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On Assignment reports Q4 & full year 2013 results

Fourth Quarter Highlights

Revenues were $423.6 million, up 14.7 percent year-over-year and 0.5 percent sequentially.

Adjusted Income from continuing operations (a non-GAAP measure defined below) was $27.5 million ($0.50 per diluted share).

Income from continuing operations (excluding $1.5 million after tax of acquisition and strategic planning expenses, which were not included in our estimates) was $19.0 million ($0.35 per diluted share). Income from continuing operations as reported (which includes the acquisition and strategic planning expenses) was $17.4 million ($0.32 per diluted share).

Adjusted EBITDA (a non-GAAP measure defined below) was $48.4 million, up from $39.4 million in fourth quarter of 2012.

Percentage of gross profit converted into Adjusted EBITDA was 37.3 percent.

Closed the sale of Allied Healthcare unit (“Allied”) for $28.7 million (a gain of $16.4 million, net-of-tax) and acquiredWhitaker Medical, LLC (“Whitaker”), a physician staffing business, and CyberCoders Holdings, Inc. (“CyberCoders”), a permanent placement recruiting firm.

Leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) was 2.2 to 1 at December 31, 2013, down from 2.9 to 1 at December 31, 2012.

Commenting on the results, Peter Dameris, President and Chief Executive Officer of On Assignment, Inc., said, “We reported strong financial performance for the quarter, completed the sale of our Allied Healthcare unit and acquired two businesses, which we believe further solidify our position as a top player in each of the markets we serve. Revenues, gross profit, income from continuing operations and Adjusted EBITDA were above the high-end of our estimates. We believe we are well positioned and have good momentum going into 2014.”

Fourth Quarter 2013 Results

Operating results for the fourth quarter include the results of the businesses acquired in December from the date of acquisition (December 2, 2013 for Whitaker and December 6, 2013 for CyberCoders) through the end of the quarter. Whitaker’s results are included in the Physician segment and CyberCoders’ results are included in the Oxford segment. During the quarter, the Company completed the sale of certain operating assets of its Allied Healthcare division. As a result of the sale, the operating results of this division have been reported as discontinued operations on a retrospective basis. Excluded from the sale was the Company’s Healthcare Information Management practice (“HIM”). This practice is now included in the Oxford segment.

Revenues for the quarter were $423.6 million, up 14.7 percent year-over-year and 0.5 percent sequentially. Consolidated revenues included $5.9 million in revenues from Whitaker and CyberCoders (the “Acquisitions”) for the period from the date of acquisition through the end of the quarter. Excluding results from the Acquisitions, revenues were $417.7 million, up 13.1 percent year-over-year. Our Information Technology businesses (Apex Systems and Oxford, which now includes CyberCoders and HIM), grew 16.0 percent year-over-year (14.9 percent excluding CyberCoders) and accounted for 90 percent of the revenue growth in the quarter. Our non-Information Technology segments (Life Sciences and Physician) were up 8.3 percent year-over-year (4.9 percent excluding Whitaker).

Gross profit was $129.8 million, up 15.8 percent year-over-year and up 2.0 percent sequentially. This improvement was primarily due to growth in revenues and expansion in gross margin. Gross margin for the quarter was 30.6 percent, up from 30.3 percent in the fourth quarter of 2012 and up from 30.2 percent in the third quarter of 2013. The year-over-year expansion in gross margin was mainly attributable to a higher mix of permanent placement revenues (2.1 percent of revenues for the quarter compared with 1.8 percent in the fourth quarter of 2012) and slightly higher contract margins. The higher mix of permanent placement revenues in the quarter was attributable to the inclusion of CyberCoders, which accounted for $2.7 million of the $8.9 million in permanent placement revenues.

Selling, general and administrative (“SG&A”) expenses were $90.2 million (21.3 percent of revenues), up from $77.9 million (21.1 percent of revenues) in the fourth quarter of 2012. SG&A expenses for the acquired businesses were $2.8 million (0.7 percent of revenues). Excluding the results from the acquired businesses, SG&A expenses were 20.9 percent of revenues for the quarter down from 21.1 percent in the fourth quarter of 2012. SG&A expenses for the quarter included a (i) $1.6 million benefit from a favorable outcome of an earn-out obligation and (ii) acquisition and strategic planning expenses of $2.6 million.

Amortization of intangible assets was $5.9 million, compared with $6.8 million in the fourth quarter of 2012 and $5.2 million in the third quarter of 2013. The sequential increase of $0.7 million related to incremental amortization from the Acquisitions.

Interest expense for the quarter was $3.4 million compared with $5.4 million in the fourth quarter of 2012. Interest expense for the quarter was comprised of interest on the credit facility of $3.1 million and amortization of capitalized loan costs of $0.3 million. The leverage ratio (total indebtedness to trailing twelve months Adjusted EBITDA) at December 31, 2013 was 2.2 to 1, down from 2.9 to 1 at December 31, 2012.

The effective income tax rate for the quarter was 42.4 percent and the effective rate was 41.6 percent for the full year. The sequential increase in the effective tax rate primarily related to the portion of acquisition expenses incurred in the quarter that are not deductible for income tax purposes.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization of identifiable intangible assets plus equity-based compensation expense, acquisition-related costs and fees and expenses related to our strategic planning initiatives), was $48.4 million, up from $39.4 million for the fourth quarter of 2012. Adjusted EBITDA for the quarter included a $1.6 millionbenefit related to a reduction in an earn-out obligation.

Adjusted income from continuing operations was $27.5 million ($0.50 per diluted share). Income from continuing operations (which includes acquisition and strategic planning expenses of $2.6 million, or $1.5 million net of income taxes) was $17.4 million ($0.32 per diluted share) compared with $12.0 million ($0.22 per diluted share) for the fourth quarter of 2012.

Net income, which is comprised of (i) income from continuing operations of $17.4 million, (ii) the gain on sale of discontinued operations, net-of-tax of $16.4 million and (iii) income (loss) of discontinued operations of ($1.4) million totaled $32.4 million($0.59 per diluted share) compared with $14.2 million ($0.26 per diluted share) in the fourth quarter of 2012. Net income for the quarter included acquisition-related costs and strategic planning expenses of $2.6 million ($1.5 million, or $0.03 per diluted share, after tax).

Financial Estimates for 2014

On Assignment is providing financial estimates from continuing operations for the first quarter and full year 2014. These estimates do not include acquisition/integration costs, strategic planning expenses or any costs or expenses related to any future debt refinancing and assume no deterioration in the staffing markets that On Assignment serves.

First Quarter 2014

Revenues of $434.0 million to $438.0 million

Gross Margin of 30.6 percent to 30.9 percent

SG&A (excludes amortization of intangible assets) of $102.5 to $104.0 million (includes $2.7 million in depreciation and$3.6 million in equity-based compensation expense)

Amortization of intangible assets of $6.2 million

Adjusted EBITDA of $37.0 million to $38.5 million

Effective tax rate of 41.5 percent

Adjusted Income from Continuing Operations of $20.8 million to $21.6 million

Adjusted Income from Continuing Operations per diluted share of $0.38 to $0.39

Income from Continuing Operations of $12.1 million to $13.0 million

Income from Continuing Operations per diluted share of $0.22 to $0.24

Diluted shares outstanding of 55.2 million

These estimates reflect normal seasonality in the business, except for the inclement weather in January and February, which is estimated to have an adverse effect on revenues of approximately $3 to $5 million. These estimates assume year-over-year revenue growth in mid-teens for Apex Systems, low teens for Oxford (includes CyberCoders and HIM practice), mid-single digits for Life Sciences and high-teens for Physician. On a pro forma basis (which assumes the Acquisitions occurred at the beginning of 2013), the assumed growth rate for the Oxford segment is flat and for the Physician segment is a low single digit decline.

Full Year 2014

Revenues of $1,875.0 million to $1,905.0 million

Gross Margin of 31.8 percent to 32.0 percent

SG&A (includes amortization of intangible assets) of $450.0 to $455.0 million (includes $12.9 million in depreciation and$17.2 million in equity-based compensation expense)

Amortization of intangible assets of $24.5 million

Adjusted EBITDA of $202.0 million to $210.0 million

Effective tax rate of 41.5 percent

Adjusted Income from Continuing Operations of $113.7 million to $118.4 million

Adjusted Income from Continuing Operations per diluted share of $2.04 to $2.13

Income from Continuing Operations of $79.3 million to $84.0 million

Income from Continuing Operations per diluted share of $1.42 to $1.51

Diluted shares outstanding of 55.7 million

These estimates assume year-over-year revenue growth in low-teens for our IT Segments (Apex Systems and Oxford) and mid-single digits for Life Sciences and Physician. The growth rate is calculated using pro forma 2013 revenues, which assume the Acquisitions occurred at the beginning of 2013. Pro forma 2013 revenues were approximately $1.7 billion. The difference between adjusted income from continuing operations and income from continuing operations is approximately $34.4 million and is comprised of amortization of intangibles and the cash income tax shield, less excess estimated capital expenditures over depreciation after income taxes. These estimates do not include an estimate for acquisition/integration costs, strategic planning expenses or costs or expenses related to any future debt refinancing.

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