ASGN Inc (ASGN) 2009 Q3 法說會逐字稿

My name is Stephanie and I will be your conference operator today. I would like to welcome everyone to the On Assignment third quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After these speakers remarks, there will an question an answer session. (Operator Instructions). Thank you, I would now like to turn the conference over to Mr. Jim Brill, Chief Financial Officer of On Assignment. Please go ahead, sir.

Thank you. Before we begin, I would like to remind everyone before as we do each quarter, that our presentation contains estimates and 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're subject it to risks an uncertainty that could cause actual results to differ materially from the forward-looking statements. We describe some of these risks in today's press release an our filings with the Securities and Exchange Commission. We do not presume the obligation to update statements made in this conference call. I would like to introduce Peter Dameris, our CEO and President, who will provide an overview of our third quarter results, Peter?

Thank you, Jim. Good afternoon. I would like to welcome everyone to the On Assignment earnings call. With me today are Jim Brill, our Senior Vice-President and Chief Financial Officer and Mark Brouse, President of our Physician Staffing Group. During our call today, I will give a review of are the markets we serve and our operational highlights, followed by a discussion of the performance of our operating segments by myself and Mark. I will then turn the call over to Jim and our third quarter financial performance and our financial guidance for the fourth quarter of 2009. We will then open the call up for questions.

During the third quarter, the markets we served remain constrained, but were more productive than during the second quarter. Although revenues were down third quarter over second quarter, the majority of the decline was attributed to our nurse travel division. Excluding our nurse travel division, revenues would have been down -- less than half of a percent versus 3.7%. Currently the nurse travel industry remains the most challenged end market in the entire staffing industry. The segment makes up only 11% of On Assignment's total gross revenues and carries our lowest gross margin.

As shown by our third quarter results, we have remained focused on our primary operating objectives and gross operating and adjusted EBITDA margins have continued to trend at or better than we have forecasted. The trend of stabilization we have observed toward the second quarter of 2009 continued to strengthen into the third quarter. Because of recent growth in billable consultants, we believe revenues per billable day will grow fourth quarter over third quarter 2009. In the nursing division, we continue to see a severe constraint in purchasing from hospitals. However, we still believe that the reduction in demand in our nurse travel group is not due to loss of market share but rather hospitals' current mind set to conserve cash until the credit crisis eases and the temporary flood of full time nurses available for full-time employment recedes. In addition, all of the uncertainty regarding health care reform has really put a pal over the industry. In the IT group, we have seen growth in fillable head count and expect to growth fourth over third quarter. Our physician business remains strong although demand has softened recently due to the uncertainty surrounding health care reform and finally, our life science and allied health care businesses are improving.

Although revenue trends have stabilized or started to grow again, for most of our divisions our consolidated fourth quarter revenues will most likely be slightly lower than the revenues we report today. The primary driver for the revenue forecast is once again, in our nursing group we will have the lower revenues in the forward quarter compared to the just completed quarter. As most of you who have followed our Company know, the fourth quarter typically is nor seasonally impacted due to holidays and research facility shutdowns, ie, fewer billable days, than other quarters. Despite there being fewer billable days and more research facilities shutdown in the fourth quarter, because of the recent growth in the number of contract professionals out On Assignment, we believe or consolidated revenues will grow on a billable day basis fourth quarter over third quarter, and some of our divisions will grow on an absolute revenue basis. In addition, the third quarter is the first quarter since the third quarter of last year that billable head count On Assignment at the end of the quarter will exceed billable head count On Assignment at the beginning of the completed quarter.

The results released today remain consistent with our operating focus for 2009 of concentrating on gross margins, EBITDA and cash generation. In this current economic environment, we continue to elect not to accept or pursue low margin business or business that cannot be collected timely. Our focus on credit quality and collections has permitted us to enhance or cash generation. During the quarter, we reduced our long-term debt by $18 million. While we are not at all satisfied with our revenues, the business is generating results consistent with our stated operating objectives. As other companies report their third quarter results, it will again become evident that our gross an adjusted EBITDA margins remain at the top of the entire industry and the Company has preserved its profitability. While we can't predict when the current crisis will ends, we can predict based on over 20 years operating history, that our business will perform very well coming out of this crisis. The fact that our gross margins an adjusted EBITDA margins during the quarter actually expanded bodes very well for us once we have sequential revenue growth. In addition, based on the significant amount of debt we have repaid and the majority of amortization for identifiable intangibles related to our two acquisitions running off, our EPS should grow nicely once revenue growth returns. For those who have not followed the Company for several years, GAAP EPS was impacted by a non-cash expense of $15.3 million in 2007 and $9.4 million in 2008. These noncash expenses related to the amortization of identifiable intangibles acquired in connection with our two acquisitions in January of 2007. Most of this noncash expense will be eliminated by the end of 2009.

Our third quarter results continue to confirm to us that our current revenue generation is only a macro economic issue and otherwise, we are performing very well. During the quarter, we believe that we again expanded our market share in the locums tenens and allied health care markets. Although the fourth quarter of 2009 will be challenging, albeit less than the first three quarters of the year, 2010 should present us with a more productive marketplace to offer our services into. Our belief is based on one, many of our clients have reduced their employee base to unsupportable levels, two, stalled or postponed projects due to the credit crisis are beginning to be released. Three, IT spending and IT staffing appears to be rebounding faster than other segments of the staffing industry. It's important to remember that this segment is On Assignments largest and highest gross margin group. Four, many smaller competitors have cease to do exist and five, sales and productivity initiatives that we put in place in the first and a half of 2009 should start to generate results.

Before turning our actual results for the quarter, it's remember to important to remember that the third quarter of 2008 was the largest revenue quarter for On Assignment in its history. Specific operational accomplishment in the quarter and since our last conference call were, one, our consolidated gross margin expanded to 33.4%, a record for our Company. Two, our adjust evidence EBITDA margin of 8.9% from us up from 6.9% in the first quarter of 2009 and 7.3% in the second quarter of 2009. Three, our physician staffing segment gross margin expanded 179 basis points other the third quarter of 2008. Four, our nurse travel group expanded its gross margin 256 basis points over the third quarter of 2008. Five, our Allied Healthcare group expanded its gross margins by 274 basis points and grew 12% sequentially, Six, we expanded our physician retain search practice, with the acquisition of all the employees from Fox Hill and Associates and seven, our IT division relaunched a dedicated permanent placement line of busy for I T and engineering professionals.

With regard to SG&A, we continue to monitor the market we serve and the level of investments we are or are making for future growth. In the third quarter of 2009, we reduced corporate expenses, including the number of internal personnel in all divisions except physician staffing. Jim will explain in greater detail later in this call, but our SG&A came in lower than expected in this quarter, due to some unique items. Finally, it's important to remember that while many firms have reported very large restructuring charges over the last several quarters, On Assignment has not and the expenses associated with recalibrating our business in 2009 should not be fully experienced again in 2010.

Now, let's review the third quarter. Revenue in the third quarter declined 39.5% over the third quarter of 2008. Net income was $1.5 million or $0.04 per share. Revenue generated outside the United States was $6 million or 6.1% of consolidated revenues in the third quarter versus $9.6 million or 6% in the third quarter of 2008. Consolidated gross margin in the third quarter was 33.4% up from 32.6% in the third quarter of 2008. Adjusted EBITDA was $8.7 million or 8.9% of revenue for the quarter, down from $18.8 million or 11.6% of revenue in the third quarter of 2008. Once again, our financial performance was achieved without any significant contribution from permanent placement. Exiting the quarter, demand for our services continue to strengthen but albeit at lower growth levels than we have historically experienced. Our weekly assignment revenue which excludes conversion, billable expenses and direct placement revenues averaged $7.5 million for the last three weeks compared to an average of $7.1 million in weekly assignment revenues for the three-week period prior to this earnings call. Last earnings call, before turning the call over to Mark, I would like to give you a brief review of operations.

As we look at the nurse travel group, we continue to experience a decline in revenue consistent with the general decline in the overall nurse travel market but once again we are successful in expanding our gross margins to record levels in spite of a challenging marketplace and economy. For the quarter, our revenue of $10.7 million was down sequentially 23.6% and down 67.9% year over year. Gross profit of $2.7 million represented a 22.1% decline sequentially and a 64.3% decline year over year. In spite of the decline in gross profit, gross margins finished strong at 25.4% our best performance yet. Representing a 50 basis point sequential increase and a 256 basis point year over year. We have begun to see numerous signs of nursing needs growing. Demand has improved and hospital census is building. The latter part of Q3 and the first few weeks of Q4 have shown growth in many of the metrics we follow daily. Specifically, in Q3, the average order volume represented a 178% sequential increase from the previous quarter. Moreover, the first weeks of October, the average order volume has increased by 262% compared to Q3. Order volume in many specialty areas although still low, lower than what we have seen historically are showing signs of rapid improvement. We continue to focus our efforts on expanding these share of orders with energy and added personnel resources dedicated to our client sales force. At the same time, we have continued to improve our internal processes to control costs by reducing SG&A expenses by 40% on a year over year basis and drive profitability as we demonstrated by our continued improvement in gross margins. In conjunction with this, we pride ourselves on attracting and retaining key talent at all levels with the nurse travel group.

Revenues for the life science segment were 22.6%. Excuse me, were $22.6 million, which represents a slight decrease from the prior quarter and 33.5% decrease year over year. The slight sequential decrease is a significant improvement over the prior quarter's results where revenues declined 10.4% from Q1 to Q2. We attribute this performance to improved economic conditions in several regions through the the US and Europe. On a divisional basis, US operations generated $18.9 million in revenues, representing a 3.6% sequential decrease and a 33.9% decrease year over year. Foreign revenues were $3.7 million increasing 16.9% sequentially and decreasing 31.1% year over year. Even though business trends improved during the quarter, sequential revenue performance was constrained due to the challenging economic environment. Specific challenges included, one, continued softness in the clinical trials arena which is closely tied to the struggling pharmaceutical industry. Two, current and prospective clients continue to focus on cost containment rather than R&D and enhancing existing product lines. Three, decreased demand for recent grads and lower level scientific skills. On a positive net, gross margins for the life science segment was 33.6% for the quarter, which represents 180 basis point increase over the prior quarter and a 56 basis point decrease year over year. On a divisional basis, US gross margin was 33.3%, an increase over 190 basis points over the prior quarter and essentially flat year over year. Foreign gross margin was 35.3% representing a 33 basis point sequential increase and a 364 basis point decrease from the prior year. We attribute the improvement in gross margins to an increase in permanent placement and a commitment it our contract pricing structure.

Moving forward to the fourth quarter, demand for services remains steady and the business climate in most of our markets continues to stabilize. However, normal fourth quarter seasonal factors coupled with lingering economic uncertainty may constrain sequential revenue growth. With that said, we expect revenue production per billable day to be flat to up slightly sequentially excluding the impact of the loss of a large European client at the end of the third quarter. The wild cards that could hamper growth are greater than the expected number of plant closures during the holiday season, extended time off, poor weather and post-postponing hiring decisions until the new year, all of which we experienced in the fourth quarter of 2008. To offset these challenges, our sales and recruiting staff are focused on new business development, increased sales and marketing efforts in greater depth with existing clients and expanding our database of candidates and client contacts.

Now I would like to turn to Allied Healthcare. Revenues were $10.3 million for the third quarter of 2009, this represents an 11.8% sequential increase and a 29.3% decrease year over year. With the exception of our Allied Travel business line, which is closely tied to hospital admissions, we attribute sequential revenue growth to an improving operating environment across our core product lines. In addition, as reported in the prior quarter, our strategy to capture seasonal staffing needs contributed to our growth. In this case, we were successful in securing both small and large scale contracts, supporting the demand for flu vaccinations. Although the operating environment improved during the quarter, further growth was constrained by the following specific recessionary factors. One, a decrease in the number of elective procedures and admissions. Two, a greater number of patients choosing more cost effective forms of treatment such as self medication over more costly medical procedures. Three, hospitals reduced usage of contract professionals in response to declining cash balances and patient admissions. And finally, reduced demand for less critical Allied skill modalities. Allied Healthcare gross margins was 34.5% which represented a 65 basis point sequential increase and a 275 basis point increase year over year. We attribute the improvement in gross margins to stable, permanent and conversion fee activity and reduction in cost of services and improvement in our bill pay spreads. The bill pay spread increased 4.1% sequentially and 8.3% year over year.

Turning to the fourth quarter, the markets in which we operate continue to stabilize and the momentum we realized in the third quarter has positioned us well for continued growth. Demand for rehab therapists, health information management consultants, clinical lab staff and local RNs remain positive. Furthermore, due to the unprecedented demand for standard flu vaccinations and the impending demand for H1N1 vaccines, we expect the need for nurses and medical assistants to continue through the remainder of 2009. The main challenges we faced in the quarter are seasonal and economical factors beyond our control. Based on our current run rate and pipeline orders, we expect revenues to be up on an absolutely dollar basis over the third quarter. As we do in other divisions, we continue to respond to the current economic climate by focusing on new business development, gross margin preservation, cost containment and greater attention to individual performance metrics.

Revenue for our IT and engineering segment was $31.9 million, a 2% sequential decrease from the second quarter of 2009 and a 43.5% decline compared to the third quarter of 2008. The year over year decline is reflective of our strong third quarter of 2008 and the overall economic environment since that time. The moderate sequential revenue decrease was primarily to decreases in bill rates as a result of overall discipline mix changes and to a decrease in conversion revenue. The decrease in year over year revenues was due to fewer billable consultants On Assignment, lower bill rates and a decrease in billable expenses and conversion revenue. However, as we mentioned in our Q2 earnings conference call, the demand for consultants as measured by new assignments per day stabilized in early February, continued to be stable throughout the second quarter and actually increased in the third. This segment specializes in recruiting senior consultants and contractors in four technical disciplines; information technology, software and hardware engineering, mechanical and electrical engineering and telecom. The IT discipline, which is primarily focused on the ERP market experienced the largest percentage of revenue decreases year over year. This discipline continued to be impacted by the significant decrease in available capital and our respective clients' reluctance to start new projects until the end of the recession was more clearly visible.

Now, contrary to our experience with the IT discipline, our year to date revenue through September 30th, 2009 for the telecom discipline is approximately equal to the same period of 2008. During the third quarter of 2009, we averaged 537 billable consultants On Assignment, equal to the consultants On Assignment in Q2 of 2009 and a 37% decrease compared to the average of 853 billable consultants in the third quarter of 2008. The average bill rate in the third quarter of 2009 was $112 per hour compared to $124 in the third quarter of 2008, and $113 in the second quarter of 2009. Our gross margin for the third quarter of 2009 remains strong at 35.7%, compared to 38.1% for the same period last year. During the last two quarters, we have intentionally relaxed other historically high mandated markups in order to drive revenues. Nonetheless, the bill rates and gross margins of our IT and engineering segment continue to be among the highest in the staffing industry. We continued to be highly diversified across clients and industries in Q3, billing over 540 different client companies with no single client accounting for more than 4% of our revenues. From an overall industry perspective, we have seen a strong year over year increase in consultant demand from utilities, educational institutions, transportation, manufacturing companies as well as retail trade firms. The largest declines have been in manufacturing companies including appliances, machinery, instrument and pharmaceuticals.

On a positive note, our business and medical equipment business nearly doubled in Q3 over the second quarter of '09. And this is a key industry for our mechanical and electrical engineering near discipline. Our internal sales consultants drive our business and are a significant investment necessary for current and future growth. While the average number of sales consultants increased during the first two quarters of 2008, to a high of 447 in Q2, over the next 15 months, we have decreased the number of sales consultants on average of 275 over the past quarter. We monitor our operational activity daily and we continue to ensure the size of our sales staff is in line with the current and future economic conditions. As we see the economy begin to recover, we have decided to reintroduce permanent placement to our current temp service offering. A 25-year tenured executive who managed our IT and engineering perm business, prior to the 2001 recession, will be responsible for the relaunch of this service offering. We have already hired a few staff consultants, who will focus 100% of their time on perm opportunities with our clients. We anticipate this this new service will provide additional value added for our current clients, in addition to keeping our competitors from gaining a food hold in our client companies. Consistent with our other divisions, we anticipate the future perm revenue within our IT and Engineering segment will be a small percentage of our total revenue. As stated earlier, actual demand for consultants as measured by new assignments per day stabilized in early February, continued throughout Q2 and actually increased throughout Q3 and now into Q4. Our quarterly survey of Oxford clients also indicated a slight increase in their hiring plans for Q4 and we anticipate an increase in our average weekly sales in Q4 over Q3 for this segment.

I'll now turn the call over to Mark Brouse, the President of Vista, our local tenants business.

Good afternoon. The big ticket at VISTA shows revenue down slightly sequentially and year over year, but gross profit holding steady do an increase in margin for our core locum tenens business and a 92% year over year increase in revenue generated by our (inaudible) international placement divisions. Here's a little more detail. Revenue for the quarter was $22.6 million, which is down 3% sequentially and 4% year over year. This reflects a drop in volume as measured by days filled in our locum tenens business of 2% sequentially and 6% year over year. Gross profit dipped just 1% sequentially and actually rose 1% year over year. We credit this as I mentioned to an increase in our gross margin to 33.4%, which is up 86 basis points sequentially and 179 basis points year over year. We're also very excited about the revenue growth in our diversified businesses. Our international placement division over came an increasing demanding regulatory climate and found a firm foot hold in Australia. This supplements the division's growing volume in New Zealand and Bermuda. Quarterly revenue rose more than 300% for this small division. VISTA physicians searching consulting, our permanent position and physician executive placement subsidiary, is also a big contributor to the increased gross margin.

In addition, the subsidiary made a small by strategic acquisition at the end of the quarter. We purchased Fox Hill Associates, a nine-member permanent physician search firm based in Milwaukee. Fox Hill has an exceptional 30-year track record in the industry and a very positive reputation. The seasoned consultants from Fox Hill have all accepted employment with VISTA and have essentially doubled the professional capacity of this subsidiary. While the locum tenens contract business remains our focus, building our diversified business puts us in position to solve a broader range of our customers' challenges and helps us build partnerships with them. This has been an important focus for us during the economic downturn.

Speaking of the economic downturn, it continues to impact demand for our core locum tenens business as we anticipated. Client demand, which we measure in days of coverage requested, has declined 10% sequentially and 41% year over year. In the short term, we expect this to be the new norm, so we've put a great deal of effort into filling a greater percentage of these available days. Throughout the history of this industry, fill rates have hovered in the 30% range. We have grown our fill rate steadily this year. It is now 56% and growing, up 9% this quarter and 59% year over year. In the longer term, we expect demand to increase. In the last six weeks, demand as measured by new job orders, has flattened out and is no longer declining. This upturn in Q3 will help offset the normal seasonal declines in Q4 this year and Q1 of next.

Conversions, clients hiring temporary doctors for permanent positions, took a big jump last quarter and are up 46% year over year. We see this as increased confidence among buyers, primarily health care organizations that will be energized by stimulus programs and forced to expand by healthcare reform. Specifically the American Recovery and Redevelopment Act will pump $1 billion into prevention and wellness programs. It will also provide a 65% subsidy of COBRA programs to protect the health insurance coverage of seven million people, who have lost their jobs. In addition, the Children's Health Insurance Reauthorization Act will provide insurance coverage to 11 million kids, four million of whom were previously uninsured. Increased access to insurance leads to increased demand for doctors, something that generally boosts our business. The American Association of Medical Colleges now predicts a shortage of 124,000 primary care physicians by the year 2025. And the association predicts that universal coverage would increase this number by an additional 25%. Our range of staffing services help make the most of the time physicians are available and willing to work. We also help with the male ,distribution of doctors bringing them into rural and underserved areas, on a part-time basis when an area has trouble recruiting full time doctors.

Healthcare reform is also focusing on successful health care organizations that function as integrated systems of care and have incentives for keeping people healthy, not just treating them when they are sick. We find health care organizations like these are more tuned into the value our physicians provide. They understand the importance of quality physicians and quality matches, are less price sensitive and are more open to alternative staffing arrangements. They have the systems in place to select, orient and put to work the physicians we provide. Our focus is on building long-term partnerships with these organizations so that we can provide proactive physician staffing and permanent recruitment services. While in the short run we have experienced a slight decline in demand for our contract physicians, we believe long-term indicators point to a row bust market for physician staffing. As the economy strengthens and uncertainty about healthcare reform lifts, we expect to see a rapid increase in coverage from our loyal client pool.

I'll turn the call over to Jim.

As Peter mentioned consolidated revenues for the quarter were $98.1 million, down 39.5% from 2008. There were approximately 64 billing days in this quarter, 63.5 in the second quarter, and approximately 63.5 in the third quarter of 2008. However, for the nurse travel division, there were 92 billing days this quarter, 91 last quarter and 92 in the third quarter of 2008. Foreign currency had about a $280,000 negative impact on revenue.

Let me address some of the variances and their related explanations to the extent Peter and Mark has not. In the travel nursing group, bill rates were down 6% and bill pay spreads contracted. However the bill pay margin expanded over the third quarter of 2008. Most of the other components of costs of sales moved positively with the exception of workers' compensation insurance expense and other consultant expenses, which increased slightly as a percent of revenue. This group, as well as the rest of the Company, has reduced SG&A significantly. In physician staffing, we saw an increase in the bill rate and the bill pay spread expanded. Mark also noticed a nice increase in his conversion and direct hire revenue. At our IT engineering division, Peter mentioned we saw a drop in gross margin from last year and last quarter driven by a a drop in bill pay margin and decrease in conversion revenue. I think Peter did a thorough job of addressing both revenue and gross margins in life sciences and allied health care, I'll just add that we again benefited from lower than anticipated workers' compensation insurance expense. Conversion and direct hire revenues totaled $2 million in the quarter or 2% of revenue as compared to $1.9 million or 1.9% of revenue in the second quarter and $3.3 million or 2% of revenue in the third quarter of 2008.

Total, SG&A expense for the third quarter was $28.5 million or 29% of total revenues, which is down from $30 million or 29.4% from last quarter and $39.2 million or 24.2% in the third quarter of 2008. The reduction from the third quarter of 2008 is in part related to an $870,000 reduction in amortization of intangibles related to the acquisition. The reduction from the second quarter is in part due to a couple of insurance settlement gains, which totalled about $300,000 and a positive adjustment to old workers compensation claims of about $150,000. This is part partially offset by an increase in our equity based compensation expense to $1.5 million from $1.1 million. Also included in SG&A in the quarter was $1.4 million of depreciation. We're continued to be pleased that we have been able to continue to reduce cash SG&A during this period. As Peter and Mark both mentioned, we continue to monitor our operating expenses as they relate to revenue and look for ways to reduce costs and to be more efficient.

Our operating income was $4.3 million or 4.4% of revenues for the quarter compared to $3.4 million or 3.4% of revenues last quarter and $13.6 million or 8.4% of revenues in the third quarter of last year. Our tax rate for the quarter was 43.6%. Net income was a $1.5 million or $0.04 per diluted share. We believe it's meaning it will to compare EBITDA and adjusted EBITDA when comparing the current quarter's results with prior quarters. As outlined in today's press release, EBITDA for the quarter was $7.2 million. Excluding equity based compensation expense of approximately $1.5 million, adjusted EBITDA was $8.7 million or 8.9% of revenue. Adjusted EBITDA was $7.5 million or 7.3% of last year, and $18.8 million or 11.6% of revenue for 2008. We ended the quarter with cash and cash equivalents of $35.1 million, down from $44.5 million last quarter. While we generated $9.2 million in cash flow from operations, we used $18 million to pay down our term loan. CapEx was approximately $1.1 million up from about $950,000 last quarter and down from $1.7 million in the third quarter of 2008. Net accounts receivable was $49.4 million at the end of the third quarter and days outstanding were 46 days same as last quarter but down from 49 days last year.

Now turning to productivity, which we define as quarterly gross profit generated per staffing consultant, for the third quarter, we averaged 569 staffing consultants and gross profit per staffing consultant was $58,000, down from $71,000 in the third quarter of 2008, but up from $57,000 in the second quarter. The life sciences segment generated $78,000 in gross profit per staffing consultant for the quarter as compared to $70,000 last quarter. Health care segment generated $55,000 in gross profit per staffing consultant as compared to $54,000 last quarter. The physician staffing segments generated $92,000 in gross profit per staffing consultant compared to $98,000 last quarter and the IT segment generated $41,000 in gross profit per staffing consultant for the quarter compared to $42,000 last quarter.

Looking at the fourth quarter revenue expectations this year, it continues to be very difficult to estimate what will happen to revenues because of the world wide economy. In addition, the number of billing days in the fourth quarter will be about 4.5% fewer than those this the third quarter. Given that back drop, based on labor markets not getting any worse than they are today and normal seasonal trends, we currently estimate consolidated revenues of $93 million to $98 million for the quarter ending December 31, 2009. We're estimating consolidated gross margins of approximately 33.25% to 33.45%. SG&A of $29.3 million to $29.6 million, including equity based compensation expenses of approximately $1.1 million to $1.2 million. Approximately $1.4 million of amortization of intangible assets and depreciation of approximately $1.5 million. We estimate net income of minus $0.02 -- I'm sorry, minus $200,000 to $1 million earnings per share of $0.00 to $0.03 and an effective tax rate of 45%. Adjusted EBITDA is estimated to be in the range of $5.4 million to $7.6 million.

I'll turn the call back to Peter for closing remarks before we open up the lines for questions. Peter?

Thank you, Jim. We believe that with the benefit of hindsight, history will show that 2009 will turn out to have been the most challenging year for the entire staffing industry. The gross and adjusted EBITDA margins that we reported today against such a back drop is a true measure of the strength of our Company. While the entire On Assignment team is very proud of performance in this difficult economic environment, we are now very focused on positioning the Company for accelerated growth coming out of this recession. I would like to once again thank our many loyal, dedicated and talented employees whose efforts have allowed us to progress to where we today.

I would like to now turn the call over to the operator to open it up for participants to ask questions. Operator?

(Operator Instructions). Your first question comes from the line of Jim Janesky from Stifel Nicolaus.

The first question is from the IT engineering segments I think looking back that these while still very strong were among the lowest the segment ever reported. You mentioned it was because of pricing in is that what it is due to and you expect the, the pricing is going to kind of remain where it is right now to gain share? Or what are your plans?

Yes, Jim, we consciously agree to relax the bill pay spread and not walk away from good viable business over 60 basis points or 80 basis points, what also added to the compression year over year which generate a 35.7% gross margin, which is still the highest in the industry, is there was really no benefit at all from conversion to perm fees which typically helps a little bit in expanding the margin and finally, the relative mix as we made in our prepared remarks, our telecom group is actually flat year over year. There was no decline in there. And as you know working for telecoms, that historically has been a slightly lower margin than the reported division consolidated gross margin for the IT group.

Did you indicate how many recruiters you have now in perm within the IT and engineering segment and where do you want it take that over the next six months to a year?

I think we probably have four right now, and I think we might get up to somewhere between search and ten over the next six months. We're actually are starting to tighten the margin profile up again in the IT group. Unlike -- let me restate this. Unlike many other staffing firms, we have not taken any restructuring charges, so and we're actually starting to add head count again.

Okay. Now you said you have now nine or the Fox Hill acquisition was nine additional or permanent recruiters in the physician area. Can you give us an idea of what type of -- when you did that, when it closed and what type of you know, just kind of revenue profile it has in.

I'll go first and I'll let Mark add some operational color to. We acquired that about a month ago. It was basically paying someone to shut their business down and become full time employees of our physician staffing group. I would share with you that financially it's insignificant. Strategically, it's very significant. I would say it's less than $1 million on a historical basis on apply whatever growth rate you want but it significantly increases our food hold in the permanent space. And Mark can speak to their deep 25-year history and reputation.

Yes. This organization that we have really in discussions with for a number of years we found to be the most highly respected of all of the small permanent placement organizations out there. And we're attracted to them because of the strength of that reputation and the quality of the relationships that they have established with their customers. We hired nine individuals, seven of whom are recruitment professionals and that essentially doubles our recruitment capacity to around 14 professionals. So we think that it's going to add a tremendous amount of capability to our organization. So many of our locum tenets customers have placement needs that we are -- have been traditionally unable to meet and this will give us the ability to really provide them with the kinds of services that they're looking for.

Okay. Thank you.

Your next question comes from the line of Tobey Sommer with SunTrust Robinson.

Hi, this is Frank in for Tobey. Going back to the placement any targets for as a percentage of revenue or how you might look at growing that?

Frank, we have been very, very disciplined in all facets of our business, you know, credit quality, gross margin profile, perm versus contract labor. We're a -- we're a long-term contract labor shop. You look at the length of our assignments, they're rather lengthy. I don't see that division generating more than 3%, 4% of their total revenue from perm but it's a nice little sweetener. It allows for margin expansion on a reported basis for that division even above their historically high gross margins. And it's the right time in the cycle, because we're not banking on absolute job growth immediately but I can tell you there's going to be a fair amount of musical chairs going un. And people who felt as if they were ignored or mistreated during the downturn, the first time they get a phone call with a viable job opportunity they're going to hop. So there's not going to be a net, maybe a zero sum gain as far as number of jobs created but there's going to be a lot of musical chairs going on. And we did do that. That is in our DNA over at Oxford and we had an opportunity to relaunch it. Again, these are incremental strategic things we are doing. I think you will see it expand the reported consolidated gross margin but we're not trying to say that these are game changers. This is just blocking and tackling and remaining strategic and the timing is right.

Okay. Great. And in your prepared remarks you talked about the average number of sales consultants increasing from 447 I think to 275. Can you talk a little bit about where that stands at the end of quarter and what your thoughts are that are -- kind of going forward and how you evaluate with you're going to stand in.

Yes, it was a decrease. It was a decrease. We've decreased the number of sales people and staffing consultants by 275.

Okay.

Over the years, if I'm correct. Is that correct, Jim in.

We're down to 275 in the end of the quarter.

For the IT group it went from a high of 447 to 275; is that correct, Jim.

Yes.

We're speaking for that division. As you know, Frank, we do only kind of organic training and hiring at Oxford, and it typically takes someone 12 to 14 months before they even have one or two people on billing, so a lot of the head count won't generate revenue for some time and that's why we peeled back as much as we did at Oxford considering the revenue falloff.

Okay.

Did I explain that clearly?

Yes. That's fine. The tax rate implied in guidance?

You mean what is behind it in.

Yes.

There are a couple of items that could be unique items in the fourth quarter, just depends on how various things all. So that's what's behind it.

All right. Great. Thank you very much.

Thank you, Frank.

Your next question comes from the line of Andrew Fones with UBS.

Thank you. I was wondering if you could go through your difference businesses and say which ones tend to respond first in a recovering economy and which ones tend to lag and then help us understand the trends you've been seeing in new assignment wins or new sales perhaps. What your experience has been thus far coming out of perhaps the downturn? Thanks.

Absolutely. Andrew, the IT group is what's responding the quickest and having the fastest rebound now. Actually it's quite strong. From a low of -- I guess we don't into periods, we bottomed out as far as number of billable consultants in July and we're substantially above that number today. And the weekly trends continue to move in a positive fashion. The allied health care group is going to be up sequentially. It's pretty strong. We are getting in the third, fourth and probably in the first some pretty strong seasonal staffing needs impact. But nonetheless, that division is starting to grow. The life science group is starting to show weekly head count growth, although you know the fourth quarter is one of the most challenging quarters because we do a lot of work with people like Amgen, Nova, Pfizer, some of the big pharma companies and a lot of those companies will shut down their research facilities between the 24th of December and January, the 2nd. So if we have 10 people for instance at a bio tech company and they shut down for seven business days, we've lost 70 billable days at that one account. Notwithstanding that, we believe we'll be up on a same number of billable day basis fourth over third and that's probably most directly correlated with the broader GDP growth. The locum tenets business is really and I'll let Mark follow up with what I say is little bit of a quandary, we take responsibility where responsibility is due, but what we're seeing here, this is the last kind of corner of the economy to fall apart and I just think between the stiff economic crisis winds in its face, as well as now all this deep uncertainty about what health care reform will look like, that it will paralyze a lot of hospitals in their normal purchasing behavior. Mark, you want to add to that and then I'll follow up with nurse travel?

Yes. There really has been two significant impacts for us. One is the increasing unemployment and the resulting number of increase in the number of people without insurance, which has impacted our clients census and their need for coverage. The second part of it is this general uncertainty that has affected people's normal decision-making. Individuals are not responding the way that -- to situations within their facility the way that they normally would and are kind of sitting on their hands waiting to see how things develop before they make decisions. I think once we get a little more certainty around health care reform, I think we'll see them returning to their normal decision-making patterns.

And finally, Andrew, as it relates to the nurse travel group, I guess the most positive thing I can say is it's a great division, very, very well operated. We have talented people, but I guess the most positive thing I can say, it's only 11% of our total revenue. It's a very challenged sector right now. And we did quote that orders are up significantly. However, those orders are not turning into filled orders at the same growth rates. So the number of orders we can look up, look at are up significantly. The number of orders that are truly being filled by us or others is not nearly the same growth rate. But we feel like we've actually gotten pretty close to touching the bottom of the pool and once this uncertainty on health care resolves itself that we can start to grow again.

Okay. That was really helpful. Thanks. And then could you give us the number of days in Q4 and Q1 and as you kind of think about guidance, going into next year, do you expect to continue with the quarterly guidance or as you go into 2010, should we expect you to give 2010 guidance in a Q4 call?

Let me give you a are reference to guidance. I think we're going to stick with quarterly until we get better visibility as to the economy. For some reason we have great visibility at the end of the first quarter and we can give guidance for the full year, we'll evaluate that. But I think you should consider that we're going to give quarterly guidance for the time being.

Okay.

Andrew, as far as days ago, I don't have Q1 in front of me, Q4 it's 61 days with the exception of nurse travel, which is 92 days.

Okay. Thanks. And then the $1 million that you said was the, it was less than $1 million the impact to the Fox Hill acquisition, is that an annual number? I presume it was.

Yes, it is.

And then perhaps just kind of finally in terms of SG&A, are you kind of reaching the bottom there also? It sounds obviously as though that some of the revenue trends are turning, were you saying in terms of some of the cuts you made to SG&A we're getting close?

We're still trying to find savings where we can, but the good news is we've been trying to hire appropriately throughout the year, and we've had a fair number of expenses run through the P and L this year that we haven't, Andrew, identified as one-time restructuring charges. Some of those things will not show newspaper 2010 which will provide kind of, so to speak, air cover for incremental head count. So we're not looking to cut SG&A significantly further from this point. We're just looking for rational places we're slowly looking incrementally add head count when and where appropriate. Jim, you want to add?

No of the I think that's pretty appropriate. The other thing this year, obviously, commissions are way up this year and incentive comp is gone this year.

Yes.

There's none that have in here.

So you mentioned $450,000 in benefits in lower SG&A, this quarter but you haven't really broken out on the flip side some of the costs. Can you give us a rough sense of what these restructuring costs have been?

Yes. I'll give you an example. We took a hundred thousand dollar charge for at closure -- not the closure, we merged a branch office out of Alexandria, Virginia into Silver Springs, Maryland and we sub leased the space. Out of the term of the lease it's a hundred thousand dollar deficit. We had a number of severance charges run through the P and L this quarter that were related to people severed out of the business. So just the normal charges. I mean, we just haven't identified them as restructuring charge. We've run them through the P and L. Maybe at the end of the year, if it's meaningful, we might see if we can identify that on a larger basis. But you've seen the reduction in head count, you've seen how we've tried to recalibrate our business and we've run that all through our P and L, Andrew, and I can tell you the severance portion of it and the lease cancelation portions of it won't run through the P and L through 2010.

Okay. Thank you.

(Operator Instructions). Your next question comes from the line of Jeff Silber from BMO Capital Markets.

Thanks so much. Peter, in your remarks and you were talking about the IT division, you talked about relaxing the markup to drive revenues which I think is something new and so is that something we should be seeing if your other divisions going forward?

No, I don't think so. I mean, we're actually -- we we gave you gross margin guidance for the fourth quarter, Jeff?

Yes.

And that pretty much translates that we think we have pretty stable gross margins. We're going to report consolidated gross margins for all of 2009 most probably above 2008, which is a major feat. We've stayed consistent with our pricing. We don't think we're losing market share and we're starting to see the market come back a little bit, albeit it's at lower levels than historical levels but it's a start. So we think we don't think we need to do that. And we're going to be prudent. We're not going to be penny wise and pound foolish, but we provide a valuable service and these aren't commodity skill sets that are being placed through an online auction or anything like that and people are willing to pay for our service.

Okay. Moving on to the balance sheets, you noted the sizeable amount of debt repayment during the quarter. Can you remind us, are there any constraints in debt reduction?

No, we're not constrained in debt reduction.

Okay, thanks.

Only thing we'd add is there are no earn out payments left. However, at the end of the quarter, the Oxford earn out payment which was about $4 and a half million had not been paid.

I'm sorry, has been made in the fourth quarter?

Yes.

Great. That was accrued for prior to that?

Yes.

Great. That's helpful. Thanks so much.

(Operator Instructions). At this time, there are no further questions in queue. Gentlemen, do you have any closing remarks?

We greatly appreciate your attention and continued interest in our assignment and look forward to speaking with you during our fourth quarter conference call, thank you.

Thank you. This concludes today's conference. You may now disconnect.