ASGN Inc (ASGN) 2010 Q4 法說會逐字稿

Please stand by for realtime captions. Good afternoon. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the On Assignment Inc fourth quarter 2010 conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I will now turn the conference over to Jim Brill, Chief Financial Officer. Please go ahead, sir.

Thank you. Before we begin, I would like to remind everyone as we do each quarter that our presentation contains predictions, estimates and other forward-looking statements representing our current judgment of what the future holds.

These include words such as forecast, estimate, project, expect, believe, and similar expressions. We believe these remarks to be reasonable, but they are subject to risks and uncertainties that could actual results to differ materially from the forward looking statements. We describe some of these risks and uncertainties in today's press release and in our filings with the Securities and Exchange Commission. We do not assume the obligation to update statements made in this conference call. I would like to introduce Peter Dameris, our CEO and President, who will provide an overview of our fourth quarter results. Peter?

Good afternoon, everyone. I would like to welcome everyone to the On Assignment 2010 fourth quarter earnings conference call. With Jim and me today is Emmett McGrath, President of our Life Sciences and Allied Healthcare groups. During our call, I will give you a review of the markets we serve and our operational highlights, followed by a discussion of the performance of our operating segments by myself and Emmett. I will then turn the call over to Jim for a more detailed review and discussion of our fourth quarter financial performance and our estimates for the first quarter of 2011. We will then open the call up for questions.

All markets we served, except physician staffing, improved significantly during and exiting the quarter. Once again, we saw a particularly strong growth and strength in the life sciences and IT end markets. Included in our fourth quarter consolidated revenue was approximately $750,000 of revenue earned by our nurse travel group in October from supporting a customer which experienced labor disruption during the quarter. Exiting the quarter, revenue growth in our non-healthcare related groups, i.e., IT, engineering, and life sciences, which made up 70% of our total fourth quarter revenues, was very good and continues to improve.

Our healthcare groups have definitely stabilized; and as recently as the last two weeks, our physician staffing group in particular has shown positive signs of future growth. In the physician group, physician days sold in the last six weeks has increased 8% over the same period in the fourth quarter. During the fourth quarter, we also saw good signs of improvement in demand and nursing and Allied Healthcare. Based on our growth in professionals on billing at the end of the fourth quarter and nurse travel and Allied Healthcare, we believe absolute revenue growth is possible in 2011 for our nursing, Allied Healthcare groups.

Although currently healthcare staffing continues to be a drag on our revenue growth, we firmly believe that these end markets will provide some of the greatest growth opportunities in the latter part of 2011 and beyond. In fact, as other companies single service offerings begin to slow down, our diversity of offerings should permit us to continue to grow at a greater rate than others. Consolidated gross margin of 34.9% was up 162 basis points year over year and was a new fourth quarter record for the Company.

Regarding industry dynamics during and exiting the fourth quarter, secular trends continue to permit temporary labor to see greater growth prospects than full-time labor; and as the economy continues to improve, we fully expect to benefit from classical, cyclical recovery trends that occur in professional staffing.

As we advised you earlier in the year, we developed a five-year strategic plan to get to $1 billion in revenue. The plan requires us to grow approximately 10% compounded annually with approximately $50 million a year in acquired revenues. While fiscal year 2010 was less than optimal -- was less than an optimal operating environment, our growth in our non-healthcare businesses and our two acquisitions to date kept us on track to realistically have an opportunity to achieve our stated revenue goals. In addition, as we disclosed on December 22, 2010, we have entered into a letter of intent to acquire a privately held clinical research staffing firm in western Europe. We hope that, that transaction will close by the end of February.

Our operating performance in 2010 demonstrates that the actions we have taken over the last two years has us well positioned. By increasing our gross margins, substantially paying down our debt with cash generated from operations, adjusting our non-revenue generating costs and expanding our service offerings, we were able to grow our adjusted EBITDA about twice as fast as our revenues in the fourth quarter. We believe this operating leverage trend will continue to allow us to grow adjusted EBITDA faster than revenues throughout 2011.

As for the actions we took in 2010 to sustain our future positive revenue growth rates, we substantially added to the number of recruiters and sales personnel that we employed. In the fourth quarter of 2010, we averaged 728 recruiters and sales personnel. This compares to 570 in the fourth quarter of 2009.

Regarding capitalization, on October 25, 2010, the Board Directors of the Company authorized the purchase on the open market of up to $20 million of the Company's common stock. The authorization lasts for four years and is subject to market conditions in compliance with bank covenants and volume limitations.

During the fourth quarter, we acquired 291,212 shares of our common stock at a total purchase price of $2 million, which was maximum amount permitted under our old credit facility. The average price per share of the stock we purchased was $6.84.

On December 3, 2010, we completed the closing of our new pro rata bank facility led by Bank of America and Wells Fargo. The new $125 million term loan and revolving credit facility is priced approximately 350 basis points better than our old facility, and the covenants and terms of the new facility should provide us flexibility to continue to pursue attractive acquisitions.

Now to the fourth quarter. Revenues in the fourth quarter increased 21.2% over the fourth quarter of 2009. Net income before non-recurring charges related to the early termination of our bank agreement and the write-off of $15.4 million of goodwill associated with our nurse travel group was $2.8 million, or $0.08 per diluted share. Including these charges and expenses, net loss was $13.7 million, or $0.38 per diluted share, versus $1 million, or $0.03 per diluted share.

Revenue generated outside the United States was $9.4 million, or 7.7% of consolidated revenues in the fourth quarter, versus $6.2 million, or 6.2% in the fourth quarter of 2009. Consolidated gross margin in the fourth quarter was up from 34.9%, up from 33.2% in the fourth quarter of 2009.

Adjusted EBITDA was $11.6 million, or 9.6% of revenue for the quarter, up from $7.8 million, or 7.8% of revenue in the fourth quarter of 2009. Permanent placement and conversion fees represented 3.4% of revenue for the quarter. Exiting the quarter, demand for our services strengthened in most divisions and nurse travel, physician staffing and Allied Healthcare are starting to see better demand trends.

Our weekly assignment revenue which excludes conversion, billable expenses and direct placement revenues averaged $9.1 million for the last three weeks. This is up 24% from the same period in 2009 and up 7% from the same period last quarter. In addition, our weekly revenue recovery -- our weekly revenues recovered quicker in January this year than in the previous two years.

Before turning the call over to Emmett, I would like to give you a brief review of operations. I am pleased to report that our IT and engineering segment had another excellent quarter. Revenue, gross profit, gross margin and EBITDA exceeded our expectations with continued improvement for each month of the quarter. Revenue for the fourth quarter was $54.2 million, a 14.3% sequential increase over the third quarter of 2010 and a 52.5% increase over the fourth quarter of 2009. This followed the third quarter growth over the same period of 2009 of 48.9%. In addition, for the fourth quarter in a row, we experienced growth in each of our respective specialty areas.

For the full year, the IT and engineering segment grew by 29.4% from $138.1 million in 2009 to $178.7 million in 2010. Our European IT and engineering segment, which is operated out of Cork, Ireland, also had a stellar year as 2010 sales increased 91% over 2009.

The 52.5% increase in year over year quarterly revenue was due to a significant increase in the number of billable consultants On Assignment and higher average bill rates. Additionally, perm placement and conversion fees increased to 506,000 in the fourth quarter of 2010, compared to only 158,000 in the fourth quarter of 2009.

During the fourth quarter of 2010, we averaged 946 billable consultants On Assignment, compared to 641 in the fourth quarter of 2009. The average of the 946 consultants was an increase of 15.6% over the average of 818 in the third quarter of 2010. The average bill rate in the fourth quarter of 2010 was $111.06 per hour, compared to $108.81 in the fourth quarter of 2009 and $108.43 in the third quarter of 2010. Our gross margin for the fourth quarter 2010 increased slightly and remains strong at 36.2%, compared to 35.7% for the same period last year. As we have mentioned on previous calls, the bill rates and gross margins of our IT and engineering segment continue to be among the highest in the staffing industry.

Total fees for our permanent placement business unit, CenterPoint, were $248,000 in the fourth quarter and $1.1 million for the full year. If you will remember, we relaunched this practice in January of 2010.

During the fourth quarter, we were very successful in continuing our strategy to diversify our business across clients and industries, billing over 750 different client companies. No single client accounted for more than 2.9% of our revenue, and the revenue from our top 10 clients represented only 15% of our total revenue for the quarter. Demand for our IT and engineering consultants continued to be strong in the medical equipment and machinery manufacturing industries, as well as among utilities, retail trade and pharmaceutical companies. Our business with communication equipment and semiconductor manufacturers actually eased in the fourth quarter.

We launched our healthcare IT business in late 2009, and it is now our fastest growing area as we continue to add staff and accelerate our penetration in this market. We finished 2010 with 47 consultants on assignment.

From an operational standpoint, our internal staff and consultants drive our business and our significant investment necessary for current and future growth. The average number of staffing consultants reached a high of 447 in June of 2008. That number declined throughout the second half of 2008 and all of 2009. Since then, we intentionally increased our staff size from 275 staffing consultants in December 2009 to 404 at the end of December 2010, a 46.9% increase over that time period. This increase is an internal -- this increase in internal staffing consultants and the obvious investment made in 2010 positions this segment very well for 2011 and beyond.

As with previous quarters and even with the addition of this new staff, the efficiency of our team continues to improve. During the fourth quarter, we saw aggregate new assignments per day surpass pre-recessionary levels with a sales staff size that is approximately 10% less than our peak in June of 2008. The fourth quarter 2010 was the most productive fourth quarter for the IT and engineering group in its history. Due to strong and increasingly efficient sequential performance over the past four quarters, which is continuing into 2011, we continue to selectively add staffing consultants to our Oxford and Associates, Oxford International, Healthcare IT and CenterPoint offices. We monitor our operational activity daily, and we continue to align the size of our sales staff with current and future economic conditions.

To summarize, our IT and engineering segment has seen a steady increase in the number of consultants on assignment and the increases in average weekly sales since September of 2009 reflecting the steady economic recovery. Our trends are consistent with the overall industry as total IT US employment in 2010 was up 2.6%, or approximately 100,000 jobs. The increase was certainly a welcome change from the prior years, but the IT industry's employment has still not regained all the positions that were lost during the recession.

As a result, most industry experts are predicting a strong year in 2011 for IT employment. This prognostication is also consistent with our own Oxford index, our forward-looking quarterly survey, which indicates that clients anticipate increasing their temporary hiring from Oxford in the first quarter of 2011 in almost all of our specialty areas.

Now let's turn to the physician staffing segment. We continue to work hard in a very difficult market. Revenue in the fourth quarter was $17.5 million, a 6.8% decline from the third quarter, and a 12.7% decline year over year. Gross profit rose 6.7% sequentially from Q3 to Q4, but was down 13.2% year over year. During the quarter we did an excellent job controlling what we could control. Gross margins have remained consistently strong throughout the year. Our fill rate was 58.7% in Q4, up from 57% in Q3, and a 58.5 -- and 58.5% in Q4 of 2009. In addition, our Locums bill rate hit $189 per hour, up 2% sequentially in Q4, and up 4.8% year over year.

Our position search and consulting division saw a 2% dip in revenue sequentially and a 5% year over year decline in Q4. However, the divisions grew revenues 31% in 2010 versus 2009. We believe that the physician staffing market has bottomed out and that we will see a slow recovery by summer. This is based on several indicators.

From an internal perspective, our productivity where the days of physician coverage our employees had scheduled increased by 7.5% from Q3 to Q4, and the trend continued in January. This uptick in productivity will drive an increase in revenue days for the days our doctors work each month and for which we get paid. Due to the complexity and long lead times required for physician staffing, this improvement in productivity will not show up until Q2 2011.

Another internal indicator is an upward trend in jobs and sold days. Our average number of jobs added per week increased by 16.7% over the course of the year, and the total number of days within those jobs trended up by 11.8% by year end. This trend continues into Januaryas sold days increased 28% over the monthly average in Q4.

We are also seeing some positive indicators within the market. For example, a recent American Hospital Association survey identified a huge increase in hospital programs among small, rural hospitals, the types of hospitals that are most inclined to use Locum Tenen staffing. The survey showed a 243% increase in hospital programs within small hospitals and 175% increase within rural hospitals. Hospital staffing is one of our largest and strongest offerings.

In addition, although the total impact of healthcare performing is unclear, Hospital and Health Network magazine predicts a positive impact on small and rural hospitals. These hospitals will benefit from a 10% bonus payment to primary care physicians and general surgeons practicing in healthcare professional shortage areas and bonus payments to low volume hospitals and hospitals in counties with low medicare costs.

The economic recovery has shifted and focused back to the worldwide shortage of physicians, compounded by an aging physician workforce, aging patient population and increasing demand for care. The American Association of Medical Colleges projects a shortage of 91,500 physicians by 2020. Physician shortages and mal distribution drive demand for Locum Tenen coverage, so this bodes very well us. Our physician group also offers an attractive flexible part time practice option to the 250,000 physicians over the age of 55.

The best news is that we have weathered the storm without having to lay off staff, which many of our competitors did. We were able to retain our experienced, top-quality personnel, continue our extensive training programs and strengthen our relationships with doctors and clients through innovative out reach. We believe we will be able to take full advantage of the recovery as it progresses.

As we look at the nurse travel group, fourth quarter results are in line with the strategy management has set for this division. Core business growth, which excludes revenue generated from hospitals with labor stoppage, was above the prior quarter by 3.7%, driven primarily by the increase in placement for highly specialized nurses, and the increase in fill rate for all of the other open orders. Open order volume in the quarter increased 12% sequentially and 6% year over year.

Quarterly revenue of $8.5 million, including a $750,000 in revenue from labor disruptions, was a sequential decrease of 12.5% and a year over year decrease of 11.1%. Gross margin of 25.9% represented 132 basis point increase year over year. Although we have been facing a tight purchasing environment, through careful management of the third-party expenses, we were able to sustain most of our personnel in this group.

We continue to feel positive about the current and long-term growth opportunities in the nurse travel business. In particular, we are encouraged by the increased levels of demand for highly qualified nurses and by the increase in the average bill rate for our services. Most of this demand pick up occurred during November and December, putting us in a solid position for 2011 growth.

Moreover, since the beginning of the year, demand has been strong, generating an increase of 80 basis-point increase in the average bill rate, a 21% increase in the average number of booked weeks and a 37% increase in the average number of confirmed assignments. Placement volume is now up 22% in compared to the fourth quarter. Another measure of the momentum we are seeing is the number of working nurses, which averaged 221 in the third quarter, 229 in the fourth quarter, and stood at an actual 280 at the end of January.

2010 was a challenging year for the nurse travel group. We responded to these challenges by improving our internal processes and containing costs. As a result, our SG&A expenses were reduced by about 23% on a year over year basis. We also strengthened our business model with a well thought out effort to restructure our nurse travel sales and recruiting teams to align our businesses for the future.

Heading in 2011, we feel good about the strength of the division and our ability to continue grow our revenues and profitability in 2011 and beyond. We are confident that our goals, our strategies, passion and dedicated team of talented employees will help us achieve these goals.

Here's a recap of important metrics for the quarter. Our average bill rate of $68.71 represented a 1.9% sequential increase but a decrease of 1.2% from the fourth quarter of 2009. Our average bill rate increased 80 basis points in January to $69.29. Average hours work remained relatively flat sequentially at 39.9, but increased 1.3% from Q4 2009.

In Q4, the new order volume increased 12.3% sequentially and 6.2% from Q4 of 2009. Our top 10 clients accounted for 30.4% of the business in the quarter, down from 41.2% in Q4 of 2009. We billed 189 clients in the quarter compared to 166 in Q4 of 2009, and the average number of working nurses in the fourth quarter was 229 versus 221 in the third quarter, and at the end of January, we had 280 working nurses. I will now turn the call over to Emmett, the President of our Life Sciences and Allied Healthcare businesses. Emmett?

Thanks, Peter. Despite historical seasonal challenges, revenues for the Life Sciences segment grew on an absolute dollar basis over the third quarter to $30.9 million, which represents 2.7% growth sequentially and a 34.5% increase year over year. The improved operating environment of the Legacy Scientific Division combined with the contribution of the Cambridge group and Sharpstream Life Sciences acquisition accelerated growth in the quarter. Revenues from these acquisitions were $2.7 million. Excluding acquisitions, revenues grew 5.9% sequentially and 22.8% year over year.

On a divisional basis, US operations generated $26.4 million in revenues, increasing 2.3% sequentially and 37.6% year over year. Excluding Cambridge and Sharpstream, US operations grew 4.4% sequentially and 27.1% over the prior year. Foreign revenues were $4.5 million for the quarter, increasing 5.1% sequentially and 18.9% year over year. Excluding Sharpstream, foreign revenues increased 16.1% sequentially and 1.2% year over year. Cambridge has no foreign revenues.

Gross margin for the Life Sciences segment was 36.2%, decreasing 105 basis points sequentially and increasing 340 basis points year over year. On a divisional basis, US gross margin was 34.6%, decreasing 59 basis points sequentially and increasing 224 basis points year over year. Foreign gross margin was 45.3%, decreasing 408 basis points sequentially, and increasing 1,052 basis points year over year. This sequential decrease in gross margin of both the US and Europe is attributable to lower perm placement fees in the fourth quarter and expected non-billable contractor holiday pay obligations.

Moving on to the first quarter of 2011, demand for both contract and permanent placement services remain steady. The business climate in most of our markets continues to stabilize and improve, and the integration of the Cambridge Group and Sharpstream Life Sciences is complete. Unfortunately, revenues have been impacted in parts of the East Coast and the Midwest due to severe weather conditions. As we go forward, focus continues to be on maintaining momentum through a consistent emphasis on employee productivity, new business development, gaining greater depth with existing clients, capturing a greater number of higher level skill disciplines, leveraging affiliate division client relationships, and maintaining our hard-earned gross margins.

Now I would like to turn to Allied Healthcare. Revenues for the Allied Healthcare division were $10.1 million, which represents approximately a 1% decrease sequentially and a 14.8% decline year over year. We attribute the slight sequential decrease to normal seasonal challenges. We attribute the year over year decline solely to the spike in revenues associated with the H1N1 flu pandemic with the fourth quarter of 2009. On a normalized basis, fourth quarter 2010 revenues would have increased over the prior year.

Although the operating environment showed signs of improvement, growth was constrained by the following specific factors. One, seasonal challenges such as poor weather, reduced work schedules and holiday. Two, continued reduction in demand for elective procedures. Three, a greater number of patients choosing more cost-effective forms of treatment, such as self-medication over more costly medical procedures. Four, hospital's reduced use of contract professionals in response to declining cash balances and patient admissions. Five, reduced demand for less critical Allied skill modality. And six, a decline in expected demand for flu vaccine. Allied Healthcare gross margin for the quarter was 32.7%, which represents 149 basis point sequential decrease and an increase of 68 basis points year over year.

Turning to the first quarter of 2011, the healthcare markets in which we operate continue to be challenging, but signs of improvement do exist. Demand for core clinical lab, local nursing, allied travel and HIM professionals continues to stabilize and improve. However, as we have seen in other divisions, revenues have been impacted by weather conditions. In an effort to enhance operational performance, we have realigned our management structure to better serve the needs of our branch operation and reallocated resources to growth areas, such as HIM and a newer perm placement practice that will focus on higher-level healthcare skill discipline.

As we have done in other divisions, we continue to respond to the current soft healthcare climate by focusing on new business development, gross margin preservation, cost containment, process improvement and greater attention to individual performance metrics. In addition, we will continue to implement targeted sales and marketing campaigns to capture both seasonal and core staffing needs to strengthen our competitive position in the markets that we serve. I'll now turn the call over to Jim Brill. Jim?

Thanks, Emmett. As Peter mentioned, consolidated revenues for the quarter were $121.2 million, up 21.2% from the fourth quarter of 2009. There were approximately 62 billing days in this quarter, 64 in the third quarter, and approximately 61 in the fourth quarter of 2009. However, for nurse travel there were 92 billing days this quarter, 92 last quarter and 92 in the fourth quarter of 2009. And their quarter included about $750,000 of revenue related to a labor disruption at one of our customers. Foreign currency had about a $600,000 negative impact on revenue relative to last year's fourth quarter and a $420,000 positive impact on revenue relative to the third quarter.

Now let me address some of the variances and their related explanations to the extent Peter and Emmett has not. In Life Sciences, the bill rate was down1% from the third quarter. However, the bill pay margin increased slightly. Relative to the fourth quarter of 2009, the bill rate was up slightly, but the bill pay margin decreased. In Allied Healthcare, the bill rate relative to the third quarter was down slightly as was the bill pay margin. Relative to the fourth quarter of 2009, Allied Healthcare's bill rate was down 1.6% and the bill pay margin expanded.

As Peter mentioned, the bill rate in the physician business expanded over the third quarter by about 2%, and the bill pay margin contracted. Relative to the fourth quarter of 2009, the bill rate expanded by about 5%. However the bill margin again contracted.

As Peter mentioned in the nurse business, the bill rate expanded over the third quarter by about 2%. However the bill pay margin contracted. Relative to the fourth quarter of 2009, the bill rate contracted slightly as did the bill pay margin.

Peter also mentioned that the bill rate of the IT engineering business expanded by 2.1% over the fourth quarter of 2009, as did the bill pay margin. And relative to the third quarter, the bill rate expanded 2.4%, while the bill pay margin contracted slightly.

Conversion of direct hire revenues were $4.1 million in the quarter, or 3.4% of revenue, as compared to $4.7 million, or 4.1% of revenue in the third quarter and $2.1 million, or 2.1% in the fourth quarter of 2009.

Total SG&A expense for the third quarter was $35.4 million, or 29.2% of total revenues, which is up from $33.7 million, or 29% last quarter and $29.6 million, or 29.6% in the fourth quarter of 2009. The increase from last quarter is, in part, related to an increase of $330,000 in equity based compensation. An increase in commissions related to increased revenue and an increase of $200,000 in expenses associated with acquisitions. Also included in SG&A in the quarter is $500,000 in amortization, and $1.5 million of depreciation.

In conjunction with our annual impairment testing, we also wrote off $15.4 million of goodwill associated with our nurse travel business. Our operating loss after this charge-off was $8.5 million. Our interest expense was $3.5 million, which included $2.2 million of deferred financing expenses written off in conjunction with our new pro rata borrowing facility. Our tax provision for the quarter was $1.7 million as the goodwill write down did not impact taxes. And we had a net loss of $13.7 million, or $0.38 per share. If you add back the deferred loan costs which were written off net of tax and the goodwill write-down, our net income would have been $2.8 million, or $0.08 per diluted share. That's compared to $1 million, or $0.03 in the fourth quarter of last year and $3.2 million, or $0.09 last quarter.

We believe it's meaningful 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 a negative $6.5 million. Excluding the goodwill write-down of $15.4 million, equity based compensation of approximately $2.4 million and acquisition related expenses of about $300,000, adjusted EBITDA was $11.6 million, or 9.6% of revenue. Adjusted EBITDA was $11.7 million, or 10.1% of revenue last quarter and $7.8 million, or 7.8% of revenue in the fourth quarter of 2009.

We ended the quarter with cash and cash equivalence of $18.4 million. As Peter mentioned, we refinanced our loan facility and reduced our borrowing balance to $67 million by the end of the quarter. We generated $2.2 million in cash flow from operations. CapEx was approximately $2.1 million, up from $1.4 million last quarter and $900,000 in the fourth quarter of 2009. In addition, as Peter mentioned, we used $2 million to repurchase about 290,000 shares of our stock at an average price of $6.84.

Net accounts receivable was $62.5 million at the end of the fourth quarter, and day sales outstanding were 47 days, the same as last quarter, and up slightly from 46 days in the fourth quarter of last year.

Now turning to productivity, which we define as quarterly gross profit generated per staffing consultant, for the fourth quarter we averaged 728 staffing consultants, and gross profit per staffing consultant was $58,000. Even with the fourth quarter of 2009 and down slightly from 61,000 in the third quarter. The Life Sciences segment generated $77,000 in gross profit per staffing consultant, down from $83,000 last quarter. The healthcare segment generated $48,000 in gross profit per staffing consultant for the quarter, down from $61,000 last quarter due to the labor disruption revenue. The physician staffing segment generated $71,000 in gross profit per staffing consultant in the quarter, up slightly from last quarter. And the IT engineering segment generated $51,000 in gross profit per staffing consultant for the quarter, compared with $50,000 last quarter.

Looking at the fourth quarter revenue expectations, it continues to be difficult to estimate what will happen to revenues because of the worldwide economy. However, the labor markets do seem to be getting better, and considering normal seasonal trends, we currently estimate consolidated revenues of $120 million to $123 million for the quarter ending March 31, 2011.

We are estimating consolidated gross margins of approximately 33.3%, SG&A of approximately $35.1 million, excluding acquisition cost. Equity based compensation expenses of approximately $1.4 million. Approximately $300,000 in amortization of intangible assets and depreciation of approximately $1.6 million. We estimate net income of $2.1 million to $2.9 million, earnings per share of $0.05 to $0.07 and an effective tax rate of about 46%. Adjusted EBITDA is estimated to range from $8.1 million to $9.4 million. Now I'll turn it back to Peter for some closing comments before we open up the line for questions. Peter?

Thank you, Jim. We believe that we are well positioned to take advantage of what we believe will be a historic secular and cyclical growth for the staffing industry over the next three to five years. While the entire On Assignment team is very proud of our performance in this difficult economic environment, we remain focused on regaining our peak levels of profitability as quickly as possible. 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 now like to open up the call to participants for questions. Operator?

(Operator Instructions)

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

Thank you. I had a question for you. The growth's particularly strong in Life Sciences in the Oxford business sequentially for the second time. How do you feel as far as your specialty mix within those businesses? Do you feel like you're getting balanced growth, or are some specialties maybe taking on an outsized role?

Well, Tobey I'll go first and let Emmett add whatever he'd like. I think what distinguishes, we believe, On Assignment from other staffing firms is we try to manage our skill mix as adeptly as possible, and we typically do not engage in commoditized skill offerings and that's why our margins and bill rates tend to be where they're at.

On the IT side the only kind of outsize growth that we're seeing beyond good execution and normal recovery is in the health IT side where we are seeing enormous growth. But that's a start up for us.

The other point I would make about our IT group is while it fell more in 2009, it's growing more than in 2010, and the reason is, while other IT staffing companies may have a large percentage of their revenue mix attributable to maintenance and break mix, we derive zero revenue from help desk, administrators, et cetera. And we are more capital expenditure cycle driven. And now that you're seeing investments of capital and technology and new projects, we're maybe growing a little bit faster than those that rely on maintenance and just keeping the lights on.

On the IT side -- on the Life Sciences side, I would tell you, we're starting to see a little bit better spend from our venture capital backed biotech companies, but it's still a pretty tough customer base in big pharma. Emmett would you add a little bit please?

Sure. I think big pharma we are seeing steady flow of business. We have seen better years with big pharma, but the good thing about our Life Sciences division, Tobey, is that we are very diverse. So, for instance on the lab support product line, which they provide scientists and laboratory professionals, we touch food and beverage, chemicals, personal care like cosmetics and things like that, environmental food and beverage I said earlier. We are seeing a nice spike across that sector and also seeing it in the core Life Sciences, which would be biotechnology, and we talked about pharmaceutical earlier.

But, the real take away is that we are very diverse. We are going to see some softness in pharma, but we can offset that with these other core industries that we service.

Thanks. A question on the quarter regarding, Jim, regarding the EPS. Looks like you had some professional service fees as well. Did you include that hit in the $0.08 number that is in the release, so maybe it would have been closer to $0.09 excluding those fees?

Tobey, you're correct in your analysis. I'll let Jim flush it out, but we only added the acquisition cost to the adjusted EBITDA number. We did not add that $300,000 back to EPS.

Right. So, if you look in the release, you'll see there's a reconciliation down to adjusted EBITDA, as well as a reconciliation to what we just noted in the release as modified net income, which is this net income before the goodwill and also the deferred financing cost write down.

Okay. Okay. So, perhaps even a little bit better than suggested. Peter, in terms of your de novo efforts this cycle, is -- do you have a number, and you might not have this handy right now, but for what they have contributed since they were started year and change ago, zero to X dollars at this point? Or is that something that you could maybe touch on as we work our way through the cycle?

That's a very good observation, and we'll try to put something like that into our investor presentation. We don't have the data with us here right now.

I can tell you that when we started the new cycle in '04, we had zero revenue from health information management. I don't know what the number is, but it's in the tens of millions. We had nothing in healthcare IT. We had nothing in IT perm. We're very -- we had virtually nothing in clinical research, which is a combination of organic and acquired revenues. We had nothing in what we call the nurse practitioner, physician assistant practice over on the nurse travel side. So, there are some things that I can identify for you. I just can't give you numerically numbers right now.

Okay. That's helpful. And Pete -- or Jim, I had one last question, and I'll get back into queue. What would EBIT margin be excluding one time expenses and charges in the quarter? And I can -- if you don't have that handy, maybe you can answer later.

It's 9.8%.

Let me take a look at it, Tobey.

Thank you very much.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Thanks so much. Wanted to look a little bit forward. Your business is obviously moving in the right direction. You've made some acquisitions. Maybe you could help us by segment define what the incremental contribution margin is based on dollars and revenue going forward? I think that will help us model going forward.

Jeff, I apologize. I'm not following the question directly.

Let me make it a little bit clearer. For every dollar in revenue, what's the percentage that drops down to operating income or adjusted EBITDA by segment?

Yes. There's a slide in our investor presentation that basically says that we're not at full productivity and that we believe we can add a number of additional billable temps without having to substantially increase our workforce. And that the only thing that -- we don't need additional lease space, we don't need additional payroll clerks or HR professionals, or sales people recruiters and that all we really need to take out of that is incremental commissions on incremental revenues and some management bonuses.

But, we haven't -- I can't say, for every dollar we get $0.30 to the EBITDA line or to the -- but there is a slide in our investor pack that shows an illustrative example that we think a lot of our revenue growth in the short run is incremental. That's why I think you are seeing our EBITDA grow faster than our revenues by two to one.

All right, that's actually helpful. I'll take a look at that. Is there any major difference by segment in terms of bottom-line profitability?

Yes. The Nursing business, the revenues fell so much, and we made a conscious decision we weren't going to cut a ton of people more than what we already did, that they're carrying a fair number of people more than what the revenue would support. And since they have a longer bill week and they have a fairly attractive bill rate, if we got some growth there, I think you might see a little more incremental EBITDA from that group.

Life Science and IT and Physician already are at a double digit branch contributions. Of all of them, I would say that the doc business probably has the chance for a short run. Productivity absorption more so than some of the other groups, but they have done probably a better job than most companies in the staffing industry of maintaining their profitability reduction versus their revenue reduction.

But when you look at their -- as we said in our prepared remarks, if you look at their revenue generating headcount today versus their peak levels, we're almost identical, and they're 16%, 17%, 18% lower than their peak revenues. So, we have some room there to pick up revenues without adding a bunch of people. So, doc and nursing and the other two groups are doing pretty good, and they are very high profitability margins.

I would say Allied on the margin, to the extent that they get revenue going, is going to contribute pretty nicely, because they have some productivity built into it.

Great. That's helpful. Jim, actually just one numbers question for you. What kind of a share count is implied in your first quarter guidance?

We're using about 37.7 on a diluted basis.

Okay. Fantastic. Thanks so much.

Your next question comes from the line of Jeff Mueller with Baird.

Good afternoon, it's Jeff Mueller from Baird in for Mark Marcon. Congratulations on the strong results. Obviously excellent quarter in Oxford. Heard the commentary about the consultant rebuild after the seasonal slow time and the end of the calendar year being faster than in the prior two years, but how did that compare going back to 2006 and 2007? And some of this is pre-acquisition, but if you go back to some growth years, are we even ahead of those years?

We are. And, Jeff, the point that you made that gives me an opportunity to remake is, when you look at our productivity enhancement and our growth in EBITDA, I just want to reiterate that we're seeing these enhancements in our operating leverage despite the fact that we've made some pretty significant investments in the second half of the year. In particular, as we pointed out, in the fourth quarter of 2009 we had 570 recruiters and sales people. Today we have 728, and even with that investment, we increased the EBITDA from 7.8 to 11.6 in the margin, over 200 basis points.

Great. And obviously I think that's what the prior questioner was trying to get to in terms of incremental margins at the segment level, given that you've been making these investments. But, can you give any sense on a consolidated basis, what type of margin expansion you think you could see in 2011 or what type of incremental margins you could see in 2011?

Yes. What I will tell you is I won't tie us to 2011, but our previous quarterly EBITDA margin peak, I believe, was 10.8%, Jim?

In that range.

And the third quarter of 2008. And with the added perm and the adjustments we've made to some of our fixed costs that are back office, et cetera, we firmly believe when you're running a 35% gross margin business, that you ought to be able to bring 11%, 12% as a percentage of revenue to the EBITDA line.

It was 11.6%.

11.6%. So, we think it's very realistic we can be an 11%, 12%, 13% EBITDA margin business. Maybe for three or four quarters of the year. The first quarter, always, as you know, is significantly down because of SUI resets, added holiday pay and stuff like that.

Okay. And then on the Allied Healthcare business, some of the prepared commentary is a little bit more positive there. Obviously you were comping against H1N1, but there were six or seven factors mentioned for weakness in that business. On a sequential basis, are any of those factors getting worse, or is it just that we haven't seen a big rebuild there yet, or --

Emmett, would you like to answer that, and then I'll follow?

Yes. I don't think it's getting worse. I think our business is civilized. We're pretty steady. Not going down, not going up. So, I think we can only go up. That's how I look at it right now. Based on the reports that I get, the demand for our core modality service. So, I mentioned those challenges.

Yes. And I would just echo, a lot of this, I think, is you just -- when you look at the unemployment rate, when you have more people employed that have company-provided healthcare insurance, they're going to consume more healthcare services. And our Allied group touches physician practice groups, clinics, med-surg centers, nursing homes, acute care hospitals. So, to the extent we have more people with insurance, the more demand there will be for our -- wide variety of professionals and Allied Healthcare.

Just finally, it sounds like you're not factoring in the weather impact into your guidance, but that you are seeing some weather impact in flash reports, at least in some of your businesses. Can you give any order of magnitude for roughly what that could be in Q1, meaning $1 million, $500,000?

I think it would be below $0.5 million.

Okay, great. Thanks very much.

(Operator Instructions)

We have a follow-up from Tobey Sommer with SunTrust Robinson Humphrey.

Thanks. You may have given this in your prepared remarks. If you did, I apologize, because you gave us a lot of info. Do you happen to have same-day billing sequential revenue growth for Oxford in the Life Sciences business?

Tobey --

You may not have it. I'm not sure.

We don't have it, because we had absolute growth, and we didn't have to compare it to same number of billable days, but I think Jim told you there were two fewer days, fourth over third. Is that correct, Jim? Just bear with us one second. I think we said --

Yes, there were 62 days this quarter and 64 in the third quarter generally speaking.

And in 2009, 61?

61, yes.

I can do the math.

Those days, when you look at days, it could be -- you could round a day up or down, so when you're within one day it really isn't going to make that much difference, quite frankly.

Okay. And then I just wanted to ask a medium to longer-term question. Jim, is there much that can be done to drive the tax rate down over time? Is there an absorption issue or some more tax planning you can do to kind of tweak it down a little bit?

There are some things that we're looking at with regard to foreign taxes and how we might best utilize those. With regard to the US tax rates, given the way that our business operates, there are certain things that become not fully deductible. And unless we were to change the business model somewhat, at this point, we don't think is reasonable, we aren't going to see significant reductions in the tax rate.

Is that mostly concentrated in the Physician business, or are there other units that have similar attributes?

Frankly, it's not the Physician business.

Okay.

Yes. It's not the Physician business.

Okay. Well, thank you very much.

Thank you.

At this time there are no additional questions.

Well, we once again thank you for your attention and interest in On Assignment, and we look forward to reporting our first quarter results soon. Thank you very much.

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