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Tuesday, Sep 26, 2023

Despite Health Care Demand, Staff Firm Has Struggled

This past August, On Assignment Inc. reported that it squeaked out net income of $146,000 on revenues of $57.4 million, an unremarkable occurrence for most companies, but not for the Calabasas-based medical staffing company. This was the first time in close to two years the company had reported a profit. The performance at On Assignment was puzzling at first glance, since its business sectors, lab support staff and traveling nurses and medical finance personnel, are all in high demand. A new nurse-to-patient ratio law was instituted at the beginning of 2004 and startup biotech companies throughout the country and the state are in need of contract workers. In its first 15 years, On Assignment had regularly been named one of the best small companies in the country by Forbes. So why has it struggled? The company’s troubles over the past few years haven’t been in generating revenue, they’ve been in wasting money on unnecessary expenses, making ill-timed purchases and destroying its profit potential, said James Janesky, senior vice president of research with analyst Ryan Beck and Co. Inc. Janesky said that Peter Dameris, On Assignment’s chief executive officer of one year, has shown leadership in getting expenses under control. “In September of 2004 the company reported $49.5 million in revenue, it also reported $18.8 million in expenses,” Janesky said. “At the end of the June quarter, the company had revenues of $57.5 million and $15.5 million in expenses.” Last month, Janesky raised his recommendation on the company to Out Perform from Market Perform. Dameris came to On Assignment with an extensive background in the company’s core business, he’d been chairman and CEO of a large professional staffing firm, which was sold in 2000. After that, he spent a few years running a publicly traded company with $2 billion in annual revenue. A little more than a year ago, Dameris was looking for a company to buy as a private investor, and he inquired about On Assignment. The board decided after speaking with Dameris that he might be the CEO that could turn their business around. Founded in 1985 Dameris determined that On Assignment’s previous management had made very poorly timed decisions that started the company on its downward spiral. Founded in 1985 as a small scientific staffing company, On Assignment’s employees could be found testing the water for the Los Angeles Department of Water and Power, checking the purity of Tylenol or monitoring color dye for M & M;’s. A few years ago, the company decided it was time to expand. The founding CEO retired in 2000. Under a successor On Assignment purchased a traveling nurse company at the height of its earning potential. Purchased in 2002, the nurse staffing division was generating about $36 million, but that year the demand for temporary nurses began a sharp decline, and by the end of 2003, the company was only generated $20 million. It soon became clear, Janesky said, that On Assignment had drastically overpaid for the new business. By the time Dameris arrived, he says On Assignment was losing revenues and deepening its net loss every 90 days, but he reasoned that fault lay with management, not with the industry. “It was a great brand with great margins, it wasn’t like Kodak film that was being replaced with new technology,” Dameris said. His first steps as CEO were drastic. “We replaced the entire management team, hired new sales people, re-established and fixed all of the inoperable problems. . .and removed all disruptions from the field operations,” Dameris said. In addition to hemorrhaging cash every quarter, the company was sending new and confusing directives to its nationwide salesmen as well. “Management people were getting new marketing materials and causing disruptions, saying ‘sell here, not here,'” Dameris said. “These were all theories, they weren’t proven ideas.” Having overpaid for its nurse travel division didn’t help, Janesky said, but neither did the company’s continued careless spending. “They were doing a number of things, technology upgrades, spending too much on field support management, just a host of non-revenue generating activities,” Janesky said. Dameris saw even worse abuses by the time he took the helm. “We were paying a ton of money to consultants for all kinds of wild ideas and marketing plans,” he said. “We had a hospital administrator who we paid hundreds of thousands of dollars to help advise on sales tactics for the nurse travel industry.” Firing consultants He got rid of the consultants, and continued to cut costs wherever he could, even renegotiating with telecom companies and cutting the company’s bill by 40 percent. Starting in 2004, the struggling travel nurse division started to see new opportunities. The poor economy that started in 2001 had actually helped hospitals to retain more nurses, Dameris said. They were less sure of the value of their retirement investments, and staying in the full-time work force seemed like the best idea. Starting last year, as the stock market improved, nurses started retiring much faster than new nurses were graduating, he said. “You’ve got to measure the number of retirees from the practice against ones who are graduating it’s not one for one,” Dameris said. “Hospitals didn’t fix their recruitment and retention problems. They’ve got to turn to people like us.” Even hospitals that have good recruitment practices and acceptable retention rates are hard-pressed to meet the state’s nurse-to-patient ratio requirements. Most hospitals are spending millions each year on temporary nurses. In the areas where it is increasing spending, Janesky thinks that On Assignment is generally on the right track. “They’re looking at spending in areas such as pharmaceutical and biotech research,” he said. “The company is taking market share from competitors . . . and research and development is up nationwide.” Dameris has instructed his managers to keep field offices aware of the latest staffing opportunities. “We send out a newsletter every week to our branch offices in areas where startup biotech are and say ‘Venture Wire tells us that this company just got $5 million in funding,'” said Dameris. “When a biotech gets venture capital, they have an idea but they don’t have construction workers to build that idea. They don’t know if it’s going to come to fruition, which is why they take employees on a temporary versus a permanent basis.” Every quarter during the past year has been an improvement on the next, and Janesky said that if the company is able to maintain its spending discipline, it could be on the road to a significant resurgence.

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