ASGN Inc (ASGN) 2009 Q4 法說會逐字稿

Good afternoon. My name is Chrissy and I will be your conference operator today. At this time I would like to welcome everyone to the On Assignment fourth quarter 2009 earnings conference. (Operator Instructions) I would now like to turn the call over to Mr. Jim Brill, CFO. Please go ahead, sir.

Thank you, Chrissy. Before we begin, I would like to remind everyone as we do each quarter that our presentation contains predictions, estimates, and other forward-looking statements representing our current judgment of what the future holds. These include words such as forecast, estimate, project, expect, believe, and similar expressions.

We believe these remarks to be reasonable but they are subject to risks and uncertainties that could cause actual results to differ materially from the forward looking statements. We 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 updated statements made in this conference call. I would now like to introduce Peter Demeris, our CEO and President, who will provide an overview of our fourth quarter results. Peter?

Thank you, Jim. Good afternoon. I would like to welcome everyone to the On Assignment 2009 fourth quarter earnings conference call. With Jim and me today is Michael McGowan, President of our IT and engineering group. During our call today, I will give a review of the markets we serve and our operational highlights followed by discussion of the performance of our operating segments by myself and Mike. I will then turn the call over to Jim for a more detailed review and discussion of fourth quarter financial performance and financial guidance for the first quarter of 2010. We will then open the call up for questions.

The markets we serve remain constrained in the fourth quarter, but were much more productive than any other quarter of 2009. Despite there being approximately three fewer billable days in the fourth quarter, consolidated revenues grew 1.9% on an absolute basis over the third quarter of 2009 and approximately 6% on a same number of billable day basis. Our absolute basis divisional sequential revenue growth in the fourth quarter was 11.7% for our I.T. group, 1.6% for our Life Sciences group and 14.8% for our Allied Healthcare group. During the fourth quarter, nurse travel contracted 11% on an absolute basis and our physician group contracted 11.2% on an absolute basis. The severe economic downturn that occurred in 2009 affected all staffing firms differently.

Ironically, those staffing firms with healthcare exposure were the most adversely affected. In addition, companies with the greatest exposure to small-and-medium-sized businesses were more severely impacted as well. At On Assignment, small, medium-sized businesses and the healthcare industry are important components of our business. Although these components of our business are currently headwinds to growth, albeit at a much smaller level, we firmly believe as the economy continues to stabilize that each of these markets will be points of strength for our company.

As we reflect back on 2009, we take great pride that our gross margins are at record levels. we generated $42.8 million in cash flow from operations before debt reduction and earn out payments, we reduced our term loan by $48 million. We, paid out the remaining $9.8 million due on earn out obligations. We, did not report a net income loss or take any restructuring charges. Our adjusted EBITDA margin for the full year was 7.7% and finally our talented team remained intact. We firmly believe by having preserved our gross margins during this economic crisis, we will return to peak EBITDA levels more quickly than others. . As we have often said, our main challenge in 2009 has been a macroeconomic issue.

Going forward, what were once challenges to growth should be contributors to growth. Much attention is and will be given to helping small and medium size businesses grow. Health care and biotech will not disappear in this country and the short-term decisions made by many of our health care customers out of necessity will not be sustainable in 2010 and beyond. Looking more broadly, contract labor should perform very well in what appears to be a slower than normal economic and labor market recovery. This belief is based on the assumption that so many of the decisions that corporate America was forced to make in 2009 cannot be sustained long term.

Employee staffing and productivity levels are at record low and high levels, respectively, and the average age of many employees is much higher than in prior periods. In addition, the pain and challenges experienced by corporate America in 2009 will not be forgotten quickly and that mindset should be a big positive for the staffing industry. Of the 8.6 million jobs lost since the beginning of the recession, a good many were temporary. Our industry worked at the lever to permit businesses to ramp employee head count down quickly. The industry should now also work to permit business to ramp up employee head count quickly.

Exiting this very difficult financial and economic crisis, our Company has never been in a better operating position. As I stated earlier, gross margins are at record levels, three new practice areas have been launched, and because our debt has been reduced by $48 million over the last year, we are now able to pursue strategic acquisitions. As we reflect on our financial and operating position at the beginning of this economic expansion period versus the last, we feel a few comparisons to prior periods are informative. First, our mix of services has broadened, i.e., I.T. , engineering, health care information management, physical therapy and physician staffing were added. Second, our capitalization has improved. Third, full-year gross margins are 695 basis points higher than the full-year gross margins we reported in 2004.

Fourth, our average bill rate in 2009 was $61.67 versus $35.70 in 2004. And finally, our adjusted EBITDA margin of 7.7% for the full year of 2009 compares to a negative adjusted EBITDA for 2004. While 2010 will be challenging, we believe we will continue to make good progress in regaining lost profits in building equity value for our shareholders. In addition, based on the significant amount of debt we have repaid in 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 our Company for several years, GAAP EPS was impacted by a noncash amortization expense of $15.3 million in 2007 and $9.4 million in 2008.

These noncash expenses related to amortization of identifiable intangibles acquired in connection with our two acquisitions in January of `07. Most of the noncash expense was eliminated by the end of `09. Before turning to our fourth quarter results, we would like to share with you our operating objectives for 2010 and beyond. For 2010, we are committed to sequential revenue growth, enhancing our existing service offerings, and developing a strategic plan to achieve a billion dollars in revenues over the next five years. Since early January 2010, we have engaged with -- we have been engaged with an outside strategic consulting firm to create a plan to achieve our stated billion dollar revenue goal. Much of this growth will come from organic, internal initiatives but some of our growth will come from strategic acquisitions. We hope to share more details of the strategic plan we are developing over the coming months. What I can share with you today is that the strategy is not to stray away from our existing verticals or gross margin levels but rather to add adjacent offerings within each vertical that harmoniously co-exist with our core offerings.

Now to the fourth quarter. Revenues in the fourth quarter declined 32.3% over the fourth quarter of `08. Net income was $1 million or $0.03 per share. Revenue generated outside the US was $6.2 million or 6.2% of consolidated revenue in the fourth quarter versus $7.7 million or 5.2% in the fourth quarter of 2008. Consolidated gross margins in the fourth quarter were 33.2%, up from 32.9% in the fourth quarter of `08. Adjusted EBITDA was $7.8 million or 7.8% of revenue for the fourth quarter, down from $15.6 million or 10.6% of revenue in the fourth quarter of `08. Exiting the quarter, demand for our services continues to strengthen. Our weekly assignment revenue, which excludes conversion, billable expenses and direct placement revenues, averaged $7.3 million for the last three weeks, which included Martin Luther King holiday compared to an average of $7.5 million and weekly assignment revenues for the three-week period prior to our earnings release last quarter.

Before turning the call over to Mike, I would like to give a brief review of operations. As we look at the nurse travel group, we experienced stabilization and revenues generation in Q4, mainly due to the increase in new orders that picked up in mid-September-October. Moreover, we again were successful in maintaining our gross margins at high levels in the context of the current economic conditions and challenging marketplace. For the quarter, gross margins finished strong at 24.6%, representing an 80 basis point sequential decrease but a 115 basis point improvement year-over-year. During 2009 we made significant investments in building up a highly experienced sales team that will help us increase our geographical presence and expand our market share with existing customers. Revenue for the Life Science segment grew on an absolute basis over the third quarter to $22.9 million, which represented a 1.6% sequential increase and a 25.6% decrease year over year. The sequential increase is a major improvement over the prior quarter results and we attribute this performance to an improved economic environment.

Gross margins for the Life Science segment were 32.8% for the quarter, the second strongest quarter in 2009. This represented an 85 basis point decrease over the prior quarter and 151 basis point decrease year over year. On a divisional basis, the US gross margin was 32.4%, a decrease of 92 basis points over the prior year and 151 basis point decrease year over year. Foreign gross margin was 34.8%, representing a 51 basis point decrease and 191 basis point decrease from the prior year. A significant contributor to the decline in gross margin was lower direct, higher conversion fees. Moving onto the first quarter of 2010, demand for both contract and permanent placement services remain steady and the business climate in most of our markets continue to stabilize and improve. However, market conditions are far from historical post recession levels. Early in the quarter we are encouraged with the steady flow of job orders, number of weekly assignments and permanent placement activity.

Now I would like to turn to the Allied Health Care Group. I am pleased to report that revenues grew on an absolute basis over the third quarter to $11.8 million. This represents a 14.7% sequential increase on an absolute basis and a 10% decrease year over year. We attribute this growth to effective response to an unprecedented demand for flu vaccinations during the quarter. Historically during the third and fourth quarter of each year, the Allied Division aggressively targets and supports providers of flu vaccination services. As we reported in our third quarter earnings call, demand for standard flu vaccinations coupled with the H1N1 pandemic soared to record levels. The momentum we realized later in the third quarter combined with planning and successful execution resulted in favorable results in the fourth quarter of 2009. Our core business continued to stabilize during this period and as it -- and its performance was consistent with normal fourth quarter seasonality. As we go forward in 2010 we continue to plan, develop new business partnerships and position our field operations to meet the demand of this seasonal event. We expect to capture our fair share of seasonal flu vaccination services in the second half of 2010 although most likely at lower levels than 2009.

Although the operating environment improved during the quarter, further growth was constrained by the following specific economic factors; a continued reduction and demand for elective procedures; greater number of patients choosing more cost effective forms of treatment such as self medication over more costly medical procedures; hospitals reduced usage of contract professionals in response to declining cash balances and patient admissions and a reduced demand for less critical allied skill modalities.

Turning to the first quarter of 2010, the market in which we operate continued to stabilize and the momentum we realized in the prior quarter has positioned us well for continued growth. However, as expected, the demand for standard seasonal flu and H1N1 vaccinations has significantly dissipated. Demand for our core clinical lab, medical, financial, local nursing, Allied travel, rehab therapist and HIM professionals continues to improve. Our focus continues to be on new business development gaining greater presence in higher level skill disciplines, permanent placement, preservation of gross margins and employee productivity.

Now I would like to give a little insight into our position staffing segment. As most of you witnessed, this segment remained strong early in 2009. Lagging the staffing industry as a whole and feeling the effects of the recession. Unfortunately we believe it will also lag a bit in the recovery. Demand trended downward in Q3 but flattened in Q4 and has started to trend up. The good news is we have been able to push our fill rates in margins to historical highs, offsetting some of the depression and demand for services. We expect the lag to be short lived with the segment rebounding in late Q2 of this year.

Here's more detail. As noted, the segment was strong early in the year but Q4 revenues came in 14% lower than the same quarter last year and 11% lower than the third quarter of 2009. The net result was a 2% decrease in revenues in 2009 versus 2008. This decrease in revenue can be directly attributed to a decrease in demand as measured by days of coverage requested or sold days. Sold days were down 43% in the fourth quarter from the same quarter last year and almost 12% sequentially. Gross profit fell 7% in the fourth quarter versus last year's fourth quarter and 9% sequentially; however, we ended the year with a 4% increase in gross profit for the full year.

We attribute this to a strong focus on building and maintaining margin, which jumped 242 basis points in the fourth quarter of the same quarter last year and 95 basis points sequentially. Our gross margin for the fourth quarter was 34.3%, our full year gross margin jumped 186 basis points from 30.7% in 2008 to 32.5% in 2009.. We also focused on increasing fill rate to offset the decrease in demand. Our fill rate was 59% in the fourth quarter of 2009, a 54% increase over the 38% fill rate in the fourth quarter of 2008. Fill rates of about 30% have been standard throughout the history of this segment of the industry. As noted last quarters, VISTA's emerging diversified businesses are also making important contributions during this economic downturn.

Combined revenue for our international placement and physician search and consulting divisions increased 41% in the fourth quarter of 2009 compared to the fourth quarter of 2008 and 23% sequentially. The International Placement Division staffs physicians in Australia, New Zealand, and Bermuda, and is expanding. We have also successfully integrated the experienced consultants brought to us through our recent acquisition of Fox Hill Associates, a small competitor. The division provides permanent placement for clinical, clinical academic and clinical executive openings and in-house recruitment programs, program development and consulting. Despite the uncertainty we think health care reform will create opportunities in the physician staffing sector.

Common themes in the latest major health care reform proposals lead us to believe that medicaid will be expanded, that primary care resources such as community health centers will receive greater attention, and that programs aimed at prevention, wellness, and expanded coverage for children will receive funding. In addition, the California Department of Managed Health Care announced new requirements limiting wait times for appointments for members of managed health care organizations. Effective January of 2011, the new standards will certainly drive up the need for positions. because more than 21 million Californians belong to health maintenance organizations. Physician shortages and maldistribution increase the demand for physician staffing services and bode well for the locum tenens companies in general.

If provisions aimed at simplifying the administration of health care insurance programs are ultimately included, it could become less complex to place a locum tenens position and easier to ensure health care organizations get appropriately reimbursed for their services.. Looking forward we expect to make a slow steady return to former levels of productivity. The decline in demand has flattened out and we are taking steps to be well positioned in the recovery. Unlike most of our competitors, we weathered last year without having to cut staff. Given the time it takes to ramp up qualified sales professionals in this very complex staffing niche, we see that as a strategic advantage. I would now like to turn the call over to Mike McGowan, President of Oxford Global

Thank you, Peter. I'm pleased to report fourth quarter revenues for the I.T. and engineering group were $35.6 million, 11.7% sequential increase over the third quarter of 2009. This revenue increase is a reversal of the prior quarterly trends, most recently being a 2% decrease in quarter three over quarter two. The improvement reflects monthly increases in our average weekly sales starting in September 2009 and were the result of a significant increase in the number of billable consultants on assignment, somewhat offset though by continued decreases in our average bill rates. On a full-year basis 2009 revenues for our I.T. and engineering group were $138.1 million, a 36.9% decrease over the $218.7 million we realized in 2008.

The decrease in revenues compared to 2008 was due to fewer billable consultants on assignment, lower bill rates, and decreases in billed expenses and conversion revenues. As we have discussed on previous calls, Oxford specializes in recruiting senior consultants and contractors in four technical disciplines, information technology, software and hardware engineering, mechanical and electrical engineering and telecom. The I.T. discipline, which is primarily focused on the E.R.P. market, experienced the largest percentage revenue decrease year over year and continued to be negatively impacted by lack of available capital and by our clients' reluctance to start new projects during the recession. Thankfully we are now starting to see that change as clients are beginning to approve budgets for capital projects and for new programs. Contrary to our experience in the IT discipline, 2009 revenue for the telecom discipline was down only 1.3% compared to 2008.

Now for more details. During the fourth quarter of 2009, we averaged 641 billable consultants on assignment, a 19.3% increase over the third quarter. The average bill rate in the fourth quarter of 2009 was $109 per hour compared to $123 in the fourth quarter of 2008 and $112 in the third quarter of 2009. Our gross margin for the fourth quarter of 2009 remains strong at 35.7% but down slightly from 37.9% for the same period in 2008. During the second half of 2009, we intentionally relaxed our historically high markups to drive revenue.. Nonetheless, the bill rates and gross margins of our IT and engineering segment continue to be among the highest in the staffing industry.

During the fourth quarter we were also successful in continuing our strategy of being highly diversified across clients and industries, billing over 620 different client companies with no single client accounting for more than 3.1% of our revenue. Our recent business trends reflect the shift underway in the broader US economy, away from heavy manufacturing sectors towards higher tech products and service industries. Demand for our I.T. and engineering consultants continue to increase from telecom, medical,equipment, utility and semiconductor companies as well as from education and health care organizations. As we expected, the largest declines in our business were from manufacturing firms including appliances, machinery, and instruments. From an organizational standpoint, our internal staffing consultants drive our business and are significant investment necessary for current and future growth.

While the average number of our staffing consultants increased during first two quarters of 2008 to a high of 447, since that time we have decreased the number of consultants and averaged 269 over this past quarter. We monitor our operational activity daily and will continue to align the size of our sales staff with current and future economic conditions. As a result of our strong performance in the fourth quarter which has somewhat continued into January and February, we're beginning to add sales consultants to select Oxford International and Oxford and Associates offices. As we announced last quarter, we reintroduced a permanent placement line of business to our current temp service offerings to take advantage of the increased demand for permanent IT and engineering professionals that will accompany the recovering economy.

As of last week, we have hired seven staffing consultants who will focus 100% of their time on firm opportunities led by our most tenured executive who managed our IT and engineering firm business prior to the 2001 recession and who has been with the company for over 25 years. We anticipate this service will provide added value for our clients in addition to keeping our competitors from gaining a foothold in our client companies and will drive growth to our bottom line. Consistent with the other On Assignment divisions, we anticipate the future firm revenue within our IT and engineering segment will be a small percentage of our total revenue.

Another investment opportunity for us is within health care IT. The aging U.S. population, the need to make our health care system more efficient and the US Government's investment in heath information technology presents a compelling opportunity for our I.T. business. We conducted a pilot market test in 2009 and based on our positive results, we are expanding our presence in the health care I.T. market. We have dedicated 12 staffing consultants to the effort in one of our Oxford International Telecenters and are adding the service to select Oxford and Associate offices in metropolitan areas with large concentrations of hospitals and health care networks.

As I mentioned earlier, we have seen an increase in consultants On Assignment and a result in weekly sales since September, reflecting the slow and steady economic recovery similar to the previous recession. We experienced the normal seasonal dropoff at the end of December and early January in terms of consultants On Assignment but have experienced steady progress since then. In anecdotal reports from our clients, are that most intend to increase their temporary hiring throughout the year. In addition, our own quarterly survey of clients, the Oxford index, also indicates a slight increase in hiring in quarter one over quarter four. Even though the economic recovery has been relatively stable, we are certainly hopeful for even more increase momentum in the second half of the year.

As Peter and Jim know, I just completed quarterly business reviews with all of our operating units. Our directive to everyone throughout the organization was to continue their efforts on the new business development , cross selling to clients within our existing disciplines, and expand our database of potential clients and consultants. I can assure you our entire team remains committed, are still working very hard, and are glad to get this recession behind us. I'll turn the call over to Jim Brill.

Thanks, Mike. As Peter mentioned, consolidated revenues for the quarter were $99.9 million, down 32.3% from 2008 There were approximately 61 billing days in this quarter, 64 in the third quarter and approximately 62 in the fourth quarter of 2008. However, for nurse travel, there were 92 billing days this quarter, 92 last quarter and 92 in the fourth quarter of 2008. Foreign currency had about a $700,000 positive impact on revenue relative to last year's fourth quarter and a $180,000 positive impact on revenue relative to last quarter.

Now, let me address some of the variances and their related explanations to the extent Peter or Mike has not. The travel nursing group, the bill rate relative to the third quarter was essentially flat and the bill pay spread as well as the bill pay margin expanded. The bill rate was down 6% from the fourth quarter of 2008 and the bill pay spread contracted. However, the bill pay margin expanded. The bill rate, bill pay spread, and margin in Life Science was essentially flat with the third quarter. The bill rate was down 2% from the fourth quarter of 2008 as was the bill pay spread while the bill pay margin remained relatively flat. Allied Health Care, the bill rate relative to the third quarter was up 3.5%., the bill pay spread also up but the bill pay margin was down.

In physician staffing, we saw a slight decrease in the bill rate and the bill pay spread relative to the third quarter as well as the fourth quarter of 2008. The increases in gross margin were driven primarily by decrease in medical malpractice expense and an increase in direct hire fees.. At our IT engineering division, Mike mentioned that we saw a drop in gross margin from last year which was driven primarily by a drop in the bill pay margin and a decrease in conversion revenue. Conversion and direct hire revenues totalled $2.1 million in the quarter or 2.1% of revenue as compared to $2 million or 2% of revenue in the third quarter and $2.9 million or 2% of revenue in the fourth quarter of 2008. Total SG&A expense for the third quarter was $29.6 million or 29.6% of total revenues, up from $28.5 million or 29% last quarter and $38.2 million or 25.9% in the fourth quarter of 2008.

Reduction from the fourth quarter of 2008 in part related to lower employee costs due to reduced number of employees and $870,000 reduction in amortization of intangibles related to acquisitions. Increase from the previous quarter was in part due to insurance settlement gains of about $300,000 and positive adjustment to old Workers Compensation claims of about $150,000. Experience in the third quarter which did not reoccur in the fourth quarter. Also included in SG&A in the quarter is $1.4 million of depreciation, $1.3 million of equity based compensation.. Our operating income was $3.6 million or 3.6% of revenues for the quarter compared to $4.3 million or 4.4% of revenues last quarter and $10.3 million or 7% of revenues in the fourth quarter of last year. Tax rate for the quarter was 47.7%. Net income was $1 million or $0.03 per diluted share.

We believe it's meaningful to compare EBITDA and adjusted EBITDA when comparing current quarter's result with prior quarters. As outlined in today's press release, EBITDA for the quarter was $6.5 million, excluding equity-based compensation expense of approximately $1.3 million, adjusted EBITDA was $7.8 million or 7.8% of revenue. Adjusted EBITDA was $8.7 million or 8.9% of revenue last quarter and $15.6 million or 10.6% of revenue in the fourth quarter of 2008. We ended the quarter with cash and cash equivalents of $26 million, down from $35.1 million last quarter.

While we generated $2.2 million in cash flow from operations during the quarter, we used $5 million to pay down our term loan, and $4.8 million to make the final earn out payment related to our acquisition. CapEx was approximately $900,000, down from $1.1 million last quarter and down from $1.9 million in the fourth quarter of 2008. Net accounts receivable was $50.2 million at the end of the fourth quarter and day sales outstanding were 46 days, the same as last quarter but down from 48 days in the fourth quarter of last year. Now, turning to productivity, which we define as quarterly gross profit generated per staffing consultant. For our fourth quarter we averaged 570 staffing consultants and gross profit for staffing consultant was $58,000, down from $66,000 in the fourth quarter of 2008, but up slightly from the third quarter.

Life Sciences segment generated $78,000 of gross profit per staffing consultant, unchanged from the $78,000 last quarter. The health care segment generated $54,000 in gross profit for staffing consultant for the quarter as compared to $55,000 last quarter. The physician staffing segment generated $75,000 for the quarter compared to $92,000 last quarter and I.T. and engineering segment generated $47,000 in the quarter, compared to $41,000 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 worldwide economy. So given that backdrop, based on labor markets not getting any worse than they are today and normal seasonal trends, which do not include the impact of the recent or future winter storms, we currently estimate consolidated revenues of $95 million to $99 million for the quarter ending March 31, 2010.

We are estimating consolidated gross margins of approximately 32.4% to 32.6%, which include the reset of employment taxes. SG&A of $29.4 million to $30.2 million including equity based compensation expense of approximately $1.3 million, approximately $600,000 in amortization intangible assets and financing costs and depreciation of approximately $1.5 million. We estimate net income of $700,000 to a loss of $500,000 and earnings per share of $0.02 to a loss of $0.01. an effective tax rate of about 47%. Adjusted EBITDA is estimated to range from $4 million to $6.3 million. Now I'll turn the call back to Peter for closing comments before we open it up for questions.

Thank you, Jim. We believe that with the benefit of hindsight history will show that 2009 will turn out to be the most challenging year for the entire staffing industry. The gross and adjusted EBITDA margin that we reported today against such a back drop is the true measure of the strength of our company.

While the entire On Assignment team is very proud of our performance in this difficult economic environment, we are now 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 are today. I would like to now open the call up to participants for questions. Operator?

(Operator Instructions) Your first question is from Jim Janesky of Stifel Nicolaus

Hi, good afternoon. a couple of questions around margins. when you look to the first quarter, obviously there's payroll resets. and then you have dramatic increases in state unemployment taxes. we have seen that from everyone. but, as we go throughout 2010, should, you know, we should expect that the margins will go up but they will be under some pressure because of state unemployment taxes. is that a way we could look at it?

that's a fair analysis, Jim. I mean, we think -- we're starting to tighten the margin profile back up in I.T. that's going to be a slower progress. it's undeniable that it's a very, very competitive marketplace. the nurse travel marketplace, which thank God is only 9% of our revenue, is probably the most price-sensitive right now. some of the larger competitors are racing to the bottom. but we feel that, you know, there could be some compression, potentially on our margin but we don't think it will show up because of the improvements we're making in other areas as well as we're hoping that conversion and our additional emphasis on permanent place element be a contributor to expanding the margin.

Jim, just one other thing to add on employment taxes. generally speaking over the course of the year, employment taxes will tend to drop off. the big question, I think, will be whrrnt the unemployment taxes continue to get reset upward through the year or whether the reset will not happen until next year.

I would -- just grading the kind of pricing -- not strength but just rational behavior in the markets strength but just rational behavior in the markets we serve -- I.T. , life sciences, and even allied health care are manageddable but it's pretty irrabble in the nursing

okay. longer term, however, that will depend on the mix ofismT. and engineering segment. if that continues to outperform we should see more gins expand but do you have a long-term kind of goal for gross profit margins? is it over 33%?

they're higher than they are right now but I wouldn't quote you -- we're not giving full-year. we are going to be, you know, Jim, sharing with you as I said, our five-year plan later this year with you but as I said -- what I can share with you is we're not planning on deviating from our gross margin profile significantly.

okay. and a final question on operating expenses, the range you gave from the first quarter, you know, is up from the fourth quarter. is there some expense that, you know, are you making investment somewhere that would cause that to whip up for the year?

I'll go first and let Jim add. we anded a couple of people and are spending several hundreds of thousands of dollars building our five-year front plan. Jim, you want to add anything to that?

there are also some bonuses that are included in this year's plan that were not included in last year.

sure. okay.

just normal cycle of how our audit and socks expenses flow in the first versus fourth.

that's true.

okay. all right, thank you.

you bet.

your next comes from Tobey Sommer with SunTrust Robinson.

thanks. I think if I caught it correctly you gave a lot of detail but you talked perhaps about sequential growth in the top line throughout the year. I was wondering if you could comment -- are you seeing any lengthening of assignments or orders placed, you know, perhaps for longer lead times? you know, with a longer lead time? thanks.

well, I'll go first and then let Mike speak to the I.T. Group. we're actually, actually, Tobey, seeing a shortening of assignments on the nursing. and we're seeing just less overtime call work for the physicians right now. which is, on the physician side, not significant. traditional we could assume there would be a certain amount of overtime call work, we're just not really seeing that right now. the allied in lie sciences are progressing nicely and are stable and on the nursing, the hospitals are trying to cut it down to the bare minimum and have the most flexibility of the shortest time period they have to commit to in order to get a traveler so they're doing block bookings, trying to use per diem instead of a travel nurse. Mike, you want to address the I.T. side?

Sure. On length of assignment, five months for quite some time and is still about that so we really aren't seeing much change in that. In terms of the lead time, though, question, we're starting to see more lead time because of the, some of the clients are approving capital projects, which are planned out longer term. So we're starting to see some, a longer lead time, if you will, on when they will need consultants but that's not even appreciably more than what we normally see. Is there thanks, I Mike. I had another question for you. There's been some talk of an evidence of a pickup in a cap excycle proudly for I.T. and I know those kind of initiatives aren't necessarily put a lot of people on a project.

Could you describe how -- if you're seeing evidence of that yourself and how on assignment may play in that environment?

we actually are starting to see it. we started seeing a little Uptick in the fourth quarter -- not a lot. we started seeing it and now in the six weeks now in the new year, we're actually starting to see clients that are having those capital projects approve and they're going to need consultants, as you're aware we don't put five or six people on but will do the one or two and we're now starting to see that and, you know, S.A.P. , et cetera. projects. we're starting to see it. it's not rocket but as I mentioned in my prepared comments, it's just kind of steady at this

Peter, I wanted to ask you a question about the staffing market proudly. broadly. are you hearing from clients that they are going to rely more heavily on temporary staffing and try to increase the flexibility of the labor force at this point? are they saying all the right things? I want you to also characterize the actual, you know, behavior in maybe see if that is matching the words at this point.

Right. The answer is yes. I firmly believe that the staffing industry in general is going to benefit from this kind of slower growth and uncertainty. I mean, we're entering this new expansion period at levels of productivity, Tobey, and just sheer number of employees that really we haven't seen in prior recessions. and that bodes very well. This may sound a little ironic, but the staffing industry is coming as it relates to its customer base, is coming out with a very good reputation. If you look at corporate America, they were able to react and recalibrate their expense and employee levels very, very quickly and it was because the staffing industry, service offering work the way it was supposed to. So a very positive belief on the usage of staffing and I think that's going to grow. as it relates to customers, it's really by -- it's by discipline. life sciences and I.T. are performing very well. It's still pretty irrational on the health care side. and that is going to be a boomerang. I would tell you that there's going to be a day of reckoning for this irrational buying that's occurred and there's just really, we don't think the health care business can really do much harm to us in 2010 but it's just a tough slot right now. and we're not -- I'm not seeing any significant change in behavior. I've spoken with a lot of customers as well as vendor-neutral vendor management programs and the irony is that the wholesale business, the VMS business, is down harder than the retail business. It will work itself through. it always does. But right now, I think we're probably -- my gut tells me we're 60% through the tunnel. to get to the other side of the tunnel on the nursing side, at least. the allied health care side starting to feel a little bit better and as we said, we didn't want to overstate the strength we had an incredible fourth quarter but a nice pop from reoccurring flu service business. even stripping that out and just looking at our other business, it's making did progress and we're seeing some nice progress in some of our newer practices -- rehab therapy and health information management. the more kind of value-added services are growing faster than kind of commodity skill sets.

Thank you, one last question. Jim, you mentioned there's a possibility that payroll taxes could get reset throughout the year. I was wonder sing how you reset that risk and just getting some color there. Thanks.

There are certain states that have off-cycle increases. that could happen. we think we have taken that into account in our budgeting process. the majority of states reset on a regular basis.

so, Tobey, we didn't go into the year saying it was X percent in the state of Pennsylvania and that's what we're going to use for 2010. we raised it so the potential risk is, did we raise it enough? but we have raised it even though we haven't gotten notification of what it's going to be for 2010.

thank you very much.

Your next question comes from Jeff Silber. BMO

thanks so much. just wanted to go back to your first quarter guidance a bit. you're looking for a slight sequential drop in revenues. will we see it in one segment more than others?

yes. yes. we're seeing everything except nursing and [ indistinct ] and as I said, Jeff, we think it will return to front at the late second quarter.

great. that's helpful.

it's really just nursing at this point. okay. I'm sorry, just one more question -- what's the share comp you're using for your guy dance?

it is 37-1.

okay. great.

Jeff, let me correct one other thing that I just said. I said it was mostly just nursing. that is 100% correct. the allied business may be down slightly sequentially but that's because of the removement of the flu vaccine services.

I was going to ask on that, if you could quantify the impact on the quarter. that would be helpful.

well, maybe about $1.5 million. I think that's probably a good number.

okay, great. in terms of adding new sales consultants this year -- I know it's still early -- it sound like you're starting to do that in I.T. are you talking about other areas as well?

Yes we may see a little bit of after this in the life sciences space. as we said in our prepared remarks, we're at the highest head count in the history of our business, unlike others. we have not made a siping l reduction in staff in our doc business. we don't envision adding -- we add to the sales force but don't envision adding to the recruiting force in the nursing business and allied business, it would be strength so the real growth in head count the I.T. followed by life sciences. but not nearly as large growth in life sciences as I.T.

okay, great. just one final question -- from a balance sheet perspective can you reminds -- are there any constraints on your debt repayments?

no.

so in theory you could start paying down debt as you continue to generate more cash flow?

yes.

okay, great. thank you so much.

follow-up question from Tobey summers with SunTrust Robinson.

thanks. I had a numbers question as well. just wanted to make sure I understood the amortization and depreciation. the $1.5 million of depreciation and the $600,000 amortization you talk about for the first quarter -- is that all in for DNA or could you refresh me -- is the tail from identifiable intangibles from the acquisition -- is that pretty much over? well. the amortization is what is left over from the acquisition. that's kind of where we are with regard to the first quarter.

but can you quantify it? it's relatively small compare to previous years?

yes. it's down significantly, even compare to last quarter it's down from $900,000 last quarter. based on the wait works, it will drop down again in the third through the fourth quarters to closer to $400,000.

thanks. another numbers question -- I may have missed -- do you have -- with your debt repayments, is there a point at which you get a step down in interest or anything like that as a result of the debt levels lower?

not lower than this, no.

okay, thank you. fsh

Yes

(OPerator Instructions) there are no further questions at this time. please proceed with any comments or closing remarks.

once again we thank you for your attention and interest in our company and look forward to reporting our first quarter results. thank you. for this afternoon.

this concludes today's conference call. you may now disconnect.