ASGN Inc (ASGN) 2004 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the On Assignment fourth quarter financial 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. [Operator Instructions] Thank you. Mr. Holtzman, you may begin your conference.

Thank you, operator. Before we begin, I would like to remind everyone as we do each quarter that, our presentation contains predictions, estimates and other forward-looking statements representing our current judgment on what the future holds. These include words such as forecast, estimate, project, expect, believe and similar expressions. We believe these remarks to be reasonable, but they are subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We describe some of these risks and uncertainties in today's press release and in our filings with the Securities and Exchange Commission. We do not assume the obligation to update statements made in this conference call. Peter Dameris, our CEO and President, will now provide an overview of our fourth quarter results. Pete?

Thank you, Mike. Good afternoon. We'd like to well everyone to the On Assignment 2004 fourth quarter earnings conference call. With me today are Mike Holtzman, Senior Vice President and Chief Financial Officer; Emmett McGrath, President of Lab Support - U.S.; and Shawn Mohr, President of Healthcare Staffing. During our call I will once again give a review of our operational highlights and numbers, followed by a more detailed discussion of the performance of our operating segments by the presidents of each of those segments. I will then turn the call over to Mike for a more detailed review of-- review and discussion of our fourth quarter financial performance and our financial guidance for the first quarter of 2005. We will then open the call up for questions.

Consolidated revenues grew year-over-year for the first time in many years. Revenues in the fourth quarter were 51.3 million compared to 47.1 million in the fourth quarter of 2003, and up 3.5 percent from the revenues generated in the third quarter of 2004. Consolidated gross margins were 25 percent, which represents a 50-basis point improvement from the fourth quarter of 2003. The gross margins were higher in the fourth quarter of 2004 compared to the same period one year ago, despite a greater contribution of revenues from the Company's lower gross margin Nurse Travel division. Lab Support and MF&A, our highest gross margin businesses, are continuing to grow in quarter one, along with higher conversion and permanent placement fees and continued improvement in our cost for workers' compensation insurance. I am pleased with the revenues we posted for the quarter, as they beat our range of previous guidance. I'm also relatively pleased with our progress towards profitability.

The $0.08 loss we reported, which excludes the 4.2 million non-cash adjustment to our tax reserve and a $330,000 retirement package, is a sequential improvement over the third quarter of 2004, which is traditionally our strongest quarter; and a step in the right direction. Regarding the tax charge, while we believe the net operating losses will be fully usable in the foreseeable future, we decided to take a fairly conservative interpretation of FAS 109. In re-evaluating our net deferred tax assets, management gave substantially more weight to objective factors such as current and previous operating losses than management's outlook for future profitability. We remain optimistic about the future prospects of our business and the industry we-- the industry, and we continue to believe that overtime the Company will generate sufficient taxable income to utilize its net operating loss carry-forward. The charges we announced today are set out in a table attached to our earnings release and Mike will go into greater detail regarding the charges later in this call. To fully appreciate the performance of our company during the fourth quarter, investors should evaluate each operating group's performance-- performance separately.

Our Lab Support segment generated 22 million in revenues, essentially flat from the third quarter of 2004; had 29.9 percent gross margins; billed 1,239 clients, down slightly from the 1,258 for the third quarter of 2004; added 239 new or reactivated clients; and increased the average number of temporary professionals on billing by 22 in the quarter. Our European operations, which are reported as part of our Lab Support segment, grew 15.9 percent sequentially over the third quarter of 2004; generated 3.1 million in revenues; and had gross margins of 34.7 percent. The Lab Support segment revenue performance in the fourth quarter is meaningful, considering that there are two fewer billable days and many Lab Support clients closed facilities at the end of the fourth quarter. On a same number of billable days basis, and not taking seasonality into consideration, our Lab Support segment grew 3.4 percent over the third quarter of 2004. Our top 10 customers in Lab Support represent approximately 10 percent of total Lab Support segment 2004 revenues, and our average number of staffing consultants for the fourth quarter was 101; down from 102 in the third quarter of 2004.

The Medical, Financial and Allied group generated 8.1 million in revenue during the quarter, up 8 percent from the fourth quarter of 2003; achieving a 27.8 percent gross margin; billed 892 clients, up from 734 at the end of the third quarter of 2004; added 175 new or reactivated clients; and the average number of temporary professionals on billing decreased by 6 quarter-over-quarter. Our top 10 customers in MF&A represented 12.5 percent of total MF&A 2004 revenues and our average number of staffing consultants for the fourth quarter remained unchanged at 91. On the same number of billable days basis, our MF&A division grew revenues approximately 1 percent over Q3, 2004.

The Nurse Travel group generated 21.2 million in revenues, up 10 percent sequentially from the third quarter of 2004, and up 17.1 percent from the fourth quarter of 2003. Gross margins were 18.8 percent, up from 16.4 percent, in the fourth quarter of 2003. The number of nurses on billing averaged 496 for the fourth quarter compared to 475 for the third quarter of 2004. And total number of clients billed was 113, up from 102 in the third quarter of 2004, and 91 for the fourth quarter of 2003. During the quarter we added 24 new clients. Our top 10 clients represent 68.7 percent of total revenues for Nurse Travel in Q4, 2004. This compares to 62.4 percent at the end of the third quarter of 2004 and 69.1 percent at the end of the fourth quarter of 2003. For the week ending February 27, 2005, we had 527 nurses on billing. Our Nurse Travel group, which makes up a part of our healthcare segment, grew 3.4 percent for the full year 2004 over 2003. An accomplishment that no other publicly traded nurse staffing company achieved on a-- on an organic basis in 2004.

As many of you who follow the Company know, our Nurse Travel division has a higher value and, correspondingly, has a higher bill rate than many of our competitors. Our Nurse Travel business is differentiated from other Nurse Travel companies by providing rapid response, highly skilled, more experienced nurses. Our clients are primarily hospitals needing immediate help in their ICU, ER, OR and Critical Care Units. Our nurses' skills are, therefore, harder to find and less commoditized than other Nurse Travel companies and hospitals will always have to rely more heavily on third parties to fill these type of positions. Shawn will discuss some of the action plans we have in place to permit to us continue to grow in 2005.

I would describe each of the end markets we serve as stable and productive. The Nurse Travel market is still challenging, however, over the last four months we have continued to see improvement. Despite the difficult Nurse Travel industry operating environment, in which we derived 41.6 percent of our total revenues in 2004, On Assignment, on a consolidated basis, was capable of growing 3.5 percent sequentially over the last 90 days and 8.9 percent fourth quarter 2004 over fourth quarter 2003.

Our People Soft implementation continues on a measured and appropriate pace. During the fourth quarter, we conducted an independent audit as to the current status and functionality of our People Soft system. The scope of the audit included what remains to be accomplished on the ERP implementation. Our audit is complete and I'm pleased to report that the majority of expenses and modifications are behind us. As many of you are aware, we were required to expend a substantial amount of capital to correct and complete the People Soft implementation that was started in 2002. Today, our system is a stable, pay bill, order entry system that our company must now use in a fashion that reduces our back office processing costs.

Our capital expenditures in 2005 will be substantially below those experienced in 2004. Our focus today is to gain higher productivity now that certain inoperability and misconfiguration issues have been addressed. This is the second consecutive quarter that the Company has met its operating objectives and remained consistent with the operating plans that management set forth in the second and third quarter, 2004 earnings release. Going forward, our focus will remain on supporting our core offerings and growing our newer service lines. We're very focused on returning to appropriate levels of profitability as soon as possible. Towards the end of the call today, Mike will walk you through the forward guidance that we announced in our earnings release. I would now like to turn the call over to Shawn and then Emmett for a more detailed review of operations. Shawn?

Thank you, Peter. We had a strong and robust Q4 within On Assignment Healthcare, which consists of two operating units; our Medical, Financial and Allied business, also known as MF&A, and Nurse Travel. MF&A represented 26.5 percent of Healthcare staffing revenues for the full year 2004. MF&A revenues for Q4, 2004 were 8.1 million, an increase of 8 percent over Q4, 2003. The operational goals in this group are to hire, train and retain the best talent in the market space; to focus on driving higher levels of revenue activity and productivity; and to migrate into higher margin, higher bill rate healthcare disciplines. We made significant progress towards these goals in 2004, and specifically in Q4. Let me provide some more clarity on these goals.

As for hiring and training, we maintained our head count in Q4 to levels expected throughout all of 2005. Most of the Q4 hires consisted of either replacing underperformers or adding staffing consultants to some of our higher margin business lines. As for revenue-generating activity and productivity, we continue to measure field sales and recruiting in key performance indicators, or KPI's which, again, are the activity metrics that we expect recruiters and account executives to focus on day in and day out. We continued to see revenue-generating activity and new job orders rise. We continue to measure productivity on a gross margin dollar and temporary employee per staffing consultant basis. As expected for Q4, productivity per staffing consultant levels were down; primarily due to normal seasonality which effects our business in the quarter. I feel comfortable that productivity will continue to rise as these new hires begin to gain traction in their respective markets. We anticipate that our head count will remain close to or at current levels within MF&A for 2005.

And finally, migrating to higher margin, higher bill rate healthcare disciplines. On Assignment, as you know, has been in the business of placing healthcare financial staffing professionals for over ten years. We recently increased our focus on placing high demand, low supply, health information management professionals, also commonly referred to as HIM, which includes credentialed hospital coders, auditers and interim managers. Since increasing our focus in this high-end business line, we have grown steadily and sizable growth and had bill rates twice that of the MF&A average.

Local nursing is the second business line we've expanded into within MF&A. Local RN is different from Nurse Travel in that we utilize our local office infrastructure to place nurses that live within a 50-mile radius of a hospital, physician's group, clinic or other healthcare facilities. These nurses are placed on long-term 13-26 week assignments, drive to an assignment from home daily, and don't have the expenses associated with travel such as airfare, housing and car rental. For this reason, gross margins in this business line are generally higher that that in Nurse Travel. Revenues in Local RN's initial test markets have exceeded our expectations. HIM and Local RN fit well into our existing staffing business model and we can leverage synergies within our existing business lines to help grow these areas of discipline, which are paving the way for additional increases in revenues and margins.

Even though these added business lines are a small part of 2004 revenues, they still helped to increase the bill rates overall by 1.1 percent sequentially, 2.5 percent year-over-year, and the bill pay spread by 78 basis points year-over-year within MF&A. And we expect these business line revenues will accelerate at a much more rapid pace in 2005. And finally within MF&A, we ended the quarter with some of the highest client counts in over 1.5 years. And feel that the diversified client base combined with excellent customer service will allow this MF&A team to grow temporary employment within current clients, while continuing to attract new clients.

Now let me turn to the Nurse Travel division, which represented approximately 72.3 percent of total Healthcare Staffing segment revenues for Q4, 2004 and 73.5 percent of total Healthcare Staffing revenues for the full year 2004. I took over the reigns of Nurse Travel in August of 2004 and immediately implemented several initiatives to drive up revenues and lower SG&A, all while maintaining or increasing margins.

Initiative one is to reallocate resources and increase our field sales and recruiting productivity. Initiative 2 is to develop a dedicated quality assurance team. And the third is to diversify our client base.

The results of Q4 demonstrate that these initiatives are beginning to positively impact Nurse Travel. First, we've replaced over a dozen non-revenue generating personnel with top-notch sales, account management and recruitment talent; whose revenue results are already beginning to be realized. Next, we have a quality assurance team in place that will allow us to achieve our JCAHO certification in 2005. Finally our client base during Q4 is up 48 percent over year lows and reached its highest level in two years. And most importantly, these initiatives have translated into results as displayed by our 10 percent sequential and 17.1 percent year-over-year quarterly revenue growth. This was a great achievement by the Nurse Travel team and represents the On Assignment value proposition is strong. With that, I'll pass the call over the Emmett McGrath, our President of Lab Support. Emmett.

Thank you, Shawn, and good afternoon. I will specifically speak to Lab Support - U.S. The positive momentum realized in the third quarter continued in Q4, 2004. During the quarter Lab Support - U.S. attained yearly highs in weekly revenues and number of clients billed. Lab Support - U.S. ended Q4, 2004 with a 1 percent increase in revenues over the same period one year ago. Historical seasonal events, such as holidays, weather, plant shut downs and two less billable workdays impacted our revenue acceleration. On a same number of billable day basis, Lab Support - U.S. revenues grew 1 percent over Q3, 2004. Gross margins remained virtually flat for the same quarter year-over-year. The average number of temporary scientific professionals grew by 0.6 percent Q4 over Q3, 2004, and we added 185 new or reactivated clients in the quarter and billed over 1,788 clients for the full year. Our largest customer accounts for less than 2 percent of our-- of our total revenues and our top 10 customers represent approximately 11.6 percent of total Lab Support - U.S. revenues.

Last quarter, I presented four key strategic initiatives designed to enhance our service offering and bolster our competitive position. The initiatives are direct hire, large account strategy, migrating into higher disciplines, and existing client development. I will now give you an update on these strategic initiatives. The first of these initiatives is direct hire.

Our direct hire permanent placement revenues exceeded our Q4 expectations, increasing 159 percent over the same period one year ago. For the full year, our direct hire revenues grew 60 percent over 2003 revenues, all existing Lab Support branches now offer this service and no additional staff were hired in support of this effort. I am very pleased with our results and remain optimistic about these trends continuing through 2005.

Second is a large account strategy. The goal of this effort is to position Lab Support as our client's primary provider of scientific talent. Target accounts are both new and existing clients that offer high volume opportunities, predominantly in the middle market arena. I am pleased to announce that we have achieved some early successes toward that end, recently winning contracts in the food and beverage, government, chemicals and medical device industries. Furthermore, in support of our managed services strategy, we have secured a contract that would provide onsite staffing services, specifically centralizing the procurement and management of a scientific contingent work force. This contract award is a significant milestone for Lab Support, and it further demonstrates our ability to capture and retain large user accounts in the scientific arena.

The third strategy is migrating into higher level disciplines. The purpose of this initiative is to further enhance our service offering through broadening the types of scientific talent we represent and place, by making higher skill level placements in our core Lab Support, Clinical Research and Engineering business lines. These professionals demand higher pay and, correspondingly, their skills-- their skills support higher bill rates. Typically, these disciplines are in short supply and critical to the success of our customer's product or service. We can higher level disciplines on both a contract and direct hire basis. As we broaden our reach, we continue to see our placement fee and our average contract bill rates rise. Bill rates increased 0.9 percent Q4 over Q3, 2004 and 3 percent over the same period one year ago.

The fourth strategy is existing client development. As I stated earlier, Lab Support billed over 1,700 clients in 2004. Each client engagement offers opportunities for additional placement. The goal here is to increase the number of placements at each client location. I'm encouraged with our progress in this area in that we continue to see increased client depth. To effectively increase client head count level, we have developed industry-specific organizational tools that identify all potential buying entities within clients and we provided our sales staff with a web-based business research database.

In parallel with executing these strategic initiatives, I am focused on employee productivity, gross margin improvement and SG&A containment. I have taken thorough steps to improve employee productivity. First, by modifying sales and recruiting metrics program to focus on core revenue-generating activities. Second, by realigning our incentive compensation plans to drive desired results that are in line with our objectives. Finally, by arming our employees with enhanced service offerings.

In support of these efforts, we have improved our training programs and provided cutting edge business development tools. Although Lab Support is already an industry leader in gross margin performance, we remain committed to improving our position. We continue to target small and medium-size markets where the customer values our specialty service offerings and target margins are attainable. We are focusing on three additional gross margin improvement strategies: enhanced service offerings, incentive compensation plans and cost of services. I've already touched upon the first two strategies and will provide you now with insight on our third strategy, cost of services.

Here we have one, in depth training on how to minimize contract employee and client costs to maximize margins. Two, improved our billable expense processes. And three, provided pricing tools to our field staff to maximize returns. Lab Support has turned the corner and we are experiencing better times and we remain committed to operating a lean and profitable enterprise. We have consolidated non-performing offices and will reinvest those dollars in high-growth markets at the right time. We have enhanced our service offerings without incurring additional staff. Going forward, the only incremental staff additions will purely be opportunistic.

Overall, I am very pleased with our Q4 performance and want to thank our management team, sales and recruiting professionals, and contract professional work force for making this quarter a success. Early in the first quarter of 2005, I'm encouraged with our revenue trends, contract and direct hire job order flow, RFPs, and growth in our existing client base. Lab Support - U.S. is at the appropriate staff levels, has the right leadership and needed service offerings to make 2005 a great year. I would now like to turn the call over to Mike Holtzman, our Senior Vice President and Chief Financial Officer. Mike?

Thanks, Emmett. Our earnings release was sent out about an hour ago, which includes our Q4 and full year 2004 financial results. Our 10-K will be filed on March 16th. My remarks today will focus on Q4 results and 2005 Q1 and full-year guidance.

Consolidated revenues for the fourth quarter were $51.3 million. This is an increase of 8.9 percent from the fourth quarter of last year, and up 3.5 percent from Q3 of this year. There were 62 billing days in this quarter compared with 61.5 days in Q4 last year and 64 days in Q3 of this year. For Nurse Travel, there were 92 billing days in Q4 of this year compared with 92 days in Q4 last year, as well as Q3 of this year. In the Lab Support segment, consisting of Lab Support - U.S. and Lab Europe, revenues were $22 million, an increase of 2.4 percent from the fourth quarter of last year and flat sequentially. Lab Support - U.S. revenues increased 1 percent from Q4 last year to 18.9 million, and decreased 2.3 percent sequentially. Lab Support - Europe revenues increased 12.3 percent from Q4 last year to $3.1 million, and are up 15.9 percent from Q3 of this year.

The Company's foreign reserves approximated 6 percent of total revenues for the quarter and are generated through seven branches in the UK and Benelux countries. On a constant currency basis, Lab Support - Europe revenues were up 13.2 percent sequentially. The Lab Support segment accounts for 42.9 percent of total revenues for the quarter.

Healthcare Staffing segment revenues for the fourth quarter were $29.3 million, up 14.4 percent from the fourth quarter of last year, and up 6.3 percent from Q3 of this year. This segment represents 57.1 percent of total revenues. Within the Healthcare Staffing segment, Nurse Travel revenues of 21.2 million were up 17.1 percent from Q4 last year and increased 10 percent from Q3 of this year. Excluding $737,000 in Nurse Travel revenues derived from staffing hospitals experiencing strikes in the quarter, Nurse Travel revenues were up 13 percent from the fourth quarter of last year. Nurse Travel makes up 41.3 percent of total revenues for the fourth quarter. Medical, Financial and Allied, which we call MF&A, revenues increased 8 percent from Q4 last year to $8.1 million and decreased 2.3 percent from Q3 of this year. Average revenue per billing day was up 1 percent sequentially. MF&A comprises 15.8 percent of total revenues for the quarter.

Conversion and Direct Placement revenues totalled $703,000 in Q4, compared with $457,000 for Q4 last year and $854,000 for Q3 of this year. Conversion and Direct Placement revenues represent 1.4 percent of total revenues for-- for Q4 of this year versus 1 percent of total revenue for Q4 last year, and 1.7 percent of total revenue for Q3 of this year.

Consolidated gross profit was $12.8 million for the quarter and consolidated gross margin was 25 percent, compared with 24.5 percent for Q4 last year and 26.8 percent for Q3 of this year. The 180 basis point sequential decline is due to the fourth quarter's normal increased holiday pay, holiday incentives for nurses, and the seasonal decline in Direct Placement and Conversion revenues.

In addition, Nurse Travel, which has lower gross margins, was 41.3 percent of consolidated revenues in the fourth quarter versus 38.8 percent in the third quarter. Lab Support gross profit was 6.6 million for the quarter, which is a gross margin of 29.9 percent compared to 30.6 percent for Q4 of last year, and 31 percent for Q3 of this year. Healthcare Staffing segment gross profit was 6.2 million for the quarter, which-- which is a gross margin of 21.3 percent compared to 19.3 percent for Q4 of last year, and 23.4 percent for Q3 of this year. Within the Healthcare Staffing segment, Nurse Travel gross profit was $4 million, which is a gross margin of 18.8 percent compared with 16.4 percent for Q4 last year, and 20.7 percent for Q3 of this year. For MF&A, gross profit was $2.3 million for the quarter, which is a gross margin of 27.8 percent compared with 26.4 percent for Q4 of last year, and 29.6 percent for Q3 of this year.

Total SG&A expense for the fourth quarter was 16.6 million, or 32.4 percent of total revenues. This compares to $14.7 million, or 31.2 percent of revenues for Q4 last year, and $18.8 million, or 38 percent of revenues for Q3 of this year. The sequential decrease reflects lower charges of $333,000 in the fourth quarter for a retirement package versus $1.8 million in the third quarter for severance costs and asset writedowns. The decrease was also due to lower amortization expense as well as our greater focus on lowering expenses related to marketing and IT in the quarter. Depreciation expense for the quarter was $1,183,000 compared with $787,000 for Q4 last year and $1,021,000 for Q3 of this year. The year-over-year increase in depreciation expense was principally due to the accelerated writeoff of our website and, to a lesser degree, our ongoing investment in People Soft. amortization expense decreased $456,000 from 866,000 in Q4 of last year and 691,000 in Q3 of the current year. This sequential decrease is a result of 3.9 million writedown of intangible assets that we took in Q3 of this year.

Our operating loss was $3.7 million for the quarter compared with an operating loss of 3.1 million for Q4 last year and an operating loss of 35.9 million in Q3 of this year. The Q3, 2004 loss includes a goodwill impairment charge of 26.4 million and the writedown of identifiable tangible assets of 3.9 million. EBITDA for the quarter was negative $2.1 million compared with negative $1.5 million for Q4 of last year and a negative $3.9 million in Q3 of this year.

In accordance with FAS 109, accounting for income tax, we have assessed the need for valuation allowance against the Company's net deferred tax assets. We considered current and previous performance and other relevant factors in determining whether we needed to book a valuation allowance. Objective factors, such as current and previous operating losses, were given substantially more weight than our current outlook for future profitability. Based on our assessment, we decided to record a full valuation allowance against the Company's net deferred tax assets and booked a non-cash income tax expense of $4.2 million in the fourth quarter of 2004. Notwithstanding the-- the provision of full allowance, we remain optimistic about the future prospects of the Company's business and the industry. Going forward, our tax assumptions will be based on a nominal tax provision until the valuation allowance is no longer warranted.

Our GAAP loss per share for the quarter was $0.22 compared with the loss of $0.08 in Q4 last year and a loss of $1.28 in Q3 of this year. Excluding the effects of the non-cash charge to provide a full valuation against the Company's net deferred tax asset, a tax benefit for tax rates in NOL carry-back years, and certain other permanent adjustments, as well as the retirement package; the non-GAAP loss per share was $0.08 for the current quarter, an improvement of $0.01 compared with the non-GAAP loss per share of $0.09 in Q3 of this year, exclusive of third quarter charges primarily related to intangible asset impairments and severance costs. We have provided a table that reconciles GAAP loss per share to non-GAAP loss per share in our earnings release.

We ended the quarter with cash, cash equivalents and marketable securities of $22.8 million, down $3.4 million from Q3. This is after nearly $1.7 million in capital expenditures, primarily related to information technology projects. Net accounts receivable were $27.1 million at the end of the fourth quarter, an increase of $1.6 million from Q3. Day sales outstanding on a consolidated basis of 51 is up slightly from 50 days in Q3. This compares to 56 days at the end of last year. DSOs for Nurse Travel increased from 47 to 50 sequentially, while DSOs for combined Lab and MF&A were flat at 51 days. During the quarter, there were no repurchases of our shares in the open market.

We now provide productivity statistics to assist in measuring our progress in growing our business and returning to profitability. We define productivity to be the quarterly gross profit generated by the average number of staffing consultants. For the quarter, we averaged 232 staffing consultants and they each generated 52,-- 55,200 of gross profit. This compares with an average of 233 staff consultants in the third quarter, each generating 56,900 in gross profit. As we indicated in our third quarter conference call, we anticipated that our fourth quarter gross profits and productivity would be impacted by seasonal factors, including increased holiday pay, holiday incentives for nurses, and a decline in direct placement and conversion revenues.

Based on our 2005 operating expense targets, our consolidated 2005 productivity goal is to achieve EBITDA breakeven-- to achieve EBITDA breakeven is $63,000. While breakeven operating income will require $69,000 in gross profit per staffing consultant. In Q4, each staffing consultant had an average of approximately 12.5 temporary professionals out on assignment. Getting to EBITDA breakeven translates to 13.5 temporary professionals per staffing consultant, and reaching operating income breakeven translates to 14.8 temporary professionals per staffing consultant. Performance related-- required to achieve these levels is well below the performance previously sustained by each of our divisions.

Turning to guidance, based on current sales trends, normal seasonality in the first quarter, and progress in our efforts to rationalize and leverage our corporate overhead, we are currently projecting revenues of 49 to $50 million and a net loss per share of $0.15 to $0.18 for the quarter ending March 31, 2005. Our tax assumptions are based on a nominal tax provision until a valuation allowance is no longer warranted. For Lab and MF&A there was 63 billing days in the first quarter of this year compared with 62 for Q4 of last year. For Nurse Travel, there are only 90 days in Q1 compared with 92 days in Q4 of last year. We expect SG&A to increase $400,000 to approximately $17 million in the first quarter, due to increased costs associated with field expenses; primarily related to marketing, Sarbanes-Oxley compliance costs and information technology-related expenses. However, we project SG&A will decrease to 16 to $16.5 million, including depreciation and amortization of $1.4 million per quarter for the remaining quarters of 2005. These estimates do not include the effect of expensing options as required under-- under FAS 123(R) beginning in the third quarter of 2005.

For the year, assuming fairly stable labor markets and no loss of major clients in Nurse Travel, we currently expect revenues of 211 to $215 million, which represents growth of 9 to 11 percent over 2004. We are projecting average gross margins for the year of 26 percent and our target is to reach EBITDA breakeven in the second half of the year. Our CapEx budget for 2005 is approximately $3 million, which is down from $6.8 million in 2004. As you know, these estimates are subject to the risks mentioned in today's release. Now back to Pete for some closing comments before we open up the lines for questions.

Thank you, Michael. In closing, there will be-- there will not be any change in our focus or strategy. We think we are doing lot of things better than we did in the past and want to continue doing what we set out to do. I would like to once again thank our many loyal, dedicated and talented employees whose efforts have allowed us to progress to where we are today. I would like to now turn the call over to the operator and open the call up to participants for questions.

[Operator Instructions] Jim Janesky, Ryan Beck & Co.

A couple of questions about trends as we enter the-- the first quarter. What-- what do you expect on the gross margin line? Will it look pretty much like it was coming out of the fourth quarter?

You know, Jim, as the year progresses, we would expect the margin to move back up towards the 26 percent margin, and that will be attributable to a couple of things. One is Lab will start growing at faster rates in getting over the first quarter, which always is slow. As you know, historically it's taken Lab kind of till March to get back to its December highs and we're moving at a much faster pace to getting to our high head counts for the year than ever before. Or at least in recent history.

The second thing is a suit is coming in at a little bit better than we thought. And the third is that our higher-margin businesses like HIM and Clinical Research and Perm Placement are growing nicely. So I would expect that you would see a sequential build first, second and third, each quarter hopefully going up. And the only thing that would-- would really change that is if Nurse Travel just really has a barnburner quarter and it's a greater percentage of total revenues. So just normal seasonal factors are driving the margin.

Well, I mean 26-- you averaged about 25-- well you did average 25.8 percent for all of 2004. You know, that's 20 basis points different-- difference. Is that just based upon the fact that your gross margins have-- have really held up pretty well throughout this cycle and that the focus is going to be on operating expense reductions over the year?

Exactly. A couple of things. We-- our margins have held up. We've been able to grow revenues without having to compromise significantly our gross margins. The second thing is when you see-- specifically like MF&A, I think MF&A did like $5.4 million of revenue in the first quarter of 2004. It will do substantially more than that in the first-- we think it will do substantially more than that in the first quarter 2005. And, as you know, that's a much higher gross margin business than Nurse Travel is.

The Perm Placement business is really-- we've had a concentrated focus and it's growing very nicely. Our European operations, which are absolutely the highest margin in the Company, about 34.7 percent I think, in the fourth quarter, is-- it-- it-- it's just been really strong and it continues to be strong. So I-- and finally, as you notice, our bill rates; we've been growing our revenues and engaging in this rebuild and recovery and, at the same time, we have strategically moved our bill rates up. All our bill rates are up across the board, so it shows that we're-- we're growing revenues at higher value businesses and not just buying commoditized bulk business.

Okay, and then so Mike coming down to the bottom line of earnings per share loss, essentially it looks like you're assuming that there will be no income tax benefit in-- in the first quarter, right?

Yeah, that's correct. Jim, also for the year, I mean we'll have a small provision in the year just for-- some of the states we're required to pay minimal amounts of income tax. But, according to FAS 109, we won't be able to book anything for the foreseeable future.

Okay. So make those assumptions for the year. Okay.

That's correct.

[Operator Instructions] Toby Sommer, SunTrust Robinson.

I'm interested in drilling down a little bit on the Nurse Travel and I know you gave an awful lot of detail, and I think I caught most of it, but I may be a little bit repetitive. In terms of the fourth quarter, it looks like that sequential growth was pretty solid and I'm just curious, do you think that we've seen a turn, or is there anything that happened in the quarter that, you know, may-- maybe was one-timish, or not sustainable? Curious about your thoughts there.

Good question. I'll take-- I'll address it first. Then I'll let Shawn add some additional color but, you know, first of all, we're drawing off of a lower base of business. And as I tried to identify in my prepared comments, a lot of our nurses don't fit into the mold of the commoditized skill set, and demand has been hard to predict; but we're starting to see a little more of a return to normality. Some of the hospitals, as they've engaged in cost containment have been more successful in their recruiting efforts of hiring full-time nurses in the commoditized service offering areas, versus the type of skill sets that we fill on a daily basis. So I would predict that we probably would grow a little bit faster if we're operating well and we have just a stable marketplace than some of the other companies. That's the positive.

One of the things that might whip saw us with regard to results on a 90-day basis is that we do have some high client concentration in a couple of accounts. But we are seeing more positive trends. You know, as I think you've heard from the other CEOs, a lot of the activity that the hospitals engaged in for cost containment really was nothing more than squeezing the providers. They didn't do anything to permanently change the dynamics of the supply/demand imbalance or the dissatisfaction that nurses have or the aging population of their work force. Shawn do you have anything to add to that?

No. I think at this point I'd probably add, Toby, that we are seeing a higher demand out there in the market space as achieved through our high client count that we've had in this quarter. And I am cautiously optimistic that our new sales and operating structure is going to begin to take shape and add revenue even more subjectively here in this year.

Curious, then, shifting gears a little bit in looking at the legislative front, the nurse/patient legislation ratio, nurse/patient ratio legislation, I should say, in California, seemed to have been driving a-- a driver of substantially higher demand in 2004. And then they kind of puts the brakes on ratcheting those ratios to a more strict level early this year. Is it your sense that hospitals have met last year's ratios, or is there significant number or proportion of hospitals sort of still behind the 8-ball regarding last year's levels?

Yeah, I would tell you that California still represents one of the more productive markets in the United States. I would also-- I don't have statistics for you, Toby, but I can tell you from conversations that we've had, not with the kind of executive management of hospitals; that the vast majority of them are really not on a regular, consistent basis hitting the staffing levels. And it's catch-can. So, California still remains productive. They're still trying to get to 6:1 ratio and even though there's been a rollback to a lower level, I don't see that as inhibiting our ability to grow.

And then I know that you've got a-- I guess fewer billing days in the first quarter. But kind of on a same billing day basis, would you expect volume of-- in Nurse Travel to improve in the first quarter?

You know, we're tracking pretty well right now. I don't know about the other companies that you follow, but we have a significant falloff of head count the last week of the calendar year because of the holidays. And, traditionally, going back two years, it would take up to like 10 to 12 weeks to get back to your previous highs. We exceeded our previous highs earlier in this year than ever before. So we've been rebuilding our head count nicely in the quarter and, you know, we expect, absent any sort of dramatic changes in the last month of the quarter, that we'd be at nice trends similar to the fourth quarter.

Gentlemen, there are no further questions at this time. Are there any closing remarks?

We appreciate your time and attention today and look forward to reporting our results on our first quarter 2005 conference call. Thank you for your time and attention.

Ladies and gentlemen, we do appreciate your joining us today. This does conclude our On Assignment fourth quarter financial results conference call. You may now disconnect.