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On Assignment Plans Get Tangled by Soft Economy

On Assignment Plans Get Tangled by Soft Economy By SHELLY GARCIA Senior Reporter Shares in On Assignment Inc. have lost more than three-quarters of their value since the beginning of the year as the Calabasas-based company has struggled with the growing pains of shifting its business model. Over the past year, the temporary staffing company specializing in skilled healthcare workers and lab technicians took on a new business travel nurses and reorganized its sales and recruiting functions, moves that took a toll on net income in the fourth quarter and full year 2002. It wasn’t supposed to happen that way. On Assignment acquired a travel nurse company, Health Personnel Options Inc., in 2002 intending to take advantage of the shortage of skilled nurses and the increasing demand. But the company did not foresee the difficulties of running the business and underestimated the costs. At the same time, the economic downturn affected both hospital budgets and impacted demand by companies that use its lab technicians. On Assignment was forced to reorganize its business mid-stream in order to cope with the changing marketplace. “Unfortunately, when you’re talking about changes in the sales force and the focus of the company, it usually takes longer than you think,” said Matthew V. Roswell, principal, equity research, at Legg Mason Wood Walker in Baltimore. “That’s what’s happening here, plus the industry issues.” When On Assignment acquired HPO, a business that supplies highly skilled nurses and allied health workers to hospitals nationwide, it hoped to capitalize on the growing shortage of nurses and other skilled hospital workers. But, in spite of the need for these workers, many hospitals could not afford to pay the cost of On Assignment’s service, particularly in the fourth quarter when nurses were demanding higher pay for assignments that took them away from home over the holiday season. “What we had to do in order to induce people to work, because these are temporary assignments, is we offered them bonuses if they worked the whole period. We offered them double time instead of time and a half,” said Ronald W. Rudolph, executive vice president and chief financial officer at On Assignment. “At the same time that we were having to pay more to deliver this service, we were also competing more aggressively on our prices to hospitals.” Lab services Not only were hospitals struggling with operating budgets as the economy softened, but the customers for On Assignment’s lab services, pharmaceutical, biotech, food processing and chemical companies, were also affected by the downturn. “All of our businesses have been affected by the softness in the economy,” said Rudolph. For the period ended Dec. 31, On Assignment reported net income of $1.9 million or $0.07 per diluted share on revenues of $66 million. That compares with earnings of $3.7 million or $0.16 per diluted share on revenues of $46.8 million for the fourth quarter of 2001. Wall Street reacted sharply to the company’s fourth-quarter performance and the industry-wide issues in healthcare. On Assignment’s stock price, which was trading at a high of more than $26 a year ago, plunged to $8.83 by the beginning of 2003 and, on Friday, April 11 was trading at $4.60. Many of the companies that provide travel nurses experienced the same declines in share price, Roswell said. “The companies promised some very sharp growth and it didn’t happen for a couple different reasons,” Roswell said. By the same token, Roswell added, On Assignment “did a poor job of letting Wall Street know what’s going on.” Legg Mason Wood Walker, which has a hold rating on the company, holds no position in On Assignment. Late last year, On Assignment launched a nurse retention program designed to reduce the attrition rate for its workers during the holiday season by offering them more pay, and it began a program to revamp its sales, recruiting and fulfillment functions. It has taken the company time to train its sales force in the additional services the company now provides. “This ongoing reorganization of the health care division was a distraction,” said Rudolph, and didn’t help us do better, but it wasn’t the only factor.”

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