By CHRIS COATES Staff Reporter The once-troubled medical staffing firm On Assignment has filed a shelf registration with the SEC in hopes of generating as much as $125 million for future acquisitions. On Assignment President and CEO Peter Dameris said it took the step because of signs that the Calabasas company is steadily recovering and will likely need cash to expand. “We’ve spent the last two years really fixing up this business,” Dameris said. “The next logical step for the company’s growth is to do some acquisitions.” The move comes after six lackluster years for On Assignment. The company last year reported a net loss of $96,000, or $0.00 per share on revenues of $237.9 million, on top of a 2004 net loss of $42.4 million, or $1.68 per share on revenues of $193.6 million. Those numbers were confounding to many, especially since On Assignment seemed like a business that would be in strong demand amid the biotech boom and as hospitals demanded a higher nurse-to-patient ratio. Tobey Sommer, an analyst with SunTrust Robinson Humphrey Capital Markets, has watched the company closely and said On Assignment appeared to be in a freefall. “On Assignment fell further than the other healthcare staffing companies during the market correction in 2002 and ’03,” Sommer said. Three years later, however, that tide may be changing. Last August, the company turned a profit for the first time in eight quarters, tallying a modest income of $146,000 on revenues of $57.4 million. For the first quarter of 2006 that ended March 31, revenues increased 34 percent over year to $66.7 million. With the secondary stock, On Assignment can either sell it all at once or offer chunks of any size any time over a two-year period without penalty or being forced to re-register the security. That allows the issue to be offered as soon as possible, when funds are needed or simply if the market is favorable. While plans are in the early stages, Dameris said he’s looking to diversify by adding more staffing services or perhaps creating entirely new divisions. “We’ve got good growth. We’ve got great margins. But in the scheme of things, we’re still a pretty small public company. You either need to be larger or part of a larger business,” he said. That has observers thinking On Assignment, which has 450 full-time employees and contracts with 1,600 temps, is turning around. A day after On Assignment filed to issue its offering, Harris Nesbitt Senior Research Analyst Jeff Silber wrote to investors that while secondary offerings are sometimes seen as dilutive to current stockholders, the On Assignment move “signals some positives as well, as it shows the company is ready to move beyond the turnaround stage.” On Assignment started in 1985 to provide trained scientists to laboratories and medical facilities. Much like a temp agency, On Assignment would interview and hire the scientists, then contract them out to companies that needed help. The simple model proved successful, and On Assignment grew, eventually going public seven years later. By 1999, it had offices in the U.S., United Kingdom, the Netherlands and Belgium and was a regular feature on Forbes’ Best Small Companies list. That growth continued through the early part of this decade as On Assignment expanded its nursing staffing and lab support division. Then the fickle labor market slowed and On Assignment had a management transition. “The company just started failing,” Dameris recalled. The nursing division, for example, which brought in $35 million in 2002, sunk to $20 million in 2003. “There were some bad decisions made, strategically and operationally, in the face of a pretty difficult labor market,” Dameris said, everything from IT concerns and losing senior employees to poorly-timed acquisitions. “We had industry issues, which everyone suffered from, then we had some very unique company-specific issues.” Dameris was hired on in late 2003 and moved to retool the company, replacing the core management team, creating a cohesive communication system among sales people and axing extra spending such as consultants. “That refocused the company, in particular the sales force on actively selling,” Sommer said. Finally, starting last year, the markets improved and it saw sales growth. At the same time, the company built an internal system to support additional revenue, Dameris said. “We spent a lot of money building a sales recruiting and payroll processing infrastructure,” he said, which puts the company in a good position to expand further. Dameris said that the investments put the company in a good position to look at acquiring other entities, preferably ones that could piggy-back off On Assignment’s existing infrastructure and business practices. He would not elaborate about the types of acquisitions in which he was interested. “We’re seeing some good opportunities. And we were thinking that if the market conditions are good, we would avail ourselves to the market,” he said. Dameris said the filing allows the company to have the money lined up, but does not require On Assignment to issue an offering. “When market conditions are good or when there’s a need for additional equity or capital, you can pull it off the shelf, go on a road show, market your securities and raise capital,” he said. Mark A. Bonenfant, a former senior attorney with the SEC and a lawyer with the firm Buchalter Nemer in Los Angeles, said companies like On Assignment use secondary offerings to bypass the lengthy SEC public stock offering approval process, which can take up to seven months. “This way, you file today, you get a registration statement. Six months later, if you decide you need money, within a few days you could be in the market selling your stock at a favorable price,” he said. “The goal here is to take advantage of the market without having to be penalized by the time constraints that occur when you file with the SEC.” Of course, there are risks. Dameris said that the market was especially bumpy last month. “Our share price has dropped along with the market and a little more,” he said. “And I’m not particularly interested in raising money at these levels.” Still, Dameris is hopeful and said it’s a matter of timing and finding the right opportunity. “If I find something that’s very attractive, it would be sooner than later,” he said. After that, Dameris said he expects the company to continue to grow. “When the labor markets get tight, staffing firms get more calls,” he said. “That’s where we are.” Sommer, the analyst, is likewise optimistic. “It’s currently our top pick,” he said, adding that of the companies he follows, On Assignment has the fastest internal revenue growth for first quarter 2006. “They do have cash on the balance sheet. They don’t see debt. They must see some opportunities.”
