May 2, 2008
On Assignment, Inc. (NYSE:ASGN) Q1 2008 Earnings Call Transcript May 2, 2008 9:30 am ET
Executives
Jim Brill – SVP, Finance and CFO Peter Dameris – President and CEO Michael McGowan – President of Oxford Global Resources
Analysts
Andrew Fones – UBS Securities Jim Janesky – Stifel Nicolaus Josh Vogel – Sidoti and Company Tobey Sommer – Suntrust Robinson Humphrey Bruce Ackermann – Sand Hill Equity Research Jeff Silber – BMO Capital Markets Larry Petrsoric – UBS
Operator
Good morning. My name is Christi, and I will be your conference operator today.
At this time, I would like to welcome everyone to On Assignment's first quarter 2008 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.
I would now like to turn today's conference over to Mr. Jim Brill.
Sir, you may begin your conference.
Jim Brill
Thank you. Before we begin I would like to remind everyone, as we do each quarter, that our presentation contains predictions, estimates, and other forward-looking statements representing our current judgment of what the future holds.
These include words such as forecasts, estimate, project, expect, believe, and similar expressions. We believe these remarks to be reasonable, but they're 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 & 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 first quarter results. Peter?
Peter Dameris
Thank you, Jim. Good morning.
I would like to welcome everyone to the On Assignment’s 2008 first quarter earnings conference call. With me today are Jim Brill, Senior Vice President and Chief Financial Officer, and Michael McGowan, President of our IT and Engineering group.
During our call today, I will give a review of the markets we served, and our operational highlights followed by a discussion of operating segments by myself and Michael. I will then turn the call over to Jim for a more detailed review and discussion of our first quarter financial performance and our financial guidance for the second quarter of 2008.
We will then open the call up for questions. As we suggested on our fourth quarter call, although we are not immune to slower GDP growth or recessions, we do believe that we're well positioned to do perform in most economic environments.
Our view continues to be based on, one, our lack of any significant contribution from permanent placement, 1.9% in the first quarter of 2008, two, our diverse client base. Our top ten clients on a consolidated basis in the first quarter represented just 7.7% of our revenues and by segment, 16.8% in Life Sciences, 20% in Healthcare, 26.2% in Physician Staffing, and 14.7% in IT/Engineering.
Three, the relative strength of the end markets we serve, i.e. Life Sciences, Healthcare, and IT.
Four, the skill sets we recruit to in each of the end markets we serve, and finally that professional staffing is the strongest sector of the staffing industry and white collar unemployment is less than 2.1%. The results that we released today further support our suggestion that we are not as closely correlated to GDP or labor market growth as others.
The key indicators we continue to monitor weekly to determine whether the markets we have served have changed meaningfully, positively or negatively or the amount of perm placement and conversion fees earned, the number of new assignments and/or terminations, our bill pay expansion or compression, the amount of time it takes the customer to make a hiring decision on a qualified candidate, and the number of hours being worked by a billable employee each week. Exiting the quarter the U.S.
economy has weakened somewhat. Most of the indicators we monitor, however, have not significantly changed nor have we seen any unusual staffing project cancelations.
In our Life Sciences group and to a smaller extent in our IT group, growth in new assignments has slowed, and these end markets have become more challenging than in earlier periods. However, notwithstanding the slower growth in assignments in Life Sciences and IT/Engineering we still expect these groups to grow at or above actual industry growth rates for 2008.
The Healthcare and Physician Staffing segments currently appear not to be affected by the current economic slowdown. As most investors in the staffing industry know.
the first quarter typically is the most challenging quarter of the year for staffing companies due to holidays, the number of billable days, SUI and FICA resets. Despite these normal challenges our revenue growth during the quarter was very strong.
In particular, our IT/Engineering and Physician Staffing divisions had very strong performance. Our Nurse Travel and Allied Healthcare groups improved, and the Allied Healthcare group posted sequential growth for the first time in three quarters.
We continue to monitor the markets we serve and the level of investments we have are making for future growth. To date we have elected to 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. With that said, let's turn to the first quarter results.
The first quarter performance again resulted in record revenues for the company of a $152.4 million. Revenues grew 24.3% over the first quarter of '07.
Net income excluding a noncash expense of $1,222,000 or $0.02 per share related to the mark-to-market of our $73 million interest rate swap was approximately $3.1 million or $0.09 a share. Revenues generated outside the United States was $7.1 million or 4.7% of consolidated revenues in the quarter versus 6.2 or 5% in the first quarter of '07.
Consolidated gross margin in the first quarter was 31.1%, up from 30.5% in the first quarter of '07. Our consolidated hourly bill/pay spread in the quarter also increased year-over-year.
Adjusted EBITDA was $13 million for the quarter. Once again, our strong financial performance was achieved without any significant contribution from perm placement and is evidence of the strength of our business model.
Consolidated revenue growth in the first quarter of 2008 of 24.3% was positively impacted by the inclusion of one additional month of Oxford’s revenues in this quarter versus the first quarter of 2007. Each of our segments grew year-over-year, IT/Engineering, and Physician Staffing grew in excess of 14% year-over-year.
In Healthcare, the Nurse Travel group was positively impacted by approximately $2.4 million in revenues received from the same client who experienced two separate labor disruptions in northern California in the fourth quarter of '07. None of the $2.4 million in revenue for assisting these clients had been contemplated in our first quarter guidance.
Exiting the quarter, demand continues to be solid. The Physician Staffing and IT/Engineering segments continue to have the strongest end market demand followed by Life Sciences and Healthcare staffing.
Based on the significant reduction in client concentration that we accomplished in the Nurse Travel Division in 2007 and our belief that patient admissions will continue to improve, we believe that performance in the Nurse Travel Division will continue to improve in 2008. Geographically, we continue to see strong growth opportunities outside the United States and have strengthened our Life Sciences and IT/Engineering offices overseas in order to capture such growth opportunities.
Our weekly assignment revenue which excludes conversion, billable expenses, and direct placement revenues averaged $11,320,000 for the first three weeks of April 2008. We averaged $10,480,000 in weekly assignment revenues for the same three-week period one year ago.
Operating leverage continued to improve during the quarter. Our adjusted EBITDA margin reached 8.5%, up from 8% in the first quarter of '07.
And we again grew our gross profits in operating income faster than our revenues in the first quarter. During the quarter, despite maintaining a higher number of staffing consultants, 774 versus 694 in the first quarter of '07, we increased our year-over-year productivity in gross profit for staffing consultants by 13%.
Before turning the call over to Mike, I would like to give you a brief review of operations. Our Physician Staffing division continued to show strong performance.
Revenue grew 14.5% over the same quarter last year and 6.3% sequentially over the fourth quarter of '07. This performance is on top of 22.2% growth in '07.
The division posted its eighth consecutive quarter of consolidated revenue growth and it’s the second winter without the seasonal decline usually experienced across the industry. The division's efforts to increase margins have also been successful.
Internal processes and reorganization have led to an increase in assignment margin every month of the first quarter. Assignment margin is up 88 basis points over Q4 of 2007.
The strength of this end market can be seen on both the demand and supply side. The group's requests for days of physician coverage grew 17% in Q1, even as the division implemented programs to focus sales and service efforts on higher value clients.
The division was also selected as a preferred vendor for community health systems and its 300 plus owned managed hospitals. The outlook is positive on the physician supply side as well.
We commissioned a survey in Q1 measuring physicians' perceptions of locum tenens. Nearly 70% of the respondent said locum tenens can extend their career in medicine.
82% see it as a good option for semi retirement. 58% see it as a way to make smooth, professional transitions, and 47% see it as a good way to move from training to practice.
The appeal to semi retiring doctors and residents was expected. However, the 58% interest in locum tenens as a way to make professional transitions was a bit of a surprise.
We believe it indicates a more main stream acceptance of locum tenens as a practice option for physicians at any career stage. An additional 53% of the respondents agreed the flexibility and control of one’s schedule offered by locum tenens could help physicians avoid burn out and stay active in patient care longer.
We do not expect the economic slowdown to significantly impact this division and the staffing industry analysts predict a 70% growth rate in this sector. Now let's turn to Life Sciences.
Demand for Life Sciences services in the U.S. and Europe was steady, resulting in a 3% year-over-year growth in revenues to $32.6 million.
However, due to the broader economic climate, clients and candidates are starting to become more cautious which is resulting in fewer placements and delayed hiring decisions. Further more, the historical decline we normally see in the first quarter was a little steeper than anticipated.
The number of contract placements on a weekly basis was down year-over-year. Other factors impacting growth included the unexpected end of two large projects both of which were related to our client’s clinical trial challenges and secondly, plant closures due to severe weather conditions.
Conversely, however, we have not seen a decline in direct hire placements. Direct hire activity throughout the United States and Europe for Q1 of '08 was up 380,000 sequentially and 271,000 year-over-year.
Despite a slower growth staffing environment, gross margins for the quarter were a healthy 32.9%, up slightly year-over-year. As for second quarter trends, we expect to see tempered growth and stable margins.
Early in the quarter we are encouraged with contract and direct hire trends and two large contract awards in the pharmaceutical and Biotech areas we're awarded. Obstacles to growth continue to be primarily cautiousness with our clients and candidates due to the broad economic climate, demand remains steady for both contract and direct hire activity, and our pipeline of RFPs is positive.
Our focus continues to be on productivity, increasing our contractor base, new business development, and ensuring SG&A levels are in line with business trends. Now let's turn to Allied Healthcare.
Although still below its potential, revenues for the Allied Healthcare division grew 3% sequentially over the fourth quarter to $13.3 million in revenues. Revenues were negatively impacted during the quarter due to bad weather in the Midwest which is home to our largest and most productive operations.
The newer H.I.M. and Allied Travel business lines realized impressive growth during the quarter with H.I.M.
generating its best quarter since inception. Furthermore, our recently challenged west region realized both gross margin and revenue expansion.
The end markets have remained stable offering steady opportunities for continued growth. Our challenge continues to be internal execution which I am pleased to report is improving.
Changes in key management and field staff positions combined with greater accountability are beginning to result in productivity gains. As for Q2 trends, the Allied Healthcare division is getting closer to historical acceptable revenue levels.
And in this division, our focus continues to be on individual productivity, migrating to higher level skill disciplines, direct hire and margin expansions. Turning to Nurse Travel, we continue to make significant progress in diversifying our client base and expanding our gross margins.
Our first quarter Nurse Travel revenues were up 10.3% year-over-year and up 2.1% excluding labor disruption revenues. Our Nurse Travel gross margin increased 47 basis points to 21.5%, and gross profit dollars grew by 12.7% to 6.7 million in the first quarter of '08 from 6 million in last year's quarter.
We expect continued revenue growth in Nurse Travel in 2008 because of the changes we have made in our operations and the diversification away from the two large clients previously mentioned. In the first quarter these clients represented 2.2 million in revenues versus 5.8 million last year.
The head count on these two customers has dropped to 64 from 122 when comparing this week with the same week last year. We have replaced a large portion of these revenues year-to-date through new business development and nurse reassignments and have significantly improved our profitability in the slower growth environment.
Outside of these two accounts revenues grew 28.9%. Supply constraints and erratic hospital buying behavior continues to be a drag on the sector but not as severe as in previous quarters.
With regard to revenue diversification we have billed over 319 clients in the quarter, up from 282 a year ago and only 202 two years ago. Our top 10 customers now represent 29% of revenue compared to 39% in the same quarter last year and 48% two years ago.
We continue to experience demand across a broad customer base with orders up versus last year and we have experienced a 4.5% year-over-year increase in the bill rate. With regard to second quarter guidance, Jim will walk you through that later in this call.
But now I would like to turn the call over to Mike McGowan.
Mike McGowan
Thank you, Peter, and good morning. The IT and engineering division delivered strong first quarter financial results as you mentioned earlier.
Our revenue growth exceeded our expectations for the quarter especially in light of the overall economic environment. Revenues in the first quarter were $54.7 million, a 19.3% increase over the first quarter of 2007 on a pro forma basis.
Approximately 28% of this increase in sales was due to increased bill rates and 72% of the increase was due to more billable consultants on engagements. Sequential revenue growth in the first quarter was 2.7% from $53.3 million in the fourth quarter of 2007.
During the first quarter we billed over 785 different client companies and no single client account accounted for more than 1.9% of revenue during the quarter. Our average bill rate in the first quarter was $124 per hour, a 5% increase over the first quarter of '07.
During the quarter average billable consultants increased to 869 compared to 755 in the first quarter of 2007. We saw no unusual project cancelations during the quarter, and our average length of assignment remained at approximately five months.
Gross margin for the first quarter was 36.8%, 7 basis points lower than first quarter of 2007 but gross profit was $3 million more than the same period last year. Our bill rates in gross margins continue to be among the highest in the industry.
The strong sales and gross profit performance in the fourth quarter of 2007 and the first quarter of 2008 has resulted in a strong profit contribution even with our continued commitment in increasing the number of internal sales consultants, our physical expansion of two U.S. tele centers and our expansion in Europe.
We also continue to invest in ongoing management and sale training programs and technology projects that we expect to result in increased productivity, sales, and profitability in the future. More specifically on the issue of sales consultants, we averaged 440 sales consultants during the first quarter of 2008, up slightly over the fourth quarter of 2007, and up significantly over the average of 369 in the first quarter of last year.
We monitor our operational activity daily, and we'll continue to ensure that the size of our sales staff is in line with current and future economic conditions. We specialize in recruiting senior consultants in four technical disciplines, information technology, software and hardware engineering, other engineering and telecom.
A brief review of each of these specialties will provide insight and perspective to overall results for Q1 as well as our prospects for long-term growth. Oxford's IT discipline accounted for 54% of our business during the first quarter and grew over 24% compared to the first quarter of 2007.
Oxford's software and hardware discipline contributed 26% of total revenues in the quarter and grew approximately 18% compared to the first quarter of '07. Demand for Oxford's engineering consultants and related revenue was up over 25% to Q1 2007.
The main drivers were mechanical engineers in the aerospace industry, controls engineers, and manufacturing engineers. This engineering discipline accounts for 15% of our revenue.
Telecom which is our smallest discipline area accounts for the remaining 5% of Oxford's revenue. They experienced 16% quarterly growth in revenue compared to the same period last year.
From an industry perspective, manufacturing, oil and gas, healthcare, telecom, semiconductors, electrical components and motor generators showed strong demand for both IT and engineering consultants. Oil and gas firms continue to invest in mechanical engineers and IT consultants to upgrade their internal systems.
Our investments in Europe are also realizing positive results as our current revenue run rate has almost doubled since last year at this time. Our outlook for the second quarter is positive, and supported by our forward-looking survey of market demands, the Oxford index.
This quarterly survey of Oxford clients has been highly predictive of actual demand since 2002. We're still seeing demand in each of our four disciplines and across (inaudible) I mentioned earlier.
But that demand is at somewhat slower pace than we experienced in the first quarter of 2008. I will now turn the call over to Jim Brill.
Jim.
Jim Brill
Thanks Mike. As Peter mentioned, consolidated revenues were a $152.4 million, up 24.3% from 2007 due in part to the inclusion of Oxford's results for only two months last year.
On a pro forma basis revenues increased 10.3%. There were a 63.5 billing days in this quarter versus 61.5 in the fourth quarter and 63.5 in the first quarter of 2007.
However, Nurse Travel experienced 91 billing days this quarter, 92 last quarter, and 90 in the first quarter of 2007. Now let me address some of the variances and their related explanations to the extent Peter or Mike has not.
In the Life Sciences segment Peter addressed the 2.9% revenue growth. The 3 basis points increase in gross margin over the first quarter 2007 was primarily a result of an increase in direct hire revenues and improvement in the bill/pay margin, and a reduction in payroll taxes offset in part by increased workers' compensation insurance expenses which we mentioned were abnormally low in Q1 2007 and changes in estimates related to pre-2003 claims from a bankrupt carrier.
In the Healthcare segment Peter addressed the 4.4% revenue increase, the 47 basis points increase in Nurse Travel gross margin was due to an increase in the bill/pay spread, a reduction in-housing and automobile expense, partially offset by an increase in other contract employee expenses and an increase in workers' compensation insurance expense. The reason for this increase in workers comp expense is the same as that I previously mentioned for Life Sciences.
The 131 basis points decrease in gross margin in Allied Healthcare was due to an increase in other contract employee expenses and higher workers' compensation expenses similar to those mentioned regarding Life Sciences partially offset by an increase in bill/pay margin and lower payroll tax. In Physician Staffing the revenue growth was discussed by Peter, the drop in the gross margin was a result of a shift in mix toward lower margin specialties and compression in the bill/pay spread as a result of our delaying increases in pricing.
As we mentioned in last quarter's conference call, we've taken steps which improved the segment's gross margin over the fourth quarter of 2007 and we believe will also improve the segment's gross margin in the second quarter. Our IT/Engineering segment revenues as Mike mentioned were driven by both increase in bill rates and an increase in billable consultants.
The slight decrease in gross margins was driven primarily by higher payroll taxes, higher other contract employee expenses, and higher reimbursable expenses partially offset by an increase in the bill pay spread. Conversion and direct hire revenues totaled $2.9 million in the quarter or 1.9% of revenue as compared to 1.7% of revenue in the fourth quarter of 2007 and 2.6% in the first quarter of 2007.
Total SG&A expense for the first quarter was 39.7 million or 26.1% of total revenues which is down from 26.6% last quarter and 27.9% in the first quarter of 2007. The decrease is due to a reduction in amortization of intangibles related to the acquisitions to 2.3 million.
Also included in SG&A in the quarter is $1.6 million of equity-based compensation expense and $1.4 million of depreciation. Our operating income was $7.7 million or 5.1% of sales for the quarter compared with $7.9 million last quarter and $3.2 million for the first quarter of last year.
As we previously discussed in the second quarter of 2007 as required by our bank agreement, we entered into a two-year interest rate swap for $73 million which fixed our 90-day LIBOR equivalent rate at 4.94%. The decrease in the market value of this instrument was $1.22 million in the quarter, and this noncash expense is included in non-operating expense and thus excluded from EBITDA.
Our tax rate for the quarter was 41.7%; net income was $2.4 million, or $0.07 per diluted share. We believe that it’s meaningful to compare EBITDA and adjusted EBITDA when comparing the current quarter’s results to prior quarters.
As outlined in today's press release, EBITDA for the quarter was $11.4 million, excluding equity based compensation expense of $1.6 million, adjusted EBITDA was $13 million or 8.5% of revenue. Adjusted EBITDA of 14.8 – was $14.8 million last quarter and $9.8 million in the first quarter of 2007.
We ended the quarter with cash and cash equivalents of $42.9 million, up from $37.8 million last quarter. CapEx was approximately $2.5 million, up from $1.5 million in the prior quarter.
Net accounts receivable was $86.6 million at the end of the first quarter, day sales outstanding were 52, up from 47 days in the prior quarter. Now turning to productivity, which we define as quarterly gross profit generated per staffing consultant, for the first quarter we averaged as Peter mentioned 774 staffing consultants, and gross profit per staffing consultant of $61,227.
The Life Sciences segment generated $94,964 in gross profit per staffing consultant as compared to $93,077 in the first quarter of '07. The Healthcare segment generated $72,518 in gross profit per staffing consultant as compared to $71,959 in the first quarter of '07.
The Physician Staffing segment generated $79,959 in gross profit per staffing consultant compared to $78,483 in the first quarter of '07, and the IT/Engineering segment generated $45,764 in gross profit per staffing consultant as compared to $45,449 last quarter. Based on fairly stable labor markets and normal seasonal trends, including the reset of unemployment taxes, we currently estimate consolidated revenues to be between $153 million and $156 million for the quarter ending June 30, 2008.
We are estimating consolidated gross margins of approximately 31.7% to 32.0%. SG&A of $38.9 million to $39.5 million, including equity-based compensation expenses of approximately $1.6 million, approximately $2.4 million of amortization of intangible assets and financing costs and depreciation of approximately $1.4 million.
We estimate net income of $4 million to $5.1 million, earnings per share of $0.11 to $0.14, and an effective tax rate of about 42.6%. Adjusted EBITDA is estimated to range from $14.4 million to $16.4 million.
As you know, these estimates are subject to the risks mentioned in today's release and at the beginning of this conference call and do not include any impact related to the mark-to-market of our $73 million swap. Now I will turn the call back to Peter for some closing remarks before we open up the lines for questions.
Peter?
Peter Dameris
Thank you, Jim. Despite facing a more challenging economic environment, we are very satisfied with our success in growing our revenues, expanding our operating and gross margins, generating cash, and growing our revenues faster than many others.
I would like to now 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 for participants for questions, operator?
Operator
Your first question comes from the line of Andrew Fones of UBS Securities.
Andrew Fones – UBS Securities
Hi. Thank you.
I wanted to ask first of all a question on Healthcare. You saw nice acceleration this quarter and the year-over-year growth rate in the Nurse Travel business, and kind of even adjusting for you mentioned the LIBOR disruptions at one of your clients.
This was strong growth. Can you help me understand what drove that?
Thanks.
Peter Dameris
Thank you, Andrew. We're starting to anniversary the moving away from those two large customers, and as we've shown you, we've had great success in expanding the customer base, and our revenue growth had been muted because we couldn't grow as fast enough outside of those two accounts as we were pulling nurses out of them, and as you saw, I think I quoted 28.9% growth in all accounts except those two major ones this quarter, so some of it is that we're not having to replace as much quarterly revenue as we were in '07 in each of those quarters.
The second is the market has gotten a little bit better, patient admissions have gone up much. We're not as cyclical to patient admissions as others, I understand and the market in California has gotten better, and some of that is I think there is a renewed focus on making sure people are complying with the nurse/patient staffing ratios.
Andrew Fones – UBS Securities
Thanks. And then in terms of guidance for your IT and engineering, perhaps maybe Mike could take this, but you mentioned that you feel as though that demand growth has slowed a little bit.
How are you looking at that? Thanks.
Peter Dameris
Let me go first, and, Mike, you top it off. I think what we're really trying to do is tap down expectations.
When you grow 19.1%, we don't expect people to think that in this economic environment we're going to be doing that each quarter. The second thing, Andrew, as you will note, we made a conscious effort to really add to the head count over at our IT group starting in kind of April of '07, and if you see the progression, the second quarter was better than the first, the third was better than the second, and the fourth was better than the third as far as top line growth, and as we get into later into '08, we still believe we're going to grow, but the comparables are going to get a little more challenging.
Mike, do you want to add anything to that?
Mike McGowan
The only thing I would say is as I mentioned earlier in my comments was that we're still seeing strong demand across all our disciplines, but it is just not at that same pace we saw in the first quarter.
Andrew Fones – UBS Securities
Okay. Thanks.
Just a final one. Perhaps, Jim, if you could kind of detail, I think you said the $2.3 million of amortization expense in the quarter was related to the accelerated amortization from the acquisitions.
Could you give us that number for Q2 and for the year as well? Thanks.
Jim Brill
It is going to be – as we mentioned in our expectations, it is going to be similar to that number for each of the three quarters for the rest of the year.
Andrew Fones – UBS Securities
Thanks a lot.
Jim Brill
Yep.
Operator
Your next question comes from the line of Jim Janesky of Stifel Nicolaus.
Jim Janesky – Stifel Nicolaus
Good morning. A couple of questions starting off with the IT/Engineering segment.
Can you give us just an idea of is the gross profit down slightly year-over-year because you’ve added new people or is there another trend going on?
Peter Dameris
Jim, it is not because of the internal head count, and, Mike, do you want to take that one?
Mike McGowan
Yes. It is really primarily more driven by even in the press release Jim had mentioned in terms of the tax issues, et cetera, primarily as well as a few clients had a little pressure in terms of some margin pressure on some clients, but overall nothing more than that.
Peter Dameris
And, Jim, I would add consistent with what we’ve said previously we moved the margin up ever since we acquired the business, and we've allowed Mike to tap it down just basis points, points, not even percentage points to see if we get a little faster top line growth and lo and behold 19.1%, and we gave very little up on the gross margin line.
Jim Janesky – Stifel Nicolaus
Mike, has there been any change in the profile of the business over the last year meaning the number of consultants on assignment per client or I guess another way of asking that is have you had any client concentration issues kind of pop up over the last year?
Mike McGowan
No, nothing has really changed. As I mentioned, we billed 785 clients in the first quarter, and over that same time period we had 869 consultants on assignments, so we still are playing that onesy twosy high-end critical skills, so we're putting one or two consultants at an individual client at any given time so really no changes at all in the last several years.
Peter Dameris
Jim, I think we said in our prepared remarks that the top client, no client represented more than 1.9% over at Oxford.
Jim Janesky
Okay. How about overall head count additions in the company, mainly recruiters?
Have you slowed that down or even brought that to a stop now that while you're not being significantly affected by any downturn on the margin, you are starting to see a little bit more caution from your customers.
Peter Dameris
You know, Jim, that's a great question. You know what, the most bullish thing I can say is that because of our performance, because of our profitability, we have been able to invest and maintain investment and continue investment without significantly affecting our EBITDA.
The only thing new in the world is the history you don't know. We will get through this slower growth environment, and we feel like we're going to be the best positioned because we have the privilege of being able to invest and maintain investment while others are starting to pull things out of their business because perm has fallen out fast and furious.
So, no we really haven't slowed down, and we're selectively adding when we can find proven, productive people. We've added some very talented people in the quarter, and we're continuing to try to do that.
Jim Janesky
Okay. Then last question physician side.
As you pointed out, staffing industry has that growing a bit faster than you have been growing over the last couple of quarters. Does that really have to do with some of the changes that you have made over there and going forward you do expect to grow at or above the industry?
Peter Dameris
Well, I couple of comments. We grew 22.2% last year for the full year which was above the 15% projected for the industry.
As we made comments, the winter is typically the seasonally most impacted quarter for the locum industry, and we still believe we'll grow percentage points above industry growth rates. That's what our target is.
Jim Janesky
Okay. Great.
Thank you.
Operator
Your next question comes from the line of Josh Vogel of Sidoti and Company.
Josh Vogel – Sidoti and Company
Good morning. Thank you.
Jim, can you remind us again why you're choosing to delay pricing increases in the physician business?
Jim Brill
Well, we historically have delayed, and I guess it was a choice. Just briefly the way that business operates is they typically worked off a rate card, and they didn't change their rate card until some point, you know, sort of along the road, and as docs began to ask for higher bill rates, they had not changed their rate card, so what we did in the end of the fourth quarter actually was begin to take a look at each assignment and appropriately price each assignment to our customer based on what we had to pay our consultant, so it was just the way they did business historically.
We've changed that a little bit going forward, and we’ve made that change – began making the change at the end of the fourth quarter.
Josh Vogel – Sidoti and Company
Okay. So as we look out to next quarter and future quarters, we could expect some bill/pay spread expansion there?
Peter Dameris
You know, what we said in our prepared remarks is we had expansion in every quarter of the first, and we expect it to continue every month in the first quarter, and we expect it to continue in the second.
Josh Vogel – Sidoti and Company
Okay. And can you quantify on the bottom line what the impact was from a payroll taxes in the quarter?
Jim Brill
Not really. I can't from the bottom line.
It probably impacted us around 40 basis points from Q4 to Q1, something like that.
Josh Vogel – Sidoti and Company
Okay. And I see that the accounts receivable jumped a little bit higher than what I was expecting.
I was wondering if this is just a timing issue at the end of the quarter.
Jim Brill
We have a couple of large governmental clients that have had processing issues because they changed the processing system in the quarter, so we're working our way through that. In addition, if you look at the fourth quarter because of the way the strike revenue fell in the collections of that revenue, it actually enhanced DSO, but in this quarter it was a couple of days higher than we had anticipated, and I think most of that relates to this governmental switch over.
Josh Vogel – Sidoti and Company
Okay. Great.
And just lastly, I can't find it in my notes. Can you remind us if there was any mark-to-market noncash expenses in the previous several quarters with the interest rate swap?
Jim Brill
Yeah. There was I believe a $728,000 mark-to-market loss in the fourth quarter of '07.
I don't have the third quarter in front of me.
Peter Dameris
Josh, we had negative expense or charges, noncash charges in the third, fourth of '07 and the first of '08, and I believe we actually had a positive in the second of '07.
Jim Brill
It was a positive impact in the second quarter of – or in the third – no, second quarter of '07, yep.
Peter Dameris
Yep.
Josh Vogel - Sidoti and Company
Great. Thank you.
Operator
Your next question comes from the line of Tobey Sommer of Suntrust Robinson Humphrey.
Tobey Sommer – Suntrust Robinson Humphrey
Thank you. I wanted to ask a question about cash flow this year.
In the quarter it was quite strong year-over-year despite the accounts receivable and DSOs, and I wanted to get your expectations for how we should think about cash flow generation in 2008?
Peter Dameris
Well, you know, Tobey, let me go first. We really because of the way our business is run and the quality of the customers we do business with, we run a Hoover’s and D&B on everybody before we elect to do business, and as you know the staffing industry historically outside the dotcom era has not had huge bad debt expense.
We expect to see similar performance. I would tell you, Jim, to be specific it has to do with Indian Healthcare.
We’ve never had any sort of significant write off experience there, there, but that receivable because of what Jim said was they had to switch over an accounting software systems. We're a having a little lengthening in the collection of that.
But we are committed internally to driving they see DSOs to hopefully around 47 days.
Jim Brill
As far as cash generation goes, my estimation is we're probably going to be able to generate around $7 million a quarter. CapEx is going to be up a little bit this year because of some system investment that we're making.
Tobey Sommer – Suntrust Robinson Humphrey
Is the quarterly CapEx for the first quarter a good proxy for the balance of the year?
Jim Brill
It is probably a little bit high. My estimate is we’re going to be somewhere in the $8 million to $9 million range for the full year.
Tobey Sommer – Suntrust Robinson Humphrey
Okay. Thanks.
That's helpful. And then wanted to ask you a question about the interest rate swap in kind of how we should think about the potential impact of that going forward and maybe for if you could explain to us the period of time under which that will potentially have any impact although you have obviously did a very good job of breaking that out and identifying it for us?
Thank you.
Jim Brill
The swap matures on June 30th of 2009, so by the end of the second quarter of '09 it will be over. Essentially the valuation on the swap will come back to zero by that time.
And every quarter it gets mark-to-market, so to the extent that interest rates on sort of the tenor of a 90-day versus whatever period is remaining in the swap, 90-day for a year would be June 30th, and 90-day LIBOR versus one year fixed would be June 30th of this year. So you can watch interest rates in that sort of area and see if they went up or down for the period from which it was last marked.
Right now there is a – there would be a positive mark-to-market. I can't tell you exactly what that would be, but eventually the value of that swap will come back to zero by June of '09.
Tobey Sommer – Suntrust Robinson Humphrey
Thanks. That's helpful.
Wanted to ask kind of a geographic question if I could. I think, Peter, you alluded to the fact that California has shown a little bit of an improvement on the nursing side.
Broadly speaking, when you look at your business segments, is there a note worthy geographic difference?
Peter Dameris
I would say that trying to draw distinctions like we did for California, I would say that in the Life Sciences space the Midwest has gotten a little more challenging because it is manufacturing versus the research triangle or the pharmacy row or the northern California being pretty good still. Healthcare has been pretty solid all around but we had some weather disruption as we mentioned in our prepared remarks, and then we have just virtually zero exposure to the Florida and Texas nursing markets, so I can't really address that.
Tobey Sommer – Suntrust Robinson Humphrey
And I will ask a last question and get in the queue. From a standpoint of strike revenue, is there any visibility for these kind of lingering problems at a couple of hospital to persist for a while?
Peter Dameris
There is, Tobey. The acrimony between the workforce and hospitals is pretty high, and as you know, we're only working with long established customers, but there is a possibility we never forecast that.
We only do it on a selective basis for established customers, but there is a chance that a couple of work stoppages might occur in the second quarter, but there is no guarantee.
Tobey Sommer – Suntrust Robinson Humphrey
And as you said, that's something that you typically don't forecast for, so that's not in the guidance?
Peter Dameris
Absolutely not. What we would do is we get notice ten days before the stoppage, and then we go, but so as you know they could get canceled even after a work stoppage notice has been delivered, and we're just doing this with a handful of customers, but we've been alerted by some customers that things ain't going great.
Tobey Sommer – Suntrust Robinson Humphrey
Thank you very much.
Operator
Your next question comes from the line of Bruce Ackermann of Sand Hill Equity Research.
Bruce Ackermann – Sand Hill Equity Research
Good morning. I just had one clarification about the strike revenues in thinking about the impact of that, to what extent if any can you tell us would those nurses who went to the affected hospitals have taken other assignments with you and not gone to the strike hospitals.
Peter Dameris
That's a good question. Bruce, we have to do two things.
We need to make sure that it doesn't distract our attention from our core weekly business, and the second is we do not try to offer that to nurses that are going to be traveling on regular assignments for us, so we try not to get too much overlap, and this is kind of incremental. And there is a cadre of nurses who just want to do these type of assignments two or three or four weeks a year and not travel twenty weeks a year.
Bruce Ackermann – Sand Hill Equity Research
Okay, alright. Thanks for that.
That was my only question.
Peter Dameris
You bet.
Operator
Your next question comes from the line of Jeff Silber of BMO capital markets.
Jeff Silber – BMO Capital Markets
Thanks so much. I am not sure if you gave this out and forgive me if I am asking this again but in terms of the average bill rate increase for the company as a whole and/or by segment if you have that handy, that would be great.
Peter Dameris
I can talk about it from the company as a whole. We don't disclose it on a segment by segment basis.
I will just tell you that it is a little bit strained because of the only two quarters of Oxford or two months of Oxford in the previous quarter. Just one second and I will give you the increase, and, Jeff, while he is looking for that, in the prepared remarks, Mike McGowan stated that his bill rate increased 5% year-over-year.
Mike McGowan
Yeah. The bill rate, just – the bill rate increase again is a little bit strange because of the Oxford situation because they obviously have a higher average bill rate than the rest of the business, the rest of the average of the business, but it was about 10.5% over last year's first quarter.
Jeff Silber – BMO Capital Markets
And how would that compare to average increases in wage rates?
Mike McGowan
Wage, probably more like 5%. If you look across the businesses and take a look at what sort of the average bill rate in each business increase was, I would say it is more in the area of 10% now.
If we look at the pay rates, hang on for one second.
Peter Dameris
While he looks at that, again, in our prepared remarks, Jeff, we stated that in the Nurse Travel group that during the first quarter we experienced a 4.5% year-over-year increase in the bill rate. We did make – I don't think we made comment to that in lab.
Let me check.
Jeff Silber – BMO Capital Markets
That's fair. I can follow up off line.
Peter Dameris
The pay rates basically went up about the same percentage.
Jeff Silber – BMO Capital Markets
Same as the bill rates?
Peter Dameris
Yeah.
Jeff Silber – BMO Capital Markets
Okay. In terms of – and I know you guys don't give guidance by segment, but is there anything from a seasonal perspective that differs across the segment in the second quarter versus the first quarter?
Peter Dameris
Let me try to address it this way. Traditionally in normal economic environments the Life Sciences business would strengthen second over first and third over second.
Nursing business, this is, you know, there is really not as big a change. IT would trend similar to Life Sciences, and then Physician starts to pick up as you get into the summer months.
Jeff Silber – BMO Capital Markets
Okay, great. That's helpful.
Thanks again.
Operator
Your next question comes from the line of Larry Petrsoric of UBS.
Larry Petrsoric – UBS
Good morning, just a couple of questions. On the gross margin per consultant numbers you've given, are you managing to any targets as if you see any softness in the business what range could you expect to achieve?
Peter Dameris
On gross margins?
Larry Petrsoric – UBS
Well, gross margin per staffing consultant.
Peter Dameris
I mean, we want to maintain productivity and increase our branch contribution, Larry, but I am not going to go further than that at this point. We've given you I think you can back into that because we gave you a range of gross profits that we think we can generate in the second quarter, and you can take the first quarter head count and do some mathematics on that.
Larry Petrsoric – UBS
Second question is any acquisition opportunities or anything in the pipeline that you see in a weaker market environment, are there more opportunities presenting themselves to you and what areas might you focus on?
Peter Dameris
As we say, we're not doing the deal du jour, and we try to do proprietary deals and not what business brokers bring us, and we've had quite a few conversations in dinners with people and we're loading the pipeline. There is a disconnect right now between what a private company believes they're worth and what public companies are valued at in the open market, and in addition I think you probably know best is that the debt markets have been relatively unsettled, so although we have an immense amount of financial flexibility with regard to our cash, our undrawn revolver and our accordion, as we said in our first quarter call, we're going to try to stay close and do things that are appropriate for the business and let the clouds clear a little bit, so I don't think you should expect anything imminent, but we're looking to see how we can improve our Health Information Management, our Allied Healthcare, our clinical research, and our physician business.
We feel we can just make organic investments on the IT side as we have. We opened three branch offices last year and we significantly increased the head count over Cork, Ireland, and we think that can permit us to grow without having to purchase something on the IT side.
Larry Petrsoric – UBS
Great. Thanks, Pete.
Operator
Your next question comes from the line of Andrew Fones of UBS Securities.
Andrew Fones – UBS Securities
Hi. Sorry.
I had a couple of follow-ups on the divisions. Life Sciences you mentioned that a couple of contracts rolled off in the first quarter.
You won a couple of new jobs, but you also cautioned that the Midwest is a little soft. How should we think about that together?
Will these new jobs offset the ones that were lost? Should we expect growth to remain about steady with (inaudible) Q1?
Thanks.
Peter Dameris
Andrew, we don't give segment by segment growth rates, but what I would share with you is what we’ve said in our prepared remarks which is we're encouraged in the second quarter, and we feel like and – to do our best to grow, so I think that's as far as I am going to go on that point.
Andrew Fones – UBS Securities
Okay. Then kind of in terms of Nurse Travel, obviously your comments earlier were very encouraging, and then also it sounds like things are coming together in the Allied Business, so I think you had mentioned that Jim would give guidance on the Healthcare division for Q2.
Should we expect in a little bit of an acceleration?
Peter Dameris
I apologize if I jumbled my words. I was kind of referring to later in the call Jim would give our consolidated guidance.
Andrew Fones – UBS Securities
Okay. And then finally, if I run the numbers correctly, it appears as though you sort of pick up in recruiters in the first quarter from the fourth in the Physician division.
How do you view the outlook there? Thanks.
Peter Dameris
Good. I mean, we've told you we think we can grow a couple of points faster than the industry, and the industry is targeted to grow 15%, 16%, 17%.
Like I said to Jim Janesky, I think one of the most bullish things I can say is, while others are retrenching, we've continued to invest, and I think our timing is right. I think that we can balance our short-term absolute needs to deliver best of breed operating leverage to our shareholders, and at the same time continue to hold this investment for the future growth, and I think we're just – I am very pleased that we're able to continue to do what we're doing with regard to training, sales initiatives and internal recruitment.
Andrew Fones – UBS Securities
Thank you.
Operator
There are no further questions at this time. Gentlemen, do you have any closing remarks?
Peter Dameris
We appreciate your continued attention and interest in the company, and we look forward to sharing with you our results throughout the rest of the year. Thank you very much.
Operator
Thank you once again for joining today's conference. You may now disconnect.