ASGN Inc (ASGN) 2008 Q2 法說會逐字稿

Good afternoon. My name is Rachel, and I will be your conference operator today. At this time I would like to remind everyone --I would like to welcome everyone to the On Assignment second quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS) After the speakers' remarks, there will be a question and answer session.

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

Thank you, Rachel. Before we begin, I'd like to remind everyone as we do each quarter that our presentation contains predictions, estimates and forward-looking statements representing our current judgment of what the future holds. These include words such as "forecasts," "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'd now like to turn -- I'd now like to introduce Peter Dameris, our CEO and President, who will provide an overview of our second quarter results. Peter?

Thank you, Jim. Good afternoon. I would like to welcome everyone to the On Assignment 2008 second quarter earnings conference call. With me today are Jim Brill, our Senior Vice President and Chief Financial Officer, and Emmett McGrath, President of our Life Sciences and Allied Healthcare groups. During our call today I will give a review of the markets we serve and operational highlights, followed by a discussion of the performance of our operating segments by myself and Emmett. I will then turn the call over to Jim for a more detailed review and discussion of our second quarter financial performance and our financial guidance for the third quarter of '08. We will then open the call up for questions.

As we have suggested over the last four quarters, the strength of our business model has us well positioned to perform in most economic environments, and we are not as closely correlated to gross domestic product and/or labor market growth as others. The positive quarterly results that we released today continue to confirm this position. The strength of our business model continues to be based on, one, our lack of any significant contribution from permanent placement and conversion, 1.8% in the second quarter of '08; two, our diverse client base, our top ten clients on a consolidated basis in the second quarter represented 7% of our revenues, and by segment, 16% in Life Sciences, 21% in Healthcare, 21% in Position Staffing and 14% in IT and Engineering; three, the relative strength of the end markets we serve, i.e life sciences, healthcare, IT and engineering; four, the specialized skill sets we recruit for in each of the end markets we serve two; and finally, the professional staffing as the strongest sector of the staffing industry and white-collar unemployment is less than 3%.

The key indicators of demand that we monitor weekly have not materially deteriorated, and it appears that things are continuing to perform well. As we evaluate growth opportunities for each of our operating segments, demand remains positive in all segments except Life Sciences. In our Life Sciences segment demand is positive, except for spending by our large pharmaceutical clients. Currently, the segment's primary challenge to year-over-year growth is related to significant difficulties facing large pharmaceutical clients verses internal execution or market position. In late April of this year, many of our large pharmaceutical clients started to announce major layoffs and our Life Science group started to see a slowdown in orders and project delays. This change in demand was significant to the Life Sciences group in that it derives 24% of its total revenue from this customer base. However, material sciences and chemical clients have provided a beneficial lift to the Life Science group to partially offset the slowdown in spending from pharmaceutical customers. We are confident that we are currently managing the business appropriately for the short-term and long-term. Emmett McGrath will go into end market trends in greater detail later in the call.

In our IT and Engineering group, demand has somewhat flattened, but we are still performing well and expect healthy growth year-over-year. Finally, our Healthcare and Position Staffing segments appear not to be effected by the current economic slow down and are increasing their margins and their share of the markets they serve.

Specific operational accomplishments in the quarter included - one, our Position Staffing division expanded their year-over-year quarterly growth rate to 20.4%, versus 14.5% in the first quarter of 2008; two, our Nurse Travel group grew 6.5% year-over-year, and expanded its gross margin to 23.5% from 22%; three, our Allied Healthcare group grew 9.8% sequentially and achieved the highest quarterly revenues in the history of On Assignment; and finally, our IT and Engineering group grew for the third consecutive quarter greater than 15% year-over-year.

With regard to SG&A, we continue to monitor the markets we serve and the level of investments we have or are making for future growth. To date, we continue to make and/or retain investments to support our growth, and that decision has not had a significant impact on our EBITDA. However, should economic circumstances dictate, we will manage our SG&A to generate appropriate levels of cash flow.

With that said, let's turn to the second quarter results. The second quarter's performance again resulted in record revenues for the company of $156.1 million. Revenue grew 8.5% over the second quarter of '07. Net income, excluding a non-cash gain of $1.071 million, or $0.02 per share after tax, related to the mark to market of our $73 million interest rate swap, was approximately $5.5 million or $0.15 per share. Revenue generated outside the United States was $9.1 million, or 5.8% of consolidated revenues in the second quarter, versus $6.6 million, or 4.6% in the second quarter of '07. Consolidated gross margins in the second quarter was 32.5%, up from 32.1% in the second quarter of '07. Our consolidated hourly bill pay spread in the quarter also increased year-over-year. Adjusted EBITDA was $17 million for the quarter, up 14.7% from the same period last year. Once again, our strong financial performance was achieved without any significant contribution from perm placement and each of our segments expanded their bill pay margins.

Exiting the quarter, we continue to have productive opportunities to grow. The Position Staffing, Healthcare, and IT Engineering segments continued to have the strongest end market demand, followed by Life Sciences. Based on the significant reduction in client concentration that we accomplished in the Nurse Travel division in 2007, and our performance year-to-date, we believe that performances in the Nurse Travel division will continue to improve in 2008.

Geographically, we continue to see strong growth opportunities outside the United States. Since making a significant investment in our IT Engineering group's European operations, revenues have organically increased 130% year-over-year in constant currency.

Our weekly assignment revenue - which excludes conversion, billable expenses, and direct placement revenues - averaged $11.9 million for the first three weeks of July this year. That compares to $10.965 million in weekly assignment revenues for the same three week period one year ago. Operating leverage continued to improve during the quarter. Our adjusted EBITDA margin reached 10.9%, up from 10.3% in the second quarter of '07. And we again grew our gross profits in operating income faster than our revenues. During the quarter, despite maintaining a higher number of staffing consultants - 784 versus 714 in the second quarter of '07 - we maintained our year-over-year productivity in gross profit per staffing consultant.

Before turning the call over to Emmett McGrath, I would like to give you a brief review of operations. Our Physician Staffing division continued to show strong performance. Revenue grew 20.4% over the same quarter last year, and 6% sequentially to $21.8 million. The division marked its 9th consecutive quarter of sequential revenue growth and its 23rd quarter of year-over-year growth. The division's efforts to increase margins have also been successful. Internal processes and reorganization have led to an increase of 249 basis points in margin, for Q2 over Q1, from 28.2%, to 30.7%. Demand for coverage continues to grow. And request for days of physician coverage grew 6.5% Q2 over Q1 even as the division implemented programs to focus on hire-value clients and to increase margins.

Recently, the Healthcare Advisory Board reported that 1,639 hospitals are recruiting an average of three internal medicine positions at any given time in the United States. Similarly, 1,762 hospitals are recruiting an average of three family medicine physicians at any given time, and another 1,229 hospitals are recruiting at least one general surgeon. Hospitals pay dearly in terms of lost revenue for these open positions. For example, the Board reports that a hospital loses almost $193,000 of revenue per month for every month it is short one orthopedic surgeon. It takes an average of 19 months to recruit an orthopedic surgeon today, for a total loss of $3.6 million. Locum tenens coverage allows facilities to continue serving patients while they recruit and keep their revenue streams in tact.

On the supply side, and despite the well documented position shortage, interest in locum tenens as a practice option continues to grow among physicians. According to the Healthcare Advisory Board, more than 30% of practicing physicians are over the age of 55. In addition, it reports that 63% of young physicians are significantly concerned about having enough free time in their practices. Semi-retirement and career flexibility are the two strongest factors that drive physicians to locum tenens. Vista recruited 6.5% more physicians in Q2 than in the prior quarter as more physicians turned to locum tenens as their career choice. We do not expect the economic slowdown to significantly impact this division and the staffing industry analysts predict a 16% growth rate in the sector.

Turning to the Nurse Travel group. We continue to make significant progress in diversifying our client base and expanding our gross margins and market share. Our second quarter Nurse Travel revenues were up 6.5% year-over-year. Our Nurse Travel gross margin increased 149 basis points to 23.5% and gross profit dollars grew 13.7% to $7.3 million in the second quarter of '08, from $6.5 million in last year's second quarter. We expect continued revenue growth in Nurse Travel in 2008 because of the changes we made in our operations and the diversification away from the two large clients mentioned in previous earnings calls. Supply constraints and erratic hospital buying behavior continue to be a drag on the sector, however not as severe as in previous quarters. With regard to revenue diversification, we billed 378 clients in the quarter, up from 325 a year ago and only 260 two years ago. Our top ten customers now represent 29% of revenue, compared to 36% in the same quarter last year and 49% two years ago. We continue to experience demand across a broad customer base, with orders up over 12% versus last year and we've experienced a 4.2% year-over-year increase in bill rates. We are seeing the strongest demands in central states and demand is California is lower than in previous years.

The IT Engineering division delivered solid second quarter financial results. Revenue growth exceeded our expectations for the quarter, especially in light of the condition of the general economy, and the strong quarterly results posted in the second quarter of '07. Revenues in the second quarter were $56.3 million, a 15.7% increase over the second quarter of '07. Approximately 39% of the increase in sales was to due to increased bill rates and 61% of the increase was due to more billable consultants on engagement. Sequential revenue growth was 2.9%. During the quarter, we billed over 795 different client companies and no single client accounted for more than 2% of revenues. The group's average bill rate in the second quarter was over $125 per hour, approximately 6.3% higher than the bill rate in the second quarter of '07. During the quarter, average billable consultants increased to 859 compared to 774 in the second quarter of '07. We saw no unusual project cancellations during the quarter and the average length of assignment remained at approximately 5 months.

Gross margins for the second quarter were 37.8%, 54 basis points higher than in the second quarter of '07 with gross profit increasing over $3.1 million, or 17.4%, compared to the same period in '07. Our bill rates and gross margins continue to be among the highest in the industry. Strong sales and gross profit performance in the second quarter of '08 has resulted in a strong profit contribution, even with our continued commitment to increase the number of internal sales consultants, physical expansion in three US telecenters and expansion in Europe.

We also continue to invest in ongoing management and sales training, and technology projects that are expected to result in increased productivity, sales and profitability in the future. More specifically on the issue of sales consultants, we averaged 446 sales consultants during the second quarter of '08, up slightly over the first quarter of 2008, and up significantly over the average of 386 in the second quarter of '07. Our out look for the Q3 of 2008 is cautiously optimistic. We are still seeing demand in each of our four disciplines, but the demand is anticipated to be less than we experienced in the first and second quarters, especially in the IT discipline.

I would like to turn the call over the Emmett.

Thank you, Peter, and good afternoon. The challenges in the Life Sciences group that Peter described in the last quarter's conference call continued into the second quarter of 2008. Life Science revenues were $32.1million, a decline of 3.8% year-over-year. Life Sciences' US revenues declined 5% from the second quarter last year and European revenues increased 3.1% year-over-year. The decline in our US Life Science revenues continued to be attributable to the softness in the broader economy, the full impact of unexpected project terminations at two larger clients, and reduction in revenues from our largest clinical research client. On a geographic basis, all US regions, with the exception of the midwest, softened. The east coast region, where we drive the majority of revenues from large pharmaceutical clients, was impacted the most.

As we encountered in the first quarter of 2008, a large percentage of our clients and candidates became more cautious during the quarter, which resulted in fewer placements and delayed hiring decisions. This slow down in making hiring decisions effected our ability to grow and to offset the loss of the project's mentioned earlier. In addition, the two new contract awards reported in the first quarter were postponed due to our client's focus on cost controls.

As for gross margin, Life Science segment's gross margin continues to be one of the most attractive in the staffing industry. In the second quarter of 2008 it was 33%, up 12 basis points sequentially, but down 104 basis points from the second quarter of 2007. The year-over-year decline was in US operations and predominantly due to a reduction in conversion and permanent placement fees and a reduction in gross margin from a large clinical research client.

Despite the challenges we face in growing our revenues year-over-year in the second quarter, pricing remained consistent and strong. The average bill rate for Life Sciences US grew 3.2% year-over-year. In response to this challenging economic climate we are monitoring our field staff productivity and other operational expenses. We have also significantly invested in our recruiting and business development techniques and processes, and increased detention to individual performance metrics.

As we enter the third quarter, we believe that the challenges to top line growth have somewhat dissipated. Although we are not where we want to be on revenue growth, I'm encouraged with the trends that we are seeing and feel we have started to grow again. Over the past few weeks we seen a positive up tick in business, recently reaching year highs in number of contractors on assignment, weekly revenues and client engagements. However, we do remain cautious, and as we go forward in the third quarter and the remainder of 2008, our focus will continue to be on productivity, rebuilding our contractor base, new business development, and ensuring SG&A levels are in line with business trends.

Now I would like to turn to Allied Healthcare. I assumed responsibility for this division in December 2007 and am please to report that this quarter represents a record in revenues for the division. Revenues were $14.6 million for the second quarter of 2008. The previous high-water mark was $14.4 million in the second quarter of 2002. The last time the division generated more than $14 million in revenues was the second quarter of 2007. This growth represents a 1.9% year-over-year increase, and a 9.8% sequential increase. I attribute this growth to the health of the markets we serve, and to a combination of better management, operational execution, and great contribution from our newer HIM business line that realized sequential growth of 18.5% in the second quarter. During the quarter we also saw a year-over-year productivity increase of 1.2% in gross profit per staffing consultant.

Allied Healthcare gross margins increased 22 basis points year-over-year to 32.5% and 213 basis points sequentially. The Allied division also successfully increased its average bill rate 5.1% year-over-year, mainly due to greater contribution from the HIM, or Health Information Management, and Allied Travel business lines, and improved pricing from the Healthcare Staffing division. As for the third quarter, the end markets, unlike more cyclical businesses, remain stable offering steady opportunities for continued growth. Our challenge continues to be internal execution, which I am pleased to report is improving. Changes in key management in field staff positions combined with greater accountability are beginning to result in improved productivity.

Overall, the Allied Healthcare division is getting closer to acceptable revenue levels. As for recent weekly trends, the division continues to be at highs for the year in both contract employee assignments and weekly revenues. Our focus continues to be on attracting talent, individual productivity, migrating to higher level skill disciplines such as rehab therapy, direct hire and gross margin expansion.

I will now turn the call over to Jim Brill. Jim?

Thanks, Emmett. As Peter mentioned, consolidated revenues were $156.1 million, up 8.5% from 2007. There were 64 billing days in this quarter, verses 63.5 in the first quarter, and 63.5 in the second quarter of 2007. However, for Nurse Travel, there were 91 billing days this quarter, 91 last quarter and 90 in the second quarter 2007.

Now, let me address some of the variances and their related explanations to the extent Peter or Emmett has not. In Physician Staffing, the significant revenue growth which included a 6% bill rate increase was discussed by Peter, and as he mentioned, we saw good margin expansion off of the first quarter which included an increase of the bill pay spread, the gross margin was slightly below the second quarter last year and, as we've mentioned in the last couple of quarters, the actions that we took to turn margins around are working well.

I think Emmett did a thorough job of addressing Life Sciences and Allied Healthcare. I'll just add that the increase in the Allied Healthcare group's gross margin was driven by an increase in the bill pay spread and a decrease in workers compensation insurance expense, partially offset by an increase in other contract employee expenses. In the Nurse Travel group, Peter addressed the 6.5% revenue increase, the 149 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, and worker's compensation insurance expense, partially offset by increase in other contract employee expenses. 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 margin was driven by a increase in the bill pay spread, lower employment taxes, and an increase in conversion fees, partially offset by an increase in other contract employee expenses.

Conversion and direct hire revenues totalled $2.8 million in the quarter, or 1.8% of revenue, as compared to 1.9% of revenue in the first quarter of 2008 and 2.1% in the second quarter of 2007. Total SG&A expense for the quarter was $38.8 million or 24.9% of total revenues, which is down from 26.1% last quarter, and 27.1% in the second quarter of 2007. The $1.2 million decrease from the second quarter of 2007 was primarily due to the $1.4 million reduction in amortization of intangibles related to the acquisitions, to $2.3 million. Also included in SG&A in the quarter was $1.6 million of equity based compensation expense and $1.2 million of depreciation, as well as $300,000 gain related to legal settlements. Our operating income was $11.8 million or 7.6% of revenue for the quarter, compared with $7.7 million, or 5.1% of revenues last quarter, and $7.2 million, or 5% of revenues in the second quarter last year.

As we previously discussed in the second quarter of 2007, as required by our bank agreement we entered into a two year interest rate swap for $73 million, which fixed our 90 day LIBOR equivalent rate at 4.94%. The increase in market value of this instrument, as Peter mentioned, was $1.07 million in the quarter, and this non-cash expense is included in nonoperating expense, and thus excluded from EBITDA. Our tax rate for the quarter was 43.3%, net income was $6.1 million, or $0.17 per 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 $15.4 million. Excluding equity based compensation expense of $1.6 million, adjusted EBITDA was $17 million, or 10.9% of revenue. Adjusted EBITDA was $13 million or 8.5% of revenue last quarter, and $14.8 million or 10.3% of revenue in the second quarter of 2007. We ended the quarter with cash and cash equivalents of $40.1 million, down from $42.9 million last quarter. However, we made earn-out payments related to the Vista and Oxford acquisitions in the amount of $9 million. CapEx was approximately $2.5 million, essentially equal to the prior quarter. Net accounts receivable was $84.7 million at the end of the second quarter. Day sales outstanding were 49 days, down from 52 days in the prior quarter, and even with 49 days last year.

Now turning to productivity, which we defined as quarterly gross profit generated per staffing consultant. For the second quarter, we averaged 784 staffing consultants and gross profit per staffing consultant was $64,639. The Life Sciences segment generated $92,275 in gross profit per staffing consultant for the quarter, as compared with $101,470 in the second quarter of 2007. The Healthcare segment generated $81,760 in gross profit per staffing consultant for the quarter, as compared with $73,796 in the second quarter of '07. The Physicians Staffing segment generated $89,721 in gross profit per staffing consultant, as compared to $86,219 in the second quarter of 2007. And the IT and Engineering segment generated $47,631 in gross profit per staffing consultant, as compared to $46,969 in the second quarter of 2007.

Based on fairly stable labor markets and normal seasonal trends we currently estimate consolidated revenues of $156.5 million to $160 million for the quarter ending September 30th, 2008. We are estimating consolidated gross margin of approximately 31.9% to 32.15%, SG&A of $38.5 to $39.3 million including equity based compensation expenses of approximately $1.4 million, approximately $2.4 million of amortization of intangible assets and financing costs, and depreciation of $1.3 million. We estimate net income of $4.9 to $6.2 million, earnings per share of $0.14 to $0.17 cents, and an effective tax rate of 43%. Adjusted EBITDA is estimated to range from $15.7 million to $18 million. As you know, these estimates are subject to the risks mentioned in the press release and at the beginning of this conference call. We do not include any impact related to the mark to market of our $73 million interest rate. In order to meet the higher end of our estimates, we will need to see weekly trends continue as they are today.

Now I will turn the call back to Peter for closing comments before we open up the line for questions. Peter?

Thank you, Jim. Despite facing a more challenging economic environment, we are very satisfied with our success in growing our revenues, expanding our operating and gross margin, generating cash and 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.

(OPERATOR INSTRUCTIONS). We'll pause for just a moment to compile the Q&A roster. Your first question is from Josh Vogel with Sidoti and Company. Your line is open, sir.

Thank you for taking my questions. Peter, I may have missed it, but did you discuss the July revenue trends for the IT unit verses a year ago?

You know what, Josh, we don't break it out by division. But what I will repeat is we'd said that the first three weeks of '08, third quarter, were $11.9 million, compared to the first three weeks of the third quarter of '07 being $10.995 million.

965.

$965,000. A pretty significant difference.

Definitely. We are seeing some competitors starting to show slowing in the IT market, they are posting low single digit growth rates, and I was wondering if you think you can sustain the double digit growth rate in Oxford for the remainder of the year?

Well, a couple of things, Josh, to address that. First of all, the strength of your business model is in tact. We give more data than anybody. No customer made up more than 2% of total IT revenue. But with that said, if you look at the growth rates in the third and fourth quarter of '07, they were 12.8% and 16.1% in '07 - we had some difficult year-over-year comparables - but we still feel, based on where our head counts are right now and our weekly flash reports, that we are going to grow. We don't give specific growth rates by division. But we feel we are going to grow healthy for the year and in the back half of the year, considering where we are right now.

Okay. Thank you. Now, with the gross margin guidance, you're looking for it to be down a little bit sequentially. I was wondering which segments you're expecting to see some contraction here? Basically, what was driving that? Do you expect the bill pay spread to tighten a little bit?

We are not looking for a whole lot of tightening in the bill pay spread. Really, what the guidance reflects is that we may see a little bit of an increase in worker's comp insurance expense. We saw a decrease in that this quarter. And in the IT area we're expecting we'll see maybe a little bit of compression in bill pay. Not really in the rest of the sectors.

Okay. Great. And just lastly, can you remind us the seasonality that you usually see in Q3 across the four units?

Typically, in a normal environment, third quarter would be the strongest quarter of the year.

Across all four segments?

Pretty much so, yes.

Great. Thank you very much.

Your next question is from Andrew Fones of UBS Securities. Your line is open, sir.

Yes, thank you. Just kinds of following up from the prior question regarding the first three weeks of July. That looks like about 8.5% growth, which was kind of close to what you did in Q2. What should we expect to cause kind of a little bit of a slow down? I think the mid-point to your guidance is $6.5%. So, why are you looking at and thinking could slow a little bit from Q2 to Q3? Thanks.

I just it's a range -- the economy changes, then it gives us a little bit of room. But that's why we give you the first three weeks of the year. We haven't seen anything, but if the economy slows down the summertime or because the headlines by each of the politicians gets more severe, things could change. But as we see it right now and based on the first three weeks of the quarter, you know where we are running.

Okay. Thanks. And, the last of the two larger clients in the Life Sciences business, I think you said that that occurred in April. So would you say you've had a bull quarter impact there, and that since the loss of those two clients that business has been relatively steady?

Yes. We are trying to give you as much data as possible. The Life Science business is very stable. But when you're in a -- with an economic backdrop like we have now, it's hard to pick up -- grow over the loss of two projects, one was Dendreon, the other was [Norvo Norsc] -- it had nothing to do with the quality of our services, it had to do with a economic decision of the customer deciding that they were not going to have a commercially feasible product that they were going to launch. And then to have a couple of major projects delayed. Outside of that we actually grew, but we don't get to exclude that. Things are very stable. The guys are working hard to capture demand where it exists. And we had some good luck over in food science and material sciences and chemicals.

Okay. Thanks.

I would just reiterate, as Emmett said, the last six week have been up and we're at the highest head counts and weekly revenue for the year. It's not going down, it's moving up. Emmett wants to add --

I wanted to add some -- just to clarify some things. We did have one of our -- those two products that were cited in the first quarter and I again referenced them today. One of the clients did cease operations on one of their products within a clinical trial. The other just delayed. They are faced with some FDA tightening of their standards and they will be turning that around, hopefully by the later part of this year. And we are an exclusive partner of theirs, so we are looking forward to that to turn around.

Thanks. That was really helpful. Peter, I think in the past you've mentioned that there is a balance between dialing up growth and dialing down gross margin and vice versa. This quarter we did see gross margin pick up a bit, your guiding to slightly lower gross margin in Q3. So is there an opportunity do you think to take a few of those slightly lower margin jobs to add to the revenue growth? My final question - I'll just ask it now so we can be finished -- that's regarding the impact of strikes in the quarter. Thanks.

No labor disruption revenues. If we did, we would have broken in it out. With regard to margins, we respect the mark up and the pricing on every assignment. With that said, if we could not just get revenue, but if we could actually accelerate our growth by reducing our margins by 25 basis points, we would look at it. The range, as Jim said, is to depict things that -- until the quarter is closed, we don't have a real precise handle on. If we have a couple of worker's comp claims settle in the quarter and that effects our incurred but not reported rate, it could flux the margin. But our bill pay spreads are holding up nicely. The Physician Staffing group and Nurse Travel group, in particular, have done phenomenal jobs of growing faster than the industry and expanding their margins. We are not seeing right now a environment where we got to cut rates to get business, that's not what is happening at this shop.

Your next question comes from Jim Janesky of Stifel Nicolaus. Your line is open.

Yes, within Nurse Travel, Peter, what -- you're up 6.5%. What was pricing versus volume?

Jim is going to get it. I know that we quoted in the stript, Jim, what the bill increase, but I don't have the impact as to the revenue growth. Let me give you -- The bill rate went up -- bear with me please.

Just an approximation.

Head count's up about 3%.

So about half and half?

Yeah. And the bill rate, we have experienced a 4.2% year-over-year increase in the bill rate.

Okay. Where are you seeing the strength, Peter? What either customers or parts of the country or whatever?

Jim, again in the script we said the strongest demand is in the central states and actually demand in California is lower than previous years. That's partially attributable to weaning ourselves from those two large customers. But again, we focus on higher skill sets. Our bill rates are north of $73, $74 an hour compared to the commodity skill set, which is around 56. I wouldn't correlate what is going on with our business with some of the other Nurse Travel companies, because they are two different markets.

Right. Right. But even going in to the second quarter, some hospital volumes coming in a little bit better than expected, is that at all having a impact on your business?

We're not as directly correlated to hospital admissions. But, clearly, when you look at the number of orders - I think we quoted that orders are up 12% versus the same time last year - that doesn't hurt.

As the quarter progressed, Peter, particularly within your Oxford business, IT and Engineering, did the business soften as the quarter progressed? Or was it kind of even throughout the quarter?

What I would tell you, to that question, Jim, is that demand didn't soften, but we saw a little bit of a spike in terminations of assignments and the lengthening of decision making for a customer to place a new consultant on billing. With that said, we are plus or minus 10, 15 heads from the high mark for the full year. So, the group's still doing a remarkably good job in finding places to succeed. And, as you know, we are not a bulk seller of human capital, we have virtually no exposure to the financial service industry. That's why you've seen three consecutive quarters of the better than 15% top line growth, organically.

And then shifting to the lab area. Emmett McGrath, how much visibility do you have there? It sounds like you think we bottomed out there, both in margins and in the business and there is opportunities for that to come in a little bit better than expected in the back half of the year, is that right?

Yeah. I think we need to be cautious. Like I said and Peter said, the first few weeks of Q3 look pretty good. We're seeing an up tick in our business, it's across all our areas within the US and parts of Europe. With a greater emphasis on the midwest. We're just seeing more growth there. But I feel better about the business overall. But I would say I'm cautiously optimistic, to be prudent.

Okay. Thank you.

Your next question comes from Tobey Sommer of Sun Trust. Your line is open.

Thanks. Peter, I wanted to ask a question about perm, which was down a little bit as a percentage of revenue. Is that part of a conscious decision? Any changes to the comp structure to drive a certain behavior to make sure that you're even less exposed to the perm markets?

Good question, Tobey. Actually, the way we run our perm business, we don't have fully dedicated people who do perm placement. And we have not changed our comp structure at all. We have managed our people during good perm placement markets and bad placement markets to make that sure they are focusing on their contract labor assignments, and it's just really a direct correlation of slowing demand, mostly in the Life Sciences side. Emmett was telling me before the call, that once -- 48,000 people, Emmett, have been released out of the large pharmaceutical comp -- ?

Has laid off, has shed 47,000 jobs since January of 2007.

So, that makes it a little bit easier for them to find permament employees as well. We are -- I will tell you that we are doing very, very over in Europe on the perm placement side in the Life Sciences space, and we manage it. The high water mark was like 2.1% of our total revenues and this quarter, Jim, we reported 1.8?

Yes.

It's not a big issue here.

Having said that, these things come and go. I wouldn't say we seen any significant trend in one direction or another. We could get hot for a few weeks and do very well in perm placements. It comes and goes.

Jim, I think when you were describing at the end of your prepared remarks and guidance, I think you said a fairly stable labor market from here would be kind of required to hit the top end of the range. Is that to say that you built in yourself a little bit of flexibility for - not a lot of softening - but a little bit of softer labor markets for the balance of the quarter?

Well yes. As Peter mentioned, that's why we have a range. If things deteriorate some from here, then that could drive us down some.

And specifically, Tobey, what we went out of our way to say is, we don't need to grow to hit the top end. But we have to perform at the levels we are at right now. So, if there is deterioration, then the top end would be more of a challenge. But we don't have to grow to hit the top end.

Okay. Thank you. That's helpful You gave interesting gross profit metrics for us to look at how productivity is progressing in the different units. But, if I step back from a macro level, it looks like the Staffing consultants are -- the growth is up little bit more, not much, but a little bit more than the weekly revenue in July? I wanted to get a sense for -- is a number of Staffing consultants, is there a wide range of growth rates among the different segments? And how are you looking at where to have growth and where to look for more stability in your Staffing consultant head count?

Another good question. What I'm most proud of the management team here is that we are really managing our portfolio of service offerings and our available SG&A very well. And we have significantly invested in the physician staffing space. Emmett's done a remarkable job of significantly investing in the Allied Healthcare space and starting a new rehabilitation therapy travel business there and local business there. We've dialed back a little bit on the Life Science side and, as you know from the numbers we gave you on the transcript today, we have made a significant investment on the IT side and we're holding that investment. Yeah, it's based on where the demand is, it's based on where the strength is. And I think the steps we took in the third and fourth quarter of '07 to get better performance out of Nurse Travel and Allied Healthcare are paying dividends. And I think that we are not waiting for the markets to recover, we are making things happen based on where we see demand.

One last question and I'll get back in the queue. Peter, when you lived through - in this industry - softening and stronger labor markets. What is natural attrition internally on assignment and in a moderately softening labor market? Do you just kind of ride out that attrition and let that work your number down if you need to? Or how much of a change in the labor market do you need before you actively do things?

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With that said, you hit the nail on the head. We will allow voluntary attrition to tick up first. We do not have a program in place where we are proactively terming people involuntary. We are managing our productivity and giving people a chance to be successful. But after a appropriate amount of time, if they are not hitting the daily revenue metrics that we require, then we are finding a better place for them to work. We are still making investments and we're still hiring as you can see from the year-over-year growth rates, and it's not coming at a big expense to our EBITDA and when we get through this tightening period we are going to be the best staffed and trained, I believe, because we held the investment and we've had the privilege of being able to hold the investment.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our next question comes from Jeff Silver of BMO Capital Markets. Your line is open.

Most of my questions have been asked. In terms of the slowing demand in IT, and forgive me if you answered this already, but I was wondering if we could get a little bit of color exactly where you think you might be seeing that.

Predominantly in what we call IT. Not -- we don't do any sort of custom application development, Jeff. And again, relatively speaking our growth rate was 15.7% in the quarter. So we have seen lengthening and decisions being made for major SAP projects installs. But kind of a little bit on the embedded software and chip design on the hardware side, but not really across the board. I would say what we call our IT segment, versus our Software segment.

That's helpful. I was wondering if I could similar comments on Allied Healthcare in terms of the areas of pockets of strength and weaknesses.

Emmett, you want to go first?

One is our current modalities. I think we can do a better job in servicing those areas, that's our CLS, HFS and some of respiratory and diagnostics. We can just do a better job and we're starting to do a better job. Some other areas that we're focusing on, as Peter said earlier, is the rehab. That's a growth area for us that we're going to be focusing on. We don't see a decline or deterioration in any of those skill sets.

So, the strongest is our health information management, physical therapy. Probably the more challenging growth would be in some of the spaces that have lower barriers to entry, uncertified coders and billers, it's a good business but we are continuing to migrate to higher modalities because of the bill rates and the barriers to entry.

Maybe a few numbers questions maybe, Jim, you can handle these. In terms of the share count guidance for the third quarter, what you would be looking for?

It's probably going to be in the range of 35/9, something like that.

In terms of CapEx for guidance the year?

Probably be in the $9 million range.

Okay. Great. And if you can just remind me, Are there restrictions on prepaying your debt?

There are no restrictions on prepaying the debt.

Is that something the company might be thinking about going forward?

We have an excess cash flow pay down that comes up every year. So generally, towards the end of the year, we take a look at where we are and take a look at what the opportunities might be in the marketplace, in particular. And then make a decision at that point whether to do something. It isn't simply the excess cash flow, it also has to do at what other opportunities we might be looking at.

And what would those be? Obviously you've done acquisitions. is that something you're thinking about as well?

We are having breakfast, lunch and dinner with a great number of people and trying to find an appropriate acquisition that has the right growth rates, right gross margins and the right culture. We are selective, but we are making progress. There is nothing imminent. We will do the right thing at the right time. Cash generation is continued in to the third quarter nicely. Everything is pointing in the right direction. We are just continuing to keep our heads down and try to execute.

One more on the acquisition side. Are you seeing seller expectations, kind of declining a little bit in the marketplace?

A little. This isn't meant as a political statement, but we scare the bejesus out of them, by telling them the truth that their CapEx -- capital gains are going to go up in '09 if there is a change in administration. You got to think hard about are you going to create 13% additional value by holding on and waiting another year? Scare is the wrong word, but alert -- that's a real issue that people have to take in to consideration. I think people are focused on a bird in the hand and I think they are getting -- coming to the realization that there is not nearly as much competition. There is still fierce computation amongst strategic buyers, but the financial buyers have significantly moved to the sideline.

Great, thank you for the color.

Thank you very much. There are no further questions at this time. Do you have any additional or closing remarks?

We just want to thank everyone for their continued attendance and interest in the company. And we look forward to reporting our third quarter results.

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