ASGN Inc (ASGN) 2007 Q1 法說會逐字稿

Good afternoon. My name is Eva, and I will be your conference operator today. At this time, I would like to welcome everyone to the On Assignment first quarter 2007 earnings 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 session. (OPERATOR INSTRUCTIONS)

It is now my pleasure to introduce Mr. Jim Brill, Senior Vice President and Chief Financial Officer. Sir, you may begin your conference.

Thank you. Good afternoon everybody. 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 include words such as forecast, estimate, project, expect, believe, and similar expressions. We believe these remarks to be reasonable, but they are subject to risks and uncertainties that could cause actual results to differ materially from what 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 a overview of our first quarter results. Peter?

Thank you, Jim, good afternoon. I would like to welcome everyone to the On Assignment 2007 first quarter earnings conference call. With me today are Jim Brill, Senior Vice President and Chief Financial Officer, and Mark Brouse, President of VISTA, our Physician Staffing business. During our call today I will give a review of the markets we serve and our operational highlights, followed by a discussion of the performance of our operating segments by myself and Mark Brouse. I will then turn the call over to Jim for a more detailed review and discussion of our first quarter financial performance and our financial guidance for the second quarter of '07 and the full year. We will then open the call up for questions. As we announced during our fourth quarter conference call on each quarterly conference call we will have one of our division Presidents participate on the call to discuss their division's performance.

The first quarter results discussed on today's call include three month financial contribution from VISTA and two months for Oxford. Additionally, as we stated in our press release, we have updated our segments for reporting purposes changing the Lab Support segment to Life Sciences, Health Care Staffing segment to simply Health Care and MF&A has been changed to Allied Healthcare. This quarter's performance again resulted in record revenues for our Company, revenues were $122.6 million for the quarter, revenues grew 84% in the first quarter of '07 over the first quarter of 2006 in great part due to the acquisition of VISTA and Oxford. Net income was $911,000 or $0.03 per share versus $302,000 or $0.01 per share in the first quarter of '06. Consolidated gross margins in the first quarter were 30.5%, up from 25.5% in the first quarter of '06. Our consolidated hourly bill pay spreads in the quarter also increased year-over-year. Adjusted EBITDA was $9.8 million up over 300% year-over-year and $800,000 over the high end of guidance that we gave of $9 million.

Operating income for the quarter was $3.2 million. It included $1.1 million of equity-based compensation expense, $4.2 million of amortization related to intangibles and $1.3 million of depreciation and was up $3 million from the year ago period. For those investors who have followed our Company over the years our significant growth in EBITDA was attributable to the strong performance of our core businesses and contribution from the recently completed acquisition. Our strong EBITDA growth was achieved without any significant contribution from Perm Placement and is evidence of the strength of our business model and the end markets we serve. Exiting the quarter, demand for our services continue to be strong for all of our divisions. Our pro forma weekly revenues, which include the revenues from the VISTA and Oxford acquisitions, averaged $10.5 million for the first three weeks of April 2007. It excludes conversion, billable expenses and direct placement revenues.

We averaged $9.3 million in pro forma weekly Assignment only revenues for the same three week period one year ago if we included VISTA and Oxford's revenues for that period. As previously mentioned during our fourth quarter conference call, revenues this quarter were slightly affected due to the winter storms experienced in February, which prohibited our employees from traveling to customer locations. The impact of the lost billable days, however, was not material. We continued to grow our gross profit, operating income, and net income faster than our revenues in the first quarter. During the quarter despite maintaining a higher number of staffing consultants, we increased our year-over-year productivity and gross profit for staffing consultants by 16.3% on a pro forma basis. I'm also pleased that we also met our newly established targeted adjusted EBITDA margin of 8%, which is a significant accomplishment considering the seasonal impacts that we always incur in the first quarter. I would continue to describe each of the end markets we serve including Physician and IT Staffing, as productive and consistent with the trends we experienced in the first quarter of 2007. The labor markets have not tightened to the point that we are experiencing rapid contract employee wage inflation that we cannot pass along to our clients.

Turning to acquisitions, as you are all aware we completed the acquisitions of the VISTA Staffing Solutions and Oxford global resources on January the 3rd and 31st respectively. The VISTA acquisition provided us entry into the fast growing physician staffing market. And Oxford provided us access to the $17 billion plus IT service market. Both of the acquisitions fit well with our strategy of operating in large fast growing markets with attractive bill rates and gross margins. As is evident by the results we reported today, our blend of outstanding services with attractive end markets yield some of the highest growth rates, bill rates and gross and EBITDA margins in the staffing industry. Later in this call Jim will provide you more information regarding financial impact of the acquisitions during the quarter.

Our integration of these businesses is going well and both companies performed well despite all of the extraordinary corporate activity. Our teams are rapidly getting to know one another and finding ways to support each other regarding potential revenue generation and profit maximization opportunities. This is the 11th consecutive quarter that the Company has the met or exceeded its operating objectives, and remains consistent with the operating plans that Management set forth. Towards the end of the call today Jim will walk you through the forward guidance that we announced in our earnings release. As for the remainder of '07, we are excited about the ground work we have laid and the strength of the end markets we serve.

Before turning the call over to Mark, I would like to give you a brief review of operations. The On Assignment Healthcare segment first quarter results continue to show consistent progress. Our market share and continued client growth combined with a strong demand for our Healthcare Staffing services all resulted in a 5.9% year-over-year increase in Healthcare quarterly revenues. In Q1, MF&A, which is now referred to as Allied Healthcare, revenues were up 23.6% year-over-year to $14.3 million and Nurse travel revenues were down 1.3% year-over-year to $28.3 million. As disclosed during our fourth quarter conference call, our second largest customer, Nurse Travel, which represented 6.5% of 2006 consolidated revenues is in the process of shutting down most of their services, due to not meeting Medicare and Medicaid funding requirements.

This client loss muted our first quarter Nurse Travel growth. However, to date we have reassigned a significant number of the nurses from that customer and believe that because of the strength of the Healthcare Staffing market place, we will be successful in reassigning the remaining nurses over the next four months. Although the client shift impacted our first quarter Nurse Travel revenue growth, we were successful in increasing our gross margins 90 basis points over the first quarter of 2006 in that division.

Life Science segment also performed well in the first quarter. Our combined U.S. and European operations grew 19.7% over the same quarter last year and gross margins increased 230 basis points to 32.9%. Despite historical seasonal challenges, revenues grew approximately 1% sequentially, from 31.3% to 31.7%. Our IT and Engineering segment performed well as well in the quarter. Revenues grew 6.9% first quarter '07 over first quarter '06 on a pro forma basis. Gross margins were 37.1%, a 57 basis point improvement over the same two month period in the first quarter of 2006. During the first quarter, the IT and Engineering segment averaged approximately 724 billable consultants on billing, billed approximately 437 customers, and had an average bill rate of $117.48. Because of our focused recruiting model, we were able to expand margins and revenues sequentially in what is usually a very challenging first quarter. I would now like to turn the call over to Mark Brouse, President of VISTA, for a review of their performance in the first quarter. Mark?

Thank you, Peter. VISTA Staffing Solutions, On Assignment's Physician Staffing Division, had a strong first quarter performance. Demand for our services continues to grow. Our market share has increased, and our margins are improving. Revenues in the first quarter increased 40.8% year-over-year to reach $17.98 million. Our sequential revenue growth over the last 90 days was up 6.4% from $16.9 million to $18 million. Gross margin in Q1 '07 was 29.4%. The number of clients we billed increased 24% year-over-year from Q1 '06 to Q1 '07, and 6% sequentially from Q4 '06 to Q1 '07. No single client accounted for more than 3% of revenue. Physician compensation increases have occurred.

However, we have also been successful in raising bill rates to our customers. Due to these increased bill rates, we expect gross margins to be stable to slightly up in second quarter. Because physicians are the primary drivers of revenue for clients, demand is high and supply is tightening, we have not lost market share as bill rates have increased. Order activity continues to be strong, requests for Physician Staffing and days of physician work scheduled throughout October are running 22% above 2006 levels. This increase is a reflection of our positive feeling about the market going forward. The primary drivers of the physician market are increased demand for physician services by consumers and a shortage of physicians.

Now turning to the general strength of the Physician Staffing market, many voices are weighing in on the physician shortage issue, including the American Association of Medical Colleges, the American Medical Association and the Counsel on graduate medical education. It appears that these organizations have reached a consensus that the U.S. is facing a shortage of up to 200,000 physicians by the year 2020. Why? Because our population has just reached-- has just hit the 300 million mark. Technology, a strong economy, and an aging population are accelerating demand for physicians. Yet graduation rates from U.S. Allopathic Medical schools, have remained flat since 1980. In addition more than 250,000 physicians are over the age of 55. About half of physicians over age 50 are looking for part time work options and 1/3 would retire today if they could according to the American Association of Medical Colleges. All of these factors drive the demand for local tenants. Interestingly they also feed the supply channel as physicians opt for semi-retirement and work part time as local tenant physicians.

Supply is also driven by the maldistribution of physicians which often leaves rural communities with a shortage of qualified physician and urban areas with a surplus. We are especially good at recruiting physicians from areas of surplus to work in areas of shortage and enabling physicians to work part time in rural communities they would not live in full time. Some call it the perfect storm where supply, demand, and productivity trends come together to create a very strong market for our services. Of course in this situation physicians are able to demand increased compensation. But their value in helping clients provide mission critical services and ensuring financial stability still exceeds their cost. All of this said, our greatest go forward challenges are recruiting and placing high quality physicians and improving our margins. We have enhanced training and mentoring programs in place that bring our staffing consultants to productivity more quickly, and a unique range of product offerings that allows us to serve physicians at more junctures in their careers than the typical local tenants company. This also allows us to provide more strategic staffing assistance to clients.

Finally, our integration with On Assignment is right on track. We have not lost any key employees or management, talent, in the acquisition. I would now like to turn the call over to Jim Brill. Jim?

Thanks, Mark. As previously mentioned consolidated revenues were $122.6 million, up significantly due to the acquisitions. There were 53.5 billing days in the quarter versus 61.5 in the fourth quarter and 64.5 in the first quarter of 2006. And for Nurse Travel there were 90 bills days this quarter and in the first quarter of 2006, versus 92 days last quarter. Life Sciences segment revenues were $31.7 million, up 1% sequentially and 19.7% over the first quarter of last year. Lab Support Europe revenues were $4.8 million up 34.3% over last year, and down 4.5% from last quarter. On a constant currency bases, European revenues in the division were up 17.7% year-over-year.

Healthcare segment revenues were $42.6 million, down 5.6% sequentially, and up 5.9% over Q12006. Within the Healthcare segment Nurse Travel revenues were $28.3 million down 11.5% sequentially and down 1.3% from Q1 2006. Nurse Travel revenues were negatively impacted as Peter mentioned by the loss of a large customer. Allied Healthcare revenues were $14.3 million up 8.5% sequentially and up 23.6% over Q1 '06. As Mark mentioned the Physician segment revenues were $18 million, up 40.8% over last year and up 6.4% from last quarter. Our IT Engineering segment revenues were $30.3 million, which only included activity for the month of February and March, as the acquisition of Oxford did not occur until the end of January.

Oxford's full quarter revenues grew 6.9% over the first quarter of 2006, and were down slightly from the fourth quarter of 2006. Conversion and direct hire revenues totaled $3.2 million in the quarter or 2.6% of revenue as compared to 2.4% of revenue in Q4 '06 and 1.5% in Q1 '06. Consolidated gross profit was $37.5 million for the quarter, and consolidated gross margin was 30.5%, compared to 27.2% in Q4 of '06, and 25.5% in Q1 of '06. Life Sciences segment gross profit was approximately $10.4 million for the quarter, the gross margin of 32.9%, compared to 33% for the fourth quarter of '06 and 30.5% for Q1 of '06. The 240 basis point increase year-over-year was primarily related to a favorable adjustment for worker's compensation expense, increased direct hire and conversion revenues, and an increased bill pay spread, offset by higher payroll taxes and increased medical expense.

The Healthcare segment gross profit was $10.5 million for the quarter which was a gross margin of 24.6%, compared to 23.1% for Q4 '06 and 22.1% for Q1 of '06. The 250 basis point increase year-over-year was primarily related to bill pay margin expansion, reduced travel and housing costs, a favorable adjustment to worker's compensation expense, and increased direct hire margin, which were partially offset by an increase in other temporary employee expenses. This addition Staffing segment gross profit was approximately $5.3 million for the quarter, the gross margin of 29.4%, and the IT and Engineering segment gross profit was approximately $11.3 million for the two months that it was a part of On Assignment, a gross margin of 37.1%.

Total SG&A expense for the first quarter was $34.3 million or 27.9% of total revenues. Included in SG&A is $1.1 million of equity-based compensation expense, $4.2 million of amortization related to amortizable intangibles, and $1.3 million of depreciation. Removing approximately $4.05 million from the quarter's amortization related to the two acquisitions, SG&A would have been 24.7% of revenue. In Q4 '06 SG&A expense was $17.2 million, or 22.5% of revenue, which included $1.1 million of equity-based compensation, $242,000 of amortization of intangibles, and $1.1 million of depreciation. In Q1 of 2006, SG&A expense was $16.8 million or 25.2% of revenues, which included $459,000 in equity -based compensation expense, $235,000 of amortizable intangibles, and $1.5 million of depreciation. Our operating income was $3.2 million for the quarter, compared with operating income of $198,000 for Q1 '06 and $3.6 million for Q4 '06.

We believe it is meaningful to compare EBITDA and adjusted EBITDA when comparing the current quarter's results to prior quarters. As outlined in today's press release, EBITDA for the quarter was $8.7 million, excluding equity-based compensation of $1.1 million, adjusted EBITDA was $9.8 million, or 8% of revenue. Adjusted EBITDA was $2.3 million in the first quarter of 2006 and $6 million in the fourth quarter of 2006. We ended the quarter with cash and cash equivalents of $22.6 million and bank debt of $144.6 million. CapEx was approximately $1.5 million, down from $1.6 million in the prior quarter. Net accounts receivable was $77.2 million at the end of the first quarter. Days sales outstanding was 50.3 days, up from 46.5 days in the prior quarter, but down from 50.8 days in Q1 of 2006.

Now turning to productivity, which we define as quarterly gross profit generated per staffing consultant. For the first quarter we averaged 568 staffing consultants, and gross profit per staffing consulted was $65,900. The Life Sciences segment generated $93,100 in gross profit per staffing consultant for the quarter as compared to $70,100 in Q1 '06, and $91,500 in Q4 '06. The Healthcare segment generated $72,000 in gross profit per staffing consultant for the quarter, as compared to $65,300 in Q1 '06, and $70,600 in Q4 or '06. The Physician's Staffing segment generated $78,500 in gross profit per staffing consultant for the quarter. And the IT and Engineering segment generated $46,300 in gross profit per staffing consultant for the quarter. We will provide year-over-year and sequential comparisons for the Physician's Staffing and IT Engineering segments in the future.

Based on fairly stable labor markets we currently project consolidated revenues of $144 million to $146 million for the quarter ending June 30th, 2007. We're projecting consolidated gross margins of approximately 30.3% to 30.8%, SG&A of $38.5 million to $39.5 million, including equity-based compensation expenses of approximately $1.5 million. Approximately $4.0 million in amortization of intangible assets and financing costs, and other depreciation of approximately $1.5 million. We project earnings per share of $0.05 to $0.08, and an effective tax rate of 38.5%. Adjusted EBITDA is projected to range from $11.5 million to $13.2 million. Based on the second quarter guidance, continued stable labor markets and no loss of large customers, we're not changing our guidance for the full year.

We estimate revenues to be between $565 million to $585 million, which represents pro forma growth of approximately 10% to 14% over 2006. We're projecting average gross margin for the year of approximately 29.5% to 32-- 30.2%, consolidated SG&A of $149 million to $152 million, including equity-based compensation expense of $5.7 million, which is higher due to stock option and restricted stock issuances related to the acquisitions. Approximately preliminary estimate of $15.1 million in amortizable intangibles, and deferred financing costs, and depreciation of $6.7 million. The amortization of intangibles is anticipated to decrease by approximately 40% in 2008. We project earnings per share of approximately $0.25 to $0.28 including net interest expense of $9.3 million. $36.2 million weighted average shares outstanding, and an effective tax rate of 38.5%. Adjusted EBITDA is projected to range from $48 million to $53 million. As you know these estimates are subject to risks mentioned in today's release and at the beginning of this conference call. Now back to Peter for some closing comments before we open up the lines for questions. Pete?

Thank you, Jim. 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 strength of our diversified business model and is the result of the operational and Management changes we have made over the last 39 months. 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-- open the call up to participants for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Jim Janesky.

Hi, yes. Good afternoon. The first question I have has to do with stock compensation and amortization of intangibles. And forgive me there's a lot to digest-- you need to tighten up the time between when you release your results and you hold a conference call. It should be about 10 minutes in the future.

We'll work on that.

Yes, you should announce at 4:10 and hold it at 4:20. So the-- you issued more shares than you expected? Because the equity-based compensation was about 300,000 or so higher than you originally anticipated, is that correct?

Jim, at the end of the year when we gave you some guidance on the fourth quarter conference call we gave you some estimates as it related to 123R. We hadn't done all of the awards for the acquisitions, and there was an end of the year award to me in renewal of my three year contract. And also the other thing that you mentioned was we gave you an estimate of what we thought the amount would be to identifiable intangibles, both those items ended up being larger than we expected, thus the $0.03 versus-- on the $9.8 million of adjusted EBITDA.

But did--

Go ahead.

But you-- for the year, you still expect SG&A to come within the same range, which includes stock-based compensation, right?

Right. So a couple of things happened. One was the vesting of certain of the grants was expected to occur over a longer period of time. It occurred over a shorter period of time. And number two, some of the amortization related to some of the intangibles was expected to occur over a 12 month period, and when it was finalized, it occurred over a three month period.

Okay. So did you-- you did tighten up the range for the amortization of intangibles. You now expect that to come in at the upper end of the range of $15 million, right?

Right.

Okay. And if you exceeded your adjusted EBITDA quite substantially for this quarter, why not raise it -- the upper end or tighten up the lower end for the year?

That's a very fair question, Jim, and Jim Brill and I were sitting here, but very much like when we exceed our old targeted adjusted EBITDA at 7% we didn't just knee jerk and say we're going to do it. We'd like to see the second quarter and then look at our forward guidance at that point, so we recognized that we came in at 30.5 with only two months of Oxford included in our numbers, but at this point we thought we'd leave our guidance alone for another couple of months and refresh it later.

Okay. Fair enough. And if you can-- you did go over by segment the gross profit and you went fairly quickly Jim, gross profit why you exceeded or why gross profit was up year-over-year by segment. But if you can give maybe one to three reasons why on a consolidated basis, gross profit came in above your expectations for the entire quarter, so was about 100 basis point above even the upper end of your range, can you give us those reasons?

Probably one reason is that we had a better gross margin on our bill pay spread than we had anticipated. That's probably the major reason.

Okay.

Across everything. So there were some other-- as we mentioned some other things. We had a one time situation with worker's comp, which probably in the aggregate accounted for maybe $400,000. And then there's some other things that some divisions we had favorable and some divisions not, and then of course we had the SUI reset which was sort of a negative offset to this.

Okay. Okay. And then in the Physician Temp and Perm segment, can you give us an idea of what gross margins did year-over-year? Did they-- did they contract or did they expand?

In the Physician-- I'm sorry specifically again?

VISTA.

They-- For the Physician Staffing service. Well, here's the issue. I'm hesitant to start talking about apples-to-apples gross margin comparisons in the two acquired entities, because some of the methodology, which we used to map in to our process, they may not have been following. And it's difficult to go back and reconstruct what their gross margins might have been had they been accounting for things in the way that we were accounting for things, so--

How about on their operating margin line if you take out excess compensation? I guess there have been competitors-- let me ask the question another way. There's been competitors who's gross margins have been under significant pressure in the Physician area, Physician Temp area. And I'm wondering if VISTA is experiencing any of those trends. And if not, why?

Yes, a couple of things, Jim. We're not trying to keep any information from you. We just want to compare apples-to-apples and not oranges-to-tangerines as Jim said. I would tell you our best guesstimate is that the margins of VISTA are relatively flat, maybe down 30 basis points first quarter '06 over first quarter '07.

Okay.

You heard in our prepared remarks, we believe that because of some of our pricing strategies, that we're actually going to see stable to slightly expanding margins in the second quarter from the first, and we also believe that you look at that 29% plus gross margin that we reported, that that's a pretty high gross margin for Physician Staffing. So we're not giving our services away. We believe we have the right blend of specialties, surgery, ER, anesthesiology, radiology, no customer we advised you represents more than 3% of revenue, and that our pricing increases are being accepted by our customers. Does that answer your question?

Absolutely thank you. That helps out a lot. I appreciate it.

Your next question comes from Jeff Silber.

Thank you so much. I'm going to continue the gross margin questions, but I'm going to ask about the Healthcare side of the business, I just want to double check one number. Did you say that the Nurse Travel gross margins were up 90 basis points year-over-year?

That's correct.

Okay. Great. And again, going back to one of your competitors where their Nurse Travel or their Nurse and Allied business, gross margins were down. They had cited higher than expected housing costs, higher than expected health insurance. Are you seeing any of that in the market? And why or why not?

Our gross margins improved in part because of the mix shift with taking this large customer out of the mix, so we actually got better gross margins on the bill pay spread there. We did not see an issue with regard to housing or with regard to travel costs, so that was not an issue for us in the quarter.

How about on the health insurance cost side for these travelers?

On the health insurance for travelers, it was not an issue. We did see a little bit of health insurance increase on the Life Science side.

Jeff, it's hard to extrapolate sometimes what's going on in our Nurse business with some of the other public companies and visa versa, but as you know we don't buy-- we're not a REIT, we don't buy large blocks of apartments and manage occupancy. We're buying on-the-spot market. So our gross margin shows what the current cost of housing is, because we're really buying on the spot market. One of the reasons we've been able to manage our housing and our insurance costs is because we're still trying to provide the best benefits for the nurses, as far as housing, utility, telecommunications, but we're looking at what's excess and what's competitive. So we've been doing some tuning in that, and that's helped us absorb some of the increases in cost, but we feel that our margins reflect the current cost of housing and travel.

Okay. Great. That's helpful. Also just continuing on gross margins, you mentioned the favorable worker's comp adjustment of about 400,000, do you have what that was roughly in first quarter '06? Or was there any kind of adjustment in first quarter '06?

I don't believe that there was any significant adjustment in the first quarter of '06.

And is this something we should be expecting to continue throughout the remainder of the year?

That is not my expectation.

Okay. Good to know. Just moving on to revenue trends. Can you just remind us-- actually both on revenue and margin trends. What is the typical seasonality in both your Physician and the IT Engineering business?

Well, it tracks similar to our core business, which you know the third and second are our strongest, and so typically the first is the weakest. Actually in the IT segment, fourth quarter tends to ramp-up nicely for them, whereas because of holiday and go home issues, the Nursing business fourth quarter is a little bit of a challenge. So I would tell you across our business lines, they're similar except for maybe IT has a little stronger fourth quarter than the other division.

All right great. One more question and I'll let somebody else jump on. This is on the guidance, for the second quarter-- I'm not sure if you gave guidance for interest expense and the share count. If you can give that, I'd appreciate it.

I'm going to have to get it. Hang on. Move on I'll come back.

All right if you want to let somebody else on I'm finished with questions thanks.

Thank you.

Your next question comes from Josh Vogel.

Hey good afternoon, guys.

Hey.

In your revenue guidance for the year, is there anyway you could break down what you think the contribution is going to be from Oxford and VISTA? Because I just want to get a sense of the underlying organic growth.

I don't think we've broken it out that way? Have we, Jim?

I'm sorry, what was the question.

Have we given stand alone revenue growth for Oxford and VISTA?

No.

No. I guess the way we can answer it back to the envelope for you, Josh, is all of our divisions have been budgeted to grow year-over-year.

Right.

Okay. And I know I asked this following the Oxford acquisition, but now that both these Oxford and VISTA businesses are fully under your umbrella, do you expect to see any run off in business there, that-- lower margin business you may want to cycle out of?

Josh, when you book a 37.1% gross margin on a $117 bill rate, there ain't a lot of low margin to run off. There's no-- we don't take low margin business, that's for other people.

Okay. And how many-- on that major customer in the Nurse Travel business, how many nurses are working on that client and how many left are to be reassigned?

I think at its peak approximately 120. And now we're down to about 20.

Right.

Okay. And just lastly, I was feverishly writing down what was the gross profit for consultant for the VISTA?

29.7. Sorry. I got it.

Per consultant?

Yes, per consultant.

I got it.

78,500.

78,500.

I quoted you the margin. I'm sorry.

That's okay. No, that's helpful. Thank you.

Let me just go back to second quarter interest expense we're estimating around $2.7 million net and a little over $36 million shares out-- weighted average shares outstanding.

Your next question comes from [Kelly Flynn].

Yes, hi. This is [Andrew] for Kelly.

Hi, Andrew.

Hi. I was wondering if you could walk us through some of the goals you have for the acquisitions for this year? What you've got completed, what you still have left to work on. First of all, thanks.

Good afternoon, Andrew. First of all as you know we bought companies who had 16 and 20 year-- 22 year history. So we bought companies with infrastructure, process and procedure. Our-- what we're really trying to do is provide them the support to accelerate their growth, have the broad shoulders to defend their margins and try to expand them, and pick up synergies where they might exist. Like, for instance, we consolidated our purchasing on travel, housing, rental cars with VISTA. I think we're looking very shortly to cut their payroll, their corporate payroll over us to. We've supported VISTA with regard to corporate recruiting of salespeople and recruiters, trying to help then in a very, very tight Salt Lake City market place.

With regard to Oxford we're really encouraging them to open up some new branch offices that have been closed in the 2001 time frame, so they are looking at opening some new offices, and we're trying to help with them with regard to facilities, management, also how can we prestimulate the market place with our appointment center. But it's a very methodical process. The integration's going well. We're not stepping on one another. We're not-- our real goal is not to destabilize businesses that have good long term history. So again as we've said many times, these businesses, the guidance we've given you, the accretion and the profitability is based off of revenue growth not off of back office synergy. So we'll get to that in a methodical way and not be penny wise and pound foolish.

Okay has there been any surprises so far with the integration?

Any surprises? No I don't think so. I mean we went in to it with knowing what the client concentrations were, knowing what the gross margins were. There's-- the labor-- the turnover of staff hasn't been any higher than we expected, actually it has been pretty low. The markets are tight even for our internal staff. But no, no surprises.

Okay. Thanks. And then you mentioned you still have about 20 nurses working on the-- on that large client project that partially closed, I guess, at the end of Q4. Can you kind of give us an update on what's happening there, and how you expect that to kind of continue to trend through the year?

Yes I mean, they are close to implementing their reduced level of services plan, and they have a-- I think, a pending request to the Federal Government to receive the funding necessary for those reduced services, which we're led to believe that they should receive, and that-- this is kind of being kind of-- it could kind of be 20 people on billing at that account if we so choose to keep working there. But we don't think they're going to reduce services from what we've been told any further than they've already reduced them.

Okay, thanks. I have got a question on gross margins and a couple of housekeeping items. As somebody mentioned earlier, that your gross margin in Q1 came in 100 basis points above your expectation, 30.5, and you're guiding to 30.3 to 30.8 for Q2. But you've kept your guidance for the year round about 30%, so are you expecting gross margins to fall off in the back half of the year? Would you say at the moment you just draw the leave your guidance where it stands and you mentioned refreshing it later, or how should we think about that?

We're not expecting compression, but we're not going to update it until we report the second quarter.

Okay.

So you shouldn't interpret that we're worried about compression. It's just at this point we're not going to update it.

We want to see what's going to happen in the market in another three months.

Okay thanks. And then the housekeeping items, do you have cash from operations? And also in your guidance for Q2, could you break out what the accelerated amortization piece is, please?

We don't have cash flows wrapped up yet. And the accelerated depreciation piece for Q2, I'm not sure. We said what we thought the amortization was going to be for Q2. The difference between Q1 and Q2 is kind of where that things going with, and including an extra month of Oxford.

Okay. So despite the extra month of Oxford you have it coming down sequentially because it's just falling off that rapidly?

That's right. That's because of the unique drop off from Q1. Now we won't see continued drop off. I gave you a number for the full year, which we still think is a pretty good number so there's a drop off from Q1 and then there's an pickup of an extra month of Oxford.

Okay. So think about it differently, I think you said it looks as those your base amortization in Q1 was about 150,000 should-- we should expect something roughly similar to that in Q2?

Well the 150,000 was just the-- that's the nonacquisition related.

Right. And that should remain about flat in Q2 with Q1?

Something like that, yes

Okay. Thanks.

Your next question comes from Tobey Sommer.

Thanks. From time-to-time you've mentioned the revenue growth and contributions from some of the new lines of businesses that you start a coupled of years ago. I didn't know if you mentioned that on the call, but I was just wondering how those are going? If I missed it I apologize. And then in that same vain if you have any plans in the VISTA or Oxford for some new lines or focuses where you can also drive some new business there.

Yes, Tobey, because we're such a larger organization I-- we've had to decide how much quantitative information we're going to give. Where as we used to give it on a quantitative business, t's more a qualitative. I can tell you those businesses continue to perform. Those businesses reside in Allied Healthcare, which used to be called MF&A and then Life Support, and you saw the growth rates of both of those divisions, 19.7 and 28.3 so they're doing very, very well. As it relates to the second half of your question when we first started talking to Mark, and I'll let him follow up on this, in his prepared remarks he talked about being able to service the physician at different junctures of their career, we-- Mark more so than some of the other local businesses, we have an international piece, we have a long term contracting piece, and we have a retained contingent/retained search piece. We're supporting them to see if we can get those growing a little bit faster. But Mark why don't you describe a little bit of that for him.

Well the key strategy there is that we can provide physicians with whatever it is that they need at that point in their career. And what we've found is that its it's a very effective tool to tie a physician to the organization, and the key for us is identifying where that resource needs to be managed within which business. What we found is that the ones that we've now have a full year of experience with are not only growing substantially, but profitable, and the newest one, the long term staffing piece is really just starting to gain traction now. So we have very, very high hopes for all of those businesses. They're growing well, and they're really helping us fulfill our strategy.

Thanks, very helpful. In terms of permanent placement fees-- I know not a strong emphasis on the firm because you want to create a durable business, but what kind of growth was there? And what do you see in the markets?

Tobey we could-- I mean there's is as much as you want right now. The Perm, as you saw from K-force that had a great quarter, the Perm Placement market is pretty healthy. I mean [inaudible] reported an incredible quarter. So that's not the issue. Our issue is not to lose focus. We're a contract labor shop. I think we gave statistics that said it was conversion and Perm were 2.6% '07 versus 2.5% in the fourth quarter of '04. So we're still below that 3.5% to 5% max range we told you about. I-- what I will tell you that was equally unique about where we are in the cycle is that it's a blessing and its a curse. The conversion fees paid us in the first quarter really spiked, especially in January and February. That's calmed down now, which is a good thing, but we had some higher than normal conversion fees.

Right. Right. Which means you've got to do heavy recruiting to replace those for the temp side of the business, right?

Correct.

Okay and then just in terms of-- it looks like you had a good first couple of months integrating the businesses, the financial metrics all came through, you're going to-- don't want to get ahead of you-- ourselves here, but a couple of quarters of continued performance on or above plan, and when do you feel comfortable poking your head up and taking a look at growing the business and perhaps even deploying more capital on acquisitions?

Right. Well what Jim and I have done at your conference and a couple of other conferences, and we've said is that we want to report as least a couple of quarters to show that we're as good of owners as we are of spenders of the shareholders money. And make sure that we get some, some stakes in the ground so people can measure what's going on with margins and revenue growth. We worked on VISTA for 16 months and Oxford going on eight months so we're filling the pipeline, but there's nothing pending, and the only thing that would change that is if there's something that you just can't live without, and it's opportunistic, but there's nothing like that on the plate right now.

Thank you very much, I'll get back in the queue. Good quarter.

Thank you.

And at this time, there are no further questions.

We appreciate you all's attendance in our first quarter 2007 conference call, and are anxious to speak with you again soon. Thank you very much.

And this concludes today's conference call. You may disconnect at this time.