On Assignment, Inc. (ASGN)

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On Assignment Inc. (ASGN)

Q2 2008 Earnings Call Transcript

August 4, 2008 4:30 am ET

Executives

Jim Brill - SVP Finance and CFO

Peter Dameris - President and CEO

Emmett McGrath - President of Life Sciences and Allied Healthcare

Analysts

Josh Vogel - Sidoti & Company

Andrew Fones - UBS Securities

James Janesky - Stifel Nicolaus

Tobey Sommer - SunTrust Robinson Humphrey

Jeff Silber - BMO Capital Markets

Presentation

Operator

Good afternoon. My name is Rachel, and I will be your conference operator today. At this time, I would like to welcome everyone to On Assignment's Second Quarter 2008 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

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

Jim Brill

Thank you, Rachel. Before we begin I would like to remind everyone, as we do each quarter, that our presentation contains predictions, estimates, and other forward-looking statements representing our current judgment of what the future holds. These includes words such as forecasts, estimate, project, expect, believe, and similar expressions. We believe these remarks to be reasonable, but they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

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

Peter Dameris

Thank you, Jim. Good afternoon. I would like to welcome everyone to the On Assignment 2008 second quarter earnings conference call. With me today are Jim Brill, our Senior Vice President and Chief Financial Officer, and Emmett McGrath, President of our Life Sciences and Allied Healthcare Groups.

During our call today, I will give a review of the markets we serve and operational highlights, followed by a discussion of the performance of our operating segments by myself and Emmett. I will then turn the call over to Jim for a more detailed review and discussion of our second quarter financial performance and our financial guidance for the third quarter of '08. We will then open the call up for questions.

As we have suggested over the last four quarters the strength of our business model has us well positioned to perform in most economic environments and we are not as closely correlated to gross domestic product and/or labor market growth as others. The positive quarterly results that we release today continue to confirm this position.

The strength of our business model continues to be based on; one, our lack of any significant contribution from permanent placement and conversion, 1.8% in the second quarter of '08.

Two, our diverse client base, our top 10 clients on a consolidated basis in the second quarter represented 7% our revenues and by segment 16% in Life Sciences, 21% in Healthcare, 21% in Physician Staffing, and 14% in IT and Engineering.

Three, the relative strength of the end market we serve; i.e. Life Sciences, Healthcare, IT and Engineering.

Four, the specialized skill sets we recruit for, in each of the end-markets we serve. Finally that professional staffing is the strongest sector of the staffing industry and white-collar unemployment is less than 3%.

The key indicators of demand that we monitor weekly have not materially deteriorated and it appears that things are continuing to perform well. As we evaluate near-term growth opportunities for each of our operating segments, demand remains positive in all segments except Life Sciences.

In our Life Sciences segment, demand is positive, except for spending by our large pharmaceutical clients. Currently, the segments primary challenge to year-over-year growth is related to significant difficulties facing large pharmaceutical clients versus internal execution or market position.

In late April of this year, many of our large pharmaceutical clients started to announce major lay-offs and our Life Science group started to see a slowdown in orders and project delays.

This change in demand was significant to the Life Science group and that it drives 24% of its total revenues from this customer base. However, material sciences and chemical clients have provided a beneficial lift to the Life Science group to partially offset the slowdown and spending from our pharmaceutical customers.

We are confident that we are currently managing the business appropriately for both the short-term and long-term. Emmett will go into end-market trends in greater detail later in the call.

In our IT and Engineering group, demand has somewhat flattened, but we are still performing well and expect healthy growth year-over-year.

Finally, our Healthcare and Physicians Staffing segments appear not to be affected by the current economic slowdown and are increasing their margins and their share of the markets they serve.

Specific operational accomplishments in the quarter included; one, our Physician Staffing division expanded their year-over-year quarterly growth rate to 20.4% versus 14.5% in the first quarter of 2008.

Two, our Nurse Travel group grew 6.5% year-over-year and expanded its gross margin to 23.5% from 22%. Three, our Allied Healthcare group grew 9.8% sequentially and achieved the highest quarterly revenues in the history of On Assignment.

Finally, our IT and engineering group grew for the third consecutive quarter greater than 15% year-over-year.

With regard to SG&A, we continue to monitor the markets we serve in the level of investments we have or are making for future growth. Today, we continue to make and/or retain investments to support our growth and that decision has not had a significant impact on our EBITDA. However should economic circumstances dictate we will manage our SG&A to generate appropriate levels of cash flow.

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