ASGN Inc (ASGN) 2007 Q4 法說會逐字稿

Good afternoon. My name is Marvin, and I will be your conference operator today. I would like to welcome everyone on the On Assignment fourth 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)

Thank you. Mr. Brill, you may begin your conference.

Thank you.

Before we begin, I would like to 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 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.

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

Thank you, Jim. Good afternoon. With me today are Jim Brill, Senior Vice President and Chief Financial Officer, and Emmett McGrath, President of our Life Sciences and Allied Healthcare groups.

During our call 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 Emmitt. I will then turn the call over to Jim for a more detailed review and discussion of our fourth quarter financial performance, and our financial guidance for the first quarter of 2008. We will then open the call up for questions.

On today's call, we wanted to share our current views on what we are seeing in the end markets we serve, and how our company might perform in a slower economic growth environment. Although we are not immune to slower GDP growth or recessions, we do believe that we are well position and that our revenues, gross margins and EBITDA might be more durable in a slower economic environment than some might believe. Our view is based on one, our lack of any significant contribution from permanent placement, 2% in 2007. Two, our diverse client base. Our top ten clients on a consolidated basis in the fourth quarter represented 7% of our revenues and, by segment, 16%in Life Sciences, 19% in Health Care, 19% in Physician Staffing and 13% in IT and Engineering. Three, the relative strength of the end markets we serve, ie Life Sciences, Healthcare and IT. Four, the skill sets we recruit for in each of the end markets we serve. Finally, the fact that professional staffing is the strongest sector in the staffing industry, and white collar unemployment is less than 2.2%.

The key indicators we monitor weekly to determine whether or not the markets we serve have changed positively or negatively are the amount of permanent placement and conversion fees earned; the number of new assignments and or terminations; our bill pay expansion or compression; the amount of time it takes a customer to make a hiring decision on a qualified candidate; and the number of hours being worked by a billable employee each week. To date, we have not seen significant changes in these indicators.

Our revenue growth slowed slightly during the second half of 2007. However, we believe the slowdown had more to do with the internal performance of our Nurse Travel and Allied Healthcare groups rather than the macro-economic environment. If the end markets we serve deteriorate, we would be impacted. Our job is to limit the amount of impact from a slower growth environment. As we always do, we will remain diligent and respond appropriately. We will continue to make investments to support our growth without significantly impacting our EBITDA, and will manage our SG&A to maximize our cash flows.

With that said, let's turn to the fourth quarter and full year results. The fourth quarter's performance again resulted in record revenues for the company of $152 million. Revenues grew 99% over the fourth quarter of '06, and 97% for the full year to 562 -- $567.2 million. Net income, excluding unusual items, was $2,932,000 or $0.08 per share. These unusual items included $722,000 in non-cash expense related to the mark to market of our $73 million interest rate swap required by our bank agreement; $531,000 of severance expense related to the separation of one of our executives; and $268,000 related to the writeoff of software development costs at our IT and Engineering group. These items after tax totaled $713,000.

Our tax rate was higher than anticipated due to year-end tax adjustments at our IT and Engineering segment. Although the tax rate in the quarter was 53.1%, the rate for the full year was 44.6%. Revenue generated outside of the United States was $7.7 million or 5.1% of consolidated revenues in the fourth quarter, versus $5.1 million or 4.9% in the fourth quarter of '06. Consolidated gross margins in the fourth quarter were 31.8%, up from 27.2% in the fourth quarter of '06. Our consolidated hourly bill pay spread in the quarter also increased year-over-year. Adjusted EBITDA, excluding the unusual executive severance and software writeoff items, was $15.6 million for the quarter, $600,000 over the high end of the guidance that we gave of $15 million. Once again, our strong financial performance was achieved without any significant contribution from firm placement, and is evidence of the strong business model we have achieved.

Consolidated revenue growth in the fourth quarter of 9.1% on a pro forma basis was impacted again, as expected, by slower growth in the Healthcare segment. Each of our other segments outside of Healthcare grew sequentially in an excess of 12% year-over-year. In Healthcare, the Nurse Travel group was positively impacted by approximately $2.6 million in revenue received from two clients who experienced two separate labor disruptions in northern California. $1 million of the $2.6 million of revenue had been contemplated in our fourth quarter guidance.

Exiting the quarter, demand continues to be strong. The Physician Staffing, Life Sciences, and IT and Engineering segments continue to have the strongest end-market demand, followed by Healthcare Staffing. Based on the significant reduction in client concentration that we accomplished in the Nurse Travel Division in 2007, and our belief that patient admissions will improve, we continue to believe that performance in the Nurse Travel Division could improve in 2008. Excluding the previously referenced labor disruption revenues, our top 10 clients represented 28% of Nurse Travel only revenues, down in the quarter from 48% in the fourth quarter of '06. Geographically, we continue to see strong growth opportunities outside the United States, and have strengthened our Life Sciences and IT and Engineering offices overseas in order to capture such growth opportunities.

As most shareholders who have followed our company in the past know, the first quarter is typically the most seasonally impacted quarter of the year. This is due to holidays, the number of billable days, the timing of release of budgets by customers for the new fiscal year, the reset of payroll taxes, the amount of paid time off, and finally enticing billable employees to accept travel assignments away from their home after they have reinserted themselves in their local communities. Our weekly assignment revenue, which excludes conversion, billable expenses and direct placement revenues, averaged $11.1 million for the 3 weeks ending February 10, 2008. We averaged $10.3 million in pro forma weekly assignment revenues for the same 3-week period one year ago. Operating leverage continued to improve during the quarter. Our adjusted EBITDA margin reached 9.8%, up from 7.8% in the fourth quarter of '06, and we again grew our gross profits and operating income faster than our revenues in the fourth quarter. During the quarter, despite maintaining a higher number of staffing consultants, 773 versus 730 in the fourth quarter of '06, we increased our year-over-year productivity and gross profit per staffing consultant by 7.3% on a pro forma basis.

Before turn the call over to Emmitt, I would like to give you a brief review of several of our divisions. Our Physician Staffing business continued to perform well, growing 14.6% over the fourth quarter of 2006 on a pro forma basis. Demand for [inaudible] services continues to be very strong. During the fourth quarter the segment maintained an average of 13,000 days of requested coverage per month. This rate shows no sign of decline. Vista's President, Mark Brouse, has met with physician recruitment leaders at some of the largest hospitals and Healthcare companies in the nation this month, and was told that physician recruitment via temporary staffing and search services is the highest priority across all their facilities. On the supply side, more physicians opted into locum tenants as an interim or permanent career choice than in previous periods. The staffing industry analysts reported that the industry grew to $1.6 billion in revenue in 2007, up from $1.4 billion in '06. Gross margins in this segment were 27.4% in the fourth quarter of '07, and 29.2% for the full year. Our focus in this group is to maintain the right level of productivity and skill mix.

Our IT and Engineering Division delivered its strongest operating results since joining On Assignment in February of 2007. Revenue growth accelerated over the third quarter of 2007, and gross margins and average bill rates continue to exceed our targets. Revenue in the fourth quarter increased 16.1% over the fourth quarter of 2006, and on a pro forma basis increased 11% for the full year. For the fourth quarter, approximately 40% of the segment's increase in sales was due to increased bill rates, and approximately 50% of the increase was due to more billable consultants on engagement. Sequentially, revenue growth in the fourth quarter was 5.4% over the third quarter. During the fourth quarter the IT/Engineering segment billed over 775 client companies and no single client accounted for more than 2.3% of the revenue during the quarter. The IT/Engineering segment's average bill rate increased 6% year-over-year in the fourth quarter. The IT/Engineering segment also increased its number of billable consultants out on assignment in the fourth quarter by 7.4% compared to the year ago period. Gross margins for the fourth quarter were 37.5%. Oxford's bill rates and gross margins continue to be among the highest in the industry.

On the strategic front, as previously mentioned, we have significantly increased the head count of recruiters and sales people domestically and internationally in the IT/Engineering segment. Our average number of staffing consultants in the fourth quarter of 2007 totaled 439 versus 402 in '06, a 9% increase year-over-year. We will continue to increase staff in the first quarter and into the second quarter, as the economic conditions permit. Oxford's outlook for the first quarter is positive and supported by the forward-looking survey of the market demand, the Oxford Index, which measures clients' anticipated demand for consultants in the next quarter. This quarterly survey of Oxford's clients has been highly predicative of actual demands since 2002, and indicates that the segment's Q1 top line results will be positive, meaning that more clients are expected to increase their use of consultants than decrease.

2007 was a transition year for our Nurse Travel Division. As many of you know, we adjusted our management and field personnel in the early fall and believe we are making progress and re-accelerating growth in the Nurse Travel group. Based on these changes, we hope to show progress in the second half of this year. Despite slower growth, we did make significant progress in diversifying our client base and expanding our gross margins in the division. Our compounded annual growth rate in the Nurse Travel Division from 2004 to 2006 had been in excess of 21%. However, in 2007, due to the loss and/or reduction of services at two major customers, we experienced minimal revenue growth, as expected, due to our ongoing diversification efforts. Our fourth quarter Nurse Travel revenues were down 2% year-over-year, and down 10.4% excluding the labor disruption revenues. However, our Nurse Travel gross margins increased 260 basis points to 23.5%. The net result is that although revenues were down 2%, gross profit dollars grew by 10.2% to $7.4 million in the fourth quarter of '07, versus $6.7 million in last year's fourth quarter. We expect revenue growth in Nurse Travel to improve in 2008 because of the changes we have made in our operations, and the diversification away from the two large clients previously mentioned.

For the full year these two customers represented $16.4 million in revenue compared to $37.7 million in 2006, a reduction of $21.3 million. In the fourth quarter, these clients represented $2.3 million in revenue, versus $9.5 million last year. The head count at these two customers has dropped to 54 from 151, when comparing this week with the same week last year. We replaced a large portion of these revenues year-to-date through new business development and nursery assignments, and have significantly improved our profitability in this slower growth environment. We are still very positive about the Nurse Travel industry over the long-term, and the opportunities for our Nurse Travel group. However, to date this end market remains our most challenging.

Supply constraint and erratic hospital buying behavior continue to be a drag on this sector. With regard to the revenue diversification, we billed over 340 clients in the quarter, up from 286 a year ago and only 220 two years ago. Our top 10 customers again now only represent 28% of revenues, compared to 48% in the same quarter last year. We continue to experience demand across the broad Nurse Travel customer base, with orders up versus last year, and we have experienced a 2.4% year-over-year increase in bill rates.

With regard to forward guidance this year, we have elected to only give guidance for one quarter out. This practice is consistent with the practices of our peers within the staffing industry, and sufficient to assist our shareholders in evaluating our company. Jim will walk you through our guidance later in the call.

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

Thank you, Peter, and good afternoon.

Today I will report on the Allied Healthcare and Life Sciences groups. Before I start with Allied Healthcare group, I would first like to say what an honor and privilege it is to be a part of this group, and I look forward to working with my management team and field employees to generate profitable growth and improve its contribution to the On Assignment organization.

Moving to results, Allied Healthcare revenues grew 9.4% for the full year of 2007, but declined 2.3% in the fourth quarter versus last year. The decline in year-over-year results was attributable to lower productivity gains from prior management and field level staff changes made in the latter part of 2007. Although revenues were down from Q4 of 2006, gross profit increased 6.8% in the quarter versus last year, and 16.2% for the full year. Gross margin for the quarter was 31%, which represents a 260-basis point increase over the fourth quarter of 2006. On an annual basis, gross margin was up 187 basis points to 31.8% for 2007. Finally, average bill rates increased 2.7% in the fourth quarter versus last year, and 1.8% for the full year. Bill rate expansion was attributable to greater revenue growth from our H.I.M. and Allied Travel Divisions, and improved pricing from the local Healthcare operations.

Moving on to 2008, in order to both realize our financial goals and to strengthen our competitive position, I am focusing on three core areas - West Coast operations, productivity and high margin product lines. Starting with West Coast operations, as previously reported, the West Coast of the Allied group was challenged in 2007, resulting in high turnover and sub-par performance. I'm pleased to report that I have hired a seasoned Healthcare staffing professional to lead this region as well as realign the region to better service its markets. As for productivity, today a large number of staffing consultants have excess capacity, and offer an opportunity for greater contribution to the organization. Our goal is to increase both gross profit and the number of contractors per staffing consultant through enhanced training programs, greater accountability, revised incentive plans, new business development, greater client penetration and enterprise-wide participation in direct hire services.

Finally, higher margin product lines. Our strategy is twofold. First, gain greater traction from our H.I.M. and Allied Travel business lines that performed well in 2007, and offer opportunity for continued growth. Second, strategically expand our local presence in the higher level respiratory, diagnostics, local nursing and therapy modalities. Early in the first quarter of 2008, I'm encouraged with the demand for our services, pipeline of new business opportunities, and most importantly, the passion and focus of our management team and field staff. We were on the right path to success but it will require a couple of quarters of hard work and a commitment to operational excellence.

Moving on to the Life Sciences segment, I'm pleased to report the group had another successful quarter and year. Revenues for the full year increased 14.6% over 2006, 12.1% in the fourth quarter versus last year, and despite seasonal factors grew 2% sequentially. All U.S. and European operations contributed to the segment's performance, and newer business such as clinical research gained greater traction in 2007, which fueled greater pay and bill rates. Gross profit increased 18% for the full year and 12.6% in the fourth quarter versus last year. Gross margin for the full year was 33.4%, up 97 basis points over 2006, and 33.2% for the quarter, which represents a 16 basis point year-over-year increase. During the quarter, bill and pay rates expanded year-over-year 6.1% and 5.4% respectively. Overall performance is attributable to operational excellence, focus and healthy end markets.

As for 2008, we continue to see steady demand for our services and will remain focused on rebuilding our contractor base, which historically contracts in late December through the first few weeks of the first quarter. In an effort to capture new markets, we opened a new lab support branch in Toronto, Canada, and also expanded our clinical research presence to the West Coast. Early in the first quarter of 2008, I am encouraged with the number of new contract placements, weekly revenue trends, contract awards, and direct higher activity. I am confident the Life Sciences group is staffed appropriately to meet the demands of our clients, and to effectively execute a successful quarter. I will now turn the call over to Jim Brill.

Thanks, Emmitt.

As Peter mentioned, consolidated revenues were $152 million, up significantly due to the acquisitions. There were 61.5 billing days in this quarter versus 62.25 in the third quarter and 61.5 in the fourth quarter of 2006. However, for Nurse Travel there were 92 billing days this quarter and 91 last quarter, versus 92 for the fourth quarter of 2006.

Let me address some of the variances and their related explanation to the extent that Peter or Emmitt has not. In the Life Sciences segment Emmitt addressed the 12.1% revenue growth. The 16 basis point increase in gross margin was primarily a result of improvement in the bill pay margin and a reduction in payroll taxes, offset in part by increased workers' compensation, insurance expenses and reduced permanent placement fees. In the Healthcare segment, Peter addressed the revenue decline, and the 260-basis point increase in Nurse Travel gross margin was due to an increase in the bill pay spread, reduction in housing and automobile expense, partially offset by an increase in other contract employee expenses, and an increase in workers' compensation insurance expense.

Emmitt discussed the decrease in revenue in Allied Healthcare. The 260 basis point increase in gross margin was due to an increase in the bill pay margin, lower payroll tax and workers' comp expenses, partially offset by increase in other contract employee expenses. In Physician Staffing the revenue growth was driven by an increase in the number of physicians placed. The drop in gross margin was a result of a shift in mix toward lower margin specialties, and a compression in the bill pay spread as a result of our delaying increases in pricing. We've taken steps which we believe will improve the segment's gross margin in the second quarter.

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 the bill pay spread. Conversion and direct hire revenues totaled $2.6 million in the quarter or 1.7% of revenue, as compared to 2% of revenue in the third quarter of 2007, and 1.8% in the fourth quarter of 2006 on a pro forma basis.

Total SG&A expense for the fourth quarter was $40.4 million or 26.6% of revenues, which is up from 25.8% last quarter and up from last year, due to the increase in amortization of intangibles and equity-based compensation expense related to the acquisitions. In addition, Peter mentioned earlier that SG&A includes $531,000 in severance expense and $268,000 in expense related to the writeoff of in-process software development costs. Also included in SG&A in the quarter is $1.6 million of equity-based compensation expense. $3.7million of amortization related to the amortizable intangibles, and $1.7 million of depreciation. Our operating income of $7.9 million, or 5.2% of sales for the quarter, compared to $9.2 million last quarter, and $3.6 million last year.

As we've previously discussed, the second quarter - in the second quarter, as required by our bank agreement, we entered into a 2-year interest rate swap for $73 million, which fixed our 90-day LIBOR equivalent rate at 4.94%. The decrease in market value of this instrument was $722,000 in the quarter, and this non-cash expense included in nonoperating expense - is included in nonoperating expense and thus excluded from EBITDA. Our tax rate for the year was 44.6% and 53.1% for the quarter. The rate is higher than anticipated due to year-end tax adjustments at our IT and Engineering segment. Net income was $2.2 million or 6%(Sic... See press release) for diluted share.

We believe it's 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 $13.3 million. Excluding equity-based compensation expense of $1.6 million, adjusted EBITDA was $14.8 million or 9.8% of revenue. Adjusted EBITDA was $16 million last quarter and $6 million in the fourth quarter of 2006. We ended the quarter with cash and cash equivalents of $37.7 million, up from $37 million last quarter. However, we reduced our bank debt by $8 million to $135.9 million, and we used approximately $2 million, the maximum amount allowed by our bank agreement, to purchase 278,000 shares of our stock. CapEx was approximately $1.6 million, down from $1.7 million in the prior quarter. We also sold a small database management practice in our IT and Engineering segment for a little over $1 million, which was offset against the purchase price of Oxford. This practice generated revenue of $1.6 million in 2007. Net accounts receivable was $78.8 million at the end of the fourth quarter. Day sales outstanding were 47 days, down from 50 days in the prior quarter.

Now turning to productivity, which we defined as the quarterly gross profit generated per staffing consultant, for the fourth quarter we averaged 773 staffing consultants, and the gross profit per staffing consultant was $62,503. The Life Sciences segment generated $100,163 in gross profit per staffing consultant for the quarter, as compared to $91,476 in the fourth quarter of 2006. To Healthcare segment generated $75,794 in gross profit per staffing consultant for the quarter, as compared to 70,640 in the fourth quarter of '06. The Physician Staffing segment generated $79,049 in gross profit per staffing consultant for the quarter, compared to $86,935 last quarter. And the IT and Engineering segment generated $45,449 in gross profit per staffing consultant for the quarter, compared to $45,037 last quarter.

Based on fairly stable labor markets and normal seasonal trends, including the reset of employment taxes, we currently project consolidated revenues of 146.5 to $149.5 million for the quarter ending March 31, 2008. We are projecting consolidated gross margins of approximately 31.1% to 31.5%; SG&A of 39 to $40 million, including equity-based compensation expenses of approximately $1.5 million; approximately $2.5 million of amortization of intangible assets and financing costs; and depreciation of approximately $1.5 million. Excluding any impact from the mark to market of our $73 million interest rate swap, we project net income of $2 million to $3.4 million, and earnings per share of $0.06 to $0.10, with an effective tax rate of about 42.6%. Adjusted EBITDA is projected to range from $11 million to $13.5 million. As Peter mentioned previously, in accordance with the practice of our peers, we are not going to provide annual guidance. As you know, these estimates are subject to the risks mentioned in today's release and at the beginning of this conference call.

I will now turn it back to Peter for some closing comments before we open up the lines for questions. Peter?

Thanks, Jim. Although we are not satisfied with our revenue performance in the Healthcare segment this quarter, we are very satisfied with our overall performance and our success in growing our operating margins; expanding our gross margins; generating cash; and, excluding the Healthcare segment performance, growing our revenues faster than our peers. We would like to once again thank our many loyal, dedicated and talented employees, whose efforts have allowed us to progress where we are today. I would now like to turn the call - open the call up to participants for questions. Operator?

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Tobey Sommer with SunTrust.

Thank you. A question for you on the different one-time things, writeoff, et cetera. What - you gave us the after tax impact of about $713,000. If I'm right, does that mean that if excluding EPS may have been around $0.10?

Tobey, I kind of break it into two categories. The severance, the whip and the non-cash mark to market is about -- how many cents, $0.03?

$0.02, $714,000 after tax.

And then the increased tax rate is about $0.03 or $0.04 in the quarter.

And the higher tax rate, is that a function of being more profitable than you thought, in part at least?

No, it's not. It has to do with the handling of certain items that IT/Engineering segment, and adjusting for the way those items were tax affected.

And Peter, broadly speaking you started off your prepared comments by saying that in a slowdown, yes, economic slowdown, some of the businesses are cyclical and will be impacted, but when you look at your dashboard of what you typically look at to manage the staffing business, the trajectory is largely positive. Could you, just from a big picture standpoint, give me your thoughts about the dashboard you are looking at currently?

Yes. Tobey, I hate to sound -- I'm not trying to sound bullish. I'm just trying to give you a realistic picture of what we are seeing today. We just haven't seen it yet. We haven't seen a marked deterioration in the marketplace. You know, we gave you what our weekly revenues are, and we think because of how we run or business on a disciplined basis as it relates to perm, and managing the quality of our revenues as much as our quantity of our revenues, that we continue to be able to grow.

We also, you know, our assignments on the IT side tend to last 4 to 5 months. So the orders we are filling -- and typically an order, a listing that we accept today in that segment will be filling in 4 to 5 days, and absent some sort of involuntary or voluntary termination, that assignment lasts 4 or 5 months. So we have got some visibility there. On the physician side, traditionally the work that we were submitting for today, we won't generate revenues for 3 months. But based on the order activity and the bookings we're doing today, 3 months out we see no slowdown.

On the nursing side, it's sloppy. It hasn't been good. But we think we've got a much better chance to grow in 0 -- we grew less than 1% year-over-year, and we got a benefit at the end of the year because of the two labor disruptions. But we think we is have a better chance to grow now that we have the vast majority of the revenues from those two customers out of our system.

And then finally on Life Sciences, it's the fastest growth rate it's had in a couple of years, and as Emmitt said in his prepared remarks, we haven't seen any sort of noticeable change there. And then finally Allied, that is -- we just take responsibility, that is more internal execution than it has to do with any changes in hospital or physician practice group buying behavior. So, you know, call me in 3 weeks and if I see something different, I will tell you. But as we sit here today, you know, you know for - the first quarter's traditionally our most seasonally impacted quarter, and the guidance we gave you kind of shows that we're going to - when you strip out the labor disruption revenues, that we are going to pretty much be right on the fourth, and we will be above our strongest quarter of '07 typically, which is the third.

Right. So the trends you are seeing now actually show broadly a growing market in collection of businesses?

We see -- I would just say, you know, it doesn't help to have all of the turmoil in the marketplace, but we are still having success and being able to grow at a moderate rate.

Thank you very much. I will get back in the queue.

Our next question comes from the line of Kevin Casey. Kevin, your line is open. His question has been withdrawn. Our next question comes from the line of Andrew Fones with UBS.

This is Jim [Wizon] for Andrew. Just a couple of probably quick items. If you could give us an update what you are thinking the tax rate might run at for Q1 and also 2008.

Yes, I said at this point we were looking at 42.6%, which is down from the 44.3% for the full year of '07.

Right. Okay. Thanks. And if you had owned Vista and Oxford for all of Q1 '07, what revenue growth does your guidance for Q1 '08 imply?

On a pro forma basis, the easiest way to answer that question is take the '06 number and add about $15 million for one month of Oxford, and then compare it.

Okay. Easy enough. Thank you. I will jump back in the queue.

Our next question comes from the line of Jeff Silber with BMO.

Just a follow-up on the last question. If it's possible in terms of your revenue guidance, could we get a little bit more color segment by segment how you're coming up with the amounts you are projecting for the first quarter?

We are not going to go segment by segment. I think what we would say is that obviously, you know, we expect that we are still going to have issues in the Allied and Nurse Travel segments. The other segments look fairly good.

Let me ask the question another way. Seasonally, going from 4Q to 1Q, are there any major differences between the four segments that we should be looking for?

Yes. Let me give you some qualitative comments. Traditionally lab support, as Emmitt stated in his prepared remarks, we see a buildup going into December 14 of the year of head count, and then because of research facility shutdowns and project completions, we have a fall off. Then it takes up until kind of the second week of February for us to ramp up to kind of pre-December14th highs, and then that can change depending on the strength and momentum of our business. The nursing side, irrespective of how the broader Nurse Travel industry is doing, traditionally you have a dramatic fall off after the third week of December because nurses do not want to work away from their primary residence during Christmas and New Year's. They get reinserted into their local communities and then it takes a period of time to entice them back out on to the road to work. Allied Healthcare tends not to be as cyclical as the others, and then the IT business and the Physician group had some project terms, and for the IT group refreshing of budgets, but not as severe as the lab or the -- as lab support or the Nurse Travel ramp back up.

Actually that was helpful. I really appreciate it. I know you aren't giving guidance for '08, but is it possible to tell us what we should be looking for in terms of capital spending for the year?

I think so. Jim, can you - have you done a CapEx budget?

We haven't talked about it but the CapEx ought to be somewhere in the range of $8 million.

Okay. And terms of depreciation and amortization, I know it should be coming down because of the change in amortization schedule this year. Can you refresh my memory what we should be looking for in D&A in '08?

It's basically going to be about four times what we've provided with regard to guidance, so we ought to be close to $2.4 million per quarter on the amortization side, and somewhere in the range of $1.5 million per quarter on the depreciation side. I might also just step back to the last question, the pro forma growth rates if we had Oxford for the full year in '07 on the first quarter would be 6.3% to 8.5% on the guidance line.

Great. And then you had mentioned in terms of the share buyback that you met the limitations of your bank agreement. Can you remind us what that is?

We have a limit of $2 million -- a $2 million basket of other stuff. I won't go into what all that other stuff might be, but share buybacks is included in the other stuff. So we hadn't done anything else within that basket prior to the end of the year, so we had the full basket available for share buybacks.

And that's annual limit of $2 million.

That an annual limit of $2 million.

Great. And then one more financial-related question. In terms of the interest rate swap, I know you aren't going to guess in terms of what the mark to market impact will be this quarter. But stepping back, are you locked into that? I think you mentioned it was a 2-year time period. There is anyway to get out of that if you desire to do so?

Sure. We can probably get out of it by paying the mark to market adjustment at the time, so that would be possible. But then we would have to enter into something else in accordance with our bank agreement to fix it out again. I should just remind you that again that's a 2-year non-cash contract. So anything that we recognize as an expense through the P&L will at some time prior to the maturity of that contract come back as an income item.

And you would be reporting that in other income as well?

That's correct.

Fantastic. I will let somebody else jump on. Thanks.

Our next question comes from the line of Josh Vogel with Sidoti & Company.

Hi, thank you for taking my call. You had comments about the growth opportunities in Life Sciences and IT/Engineering outside of the U.S.. Could you go into a little bit more detail there, how you plan to grow those businesses?

As you know, josh, we have been in the international markets going on ten years. And what we have done is we significantly increased the head count in our IT/Engineering group and Life Sciences group to further penetrate Western Europe on a long line basis, and then we opened up a branch office in Canada on a local basis. So we report on a quarterly basis what percentage of our revenue comes from outside of the United States. As you can see, it's growing. We are growing it because our customers are demanding support over there and we have some good opportunity.

Okay. What if we look at the M&A front? You added two large businesses last year. Can you maybe touch on what your strategy is in '08?

Yes. We are fortunate that when you look at our EBITDA growth and you look at our revenue growth and our margin expansion, we don't have to do anything. We think we are very, very well positioned. I think on top of that, you see that we opened up three branch offices for Oxford in '07, and two for Life Sciences, so we have plenty of growth opportunities even with that acquisition. We are filling the pipeline. We are having conversations, breakfasts, lunches and dinners with private owners, and there is attractive opportunities on the health information management side, on the clinical research side, on the physician staffing side; but we're not pulling the trigger right now, for a variety of reasons. We have a fair amount of operating flexibility, but unfortunately - I'm not complaining, but unfortunately our shareholders have had enough to deal with right now with regard to the share price performance that layering on additional concerns about debt leverage or integration just seems like a little bit too much and we are going to let the skies clear a little bit.

Okay. And what about in your guidance for Q1, If we were to look at -- if Oxford was part of your business for all 3 months of a year ago, are you expecting some margin contraction in that business or not?

The opposite.

Okay. So you are expecting gross margins in Oxford and Vista to improve year-over-year?

In Oxford, we are expecting that gross margins will improve year-over-year.

That's what your question was. Now if you are asking about Vista.

Now I'm switching it up.

We hope to have stable to expanding margins throughout the year.

Okay. And lastly, I dropped the phone before, but what did you say to capital spending estimate for '08 was?

About $8 million.

Thank you.

And our next question comes from the line of Kevin Casey.

Hi, guys. Was there any option exercised in the quarter? I assume not?

I don't believe so. There may have been some minimal option exercises. I -- it's not enough to move the needle on the cash flow, so I just don't know off the top of my head.

So cash flow was close to 10, 11 -- minus, what would you say, $1 million for the database sold?

Yes, a little over.

And then there is any seasonality in that cash flow? Because the last couple of quarters I think you have been running about 8 to10 the last couple quarters.

I think the only seasonality that would be important to think about is in April we'll end up paying burnout payments to both Vista and Oxford. And if you take a look at balance sheet once we publish it, it may show up even today on -- but they're big numbers. So it will end up somewhere in the range of $8 million, something like that in burnout payments. That is probably going to come in April.

You know, Kevin, the only thing that accentuated the cash flow a little bit in the fourth quarter were the labor disruptions, because those get paid very quickly.

Which helped out -- you saw that DSO went from 50 to 47 quarter-to-quarter, and part of that was the labor disruption issue.

Okay. I think a few quarters ago you mentioned like $8 million plus or minus a million bucks or so is kind of the quarterly run rate of cash flow. Is there any change to that?

No, we said we thought we'd probably generate 7 to $8 million in cash per quarter, if there aren't any other, you know, unique things happening like this burnout payment.

All right. Sounds great. Good quarter. Thanks.

Thanks, Kevin.

(OPERATOR INSTRUCTIONS)

We seem to have no further questions.

Okay, thanks very much, Marvin, and thank you everybody for joining us on the call. We look forward to speaking with you again in a couple of months.

This concludes today's conference call. You may now disconnect.