ASGN Inc (ASGN) 2011 Q2 法說會逐字稿

Good afternoon. My name is Julianne, and I will be your conference operator today. At this time I would like to welcome everyone to the On Assignment second quarter 2011 earnings conference call. (Operator Instructions). Thank you. I would now like to turn the conference over to Mr. Jim Brill, CFO. 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 cause actual results to differ materially from the forward-looking statements.

We describe some of these risks and uncertainties in today's press release and in our filings with the Securities and Exchange Commission. We do not assume the obligation to update statements made in this conference call. I would now like to introduce Peter Dameris, our CEO and President who will provide an overview of our second quarter results. Peter.

Thank you, Jim. Good afternoon. I would like to welcome everyone to the On Assignment 2011 second quarter earnings conference call. With Jim and me today is Mark Brouse, President of our Physician staffing 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 Mark. I will then turn the call over to Jim for a more detailed review and a discussion of our second quarter financial performance and our estimates for the third quarter of 2011. We will then open the call up for questions.

All markets we served, including nurse travel and physician staffing continue to improve during and exiting the quarter. Once again, we saw a particularly strong growth in strength in the IT and life science end market and our Physician staffing division in the month of June, we saw a year-over-year growth in revenue for the first time in 22 months. Based on days booked in the Physician group we believe 10% to 15% sequential growth is achievable in the third quarter over the second quarter in the Physician staffing group.

As we have previously noted, now that revenue growth has returned we firmly believe that Physician and Nursing can provide some of the greatest growth opportunities in 2012 and beyond. Regarding industry dynamics during and exiting the second quarter, secular trends continued to permit temporary labor to see greater growth prospects than full time labor. We continue to see a classic cyclical recovery in professional staffing and clear signs have developed that show that skilled labor is becoming more scarce.

As we previously advised you, we have 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. Our last 12 months revenue performance and acquisitions that have been closed to date have us $49 million in revenue ahead of our $1 billion revenue and $100 million EBITDA goals.

On August 1 we announced the acquisition of Healthcare Partners, which is based out of Atlanta, Georgia. HCP is a 15 year old physician staffing firm that generated $20 million in revenue in 2010, whose assignment gross margins are similar to those at VISTA. The founders of HCP, Ruddy and Rhonda Polhill, will join VISTA's senior management team and run our Southeast regions for VISTA. Our relationship with these industry leaders goes back many years and we look forward to them joining our team.

We also announced today that Mark Brouse, President of VISTA, will transition into a new non-full time role with VISTA and that Christian Rutherford, an industry leader in the locum space, will assume the role of President of VISTA effective November 1, 2011. Mark and I have been discussing for many months what level of involvement Mark desired going forward. After 25 years of building and managing VISTA, and having crossed the $100 million revenue threshold with the acquisition of HCP, the timing seemed right for all parties.

Mark will continue to be part of our Company in a special advisor role to me. His contacts and insights were invaluable in the HCP acquisition, and we intend to pursue together other strategic acquisitions in this space going forward.

Christian is an 18 year veteran in the physician staffing world and he helped grow, as President, the largest physician staffing firm in the US at Weatherby. More recently Christian was COO of Medfinders, a $300 million diversified healthcare staffing company.

Turning to the quarter. Our operating performance in the second quarter of 2011 and our guidance for the third quarter of this year demonstrates that the actions we have taken over the last several 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 source offerings, we were able to grow our adjusted EBITDA about three times as fast as our revenues in the second quarter. We believe this operating leverage trend will continue to allow us to grow adjusted EBITDA faster than revenues throughout the remainder of 2011.

As for actions we took to sustain our future positive revenue growth rates, we substantially added to the number of recruiters and sales personnel that we employed. In the second quarter of 2011 we averaged 776 recruiters and sales personnel this compares to 619 in the second quarter of 2010. During the second quarter we did not acquire any shares of our common stock.

Now to the second quarter revenues. In the second quarter were $143.7 million, an increase of 37.5% over the second quarter of 2010 and 11% sequentially. Consolidated gross margin of 34% expanded 17 basis points year-over-year and 62 basis points sequentially. Net income was $5.9 million or $0.16 per diluted share.

Revenue generated outside the United States was $19.6 million, or 13.7% of consolidated revenues in the second quarter versus $6.2 million, or 5.9% in the second quarter of 2010.

Adjusted EBITDA was $14.8 million or 10.3% of revenue for the quarter, up from $7.3 million or 7% of revenue in the second quarter of 2010. Permanent placement and conversion fee represented 3.1% of revenue for the quarter.

Exiting the quarter, demand for our services strengthened in all divisions. Our weekly assignment revenue, which excludes conversion, billable expenses and direct placement revenues, averaged $10.8 million for the last two weeks. This is up 36% from the same period in 2010 and up 9% from the same period last quarter. We used a two week average to avoid the fourth of July holiday week and to give you a better sense for the business.

Before turning the call over to Mark I would like to give you a brief review of our operations. I'm pleased to report that On Assignment's IT and Engineering segment, Oxford Global Resources, once again had another excellent quarter. Revenue, gross profit, gross margin and EBITDA met or exceeded our expectations with continued improvement for each month of the quarter.

Revenues for the second quarter of 2011 were $65.3 million, an 8.7% sequential increase over the first quarter of 2011 and a 58.4% increase over the second quarter of 2010. This follows a 67.9% increase in Q1 2011 over Q1 2010, a 52.4% increase in Q4 2010 over Q4 2009 and a 48.9% increase in Q3 2010 over the same period in Q3 2009.

In addition, for the fifth quarter in a row we experienced growth in each of our specialty areas, IT, software and hardware engineering, mechanical and electrical engineering, Telecom and healthcare IT. The 58.4% increase in year-over-year quarterly revenue was due primarily to a significant increase in demand for consultant labor across all our divisions and disciplines. Our billable consultants on assignment increased from an average of 724 in the second quarter of 2010 to an average of 1,069 in the second quarter of 2011, an increase of 47.7%.

The average of 1,069 consultants was an increase of 7.8% over the average of 992 in the first quarter of 2011. The revenue increase in the quarter was also the result of increasing bill rates which grew approximately 6.7% in the second quarter of 2011 over the second quarter of 2010.

The average bill rate in the second quarter of 2011 was $113.57 per hour compared to $106.45 in the same periods of 2010 and $113.16 in the first quarter of 2011.

Gross margins for the second quarter of 2011 remained strong at 35.8% compared to 36.7% for the same period last year. As we have mentioned on previous calls, our bill rates and gross margins continue to be among the highest in the staffing industry.

We launched our healthcare IT business in late 2009 and it continues to be one of our fastest growing areas, as we continue to add staff and accelerate our penetration in this market. Total revenue in the healthcare IT area was $4.4 million for the second quarter of 2011 compared to 3.9 in the first quarter of 2011 and $459,000 in the second quarter of 2010. We ended Q2 with 73 consultants on assignment compared to 47 at the end of 2010. Currently our annualized run rate in this new business is approximately $18.5 million.

Total fees for our permanent placement business unit, Centerpoint, were $540,000 in the second quarter compared to $387,000 in the second quarter of 2010 and $402,000 in the first quarter of 2011. Total perm fees through Centerpoint represented only 80 basis points of Oxford's total revenue in the quarter.

During the second quarter we were successful in continuing our strategy of diversifying our business across clients and industries billing over 870 different client companies. No single client accounted for more than 4.7% of our revenue, and revenues from our top ten clients represent only 13.5% of our total revenue for the quarter.

Demand for our IT consultants remained strong in the financial services, retail trade and durable goods manufacturers. We saw an increase in our IT business with pharmaceutical and food manufacturers, and a small decline from education institutions and machinery manufacturers in Q2. On the engineering side medical equipment instruments, semi conductors, pharmaceuticals and appliance manufacturers continue to show strength, while demand from utilities and telecommunication companies have continued to decline.

From an operational standpoint our internal staffing consultants drive our business and are a 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 have intentionally increased our staff from 275 staffing consultants in December of 2009 to 404 at the end of December 2010 and 418 at the end of this recent quarter. As with previous quarters and even with the addition of these new staff members, the efficiency of our team continues to increase.

During the second quarter of 2011 we reached a level of consultants on assignment that was 25% higher than our pre-recession high with a staff count that is 7% lower than that same period. Our aggregate totals for the new assignments per day also continued to exceed pre-recession results. In fact the last week of June, a traditionally slow week due to the fourth of July holiday, turned out to be the most productive week in our history. This allowed us to carry strong momentum into the third quarter. Due to this and our continued strong sequential performance over the past six quarters we continue to selectively add staffing consultants to our Oxford International, Oxford and Associates, Oxford healthcare IT and Centerpoint divisions.

We monitor our operational activity daily and we continue to align the size of our sales staff with current and future economic conditions. In terms of current quarter activity, we continue to see strong demand for our services which is consistent with our Oxford Index, our forward-looking quarterly survey, which indicates that clients anticipate increasing their temporary hiring in the third quarter of 2011.

To summarize, our IT engineering segment has seen a steady increase in a number of consultants on assignment and increases in average weekly sales since September 2009, reflecting the overall IT staffing market and the economy in general. The IT market projections for 2011 and 2012 continue to be strong as the staffing industry analysts are predicting that the US IT staffing market in 2012 will surpass it's 2000 peak of $21.5 billion in revenue set at the height of the .com boom.

Now turning to life sciences. Operating environment for Life Sciences segment continued to improve in the second quarter. Revenues for the segment grew to $39.6 million, which represents 20% growth sequentially and a 55% increase year-over-year. Revenues attributable to the Valesta acquisition, which took place in the latter part of the first quarter, were $6.4 million. Absent Valesta, revenues were up 7.4% over the prior quarter. Revenues from the Cambridge and Sharpstream acquisition were $2.7 million. Excluding all acquisitions, revenues increased 9.4% sequentially and grew 26.7% year-over-year.

On a divisional basis US operations generated $28.4 million in revenue, up 7.7% sequentially and 26.6% year-over-year. Excluding acquisitions, US operations increased 26.2% over the prior year.

Foreign revenues were $11.2 million for the quarter, increasing 70% sequentially and 265% year-over-year. Excluding Sharpstream and Valesta, foreign revenues increased 6.9% sequentially and 30% year-over-year. Cambridge has no foreign revenues.

Gross margin for the Life Sciences segment was 34.3%, increasing 10 basis points sequentially and increasing 249 basis points year-over-year. While all divisions within Life Sciences contributed to our year-over-year increase in gross margin, the new acquisitions, Sharpstream and Valesta, had the greatest impact on our performance.

With regard to Valesta gross margins will fluctuate from period-to-period due to the variability of social costs in the countries that Valesta operates. With that being said, the Valesta gross margins are attractive and higher than our historical rates.

On a divisional basis, US gross margins were 32.5%, increasing 38 basis points sequentially and increasing 123 basis points year-over-year. Foreign gross margin was 38.7%, decreasing 396 basis points sequentially, due to a drop in direct hire revenue and increasing 333 basis points year-over-year.

Moving to the third quarter of 2011, demand for contract, contingent and retained search services throughout the US and Europe remain steady and the business climate is stable. We are pleased to report that the integration of Valesta is going well. As we go forward in the third quarter, our focus within Life Sciences continues to be on maintaining momentum through a consistent emphasis on employee productivity, new business development, capturing a greater number of higher level skilled disciplines, contributions from acquisition and maintaining our hard earned gross margins.

Now I would like to turn to the Allied Healthcare Group. Revenues for the Allied Healthcare division were $10.9 million, which represents approximately a 7.6% sequential increase and an 11.8% increase year-over-year. We attribute the sequential and year-over-year revenue increase to the improved operating environment and operational execution.

Allied Healthcare gross margins for the quarter was 32.5% which represented 111 basis points sequential increase and a decrease of 58 basis points year-over-year. The year-over-year decrease in gross margin is primarily attributable to an increase in contract assignments related to expenses such as payroll taxes and travel and housing.

Turning to the third quarter, the healthcare markets in which we operate continue to show signs of improvement. Demand for core clinical lab, local nursing, Allied Travel and health information management professionals is steady and growing. In addition, we are seeing improvement in permanent placement services associated with the health information management space and our newer Allied Direct Search business lines.

As we have done in other divisions, we continue to respond to the current soft healthcare climate by focusing on new business development and gross margin preservation. In addition, we will continue to implement targeted sales and marketing campaigns to capture both seasonal and core staffing needs.

Now, turning to Nurse Travel. I am pleased to report our second consecutive quarter-over-quarter improvement in Nurse Travel. This trend began in November of 2010 and has continued through the first and second quarters of 2011. It is the second consecutive quarter in which the Nurse Travel division delivered solid revenue growth, and I expect this momentum to continue throughout the year.

For the quarter, revenue of $10.8 million was a sequential increase of 11.5% and a year-over-year increase of 13.4%. Gross profit was $2.6 million, a 6.8% sequential increase and a 3.5% year-over-year increase.

Included in our quarterly revenue was $880,000 in revenue drive from labor disruption staffing. There was also $2.1 million in revenue from labor disruption in the second quarter of 2010. Adjusting for these amounts, second quarter revenue was a sequential increase of 2.8% and a year-over-year increase of 32.8%.

The adjusted gross margin of 23.7% represents a 129 basis point sequential decrease from the first quarter, but an 82 basis point increase year-over-year. The increase in revenue is primarily driven by positive changes in client demand. This has led to an increase in the number of travelers on assignment of 4.8% sequentially and 33.8% versus the fourth quarter of last year. While we have not seen a significant change in the average hours worked per traveler, we have seen an increase in the average bill rate of $0.35 over the last three months.

Currently our biggest challenge is finding experienced nurses willing to travel. Full time nurses are still reluctant to give up their d and the security of a hospital job for short-term opportunities even if they can make more money as a travel nurse. However, if we continue to see demand trends at or above the last two quarters, nurses will become more favorably disposed towards traveling.

Knowing that, we continue to challenge our teams to improve recruiting processes. We are firm believers that the investments we have made in our employees by offering them high quality training programs both improve our retention rate, which is key for our ongoing future growth.

In conclusion, we are very excited about our quarterly results for the division and the opportunities going forward. Current signals of increased demand and improved bill rates indicates steady growth in the near-term and we remain confident in the market's solid long-term growth potential.

As a recap of some important additional metrics in the quarter for Nurse Travel bill rates remained virtually unchanged in the first quarter, while the bill pay margin decreased sequentially, but increased year-over-year. Average hours worked per nurse increased year-over-year to 40.11 versus 39.33, but decreased sequentially from 40.33 hours in the first quarter of 2011.

Revenue from the top ten clients accounted for 35% of the business compared to 33% in Q1 2011 and 33% in Q2 2010. The average number of nurses this quarter was 305. It was 291 in Q1 of 2011 and 221 in Q2 of 2010. I would now like to turn the call over to Mark Brouse, the President of VISTA staffing services, our locum tenens business. Mark.

Thank you, Peter, and good afternoon to everyone on the call. Following the general US and world economic outlook it is still a slower than expected climb to recovery in the healthcare staffing industry. Stagnant demand has been observed in physician staffing due to continued high employment, high levels of uninsured admissions, and [only green] recessionary mindset of consumers who postpone healthcare treatment, or forego it all together.

With that said, the strong relationships VISTA has built with physicians and clients over the years have been an asset in this prolonged recovery period. VISTA has observed positive sequential growth for the quarter on select financials. We continue to be cautiously optimistic that a gradual climb mirroring general economic recovery will be observed. The following are some specifics.

Revenue was $17 million in second quarter of 2011, a 3% increase over the prior quarter and a 7.7% decline year-over-year. This sequential gain represents VISTA's first quarterly increase since second quarter of 2010. Looking at production measures on a six month basis, we are booked 25% more revenue in the first six months of 2011 than in the last six months of 2010. Hopefully, this trend will continue.

Gross profit experienced a 6.3% increase for Q2 over Q1 with a 10.3% decrease same quarter year-over-year. We continue to work hard on building our margin which was 33.1% in second quarter, an improvement of 105 basis points over first quarter and a decline of 97 basis points from second quarter of last year. As in the second quarter of 2010, we experienced a positive actuarial adjustment to our medical malpractice liability of $300,000 which contributed to our second quarter gross profit.

Our measure of sold days or request for coverage was up 9.8% to 20,588 for the quarter and 3.8% year-over-year in second quarter.

Sold days measure our opportunity to place physicians and generate revenue in the future. This is the strongest sold days production quarter since first quarter of 2010. I am pleased to say that June's production of 7,442 sold days was the highest in 22 months since August of 2009.

Our specialty mix continues to shift and in some cases reverses trends that we have seen during the economic downturn. Our locum tenens hourly bill rate is up 1.1% year-to-date compared to the same period last year and is stable from first quarter to second quarter.

Our Physician Search and Consulting division continued to hit all time records from increasing demand for permanent placement. The division generated 26.6% sequential growth in revenue in the quarter to $394,000. Year-to-date the Search and Consulting division is up 32.7% over the same period in 2010. The continued migration of physicians to permanent positions from locum tenens suggests physicians remain uncertain about the economy.

In the quarter we observed a sequential 31.3% increase in conversion revenue. This measure has been increasing steadily, though now at a decreasing rate compared to previous quarters. We expect to see an increase in physicians interested in locum tenens assignments as the economy improves.

As Peter mentioned, in our continuing effort to boost our physician staffing market share we have acquired Healthcare Partners, a locum tenens firm based in Atlanta. Now Healthcare Partners is very similar in culture to VISTA and is well respected in the locum tenens industry. Recently HCP was named by staffing industry analysts as the 12th fastest growing staffing company in the US.

HCP has 42 employees and generated over $20 million in revenue last year. There are 110 doctors on billing, covering 14 specialties across commercial, correctional and government clients in 24 states. They're heavily concentrated in the Southeast region with 45% of 2010 revenue coming from the state of Georgia alone.

HCP's founders, Ruddy and Rhonda Polhill, will remain with the Company. They will partner with our office team in Atlanta and report to Clark Shaw, VISTA's Senior Vice President. This acquisition will give VISTA a competitive advantage in the southeastern region and help us reach our domestic staffing growth goals.

Our International Placement division's revenue remained stable from first quarter to second quarter and showed a 5.8% increase in revenue over the same quarter last year. Additionally, production in June was one of the strongest months this year for both revenue and placements.

Our small uptick in financial results mirrors what has been noted in the press about healthcare in general. Despite slow growth in the health sector, it means one of the only contributors to new job creation. Modern Healthcare reported on July 8 that healthcare added 13,500 jobs in June, while the overall US economy grew by a net of 18,000 new positions as unemployment crept upward once again.

Healthcare sector employment grew by 0.1% in June, continuing a second month of comparatively slow growth relative to performance over the past year according to the seasonally adjusted preliminary figures from the US Bureau of Labor Statistics. However, the subsequent growth in the sector is less clear in other sources.

An opposing report released by the Wall Street Journal on July 9, titled, "Slow Recovery Curbs New Healthcare Jobs", suggests employment in the healthcare sector is looking less robust after defying the economic downturn by adding jobs through the 2007, 2009 recession period. The report goes on to say that uncertainties about the financial affect of the healthcare overhaul are pushing hospitals and health systems to continue to cut costs and many states like Minnesota and Connecticut continue to cut healthcare budgets.

The Pulse Survey on the locum tenens industry published in June by staffing industry analysts indicates mild movement in the locum tenens industry. As stated in the past, SIA has been unable to publish this survey for the last several quarters due to low participation by locum tenens companies.

We believe that companies refuse to participate when they're performance is weak, so the very fact that companies felt positive enough to participate is a Bellwether for the industry. Overall VISTA experienced sequential growth in the second quarter of 2011. Despite the uncertainty that lingers in the healthcare sector we expect slow and steady growth in third quarter.

This return to growth creates the perfect time for me to transition to the new role that Peter described earlier. The opportunity to devote significant time to my other interests, while continuing to have a meaningful role at VISTA and On Assignment, is exactly what I wanted. I am confident that I can contribute to our $1 billion revenue goal through acquisitions.

While I have known Christian Rutherford for several years, I have spent a lot of time getting to know him on a personal level over the last seven months. I believe that he will provide leadership for VISTA that will allow us to protect our culture and achieve our goals. His experience, personality and personal goals are a great fit for our Company.

This is an exciting change for VISTA and I look forward to transitioning my day to day responsibilities for Christian in November. I want to thank Peter and everyone at On Assignmentfor five great years, and I would like to thank everyone at VISTA for more than 20 years of success. I will now turn the call over to Jim Brill. Jim.

Thanks, Mark. As Peter mentioned, consolidated revenues for the quarter were $43.7 million, up 37.6% from the second quarter of 2010. There were approximately 64 billing days in this quarter, 64 in the first quarter and approximately 64 in the second quarter of 2010. However, for Nurse Travel there were 91 billing days this quarter, 90 last quarter and 91 in the second quarter of 2010.

Foreign currency had a $1.4 million positive impact on revenue relative to last year's second quarter and a $600,000 positive impact on revenue relative to the first quarter. In addition, the revenue in our Physician business was a little over $1 million less than we anticipated when we entered the quarter.

Now let me address some of the variances and their related explanations to the extent Peter and Mark has not. In the IT engineering business Peter discussed the bill rates. The bill pay margin expanded slightly from the first quarter this year, but contracted slightly from the second quarter of last year.

Life Sciences, the bill rate was up 5% from first quarter in part due to the Valesta acquisition and the bill pay margin increased. Relative to the second quarter of 2010, the bill rate was up 9%, again in part related to the Valesta acquisition and the bill pay margin increased as well.

In Allied Healthcare the bill rate relative to the first quarter was up 1% and the bill pay margin increased. Relative to the second quarter of 2010, Allied Healthcare's bill rate was up 3% and the bill pay margin expanded.

Peter mentioned the bill rates and the bill pay margins in Nurse Travel, and Mark mentioned the bill rates in the Physician business. The bill pay margins in the Physician business contracted by about 1% from both last quarter and the second quarter of 2010.

Conversion and direct hire revenues totaled $4.5 million in the quarter, or 3.1% of revenue as compared to $4.2 million, or 3.3% of revenue in the first quarter and $2.8 million, or 2.7% of revenue in the second quarter of 2010.

Total SG&A expense for the second quarter was $38 million, or 26.4% of total revenues which is up from $36.8 million, or 28.4% last quarter and $32 million, or 30.6% in the second quarter of 2010. The increase from last quarter was in part related to the increase in revenue generating headcount and an increase in commissions related to increased revenue.

There are two unique items in the quarter. A gain of approximately $1.3 million due to the settlement of an earn out related to our acquisition of Cambridge, and approximately $400,000 foreign currency transaction loss. Also included in SG&A in the quarter was $550,000 in amortization and $1.7 million of depreciation.

Our interest expense was $780,000, our tax rate was 41.4% and we had net income of $5.9 million, or $0.16 a share.

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 $13 million. Excluding equity based compensation of approximately $1.7 million and acquisition related expenses of $175,000, adjusted EBITDA was $14.8 million or 10.3% of revenue.

We ended the quarter with cash and cash equivalents of $19.2 million and our bank debt stands at $77.25 million. We generated $6.4 million in cash flow from operations.

CapEx was approximately $2 million, down from $2.65 million last quarter and up from $1.5 million in the second quarter of 2010.

Net accounts receivable was $80.8 million at the end of the second quarter and days -- $8.8 million at the end of the second quarter, and days sales outstanding were 51 days versus 53 days last quarter and 46 days in the second quarter of last year when our international operations were much smaller.

Now, turning to productivity, which we define as quarterly gross profit generated for staffing consultants. In the first quarter we averaged 776 staffing consultants and gross profit for staffing consultants was $63,000, up from $57,000 in the first quarter and up from $57,000 in the second quarter of 2010.

The Life Sciences segment generated $83,000 in gross profit per staffing consultant, up from $74,000 last quarter. The Healthcare segment generated $52,000 in gross profit per staffing consultant, up from $49,000 last quarter. The Physician staffing segment generated $76,000 in gross profit per staffing consultant for the quarter, up from $68,000 last quarter, and the IT and Engineering segment generated $56,000 in gross profit per staffing consultant, up from $51,000 last quarter.

Looking at third quarter revenue expectations it continues to be difficult to estimate what will happen to revenues because of the worldwide economy. However, the labor markets seem to be getting better and considering normal seasonal trends, as well as the inclusion of $3.8 million from our recent acquisition of HCP, we currently estimate consolidated revenues of $155 million to $158 million for the quarter ending September 30, 2011. We're estimating consolidated gross margin of approximately 31 -- 34.1%.

SG&A of approximately $41 million, including [$150 million] of acquisition costs. Equity based compensation expenses of approximately $1.7 million, approximately $650,000 of amortization of intangible assets and depreciation of approximately $1.7 million.

We estimate net income of $6.4 million to $7 million, earnings per share of $0.17 to $0.19 and an effective tax rate of about 42%. Adjusted EBITDA is estimated to range from $16 million to $17 million. Now I will turn it back to Peter for some closing comments before we open up the lines for questions. Peter.

Thank you, Jim. We believe that we are well positioned to take advantage of what we believe will be an 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, we remain focused on regaining our peak levels of profitability. 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.

Thank you. (Operator Instructions). Your first question is from the line of Tobey Sommer with SunTrust.

Thanks. Jim, I had a question for you. Some of the items, like the Cambridge settlement and Forex. What kind of an impact measured in EPS did that have in the quarter? Kind of on a net basis.

Hang on for one second and I will tell you.

Sure. In the mean time I will ask a separate question to Peter maybe.

Okay.

Peter, in terms of your recruiters, which if my math was accurate, you're up mid-20% type. Where do you think you are on the capacity of those folks, both existing experienced people as well as more recent hires? How much head room do you have left?

Tobey, all I can give you is a qualitative response, but we're not nearly at full utilization. In fact, if you break it down by division, we've recently begun hiring again over at the Physician group so I would tell you that they are working hard, but they're not at full utilization.

So there's probably a good 20%, 30% growth that we could probably achieve with the existing workforce. That's where we probably cut revenue generating people the least, and as you know we're probably down $14 million to $20 million from the previous kind of run rate peak.

On the Life Sciences side, we've been adding aggressively. On the Clinical Research side, we've recently hired some very seasoned people out of MedFocus/inVentiv and they have just been with us for a couple of months, but we're starting to see some early production out of them, but again, way below production levels that we would expect. On the Lab Support side, kind of the scientific side, I would say they may be the division that may be at closest to kind of normalized productivity levels, but I still believe maybe 10%, 15% growth.

And then as we disclosed in our prepared remarks on the IT side, Mike McGowan's group is doing an incredible job of putting more people on the billing even with the lower headcount, and that's because we've enhanced some of our processes as well as our seniority continues to grow. But as you know from the numbers that you quoted to us, there's been a significant headcount growth, and in our IT group it typically takes a year for someone to get even one or two people on billing, and we've hired a number of people over the last 18 months, So there's a lot of capacity that we're building to support what's been greater than 55% growth over the last four quarters.

And then finally, the Nursing group, we've started adding headcount there again. We cut headcount from that division from 69 to around 37. We're starting to selectively hire there, and I would say they are probably second closest to being at a full utilization level behind Lab Support. Does that answer your question?

It sure does. Thank you.

And the two items mentioned, after tax, round to $0.01 diluted.

Okay, around $0.01 diluted. And, Jim, also on the -- I think it was a $300,000 med mal adjustment on gross margin. I think that was in the Locums business. Is that comparable to whatever kind of adjustments might have been made in previous periods, so really not much of an impact?

It was the same to -- comparable to last year. It just happens that every other quarter we rerun our med mal actuarial analysis, and it came up with a $300,000 adjustment.

Okay. Similar to the year-ago period.

And Jim, I am correct, that's done by a third party actuarial group.

Yes. Yes.

Okay. I'll ask one question about wages, and I will get back in the queue. Are you feeling that your bill rates and pay rates are moving in unison or kind of broadly speaking, Peter, opportunity for expansion in the bill pay rate spread? Thanks.

Tobey, as you know we don't traffic in the commodity skill set. So we're still seeing opportunity to expand our bill rate and have our customers respect what we share with them is the legitimate pay rate that we have to pay to a physician or a programmer or scientist or a nurse. So we haven't seen dramatic headwinds. I think the place where we saw the most dramatic headwinds in the quarter was in the doc business, and there was a very slight compression in the bill pay rate and I just think that people are very -- the docs realize their value, but the customers are taking advantage of the current soft market.

Mark, you want to add a little bit to that on the bill pay spread in Locums and then --

Yes. That's entirely accurate. Our pressure has been on trying to complete as many deals as possible. Trying to generate revenue. Which has allowed our clients to some extent to have a little bit of an upper hand in these individual negotiation. But that's beginning to change as the sold days picture improves, as there are more options for where to place physicians, itgives us greater leverage over that bill pay spread. So we believe that we've got the opportunity to see some bill pay spread expansion.

But if I remember correctly, Tobey, I think our bill rate in IT went from $106 in the second quarter of 2010 to over $113 in the second quarter of 2011. So it's all just driven by the skill set and the model in which we deliver it. We're not a bulk seller of human capital.

Thank you very much.

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

Thanks so much. I was wondering if I can get a little bit more color on your guidance by division, if possible, in terms of where we should expect trends from both a revenue and a margin perspective?

Okay. I think, Jeff, it's -- we've been trying to do in our press release. We break it out in the press release, and I think it says the estimates assume year-over-year revenue growth in the mid 40% range for IT engineering --

I see it, Peter, I'm sorry about that. I just missed that.

No. That's alright.

That's fine. My follow-up question is just on the recruiting side. You mentioned some potential plans to hire new recruiters, and I know you are doing some already. Are you finding it more difficult to find people for these positions?

Not really. We're always trying to be selective. At VISTA and Oxford we pretty much don't hire people with previous staffing experience, so they go through our training programs. On the life sciences, the Scientific side, we are a little more flexible about prior experience and -- because our margins are what they are and our growth rates are what they are, we're an attractive potential employer. So a lot of people out there.

On the clinical research side there's an interesting dynamic that's going on in that market right now, Jeff, where the big CROs are seeing some growth challenges. There's been some M&A activity that's caused some integration problems, and people are seeing an opportunity to build something that they have ownership and responsibility for with us and get equal compensation. So it's been pretty good.

All right. That's great to hear. Thanks so much.

(Operator Instructions). Your next question is from the line of Mark Marcon with Robert W. Baird.

Good afternoon, and congratulations on the strong quarter. I was wondering if you could talk just a little bit about the gross margins. The expectations, particularly as it relates to IT and engineering, and also on the life sciences side particularly, as we look out on the comparison period, you have I really tough compare in the life sciences. I was wondering if you could remind us what happened in the third quarter of last year in the life sciences that drove the margins up as much as they went up?

Yes, there's some pretty explanations, Mark, on that. And thank you for the compliment. On the life sciences side, we did the Sharpstream acquisition in July of 2010. That's our retained search business, and so it's 100% GP. And they had a particularly strong third quarter in 2010, which really drove the improvement in the gross margin. And I think they've had a pretty good July. So that's what drove the change in the gross margin in the third quarter of 2010.

On the IT side we're really not seeing any pressure. I don't mean this is in a cavalier fashion, but its just really -- it's turning the rheostat to how fast we want to grow, and it's -- because we're not at peak gross margin in that group. I mean, ironically I think the peak gross margin for that group was 36.4%, and we're at 35.9%. And we have steadily been trying to move that up and have had some success. But we're not going to be penny wise and pound foolish,walking away from $120 bill rate because somebody's going to argue over 40 basis points. We're not going to -- we've been a little more flexible in this softer economy.

So could we get over 36% gross margins for -- or 36.5% margins in the IT group? Yes, just by -- wecan get there in third quarter if we wanted to potentially slow the growth down a little bit.

Jim, do you want to add anything?

We're also seeing some better growth in the firm business over there, so that to help gross margins. But we've balanced -- we tried to balance gross margin with revenue growth, and as you know -- everybody knows -- every one of our placements is independently priced. So we manage it.

The other thing I would add, Mark, is that what's different in our IT group in 2011 versus 2010 is healthcare IT is a bigger percentage of our revenue. It carries a slightly lower gross margin than our core business does, but it's a very attractive margin, and it's growing extremely fast.

It certainly sounds like it would make sense to trade-off 40 basis points or a 100 basis points if you can continue the growth and continue to get the leverage.

On the Nurse Travel side, can you remands us what happened in the third quarter last year?I'm just -- basically I'm trying to isolates the factors that might lead -- the last two quarters you've had gross margins that were up on a year-over-year basis. The overall projection for this quarter is the 34.1%, which compared to a year ago, is a little bit less, and it seems to me that the comparison period is particularly tough just in a couple of segments, so I just wanted to isolate on those.

A couple of qualitative comments, and then I will let Jim make the quantitative comment about gross margin. In general the Nursing business kind of troughed in the third quarter of 2009. That was probably the peak pain in my opinion for the industry, and it steadily has kind of stabilized since then. We are now seeing real situations on the retail side where hospitals are genuinely reaching out and having conversations with us. I'm not talking about VMS business. I don't know anything about that. My sense of that is that we just don't really address that market as much as others. But on the retail side we're seeing a lot more in-bound demand and request, and immediate need and urgency than we did previously.

Jim will walk you through the margin variation, which has to do with the strike revenue.

Right. So, Mark, there were $2.2 million or thereabouts of strike revenue in the third quarter of last year, and a portion of that carried an extremely high gross margin with it, so that's why.

Okay. Great. And then with regards to the acquisition, how -- what sort of EBITDA margins was Healthcare Partners generating.

We haven't disclosed that, but you could probably figure it out. I mean it's -- we're kind of a high single, low double-digit EBITDA business.

And we mentioned that the assignment margins are similar to those in our Locums business. Gross margins that is.

Okay. And then with regards to the comments on the environment, obviously we are all reading the headlines. Are you actual see seeing any signs at all from any of your businesses in terms of areas of potential softness or hesitation among your clients?

Yes. Mark, I thought about that long and hard this morning, because of what some other people have said in the industry. We're not trying to say that we don't operate in a cyclical industry. We're not trying to say that we're counter-cyclical. We're not trying to say that we're immune too any kind of downdraft in the industry. We're just sharing with you right now, we're not seeing it. I mean we -- the last week of July was the strongest week we have had, and things -- and I checked with all of our division operators before the call today and said are things changing? And as of now our business, third quarter and fourth, we just haven't seen a dramatic change, and we're still seeing very good opportunities.

Now, could the economy be better? Absolutely. But we're in a pretty good position as long as we're not in job destruction environment. I mean, all bets are off if we get back into job destruction, but we've got slow growth, we're still seeing people engage with us because of the type of skills that we deploy. So I'm not trying to claim that we're counter-cyclical or that we don't -- we're not in a cyclical industry. It's just based on the trends that we have seen as recently as last week, we haven't seen a big change in our customers' buying behavior. Now that may change two, three weeks from now. I doubt it, because our assignments tends to be a little bit longer.

And we have the benefit -- we have -- to use an analogy of a dog, the Nurse Travel and the IT group typically are the nose of the dog. If they are agency see bad weather, it's going to be -- they're going to see it first, because that's rapid response. Typically the work they work on, they're going to get revenues from -- within five days of when they take the order, because that's how quickly the placements occur. So if we were seeing an immediate softening that just is real-time, we would be seeing it in that group first. We're not seeing it there yet.

Conversely, the clinical research -- not scientific, but the clinical research and the physician business is kind of the tail of the dog, because the work they work on today, typically we won't generate a penny of revenue from for three months. So that gives us a look into the future three months out. And if people are substantially worried about things weakening into the future, then they would be slowing down with the calls they're giving us today, and we haven't seen a dramatic slow do there as well. So, I mean, it's confusing. The tea leaves are confusing, because different people are seeing different things.

I know the manufacturing side is deteriorating differently than professional staffing, and maybe the high-end of the professional staffing side is more robust than the commodity side or the lower bill rate side. But typically we're the last to be asked to leave, not the first, because most of our stuff is mission critical. I think if you go back and you look at the performance of companies in 2007 and 2008, I think we were one of the last staffing companies to really to start to see a decline in revenue or growth. In the third quarter of 2008 was our -- on a -- just an organic basis, was our peak quarter. Whereas the Q4 of 2007 was the peak quarter for most the other staffing companies, and that's because our assignments typically last five to six months. and they're more mission critical.

So, knock on wood, we haven't seen anything terrible. I hope the economy gets through this soft patch, but right now it's not bad.

Great. Appreciate that color. And in terms of the Nurse Travel business, to what extent are you seeing any more positive behavior in terms of just the nurses and their willingness to take on assignments? Is it -- has there been any change? Because it sounds like it's been a couple of quarters now where the orders have been picking up, but it is enough to fill those assignments.

Yes. So not speaking for others, but for us that is probably our biggest inhibitor to growth is finding enough nurses ready to travel.

And are you seeing any change at all on the margin in terms of how long it takes to fill or --

It's tough. It's getting tougher. We haven't seen the supply -- the pool of willing nurses willing to travel increase meaningfully. So we haven't seen any relief there yet. We're having to work harder to identify nurses. It hasn't gotten easier. It's gotten harder.

Okay. Thank you very much for the color.

You bet.

And there are no further questions at this time.

Well, thank you very much, and we look forward to reporting our third quarter, I guess in the month of October, right? Or --

Correct.

So thank you very much, and thank you for your attention, and we look forward to speaking to you again soon.

Thank you all for participating in today's On Assignment second quarter 2011 earnings conference call. You may now disconnect.