ASGN Inc (ASGN) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Amy, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the 2005 second-quarter earnings results for On Assignment. 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).

It is now my pleasure to turn the conference over to Mr. Mike Holtzman, Senior Vice President and Chief Financial Officer for On Assignment. Sir, you may proceed.

Thank you, Amy. Before we begin, I'd like to remind everyone, as we do each quarter, that our presentation contains predictions, estimates and other forward-looking statements representing our current judgment of what the future holds. These includes words, such as forecasts, estimate, project, expect, believe and similar expressions. We believe these remarks to be reasonable, but they are subject to risk and uncertainties that could cause actual results to differ materially from the forward-looking statements.

We described 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 second-quarter results. Pete?

Thank you, Mike. Good afternoon. I would like to welcome everyone to On Assignment's 2005 second-quarter earnings conference call. With me today are Mike Holtzman, Chief Financial Officer; Emmett McGrath, President of Lab Support; and Shawn Mohr, President of Healthcare Staffing.

During our call today, I will once again give a review of the markets we serve and our operational highlights and numbers followed by a more detailed discussion of the performance of our operating segments by the precedence of each of those segments. I will then turn the call over to Mike for a more detailed review of our discussion of the second-quarter results and our financial guidance for the third quarter of 2005 and the remaining year. We will then open the call up for questions.

Consolidated revenues for the quarter grew year-over-year by 11.1 million or 24%. Revenues in the second quarter were 57.4 million compared to 49.8 million in the first quarter of 2005. Consolidated gross margins were 26.7%, which represents a 70 basis point improvement over the second quarter of '04 and over the first quarter of '05. The gross margins were higher for the second quarter of '05 compared to the same period 1 year ago due to a stronger pricing environment, greater direct hire fees, a lower workers' compensation expenses and higher bell pay spreads.

Operating losses were reduced by $4.7 million quarter-over-quarter and $2.8 million sequentially. Exiting the quarter, our business continues to strengthen. Over the last 3 weeks, our weekly revenues have on average exceeded $4.6 million, excluding conversion and direct higher fees. In addition, our number of hours billed, billable headcount and client count -- all exceeded the levels we posted at the end of the second quarter.

I am very pleased with the revenues, gross margins, and EBITDA we posted for the quarter, as they were well above the high end of our range of previous guidance. I am also pleased that we achieved our goal of positive EBITDA ahead of our stated schedule. The $0.01 earnings per share we reported is a $0.12 sequential improvement over the first quarter of 2005 loss and $0.10 better than the midpoint of our guidance for the second quarter of 2005.

To fully appreciate the performance of our Company during the second quarter, investors should evaluate each operating groups' performance separately and consider our positive EBITDA over the last 90 days. Our Lab Support segment generated 23.9 million in revenues, up 18.2% from the second quarter of '04 and up 9.6% from the first quarter of '05 and had 31.6% gross margins. The Lab Support segment billed 1,200 clients, up slightly from the 1,149 for the first quarter of '05 and added 283 new or reactivated clients.

The average number of contract professionals on billing increased by 194 or 12.2% for the same period. The average bill rate for this group increased $1.10 or 4.2% second quarter '05 versus second quarter '04.

Our European operations, which are reported as part of the Lab Support segment, generated 3.4 million in revenues, up 42.1% from the second quarter of '04 and up 7.5% over the first quarter of '05 -- and had gross margins of 35.6%. Headcount, new orders, direct hire placement activities in Europe continue to be at the highest level in years.

I am pleased to announce on August 1, 2005, Emmett McGrath, our President of Lab Support U.S. Operations, also assumed responsibility for oversight of our European operations. Chris Richards (ph) and her management team will continue to run day-to-day operations and report directly to Emmett McGrath rather than myself.

Our top 10 customers in Lab Support represented approximately 7.5% of total Lab Support segment Q2 '05 revenues. And our average number of staffing consultants for the second quarter was 102, flat with the first quarter.

The Medical, Financial and Allied group generated 9.4 million in revenues for the quarter, up 43.5% from the second quarter of '04 and up 13.3% sequentially over the first quarter of '05. MF&A achieved a 29.8% gross margin, up 340 basis points from the first quarter of '05. It billed 1,022 clients, up from 998 at the end of the first quarter, added 293 new or reactivated clients. And the average number of contract professionals on billing increased by 216 or 38.8% for the same period. The average bill rate for this group also increased by $1.01 or 3.7% second quarter '05 versus second quarter '04.

Our top 10 customers of MF&A represented 19.7% of total MF&A Q2 '05 revenues. And our average number of staffing consultants for the second quarter was 90, up 6 from the 84 in the first quarter of '05. Exiting the quarter, MF&A continues to increase its bill rates and weekly revenues week-over-week.

The Nurse Travel group generated 24.1 million in revenues, up 23.4% from the second quarter of '04 and up 22.4% sequentially from the first quarter of '05. Included in the revenue number is approximately $600,000 in revenues derived from providing staffing services to customers who experienced labor disruptions. Gross margins were 20.7, up from 19.7% in the second quarter of '04 and 19.1% in the first quarter of '05. The nurses on billing averaged 593 for the second quarter compared to 496 in the second quarter of '04. And the total number of clients billed was 174, up from 125 in the first quarter of '05 and up from 93 for the second quarter of '04. We added 53 new clients in the second quarter.

Our top 10 clients represented 57.2% of total revenues for Nurse Travel in the second quarter of '05. This compares to 67.8 in the first quarter of '05 and 67.8 for the second quarter of '04. During the last week of July -- July 31, '05, we billed 144 customers and had 630 nurses on assignment. Each of these data points are 2-year highs for the division. In addition, the Nurse Travel group averaged a bill rate of $68.08 per hour. And our nurses worked an average of 45.39 hours per week. We believe are both -- which we believe are both highs for the industry.

With regard to new nurse order activity, new orders were at the highest levels for the year. Our Nurse Travel business is differentiated from other Nurse Travel companies by providing highly skilled and more experienced nurses on a rapid-response basis. Our clients are primarily hospitals needing immediate health in their ICU, ER, OR, and critical care units. Our nurses' skills and their flexibilities' levels are therefore harder to find and less commoditized than other Nurse Travel companies. And hospitals will always have to rely on third parties more heavily to fill these types of positions.

Turning to our new lines of business. Our newer lines of business -- health information management, clinical research and local RN and direct hire -- accounted for approximately 3.8% of total revenues for the quarter. If you remember, we started these businesses on a de novo basis in August of 2004. We believe each of these businesses will continue to grow at or above market growth rates, which will permit us to grow double digits well into the future.

As for the health of the markets we serve, I would describe each of the end markets we serve as productive and improving. Once again, the Nurse Travel market improved during and exiting the quarter. All of our divisions experienced increases in bill rates and bill paid spreads year-over-year. The improvement in demand in our healthcare segment can also be seen in the fact that we worked with the largest number of clients in this quarter compared to any other quarter over the last 2 years. In addition, On Assignment's long established service offerings are exposed to 88% of the total projected $14 billion annual healthcare staffing industry spend -- a percentage, which is higher than other healthcare staffing companies.

This is the fourth consecutive quarter that the Company has met its operating objectives and remained consistent with the operating plans that management set forth in its previous quarterly earnings releases. Going forward, our focus will remain on supporting our core offerings and growing our newer service lines. Our positive EBITDA this quarter was achieved by increasing revenues, lowering our fixed cost and expanding our gross margins. We are very focused on increasing our net income as soon as possible.

Toward the ends 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. I can best describe Q2 within On Assignment healthcare as robust and promising. The enhancements within our operating model over the last several quarters combined with clearer increases in demand for our Healthcare Staffing services resulted in a $5.5 million or 19.7 sequential increase in Healthcare Staffing revenues.

The focus of On Assignment healthcare has always been to provide the highest quality services in the most rapid, expedient fashion, while developing and maintaining excellent candidate and customer relationships. Our strong growth this quarter in both client accounts and contract professionals on assignment are the best indicators that our value proposition is very strong.

Let me first start off by highlighting the Q2 results from our Medical, Financial and Allied business unit. MF&A revenues for Q2 2005 grew 43.5% year-over-year and 13.3% sequentially. This performance continues as the trailing average assignment numbers for the last 3 weeks in MF&A were 820,000 in weekly revenues, 839 professionals on assignment, and 545 billed clients weekly. All of these numbers representing 2-year highs and great indicators that our field sales and recruiting productivity are increasing. We remain confident that we can continue to grow organically this business line without essentially maintaining the existing headcount that currently exists in the field.

We also feel that our proven operational capabilities combined with clear signs of increased market demand position the MF&A business line for added growth.

Now, let me turn to the Nurse Travel business. I couldn't be more pleased with the progress and efforts made within the Nurse Travel group over the last 3 quarters. Nurse Travel revenues for Q2 2005 were 23.4% higher year-over-year and 22.4% higher sequentially. Excluding approximately 600,000 in revenues for staffing the Company's experiencing labor disruptions, this represented a 20.3% year-over-year improvement in revenues. And demand continues to remain very strong, as the trailing average weekly numbers for the last 3 weeks in Nurse Travel were 1.916 million in revenues, 622 nurses on assignment, and 137 billed clients. All of these numbers representing 2 year or all-time highs.

Our client count high for Q2 was 130, and our high thus far in July is 144, representing 166% increase off of the 2004 lows. Our current client count is a great accomplishment for the Nurse Travel sales team, as low and high in 2004 were 54 and 85 clients billed respectively.

Just as important as revenue expansion is gross margin expansion. Gross margins for the second quarter were 20.7% versus 19.1% for the prior quarter. This margin expansion is primarily attributable to internal operating controls as we work to streamline our cost of service delivery and improvement in workers' compensation expense.

I would also like to stress two other relevant growth indicators. First, we have experienced nearly 200% year-over-year increase in order activity. Second, our retention rate, which is the rate at which we reassign nurses on either extensions at the same-facility or on new assignments once they have completed their assignment, has increased 20.6% since last year. These indicators show that strong demand for our services exist. While at the same time, quality nurses are being asked to extend the length of their assignments or are requesting more work upon completion of their current assignment.

Operationally, 3 quarters ago, we embarked on a revised strategy to leverage On Assignment Nurse Travel into a wider client base and deliver the combined value proposition of quality, relevancy and speed. We felt confident that our service levels and years of experience attracting and retaining the highest quality nurse pool could be levered greatly during an increase in market demand. We implemented several internal operating initiatives over the last 3 quarters, which we discussed in previous conference calls so that we could grow during regular demand and take full advantage of growth during high-market demand.

Our Nurse Travel team has done an excellent job expanding our market share in the high-quality, rapid-response delivery model that On Assignment Nurse Travel is known for. And our leadership position in this space is evidenced by both our revenue and client count growth this quarter. I am very encouraged by the signs of increased demand for our Nurse Travel services and by the strong efforts our field team has put forth to help deliver the results achieved this quarter.

Both Nurse Travel and MF&A are well-positioned for additional success throughout the year, as we turn operating efficiency, staffing consultant productivity, and a strengthening healthcare sector into revenue results. My sincerest of congratulations go out to all of On Assignment Healthcare Staffing. Great work this quarter, everyone.

With that, I will pass the call over to Emmett McGrath, our President for Lab Support. Emmett?

Thank you, Shawn, and good afternoon. My comments today focus on Lab Support U.S. Peter previously discussed the European and total Lab Support segment results.

Our second-quarter performance clearly demonstrates the health of the markets we serve, operational excellence and effectiveness in generating attractive gross margins. Lab U.S. revenues grew 14.9% year-over-year. Revenues for the second quarter were 20.5 million compared to 18.6 million in the first quarter of 2005, a sequential growth of 10%. More specifically, year-over-year assignment members grew 13.8%, direct higher revenues grew 126%, and conversion revenues grew 14.8%.

We attribute the assignment revenue performance through increases in the average number of contract professionals placed on assignment and higher average bill rates. Lab Support U.S.'s gross margins improved approximately 110 basis points to 30.9% for the Q2 2005 compared to the same quarter 1 year ago. Adherence to pricing guidelines, tighter control over cost of services, providing hard to find scientific professionals and greater attention to direct higher activity -- aided in generating gross margins that lead the industry.

Furthermore, focus on clients that value quality, technical knowledge and speed of delivery versus price -- continue to support our efforts to maintain strong margins. The growth and quality of our business during the quarter is attributable to our strategic focus. Specifically through tighter operational execution, we realized positive gain to improve sales and recruiting practices, clear expectations, focus, accountability, reward and recognition -- all of which make up the baseline of our operational model.

Our revenue base and competitive position grew through targeted efforts to recapture market share by securing exclusive agreements, attracting new clients, reactivating former clients and committing resources to high-demand industries in geographic locations. Furthermore, success in attracting or retaining high-quality scientific staffing consultants combined with proactively upgrading existing talent has strengthened our competitive position. I am pleased to report that Lab Support U.S. staffing consultant gross profit productivity increased 8.4% year-over-year and 6.2% sequentially.

Enhancements to our service offerings, tools and resources combined with efforts to increase market share and focus on high margins fueled individual productivity.

New business practices in the clinical research and engineering service lines grew during the quarter, generating higher bill and pay rates. This furthered our efforts to migrate to higher level skill disciplines and increase our bill/pay spread. We added nearly 200 new or reactivated clients in the quarter and billed nearly 1,000 clients. Our top 10 customers represented approximately 8.6% of total Lab Support U.S. revenues compared to 12.5% of revenue for the same period 1 year ago and 8.10% for Q1 2005.

We increased revenues at existing clients 2.8% year-over-year and 7.5% sequentially, a direct result of our focus to increase client depth. Furthermore, we increased our market share in the top five industries that we serve by 17% year-over-year and 8.8% sequentially.

Our top five industries are biotechnology, pharmaceutical, food and beverage, chemicals and material sciences. We expect continued growth in these industries as a benefit from an improved economy.

Greater focus on direct hire opportunities increased our gross profit and help sustain our attractive margin. The direct hire program required no additional staff resources and has been well received by field operations, candidates, and clients. I am very pleased with how this initiative has been executed.

We have also realized gains in our large account strategy by winning contracts with large clinical trial, medical device, and pharmaceutical organizations during the quarter. Large users of contract labor services are responding well to our service offerings and approach, resulting in more RFPs and awards. Lab Support is well-positioned to sustain this momentum through the remainder of the year. Early into the third quarter, I am encouraged with our trends in both contract and direct hire activity and new business opportunities.

Third quarter historically is our strongest, and I'm confident that we have the necessary leadership, field staff, and demand for our services to make it another great quarter. I would like to thank our leadership team, account executives, recruiters for making the second quarter a success.

I would now like to turn the call over to Mike Holtzman, our Senior Vice President and Chief Financial Officer. Mike?

Consolidated revenues for the second quarter were $57.4 million. There were 64 billing days in this quarter compared with 63.75 days in Q2 last year and 63 days in Q1 of this year. For Nurse Travel, there were 91 billing days in Q1 of this year compared to 91 days in Q2 last year and 90 days in Q1 of this year. In the Lab Support segment, revenues were $23.9 million. Lab Support Europe revenues were 3.4 million. The Company's foreign revenues were 6% of total revenues for the quarter. On a constant currency basis, Lab Support Europe's sequential revenues were up 11% sequentially. The Lab Support accounted for 41.7% of total revenues for the quarter.

Healthcare Staffing segment revenues for the second quarter were $33.5 million. This segment represented 58.3% of total revenues. Within the Healthcare Staffing segment, Nurse Travel revenues were 24.1 million. Excluding approximately 600,000 in Nurse Travel revenues derived from staffing hospitals experiencing strikes in Q2 2005, Nurse Travel revenues were up 19.3% sequentially. Nurse Travel made up 41.9% of total revenues for the second quarter.

The Medical, Financial, and Allied revenues, which we call MF&A, were 9.4 million. MF&A comprised 16.4% of total revenues for the quarter. Conversion and direct hire revenues totaled $963,000 in Q2 compared with 541,000 for Q2 of 2004 and 857,000 for Q1 of 2005. Conversion and direct hire revenues represented 1.7% of total revenue for Q2 versus 1.2% of total revenue for Q2 2004 and 1.7% of total revenue for Q1 2005. Consolidated gross profit was 15.3 million for the quarter, and consolidated gross margins were 26.7% compared with 26.0% for Q2 2004 and 26.0% for Q1 of '05. The 70 basis point sequential improvement is due to an increase in the bill/pay spread, lower workers' comp expense and lower city (ph) rates -- offset by higher holiday pay and other contract professional expenses.

Lab Support's segment gross profit was 7.6 million for the quarter, which was a gross margin of 31.6% compared to 30.6% for Q2 '04 and 32.1% for Q1 '05.

The 50 basis point sequential decrease was primarily due to higher holiday pay and workers' comp expense and was partially offset by an increase in the bill/pay spread and direct hire and conversion revenue.

Healthcare Staffing segment gross profit was 7.8 million for the quarter, which was a gross margin of 23.2% compared to 22.4% for Q2 '04 and 21.3% for Q1 '05. Within the Healthcare Staffing segment, Nurse Travel gross profit was 5 million, which was a gross margin of 20.7% compared with 19.7% for Q2 of last year and 19.1% for Q1 of this year. The 160 basis point sequential improvement was primarily due to higher bill/pay spreads and lower workers' comp expense.

For MF&A, the gross profit was 2.8 million for the quarter, which was a gross margin of 29.8% compared with 30.4% for Q2 '04 and 26.4% for Q1 '05. The 340 basis point sequential increase was primarily driven by lower workers' comp expense, slightly offset by higher holiday pay and other contract professional expenses.

Total SG&A expense for the second quarter was 15.6 million, or 27.1% of total revenues. This compares to 16.9 million or 36.5% of revenues for Q2 of last year and 16 million or 32.1% of revenues for Q1 of this year. The sequential decrease of $400,000 reflects our ongoing focus to control and leverage our SG&A expenses.

In particular in Q2, we had a reduction expenses related to audit fees, Sarbanes compliance, and IT -- which is partially offset by higher compensation expense and outside fees. We plan to maintain the same degree of diligence controlling SG&A expense going forward.

Depreciation expense for the quarter was 1,029,000 compared with 888,000 for Q2 '04 and 1,242,000 for Q1 of '05. The earlier increase in depreciation expense is primarily due to our investment in PeopleSoft. The amortization expense decreased to 282,000 from 716,000 in Q2 '04 and essentially flat in Q1 '05. This year-over-year decrease is a result of the step down in the acceleration amortization of customer relations.

As a result of our decision to fully reserve against the Company income tax assets beginning in Q4 '04, we believe it is more meaningful to compare our operating loss and EBITDA when comparing the current quarter's results to prior quarters. Our operating loss for Q1 was 221,000 compared with an operating loss of 4.9 million for Q2 last year and an operating loss of $3 million in Q1 of this year. EBITDA for the quarter was positive $1.1 million or $0.04 per share for Q2 of '05 compared with negative 3.3 million or negative $0.13 per share for Q2 of '04 and negative 1.5 million or negative $0.06 per share in Q1 of '05.

We are continuing to make good progress in improving our operational effectiveness by our return to positive EBITDA ahead of plan. We ended the quarter with cash, cash equivalents, restricted cash and marketable securities of 25.7 million, up from 22.8 million in Q1. For the quarter, cash provided from operations was $3 million, including a 5.7 million refund related to federal income taxes, while capital expenditures were approximately $900,000, down slightly from $1 million in the preceding quarter. We also received approximately $1 million from the redemption of insurance policies related to our deferred comp plan.

Net accounts receivable were 29.2 million at the end of the second quarter, an increase of $3.7 million for Q1. On a consolidated basis, day sales outstanding were 48, down from 49 days sequentially. DSOs for Nurse Travel decreased to 46 from 48 sequentially, while DSOs for combined Lab and MF&A were up slightly to 50 days from 49 in Q1. During the quarter, there were no repurchases of our shares in the open market.

Now turning to productivity. We define productivity to be the quarterly gross profit generated by the average number of staffing consultants. For the second quarter, we averaged 240 staffing consultants, and they each generated $63,900 of gross profit. This compares with an average of 228 staffing consultants in the first quarter, each generating $56,800 in gross profit. Based on our 2005 operating expense targets, our consolidated 2005 productivity goal to achieve breakeven operating income will require $67,000 in gross profit per staffing consultant.

In Q2, each staffing consultant had an average of 13.1 contract professionals out on assignment. Getting to operating income breakeven translates to approximately 14.0 contract professionals per staffing consultant. Performance 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 and progress in our efforts to rationalize and leverage our corporate overhead, we are currently projecting revenues of 57.5 to $59.5 million. On a revenue per share basis, we are projecting a loss of $0.03 to income of $0.01 for the quarter ending September 30, 2005.

Our tax assumptions are based on a nominal tax revision until a valuation allowance no longer warrants it. For Lab and MF%A, there were 64 billing days in the third quarter of this year compared with 64 for Q2. For Nurse Travel, there were 92 days in Q3 compared with 91 days in Q2. We project SG&A expense will range from 15.8 to $16.3 million, including depreciation and amortization of 1.4 million per quarter, excluding potential impact of any accelerated depreciation related to IT projects for the remaining quarters of 2005.

For the year, assuming fairly stable labor markets and no loss of major clients in Nurse Travel, we're raising previous guidance to 220 to $223 million, which represents growth of 14 to 15% over 2004. We are projecting average gross margins for the year of 26.2 to 26.4%. Due to investments in our front office sales and recruiting systems, we're revising our CapEx budget for 2005 to be between 3.5 and $4.0 million, which is down from 6.8 million in 2004. As you know, these estimates are subject to the risk mentioned in today's release.

Now back to Pete for some closing comments before we open up the line for questions.

Thanks, Michael. In closing, there will not be any change in our focus or strategy. On Assignment's growth opportunities still are largely dependent on our own internal execution and not on any improvement in the end markets we serve. This quarter's performance substantiates the results we stated and predicted to achieve as a result of the operational and management changes we made over the last 12 months and brings us closer to our true historical performance versus the results of the prior 3 years.

We 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'd like to now open the call to participants for questions. Operator?

(OPERATOR INSTRUCTIONS). Jim Janesky, Ryan Beck.

A couple of questions please. The gross margins rather in your Lab Support division declined a bit sequentially from the March to the June quarter. Can you just kind of outline what was behind that?

We had pretty steady growth. It wasn't any pricing pressures. Jim, it was mostly related to some additional holiday pay and workers' compensation expense. But as we mentioned in our prepared remarks, our bill/pay spreads actually increased.

And what do you think those trends will be for the remainder of the year?

We gave guidance that we think our consolidated numbers will be 26.2 to 26.4. As we try to be consistent -- if we say something, we are going to do it. I think that the Lab Support margins have been pretty damn consistent. We are within a stone's throw of our all-time highs and grew double digits. So I'm not seeing any obstacle in growing double-digits and maintaining our historical margins.

Did conversion fees at all have anything to do with it in the June versus March quarter?

No, not really. No. We did have a bigger contribution of direct hire. But we didn't see it spike up in conversion fees.

And then when you look at revenue growth in the September over the June quarter and then we do know that oftentimes, revenues could be sequentially down in the December quarter from holidays and such -- but why the -- you jumped almost $10 million in total revenues June over March, yet, that is going to move towards only a couple of million dollars in September. Is it seasonality? Or is there something that I am missing?

No, we are growing at a good rate. And I just don't -- we gave you what our actual weekly revenue average was for the last 3 weeks, excluding perm and conversion fees. But we exited the quarter trending up and above the rates we were in the second quarter. But at this point, the range we gave you felt like a prudent number for you to model off of.

And then finally, you've done -- this is now the third straight sequential quarter where you brought down the operating expenses. Yet for next quarter, the range of expectations includes -- or the operating expenses going back up. Can you just kind of outline why that would occur?

Yes, that is solely attributable to -- that we have a lot of momentum in our business, and we think hiring closer to our original headcount plan could generate even faster growth. When we report our third-quarter numbers, you should not be surprised if you see a couple extra salespeople that have been hired in the Nurse Travel or in the Lab Support side -- solely attributable to variable cost of hiring additional salespeople. Some of them are telemarketers; some of them are regional salespeople.

Christa Lewis (ph), CIBC World Markets.

Quick question. I noticed the staffing consultant headcount had gone up from June to March, and meanwhile SG&A declined down again just from the March to the June quarter. And I was just wondering -- if Sarb-Ox is such a big deal for you guys in Q1 that just quarter-over-quarter SG&A went down, or what specifically caused that?

As you point it out, the theme around here has been -- whatever available SG&A we have to the absolute most prudent extent possible to focus it on revenue-generating resources. As you know, unfortunately, we had gotten swollen on some fixed costs related to marketing, IT, travel and entertainment and then to layer on top of that the required spend on Sarbanes-Oxley. We keep whacking at that stuff, and we still have room to go. But we are just -- we are managing our fixed infrastructure better. We're getting better utilization out of our corporate group. They are doing a great job. And we are reducing superfluous spend on travel and entertainment.

And I think you mentioned on the last call that there was going to be some marketing and advertising spend that was going to fall in the second quarter. Did that not happen? Or is that why it is going up in the third quarter?

No, I am very proud of that group. They actually were able to execute the entire campaign that was laid out to support our field operations without having to spend the money that they didn't spend in the first.

And I have a question on the revenue guidance -- I might have missed it -- like if you just take the weekly run rate for revenues that you guys started that third quarter with, that gets you to like 59.8 million. Are you guys just being conservative on the revenue guidance or--?

Your calculation is correct. I would guide you to remember there are a couple of holidays that would reduce that number. But we are going to be consistent. And when we say something, we are going to achieve it.

I think I might have missed what the billing days are -- the number of billing days are in the third quarter versus the second.

Yes, there was 64 in the third quarter as there were in the second.

And then last, you guys have like how much the bill/pay rates increased year-over-year for the overall Company?

The bill/pay rate increased on a consolidated basis?

Yes.

Well, let's see if we can do it together, otherwise call Mike back. I quoted $1.10 for Lab, $1.01 for MF&A. And then for Nurse Travel, it was --

The bill rate is 4.41.

Yes, but what was the increase? $3 and--?

It is $4.40 year-over-year.

$4.41. One of my executives said maybe 4% on a consolidated basis.

And then the last question I had, which is on SG&A coming back to it again. It looks like you guys are making really good progress on it. I remember hearing several months back that kind of 64 million in terms of an annual run rate is a good thing to think about near-term -- I guess, as you guys start automating more and more areas of your back office and getting rid of a lot of the manual processes that you guys have been duplicating after the ERP implementation -- would you think that is something -- maybe a couple million lower than that, maybe over the next 18 months would be reasonable?

I am not prepared to quantify it here for you. But I will tell you that it is still an area ripe for further savings. We are not done.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions. Do you have any closing remarks?

We would just like to thank everyone for their patience and attention to our conference call and look forward to reporting our third-quarter earnings results. Thank you again for attending.

This concludes today's 2005 second-quarter earnings results for On Assignment. You may now disconnect.