On Assignment Buys Firm, Cuts Earnings Expectations Corporate Focus By MICHAEL HART Staff Reporter When On Assignment Inc. adjusted downward its earnings expectations on March 28 for the first quarter, many might have simply said, “That figures.” After all, it’s no secret that companies have responded to the economic slowdown with layoffs and hiring freezes, dampening business opportunities for temporary staffing companies. On Assignment is expected to announce on April 18 revenues of $44 million to $45 million and earnings of 14 cents to 15 cents a share, compared to revenues of $51.2 million and earnings per share of 21 cents in the first quarter of 2001. It will be the fifth quarter in a row revenues and earnings have fallen for the Calabasas-based niche temporary staffing firm. On Assignment would appear to be in good company: On April 5, the much larger competitor Robert Half International announced it anticipates first-quarter revenues of $465 million to $475 million, a far cry from the $521 million analysts had expected. “There’s not been a lot of good news lately,” said Ronald Rudolph, On Assignment executive vice president and chief financial officer. But analysts and company officials insist there is reason for optimism. Certainly, there is the gradual strengthening of the economy to look forward to. “The temporary staffing business is completely cyclical,” said David Riedel, an analyst with Salomon Smith Barney. “Its raison d’ & #281;tre is to accommodate the business cycle.” Indeed in March, temporary staffing firms throughout the United States added 69,000 positions to a total of 2.4 million, according to Dow Jones. Just as during economic downturns companies cut temporary and contract workers first, in recoveries they are more likely to use those workers while waiting to see if conditions are right to make permanent hires. Also likely to boost On Assignment’s future performance is its recent $150 million purchase of Health Personnel Options Corp., based in Cincinnati. The deal, the largest acquisition in On Assignment’s history, is expected to close by May 1. On Assignment offers clients temporary workers in highly specialized fields like health care financial administration, environmental inspection, lab support and diagnostics. HPO’s specialty is one that many analysts expect to be increasingly “resource-scarce” as time goes on: nurses on temporary assignment. Bill DeVille, founder of HPO and currently its executive vice president of operations, said, “We see the nursing shortage getting worse and worse and, consequently, we expect demand to increase.” Joe Peterson, named On Assignment’s president and CEO last fall, said the HPO acquisition “immediately accomplishes our goal of deriving half of the company’s revenues from health care.” About 30 percent of On Assignment’s 2001 revenues of $195 million came from its health-care staffing business. In 2001, HPO reported revenues of $72.4 million and earnings before interest, tax, depreciation and amortization of $10.1 million. Rudolph said that, on its own, On Assignment “can’t get back up to $195 million this year,” but with HPO, 2002 revenues should be in the range of $245 million to $255 million and earnings per share between 70 cents and 75 cents. On Assignment’s stock hit a 52-week high of $25.26 on Jan. 4. After the company announced Jan. 24 that net income for the fourth quarter of 2001 was down 33 percent from the previous year ($3.7 million on $46.8 million in revenue compared to $5.4 million on $51.8 million in revenue in the last quarter of 2000), the stock price began a drift down to a low of $17.75 the day before the HPO acquisition was announced. On April 11, On Assignment stock traded at $20.05. “I don’t want to be circumspect about this,” Peterson said. “The overall numbers are what the overall numbers are. But this is one of those moments in time when the average snapshots of On Assignment are misleading in terms of performance.” Adam Waldo, an analyst with Lehman Bros., said, “It (the acquisition) looks to be a good use of shareholder capital.” While it is not likely On Assignment will be going on a shopping spree with the $116 million it has in cash reserves, Peterson has said acquisitions are now a part of the company’s growth strategy. “This isn’t necessarily the end of the line, but I wouldn’t expect to see too many large ones right away,” Rudolph said.