ASGN Inc (ASGN) 2011 Q4 法說會逐字稿

Good morning. My name is Terry and I will be your conference operator. At this time, I would like to welcome everyone to the Q4 2011 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Mr. Jim Brill, you may begin.

Thank you. Before we begin, I'd 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'd now like to introduce Peter Dameris, our CEO and President, who will provide an overview of the fourth-quarter results. Peter?

Thank you, Jim. Good morning, and I would like to welcome everyone to the On Assignment 2011 fourth-quarter earnings conference call. With Jim and me today is Michael McGowan, President of our IT and Engineering group. During our call today I will give a review of the markets we serve and our operational highlights, followed by a discussion of the performance of our operating segments, by myself and Michael. I will then turn the call over to Jim for a more detailed review and discussion of the fourth quarter and our estimates for the first quarter 2012. We'll then open the call up for questions.

All markets we serve improved during and exiting the quarter. We continued to see the strongest growth in IT and Life Sciences end markets. Demand in Nurse Travel continued to improve throughout the quarter. And year-over-year revenue growth accelerated to 62% with the inclusion of labor disruption revenue of $2.3 million. In our Physician Staffing division, we saw improvement in end-market demand. And our year-over-year quarterly revenue growth was 35%, including the acquisition of HCP.

While demand has improved in the Physician Staffing marketplace, and our own internal execution has improved, VISTA is still operating below our expectations. As those as those of you who have followed our Company over the years know, VISTA grew in excess of 20%, compounded annually, in 2007 and 2008. It shrank 2% in 2009; it shrank 16% and 2010; and another 6% in 2011, excluding the acquisition of HCP.

Clearly, the Physician Staffing market has been very challenging over the last three years. However, we believe that our current performance is not reflective of VISTA's historical performance or future potential. Christian Rutherford, our new division President of the Physician Group, has been with us for three months now. And important steps, which have been embraced by the group, have been taken to improve our intensity and performance awareness within that group.

With the steps we have taken to improve internal execution and the continued improvement in the Physician Staffing marketplace, we firmly believe that our Physician group can provide some of the greatest growth opportunities in 2012 and beyond.

Regarding industry dynamics, all secular trends continue to indicate a greater demand for temporary labor than full-time labor. And the extended and moderated nature of this current economic recovery suggests that professional staffing will continue to benefit from employers' preferences for flexibility juxtaposed against an increasing scarcity of skilled labor. We continue to see a classic recovery in professional staffing. And clear signs of have developed that show skilled labor is becoming more scarce.

As for our five-year strategic plan, we continue to execute well against our 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 required revenues. Based on our fourth-quarter results, we ended 2011 with $597 million of consolidated revenue. This compares with our strategic plan target of $532 million. Our strategic plan target for 2012 is $635 million in revenue, which includes acquiring another $50 million in revenue and an organic growth rate of 10%. We continue to track nicely ahead of our $1 billion revenue and $100 million EBITDA goals.

If you take the midpoint of our first-quarter estimate and annualize the same, we would exceed our 2012 revenue strategic target -- strategic planned target for our five-year plan without any contributions from future acquisitions. Our operating performance in the fourth quarter 2011 and our guidance for the first quarter of this year demonstrate that the actions we have taken over the last three years have 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.

We believe this operating leverage trend will continue to allow us to grow adjusted EBITDA faster than revenues into the future. As for actions we took to sustain future positive revenue growth rates, we substantially added to the number of recruiters and sales personnel that we employed. In the fourth quarter of 2011 and for the full year of 2011, we averaged 855 and 801 recruiters and sales personnel. This compares to 728 in the fourth quarter 2010 and 651 for the full year 2010.

Regarding our share repurchase plan, early in the fourth quarter we repurchased 29,000 shares but have not acquired any shares of our stock since then. Currently, 15.8 million remains available under our $20 million share repurchase authorization.

Now to the fourth quarter. Revenues in the fourth quarter of $161.8 million increased 33.5% over the fourth quarter of 2010. And the full-year revenue of $597.3 million was 36.3% higher than 2010's consolidated revenues. Consolidated gross margin of 33.15% in the fourth quarter contracted 171 basis points year over year and 43 basis points sequentially. Fourth-quarter 2010 gross margin was positively impacted by the HIRE Act, by 53 basis points. There was no corresponding HIRE Act benefit in our fourth-quarter 2011 gross margin. Gross margin in 2010 was also positively impacted by 67 basis points, due to a higher mix of permanent placement in and conversion revenue.

Net income was $7.5 million or $0.20 per diluted share. Revenue generated outside of the United States was $17.7 million or 10.9% of consolidated revenue in the fourth quarter, versus $9.4 million or 7.7% in the fourth quarter of 2010. Adjusted EBITDA was $17.7 million or 10.9% of revenue for the quarter, up from $11.6 million or 9.6% of revenue in the fourth quarter of 2010. Permanent placement and conversion fees represented 2.8% of revenue for this year's fourth quarter.

Exiting the quarter, demand for our services strengthened in all divisions. Our weekly assignment revenue, which excludes conversion, billable expenses, and direct placement revenue, averaged $11.8 million for the last three weeks. This is up 32.4% from the same period in 2011. Before turning the call over to Michael, I would like to give you a brief review of operations. In Life Sciences, the fourth quarter of 2011 was our second-strongest quarter of the year. Our revenue for the fourth quarter increased 32.5% over the same period in 2010. This quarter's revenue included $6 million from our March 12 -- excuse me, March 2012 acquisition of Valesta.

On a billable-days basis, revenue increased by 3.1% over the prior quarter. Excluding acquisition, revenues decreased 2.5% sequentially but grew 13.3% year over year. On a divisional basis, US operations generated $29.5 million in revenue, down 2.2% sequentially, but up 11.9% year over year. Foreign revenues were $11.4 million for the quarter, decreasing 2.1% sequentially, but up 154 basis points year over year -- excuse me, 154% year over year. Excluding acquisitions, foreign revenues decreased 4% sequentially, but were up 21.4% year over year.

Gross margin for the Life Science segment was 33.3%, decreasing 59 basis points sequentially and 291 basis points year over year. The sequential decrease in gross margin was in part due to higher social costs in the European countries that Valesta operates, a greater number of holidays, increased worker's compensation, and payroll tax expenses in the United States. The year-over-year decrease in gross margin is primarily due to the Valesta acquisition, which occurred in March of 2011; and an increase in employment expenses related to holiday pay; payroll taxes, due to last year's HIRE Act credits; and higher workers compensation expense.

With the Valesta acquisition, permanent and conversion fees decreased as a percent of total revenues, thereby impacting gross margins by 162 basis points year over year. On a divisional basis, US gross margin was 31.2% and foreign gross margin was 38.6%.

Moving on to the first quarter of 2012 -- demand for contract, contingent, and retained search services throughout the United States and Europe remained steady, and the business climate is stable. Early in the first quarter, we are encouraged with the level of contract and permanent placement orders, the number of weekly contract assignments, and permanent placement activity. Based on our current run rate and pipeline of orders, we expect revenue to be flat to slightly up on an absolute dollar basis over the fourth-quarter. Our sales and recruiting staff are focused on new business development, increased sales, and marketing efforts.

Now, I would like to turn to Allied Healthcare. Revenues for the Allied Healthcare division were $12.2 million, which represents approximately a 3.7% sequential increase and a 20.9% increase year over year. We attribute the sequential and year-over-year revenue increase to the improved operating environment and operational execution, as well as better-than-expected weather in the quarter.

Allied Healthcare gross margin for the quarter was 32.2%, which represented a 47-basis-point sequential increase, and a 49-basis-point decrease year over year. The sequential increase in gross margin is primarily attributable to a decrease in contractor-related expenses for travel and housing and workers compensation expense, which was partially offset by an increase in payroll taxes and a decrease in permanent placement and conversion fees as a percentage of total revenues for the quarter.

The year-over-year decrease in gross margin is primarily attributable to an increase in contract assignment-related expense for payroll taxes due to last year's HIRE Act credits, higher workers compensation expense, travel and housing, and other contractor-related expenses. These costs were partially offset by a reduction in holiday expenses.

Turning to the first quarter of 2012, the healthcare markets in which we operate continue to show signs of improvement. Early in the first quarter, we are encouraged with the level of contract and permanent orders, the number of weekly contract assignments, and permanent placement activity. Based on our current run rate and pipeline of orders, we expect revenues to be flat to slightly up on an absolute dollar basis over the fourth quarter, which is consistent with historical trends.

We continue to focus on new business development, gross margin preservation, cost containment, process improvement, and greater attention to individual performance metrics.

Turning to Nurse Travel, the Nurse Travel division had a strong fourth-quarter performance to cap off a solid recovery year. The key drivers to success have been our progress on strategic initiatives, and internal structural improvements made in the past year. Not only have we increased focus on filling the demand for highly skilled nurses, but we also assisted multiple clients during labor disruption or transition to electronic medical records systems. Helping provide this continuity of care for patients creates loyalty with our traditional customers.

For the quarter, revenue of $13.8 million was a sequential decrease of 10.4% and a year-over-year increase of 62.1%. Our results in the fourth quarter included $2.3 million from labor disruption staffing. Adjusted for the labor disruption, the fourth-quarter revenue grew 48% compared to a year ago, and remained flat sequentially. The adjusted gross margin of 24.6% represented a 113-basis-point sequential increase and a 44-basis-point decrease year-over-year.

During the fourth quarter, sales results were reflective of the growth in demand for experienced nurses possessing a high level of skill in the operating room, intensive care unit, and labor and delivery unit. Because of this, the average bill rate increased by 1% sequentially and by 3.8% year over year. Also, as you know, we do have seasonality in the business, but our fourth-quarter results were significantly better than prior years. The number of travelers on assignment decreased only by 3% sequentially, but increased 39% year-over-year. The average hours worked per week increased by 1.7% year over year, and remained relatively flat sequentially.

The same pattern occurred with the number of billed clients. We remained relatively flat sequentially and increased by 19% year over year. Looking ahead, we believe that to improve our financial performance, we must continue to obtain service agreements with new clients, increase our services to existing clients, provide services to more hospitals needing assistance with computer conversions and electronic health record implementations, and apply internal cost reduction strategies to maintain control of our SG&A.

Furthermore, we believe that the investments we have made in our sales personnel is an important factor that will positively impact future operating results.

Here is a recap of some important additional metrics for the quarter. The adjusted bill pay margin, excluding strike revenue, was 55% for the quarter. That represents a 25-basis-point increase sequentially and a 146-basis-point increase year over year. The adjusted gross profit for staffing consultant, excluding strike revenue, improved 49% year over year and 8% sequentially.

Branch expense as a percentage of revenue improved 250 basis points year over year, and 10 basis points sequentially. And the revenue from our top 10 clients accounted for 37% of business, compared to 36% in Q3 2011 and 35% in Q4 2010. Our results include no permanent placement revenue or conversion fees for this division.

Finally, turning to our Physician Staffing division, we are happy to report that we have executed a successful leadership transition of VISTA. Founder and President of VISTA, Mark Brouse, moved into a part-time role starting November 1, and Christian Rutherford assumed Mark's responsibilities as President of our Physician Staffing group.

Fourth quarter revenues were $23.7 million compared to $23.4 million in Q3, which represents a 1.4% sequential growth. These results include revenue from the HealthCare Partners acquisition, which closed at the end of July. On a same-store year-over-year basis, VISTA's legacy Q4 revenue declined by 2.7%. Sequentially, revenue was down by 9.6%, which reflects typical seasonal deceleration. The fourth-quarter performance of our legacy physician group was below our expectations for the quarter. Conversion revenue, fees paid when a locum tenens Doctor takes a permanent placement position, was down 32% sequentially and down 30% year over year. While this does contribute to the Q4 overall revenue and gross margin decline, this actually bodes well for future locum tenens working days, because it means fewer doctors are leaving the locum tenens inventory. VISTA's legacy locum tenens bill rate was up 3.1% sequentially and 1.2% year over year.

Productivity indicators, such as gross private per sales consultant and gross profit per contract professional, were flat sequentially and year over year. The number of FTE physicians on assignment during the quarter was down by 3% year over year. In the fourth quarter, our VISTA legacy business increased sold days by 24% year over year, which should equate to the opportunity for future filled days and the resulting revenue in early 2012.

Q4 was the first full quarter for HealthCare Partners being a part of our physician staffing group. HCP generated $6.7 million of revenue for the quarter, which was better than our expectations. As Christian Rutherford takes the helm, his immediate priorities are to accelerate the growth of the division's revenues and ensure the successful integration of our existing business with HealthCare Partners. Our extensive training programs are being implemented at HCP, and back-office systems are being integrated. Our combined Atlanta team will be approximately 60 people.

So far, the integration is going well. Plans are on track and milestones are being met. We have a positive outlook for 2012. In the January 2012 Pulse Report, published by the staffing industry analysts, they stated that 10 locum tenens participants noted improvement in revenue for the month of December. The SIA report also noted, in a recent release, that the locum tenens market is expected to grow by 9% overall in 2012. SIA has been testing hypotheses that, as the economy improves and unemployment drops, it will be easier to find staffing buyers and more difficult to find candidates. Currently, finding buyers is the driving force in the locum tenens sector, based on the past two years of experience. While most other segments covered in the report show that it continues to get easier to find buyers, the report shows it's almost twice as hard to find buyers as it is to find recruiters in the locum tenens sector.

While short-term uncertainty persists in the physician staffing market, the long-term drivers of demand, such as the aging population and the growing shortage of physicians globally, will ultimately drive increases in the market size. Interim staffing is one of the safest, most strategic ways to meet demand. And our strategy is to work closely with customers as they figure this all out.

I would like to now turn the call over to Mike McGowan, President of our IT and Engineering segment. Michael?

Thank you, Peter. I am pleased to report that our IT and Engineering segment, Oxford Global Resources, had another excellent quarter. Revenue, gross profit, gross margin, and EBITDA met or exceeded our expectations with continued improvement during each month of the quarter. Revenues for the fourth quarter of 2011 were $71.2 million, a 1.7% sequential increase over the third quarter of 2011 and a 31.4% increase over the fourth quarter of 2010. This followed previous year (inaudible) quarterly increases for the first three quarters of 2011 of approximately 48%, 58%, and 68%, respectively.

Our quarterly revenue of $71.2 million not only exceeds our pre-recession levels, but is an all-time historical high for the group. For the full year, we grew revenues 49.3% from $178.7 million in 2010 to $266.7 million in 2011. I'll provide more details in a few minutes, but our new Healthcare IT discipline continued its strong performance, increasing revenues in 2011 to over $19.5 million. Additionally, 2011 revenues in Europe were $25.9 million, an 87% increase over the $13.8 million we realized in 2010. Our 31.4% increase in year-over-year quarterly revenue was due primarily to a significant increase in demand for consultant labor across all of our business units. Billable consultants on assignment increased 28.3%, from an average of 946 in the fourth quarter of 2010 to an average of 1214 in the fourth quarter of 2011 -- another all-time record.

The revenue increase in the quarter was also a result of increasing bill rates, which were approximately 4.7 higher in the fourth quarter of 2011 compared to the fourth quarter of 2010. The average bill rate in the quarter was $116.31 per hour compared to $111.06 in the same period in 2010, and $114.87 in the third quarter of 2011. Our gross margin for the fourth quarter of 2011 remained strong at 35.8%, compared to 36.2% for the same period in 2010. The increase in our gross margin -- or, rather, the decrease, rather, in our gross margin was primarily related to HIRE Act credits available to reduce FICA expense in the fourth quarter of 2010 that were not available in 2011, as Peter mentioned earlier, for the other divisions. Without the HIRE Act credits, the gross margin in the fourth quarter of 2010 would have been an identical 35.8%.

As we've mentioned on previous calls, the bill rates and gross margins of our IT and Engineering segment continued to be among the highest in the staffing industry. We launched our Healthcare IT business in late 2009, and is now our fastest-growing area as we continue to add staff and accelerate our penetration in this market. Total revenue in Healthcare IT was $5.5 million for the fourth quarter compared to $2.7 million in the fourth quarter of 2010. We ended the fourth quarter of 2011 with 78 consultants on assignment compared with 47 at the end of 2010. 2012 has started strong, and we currently have 94 consultants on assignment with a current annualized run rate of over $26 million.

Total fees for our permanent placement business unit, Centerpoint, were $494,000 in the fourth quarter compared to $248,000 in the fourth quarter of 2010. Total perm fee through Centerpoint has represented less than 1% of the group's total revenues in the fourth quarter. During the quarter, we were successful in continuing our strategy of diversifying our business across clients and industries, billing approximately 940 different client companies. No single client accounted for more than 4% of our revenue, and revenues from our top 10 clients represented only 13.8% of our total revenues for the quarter.

Demand for our IT consultants remains strong in the fourth quarter in retail trade, durable goods, machinery manufacturing, pharmaceutical and chemical companies; and slowed in the service sector, including education, food companies and utilities.

On the engineering side, medical equipment, pharmaceutical, machinery, instrument, and semiconductor manufacturing industries, along with retail trade companies, continued to add consultants, while demand declined slightly in appliances, food, telecommunications, and educational services industries.

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 through the second half of 2008 and all of 2009. Since then, we have intentionally increased our staff size from 275 staffing consultants in December of 2009 to 404 at the end of December 2010 and 487 at the end of 2011.

As with previous quarters, and even with the addition of this new staff, the efficiency of the team continues to increase. During the fourth quarter of 2011, we reached a level of consultants on assignment that was approximately 42% higher than our pre-recession high, with about the same number of staff. Our aggregate totals for new assignments per day also continued to exceed pre-recession results.

In fact, the fourth quarter of 2011 ended up being the most productive quarter in our history, and we are carrying that momentum into 2012. Due to this, and our strong growth over the past seven quarters, we continue to selectively add staffing consultants to our Oxford international, Oxford & Associates, Oxford Healthcare IT, and Centerpoint divisions. We monitor our operational activity daily, and will continue to align the size of our sales staff with current and future economic conditions.

The Oxford Index, our forward-looking quarterly survey, suggests demand for our services will continue to be strong in the first quarter of 2012 across all of our business units. This is consistent with our actual results in January, which indicate clients are increasing their temporary hiring. As we look further into 2012, staffing industry analysts are predicting that the US IT staffing market in 2012 will surpass its 2000 peak of $21.5 billion in revenue, set at the height of the Dot-Com boom. All these trends bode well for the IT and Engineering segment of our business.

I'll now turn the call over to Jim Brill. Jim?

Thanks, Mike. As Peter mentioned, consolidated revenues for the quarter were $161.8 million, 33.5% from the fourth quarter of 2010. There were approximately 61 billing days in this quarter, 64 in the third quarter, and approximately 62 in the fourth quarter of 2010. However, for Nurse Travel, there were 92 billing days this quarter, 92 last quarter, and 92 in the fourth quarter of 2010. Foreign currency had a $100,000 negative impact on revenue relative to last year's fourth quarter, and an $800,000 negative impact on revenue relative to the third quarter this year.

Now let me address some of the variances and their related explanations to the extent Peter and Mike have not. In Life Sciences, the bill rate was up 9% from the fourth quarter last year, primarily due to the Valesta acquisition, and the bill pay margin decreased. Relative to last quarter, the bill rate was up slightly, and the bill pay margin decreased as well.

In Allied Healthcare, the bill rate relative to the fourth quarter last year was down slightly, and the bill pay margin decreased. Relative to last quarter, Allied Healthcare's bill rate was down 3% and the bill pay margin increased. Peter mentioned the bill rates and the bill pay margins in Nurse Travel. In Physician Staffing, the bill rates expanded, and the bill pay margin contracted slightly in both periods. Mike mentioned his bill rates and his bill pay margin contracted slightly -- as Mike mentioned, his bill rates and his bill pay margin contracted slightly from last quarter and last year.

Consolidated gross margin in the quarter was 33.15%, down from 34.86% in the fourth quarter last year. Peter mentioned the 53-basis-point positive impact the HIRE Act had on gross margin in last year's fourth quarter. In addition, we saw a reduction in the percentage of our revenue from conversion in direct hire revenues, which represented 2.8% of our revenue this quarter as compared to 3% of our revenue in the third quarter, and 3.4% of our revenue in the fourth quarter of 2010.

This higher permanent placement revenue contribution had an impact on the consolidated gross margin of 64 basis points, relative to the fourth quarter last year. We also had a positive adjustment to our workers compensation expense in last year's fourth quarter that contributed about 25 basis points to consolidated gross margins.

Excluding the HIRE Act impact, the impact of a reduced percentage of permanent placement and conversion revenue, and the impact of the workers compensation insurance expense adjustment on last year's fourth quarter, our gross margin in this year's fourth quarter would have been 34 basis points less than last year. Total SG&A expense for the fourth quarter was $40.2 million or 24.8% of total revenues, down from $40.8 million or 25.1% last quarter, and $35.4 million or 29.2% in the fourth quarter of 2010.

Before impairment of goodwill included in this year's -- this quarter's SG&A is a gain of approximately $600,000, related to a reduction in the amount due for the Sharpstream earnout. Included in SG&A in the quarter is $700,000 of amortization, $1.6 million of depreciation. Our interest expense was $711,000; our tax rate was 41.2%; and we had net income of $7.5 million or $0.20 per 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 $15.8 million. Excluding equity-based compensation expense of approximately $1.8 million, and acquisition-related expenses of $64,000, adjusted EBITDA was $17.7 million or 10.9% of revenue.

We ended the quarter with cash and cash equivalents of $17.7 million, and our bank debt stood at $86.75 million. Although, as of today, we paid our debt down by another $1.5 million. We generated $8.3 million in cash flow from operations. CapEx was approximately $2.4 million, up from about $1.4 million last quarter, and up from $2.1 million in the fourth quarter of 2010.

Net accounts receivable was $93.9 million at the end of the fourth quarter, and days sales outstanding were 53 days, versus 54 last quarter and 47 days in the fourth quarter last year. The increase from last year was primarily due to the increase in international revenue.

Now turning to productivity, which we define as quarterly gross profit generated per staffing consultant -- for the fourth-quarter we averaged 855 staffing consultants, and gross profit per staffing consultant was $63,000, down from $67,000 in the third quarter and up from 58,000 in the fourth quarter of 2010. Life Sciences segment generated $82,000 in gross profit per staffing consultant, down from $86,000 last quarter. Healthcare segment generated $64,000 in gross profit per staffing consultant for the quarter, up from $63,000 last quarter. The physician staffing consultants generated $75,000 in gross profit per staffing consultant for the quarter, down from $89,000 last quarter. And the IT and Engineering segment generated $54,000 in gross profit per staffing consultant for the quarter, down from $56,000 last quarter.

Looking at the first-quarter revenue expectations, it continues to be difficult to estimate what will happen to revenues, because of the worldwide economy. However, considering normal seasonal trends and no severe weather, we currently estimate consolidated revenues of $162 million to $165 million for the quarter ending March 31, 2012. We are estimating consolidated gross margin of approximately 32.4% to 32.7%, SG&A of approximately $42.5 million -- including $200,000 of acquisition costs, equity-based compensation expenses of approximately $1.1 million, approximately $600,000 of amortization of intangible assets, and depreciation of approximately $1.5 million.

We estimate net income of $5.4 million to $6.4 million; earnings per share of $0.14 to $0.17; and an effective tax rate of about 41.5%. Adjusted EBITDA is estimated to range from $13.4 million to $15 million.

I'll now turn the call 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 historic secular and cyclical growth for the staffing industry over the next 3 to 5 years. While the entire On Assignment team is very proud of our performance, we remain focused on regaining our peak levels of profitability. We'd like to once again thank our many loyal, dedicated, and talented employees whose efforts have allowed us to progress to where we are today.

I would like to now open the call up to participants for questions. Operator?

(Operator Instructions). Tobey Sommer.

Thank you. Peter, I'll ask a question -- just ending with close to your last sentence, reaching peak profitability. What sort of operating margin goal, on like a GAAP basis, do you have?

Well, you know, Toby, I really focus more on adjusted EBITDA margin, and we've been consistent -- we'll deliver what we can, but I think our five-year plan is to get to $1 billion in revenue and $100 million of EBITDA. I think we've exceeded that 10% EBITDA margin for two consecutive quarters. So I think it's reasonable to think that, in a 10% growth environment, that there's additional operating leverage that can exist. But I don't want to change the kind of EBITDA targets that we've established.

Okay. In terms of your perm business and exposure, where do you have -- do you have any kind of updated target of percentage of revenue that you would like to garner from perm?

With how fast we're growing the contract revenue, I think if we could be between 3% to 5%, that that would be a nice contributor to profitability and margin. So, that hasn't changed.

And where was it in the quarter? I'm sorry, I missed that when you gave it. On an overall basis.

2.8%, versus 3.4% in the fourth quarter of 2010.

Okay. And the businesses are all kind of working, it seems, now. Was the incremental profitability over the last quarter or two outsized because the healthcare-related businesses started to bounce back? Or should we just kind of expect that level of incremental profitability, headed into 2012?

A couple of things, and I'll let Jim add to it. We did point out that we had $2.3 million of unexpected revenue that carried a little bit of incremental profitability that, ordinarily, we wouldn't expect. On the adjusted EBITDA line. And then we just did the final calculation of the Sharpstream earnout. And, as you know, accounting requires you to estimate what you're going to pay when you book the earnout projection upon completion of an acquisition, and they fell a little bit short. So that got reversed as an income item, not as an expense item, and that was about $800,000 --

$600,000.

Excuse me, $600,000. But what you're really seeing in our -- we didn't have those items in the third quarter. And even excluding those items in the fourth quarter, what you're seeing -- as we have been hiring aggressively, as we've had good growth and our people are getting more productive. It may not show in the stats that we give you, but that's because we hired so aggressively throughout the quarter. But we actually are getting better productivity out of our health care groups, as you mentioned, and across the organization.

Jim, do you have anything to add?

Well, just that our hope is that we will continue to see some productivity as we go through the year.

Just one last question for me. Could you give us either the numbers of recruiters and consultants that you have, or the rate of growth in terms of the hiring?

Toby, we stated in the fourth quarter of 2011, and for the full year of 2011 -- so in the fourth quarter of 2011, we averaged 855 recruiters and salespeople. For the full year, we averaged 801. So that compares to 2010 fourth quarter of 728, and full-year 2010 of 651.

Tim McHugh.

Just wanted to follow up on the physician segment. You talked about some of the changes that have made now that the new leadership is in there. Can you talk at all more about that? Does it give you, I guess, at a high level -- are you more confident around that business starting to perform better, or is it still kind of a wait-and-see mode that you're looking there?

There's actually three dynamics that are going on. One, the market has clearly gotten more rational, Tim. The second thing is, VISTA was managed well and did have great historical performance; but during the downturn, VISTA was kind of more of a recruitment fulfillment-centric business versus a sales-centric business. And with the addition of ACP, and their very aggressive intensity activity level, that has been infectious.

And along with Christian's efforts to increase intensity, as well as performance awareness, we are seeing some positive inflections. So it's a better marketplace. I think, you know, equally weighting our prowess both in recruitment and sales and better awareness of what we're doing on a daily basis, versus a monthly or quarterly basis. That gives us confidence.

Great. And then, from a headcount perspective, it seemed like -- at least on a sequential basis -- the bulk of the hiring was in the IT division. As we move into 2012 here, are you hiring across the businesses? Or will it continue to be weighted more towards one business versus the others?

Well, we don't give that stat across all the decisions. I know Mike did in his prepared remarks, but we hired pretty aggressively in the physician space, and had a fair amount of hiring in the Lab and the Life Sciences space. And then, we are at kind of peak budgeted levels for the Nursing space. So it wasn't all in one organization. I would tell you that because of the growth rate that Mike had in 2011, and what we see going forward, that we put money to work where we're going to get the biggest bang for our buck. But it was pretty broad-based, across-the-board hiring.

Okay. And then, just one other question would just be on the visibility you have at this point. I know we're a little later into the quarter than normal because of the year-end process. You talk, historically, about the longer length of assignment that you have probably than most staffing companies. Do you feel like you have pretty good visibility into the Q1 at this point? Or is the market still so uncertain that you are hesitant to say that?

We feel prudent about our guidance for the first quarter. We do have greater visibility than most staffing companies because of the length of our assignments. But I'll just kind of leave it at that.

Jeff Silber.

Just a little bit more color on the guidance. In looking at the gross margin expectations for the quarter, I understand the seasonal decline. But are there any divisions that are going to see it a little bit more than others?

Jim?

Not really, on a quarter-to-quarter basis. It's pretty much just related to what's going on with the reset of payroll taxes.

You know, Jeff, I would add the following comment. Our belief is that our core margins are relatively stable, and what can tweak them up or down is the amount of perm placement contribution in a particular division. And the majority of perm placement comes in Life Sciences, as well as the mix of revenue growth and just absolute contribution from some of the acquisitions that we completed in 2011.

Valesta is an incredibly attractive company, but it had a slightly lower gross margin, but probably equal to better EBITDA margin. And on HCP, had significantly higher revenue growth rate, but because they perform a fair amount of their business with state and Federal governmental agencies, have a slightly lower gross margin than VISTAs legacy. So when you add that all together, it can show a change in the reported margin. But we think our core margins are relatively stable. And they move around a little bit, because of perm placement contribution and adjustments to workers comp or medical malpractice accruals. And we try to call that out every quarter for you.

I think it's pretty normal, seasonal.

That's helpful. Peter, in your prepared remarks in talking about your five-year plan, you had mentioned you're more than on track at least for this year, even without acquisitions. But I'm just curious, from an acquisition perspective, is it getting more competitive to find some of the companies that you're looking for?

Yes, on the IT side -- but you have to also understand, on the IT side, we are really very focused on niche spaces. So that's kind of a rarefied air where a lot of the bulk sellers don't really want to participate in that space, because they don't know how to really manage it. And then on the healthcare side, on the physician side or the health information management, we really are a preferred buyer for a couple of reasons. The acquisitions we've done has been successful. And, two, the other large potential acquirers' capitalization isn't quite what ours is, so they're still working through a healing process as it relates to their balance sheet.

So they are not really as forceful an acquirer as you might expect in normal times. So that leaves smaller, private companies or private equity-backed companies. And they have been more in the home healthcare and the nursing and the allied space, and not so much in the physician space.

Great. And then just a few numbers questions for Jim. Looking at 2012 for the entire year, what should we be modeling for capital spending, tax rate, and stock-based compensation?

Capital spending is probably going to be in the $8 million to $10 million range, probably a little bit higher than it has been historically. I'm still anticipating the tax rate to be somewhere in the range of 41.5%. What was the third item?

Stock-based comp. I know it's a little bit lower this quarter than it has been.

Yes. My anticipation is, it's probably going to end up being around $6 million for the year.

(Operator Instructions). Mark Marcon.

Congratulations on the strong results. I was wondering if you could talk a little bit more with regards to what you're seeing on the IT side, in terms of specific verticals other than healthcare, where you're seeing the strong growth. And how the model is evolving within your organization, how much -- what's the spread between some of the more regional or centralized recruiting fulfillment, versus the field offices?

I'll let Michael address it directly. And to the extent that there's anything to add to his comment, I'll follow up.

I think across our disciplines -- and you hear us talking about them -- the engineering group, actually, is doing probably the best in terms of overall growth. A lot of validation-type engineers are required across the pharmaceutical and life sciences industry. So that's probably the most -- the fastest-growing area. The IT, which is mostly ERP activity, has continued to grow. Let's say SAP, PeopleSoft stuff.

Same thing on the CRM systems, and the business intelligence stuff is doing well, also. The software hardware engineering is continuing to do well. The area that were actually changing a little focus is in the telecom area -- telecom, some of those skills are being commoditized. So we're moving some of that group into more of some IT infrastructure, with still high-bill rates, $125, $140 bill rates. So that's moving up. And then the healthcare IT as I mentioned, we've got over a $25 million run rate there. And that's doing well.

That's kind of a mixed model, because we actually have a local office approach, or face-to-face meetings, coupled with our national telecenter operations. So we kind of do a combination where he have face-to-face visits and over-the phone-contacts. So generally, overall, everything continues to increase, and we're seeing it into the first quarter.

Mark, we see a healthy continued growth in demand. We've intentionally stayed away from the financial services industry, because that has been more -- the purchasers of commoditized skill sets and the margins lower. But we focus heavily on our spread of skills as well as industries served. And, as Mike referenced, we try to stay on the early adoption of technology versus a later stage of adoption of technology. And that's what keeps our skills relevant and defensible -- and the defensibility of our margin.

The only other thing, Mark, also is -- because you mentioned about our separate -- whether the telecenter type operation, the regional recruiting centers, and our local offices. And those are also both continuing to grow. In fact, in the last six months we've opened up an office in Austin, Texas -- it's a local office -- as well as in the Chicago Loop. So we'll continue to do that as we develop more managers and we can relocate folks to open up new offices for us.

That's great. What area within IT and engineering would you expect to see the strongest growth over the course of the year? Is it -- do you think engineering and health care are going to continue to lead?

Yes, I do. Again, what we are seeing, especially from the healthcare IT, and a lot of the healthcare systems have a lot of money to spend because of government funding, so we're going to continue to see that going forward, as well as in the engineering.

Is it possible that the healthcare could end up doubling over the course of the year?

You know, I don't know. What we've said publicly is the following -- it's a resource-constrained market versus an order-constrained market. And the second thing is, that the amount of spend that occurred in getting to meaningful use status -- to get the stimulus dollars -- I think will be dwarfed in comparison with the dollars that are spent on staff augmentation to optimize these systems that were jammed in rapidly. So we think that the demand for healthcare IT is going to be stronger post-meaningful use than it was pre-meaningful use.

Is that a little bit of a change, Peter, in terms of the way that you're thinking about it?

No. The analogy that I've given before, Mark, is very similar to year 2K, where people just rushed to jam in SAP and PeopleSoft to replace, versus remediate, their legacy code. But then it took years of optimization spending to get the true functionality and automation out of those ERP systems. And I feel the same way about this EMR record implementation that's been going on.

We both remember that well. In terms of the resource constraints, how tough is it, and to what extent does your model -- I mean, from the perspective that you don't have these vendor management agreements -- give you an significant advantage, with regards to being able to recruit and to offer bill rates and wage rates that are truly competitive?

I think for us, as you know, Mark, being recruiting driven, which is so different then most of the rest of the staffing industry, that we really have an advantage. And as the market gets tighter, I don't really complain about that, because we have our recruiters that are trained to recruit, not just fulfill. They don't go to the job boards and look for somebody on Dice or Monster, et cetera.

We recruit in advance. We have them in our database. And when we get in order the salesman brings in, we can turn around and fill it very, very quickly. So that's one of the advantages we have is, half of our staff -- and as I mentioned, we are close to 500 people now staffing consultants -- so those are half salespeople and half recruiters. And those recruiters are, right now, building databases; finding people, that probably, in many cases, don't even have their resumes up on the job boards. So we actually, I believe, have an advantage over a lot of our competitors because of our aggressive approach to finding talent.

Terrific. I've got lots of other questions, but I'll follow up off-line.

I am showing no further questions in queue at this time. Do you have any closing remarks?

We appreciate your attention and interest in the Company, and we look forward to reporting our first quarter results. Thank you very much.

Thank you for participating. This does conclude today's call. You may now disconnect.