On Assignment, Inc.

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On Assignment, Inc.

26651 W. Algonquin Road
Calabasas, California 91302
U.S.A.
(818) 878-7900
Fax: (408) 878-7930

Public Company
Incorporated: 1992
Employees: 6,750
Sales: $88.2 million (1996
Stock Exchanges: NASDAQ
SICs: 7363 Help Supply Services

On Assignment, Inc. is an agency that places scientific and technical workers in temporary jobs with companies across the United States. While most temporary service agencies provide clerical and light industrial employees, On Assignment has maintained a unique market niche by providing scientific professionals to laboratories, including the biotechnology, environmental, chemical, pharmaceutical, food and beverage, and petrochemical industries. Since 1994, the company also provides temporary workers for finance needs, and since 1996, it services the environmental industries. On Assignment operates four divisions: Lab Support, Healthcare Financial Staffing, Envirostaff, and Advanced Science Professionals. The company maintains a telemarketing sales staff for client recruitment, and scientifically trained account managers make assignments from the pool of qualified jobseekers.

On Assignment began in 1986, when Bruce Culver and Raf Dahlquist founded a California company named Lab Support, Inc. Culver was an executive in the scientific instrument industry with Bausch & Lomb/ARI, Hach and Varian, and Dahlquist was a senior scientist at Bausch & Lomb. The two had also worked together at Applied Research Labs, a Valencia, California scientific instruments company. Their experience in the instrument industry convinced Culver and Dahlquist that there was a significant, unserviced market for temporary lab workers at companies across the country. Larger temporary personnel service companies were focused on the clerical and industrial markets, ignoring science companies and their needs.

To create a company that would occupy this special niche in temporary services, Culver and Dahlquist, with the help of their hairdresser wives, each contributed between $20,000 and $30,000 in personal funds to the startup of the business in 1985. Within 6 months, they were running short of funds, and embarked on a search for financing. Turned down by 20 different venture capital firms, they were at the point of closing the door on their attempt to start a successful company when the 21st capital firm, Sierra Ventures, agreed to support the company. Between Sierra Ventures and subsequent investors, Culver and Dahlquist raised $2.5 million of venture capital, and officially opened the doors of Lab Support, Inc. in 1986. That year, the company’s revenues were $623,000, and they quickly surged to $2.9 million in 1987 and $7.4 million in 1988. In 1987, the company placed some 700 employees—including chemists, biologists, lab technicians, and other scientists—in temporary employment. Job-seekers received Lab Support placement services for free, but were promised no guaranteed placement. Over 6,000 resumes were stored in the company’s computer system, and used to cross-reference employee qualifications with the needs of clients, including Chevron, Shell, Westinghouse, Monsanto, and Johnson & Johnson. Overall, company customers seemed to respond well to the temporary scientist solution, with over 75 percent of the company’s revenue coming from repeat business from existing clients. When companies utilized Lab Support temporary workers, the employees technically worked for Lab Support, which provided them with a salary, insurance, a medical plan, and benefits. Lab Support then billed the company at a higher rate, keeping the profit. Although one reason job-seekers enlisted with Lab Support was in hopes of a full-time position, the company charged clients a fee for hiring workers who had been with Lab Support for less than six months. The fee, which did not apply when workers had been with the company for six months or more, amounted to as much as 25 percent of the worker’s first-year salary. Typically, employment assignments for the company last about three months.

With its headquarters in Canoga Park, California, by 1987 the company also had opened five field offices, in Costa Mesa and Burlingame, California; Englewood, Colorado; Morris-town, New Jersey; and Chicago. Such rapid growth, however, entailed a hefty investment in operating costs in an already slim-margin industry, and the company had not yet turned a profit. Expansion into new areas, including consulting and recruiting, was also hurting the bottom line. In 1989, the company’s balance sheet looked pessimistic, with losses of $1.5 million on sales of only $7 million. This dilemma caused Culver and Dahlquist to invest in an experienced executive from the temporary personnel industry, to manage the next phase of the organization’s development, expanding in the laboratory market and diversifying into other professional areas.

In March 1989, a new era of leadership began and the company was saved from near-extinction when H. Tom Buelter became Lab Support, Inc.’s president and CEO. Bavarian-born Buelter had a proven track record in the industry, having led Kelly Services, Inc.’s Assisted Living division through major growth in revenues between 1983 and 1988. He pulled in the reins on the consulting and recruiting businesses, and focused instead on client development. With the high number of companies that had downsized in the 1980s, Buelter had no trouble finding customers for temporary employees. Revenues continued to increase in 1989, and the company closed its first fiscal year without a loss, with earnings of $13.2 million and net income of $166,000. In fact, Buelter transformed Lab Support into a profitable company within a few months. That same year, both founders—Culver and Dahlquist—quit the company, leaving it in Buelter’s more capable hands.

One of Buelter’s restructuring brainstorms was the development of the account manager position in 1991. Under Buelter’s plan, account managers must have scientific degrees and lab experience, so as to fully understand the technical needs of the company’s clients. Account Managers were responsible for providing all client and employee services, including recruitment, training and coaching, business development, assignments, and followup.

Under Buelter’s management, both revenues and net income continued to improve. In 1990, revenues increased 63 percent to $21.5 million and net income was $1.5 million—nine times that of the previous year. In 1991, revenues again increased to $26.2 million, with a decrease in net income to $1.1 million. The increase in revenues and profitability corresponded with more assignments made yearly. The average weekly number of temporary professionals on assignment went up from 392 in 1989 to 765 in 1991.

The background for the company’s success was the rapid growth of the U.S. temporary services industry. Between 1975 and 1991, the industry’s total payroll grew from $0.9 billion to $9.6 billion. The expansion of the temporary industry, in turn, was situated within the hiring of large numbers of white collar professionals, coupled with layoffs during the recession of the early 1980s. When the economy recovered, companies began to turn to temporary personnel, rather than replacing previous employees with permanent new workers. Companies using temporary personnel for a wide variety of needs were recognizing the benefits of nonpermanent employees, including decreased fixed overhead, increased staffing flexibility, elimination of expensive severance packages and low-risk, on-the-job evaluations of prospective employees.

The company took on its current name in 1992, in conjunction with its public offering. Operating under the new company name of On Assignment, Lab Support became the company’s first operating division, with its specialization of industrial, pharmaceutical, and other laboratory positions. The company’s intention, by establishing Lab Support as a division, was to soon expand into offering specialized services in other professional niches through additional divisions in the future. The public offering comprised 1.7 million shares at $7 per share.

At the time of its public offering, On Assignment was the only nationwide temporary services provider specializing exclusively in scientific laboratory personnel. By 1992, over 400 clients were served by 26 company branch offices in 24 metropolitan areas, and 1,000 scientific temporary workers were placed in assignments during the year. Some of the company’s success may have been attributable to the booming medical and biotechnology businesses, which were receptive to On Assignment’s temporary workers with special skills needed in medical laboratories, hospitals, and health care clinics. The company counted some of America’s biggest drugmaking firms among its clients, including Abbott Laboratories, Hoffman-La Roche, and Bristol-Myers Squibb. In all, in 1992 On Assignment had a company client base of over 400 companies, including more than 30 Fortune 500 companies.

The first year as a public company set new records for On Assignment, with $32.7 million in revenues (a 25 percent increase over the previous year) and $1.76 million in net income (a 60 percent increase). The company attributed this success to two accomplishments: the restructuring and subsequent emphasis on the Account Manager position, and a 24 percent increase in the average number of employees in assignment, from 765 in 1991 to 945 in 1992. The temporary services industry continued to grow, with one in three Americans in the contingency worker category according to On Assignment’s 1992 annual report.

Company Perspectives:

On Assignment’s mission is to lead the industry in (1) meeting industry’s specific needs for professional technical assignment personnel, and (2) meeting their assignment professionals’ needs for a supportive, secure, respected company base. The company strives to advance and lead the Professional Assignment Industry.

By 1993, On Assignment was active in 32 cities with offices from Seattle to Miami, and clients included major companies such as Hewlett-Packard, Exxon, and Johnson & Johnson. An exclusive sales and marketing agreement was reached with Baxter International Inc., whereby the pharmaceutical company’s scientific products division began to offer On Assignment’s temporary services to its customers. During 1993 the company employed over 3,600 science professionals in assignments averaging between three-and-a-half and four months for 1,145 client firms. That year, the company was Number 22 on Business Week Magazine’s Hot Growth list and Number 58 on Forbes’s list of the “Best Small Companies in America.” Stock prices soared to a high of $15 in February 1993, and settled at $12 by May. Revenues grew 17 percent to $38.08 million, and net income surged 40 percent to $2.46 million. With no competitors on the national scale, the company was supplying 1,100 scientists with work, filling most customer orders within a 24-hour period. Typically, clients paid On Assignment wages from $10 an hour (for lab technicians) to $35 an hour (for experienced microbiologists), which left the company with a 30 percent profit after employment taxes. The company began to explore offering medical coverage to its workers in 1993.

Taking its first step toward diversification, On Assignment acquired the 11th fastest growing company in the San Francisco Bay Area in January 1994—1st Choice Mortgage Personnel Inc. This acquisition supported the opening of On Assignment’s second division, Finance Support, which used the same methods as Lab Support to match finance professionals with the temporary needs of banking, lending, credit, and mortgage institutions. The acquisition quickly showed its merit in sales numbers; first-quarter revenues were up 23 percent from the same quarter of the previous year, second-quarter profit showed a 37 percent increase, and the third quarter was up by 36 percent. The success was attributed to the new division as well as expense controls, including decreased workers’ compensation insurance. For the year as a whole, revenues increased 27 percent to $48.4 million, and net income saw a 36 percent growth to $3.35 million. During that year, 5,200 scientists were placed in jobs. The company was up to Number 36 on Forbes’s list of the “Best Small Companies in America,” and the Wall Street Journal noted that On Assignment was changing personnel practices of U.S. businesses. Now billing up to 40 percent over worker wages, On Assignment had become a profitable business requiring very little capital; a transformation over its earlier incarnation with Culver and Dahlquist at the helm. Due to its market niche, On Assignment’s 7 percent net profit margins greatly exceeded those of temporary agencies placing clerical workers, -which typically earned around 2 percent profit.

A second acquisition at the end of 1994—of Sklar Resources Group, Inc.—was made to increase the size of the Finance Support division, and to expand its service by adding finance professionals in credit and collections. The company especially sought out businesses with serious collection problems, including health care, automotive leasing, and publishing. By July 1995, the company had 44 branch offices across the country. Credibility had been built based on the high quality of its temporary employees, with over 20 percent of its workers hired by clients into permanent positions.

In late 1995, On Assignment continued its rapid diversification with the creation of Advanced Science Professionals. Launched in New York, Pennsylvania, and New Jersey, this division was formed to serve the needs of biotechnology and pharmaceutical companies requiring employees with advanced science degrees and very specific skills for finite projects. For the company, Advanced Science Professionals marked its entry into the upper levels of the flexible staffing pyramid, and the resulting opportunity to secure higher wage levels. Revenues continued to grow, with a 28 percent increase to $62.04 million, and net income saw a corresponding jump of 29 percent to $4.33 million. By the end of 1995, 46 branch offices were operating in 41 markets, and 6,750 workers had been employed at over 2,000 client companies (including 800 new clients in 1995 alone). All employees were now offered benefits including access to group insurance, paid holidays, a 401(k) plan, an Employee Stock Purchase Plan, and an annual appreciation bonus.

Entering the environmental services industry, On Assignment acquired EnviroStaff, Inc. in 1996. This was the company’s biggest acquisition by far, which involved the issuance of stocks valued at about $6.2 million to purchase the $10.6 million company. EnviroStaff became the name of On Assignment’s third division, serving the environmental services, regulatory compliance and health and safety markets. Revenues in 1996 increased 21 percent to $88.2 million, with net income also healthy at $5.6 million (a 29 percent increase). The growth was attributed to the success of all three operating divisions. In addition to the new environmental division, in 1996 On Assignment initiated other new programs, including Assignment Ready (a service through which clients and prospects are notified of promising candidates through summaries and weekly reports), additional recruitment and training of Account Managers, and a new video-teleconferencing system allowing such interviews to be arranged faster and more efficiently.

As On Assignment looks toward the future, it plans to pursue the strategy that has worked so well since 1989: expanding in new and existing markets, providing highly valued services, and applying its assignment methods to a growing list of professional and technical job categories, through acquisitions or internal development. Since the company was made profitable when Buelter took over, its track record is glowing. Given consistent leadership and well-planned acquisitions and expansion projects, and with no major competitors in the nationwide market, On Assignment should continue to prosper.