ASGN Inc (ASGN) 2007 Q3 法說會逐字稿

My name is Abigail, and I will be your conference operator today. At this time, I would like to welcome everyone to the On Assignment Incorporated third quarter 2007 earnings conference call. After the Speaker's remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Thank you, Mr. Brill, you may begin your conference.

Thank you. 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 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 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.

I would now like to introduce Peter Dameris, our CEO and President, who will provide an overview of our third quarter results.

Thank you Jim, good afternoon. I would like to welcome everyone to the On Assignment 2007 third quarter earnings conference call. With me today are Jim Brill, our CFO, Shawn Mohr, President of our health-care segment, which is made up of nurse travel and allied healthcare.

During our call today I will give a review of the markets we serve and our operational highlights, followed by discussion of the performance of the operating segments by myself and Shawn. We will then turn the call over to Jim for a more detailed review of our discussion of the third quarter financial performance and our financial guidance for the fourth quarter and full year. We will then open the call up for questions.

This quarter's performance again resulted in record revenues for our company of 148.7 million. Revenues grew 96% in the third quarter of '07 over the third quarter of '06, due in great part to the acquisitions of Vista and Oxford.

Net income was 3.3 million, or $0.9 per diluted share versus 2.7 million or $0.10 per diluted share in the third quarter of '06. Included in this quarter's results was $914,000 in other expense as a result of the mark to market of our $73 million interest rate swap. Revenue generated outside the U.S. was 7.2 million or 4.9% of consolidated revenues in the third quarter of '07, versus 6.6 million or 4.8 in the third quarter of '06.

Consolidated gross margins in the quarter were 32%, up from 27.5% in the third quarter of '06. Our consolidated hourly bill pay spread in the quarter also increased year-over-year. Adjusted EBITDA was $16 million, up 180% year-over-year, and 1.2 million over the low end of the guidance that we gave of 14.8 million. Once again, our strong financial performance was achieved without any significant contribution from perm placement and is evidence of the strength of our business model.

Consolidated revenues growth in the third quarter was 8.4% on a pro-forma basis, and was impacted, once again and as expected, by slower growth in the health care segment. Each of our other segments grew in excess of 12.5%.

In Health care, the nurse travel group was impacted by slower than expected progress in replacing a large account, as well as a generally lackluster nurse travel end market. In addition, our Allied Health Care Group, which has grown faster year to date then the published industry growth rate of 9%, is performing at a level that we believe is below its true potential, and the rate of growth it achieved in the beginning of the year. We have added new management and realigned certain geographical markets in hopes of generating better growth rate for that group at the end of the year.

Exiting the quarter, demand continues to be strong. The Physician Staffing and Life Science segments continue to have the strongest end market demand, followed by IT Engineering and Health Care Staffing. Based on published reports regarding current nurse shortages, our belief that patient admissions will continue to improve, and with the overall age of working nurses being at the highest level in recent history, we continue to believe that demand in the Nurse Travel market should reaccelerate in 2008.

Our third quarter performance in the Allied Health Care Group is not indicative of a change in demand for Allied Health Care Services, but instead challenges with internal execution.

Geographically, we continue to see strong growth opportunities outside the United States, and have strengthened our Life Sciences and IT Engineering offices overseas, in order to capture such growth opportunities.

Our weekly assignment revenues, which excludes conversions, billable expenses and direct placement revenues, averaged 11.4 million for the three weeks ending October 21st, 2007. We averaged 10.9 million in pro-forma weekly assignment revenues for the same three week period one year-ago, including Oxford and Vista. During the week of October 14th, we assisted two longstanding customers with staffing needs during a labor disruption that resulted in us generating higher revenues than normal. These revenues have been excluded from the average weekly revenues just stated.

If the Health Care segment revenues are excluded from the three week averages mentioned above, the average in 2007 grew 10% over the average three weeks revenue generation in 2006.

Operating leverage continued to improve during the quarter. Our adjusted EBITDA margin reached 10.8%, up from 10.3 in the second quarter of '07. We grew our gross profit, operating income, and net income faster than our revenues in the third quarter. During the quarter, despite maintaining a higher number of staffing consultants, 755 versus 716 in the third quarter of 2006, we increased our year-over-year productivity and gross profit per staffing consultant by 6.7% on a pro-forma basis. Before turning the call over to Sean I would like to give a brief review of the operations.

The Life Sciences segment performed very well again in the third quarter. Our combined U.S. and European operations grew 12.6% over the same quarter last year, and gross margins increased 99 basis points to 33.6%.

The Life Science growth was driven by the markets we serve, our newer clinical research and engineering business, increases in bill rates, and increases in number of billable temps. In order to support future growth, we have added personnel, both domestically and internationally, and are scheduled to open new offices in Cork, Ireland, and Toronto, Canada, to support our Life Science customers abroad. The momentum in the third quarter has positioned us well for continued performance in the fourth.

Our Physician Staffing business continued to perform well, growing 15.5% over the third quarter of '06 on a pro-forma basis. Gross margins decreased to 29.1% in the third quarter of 2007, from 31.2% in the second quarter of '07. Our focus in this group is to maintain the right levels of productivity and skill mix.

The gross margin compression this quarter was attributable to expectations for increased compensation by physicians and our Mexis specialties, temporarily shifting towards those with lower gross margins. This shift was primarily due to allocation of internal resources. We believe margins should increase as new client rates take effect and new resources in the higher-margin specialties become productive.

Our I.T. and Engineering divisions delivered its strongest operating results since joining On Assignment in January of 2007. Revenue growth accelerated over the second quarter of 2007, and gross margins and average bill rates continue to exceed our targets. Revenue in the third quarter increased 12.8% over the third quarter of '06, on a pro-forma basis.

Approximately 62% of Oxford's increase in sales was due to increased bill rates and approximately 38% of the increase was due to more billable consultants on engagements. Sequential revenue growth in the third quarter was 3.9% over the second quarter.

During the third quarter, Oxford billed over 830 client companies, and no single customer accounted for more than 3% of total revenues during the quarter. Oxford's average bill rate in the third quarter was approximately $120 per hour, a 7.9% increase over the third quarter of '06. This was based on an average of 768 billable consultants in the third quarter, compared to 747 consultants during the third quarter of '06.

Gross margins for the second quarter were 37.7%, 63 basis points higher than the third quarter of '06. Oxford's bill rates and gross margins continue to be among the highest in the industry.

On a strategic front, as previously mentioned, we have significantly increased our head count of recruiters and salespeople domestically and internationally. In addition, we have reopened branch offices in Dallas, Texas, and Washington, D.C. Oxford's outlook for the fourth quarter is positive and supported by the forward-looking survey of market demand, the Oxford Index. This quarterly survey of Oxford's clients has been highly predictive of actual demand since 2002, and indicates that the segment's fourth quarter top line results will exceed the third quarter.

With regard to the forward guidance that Jim will walk you through later in the call, our guidance assumes year-over-year and quarter over quarter growth in all divisions except Nurse Travel and Allied Health Care, where we expect year over year declines. The projected declines are due to poor momentum in the Health Care segment, and strong growth rates in the fourth quarter of '06, that were counter to normal seasonal trends.

I would like to now turn the call over to Shawn.

Thank you Peter. On Assignment Health Care's Q3 performance reflects challenges specific to it and the slower growth Travel Nurse end market. Let me briefly outline each of the challenges and how we are addressing them.

Our compounded annual growth rate in our Nurse Travel group from 2004 to 2006 has been in excess of 21%. However, in Q3, we experienced deceleration in our year-over-year revenue growth rate.

Our Nurse Travel revenues were down 3.7% year-over-year to 30.8 million, but up 5.1% on a sequential basis.

Our Nurse Travel gross margin increased 196 basis points year-over-year to 22.3%. The net result is that although Nurse Travel revenues were down 3.7%, absolute gross margin dollars grew 5.6% year-over-year from 6.51 million to 6.87 million. We expected revenue growth in Nurse Travel this year to be challenging due to the complete loss of a major customer and our slowdown in supporting a low margin customer.

In the nine months year-to-date, these two customers represented 14 million in revenues, compared to 28.3 million in the same nine months of 2006, a decline of 14.3 million. In the third quarter they represented 3 million versus 9.9 million last year.

The head count at these two customers has dropped from 228 to 70 when comparing this week with the same week last year. We replaced a large portion of these lost revenues year-to-date through new business development and nurse reassignments. But haven't been able to grow completely above the lost revenues.

We're still positive about the nurse travel industry over the long term and the opportunities for our Nurse Travel group to improve from the old pre-2002 acquisition business model as a bulk seller of nurses on a rapid response basis, to the new On Assignment business model as a high end professional and diversified nurse travel business.

From our perspective, we also believe that we are operating in a more challenging nurse travel end market in 2007 versus 2006. Supply constraints and erratic hospital buying behavior continue to be a drag on this sector. Despite the slower revenue growth, we believe we have made great strides in increasing gross margins and diversifying our revenues.

With regard to revenue diversification, we billed over 359 clients in the quarter, up from number 294 a year ago, and only 206 in the same quarter two years ago. Our top 10 customers now represent 27% of revenues, compared to 49% the same quarter last year, and 56% two years ago. We continue experiencing demand from across a broad customer base with orders up 28% year-over-year, and we have experienced a 2.3% year-over-year increase in bill rates.

Within Allied Health Care, Q3 revenues were up 4.6% year-over-year and gross margins were 32.3%. As Peter mentioned, we believe our third quarter performance relates more to internal execution, due to poor field level management in a single geographical region, and several key markets performing below par. All these factors impact performance and growth.

I have made several key management and staffing consultant changes within this business to begin restoring production levels. These new managers and staff consultants are hired on board and should begin making an impact starting in the upcoming year. We believe the changes that we have made should get the Allied Health Care Group moving in the right direction. With that, I will pass the call over to Jim Brill.

Thanks, Shawn. As Peter mentioned, consolidated revenues were 148.7 million, up significantly due to the acquisitions. There were 62.25 billing days in this quarter, versus 63.5 in the second quarter, and 62.5 in the third quarter of 2006. However, for Nurse Travel, there were 91 billing days in the quarter. And 92 for the second quarter of 2006.

This quarter, rather than go through a litany of segment facts and figures, we published segment information with our press release. So I am just going to address some of the variances and their related explanations to the extent Peter is not.

In the Life Sciences segment, Peter addressed the 12.6% revenue growth. The 99 basis point increase in gross margin was primarily a result of improvement in workers' compensation insurance rate and improvement in the bill pay margin, offset in part by higher SUI rates and reduced conversion of permanent placement fees.

In the Health Care segment, both Shawn and Peter have addressed the revenue decline.

The 196 basis point increase in Nurse Travel gross margin was due to an increase in the bill pay spread, a reduction in housing and automobile expense, partially offset by an increase in other temporary employee expenses. I might add that both the revenue per traveler per day and the gross profit per traveler per day went up this quarter over last quarter, and over the third quarter last year.

In the Allied Healthcare Division, the increase in revenue was due to the increase in bill rate, as well as an increase in professionals placed. The drop in gross margin was due to an increase in other temporary employee expenses, holiday pay, and worker's compensation insurance expense, partially offset by an increase bill pay margin and an increase in direct hire and conversion revenues.

Peter discussed the drop in gross margins in the Physicians Staffing segment. The revenue gross was driven by an increase in the number of physicians placed.

Our IT and Engineering segment revenues, as Peter mentioned, were driven by both an increase in bill rates and an increase in billable consultants. The increase in gross margins was driven primarily by an increase in bill pay spread.

Conversion and direct higher revenues totaled $3 million in the quarter, or 2% of revenue as compared to 2.1% of revenue in the second quarter of 2007, and 1.9% in the third quarter of 2006, on a pro-forma basis.

Total SG&A expense for the third quarter was 38.3 million, or 25.8% of total revenues, which is down from 27.1% last quarter, but up from last year due to the increase in amortization of intangibles, and equity based compensation expense related to the acquisitions. Included in SG&A in the quarter is $1.5 million of equity based compensation, $3.7 million of amortization related to amortizable intangibles, and $1.6 million of depreciation.

Our operating income was $9.2 million, or 6.2% of sales for the quarter, compared to 7.2 million last quarter, and 3.5 million last year.

In the second quarter, as we have previously discussed, we entered into a two year interest rate swap for $73 million, effective June 30, 2007, which fixed our 90 day liable equivalent rate at 4.94%. The decrease in market value of this instrument was $914,000 in the quarter. This non-cash expense is included in non operating expense and thus excluded from EBITDA.

Our tax rate was 42.8%, which is a little higher than our previous guidance of 39.9%, primarily due to some discrete items related to the filing of our state tax returns. And Net income was 3.3 million, or $0.09 per diluted share.

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 $14.6 million, excluding equity based compensation expense of $1.5 million, adjusted EBITDA was $16 million, or 10.8% of revenue. Adjusted EBITDA was 14.8 million last quarter, and 5.7 million in the third quarter of 2006.

We ended the quarter with cash and cash equivalents of $37 million, up nicely from 29.4 million last quarter, and bank debt was 143.9 million, down from 144.3 million last quarter. CAPEX was approximately 1.7 million, up from 1.2 million in the prior quarter. Net accounts receivable was 81.8 million at the end of the third quarter. Days sales outstanding were 50.1 days, up from 49.4 days in the prior quarter.

Now turning to productivity, which we define as a quarterly gross profit, generated per staffing consultant. I will give you a number of numbers here.

For the third quarter we averaged 755 staffing consultants, and gross profit per staffing consultant on a consolidated basis was $62,951.

Life Sciences segment generated $101,968 in gross profit per staffing consultant for the quarter, as compared to 90,657 in the third quarter of '06, and 101,470 in the second quarter of '07.

The Health Care segment generated $73,505 in gross profit per staffing consultant in the quarter, as compared to 75,377 in the third quarter of '06, and 73,795 in the second quarter of '07.

Physicians Staffing segment generated $86,935 in gross profit per staffing consulting in the quarter, compared to 86,219 last quarter.

And the IT and Engineering segment generated $45,032 in gross profit per staffing consultant for the quarter, compared to $46,957 last quarter, as a result of the significant increase in staffing consultants in that segment.

Based on fairly stable labor markets, normal seasonal trends, including the fact that it is difficult to find nurses to work the week between holidays, holiday plant closings that may impact the Life Sciences and IT Engineering segments, and the fact that the day of the week on which holidays fall this year may have a greater impact than last year.

We currently project consolidated revenues of 146.5 million to 148 million for the quarter ending December 31, 2007. We're projecting consolidated gross margins of approximately 31.6% to 31.9%, SG&A of 39 to 40 million, including equity based compensation expense of approximately 1.4 million, approximately 3.8 million in amortization of intangibles, and financing costs and depreciation of approximately 1.6 million. We project earnings per share of $0.06 to $0.09, and an affective tax rate of approximately 40.6%. Adjusted EBITDA is projected to range from 13.1 to 15.0 million.

Based on the fourth quarter guidance, continued stable labor markets, and no further loss of large customers, we currently project revenues for the full year to be between 561.6 and 563.1 million, which represents pro forma gross of 9.3 to 9.6% over 2006. We are projecting gross margin for the year to be approximately 31.6 to 31.7%. Consolidated SG&A of 150.6 to 151.6 million, including equity based compensation expense of 6.2 million, which includes stock-option restricted stock issuances related to the acquisitions.

Approximately 15.5 million in amortization of intangible assets and deferred financing costs, and depreciation of 6.1 million. The amortization of intangibles is anticipated to decrease by approximately 40% in 2008.

We project earnings per share of approximately $0.26 to $0.29, including net interest expense and other expense of 10.1 million. 35.9 million, weighted average shares outstanding and an effective tax rate of 41.1%. Adjusted EBITDA is projected to range from 53.7 to $55.7 million.

As you know these estimates are subject to risks mentioned in today's release and at the beginning of this conference call. Now, I will turn it back to Peter for some closing comments before we open up the lines for questions.

Thank you Jim. Although we are not satisfied with our revenue performance in the Health Care segment this quarter, we are satisfied with our success in growing our operating margins and expanding our gross margins, generating cash, and, excluding the Health Care segment's performance and any positive currency translations, growing our revenues faster than our competitors. 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 open the call up to participants for questions.

[ OPERATOR INSTRUCTIONS ]

Your first question comes from Jim Janesky with Stifel Nicolaus. Your line is open.

Thank you. Couple of questions. When did the second difficult customer within the nursing segment pop up? You had been talking about the one in L.A. for quite some time, but this second customer was a little bit of a surprise. When did it come up and how long do you think it will take you to reassign those folks?

We still have nurses there, but I think if you review our prepared comments during the second quarter conference call, we told you that we had started to slowdown servicing the customer because the margin profile just didn't meet our required needs. We have been dealing with this for a minimum of six months this year. Jim and I were doing some calculations. We think we will be able to successfully--we can keep servicing the customer through the first quarter of '08 if we would like, but we think through-- by the end of the first quarter, we will be in a position where any further drawdown in nurses, our organic growth could offset it.

Okay. Are you finding it any more directionally difficult in placing nurses this quarter versus the last couple of quarters so that as these nurses come off the assignment, especially these two hospitals, that it has been directionally more difficult and has that been exacerbated by your percentage of revenues in California, which I know were 50% or more at one time but I imagine are lower than that at this point?

That is a multi pronged question. I would say yes to all the above but I'd start off by saying we do find the nursing market directionally more challenging. The irony of it is, everybody talks about the huge supply/demand imbalance. We are not seeing nearly the type of growth rates in the nursing market as we are in IT, Life Sciences and Physician. As we told you, all of those groups grew a minimum of 12.5%. Our guidance that we gave you, Jim, all projects, despite fewer billable days and despite normal seasonal revenue patterns, those divisions are all projected to grow fourth quarter over third. With regard to California, our percentage of revenue has been reduced significantly because of our moving away from the MOK account. But I think California is a little more of a challenging state than the others. The final point that you question you had on the nursing piece--

It had to do with the percentage of revenues, you already addressed it.

California is more difficult and our percentage of revenue has dropped pretty dramatically of revenues generated in the state of California in the Nurse Travel segment.

Final question for now, is would you consider an aggressive share repurchase program at these levels? What are your thoughts?

Two things -- I have to tell you we usually don't comment on valuation but we are all very disappointed with how the stock has performed recently. When you consider the underlying fundamentals, our expansion of our gross margins, expansion of operating leverage, our projected double digit growth rate for all the divisions, except basically the Nursing and Allied Health, which make up about 20% of our revenue, we are limited by our credit facility, seeking an amendment, we could only do a certain amount of repurchases. We do have a current authorization that has been approved by the board that hasn't been fully utilized, and we are considering all of our options. Where we are today, considering our prospects and our beliefs of how our profits and our revenues will continue to grow, we are trying to see what is the best way to invest our dollars.

Thank you.

Next question comes from Tobey Sommer with SunTrust Robinson. Your line is open.

Just a follow-up on that first question. Did you say that the second problematic account has been a problem for several months now?

We talked about it Tobey, on the second quarter conference call. We said that we had started to reduce our sales activity in the account. We have been--as you can tell from the numbers that Shawn gave you, we have been reducing the amount of revenues generated from that count. We're still in it. While we have strength, we are improving the quality of the revenues as much as the quantity.

A separate question, regarding the forecast for the fourth quarter, given-- relative to expectations, coming in a little bit lighter in the third quarter, primarily because of one particular unit, have you altered the process for your forecast in any way?

I don't think so. Where we are with regard to the third quarter results against the guidance we gave you, we were off by several hundreds of thousands of dollars despite the nurse travel business being even a little more challenging than we expected. As it relates to the fourth quarter and the guidance that we established, it is based off of what our production is the first three or four weeks of the quarter. And where our businesses are trending as it relates to the consensus of Wall Street. I can tell you fundamentally, there is strength going in to the fourth quarter, there's strength in IT, Physician, Life Sciences. And we are expecting similar double digit growth rates in those divisions. We are expecting declines in the Nurse Travel group, and flat to maybe a 1% decline in the Allied Health Care Group. I think that the fourth quarter, as compared to normal seasonal patterns and double digit growth, nobody is doing double digit top line growth, we have a pretty good market to continue to sell in to, with regard to those divisions. The nursing market is pretty crummy right now. We are having our share of challenges there, but we feel like we have done some things that dramatically continue to improve the quality of our revenue stream. Our client concentration went down from 49% to 27%, our gross margins went up 196 basis points, and we went from $9.9 million of revenue from those two accounts to $3 million. We feel like we're doing the right thing for the long haul.

You mentioned in the press release the market rate of growth for the Health Care segment probably being a little better than the performance in the quarter and you did say that you took some actions internally to close the gap between your own performance in the market. You've managed these businesses before and had an internal hiccup now and again in your history, in tenure with different firms, Peter. How long does it usually take to close the gap after taking some corrective internal actions?

A couple of things. First, it's in the most challenging quarter, the fourth, because the holidays, people not wanting to work away from their homes. But I would tell you, that is why Shawn's prepared comments says that we believe these new hires will take effect at the beginning of the upcoming year. We are already seeing-- our revenues that we generated in the Allied Health Care segment, the last two weeks have been up and up. We are already seeing some improvement. But getting to that full 9 to 10% growth rate, we are not going to get there in the fourth quarter. Some of the people Tobey, would have loved to have our full year Allied Health Care growth rate for the full trailing 12 month period, we will be mid to high single digits. I don't like the forward performance and the current period performance. This is the easiest to fix, to be honest with you. There are a lot of good things we can say about this segment, but we are taking responsibility. The revenue growth is not acceptable. But we did expand the gross margins and we did expand the Bill of Rights and I do believe the East Coast is doing very well. The West Coast is where we're having some of the challenges. The East Coast is pretty close to hitting its budget for the year. The West Coast is trailing. It is a matter of getting five or six branch offices, each adding about five, six additional billable temps per week and we are back to the type of growth rates we want to see.

One more question and I will get back in the queue, you generated a good amount of cash flow in the quarter. I was wondering-- to dovetail on a previous question regarding share repurchases, etc., is there any point at which your cash flow accumulation and/or debt repayment would enable you to be more flexible in terms of stock repurchases, and if so, where are those thresholds?

Let me go first and then Jim will follow up with that. Right now our debt levels are not very high. We've told our shareholders we think we'll get to 2.5 times net debt to adjusted EBITDA by the end of the year. It is not like we don't have operating flexibility. The real issue is whether we use it for some accretive acquisitions, and two, whether the bank group would permit us to do a larger share repurchase than what the bank document currently states. Jim, what would you like to add?

As far as flexibility goes, as Peter mentioned, we do have some flexibility today. There is no automatic additional flexibility for share repurchase. I would think that if we wanted to do it, and looking at a reasonable price, lenders would go along with it. We've mentioned before it is our intent that prior to the end of the fourth quarter, we would make some sort of principle reduction, probably in the range of 5 to 7 million, in order to capture a step down in the incremental interest rate that is available based on lowering our leverage. That is one other thing we would look at potentially doing.

I will ask one more question, Peter you do mention accretive acquisitions. I was wondering if you could comment on what it is you are able to look at these days. You have a few segments which as you indicated are growing nicely and whether you could add to those. Thanks.

We are seeing some good opportunities. We have been filling the pipeline for many many months, we're trying to stay away from the deal du jour, we have had a lot of breakfasts, lunches and dinners with people, and they are progressing. There's nothing anywhere close to being completed, but I feel pretty good about filling the pipeline. It takes a while for the private owners to get adjusted to the fact that valuations are coming in. Their phone is not ringing as much. We're not fighting with the private equity guys. It is finding the right-- it is not just an accretive deal, it's finding the right company with the right geographical coverage with the right margin profile, and the right quality of revenues, not just quantity. I feel pretty good about some product coming to market in '07-- I mean '08, I apologize.

Thank you.

Next question comes from Andrew Fones with UBS. Your line is open.

Thanks, I was wondering if you could give us the revenue from the second nursing contract that you say is ramping down by quarter, Q1, Q2, Q3 please.

I don't think we have broken it out for any customer. Specifically, customer by customer. What I can do is reiterate what we said to you, which is total revenue from those two accounts represents as of the third quarter, 3 million. And the majority of that is at the lower margin customer account, I would say 98% of it.

The number last year was 9 million?

9.9.

Okay.

If you x that out, which we don't get to, if you x it out, we had growth rate. Unlike others, we actually had sequential growth rate, third quarter over second quarter. We had a 5.1% sequential revenue growth rate, third quarter '07 over second quarter '07. We are working our way through the pipe. But, as we take these revenues out from less than desirable accounts and from a lost account, it's come out faster than we can replace it. Thanks. To help me benchmarked, your full guidance, can you give me the revenue from Oxford in Q4 last year? I can. Hang on. Last year, in Q4, it was $16.9 million. Last year in Oxford, in Q4, it was $45.9 million.

Okay. Thanks. And just -- to help me benchmark your Q4 guidance, can you give me the revenue from Vista and Oxford in Q4 last year please.

Last year in Vista in Q4 it was 16.9 million. Last year in Oxford in Q4 it was 45.9 million.

As I think about your guidance for the fourth quarter, how have you considered the holiday period if you assumed it could be quite weak, or if you looked at how you did last year, what assumptions have you made for that?

Well, '05 and '06 were better economic environments. And despite what has been a 20-year historical trend here at On Assignment, we classically don't grow fourth quarter over third. The last two years, we have been successful in doing that. For all divisions except Nurse Travel, for the reasons that we mentioned, and maybe Allied Health Care, we are projecting growth quarter over quarter, fourth over third. But on a consolidated basis, at the high end we're basically saying we would be about $700,000 short off of the third. We do think that Christmas falling on a Tuesday is going to make that week a lot sloppier than when it fell on a Sunday. We've tried to factor those things into consideration.

Okay, thanks. One final one. You said 3 million in Q3 from those two contracts and we should expect that to ramp down over the next couple quarters?

Correct.

Okay, thank you.

Next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much. I just wanted to go back really quickly to something you talked about on Tobey's question, you mentioned the divergence between the East Coast and the West Coast. Was that just in the Allied sector or was that in Health Care staffing overall?

It was predominantly in the Allied Health Care sector.

Are there any specific verticals doing better than others in Allied?

Shawn, do you want to address that?

No, I think that at this point we're doing fairly well across our own verticals within the modalities that we place. We have a couple smaller business lines that we started in the last couple years, that have better than our average growth rates right now. I wouldn't answer that we have any specific vertical doing better than the other.

In terms of, just shifting gears to the staffing consultant count, I think you said you'd been adding staffing consultants in the IT area, can you tell us about the trends in some of the other areas? Are you adding consultants or are we letting go some consultants based on trends, if you could just give us some color on that?

That is a great question. The other thing, we're delivering great profits and we're running this business for the long haul. This gas tank is fuller than it has ever been. We did not cut people to hit a number. We have more staffing consultants, i.e. recruiters and sales people in this business, in the history of the firm. More in the third quarter than we did in the second quarter. We took the operating margins-- adjusted EBITDA margin from 10.3 to 10.8. We ramped up our hiring in Europe because we think we can grow a little bit faster there. We've opened up -- by the end of the year we will have opened up five branch offices, Dallas, D.C., Cincinnati, Toronto, Cork, Ireland. All of these things are investments for future growth. This future growth is not dependent on GDP being at 3.4% versus 1.6. These are areas where we think we can grow with just a decent labor market. Despite a little bit of slower growth in Nurse Travel, we delivered pretty good profits and it was on the backs of having made some investments and some new offices that are not contributing yet.

The only segment where we dropped in staffing consultants was Vista, the physician staffing, that was not intentional. We are attempting to ramp back up there, as Peter mentioned, particularly in the areas where we get a little bit better gross margins.

The numbers, single digits, five, six people out of a thousand full-time employees.

That is helpful. Shifting gears to some of the nurses you have on assignment at the client where there's a labor disruption, going back a few years or so ago, you used to talk about that, and give us some quantitative metrics. Can you give us a little bit more color about what is going on there, how long you expect to be there, any metrics would be helpful.

It was a one week event, it is over with. There's a chance that the CNA may call a strike again, which we would support only these two hospitals again, which is about 178 nurses. And it was about $1 million in revenue. It is not an ongoing deal. It was a one week deal. It happened the week of October 14, it's over with. We hear rumors that they might have another one around the holidays. It is indicative of the dissatisfaction of the full-time nurse pool with current their current employers, which leads to turnover, which eventually is a net positive.

I appreciate the detail. Generally, are there higher margins on those kinds of businesses than you have in the regular nurse travel business?

Yes. It's one week of revenue.

I am not making a big deal about it, I just wanted to see where it was. Looking out at '08, and I know you're not giving any guidance at '08 yet, but you talked about the fact that you had double digit growth in all the sectors except for Nursing and Allied, is it sustainable next year?

We are in the process, but in those groups, as you can tell from our fourth quarter guidance, we're not seeing a slow down yet. So we think that their current growth rates, plus or minus one or two points, sustainable. A couple quick numbers questions and I will get back in the queue. In terms of the other expense for marking your interest rates drop to market, roughly what was the impact of that on earnings per share, I'm just trying to get that net at tax.

Close to two.

That's what I had, just wanted to double check. In terms of the guidance for this quarter, what share are you looking for in the fourth quarter and for the full year?

36, I believe I mentioned, 35.9.

For the quarter?

Yes.

I will get back in the queue. Thanks.

Next question comes from Bruce Ackerman with Sands Fill Equity. Your line is open.

I just had one question about the fires in Southern California and the extent that you had to include this in your projection, your guidance for the fourth quarter?

It affected our Allied Healthcare Group a little bit. Where it really affects us is on productivity, meaning our people were not able to travel-- it affects us two ways, our internal employees are not able to travel to our offices and engage in their daily revenue generating activity of calls and placements. And to the extent we have temps who can't travel to a hospital or research facility or a customer, then we lose that billable time. But it wasn't a material or significant issue, for us at least.

Let me just correct one thing I said, The 36 -- It was 36 for the fourth quarter.

Next question comes from Kevin Casey with Casey Capital, your line is open.

Hi guys, nice cash flow generation. Question about potential acquisitions. Has your philosophy changed now with your stock's down, less than 7.5 times EBITDA, less than 10 times free cash flow? And then also the change because of the economic environment?

We are disciplined acquirers and we always have been, past and present. At 7.5 times EBITDA, you can't pay 8.5 times for something. I do think valuations are going down in the private market. But we're looking for long-term investment ideas. We are not looking just to be the largest health care staffing company in the nation, we're looking to be the most profitable and have the highest margins. We're looking for businesses that are going to add to that theme. We are being selective. We have to adjust our metrics as our valuation changes. None of our profits have been dependant on that. This is not a roll up that you have to keep doing deals to generate profits. We have been expanding our operating margins with no acquisitions.

And then --

I don't see any slowdown in our profit leverage going up because we can't do a deal. Because we've only done two deals in the last four years.

Did you guys say when the churning out the-- the low profitability counts ends?

We said that would be towards the end of the first quarter of '08.

Thanks.

There are no further questions in que at this time.

I would like to thank everyone for their attendance.

And we will be looking forward to speaking at a couple of conferences next week to those who will be listening. Thanks very much.

This concludes your conference call for today, you may now disconnect.