ASGN Inc (ASGN) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the On Assignment fourth-quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise.

I would now like to turn the call over to Ed Pierce, Chief Financial Officer. Please, go ahead.

Thank you.

Before we begin, I would like to remind everyone 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, 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 our fourth-quarter results. Peter?

Thank you, Ed.

Good afternoon. I would like to welcome everyone to the On Assignment 2012 fourth-quarter earnings conference call. With Ed and me today is Rand Blazer, President of Apex Systems; and Mike McGowan, Chief Operating Officer of On Assignment and President of Oxford Global Resources, our high-end IT-skill staffing group.

During the call, I will give a review of the markets we serve and operational highlights, followed by a discussion of the performance for our operating segments by Rand and Michael. I will then turn the call over to Ed for a more detailed review and discussion of our fourth-quarter financial performance and our estimates for the first quarter of 2013 as well as for the full year of 2013. We will then open the call up for questions.

Today, we announced the sale of our Nurse Travel division. Details on the transaction are set forth in our earnings release, and we will not be discussing that division's results or the details of that transaction on this call. Should anyone have any questions regarding the Nurse Travel group's performance or the transaction, you may place yourself in queue and ask questions during the Q&A portion of the call.

Now, on to our fourth-quarter results. All markets we serve, including Allied Healthcare and Physician Staffing, remained productive and stable during and exiting the quarter. All of our divisions showed positive momentum exiting the fourth quarter, as well. Once again, we saw particularly strong growth and strength in the IT end markets.

Our healthcare groups continue to make solid progress in improving their operating performance and in the fourth quarter, we saw solid execution in our Physician Staffing and Allied Healthcare groups. In the physician group, physician days sold increased 23.8% in the fourth quarter, over last year's fourth quarter, and 6.4% over last quarter. During the fourth quarter, we also built on the increased end market demand in Allied Healthcare.

Based on our days sold in the physician group and our growth in professionals on billing in our Allied Healthcare group, we believe double-digit revenue growth will be achieved in 2013 for those groups. As we have mentioned many times in the past, we firmly believe that the healthcare end markets will provide some of the greatest growth opportunities for our Company in the future.

As for our life science group, during the fourth quarter, revenue growth continued to be slightly more challenging, and we are expecting similar end-market trends in that division for the first half of 2013. With that said, we are making adjustments to our operating plan and fully expect to positively affect the growth in that division in 2013.

Consolidated gross margin of 30.2% was down 295 basis points from the fourth quarter of 2011, primarily due to the inclusion of Apex's revenue, which carries a lower gross margin, and less contribution, as a percentage of total revenue, from permanent placement and conversion fees. With the inclusion of Apex's revenues, permanent placement and conversion fees are now 1.7% of our total fourth-quarter revenues. For those of you who are not familiar with our Company, Apex generates approximately 1% of their total revenue from perm-placement conversion fees, versus the old On Assignment divisions, which historically generated about 3% of total revenues from those type of fees.

Gross margins came in stronger than we expected due to solid performance in all of our divisions. Our adjusted EBITDA margin was 11% in the fourth quarter, up from 10.9% in the fourth quarter of 2011. Regarding industry dynamics, during and exiting the fourth quarter, secular trends continued to permit temporary labor to see greater growth prospects than full-time labor. Currently, the macroeconomic condition and environment in North America, where we derive 95% of our total revenues, has become more stable than the beginning of the fourth quarter of 2012.

In addition, we continue to see a classical cyclical recovery in professional staffing. More specifically, since the first quarter of the year -- since the first of the year, we have seen a slight positive change in demand trends in the markets we serve from those that we saw at the beginning of the fourth quarter.

As for the financial services sector, although demand for the entire industry was slower in 2012 than 2011, recently, we have seen a slightly stronger demand from our clients in that sector. Ed will provide you our first-quarter financial forecast and full-year forecast later in this call, but based on our currently weekly revenues and normal seasonal patterns, that includes holidays and customer facility closures, we do not see any appreciable negative change in demand for our services from our customers.

Our operating performance in the fourth quarter of 2012, and our estimates for the first quarter of this year, demonstrate that our business model and our areas of focus permit us to grow despite less-than-optimal economic conditions. Namely, as a result of higher operating leverage, we were able to grow our adjusted EBITDA faster than our revenue from the fourth quarter of 2011 on a pro-forma basis for the Apex acquisition. We believe this operating-leverage trend will continue to allow us to grow adjusted EBITDA faster than revenues for 2013 and into the future.

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 employ. In the fourth quarter of 2012, we averaged 1,622 recruiters and sales personnel, of which, 964 were in the legacy business. This compares to 855 in the legacy business in the fourth quarter of 2011.

Revenues in the fourth quarter of $401.7 million increased 148% over the fourth quarter of 2011 and 3.4% sequentially. Net income of $11.3 million, or $0.21 per diluted share. Revenues generated outside the United States was $19.8 million, or 4.9% of consolidated revenues in the fourth quarter, versus $17.7 million, or 10.9% in the fourth quarter of 2011. Consolidated gross margin in the fourth quarter was 30.2%, down from 33.1% in the fourth quarter of 2011 for the reasons previously stated. Adjusted EBITDA was $44.3 million, or 11% of revenue for the fourth quarter, up from $17.7 million, or 10.9% of revenues in the fourth quarter of 2011.

Exiting the quarter, demand for our services remained stable in all divisions. Our weekly assignment revenue, which excludes conversion billable expenses and direct-placement revenues, on a pro-forma basis for Apex averaged $30.6 million for the last two weeks. This is up 15% from the same period in 2011.

Integration, coordination, and cash generation related to the Apex acquisition continues to be at or above our expectations. Ed will walk you through our specifics later in this call. Because of our strong cash generation, we were able to pay down our debt by $12.5 million in the fourth quarter, and our leverage is now under 2.73 times trailing 12-month adjusted EBITDA.

Recently, we have kicked off a strategic planning program for the Company. We have engaged the Parthenon Group to assist us in this process and expect to close our strategic plan and share it with our shareholders and employees in the second half of the year.

I will now turn the call over to Rand Blazer, President of Apex Systems, who will review the operations of his segment. Rand?

Great, thank you, Peter.

While the overall flow of requisitions that were presented to Apex in the fourth quarter were seasonally down from Q3, we did see a year-over-year increase in those requisitions as [we did] in the fourth quarter. We did a very good job of turning that flow into revenue, with revenue for the quarter of $207.6 million. This was an all-time high for the Apex Systems group, and up 14.1% from the same period in the prior year on an adjusted basis, and up 2.4% sequentially over the prior quarter. We are pleased to report positive sequential revenue growth in each of our seven industry verticals. We experienced our highest growth in telecommunications, financial, and consumer and industrial industry accounts.

Gross margins for the quarter were 27.3%, which is down sequentially from the prior quarter by 75 basis points. We attribute this decrease in gross margins primarily to the affect of non-billable holiday hours in certain clients and a 16-basis-point decrease in permanent placement revenue, as a percent of our total revenue. Our average bill rate was down slightly, to $58.74, from the third quarter's $59.11. This movement was more based on the skill-set mix of requirements from our clients and the placements we made therein, rather than any specific pressures we faced in the marketplace.

We continued our high rate of conversion of gross margin to the bottom line during the fourth quarter. Our gross profit per staffing consultants of [$86,000], while a very strong number, was down slightly on a sequential basis, given one less billing day in the quarter. The combined productivity of our sales and delivery teams continued to contribute to increasing operating profit margins, in what we consider to be, best-in-class gross margin to operating margin conversion rates.

As we ended Q4, leading into the first month of the first quarter of 2013, we've seen very positive retention in our consultant headcount. The opportunities we see from our client portfolio are solid in all our industry verticals, and we continue to be optimistic about demand trend within the IT staffing services market.

I will now turn the call over to Mike McGowan, Chief Operating Officer of On Assignment, President of Oxford Global Resources, who will review the operations for our legacy business.

Thanks, Rand.

Let me first address Oxford Global Resources. 2012 was another great year for Oxford, with full-year revenue growth over 29%. Our fourth quarter was also strong, growing 2.6% sequentially, and 26.9% over the fourth quarter of 2011. The fourth quarter of 2012 was also our most productive fourth quarter in our history, in terms of actual assignments per day.

Demand for our services remained strong in all of our operating units, resulting in consultants on assignment reaching an all-time Company high during the fourth quarter. Bill rates have been steadily increasing since the middle of 2010, and we anticipate they will surpass pre-recession levels within the next few quarters. Gross margins have remained stable, helped slightly by our increased placement fees in our Centerpoint unit.

We made investments in staff in 2012, and even with these additional investments, our branch contribution has grown at a significantly higher rate than our corresponding growth in sales and gross profit. We also believe these investments will ensure our continued growth into 2013 and beyond. As we have been reporting for several quarters, our healthcare IT business unit was the fastest growing and continues to be into 2013, followed by our engineering unit, specifically within our regulatory and compliance skill areas.

From a first quarter of 2013 perspective, consultants on assignment increased through January and into early February. In addition, the Oxford Index, our forward-looking quarterly survey, improved slightly in Quarter One, suggesting continued strong demand in the first quarter.

Moving on to our Allied Healthcare division, our results for the fourth quarter exceeded expectations and resulted in a new record in quarterly revenues in spite of fewer billable days. Allied grew revenues year over year 28.8%, and the fourth quarter marked the eighth-consecutive quarter of revenue growth for that division. Our gross margins were down sequentially and year over year due to faster growth in our lower-margin high-demand Health Information Management business and lower-than-expected perm-placement revenues, as many starts were moved into the first quarter of 2013. We attribute our positive performance to improved operating environments, operational execution, and market-share expansion.

For the first quarter of 2013, our end markets continue to show signs of stabilization and growth, as the US economy improves. Our Life Sciences operation recorded a sequential decline in revenues that is consistent with historical fourth-quarter performance, primarily related to fewer billable days, adverse weather, and the holiday season.

Revenues were down year over year, as well, on a reported basis, mainly due to the termination in the first quarter of 2012 of a large low-margin account that generated approximately $3 million in revenues in 2011. Excluding the revenues associated with this client in the year-ago period, the life science segment was up year over year. As for gross margin, we realized sequential and year-over-year increases.

As we look forward to the first quarter of 2013, we are seeing signs that the macroeconomic environment, in which this segment operates, is stable and growing. We expect greater growth from our Clinical Research business units, as pharmaceutical and biotech clients increase their investments in R&D and outsourcing. Our traditional lab staffing business is more closely correlated to the broader economy, and we believe this group should outpace GDP growth in the US, assuming that the economy continues to improve.

In general, demand for contract, contingent, and retained search services throughout the US and Europe remain steady, and the business climate is stable. Early in the first quarter, we are encouraged with the level of contract and permanent orders, number of weekly contract assignments, and permanent placement activity.

Finally, within the legacy divisions, the Physician segment had another good quarter. While down sequentially, which is typical seasonality for this business, they grew 9.3% year over year, pro forma, for the HCP acquisition. Demand in the fourth quarter remained strong, which is expected to result in continued growth into 2013. We also experienced increasing bill rates throughout the year and the quarter. The overall physician staffing marketplace appears to be stable, with reasonable supply and demand in most specialty areas. The staffing at ASA & Associates are predicting high single-digit growth in this segment for 2013, and we expect Vista to outperform the market.

I will now turn the call over to Ed Pierce. Ed?

Thanks, Mike.

As Peter mentioned, net income for the quarter was $11.3 million, or $0.21 per share, on record revenues of $401.7 million. Net income was lower than our previously announced estimates, due to an $8.4 million increase in amortization of intangible assets and a higher-than-expected effective tax rate. Excluding the after-tax effects of the increase in amortization and using the effective tax rate for the full year of 43.1%, as opposed to the Q4 rate of 45.4%, net income was $16.9 million, or $0.32 per share, on a diluted basis. I have more to say about these two items later.

The improvement in operating and financial results was mainly driven by the inclusion of Apex Systems, and 20% year-over-year revenue growth in our other business units that translates to 16.8% without Nurse Travel. In Q4, Apex accounted for $207.6 million, or 51.7% of total revenues, and grew approximately 14% year over year after converting Apex's 2011 results from a 53-week year to a calendar-year reporting basis. Excluding Nurse Travel from our results, revenues for the quarter were $380.4 million, up 1.6% sequentially.

As announced in our press release, we completed the sale of our Nurse Travel Division earlier this week. This division, which was not core to our Business, accounted for only 4.1% of pro forma 2012 revenue and 3.4% of pro forma gross profit. This division will be reported as discontinued operations in our Q1 2013 earnings release and first-quarter 10-Q.

There were approximately 61.3 billing days in the quarter, 1.5 fewer days than the preceding quarter. Our consolidated average bill rate and consolidated bill pay spreads were flat sequentially, but down year over year due to the inclusion of Apex Systems. Conversion and direct-hire revenues for the quarter were $6.8 million, or 1.7% of total revenues, down from $7.4 million, or 1.9% of total revenues, in the preceding quarter. Foreign currency translation affected revenues adversely $640,000 year over year, and positively $624,000 sequentially.

Gross margin for the quarter was 30.2%, which was within our previously announced range of outcomes, and down from 33.2% (sic - see press release "33.1%") in Q4 of 2011. The year-over-year decline was primarily due to the inclusion of Apex Systems, which has a lower gross margin than the legacy businesses on a combined basis.

Sequentially, the gross margin dropped 46 basis points, mainly due to the higher growth of our lower-margin businesses and lower permanent placement revenues. Excluding Nurse Travel, the gross margin for the quarter was 30.4%, down 48 basis points sequentially. Gross margin for Q4 benefited from $1.1 million in positive adjustments, consisting of a $500,000 reduction in our medical malpractice reserve and a $567,000 benefit related to a Belgian payroll tax subsidy that pertained to pre-2012 operations.

SG&A expenses for the quarter were $82.7 million, or 20.6% of revenues, up from $79.2 million, or 20.4% of revenues, in the preceding quarter. As you may remember, Q3 benefited from a $1 million reduction in an earnout obligation. Expenses for the quarter were below the low end of our estimates after adjusting for the acquisition-related expenses, which were not included in our previously announced estimates. The sequential increase in expense is mainly due to a 4.2% increase in the average number of consultants and recruiters and other investments to support the Company's growth in 2013.

Amortization of intangibles was $11.9 million, up $8.5 million from the $3.3 million in Q3. This increase was attributable to the customer relationship intangible asset, which was the primary identifiable intangible asset acquired in the Apex Systems purchase. The asset value and related amortization method were finalized in Q4, resulting in an asset value of $92 million in an amortization method that reflected the pattern at which the economic benefit of the asset are used up. The finalization of this asset value and amortization method resulted in an increase of $8.4 million in amortization, $5 million of which related to Q2 and Q3.

The effective tax rate for the quarter was 45.4%, up from 42.3% in Q3. The effective tax rate for the full year was 43.1%. The increase in the effective tax rate in Q4 is mainly due to the higher-than-expected consultant per diems from Apex Systems, which are subject to the 50% meals and entertainment disallowance for Federal income tax purposes.

Net income for the quarter was $11.3 million, or $0.21 per share, down from $17.4 million, or $0.33 per share, in the preceding quarter. Excluding the $8.4 million increase in amortization of the customer relationship asset and the higher provision for income taxes related to the higher effective tax rate expense in Q4 compared with the full year, net income was $16.9 million, or $0.32 per diluted share.

EBITDA for the quarter was $40.4 million, adjust -- or adding back equity-based compensation and acquisition-related expenses, adjusted EBITDA was $44.3 million, or 11% of revenues, down from $45.5 million, or 11.7% of revenues, in Q3. Adjusting Q3 for the $1 million benefit from the reduction in the earnout obligation, adjusted EBITDA was flat sequentially.

We ended the quarter with cash and cash equivalents of $27.5 million, and during the quarter, paid down debt by $12.5 million. Our leverage ratio, which is total debt to trailing 12-months of adjusted EBITDA, was 2.73 times at quarter end, down from 3.79 at the close of the Apex acquisition. Adjusting for the sale of Nurse Travel and applying the sale's proceeds to pay down debt, the pro forma leverage ratio is 2.7 times.

Capital expenditures for the quarter were approximately $3.5 million and $14.4 million for the full year. Accounts receivable were $243 million at quarter end, and days sales outstanding for the quarter were 55 days, versus 58 days last quarter. With respect to fourth-quarter productivity, we averaged 1,622 staffing consultants, and gross profit per staffing consultant was $75,000, compared with $76,000 in the preceding quarter.

Finally, a few comments on our financial estimates for 2013 from continuing operations, which excludes Nurse Travel, which as I mentioned earlier, will be reported as discontinued operations in the future. For Q1, we estimate revenues of $375 million to $380 million, gross margin of 29.4% to 29.7%, net income of $8.8 million to $10.5 million, earnings per share of $0.16 to $0.19, and adjusted EBITDA of $31 million to $34 million. These estimates reflect normal seasonality in the business in which gross margins are down sequentially due to the reset of payroll taxes and SG&A expenses are higher sequentially due to headcount added in Q4 and Q1 to drive revenue growth for the year.

For the full year, we estimate revenues of $1.6 billion to $1.66 billion, gross margin of 30.3% to 30.5%, net income of $56 million to $60 million, earnings per share of $1.02 to $1.10 (sic - see press release "$1.02 to $1.09"), and adjusted EBITDA of $164 million to $170 million. These estimates do not include any acquisition-related expenses or synergy savings from our integration efforts.

Now, I will turn it back to Peter for some closing remarks before we open it up for questions. Peter?

Thanks, Ed.

We believe that we are well-positioned to continue to take advantage of what we believe will be a historic secular and cyclical growth for the entire staffing industry over the next three to five years. While the entire On Assignment team is very proud of our performance, we remain focused on continuing to profitably grow our business. We would like to, once again, thank our many loyal, dedicated, and talented employees, whose efforts have allowed us to progress to where we are today.

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

(Operator Instructions)

AJ Rice.

A couple of questions, if I could ask. First of all, on the strategic review that you are undertaking. Can you give us a little more flavor? I know it is front of you, but how broad are the questions that you are looking at? Does it get to the point of whether the Company should be independent or not? Or, is that more if you should make investments within the line of businesses that you are currently operating in? Give us some flavor for that, if possible.

Most of it is to grow the business, AJ. Sometimes people talk about a strategic review -- this is strategic planning.

Okay.

This is for us to assess the markets we are, what size we are, our profitability margins, our gross margins, what drives stock-price performance, what areas to further integrate, things like that. This is planning.

Okay. All right. Then, maybe broadly -- I'm sure you'll have other specific questions, but on Apex and Oxford, it looks like you're forecasting 10% to 15% growth and in going through what you are seeing -- some of the areas I think you'd expressed some caution about last quarter, like financial, you sound like you see some strength there. Is 10% to 15% growth target a conservative starting point? Because it seems like it may be a little more cautious than where you were six months ago, or is that the true trajectory you are on at this point?

AJ, I think that's a good number. I would tell you that the staffing industry analysts have predicted 8% for the full year for the entire IT staffing industry.

Okay.

So, if you take the low end of our guidance at 10%, we are taking market share 200 basis points, and if you take the high end, it's 700 basis points of market share taken from competitors.

Okay. And then, lastly on the Nurse Travel piece, as you pull that out, can you just give us some flavor -- and, maybe I missed it in here, but are you saying how much EBITDA headwind that presents for you to take that out of the continuing ops, and whether it's -- you are assuming it's dilutive effectively for 2013 until you redeploy the capital? Can you give us some flavor for that?

We did not give specifics. What we did tell you is it was de minimis in that it was 4% of our total revenue, 3% of our gross profit. It was a profitable division, AJ, but it's a rounding error, so -- we also tried to give you a level set on what our focus is for 2012, as far as financial planning, so that you can determine growth rates.

Okay. All right --

I think Ed Pierce is going to add something to that.

Okay.

Yes, let me try to fill in a gap here. I think it's probably important for you to have an appreciation for, generally speaking, what the EBITDA contribution was from Nurse Travel so you can sort of adjust your baselines. For Q4, they generated $3.5 million of adjusted EBITDA.

Okay --

Which was a higher -- don't annualize that because that's higher-than-normal profit contribution because they had more than normal strike revenue.

Yes, and for the full year, it's $8.3 million.

Okay. All right. Thanks a lot, that's actually helpful.

AJ, again, that includes historically high strike revenue contribution.

Okay. Thanks.

Sara Gubins.

Could you give us any sense of what the proceeds were for the Nurse Travel business?

It was $31 million.

$31 million in proceeds?

Yes.

Okay. Then, your guidance excludes any acquisition-related costs in 2013. Are there any lingering acquisition-related costs that we should contemplate? Or, was that more of a blanket -- if there are other acquisitions that come through?

Sara, we don't think there are any specific ones that are significant, but you just never know when someone's going to ask you to do a valuation or some sort of study to support a valuation for accounting purposes. So, there is always something that trickles in and out, but we don't know of anything that's significantly large that's hanging out there.

Okay. Any sense of how much you are planning to spend on the strategic review -- is this $2 million?

It's less than that.

Okay. Then, the amortization of intangibles, the $21 million in 2013 that you are expecting -- is that higher than what you had previously contemplated?

Yes. That's a result of this finalizing the purchase accounting adjustments related to Apex, which resulted in a fairly significant increase in amortization.

On the [shipment] front.

Yes, on the front --

The breakeven, internally, I don't think we ever shared this information with you, the public, but I think the breakpoint is 2015. The annual amortization is about the same as what we had first contemplated.

When we talk about on an accelerated basis, we are talking about 25%, so it's significant amortization in the early years. Then, in the later years, after year five, it becomes positive again -- relative to, if you were to compare it, say with a straight-line method.

Yes. Good point.

Okay, so $21 million in '13, and then that should remain at flat levels in 2014, or begin to come down?

No, it's going to continue to decline because it's a 25% decline curve.

Got it, okay. Thank you.

Tobey Sommer.

Start out with a numerical question, if I could. You give a percentage of pro forma revenues, and there could be a couple of different ways to pro forma the 2012 revenues, so I can calculate what the Nurse business represented. Could you either give me the dollar value for the revenue that you are applying the percentage to?

Let me ask the question this way -- you are trying to figure out what we are extracting from Nurse Travel revenue?

Yes, I'm trying to figure out how big it was in 2012, whether you are including Apex revenues as though it had been part of the Company for all of 2012, or excluding it?

Let me give you a couple numbers that I think might be helpful.

Okay.

For the full year, Nurse Travel generated roughly $62.2 million in revenues.

Okay.

If you exclude Nurse Travel from our pro forma 2012 results, revenues would be $1.46 billion.

Okay.

Does that help?

That is helpful. That will allow me to figure out the growth rates that you forecasted as well, thanks.

Okay.

I wanted to ask a question about the financial services -- about the large IT customers that they represent. Could you describe what you're hearing from them? Because, historically when they get going again, the projects can be fairly long and help enhance visibility. Any color you could offer would be great.

Right. Rand, would you like to answer that?

Sure. I think overall the second half of last year, 2012, we saw pick up in our financial services business in both Q3 and Q4. So, if you will, we hit the bottom in the end of Q2, so it's been on a steady increase. Most of our clients in that sector are taking on projects. I wouldn't say it's aggressive, but I would say that they are slowly coming back online. I think we see good performance so far this year, as I mentioned earlier, that we saw sequential growth in financial services and among the best sequential growth. So I think, generally speaking, they're positive about their projects. They're rolling them out. They are also very sensitive to the labor markets and what they need to pay for those. I wouldn't say it's peaked, like it used to be many years ago, but it's certainly not -- certainly on an upswing.

Thank you, that's helpful. I was hoping you could help me square the -- if there are any particular impacts that are lowering the first-quarter EPS? The step down is -- seems pretty pronounced, given where revenue and EBITDA looks like it's going to land, and I know the tax rate's, at least, a little bit higher than I modeled, but I thought there might be another moving part or two that I'm missing.

We mentioned two things in particular. One is that gross margins are lower in Q1 versus Q4. That's probably -- just on the continuing business, that's roughly $4 million. That's-- this decline that we are projecting is fairly typical if you look at our historical trends. The other is related to SG&A expense. Expenses, as you probably remember, were up sequentially in Q4. There was a significant build in staff to prepare for 2013, and there is additional headcount that's being added, too -- or, in Q1 to drive the growth. Those are the main drivers for the SG&A.

As you are well aware, the amortization of intangible assets is going to be up over what we had previously expected, and I think you have that information. The tax rate is actually pretty modest because we ended the year at 43.1%, and we are projecting 43% for the full year next year, so I think those are fairly good numbers.

Could you give me a sense for what the headcount growth is in sales-generating employees? I apologize if you gave that previously.

Tobey, we don't break of between sales and recruiters. Eddie, will you look for that consolidated -- do you have that consolidated number?

Yes, it's 4.2% in Q4.

Over third, or --?

Yes, sequentially.

Sequential? Okay. Then, Pete, from a balance-sheet perspective, the deleveraging since the acquisition of Apex has been very strong, and you are probably ahead of the schedule if I were to look back at the presentation you made when the deal closed. Where do you intend to operate the business, and in what band of leverage are you comfortable?

Right. Tobey, we don't think it makes a lot of sense to delever, currently, below 2.5 times, based on the current cost of debt, which should be coming down. We hope to be able to reprice our existing facility because of our strong performance and the strong conditions in the market. If we were to do an acquisition, we'd feel comfortable levering back up to the levels that we did with Apex. If we were not to do an acquisition, but were to try to return capital to our shareholders through a share repurchase, again, I think somewhere between where we are and where we were for the Apex transaction would be appropriate and would be easily serviceable.

Thank you. That's helpful. My last question has to do with plans for your perm business. It was down a little bit sequentially, and it's still relatively low compared to industry norm, what are your thoughts?

Mike, you want to handle that one?

Yes, I think on IT side, within the Oxford piece -- about 1% or so of our revenues in 2012, and as the economy continues to improve, we will see that increase. We had a very good January, and we are going to have a very good -- in fact, really full first quarter within Centerpoint, so we should see that increase to more than what we certainly did in 2012. Again, really economic dependent in terms of how far we go, but we will increase it. We will see some increases, also, in the Allied side and the rest legacy business. They also are going to have a very good first quarter in perm business as well.

Tobey, we've been consistent. We think we have room to grow that to somewhere between 3% and 5%, but we are never going to get this thing up to 10% of revenue as a perm placement conversion fee conversion business.

That's fine by me. Thank you very much.

Paul Ginocchio.

Just a couple follow-ups on some of the previous questions. What are the cash proceeds, after tax on the Nurse Travel, versus the $31 million you sold it for?

There was a lot of tax leakage, and it is about $20 million.

Yes.

Great. Is there a different tax rate on the amortization that you are assuming -- or, should we just use the overall tax rate of the Company?

To give you the true impact, I'm using a marginal rate, which is 35% for the federal, plus 4% for state.

Using 39% on the amortization?

Exactly.

I'm just tying to true up -- we were only looking for $14 million of amortization for acquisitions, and you are coming in at $21 million, so I'm just trying to true up the difference. You are not going to give us what was embedded -- what would have been your Nurse Travel revenue or EBITDA in 2013, right? You are not going to --

No, we gave you the numbers for Q4 and full year 2012.

Right --

We are not going to give you what we estimated for 2013. Peter mentioned also that Q1 -- or, Q4 was a strong quarter for them because of strike revenue, they had $6.5 million of strike revenue in Q4.

Thank you. Finally -- or two more -- just the debt pay down, Peter, I didn't quite understand your -- are you saying that you are willing to relever up to repurchase shares once you hit the 2.5% leverage ratio?

Perhaps.

Perhaps.

If that's the best use of our capital.

Okay. Final one, maybe this is for Rand. Rand, are you seeing any benefit in your business from the IRS's crackdown on the misclassification of 1099 employees? Or, is that already in the numbers? Or, does that become even a bigger tailwind going forward? Thanks.

No, we -- I think their crackdown on 1099s has been on for a while, so we really avoid 1099s. We are a W-2-based business with our contract employees. We think that's the right thing for the government to do, and we're [assisting] with that, should --

Has that driven extra business as companies switch from 1099 to W-2?

I don't have an answer to that, Paul --

Rand, I will take a stab at it. Rand, people trying to work as 1099 on mid-tier skill set, that's [$60 an hour] pay rate is not nearly as prevalent as when you get into the higher-skill sets, where these people think they have witch-doctor status. So, it has driven business to Oxford, and also to our life science group, where we may have had a PhD or a physician doing medical writing and going directly to the pharmaceutical company as a 1099, and HR or Legal has come in and said -- I don't care how important this person is, we are not taking the risk. You go find a way to make this person a W-2.

Great. If I could just throw one more in about the topic du jour healthcare reform. Just maybe the level of inbound calls you're getting from clients about asking you to potentially help them out or help them understand how you could help them?

They are not calling us asking us how we can help them understand ObamaCare. They are working with their healthcare professionals and their HR specialists on that. What they are doing is seeing what kind of groups of employees they can turn into contingent labor, and they are calling us to envision how we can do that with them.

Great. Thank you.

Tim McHugh.

First, I guess I wanted to ask -- for the 2013 guidance, what type of growth in the staffing consultants are you expecting for this next year?

Tim, I don't know that off the top of my head.

Okay --

We will have to get back to you on that.

Okay. Then, for Rand, you talked about financial services doing better. Is that a -- actually, growing in line, or even faster than the rest, at this point? Or, is it still a slower growth part of the business that is not as bad as it was before?

Well, it's not growing as much as our healthcare unit or our telecommunications unit, consumer industrials, but it is definitely in the positive and it's moving up, and that's a good thing. Historically, we have been higher growth in financial services, so there is still room to go up.

Okay. And then, just one more for me. Peter, I guess the acquisition environment, as you think about -- it sounds like you are starting to look more aggressively, again. What does it look like to you out there, and where would you be interested in investing?

We are focused on math and science. We are not interested in just acquiring revenues for the sake of having more revenues, but more to fill in a void in our service offering. So, Physician Staffing is important to us on an acquisition basis. Life Sciences, Clinical Research, we think we have got a couple of voids there. We'd like -- on the IT side, business analytics and healthcare are top of mind.

The marketplace is good. I think you have willing sellers and a lot of buyers. As you know, there's been an enormous amount of private-equity interest in the second half of 2013, which I think -- you saw some big acquisitions by Strategic, us, and Randstad. Then, you saw strategic buyers move in, and now I think you've seen the public shareholders move in to invest in the public companies. So, there's interest. Things are rational, but there's interest.

Okay, great. Thank you.

Jeff Silber.

I actually wanted to follow-up on the earlier question on healthcare reform, just ask it a different way. Have you quantified the potential impact on your own business, in terms of cost for providing healthcare insurance to your consultants and/or being part of the exchange or paying the penalty? Thanks.

Not to the extent that we are prepared to share publicly, Jeff. What I can tell you is -- the way I view it is it's a timing issue versus a permanent expense. So, to the extent that we fall into a category where we are obligated to provide the healthcare insurance at a cost, we are fully expecting to pass that along to our customers the same way we do any time there is an increase in workers' compensation insurance or state unemployment insurance rates.

I'm assuming there's no -- in terms of your guidance for this year, there is no inclusion of any costs related to that? Is that correct?

That's correct.

Okay, great. Then, shifting gears to the Life Sciences segment a bit, you mentioned in your prepared remarks, Peter, that you are adjusting operating plans in the division. I was wondering if you can give us a little bit more color on that, specifically? Because, it looks like your guidance looks for accelerated growth in that division in 2013, so an explanation would be great.

I will let Mike go first, and then I will follow behind him.

The biggest issue there we had, Jeff, was last year we were down staffing in specific markets and specific segments within the Life Sciences arena. So, what we did is we actually expanded and grew our staffing consultants in the third and fourth quarter, Ed related to that in terms of some of the increases that we did in the fourth quarter, and we are continuing that into the first quarter. So, like most of our businesses, it's a good six to nine months for those folks to come up to speed, and we are anticipating that's going to happen, so we are really seeing growth in that segment, really, in the second half of this year, following the incremental headcount. That's primarily where we are at on that.

I think that's 100% accurate. Then, on the profitability basis, I think we probably could have reacted a little quicker to some trends that developed in our permanent placement business, and I think we have reacted to those conditions, and we expect a better performance by that group this year than last year.

Okay, great. That's very helpful. Thanks so much.

Edward Caso.

It's actually Rick Eskelsen on for Ed. Question is just around financial services. I'm wondering how much work you are seeing, or expect to see, from financial reform efforts accelerating in 2013 on the IT side?

That's probably one of the biggest areas for opportunity within the major money center banks. A lot of them have -- are a little bit behind in implementing the data management tools that are necessary for them to appropriately value their assets for capitalization purposes. We see that as an area where we're having a lot of productive conversations, but that's just one of many areas. It's probably top of mind because a lot of banks are behind, right now, on that.

Has the demand and the activity there accelerated since the election?

I would say yes. We are seeing faster engagement and greater release of projects that have been discussed in the fourth and first, than what occurred in the second and third.

Then, last one, kind of relating to that as well, on the healthcare IT side -- have you seen a similar pick up in demand for healthcare IT also, after the election?

No. This is just -- what was driving early adoption of it was the stimulus dollars. Now, what's driving it is it's just a reality that it's getting embedded and that Medicare reimbursements are, at a certain point, are going to be contingent on it being processed electronically, so as they say -- the horse is out of the barn, and it isn't going back.

Great, thank you very much.

Randy Reece.

I was wondering if you could explain how you don't end up taking a bath on growth hiring from quarter to quarter, given that when you hire people, there has to be a ramp before they are productive? It doesn't seem like it has a perceptible effect on your margins, and how do you achieve that?

Randy, I don't know if this is going to -- tell me if this makes logical sense. We have been reporting to our shareholders, for the last 12 quarters, our growth in headcount every quarter. We don't all of a sudden wake up and say -- wow, things are so good, we are really going to hire now. It's going to take time for these people to get productive; but once they do, you are going to really think we are smart.

We have been doing this, now, for 12 quarters and showing you how many people we hire. So, we've got a little bit of a crescendo that's occurring that people that we've previously hired are ramping up and are productive, and they are offsetting some of the dilution from the new hires.

Also, in terms of market share gains in the, say, the second half of 2012, do you have a feel for how your performed against the market in the second half of the year?

Yes. On IT, I would say that we probably grew 600 basis points faster than the market. In life sciences, we were probably 300 basis points below the market. In Physician Staffing, we were probably at, or 200 basis points above the market. In Allied Healthcare, I think we were probably 1,200 basis points above the market.

Why Allied so good?

That is -- healthcare market has gotten better. Our team has done a great job. Randy, we really made it a priority in 2006 to really start this healthcare information management group, and with all the conversions of ICD-9 to ICD-10 spend in healthcare, that group had a very good quarter. And, we've got a great team, there, and they are making great strides in growing that to a critical mass, and it's feeding on itself right now.

Perfect. Thank you very much.

Mark Marcon.

I was wondering if you could talk a little bit about what you are seeing in terms of the supply of candidates? How difficult is it to attract candidates on the IT side? A question for Rand and Mike.

I'm going to go first, and the two of these guys can add their own personal color. From my high level, I'm not hearing too much justification of why they are growing at whatever rate they're growing at because the markets are so tight, they can't find people. That may be a product that we've hire a lot of additional recruiters, so we have more people looking. But, I haven't seen an appreciable change, based on what I hear from our people, from the fourth quarter. Mike, you want to go first, and then Rand follow-up for your group?

Yes, I would agree with that, Peter. It's pretty well consistent with what it's been third and fourth quarter. And, it also really gets into the issue of skill sets. Obviously, healthcare IT is very difficult to find all the right people, versus, believe it or not, SAP is a little easier right now, than it was 18 months ago. So, it really depends on the specific skill set that you are looking at. Generally, it's been consistent over the last six to nine months.

Also, remember, from an Oxford perspective, and then I will let Rand talk -- we are glad when it gets tight, remember, because being a recruiter-driven organization versus a lot of our competitors, most of our consultants are not advertising on Dyson and Monster and whatnot, so we are going out and finding them. A lot of our competitors don't do that. They rely on those job boards, we don't. We actually, remember, like a tighter market because we can excel in that kind of an environment. Rand, how about you guys?

I think you guys have covered it. I would echo what you said, Mike, it's very skill-set dependent. Certain skill sets are a little different than others, but it's been a steady marketplace. And, I think a lot of contract employees like to work with Oxford and Apex as well, so it kind of works both ways.

Great. Then, can you talk a little bit about Physician and Allied -- is there any sort of impact at all, in terms of divesting the Nurse Travel business, in terms of their marketing efforts?

Not really. We did have a concerted effort, more so on the Allied Healthcare side than the physician side, to get master service agreements, where it was a unified contract where were both parties could work under it. These skills that we provide are in pretty short supply that we've separated most of the contracts pre-divestiture.

On the Physician side, Mark, it's just -- the person purchasing a physician is much different than the person who is purchasing a nurse or an Allied professional, so there wasn't that much aggregation at all. We had, maybe, out of over $100 million of revenue, maybe a couple of contracts where a hospital purchasing organization wanted us to sign one contract. But again, the scarcity of the resource and the quality of the service we provided, we don't think that there is any problem in separating those contracts, and we have separated most of them pre closing.

Great. Then, on the Physician side, you did have really strong growth for the entire year. For the first quarter, you are projecting a lower level of growth than you are for the balance of the year. Can you talk a little bit about the dynamics that would lead to the acceleration?

Just normal seasonality, but what I will tell you is that Christian Rutherford, the President of that division, told me today that last week was the highest production in the history of the firm -- growth rate, not numbers, percentage. So, we are not seeing a slowdown, we are actually seeing good solid progress there. Christian has done a very good job there.

You are projecting low single-digits for Physician Staffing, right -- in terms of the guidance?

Let me pull the press release. I think its implies --

I'm just reading -- explicitly (multiple speakers).

The quarter. Full year, we are not.

Right, and that's why I was asking about the acceleration.

Some of it -- healthcare professionals, HCP, had a little bit more government agency revenue than Vista, and that business slowed down throughout '12. We are not seeing a deterioration of the business.

Great. And then, how should we think about the cash tax rate? Obviously, you are showing an inflated book rate, but --?

It was, what, $19.7 million in -- Ed is looking at a spreadsheet, one second.

Mark, as it relates to the effective tax rate we are giving you, the 43% for 2013 -- that book rate and the cash tax rate aren't going to be that much different. If that's what you need. (Multiple speakers) if you are talking about the effective tax rate?

Yes, he's asking after you get the $19.7 million of savings from the [H-10], how much does that effectively lower what you're paying to the IRS?

Mark, let me get back with you on that, just so that I can give you a number --

Okay, we can follow up offline. Great, thank you.

Tobey Sommer.

Just a brief question -- how big is the HIT business now? And, as part of your strategic review, do you intend to isolate and triangulate in on other de novo lines of business that you can launch and try to create value that way?

Yes, so it's close to a $200 million. Health IT -- and, we always are looking at, Tobey, what is early adoption -- just like we looked at healthcare IT, we looked at the clinical research space specifically, health information management, and then we're spending a lot of time thinking about this business analytics, mathematicians. There's a company called Opera Systems -- things that are really deep stochastic mathematical calculations, these people are hard to find, but a lot of people will pay whatever it takes to get them.

Thank you very much.

At this time, I'm showing we have no further questions. I'd like to turn the floor back over to management for any closing or additional remarks.

Thanks. We greatly appreciate your time and attention and look forward to speaking to you again for our first-quarter conference call. Thank you very much.

Thank you. This concludes today's On Assignment fourth-quarter 2012 earnings call. You may now disconnect, and have a great day.