce our real estate costs. As you know, in the past 'On Assignment' has been pretty aggressive about having multiple offices in major metropolitan markets. And we're being equally aggressive in return in finding ways to shed some of that real estate cost. So at this point, you know, I think the staffing consultants that are in the field and the sales team in healthcare are people who are a very switched on, very excited to be part of the team. They share the vision and, you know, the most recent rounds of efficiencies and cost reductions and everything from marketing to real estate actually the regional managers and regional sales directors are responsible for crafting a lot of that. So I think the shock waves are over and certainly no more surprises for the employees or otherwise.

And Marta, a lot of our commentary obviously is queued toward the healthcare segment because that's where the biggest declines have occurred over the last year and even over the last two quarters. So I mean, there is some good news in here, too. We have definitely, you know -- we barely have touched bottom on the lab support business and we had an internal call today and recognized contributions of a couple of our branches that are at all-time highs not recent recovery highs but there are some pockets of prosperity emerging in labs. So when we address our comments to the healthcare segments, because that's where most of the news has occurred over the last year and last two quarters. There are some positive trends going on in the other half of the business as well.

Okay. That's great. And I'm wondering -- I mean the gross margin trend at least in the quarter looked pretty positive. But I'm wondering if maybe you can get a little granular and more granular on what's going on with pricing trends and maybe specifically as it relates to HPO? Are you still seeing a continuation of significant pressure and kind of change - dramatic changes in the market that you are serving there?

The dramatic change as you're hearing from everyone is that, of course, for a variety of reasons census demand is down. So we're no longer -- we're not nearly as much feeling pressure on our actual price any more. We've just had -- we also at the same time, though, suffered the rather abrupt loss of a lot of clients that have five nurses here, three nurses there, seven nurses there. Those are clients that are, you know, evacuating all the temporary staffing companies at the same time because they have got this breather in time where they have much less need for temporary staff. Obviously, you know, there are a lot of very good reasons why this is temporary. There are questions of how long is temporary. But we're also not getting as much margin pressure now as well because we're bringing more balanced product mix to the table which, as you know, is something I've strived to do for some time. And that's very helpful because that means that we can offer the client a blended solution of temporary staff that's appropriate for their particular institution. And we are giving them a more rationale complement of staff and in turn we're taking less margin pressure on any one of those types of staff, so that no longer trying to get a short-term nurse from me at the same rate that they get a long-term 13-week drive-in traveler. And they turn around and say listen, the bill rate for the short-term nurse is too high, we turn around and give them another nurse at a preserved margin. And that's also helping us in the effort with clients.

Okay.

Does that make sense?

Yeah. Absolutely. Just a final housekeeping question. Are we at the right -- and I guess this is for Ron. Are we at the right levels of CAPEX and SG&A in the second quarter to use those as run rates on a quarterly basis going forward or will we see some material differences there given your -- given recent investment?

Not for the rest of this year. That's a million dollars a quarter would be a reasonable run rate.

Okay. Great.

Your next question comes from Dan Dittler of Lehman Brothers.

Yes. Good afternoon. I was wondering if you could provide some specificity on the reduction in your other cost items that provided the boost in gross margin?

Sure. Again, it's on the -- well, as a lead-in, just to repeat what I said earlier there actually was bill and pay rate spread expansion in all divisions, all product categories that we offer up temporary staffing solutions. But on the indirect side, a lot of it had to do with the fallout of, you know, from the fourth and first quarter of this year -- fourth quarter of last year and first quarter of this year on incentives paid to travel nurses over the Christmas and new year's holidays in terms of -- in double time instead of time and a half, in terms of retention bonuses working Christmas day and new year's day bonuses and all those things. So that was the substantial contributor in the case of the increased sequential performance of HPO looking at 110 basis points improvement, probably 95 of that had to do with reduction in the indirect costs, and the most material of which was those incentives. In terms -- and so that had obviously with the waiting of that business in the total mix, that had a big impact on the other -- on the overall output in terms of gross margin improvement as well, just I mean in terms of lab, we actually had a terrific improvement. The spread contributed over 130 basis points to the improvement in the quarter. Indirect costs reductions in various categories, you know, contributed modestly and all of that offset the impact of greatly reduced conversion fees and still allowed that unit to go up 100 basis points. I can -- I mean line by line , there's obviously a lot of categories that contribute to what makes up the indirect costs, but it has to do with taxes, other benefits, (Inaudible) travel in the case of nurses. We actually had an increase sequentially in workers' comp expense so all this in the indirect cost of services, more than offset the slight increase in workers' comp expense from the first to the second quarter.

At this point, have you been able to successfully price through all your increases in state employment tax accruals as well?

We do that all the time. We do that on the go. So I'm not quite sure I'm following your question.

Well, in the last quarter, I understand, part of the problem -- and obviously most of it was with regards to incentives. But part of the issue was an increase in state of unemployment tax accruals if sent across the board particularly in California although across the nation. Have you been able to recover those costs in the form of price increases?

Yeah. Yes. The answer is yes. And, you know, we keep up, you know. We build that into our pricing on an ongoing basis. I don't recall this specific discussion we had last quarter. But there isn't any further catch-up or adjustment to be done in that category.

Further explanation is that every client's contract is essentially priced individually for them. I mean they don't vary by large amounts obviously. But the sales force carries a target price for a particular client. And there are adjustments on each contract along the way. So those kinds of, you know, necessary additions and changes happen on a contract-by-contract basis.

Great. Thank you very much.

You bet.

Once again, if you would like to ask a question, please press "*" and then the number 1 on your telephone keypad. Next you have a follow-up question from Jim Janesky of Janney Montgomery Scott.

Joe, you made a comment about-- in the HPO segment-- about the market and census populations at hospitals and what that was doing to loss of nurses at hospitals for you. But on the other hand, you said there was some strength, you know, coming out or in the month of July. Was that outside of HPO? Or was there also strength in HPO in July? If you could just clarify that for me.

Sure. I mean, you know, strength was a little less, but I think stabilization is a good word as well. But that includes HPO. I think that's partially a reflection of the fact that we've got, as I say, in response to Marta's question is a better service offering. To comment back in specific, the two things that our client populations basically are working at cross purposes to us in terms of the demand side is obviously their census is down. The other thing in this economy, nurses aren't retiring with the pay they used to retire. Those are the two primary dynamics we're bumping into.

Ron and on the operating expenses again. Did you say a million will come out of this quarter going forward?

No, not another million. I mean the non-recurring elements that are in the number we reported for such quarter is right now in the intangibles and I'm saying it's non-recurring but the severance charges related to another round of cuts.

Right.

So you've got 349,000 in severance and 333,000 in write-down and intangibles that we don't expect either of those categories to recur in the third quarter.

Got it okay.

So we back those out and got the run rate coming out of Q2. We have some ability to cut further if needed and we don't have plans to do it at this point. But that's a reasonable number, you know, going forward to be, you know, backing those two numbers out of the total line.

Okay. Thanks.

Your next question is a follow-up question from Marta Nichols of Bank of America Securities.

Thanks. I know this jumps ahead a little bit. But thinking about one of those sources of surprise was in the first quarter of this year. Obviously, the big incentives that you had to pay out in the first and fourth quarter for nurse retention impacted your gross margin and HPO pretty materially. And I'm wondering if you can give us any sense of what your strategy is going to be with respect to incentives this year.

Different than last year. Said tongue in cheek. But I think interestingly, I think probably the fairest answer is that the end of the last -- the end of the year last year, I don't think that any -- that certainly that we really -- that it was clear to us why some of the client attrition was occurring and the nurse attrition was occurring. Certainly not like it became clear in the first quarter, meaning I think there was a softening of the market and like everyone we didn't expect that to progress in the first and second quarters and it did. This time around this year we have two different dynamics coming into the Christmas Holiday. The first dynamic is that we have a client base that in many ways is kind of more toughened on our line, if you will. Because we know what their needs are going into the fall. They are not staffing at really high peaks that are expected to go down through the holidays. They are staffing at pretty low levels anyway. So we're not expecting them to have a great deal of amplitude going into the fall. And also, you know, If this market has also to a degree given us some improvement on the, I guess, on the kind of the free agent behavior of the some of the nursing population where their migratory habits from staffing company to staffing company and opportunity to opportunity have also been a bit attenuated in this environment and I don't anticipate you're going to see that kind of program this year.

Ok. Have you seen the incentives like what you've used around the holidays last year become at all more pervasive? Maybe it's hard to say through the course of the last nine months but industrywide, if you talk to the folks at HPO is this the kind of thing that's become used more frequently by your competitors over the course of the last several years?

You know. I think everybody uses it. They use completion bonuses for assignments, referral bonuses to find additional staff at a cost effective kind of way and to a degree kind of pay rate adjustments, particularly in our case for nurses who are going to Alaska instead of San Diego. None of that stuff as you know is new. And I don't think we feel a particular acceleration of it. Where at times it can be particularly pernicious is when regional providers like in Northern California and a privately held small business staffing company give you a revenue range, say between $5 and $10 million attempts to storm into a market by doing things we'll consider to be financially to somewhat that at times can be somewhat difficult because they will frequently try and buy off nurses and buy off business. That, however, is by definition a self-limited strategy. So it can at times be annoying and somewhat damaging. Besides that kind of local use of storming a hospital or a market, which eventually flames out on the user, I don't think the use of incentives has increased in frequency but the numbers are higher than then used to be, but nothing sort of breathtaking.

Thanks.

Your next question comes from Wayne Smith of Touchstone Investments.

I just want to follow up of the line of fourth quarter and first quarter calls. You indicated you had successfully completed the first phase of PeopleSoft implementation in January and you're waiting for some improvement in the former HPO business of before you brought the system on to on-line there. Can you give us an update on the current system plans and an update on where you are in providing the clients and consultants with web access?

Going sort of in reverse order, happily today, the consultants and the clients have web access to the system and they are using that. And the temporary professionals do as well. And they are using that vigorously. The temporary professionals and the clients now can view, the temporary professionals can view their own credential on-line and we have an adapted system called Qualifils that we use to help them keep up with licenses of requirements etc. and this is value added to them, I mean I don't think that's - that at least a breathless effort using it but it will very - as much as any - you sort of administrative support system is going to add value it does. Our internal staff now have been superbly equipped and our internal staff now actually tend to work off of laptops with sprint air cards in them instead of our sort of more traditional, you know, office based Windows PCs with slow lance and little web access. That part of the connectivity of clients and temporary employees and staff is done.

And as far as internal deployment of PeopleSoft, you know, we're kind of at phase two now, which is performance in speed improvements and things like linking the resumes that we get in by e-mail and by fax into an easily searchable data base and making that transition automated. Those are all things happening over the course of the next quarter.

Got you. You indicated in the first quarter call that amortization of capitalized cost related to the project would begin in 2003. Can you give us a sense of what those charges were for quarter and how much additional capitalization occurred during the quarter, if any?

As to capitalization during the quarter, most of the $900,000 plus in the quarter related to PeopleSoft in terms of amortization during the quarter and year-to-date I don't have that data point in front of me here.

So you capitalized about $900,000 in the quarter?

Yeah.

And the amortization number you're not sure what that was for how much occurred this quarter?

No, I'm not. I mean we reported the total here and most of the total depreciation that's in the press release, you know, a good chunk of that relates to PeopleSoft. But I don't have the exact breakdown.

Got you. And then just finally here, do you capitalize -- well, the capitalized costs include compensation and training cost for your personnel and if so, can you give us a sense of how much internal labor was capitalized last year and in the first two quarters this year?

Well, very little. Not too much this year.

Not too much this year.

Training not at all. I mean, we would have liked to have capitalized training, but the literature didn't allow us to do that. And capitalizing of internal staff pretty much ended in 2002. We have done much. So what additional work has been capitalized this year has been done by consultants and helping with the follow-on phases of the implementation.

Last year did you have much compensation that you capitalized?

In the hundreds of thousands. Not millions. I mean 300,000, something on that order.

Great. Hey, thanks for the update, guys.

Your next question comes from Tom McKay (ph) of Symplom Partners (ph)

Good afternoon. The cash balances up to $32 million or approximately $1.25 a share. Why wouldn't it make sense to either pay a special cash dividend, given the reduced tax rate on dividends this year, to shareholders? Or alternatively to use the cash to do a significant stock repurchase, given that you now seem to be at least generating positive EBITDA?

Well, we haven't even discussed the issue of a special dividend. And on the subject of stock repurchasing, the cash is positive more than $3 million and we haven't completed the authorization that's in place. And at our July board meeting agreed to revisit that topic at our September meeting as to whether and how much we would add to the authorization for buyback . So we haven't advanced the discussion. Other than that, on the repurchase category and on the issue of special dividends, it's just a topic that hasn't come up.

And this is Joe Peterson speaking. I think that, you know, those decisions are a lot easier to make when at least we internally and/or the -- you know, analyst community feels we have a consensus view on what's happening with the economy for at least the next three to six months. Until we have that I'm very happy to be running a company with no debt and $30 million in the bank. And I think when we feel as though that there's reasonable consensus, not the daily search to be the person who discovers the first leaf of the new economy but instead some reasonable visibility going forward on what the economy will look like in six months' time, it's much easier to make those kind of decisions.

So you think there's still a chance that you could go back into a negative cash flow situation?

No. I don't think -- no, I'm not commenting in that regard. I'm saying I don't -- I don't think this is at a time when it's prudent for anybody to look forward to the future. It's not a cynical or pessimistic comment, but a realistic one.

Conservative.

Conservative approach to managing at this point our cash.

What are you earning on the cash now?

Single digits and fractions single digits.

1%, right?

1%.

All right. Thank you.

Thank you.

Your next question comes from Dan Dittler of Lehman Brothers.

Yes. Could you [inaudible] the average of staffing consultant by segment?

I'm sorry. Number of staffing consultants by segment?

Yes.

I think we said we weren't going to at last---

I think we said we weren't going to at last quarter we weren't going to report that any more. But we can give you some ballpark figures.

Stand by for ballpark figures.

Okay.

I mean the total number of staffing consultants is, you know, 200 and some. And, you know, 80 of those are -- approximately 80 of those are -- 80 to 90 of those are in lab support and the rest in healthcare but we are breaking it down further by the particular product segments. I don't have the data.

To give you an answer as to what's happened, and make sure if you're looking back in previous detailed data and looking at trends or motives behind us a couple of things, 200 sounds dangerously like the number we typically maintain. It's actually not the working staffing consultants number is substantially lower than that but that 200 and change number now includes the managers who are in the field. That includes a layer of people who previously didn't get report in that line. We've reduced staffing consultant head count sequentially in both quarters in both the healthcare and lab support division.

And gross numbers just to cut it a little bit finer than we did. I mean order of magnitude, there is 200 total staffing consultants, half of which are lab and half of which are in healthcare, and probably in healthcare, you know, 40% are in local healthcare and 60% are related to the HPO activity.

In terms of local staffing, it's a lot last staffing than we've had in the past and in terms of HPO, operations, which we will not be calling it that, of course, after this teleconference but in terms of HPO we substantially reduced that number as well.

Great. Thank you very much.

Thanks.

Your next question is from Brandt Sakakeeny of Deutsche Bank.

Hai, Ron I had a quick modeling question for you. What's the share model to calculate the after tax EPS on the charge.

25 [inaudible] I don't think there's any dilution here.

So was that your basic number or was that your fully diluted number?

I think that, you know, given that we're in a loss position here, those are the same, right?

Right. But if we're going to -- let's say theoretically we back out that charge and calculate it based on if we pull out that and calculate an EPS, won't we need to do that on the fully diluted share calculation?

Yes, we would. And I don't know what that number is.

You don't? Okay. That's what I was looking for. Thanks.

Your next question comes from Mike Werner of Kennedy Capital.

Good afternoon. I just wanted to see if you had stated in the call that -- about your stock repurchase. You did what? 210, 218 million.

It's 218,000.200 shares.

How much do you have left on your current authorization?

250,000.

And you're going to readdress that at the September meeting?

That's correct.

And I think you gave an indication on the call what you are with comfortable from an operating expense run rate going forward here. And what your -- again what your comfort level is with the current mix of business and, you know, I believe you said that you're not expecting any more charges or significant severance going forward at this point. Is that roughly current?

That's correct. We're going to keep looking for ways to get our real estate costs down. I can't tell you there won't be at least charges going forward . But that's not going to be -- that's going to be done in collaboration with the field, of course.

Okay. There was a mention of cash flow. Can you just state again if you haven't already your thinking on your ability to maintain your cash flow neutral or positive -- positive balance at this point going forward for this year, or however you want to comment on that. That would be helpful.

Well, I mean, given the cost structures we have in place now on, you know, the current run rate, you know, we think we're at least neutral on cash flow for the rest of the year, if not somewhat positive. But that's about as far as I can go on that comment.

Fair enough. Okay. That's going to do me for now. Thank you.

Thanks, Mike.

At this time, there are no further questions.

Thank you, everyone. We appreciate your continued attention to On Assignment. We were happy to bring this news this quarter. And we look forward to speaking to you both in person and on additional calls in the future. Bye.

This concludes today's conference call. You may now disconnect.