ASGN Inc (ASGN) 2012 Q1 法說會逐字稿

Good afternoon. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the On Assignment Q1 2012 Earnings Conference 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.)

Thank you. Mr. Jim Brill, you may begin your conference.

Thank you, operator.

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 Demaris, our CEO and President, who will provide an overview of our first-quarter results. Peter?

Thank you, Jim. Good afternoon. I would like to welcome everyone to the On Assignment 2012 First Quarter Earnings Conference Call. With Jim and me today is Christian Rutherford, President of VISTA, our physician staffing 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 Christian. We'll turn the call over to Jim afterwards for a detailed review and discussion of our first-quarter performance and our estimates for the second quarter of 2012. We will then open the call up for questions.

To begin today's conference call, I thought we would give a brief recap and status update of our pending acquisition of Apex Systems. For those of you who follow our company, you are aware than on March 20, 2012, we announced that we had signed a definitive agreement to acquire Apex Systems, a leading information technology staffing and services firm. The transaction will create one of the largest professional staffing firms and the second-largest IT staffing firm in the United States. On a pro forma basis, 2011 revenue of the combined entity was $1.3 billion.

This acquisition uniquely positions On Assignment to provide to its customers a broad spectrum of IT staffing offerings for mission-critical daily IT services to high-end specialty projects. Apex Systems will continue to operate substantially as it has in the past. The company's three co-founders will continue to focus on Apex Systems' strategy and its high-performance culture as they have done for the last three years. Rand Blazer and Ted Hanson -- Apex Systems' Chief Operating Officer and Chief Financial Officer, respectively -- and the rest of the senior management team will remain in place and continue to oversee the day-to-day operations of the business. This transaction is expected to be immediately accretive to On Assignment's earnings per share without any synergy savings and generate strong cash flow.

Under the terms of the definitive agreement, On Assignment will acquire all of Apex Systems' equity and retire all of its debt for a total of $600 million. The purchase price is comprised of $383 million in cash and newly-issued stock valued at $217 million. The number of shares currently estimated to be issued at the time of closing is 14.3 million shares.

In connection with the execution of a definitive agreement, On Assignment obtained a commitment for a new $540-million senior-secured credit facility from Wells Fargo Bank, Bank of America, Merrill Lynch and Deutsche Bank Trust Company. The credit facility provides for a $50-million revolving credit facility and a $490-million term loan. The proceeds of the term loan will be used to finance the cash portion of the purchase price, to repay existing indebtedness of On Assignment and Apex Systems, and to pay fees and expenses in connection with the transaction.

Upon the closing of the transaction, funded debt of the combined company will total approximately 3.75 times estimated pro forma adjusted EBITDA for the 12 months ended March 31, 2012. On Assignment will benefit from having the acquisition treated as an asset sale under Section 338(h)(10) of the IRS Code. The election is expected to result in an estimated $14 million of annual cash tax savings over the next 15 years. We expect our increased scale, along with strong revenue and free cash flow generation, to result in rapid de-leveraging, creating further equity value.

Since the day of the announcement of the transaction, we have received the necessary approval from the Federal Trade Commission, have been cleared to solicit proxies in favor of the transaction by the Securities Exchange Commission, and have mailed our proxy statement to our shareholders. We have also received the necessary credit rating agency ratings and have held our debt syndication meetings with potential lenders. In addition, as of the date -- as of today's date, our loan facility has been fully subscribed for.

Based on the above, and assuming a successful shareholder vote, we expect the transaction to close around May 15, 2012.

Now to our first-quarter results. The financial results we are about to discuss are exclusively On Assignment and do not include any contribution from the proposed acquisition of Apex Systems. All markets we served, including Nurse Travel and Physician Staffing, improved during and exiting the quarter. Once again, we saw particularly strong growth and strength in the IT and Life Sciences end markets. As we noted during our fourth-quarter conference call, our Health Care groups have made solid progress in improving their operating performance and in the first quarter we saw solid execution in our Physician Staffing group. In the Physician group, physician days sold in the first quarter have increased 11% over the same period in the last -- in last year's first quarter. During the first quarter, we also built on the increased demand in nursing and allied health care that we saw in the fourth quarter. Based on days sold in the physician group and our growth and professionals ongoing in health care -- in our Health Care group, we believe double-digit revenue growth is possible in 2012 for our Physician and Health Care groups. As we have mentioned many times in the past, we firmly believe the Health Care end markets will provide some of the greatest growth opportunities for our company in the future.

Consolidated gross margin of 32.95% was down 39 basis points from the first quarter of 2011, which was a record for first-quarter gross margins for our company. Gross margins came in stronger than we expected due to solid performance in all our divisions and greater-than-forecasted permanent placement revenues. Adjusted EBITDA margin was 9.4%, up from 8.1% in the first quarter of 2011 and a new record first-quarter adjusted EBITDA for the company.

Regarding industry dynamics, during and exiting the first quarter, secular trends continued to permit temporary labor to see greater growth prospects than full-time labor. We also continued to see a classic cyclical recovery in professional staffing.

Due to the pending acquisition of Apex Systems, we will no longer be measuring against our previously-announced five-year strategic plan to reach $1 billion in revenue. Needless to say, we far exceeded that goal two and a half years ahead of schedule.

Our operating performance in the first quarter of 2012 and our guidance for the second 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 (inaudible) and expanding our service offerings, we were able to grow our adjusted EBITDA about 70% faster than our revenues in the first quarter. We believe this operating leverage trend will continue to allow us to grow adjusted EBITDA faster than revenue throughout 2012. 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 have -- that we employ. In the first quarter of 2012, we averaged 871 recruiters and sales personnel. This compares to 758 in the first quarter of 2011.

During the first quarter, we did not acquire any shares of our common stock.

Revenues in the first quarter of $167.1 million increased 29.1% over the first quarter of 2011 and 3.3% sequentially. Net income was $5.4 million, or $0.14 per diluted share. Revenues generated outside the US was $19.2 million, or 12% of consolidated revenues in the first quarter, versus $13 million, or 10% in the first quarter of 2011. Consolidated gross margin in the first quarter was 32.95%, down from 33.34% in the first quarter of 2011. Adjusted EBITDA was $15.7 million, or 9.4% of revenue, for the quarter, up from $10.5 million, or 8.1%, of revenue in the first quarter of '11. Permanent placement and conversion fees represented 3.1% of revenues 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 $12.8 million for the last four weeks. This is up 26% from the same period in 2011.

Before turning the call over to Christian, I would like to give you a brief review of operations. 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 first quarter of 2012 were $78.8 million, a 10.6% sequential increase over the fourth quarter of 2011 and a 31% increase over the first quarter of 2011. This follows year-over-year quarterly increases for the four previous quarters of 31.4%, 47.7%, 58.4% and 67.9%, respectively. Our quarterly revenue of $78.8 million not only exceeded our pre-recession levels but is an all-time historical high for Oxford.

The 31% increase in year-over-year quarterly revenue was due primarily to a significant increase in demand for consultant labor across all our business units. Billable consultants on assignment increased 25.2% from an average of 992 in the first quarter of 2011 to an average of 1,242 in the first quarter of 2012, another all-time record. The revenue increase in the quarter was also a result of increasing bill rates which were approximately 3.9% higher in the first quarter of 2012 compared to the first quarter of 2011. The average bill rate in the first quarter of 2012 was $117.61 per hour compared to $113.16 in the same period of 2011 and $116.31 in the fourth quarter of 2011. Our gross margin for the quarter of 2012 remained strong at 34.8% compared to 34.9% for the same period last year.

We launched our Health Care IT business in late 2009 and it continues to be our fastest-growing area as we continue to add staff and accelerate our penetration in this market. Total revenue in the Health Care IT area was $7.6 million for the first quarter of 2012 compared to $3.9 million in the first quarter of 2011, a 95% increase. We ended the first quarter of 2012 with 129 consultants on assignment, compared to 65 at the end of the first quarter of 2011 and 78 at the end of 2011.

Total fees for our Permanent Placement business unit, Centerpoint, were $429,000 in the first quarter compared to $402,000 in the first quarter of 2011. Total perm fees through Centerpoint represented less than 1% of Oxford's total revenues in the first quarter of 2012.

During the first quarter, we were successful in continuing our strategy of diversifying our business across clients and industries, billing approximately 955 different client companies. No single client accounted for more than 5.5% of our revenue, and our revenues from our top 10 clients represented only 15.6% of our total revenues for this division for the quarter. Demand for IT consultants was strong in the first quarter in financial services, durable goods, transportation and manufacturing, and chemical manufacturing companies, and slowed in educational services and retail. On the engineering side, companies in the medical equipment, pharmaceutical, machinery, technology equipment and semiconductor manufacturing industries continued to add consultants, while demand declined in appliance and electronic product manufacturing industries.

From an operational standpoint, our internal staff 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 '08. That number declined through the second quarter of '08 and all of '09. Since then, we have intentionally increased our staff from 275 staffing consultants in December of 2009 to 404 at the end of 2010 to 487 at the end of 2011, and we continued to selectively add staff during the first quarter of 2012. As with previous quarters, and even with the addition of this new staff, the efficiency of our team continues to increase. Over the previous 8 quarters, we have seen progressive highs in terms of assignments per day, and this trend continued into the first quarter of 2012. In fact, this past quarter was our most productive assignment quarter ever, and February and March ranked as the two highest assignment months in our history. This momentum is carrying into the second quarter and, due to this and our strong growth over the past 8 quarters, we continue to selectively add staffing consultants to our Oxford brands. Our Oxford Index, our forward-looking quarterly survey, suggests demand for our services will continue to be strong in the second quarter of 2012 across all of our business units. This is consistent with our actual results in March, which indicated clients are increasing their temporary hiring. Finally, in their April report, Staffing Industry Analysts predict the US IT staffing market in 2012 will surpass its 2000 peak of $21.5 billion in revenues (inaudible) at the height of the dot-com boom. All these trends bode well for IT and Engineering segments of our business.

Turning to our Life Science segment, revenues for the quarter -- first quarter of 2012 were $41.4 million, which represents a 1.1% increase over the prior quarter and a 25.5% increase year over year. Year-over-year growth was enhanced by the Valesta acquisition which took place in March of 2011. Valesta revenues were $6.5 million in the first quarter. Excluding the Valesta acquisition, revenues decreased slightly sequentially and grew 12.8% year over year.

On a divisional basis, US operations generated $29.7 million in revenue, up slightly sequentially, and 12.8% up year over year. Foreign revenues were $11.6 million for the quarter, increasing 1.9% sequentially and 75.9% year over year. Excluding the Valesta acquisition, foreign revenues decreased 5.8% sequentially but were up 12.5% year over year. Gross margin for the Life Science segment was 33.5%, increasing 19 basis points sequentially but decreasing 73 basis points year over year.

With the Valesta acquisition, permanent and conversion fees decreased as a percentage of total revenue, thereby impacting gross margin year over year. On a divisional basis, US gross margin was 30.8%, decreasing 39 basis points sequentially and decreasing 122 basis points year over year. The sequential decrease in gross margin is due to payroll tax resets for the 2012 fiscal year. The payroll tax increases were partially offset by an increase in permanent placement and conversion fees and lower assignment-related expenses. The year-over-year decrease in gross margin is primarily attributable to payroll tax costs and holiday they pay increases.

Moving on to the second quarter of 2012 -- demand for contract, contingent, and retained search services throughout the US and Europe remain steady. However, in the US, assignment terminations were a little heavier than we expected. The business climate overall is stable. Furthermore, in support of our strategy to conduct high-margin business, we decided to terminated a lower-margin client engagement at the end of the first quarter. We expect to replace this revenue throughout the remainder of the year.

Early into the second quarter, we are encouraged with the level of contract and permanent orders, number of weekly contract assignments and permanent placement activity. Based on our current run rate and pipeline of orders, we expect revenues to be up on an absolute dollar basis over the first quarter.

Now I would like to turn over -- turn to Allied Healthcare. Revenues for the Allied Healthcare division were $12.6 million, which represented a 3.2% sequential increase and a 23.9% increase year over year. We attribute the sequential and year-over-year revenue increase to the improved operating environment, operational execution, and better-than-expected weather conditions in the quarter.

Allied Healthcare gross margins for the quarter were 32.2%, which represented a slight sequential decrease but an 83-basis-point increase year over year. The sequential change in gross margin is due to the annual reset of payroll taxes, which were substantially offset by decreases in assignment-related expenses and an increase in permanent and conversion fees. The year-over-year performance was primarily attributable to an improvement in contract assignment pricing and permanent and conversion fees.

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

Turning to the Nurse Travel segment, revenue for the first quarter was $10.3 million and grew over the first quarter of 2011 by 6.3% but was -- but had a decrease of 25% sequentially. In our fourth-quarter call, we discussed our involvement in that quarter in assisting one of our customers with staffing during labor disruption. While this work is very beneficial to us, it distorts the sequential quarterly comparisons. Adjusting for the labor disruption revenues, our quarterly revenue was flat sequentially and grew year over year. Gross margin 22.3% represented a 299-basis-point sequential decrease and a 295-basis-point decrease year-over-year. The decline in gross margin is a result of the pricing pressures exercised from some of our top clients, but we believe this pressure will decline over the remainder of the year while demand for highly-skilled nurses increases. During the second half of the quarter, we have seen significant improvement in the number of orders received from our traditional clients and, as a result, we grew 20% in revenue since the beginning of February.

Looking ahead, we strongly believe that customer relationships and mix are very important differentiators for us. Over the past year, we have carefully aligned ourselves with clients that focus on reliability and value and not just price. We believe we have successfully proven our superior service quality, reliability and efficiency to make us a preferred provider. Price competition is noticeable in the nurse travel market due to [VMS] presence, but we have and will continue to avoid it. As we renew current contracts and win new clients, we believe we will continue to get superior margins due to our customer mix.

Here is a recap of some important additional metrics for the quarter. The adjusted bill pay margin, excluding strike revenue, for the quarter remained flat sequentially but increased 34 basis points year over year. The revenue from our top 10 clients accounted for 36% of business, compared to 36.9% in the fourth quarter and 32.8% in the first quarter of 2011. We invoiced 205 clients this quarter, 215 in the fourth quarter and 202 in the first quarter of 2011. More than 74% of our placements are of 9 weeks or more, compared to 69% a year ago. Our results include no permanent placement revenue or conversion fees.

I will now turn the call over to Christian Rutherford, President, VISTA Staffing Solutions. Christian?

Thank you, Peter, and good afternoon, everyone.

While our results met our expectations for the first quarter, the results are not reflective of our longer-term expectations for revenue growth and profitability for our Physician Staffing division.

Revenues in the first quarter were $24.1 million, compared to $23.7 million for Q4, which represents a 1.6% sequential and 45.8% year-over-year growth. Conversion revenue during the quarter was 25.2% [sequentially] and down 2.3% year over year. Gross margin in the first quarter was up about 100 basis points sequentially and down about 100 basis points year over year. The sequential margin expansion is a result of pricing strategies and mix shifts. Gross profit grew year over year by 41.5% and was up sequentially 5.1%. VISTA's specialty mix is following the overall market trends as reported to Staffing Industry Analysts. Primary care and emergency medicine are expanding while radiology and anesthesia are continuing to experience demand constraint. During the first quarter, top 10 client locum's client revenues represented 22.1% of our overall assignment revenues. In terms of key performance indicators, VISTA's first-quarter locum's average bill rate was up 4.9% year over year with no change sequentially. In the first quarter, our sold days increased by 11.2% year over year, which indicates continued growing client demand for our locum tenens services.

The first quarter can be marked by three internal initiatives that have had a positive impact on our overall performance. First, we have continued to allocate resources to the areas of the business that are demonstrating high rates of growth. This includes adding new recruiting talent and technology that is designed to improve our ability to perform in the highly-competitive market segments. Second, we have added new reporting systems and communication tools to better gage how the company is doing against established goals. This has provided our management team greater visibility in how the teams are performing on an hour-to-hour basis. It also has allowed the company to act quickly on trends and anomalies before we see a negative impact on our financial results. And third, we have continued to invest in our employees by creating an organization structure that allows for new opportunities for our top performers. Together, these three steps are stabilizing employee productivity and have led to measurable improvements in our ability to execute. Branch contribution during the first quarter was up 41% year over year, 0.4% sequentially. Excluding the acquisition of HCP, branch contribution was up 18.8% year over year. HCP contributed $6.6 million of revenue for the quarter, which was in line with our expectations and is included in our consolidated results for the quarter.

Our priorities at VISTA are to accelerate growth of our division's revenues while maintaining our industry-leading gross margins. We are also focused on completing the integration of HCP. VISTA's extensive training programs are being implemented at HCP and back-office systems are being converted. So far, the integration is going well and plans are on track and milestones are being met.

We have a positive outlook for 2012. In its April 2012 report, Staffing Industry Analysts said that the locum tenens market is expected to grow by 7% overall this year. We expect VISTA to exceed that rate.

As the economy improves and unemployment drops, it gets easier to find staffing buyers and more difficult to find candidates. Currently, in many specialty areas, finding buyers in the locum tenens sector determines our success. The long-term drivers of demand remain in the physician space, such as aging population and the growing shortage of physicians globally. This will ultimately drive increases in the markets that we serve. Interim staffing is one of the safest, most strategic ways for our clients to meet demand. That said, we believe we will continue to make progress on improving internal performance and execution and believe that the second half of the year provides us ample opportunities.

Now I would like to turn the call over to Mr. Jim Brill.

Thanks, Christian.

As Peter mentioned, consolidated revenues for the quarter were a record $167.1 million, up 29.1% from the first quarter of 2011. There were approximately 63.5 billing days in this quarter, 61 in the fourth quarter, and approximately 64 in the first quarter of 2011. However, for Nurse Travel, there were 91 billing days this quarter, 91 last quarter, and 90 in the first quarter of 2011. Foreign currency had a $700,000 negative impact on revenue relative to last year's first quarter and a $400,000 negative impact on revenue relative to the fourth quarter.

Now let me address some of the variances and their related explanations to the extent Peter or Christian has not.

Peter mentioned the bill rates at Oxford. Their bill pay margin contracted slightly from the fourth quarter and was about 1% up -- or by about 1% year over year.

In Life Sciences, the bill rate was down slightly from the fourth quarter and the bill pay margin increased. Relative to the first quarter of 2011, the bill rate was up 3% and the bill pay margin increased 2%.

In Allied Healthcare, the bill rate relative to the fourth quarter was up 3% and the bill pay margin increased as well. Relative to first quarter of 2011, Allied Healthcare's bill rate was up 1% and the bill pay margin expanded. In Nurse Travel, Peter mentioned the bill pay margin movement. The bill rate was down 3% relative to the fourth quarter but up 2% relative to the first quarter last year. Christian mentioned the bill rates in the Physician business. The bill pay margin expanded slightly from the fourth quarter and contracted 3% relative to the first quarter of 2011 due to the HCP acquisition which has a higher concentration of government accounts. Conversion and direct hire revenues totaled $5.1 million in the quarter, or 3.1% of revenue, as compared to $4.5 million, or 2.8% of revenue, in the fourth quarter and $4.2 million, or 3.3% of revenue, in the first quarter of 2011.

Total SG&A expense for the first quarter was $45.1 million, or 27% of total revenues, which is up from $40.2 million, or 24.8%, last quarter and $36.8 million, or 28.4%, in the first quarter of 2011. Excluding acquisition-related expenses of $2.5 million, SG&A was $42.6 million, or 25.5% of revenues. The remainder of the increase from last quarter is in part related to an increase in revenue-generating headcount, an increase in commissions related to increased revenue and was partially offset by a $700,000 decrease in equity-based compensation to $1.2 million. Also included in SG&A in the quarter was $600,000 of amortization, $1.4 million of depreciation. Our interest expense was $700,000, our tax rate was 41.8%, and we had net income of $5.4 million, or $0.14 per share. Excluding the transaction-related expenses net of tax, our net income was $6.8 million, or $0.18 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 $12 million. Excluding equity-based compensation expense of approximately $1.2 million, and acquisition-related expenses of $2.5 million, adjusted EBITDA was $15.7 million, or 9.4% of revenue -- both records for a first quarter.

We ended the quarter with cash and cash equivalents of $17.7 million, equal to last quarter, and bank debt stood at $80.5 million, down from $86.75 million last quarter. We generated $6.9 million in cash flow from operations. CapEx was $2.1 million, down from about $2.4 million last quarter and $2.7 million in the first quarter of 2011.

Net accounts receivable was $102 million at the end of the first quarter, and days sales outstanding were 56 days, versus 53 last quarter and 53 days in the first quarter last year.

Now, turning to productivity -- which we define as the quarterly gross profit generated per staffing consultant -- in the first quarter, we averaged 871 staffing consultants, and gross profit per staffing consultant was $63,000, up slightly from the fourth quarter and up from $57,000 in the first quarter of 2011. The Life Sciences segment generated $82,000 in gross profit per staffing consultant, up slightly from last quarter. The Healthcare segment generated $53,000 in gross profit per staffing consultant for the quarter, down from $64,000 last quarter which, as we mentioned, included revenues related to supporting customer labor disruption in Nurse Travel. The Physician Staffing segment generated $79,000 in gross profit per staffing consultant for the quarter, up from $75,000 last quarter. And the IT and Engineering segment generated $56,000 in gross profit per staffing consultant for the quarter, up from $53,000 last quarter.

Looking at second-quarter revenue expectations, based on the first four weeks of April and considering normal seasonal trends, we currently estimated consolidated revenues for On Assignment on a stand-alone basis of $177 million to $180 million for the quarter ending June 30, 2012. We're estimating consolidated gross margin of approximately 33%, SG&A of approximately $44.3 million to $44.7 million -- excluding any costs related to acquisitions -- equity-based compensation expenses of approximately $2.1 million, approximately $600,000 in amortization of intangible assets, and depreciation of approximately $1.6 million.

We estimate net income of $7.6 million to $8.2 million, earnings per share of $0.20 to $0.22, and an effective tax rate of about 41.5%. Adjusted EBITDA is estimated to range from $18 million to $19.1 million.

Again, none of these estimates include our pending acquisition of Apex Systems. We will update our second-quarter estimates when the Apex transaction closes. However, I do want to reconfirm the estimates that we provided for the combined company when we announced the pending acquisition of Apex on March 20. In the second half of 2012, including contributions from Apex Systems, we estimate that revenues will be approximately $775 million to $805 million; gross margin will be approximately 30% to 31%; SG&A, excluding any transaction-related expenses, of $167 million to $178 million; adjusted EBITDA as a percentage of revenue of approximately 10% to 11%; tax rate of approximately 41% to 41.5%; adjusted net income per diluted share of approximately $0.50 to $0.60, that is net income excluding transaction-related expenses and the write-off of deferred financing fees; approximately 54,384,000 fully-diluted shares outstanding; and cash earnings per diluted share of approximately $0.77 to $0.88, which excludes the impact of stock-based comp and amortization but includes the tax benefit of 338(h)(10) election.

Now I'll turn it back to Peter for some closing comments before we open up the lines for questions. Peter?

Thanks, Jim.

We believe that we continue to be 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. I would like to once again thank our many loyal, dedicated, and talented employees whose effort has allowed us to progress to where we are today. I would like to welcome our new co-workers over at Apex. And I would like to now open the call up to participants for questions. Operator?

(OPERATOR INSTRUCTIONS.) Your first questions comes from the line of Tim McHugh.

Yes. Hi. First a quick numbers question for you, Jim. On the -- in the press release, you have the segment level growth projections and as I plug them in I come out a little higher than the total revenue. I may -- maybe I'm doing it wrong, but is there -- I guess, am I doing it wrong? Is there any color you would add there?

Yes. So there was a little bit of a mistake on the Life Sciences estimated growth rates. It should be in the high single digits.

Okay. That's helpful. And then can you give us any sort of update on Apex in terms of how its Q1 fared and -- just so we get a sense for the run rate of that business?

Tim, we can't. We don't own it yet. They're a private company. What I can tell you is that, upon the closing of the transaction, an 8-K has to be filed. But -- and we gave you a guidance as to the second half of the year for Apex but we just can't give you first quarter at this point.

Okay. And then the Physician Staffing segment -- two questions there. One is the growth rate of double-digit growth you talked about there, is that an organic number? And secondly, the days sold -- it's up nicely again, but it's not quite up as much as we saw earlier in -- I guess late last year. Is that just tougher comps? And I guess the third part might be converting those days sold into actual revenue. I know that was kind of lagging behind last year.

Yes. We're fortunate to have Christian with us here today, so I'll let him address those questions. But on the double-digit growth, we do expect both the legacy business and the small acquisition, HCP, that we did in July of '11 to both grow double digits. And Christian, what would you add to that and the other question he had?

No, I, of course, would agree. Both businesses -- HCP, the acquisition, and our legacy business, VISTA, are positioned well to grow on a double-digit basis this year. In terms of demand -- I think was your question -- we're seeing -- we saw the first quarter, 11% increase. We're seeing that trend continue into the second. So we'd expect that, in terms of demand for our core modalities, to stay consistent which will begat that double-digit revenue growth for the second half of the year.

Okay. That's helpful. I guess -- and then last question would just be at a high level. You gave us a lot of the details around Oxford, but the guidance would suggest that you're seeing the growth rates kind of level off here at a much higher level than I think most people would have expected. Is -- are you seeing -- is that just a reflection of some of the hiring you've done in the last several years or have you seen, in your view, the environment actually start to get better even than maybe what you saw the second half of last year?

I think it's steady state. I wouldn't describe the market as better than it was last year. Tim, as we've joked at one of the -- one of your conferences -- no one grows at 58% forever, but we continue to put up numbers that are very, very solid and we continue to make investments in the business. So we see plenty of double-digit growth ahead. I don't think it's gotten easier. I think the place where maybe it's gotten a little bit easier, Tim, is on pricing because high-quality resources are becoming more scarce and I think the customers are more embracive of the fact that if they want a special -- if they want a specific resource, they're going to have to pay for it.

Okay. Great. Thank you.

Your next question comes from the line of Jim Janesky.

Good afternoon. When you look at the first two quarters -- your first quarter and the guidance for the second quarter, and then working in the numbers for Apex that you provided when you made the acquisition announcement, I come up with an EBITDA for 2012 that would be at or maybe slightly above the 10.3% that you reported for 2011. Where do you think that can go over a next cycle that continues to show positive momentum?

We believe that this next cycle, perm placement will be a little bit larger contributor to our overall revenues than it was in the previous peak cycle. And I don't think it'll be above 5%, but remember, we peaked out at 3.1% last go-round. Two, as you know, we've guided to no-synergy savings, and just over time, we'll figure out where the appropriate leverage is in our business models and try to utilize that leverage. But we do think that there's continued operating leverage as we've demonstrated over the last 10 quarters, and Apex has as well. They're -- Apex's EBITDA margin has gone up each quarter since the midpoint of 2009. So we're going to be focused on continuing to obtain that operating leverage and we think that we can do it.

Okay.

But we're not going to guide right now to a specific percentage number as a percentage of revenue.

Okay. When you look at the IT Engineering in the March quarter, the margins sequentially -- they went down less than they did from December 2010 to March of 2011. What's behind that? Is that the pricing trends that you're seeing, Pete?

There's a couple of things. Some of it is pricing, as I made reference to Tim McHugh, and the -- I think some of it has to do with mix as well, Jim, as it relates to -- we had -- we've been doing less of kind of telecom infrastructure work because we've been having a harder time getting the bill rate that we want, but when you look at the grow-over in the first quarter -- any comparison of the first quarter of '11 to the first quarter of '10, you have to also remember there were some HIRE Act credits. But what I can tell you, the sequential change --

Right.

It's just solely related to better pricing and high-valued resources becoming more scarce.

Okay. And when you look at the future of the Nurse Travel segment and the industry itself, how do you see that playing out as we move forward even over the next couple of years, Pete?

Yes. I do think it's going to get better. It's shrunk an enormous amount. I think the projections are only for it to be a $1.2-billion end market. I think that it's a relatively young industry as compared to -- when you compare it to commercial staffing, and I think eventually that some of the dominant players are going to wake up and realize that taking work at any price is just not very profitable. And if you look at what Manpower, Kelly and Adecco did to themselves on the commercial side, competing just on price, it turned out not to be a good strategy and they've reversed themselves and tried to get their margins back up in their kind of unskilled commercial staffing space. So I think there's probably a couple years of thrashing, but on a demand side -- on a pricing side -- but I think on a demand side, it's going to get -- it's going to continue to get better.

Okay. Thank you.

Your next question comes from the line of Tobey Sommer.

Thanks. Pete, you've already made a couple comments about bill rates and customers maybe stepping up and recognizing (inaudible) resources, they're going to have to pay. Would that commentary hold true across multiple lines of business or was that geared towards Oxford?

Well, it's -- I think you can apply that comment, Tobey, to all of our lines of business as it relates to our highest bill rate modalities, or skill sets. So the more commoditized a particular skill set -- so an entry-level lab technician, we're continuing to see pricing pressure whereas a field monitor or biostatistician, we're not feeling the same type of pricing pressure on. The same applies with regard to the -- in the physician world, Christian. Can you draw a distinction between the pricing pressures you see maybe in ER versus surgical?

(Inaudible), yes. The surgery specialty, as an example, will typically yield higher bill rates along with higher margins chiefly because of what Peter's describing. The supply and demand economics really allow for that type of pricing strategy based on the candidate supply versus client demand. So the short answer is yes. You look at the 40 different modalities that we offer and, fortunately, right now, the ones in demand are the ones where we're growing the most.

And Tobey, I would just add on the kind of mid-care IT skill sets that Apex is world-class in delivering, it's always competitive and what I would point out is in that space sometimes there's a little bit of a lag between the customer realizing that the abundancy of available skills is dwindling and the recognition that pay rates may need to go up, and thereby bill rates going up. But I think we're seeing a normal progression of pricing strategies by customers and recognition of tight labor markets by customers, and it's kind of all working its way through in a natural process, at least in the IT space.

Thank you. That's helpful. And you provided a lot of color on -- in your prepared remarks so I won't ask you anything about the business lines, but Peter, from a broad perspective, are you feeling that in moderate economic growth conditions you're going to be able to continue to throw up the kind of growth rates that you have? And I'm wondering if you could just comment on how you think the rate of growth of On Assignment would vary with economic -- with either a deceleration or acceleration in economic growth.

Yes. So we gave guidance for the second half of the year. If there's no change in the macroeconomic conditions of the United States, we think we can grow double digits. If there is a change and if history repeats itself, Apex's business performed better in the last downturn as far as revenue decline -- because a lot of the stuff they do is more mission-critical -- versus Oxford which, during the financial crisis, got hit harder than we would have ever expected because they tend to be more capital expenditure-driven. And when people were hoarding cash, a lot of projects that would have gotten let in a normal recession got frozen because of the financial crisis. So we think that maybe our trends will be a little bit different with Apex in the mix -- favorable -- and our guidance is based on no improvement in the markets that we serve and no -- and the flip side of that is no deterioration in the markets we serve. Just kind of steady state, which is -- we don't see -- quote -- the economy necessarily strengthening; we just see it kind of meddling along or just kind of moving along.

Thank you.

Your next question comes from the line from Mark Marcon.

Good afternoon and congratulations on a terrific quarter. I was wondering if you could talk -- most of my questions have been already asked and answered. But I'm wondering if you can talk a little bit about the feedback that you've gotten with regards to Apex from your existing clients and, specifically, what Oxford's clients are currently hearing, and any sort of feedback that you may have heard via Apex in terms of the reaction of their top clients.

So as we told you, there's very little client overlap and we really don't compete for the same business within the existing customer. We've had a couple of instances, Mark, where a client reached out to us and said, "Hey, it turns out that we use both companies and we'd like one point of contact." And we said, "Fine. We'll do that once the deal closes," and they said, "No, we actually kind of want you to do it now." And because Oxford only had one person there, we said, "Okay. Apex will be the point of contact." So -- and then on the Oxford side, we've been trying to coordinate with Apex whereas we can help them kind of on a private-label basis to further substantiate their solid reputation within their customers. Apex, before the closing, has actually shown us a number of things that we normally wouldn't have seen for the -- actually on the -- kind of the scientific side where our scientific business kind of bridges IT and Life Sciences. So it's been good. We haven't had any kind of -- as we expected, we haven't had any kind of channel conflict, loss of business. We've had a couple of customers ask, "Are we going to be billed under a different federal ID number?" But as we told you, we didn't expect this to be a problematic integration of two lines of business because we really don't compete with each other. And so far, that's proven out.

That's great. And what about the reaction from the individual consultants and staff members -- just what's trickled up within the organization -- reaction there?

It's been great. It's been fortunate timing because we've had some Presidents' Clubs and we've had a couple of All-Hands calls. Clearly, it helps us with our communication strategies that our investors have embraced the value of the two companies coming together and that they look more valuable together than apart. And we did a bunch of inducement grants to our new co-workers and those are quite enticing. And so the outreach I've gotten from my -- our current employees and co-workers and the Apex employees has been incredibly invigorating, and I'm going to be with a group of them. Rand Blazer and Ted Hanson and Win Sheridan and I are going to be in Charlotte next week for a large customer event, and I'm going to see a bunch of the employees. But the kind of congratulatory e-mails and communications back and forth have been very, very invigorating. They've been good. So as we expected, we haven't been fighting over who owns a customer and who's going to be the branch manager for Atlanta and things like that. So it's been all -- everyone focused forward and not internally focused on who's on first and who's on second.

That's fantastic. And as expected. You -- in terms of the things that we still need to do in order to get to the closing on May 15, you mailed out the proxy statement so we're just waiting for those and that's about it?

Yes. So we hope to -- our loan is pretty much done. We hope to do all the allocations next week. I think that's correct. And once that's done, that's pretty locked in and all we're waiting for then is the shareholder vote that we think will occur on the 14th and a closing on May 15.

Great. And any more color with regards to the exact rate on the loan facility?

It's -- we'll give you a little more detail, but it's coming in very attractively.

Great. Congratulations.

(OPERATOR INSTRUCTIONS.)

Alright. Operator?

There are no questions at this time.

Alright. Well, we appreciate it. I know there was a lot of information that was given, but we're going to be at 6 conferences in the next 45 days and we wanted to make sure it was all out there so we could speak openly about it. And we look forward to updating our guidance on May the 15th hopefully with the closing of the Apex transaction and reporting our second-quarter results thereafter. Thank you very much for your attention today.

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