ASGN Inc (ASGN) 2004 Q1 法說會逐字稿

Good afternoon. My name is Brooke and I'll be your conference facilitator. At this time, I would like to welcome everyone to the On Assignment first quarter earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two. I would now like to introduce Mr. Joe Peterson, President and Chief Executive Officer for On Assignment. Thank you. Mr. Peterson, you may begin your conference.

Thank you, Brooke. Welcome and good afternoon and evening, everyone. Welcome to this quarter's earnings call. With me today are Peter Dameris, Executive Vice President and Chief Operating Officer; and Ron Rudolph, Executive Vice President and Chief Financial Officer. Ron, would you introduce the call?

Thanks, Joe.

On the question, or the issue, of forward-looking statements, I just want to read the following. 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 and are only predictions, and actual events or 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 in our annual report on Form 10-K as filed March 15th, 2004, with the Securities and Exchange Commission for the fiscal year ended December 31, 2003, 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 do not 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. Joe?

Thanks, Ron.

In today's call, I'll give you an overview of the first quarter results and a little view of how the first half of the year is unfolding. Peter will add more detail to our operational progress and then Ron will close out our presentation portion of the call with more detailed numbers.

Revenue for the fourth quarter was $46.4 million compared with $47.1 million in the fourth, which represents a 1% sequential decline on a consolidated revenue, which is a lesser Q4-to-Q1 decline since the first quarter of 2000. Consolidated gross margin was 25.6%, which represents a nearly 100-basis-point improvement from last quarter.

Nurse Travel did make up an increased proportion of our revenues this quarter and that, along with state unemployment insurance rate increases, caused our consolidated margin to be down 133 basis points year over year. While we did experience acceleration in our unemployment or SUTA (phonetic) cost, we invested in the second half of last year in SUTA mitigation strategies, which have nearly have the impact we felt in Q1 and will feel for the rest of the year. On these revenues and gross profits we generated $853,000 of cash from operations during the quarter and we finished the quarter with $0.06 loss per share.

Going forward, we'll be reporting our progress in three business units, Lab Support, Nurse Travel, and what we today call Medical, Financial and Allied Staffing. For the quarter, Nurse Travel staffing grew 15%, well ahead of plan. The Nurse Travel market has improved somewhat, as has our operational effectiveness. Our Nurse Travel margins recovered from 16.7% in the fourth quarter of last year to 20.9% for the past quarter, which reflects both recovery from this segment's seasonal margin compression, as well as lowers workers comp expenses, and progress in reducing the cost of travel and housing costs of our nurses on assignment.

We're busy preparing for the arrival of the Joint Commission Accreditation in the nurse staffing industry, and our early participation with JACO, as well as early compliance, will prove to be assets, adding value to the quality-centric relationships we have and are building with our hospital and health care clients.

Lab Support performed approximately to plan. The marketplace I would describe as gradually improving, and we have had good success in attracting new staff and consultants to join our existing strong team. Lab Support revenues of $19.6 million were slightly behind our internal plan. However, Lab Support did maintain its gross margin at plan or approximately 30%.

Medical, Financial and Allied Staffing, we call it MF&A, which includes all our local health care staffing offices, finished the quarter with $6.1 million in revenues and a gross margin of 27%. This margin, this gross margin, doesn't reflect weakness in our pay bill spread, but instead reflects the impact of higher workers compensation costs and unemployment insurance costs for this unit. In our MF&A unit, our revitalization plan is producing improvement in those markets where investment has been made and where we're staffing at a higher-value set of occupations in which both quality and margin fit within our model.

SG&A expense for the quarter was $14, 349,000, compared to $14, 666,000 for the prior quarter, or essentially flat. We within both our expense and capital budgets for technology and back-office functions. In an ERP implementation, no news was good news, and we have no particular news. Our technology activities are focused upon refining our front office PeopleSoft technology, so that increasingly serves as an asset for the staffing consultants and that's where ouR Technology Group will be focused for the remainder of the year.

Otherwise, we have also increased the effectiveness of our back office operations, which we call Op Central. This is the team which, along with our service center, is dedicated to removing as many administrative tasks as possible from our staffing consultants, as well as seeing to the moment-to-moment support of their offices and their personal technology. Op Central successfully serves as the single point of contact, immediate support and backup, and problem resolution for all field sales and client business needs. To accomplish this, we've condensed into one team the field support of technology, marketing, billing, payroll, HR, and facilities.

This very real commitment to the support of the people who make up our field force is representative of our people-centric culture. It directly helps our sales people succeed, and this is the type of commitment that serves to directly support the recruitment of proven performers to On Assignment. In spending time both on the phone in our call center and reviewing the open tickets, requesting support, and I can tell you firsthand that our op central and service center teams are really making a difference to the quality of professional life and possibilities for personal success for any staffing consultant who comes to work for On Assignment.

The wholesaling mentality and focus on people remains the centerpiece of our strategy. You see it in our margins. It attracts proven performers to On Assignment. For them, it's an invigorating breath of fresh air. And, we heard back from investors speaking to clients in the course of their due diligence on On Assignment. Those clients are confirming the value of personalized relationships with us, based upon the thoughts (phonetic) that we will deliver the right person to the right job the first time.

Finally, let me address for a moment the change in the way we report productivity going forward, because we're going to change and modernize the method and I want to be clear as to why and how. Historically, On Assignment has reported productivity in terms of average number of temporary employees working per staffing consultant, both for the consolidated divisions and within each division. We have discarded this method because it's inaccurate for a number of reasons; most importantly, by failing to take into account part-timers as full-time employees, as well as varying bill rates among occupations within a division.

In the second half of the year, we'll be reporting productivity with measurements based upon gross profit generated by staffing resources. Today we track productivity, but with measurements and systems that are being refined and automated. Once that process is done, we'll give you a consistent set of indices that you can measure us by.

Now, let me turn the call over to Peter to more fully detail our progress in the revitalization.

Thank you, Joe.

During the quarter, we executed well against our stated goals under the announced revitalization plan that was approved by our Board on February the 12th, 2004. We started the year with 66 staffing consultants in our Lab Support Group, down from 91 at the beginning of 2003. As of today, we have 83 staffing consultants in Lab Support.

In the Medical, Financial and Allied group, we started the year with 44 staffing consultants, once again, down from the 91 at the beginning of 2003. Again, as of today's date, we have 72 staffing consultants in this group. In Nurse Travel, we started the year with 44 account managers, recruiters and regional sales directors, up from 42 in the beginning of 2003. Today, we have a total of 59 account managers, recruiters and regional sales directors in our Nurse Travel group.

All of these new employees have specific applicable scientific health care sales and/or recruiting/staffing experience. The majority of our new employees started working for the company in late February and March and have gone through one of the five-week long sales and operations training programs that the Company recently developed to ensure that people hit the ground running with the sales tools needed to be successful. Exiting the quarter, we are encouraged by the trends that we are experiencing. Billable head count, bill pay spreads, number of customers billed, and total hours billed, are all at highs for the year.

Through today's date, we have reopened 10 Lab Support and Medical, Financial and Allied staffing branch offices and have seen good results upon staffing the offices with appropriate personnel and supervision. An example of what I just mentioned is our Costa Mesa office. We closed this office in 2003. In March of this year, we reopened the office, staffed the office with three proven staffing consultant,s and have gone from zero billable personnel in five weeks to 29 today.

I would now like to briefly share with you certain operating data points for each group. Lab Support. Exiting the quarter, Lab Support's average daily revenues are at a high for the year. Gross markup is up slightly. The number of customers we billed is up. The number of reactivated clients is up, and billable personnel head count is at its highest level for the year.

Medical, Financial and Allied. In the Medical, Financial and Allied group, we are at the highest head count level since January 25th, 2004, are at the highest bill rate for the year as well. During the last week of April 2004, this group generated its highest average daily revenue for the year. All specialties, except HFS, which is starting to recover, are at their highest billable head count for the year. While there is still much work to be done, based on current trends, we believe starting with the second quarter of this year, the Medical, Financial and Allied group will show its first sequential quarterly revenue growth in four years, an accomplishment we are very proud of, considering that we accomplished the same while increasing our average bill rate by 4%.

Nurse Travel. The Nurse Travel group performed very well during the quarter. Submittals and job orders are at their highest levels in recent weeks. This group did a very good job of lowering housing and travel costs and controlling the group level SG&A. During the quarter, revenues, gross profits, number of clients, and number of nurses working, all grew. Although on a consolidated basis, our revenues were down 1% sequentially first quarter over fourth quarter, our first quarter revenue decline represents the smallest sequential decline in six quarters and the smallest seasonal decline since the first quarter of 2000.

Finally, with regard to operations, management and financial reporting, we have made great progress. First, we have greatly increased the frequency and amount of information that we provide our regional managers and staffing consultants relating to productivity and revenue-generating activity. Second, we have flattened the organization by eliminating a senior vice president and division vice president role and appointing Sean Moore, President of the Medical, Financial and Allied group and as Chief Sales Officer.

As many of you know, Sean has been working with the Company since early January of '04 as a consultant focusing on sales training. We are very pleased to have Sean join us in a full employment capacity. Many of the new regional managers and staffing consultants in the Medical, Financial and Allied group worked with or for Sean in a previous career or were recruited or trained by Sean since the beginning of the year. This management transition to Sean should be somewhat smoother than normal for the reason I just stated.

Going forward, we plan to operate our business under four groups, Lab Support U.S., Lab Support Europe; Medical, Financial and Allied, and Nurse Travel. Each group has its own leader who in turn will report directly to me.

Our goal is to reduce fixed costs at corporate and focus our available SG&A dollars in the field. In closing, we believe we have successfully addressed many operational issues during the quarter in a clear, consistent and implementable fashion. We believe the actions we have taken or will take will allow us on an individual group and on a consolidated basis to start producing quarter over quarter growth for the first time in four years. There is still much work to be done, and we are still at the very beginning of implementing our revitalization plan, but we have already seen clear signs the Company is moving in the right direction.

I would once again like to thank our many loyal, dedicated and talented employees whose efforts have brought us all to the verge of success. I would like to now turn the call over to Ron. Ron?

Thanks, Pete.

Just to recap the top line results here, revenue of $46,426,000 is a 1% decline sequentially, 20% decline versus a year ago. Just to repeat what Joe and Peter have both alluded, to that's the smallest seasonal decline since the first quarter of 2000, and compares to last year's Q1 over Q4 decline of over 12%. Within the business unit, Nurse Travel increased 15% versus a drop of 16% sequentially a year ago. And, all in all, the results, in terms of top line performance, underscore the stability and-- that we alluded to and commented on the last quarter's call. Things seem to be stabilizing.

In terms of gross profit dollars, actually, we had sequential improvement on a nominal dollar basis, up sequentially 2.5% from last quarter to $11 ,813,000. As far as margin performance, year over year, we were down 133 basis points, and we'll get into the details of that, but sequentially up 97 basis points.

On a consolidated basis, margins of 25.44 compare to 26.77 a year ago, and bill and pay rates have actually-- the spread has actually improved. We're up 24 basis points on a consolidated basis from a year ago and 134 basis points on a sequential basis in terms of the spread.

Obviously, offsetting that improvement in bill pay, spreads are higher workers' compensation expenses, higher unemployment insurance expenses, some seasonal expenses related to holiday pay and incentives. But all improved performance on the margin front, and again, with a different mix of business, with Nurse Travel representing 42% of the business, or are 45% of the business this quarter versus 38% in a year ago quarter, obviously, the weighting of that lower margin business with the legacy On Assignment business is going to depress the overall outcome in terms of gross margins.

Some of the details by segment, nurse--in the lab segment, margins, margins at the bill pay spread level increased by 65 basis points over a year ago and 78 basis points on a sequential basis. The offset that caused the decrease from a year ago of over 240 basis points and on a sequential basis of about 80 basis points come from those same categories that affect the consolidated results, namely workers' compensation, unemployment expense, some holiday and incentive pay, and miscellaneous other costs.

Healthcare segment, on a year-over-year basis, just pretty much maintained the bill pay spread level at about 41%. On a sequential basis, up 184 basis points at that level, offset again by higher workers comp costs, unemployment costs, and holiday and other incentives.

As far as Nurse Travel in itself, a terrific turnaround from the fourth quarter. Fourth quarter margin was 16.4% and the current quarter is 20.86%, a 440 basis-point improvement from the fourth quarter on a sequential basis and 265-basis-point improvement from the year-ago quarter. At the bill pay level, the spreads are down from a year ago, but on a sequential basis, up 137 basis points. Higher workers' comp cost, comparable, slightly higher unemployment insurance costs, better performance on some of the housing and car and travel-related expenses have contributed to this improved performance as far as Nurse Travel.

Medical, Financial and Allied, under our new format, the way we're breaking that out, that has some compression at the top line in terms of bill pay spread, down 184 basis points from a year ago, but up 129 basis points sequentially. As far as miscellaneous data points on the first quarter, foreign revenues were $2,644,000, representing 5.7% of revenues. That's down 3.2% from a year ago and down 6% on a sequential basis. Conversion fees were $493,000. That's down 18% from a year ago and down-- it's actually up slightly, 1.2%, on a sequential basis. Operating income for the quarter, operating loss for the quarter was $872,000. $872,000. I'm sorry.

EBITDA for the quarter was negative $872,000, an improvement from the fourth quarter, which was minus $1,491,000 and down from the year-ago quarter, which was positive $936,000. The operating income in the quarter was minus $2,536,000. The operating loss was $2,536,000, an improvement over the fourth quarter and year ago quarter was a loss of $863,000.

Earnings per share was $.06 loss, improvement over the $0.08 loss in the fourth quarter and a $0.04 decrease in profitability from the $0.02 loss in the first quarter of 2003. Net loss for the quarter, to back up a line, was $1.5 million. That was improvement over the $2 million loss in the fourth quarter, and a decrease of $1 ,100,000 from the $450,000 loss in the year-ago quarter.

As Joe noted, the SG&A is flat from the fourth quarter and down substantially from a year ago. A year ago, SG&A was $69,343,000. That almost $2 million decrease is principally composed of reduced compensation, facilities expense and all of the things that we took actions to effect the cost reductions last year when we spoke to you about the realigning costs with near-term revenue opportunities. Most of those cuts were made. No further cuts have been made since the fourth quarter of last year, but those are obviously reflecting in favorable SG&A reductions from the year ago quarter and flat on a sequential basis.

Depreciation and amortization in the quarter was $1,664,000, consisting of $840,000 in depreciation-- $845,000 in depreciation and $819,000 in amortization. Cash flow from operations, $853,000. Capital expense during the quarter was $1,409,000. Cash balances are up 17% from a year ago and essentially flat sequentially at $34,608,000.

Accounts receivable is $24,391,000, down 30% from a year ago, down 4% from the fourth quarter. DSOs show improvement from 56 days in the fourth quarter and 59 days a year ago quarter, to 51 days in the first quarter being reported upon. Part that have improvement was write-off of receivables, but still, all in all, 51days DSO seems a reasonable performance.

Bill rates for the last segment are up 7.8%, year over year. Pay rates in the lab segment are up 7.4%. Bill rates in healthcare segment are up 13.4%, and pay rates are up 12.6%. This reflects a higher proportion of the healthcare segment revenues coming from our Nurse Travel business, but all in all, still a positive expansion at the bill pay level, both for the lab segment and for the healthcare segment.

In terms of guidance, as we noted in the press release, we still believe we will achieve our previous guidance of positive EBITDA for the full year on revenues of $210 million to $220 million with gross profits of $55 million to $60 million. But, due to the timing of various investments and the realization of productivity of our new hires and the current performance of our Medical, Financial and Allied business, we still don't expect to generate positive net income for the entire year. ,

Brooke, we would like to open it up for questions.

At this time, I would like to remind everyone, if you would like to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster . Your first question comes from Marta Nichols with Banc of American Securities.

Good afternoon. Thanks. Peter, I'm sorry to ask you to do this, but the numbers that you went through talking about consultant numbers within each of those three divisions, you went through relatively quickly. I think you said you started the year at a specific number, down from another number at the beginning of '03, and you now have a third number in each of those segments, and I'm wondering if you can review those with us again quickly.

Yes, I would be glad to. Marta, if you want to call after the call, I'd be glad to give it to you as well. But, Lab support 66 at the beginning of '04, and at the beginning of '03, it was 91.

Right. And you're now at 83 there?

And today, we're at-- right now we're at 83. That's correct.

Okay.

On the Medical, Financial, Allied group, we started with 44.

Yep.

Down from 91 at the beginning of '03.

Okay.

And, as of today, 72.

Okay.

Then on the healthcare, on the Nurse Travel side, 44, up from 42.

Okay.

And today, we have 59.

Okay. Then another-- again, apologies for the repetition, but Ron, right at the end of your comments, you talked about bill rates versus pay rates and how your bill rates were actually improving relative to your pay rates. I thought you said in both segments, but it sounded to me like Lab actually-- the bill rates grew a little bit more slowly than pay. Did you say 7% on bill and 7.4 on pay?

7.8. I'm sorry, but I was going very quickly through that. But both-- the spreads, that expanded for both segments.

Okay.

It's just the greater increase in the healthcare segment is due to the higher weighting of the Nurse Travel business in the total healthcare segment mix.

Okay.

But the spreads are positive for both segments.

Okay, and then, I think, Joe, in your early comments, as well-- I guess I got one question for each you. But in your early comments, you talked about SUTA migration strategies that lowered your exposure there. Can you be more specific about what it is you are doing to lower your SUTA costs?

Well, I'll turn that over to Ron, Marta.

What we did at the end of last year and implemented for January 1 of this year follows a project that we undertook. It's an update to a project we undertook five or six years ago that was originally intended to lower our state income taxes, and as a by-product, we were able to lower state unemployment insurance rates. What we had the opportunity to do this time around was, as a result of our HP O acquisition, we have several legal entities in the organizational structure here, and for accounting and legal and other reasons, we needed to reorganize and reassign people to these different entities.

So we took advantage of that opportunity to also, you know, combine all of our temporary employees into one unit and our sales people in another and our corporate and support people. And that's allowed us to lower our rates, lower our unemployment insurance rates, in various states.

Okay. But is the point there that-- I mean we've heard-- we've heard, you know, bits and pieces over time about, you know, changing the entities to which you assign employees, being referred to you by some of the state entities as actually SUTA dumping. Is that different than that?

No. Well, we already had the entity. I mean, we didn't create an entity to do that.

Okay.

This is the end of a much longer-term project where we're studied for four or five years--

Yeah.

-- about the strategies where we can, you know, best address rising tax considerations. This is not a short-term reaction.

Okay. And then, I guess the final question, I guess potentially for Peter, it sounds as though you're well on the way in terms of hiring quite a few people. Can you give us a sense of what your targets are, for example, for mid-year or year end in terms of head count among the various segments?

Well, you know, it was a net 56, Marta, and we have-- we've done much greater hiring than that through the first four months of the year. Some of it is to fill voluntary vacancies and voluntary terminations, and then just the incremental head count. We're tracking pretty well to our timing and to the number of head counts. I think in order to be fully staffed under what we talk about internally is the base case, and then the incremental head count, we would have to hire an additional 31 people over and above everyone on the payroll today.

Okay, and do you anticipate having that complete, say, in the next quarter or two quarters?

Well, they are all staged. Some of it's opportunistic, where, if we find the right candidate before we had targeted for them to be hired, we'll go ahead and acquire that individual. But the biggest wave of it was to get it done in the first four or five months of the year so we could make an impact on '04 and the rest get staggered in with the final slug, really, by July.

Okay. Great. Thank you.

Your next question comes from Adam Waldo with Lehman Brothers.

Good afternoon, all. Looks like you're making some good progress here.

Thank you, Adam.

I wonder if you can comment a little bit, either Joe or Peter, around some of the revenue trends that you saw on a year-over-year basis in the month of March and then in the month of April after you got the vast, vast majority of the new hires back in?

Right. Well, good afternoon, Adam. This is Pete.

Good afternoon, Pete.

Adam, I would like to-- I want to try to address your question, but the year-over-year trends, I don't think are as pertinent as, really, what we're seeing currently as we reinflate these markets with appropriate personnel and get them the right support and alleviate some of the productivity issues related to our front-end system. We're seeing, as I quoted to you,'were seeing the highest level of our reactivated clients, billable head count, gross mark-up spread, in almost all of the divisions.

In the Medical, Allied, the Medical, Financial, Allied group, our bill rate approximately went from 2370 to 2440 in a 90-day period. And it's because we're doing higher-value-type work with more certified coders and billers, medical transcription specialists, which is all adjacent services to our traditional HFS business. The Nurse Travel speaks for itself. It grew 15% sequentially in the 90-day period, and the submittals and the orders are staying stable.

We had a particular spike in mid-March and we had a fair-- a significant proposed drop-off in end assignment date in April, but we've got through that fairly well and redirected those people to other assignments. So we're being-- we're able to grow the markets without compromising on our margins. I gave you the example of Costa Mesa. That went off as, Adam-- well, let me give you a different one. The Encino office this week hit $100,000-a-month run rate. That's a $1.2 million. That whole group did 5.4 in the quarter. If you-- when I give you the 5.4 number, that's a little bit different than the other number we quoted because we have a group in St. Paul that we look at occasionally differently. But the point I would have you look at is what we can generate if we put the right people in the right markets.

Okay, thanks.

And, Ron, I wonder if you could just talk a little bit about how the SG&A flowed through the quarter, given the rate of hiring. Obviously, there was a lot of hiring that hit, you know, sort of in staggered fashion over the course of the quarter, yet the SG&A expense, net of depreciation and amortization, actually fell sequentially by about 2.5%. As we look forward, and given all the hiring in place to this point, plus the hiring that Pete's contemplating by July, how would you have us think about the SG&A expense base over the remaining quarters of the year?

Well, I think starting with Q2 through Q4, you can look for SG&A to be in the range, you know, a more normalized range for Q2 would be $15 million and growing to $16 million by Q4. There was some offset occurring in the first quarter, even though we did hire up quite a few people, a lot of that was weighted towards the end of the quarter.

We still had some compensation increases, increases in accounting and tax and insurance and other things, but we also had some offsets that, you know, occurring in terms of not having restructuring costs and other things that we had in the fourth quarter. So, both the fourth quarter and the first quarter are somewhat, somewhat aberrational and I think the best way to address the issue of SG&A is to say that, you know, starting with Q2, a number close to $15 million would be more likely to be the outcome.

And that's inclusive, Ron, of D&A, or exclusive of D&A?

That's inclusive. I'm sorry. I'm doing the all-inclusive.

I wanted to check that.

It's all inclusive.

Got a little scared.

All-in operating expenses is 15.

Okay. And then I guess my final question is, if you look at the mid-point of your revenue guidance for 2004 of $210-220 million or $215 million, which you issued back in the winter and which you have reaffirmed today, that would imply that you're going to be able to increase the revenue base sort of on a linear fashion by about $4.9 million a quarter in each of the remaining quarters of this year, or about 11% per quarter sequentially. Clearly, you've made nice hiring progress this quarter, but I wonder if you could just help us understand how, in the absence of, you know, bottoms-up revenue-driver metrics in your financial reporting this quarter, we should think about the achievability of that outlook?

This is Pete. It definitely depends on the productivity of the people that we hired. It is an aggressive objective towards the end of the year. I think that when you look at the run rate that we hope to achieve towards the fourth quarter, I think it's achievable. I think-- I hope to be able to report, when we do the second quarter, that we're starting to show the type of sequential growth which reflects that a lot of the regain of market share is just recapturing some portion of business, Adam, quite frankly, that we shouldn't have lost. So, we need to go out of our way, when we talk about regaining market share, not to say that we're going to regain it because of a more competitive price.

Some of the businesses, quite frankly, we defaulted it in the marketplace because we elected, for cost containment purposes, not to be in the space. And, as we reenter the space with proven people with established relationships, there is business that we can acquire in an organized fashion. So, it is a challenge, but I do think we'll show good on a percentage basis, on an absolute dollar basis, good sequential quarterly growth, specifically in the third and fourth quarter.

Fair enough. One final quick one for Joe, if you'll permit me. Joe, in your prepared remarks, you talked about echoing the points in the press release, using gross profit per staffing consultant as your principal productivity management measure and external financial reporting measure going forward. But you have also alluded to some other metrics that you expect to disclose in the second half of the year. And I wonder if you could give us a little bit more specificity around how you would expect to increase transparency with additional metrics during the second half of '04?

Yeah. Without trying to describe things that have not yet been resolved, it hasn't been lost on me or us that in 2003, in a year where we had very poor visibility and were very aggressively protecting margins and balance sheet, we withdrew a lot of your visibility as well.

It's our intention going forward for you to be able to follow-- not only view the consolidated corporate performance, but also the performance of the revitalization plan on a quarter-to-quarter basis in which we'd give you a uniform set of indices that represent the standards by which you judge us, probably beginning in the third quarter and going forward. So I know that's, that's a-- that's kind of a sideways answer to the question.

We track productivity measurements today within offices and individuals and divisions. A lot of this has to do with how one defines the denominator of staffing consultant expenses, and we're further along with defining that than we are automating it. But it certainly is our goal and commitment to do that so that you can work with us and do your own math on how any division is doing in terms of productivity. Ron, do you want to add anything to that?

Well, yeah. Just, you know, obviously, the intent of the revitalization plan is to invest in people and get a payoff in terms of top-line growth and gross margin and gross profit preservation, so one of the sort of natural fall-outs, as a candidate for a productivity measure, is just the gross profit dollars relative to staffing consultant or field employee compensation. That gives you kind of a proxy for return on investment in the people, and, you know, we've been experimenting with that.

We're not ready to go public with that as the, or one of the, metrics we'll do in the second half. But I think you can see how that one is sort of a pure number that, if the revitalization plan is successful, that number should, should increase over time. That should improve over time, and as you get around a lot of the shortcomings of using head count, mixing in various pay rates, bill rates, length of assignments, different ways of delivering the business and all of that, it just sort of simplifies it down to a dollar number divided by dollar number. So that's one I'm going to campaign for, but we haven't settled out yet on which ones we're going to publicize.

That's very helpful. Thank you all very much.

Thank you, Adam.

Again, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from Jim Jeneski with Weinbeck and Company.

Yes. Good afternoon. A couple of questions. Can you give us an idea of where you think margins can shake out by area going forward? You know, I think you had mentioned that, you know, while they might-- obviously, that's going to be effected by your conversion rate as well, but can we just say normalized margins when we exclude conversion rates, just give us an idea of where those can head once everything is kind of normalized and you're hitting on all cylinders?

Yeah, Jim, thanks. This is Pete. I think the best way to answer it, and it's a little bit of avoidances. I think our first quarter performance demonstrates that we believe we can grow revenues without having to compromise on the margin. As we have told people, we don't expect to get our market share back from the bulk sellers of human capital that are pricing stuff at 16.5% gross market on a vendor on promise management program. Ours is more on the niche services and with the B& C type accounts. We still hold to the conviction that we can grow-- this first leg of regrowth, we believe we can grow our revenues without having significantly compromised the margin in any of the divisions.

Okay. So would you say that this is more of, you know, more of a bottom and you should be able to grow from here?

I wouldn't say that we're in a market that's so robust that you'll see expansion of margins. I think you will see that the mix of some of our business in the Medical Financial Allied group is a higher margin business or a higher bill rate, but I wouldn't want to you take away from this conference call that we're sticking our neck out, saying we're going to expand margins and grow revenues throughout the year. That's not what I'm saying.

Okay. Great. That's helpful. Also, when you start providing your new productivity matrix, or metrics, I'm sorry, are we going to get a sense of, you know, are you going to take a look at those historically as well? Or, are we looking more at sequential improvements and then once we annualize them, we'll see how you're doing year over year?

Well, let me tell you, Jim, our plan is to do the following. Particularly for those of you who have been patrons of On Assignment for some period of time, you have followed head count for a long period of time, and as we've described before, that was relevant when the business was substantially more homogeneous than it is today.

So, our plan is that when we introduce, let's assume that it's the third quarter, we introduce a new set of productivity metrics, we'll give you kind of a one-time-only translation tool that we will yet define. But it will say something on the order of, you know, "if this were 1999 or 2000, and the business homogeneous, this kind of gross profit per staffing consultants would be, in the old days, comma, the same as 28.5 working employees. " But again, we're going to do that out of courtesy to the fact that we know everybody is going to have to make a new transition to a new kind of reporting tool, but that will sort of be kind of a one-time-only bridge for you to be able to look back at previous years and, yes, bring those into perspective. It just won't be relevant going forward.

Okay. Thanks. Next, if we can turn to the travel segment, what are you seeing there in terms of areas of strength? I think that, you know, we have seen some other companies report. And, you know, California, for example, seemed to be a particularly positive spot within the industry in terms of a geography. But, you know, I wouldn't say we're really out of the woods yet, with respect to the travel industry. You know, hospitals are still trying to squeeze as much productivity out of their nurses and et cetera. So, the question comes at, are you seeing a geographic strength and are you taking market share? If we could just dig into that a little bit more deeply, please.

Let me start, and I suspect Peter will have some comments to add as well. In most of the-- in most of the regions in the hospitals we serve, you're seeing either no or a mild increase in patient census, but nothing that's particularly dramatic.

What I will tell you is, is that in the past, you know, a year to 18 months, this hospital had a bit of a hall pass on having to bring in lots of temporary nurses. They primarily took a break from the activity. They didn't particularly institute sophisticated vendor management programs, price control programs or alternative methods of staffing the hospital. So, it's our assumption at this point that, as their need for nurses grows in almost direct proportion where you feel the demand back into the temporary staffing industry. Certain Hallmark institutions, UCLA as an example of being one of them, have made great strides in retaining their indigenous nurses and recruiting permanent nurses from the local community. That does not characterize the majority of hospitals.

So I think you're feeling a little bit of improvement in the marketplace. Remember, when they do have a need, we are the first ones generally to be able to deliver, and there is some degree of attractiveness in bringing a nurse on who's only going to be there for 4-8 weeks. As you get into this early, potential increases of demand as opposed to signing up for one or more people who are on a contract basis there for 13-weeks-plus.

I think that's right. I think you are starting to see that the market's getting a little bit better, where two more years down the road, Jim, and as Joe said, people haven't solved the problems and these short-term financial strategies end up boomeranging, and I think when you see the express nurse or the rapid response pick up, that's an early indicator that the overall demand is picking up. They alleviate their most immediate pain and then they start thinking longer term, subsequently.

So I wouldn't describe it as taking market share from others. As you know, our nurse head count is significantly smaller than some of the other public Nurse Travel businesses. So, for us to grow 10% year over year, it doesn't require us putting 1 ,500 nurses on the books. So we're just getting our fair share of business that's out there.

Okay. Thank you. And, finally, could you comment a little about, you know, turnover, you know, where it's at and in terms of year over year on a percentage basis? I mean, you've brought a number of people into the organization ,obviously. Some used to work for you, some are new people. You know, what-- you know, what is the mood within the organization and how are people taking to the new, you know, the revitalization plan, as you refer to it?

Right. I would say morale is very, very good. I mean, people feel empowered because, one, we're making investments and helping them in their jobs, which corresponds to higher commissions, and we significantly increased the head count. I mean, the numbers that we gave you showed, you know, conclusively that we're investing in the field, not drawing down on the field.

We haven't had any sort of significant whatsoever turnover in the new hires. We have put golden handcuffs on them, Jim, meaning we've given them lump sum cash awards for double, tripling their markets, and so they have a nice attraction to do what they're supposed to do.

We had some turnover in the HFS business, to be quite honest with you, in the fourth quarter, but that wasn't altogether bad, because a lot of the people had no previous sales experience in the healthcare staffing arena. They had subject matter knowledge, but not selling experience within a healthcare staffing company, and we have seen a marked improvement in the performance once they, once we get these new people in the appropriate offices.

And then, the Lab Support group, I would tell you that that is a very good group. They are the gold standard still in the scientific staffing space. They are very proud. They are not particularly happy that we have lost market share, and, you know, when you have so much pain, people are willing to try new things, so it's been pretty collaborative. I mean, it's pretty well recognized that some of these other scientific staffing companies that have done fairly well in the public markets really were seated with the lab support business group, and some of those people are coming back and some of those people that had stayed with us through the tough times of the staffing industry want to recapture some market share. So, it was a very proud group and they are very, very collaborative about how we can do things differently, looking at ideas brought to us from people who have worked outside the business.

Okay. Thanks for providing that little detail. I appreciate it.

At this time, there are no further questions. Mr. Peterson, are there any closing remarks?

Just one, Brooke. From myself, Peter, Ron, and Mike Holtzman (phonetic) and Deirdre Skolfield, a terrific thanks to any of our field force employees in Cincinnati or elsewhere in the Company that are listening in These first quarter results are your results, and we're very proud of them. We thank you all for dialing in to the call and we'll talk to you after next quarter closes. Thanks very much.

Thank you. This concludes the On Assignment first quarter earnings results conference call. You may now disconnect.