AMN Healthcare Services Inc (AMN) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare Services 2002 fourth quarter earnings release teleconference. All this time all participants are in a listen only mode. Later we will have a question and answer session and I will give you instructions at that time. Should you require assistance while you are on this call, simply press zero then star and an operator will come onto your line to assist you. As a reminder, this conference is being recorded for a digitized replay. If you wish the information about the replay stay on the line at the conclusion of the call. With us today on this call we have the Chief Executive Officer, Mr. Steve Francis. Also the chief financial officer, Mr. Don Myll, and the executive vice president and chief operating officer,. Ms. Susan Nowakowski. Now I would like to turn the call over to our first speaker, we have Mr. Joe Marino who is the director of investor relations. Please go ahead.

Good morning and welcome to the AMN Healthcare Services conference call to discuss the company’s earnings results for the fourth quarter of 2002 and for the year ended December 31st 2002. I'd like to re remind everyone that a replay of this web cast is available at www.amnhealthcare.com\investors. And it will be replayed until February 28th, 2003. Details for the audio replay of the conference call can be found in our earnings press release.

I would also like to mention our policy regarding forward-looking statements. As we conduct this call, various remarks that we make about future expectations, plans and prospects constitute forward looking statements. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our public filings with the SEC. Many of the results reported in this call are for a partial year and may not be indicative of results for future quarter or for the year. These statements reflect the company's current beliefs and are based upon information currently available to it. Be advised that development subsequent to this call are likely to cause these statements to become outdated with the passage of time. The company does not intend, however, to update the guidance provided today prior to its next earnings release and conference call.

Steven Francis, AMN Healthcare's President and Chief Executive Officer will now review the company's fourth quarter 2002 and full-year end highlights and accomplishments.

Thank you Joe. And I would also like to take this moment to welcome you as AMN's new director of investor relations. Hello everyone and welcome AMN Healthcare’s fourth quarter 2002 earnings conference call. We appreciate your interest in AMN and your participation in today's call.

Last evening we reported record financial results for the fourth quarter of 2002 and for the full year. Today we would like to provide you more highlights regarding these results and to provide you with insights regarding current market conditions. Let me begin by briefly reviewing our financial results.

AMN Healthcare continued to generate strong financial results in the fourth quarter of 2002 with revenue of $207 million and diluted earnings per share of 31 cents. We are pleased with our full-year results of $776 million in revenue and diluted earnings per share of $1.12.

2002 was a fabulous year, driven by strong industry fundamentals. AMN's ability to produce strong results relative to our peers is a result of our unique multi-branding and Internet recruitment strategies, our efficient and productive operating model and solid execution by our management and our sales and service teams.

AMN further expanded its position as the largest provider of outsourced temporary health care staffing in the US, with an average of over 8,100 temporary healthcare professionals working on assignment during the fourth quarter of 2002. This is a 19% volume increase over the fourth quarter of 2001. We believe that our leading market share position provides AMN with a competitive advantage. AMN has nearly 50% more traveling healthcare professionals working than our closest competitor. This large base of satisfied healthcare professionals provide us with a significant referral source to continue to attract new travelers and provides us with a broader and more geographically disbursed business.

I'd also like to mention that we're very pleased with the progress we have made with our share repurchase program that we instituted in the fourth quarter quarter. Don Myll our Chief Financial Officer will now report on this, along with results of the fourth quarter 2002. Don?

Thanks, Steve. As Steve mentioned AMN Healthcare generated outstanding financial results in the fourth quarter. Our revenue and our earnings for the quarter grew strongly on both as reported and organic basis and of course increased both on a year to year basis and a sequential quarterly basis. Revenue for the quarter grew to $207 million at the 29% increase over the same period last year, and of course this resulted in diluted earnings per share of 31 cents. Adjusted cash earnings per share in the fourth quarter 2002 grew 39% to 32 cents per diluted share. As we talked about in the past, adjusted cash earnings, as is described in the press release, provides a more meaningful comparison of operating performance between 2002 and 2001 as is it excludes several charges related to the company's IPO in 2001, and other transaction costs in the amortization of goodwill and intangibles.

Adjusted EBITDA, as defined in the earnings release also, increased 39% to $25 million over the fourth quarter of 2001. The adjusted EBITDA margin of 12.1% for the quarter reflects a 90 basis point improvement over 11.2% reported in the fourth quarter of last year. This improved EBITDA margin continues to be driven primarily by the increased leverage of our selling general and administrative expenses. This resulted in an improvement in SG&A as a percent of revenue for the full year of 120 basis points.

Gross profit margins remained consistent with the previous quarter at 24.4% and our gross profit margin has been relatively consistent over the last five quarters.

Our financial results for the full year have been equally impressive. Revenue, as Steve mentioned, was $776 million for the year, a 50% increase over 2001, yielding earnings growth of 115% on an adjusted basis year over year. Adjusted EBITDA for the whole year increased 57% to $91 million or 11.7% of revenue. Also reflecting basis improvement of about 50 basis points over 2001. Earnings per share for the year increased $1.12.

As I normally do, let's cut a little more deeply at the key drivers for our revenue for the fourth quarter. The components of the $46 million increase in revenue or that 29% as compared to fourth quarter 2001 was almost entirely the result of organic drivers. First, the pure organic volume increase in the average number of travelers working through our existing branch contributed $26 million. That's 57% of our total increase in revenue. This represents a 16% organic increase in the number of travelers working in the fourth quarter of 2002 over the prior year. Second, an increase in our average bill rate contributed $15 million or 33% of the total increase in revenue. This represents an increase in the average bill rate of about 8% over the fourth quarter of 2001. Third a shift in the mix of payroll versus flat rate traveler contracts contributed about $1 million or about just 1% of the total increase in revenue. 96% of our travelers worked under a payroll contract in the fourth quarter of 2002. This compares to 95% in the fourth quarter of 2001.

Fourth quarter revenue per traveler per day, slightly declined sequentially from the third quarter, this is due to a small increase in the number of flat rate travelers and slightly lower hours per work per traveler, which we believe is due in part to the impact of the midweek holidays. In total, organic growth accounted for $42 million, or 91% of our total year over year growth in revenue for the fourth quarter. We also benefited in the fourth quarter from an increase of about $4 million in revenue over the prior year attributable to a small acquisition completed in April.

Turning to the balance sheet and our financial position, AMN continues to have a very strong balance sheet and remains debt free. As you know, and Steve referred, we announced a significant $100 million share repurchase program on November 12th of 2002. This plan illustrates our intention to use the company's resources to deliver value for our shareholders. It is clear to management and to our board that repurchasing our shares at current market values given our performance and our long-term growth opportunities represents an excellent opportunity to increase shareholder value. The impact of this repurchase plan had a negligible impact on the average shares outstanding and our diluted earnings per share for the fourth quarter as this repurchase plan became active very late in the quarter. Its benefit will be recognized beginning in the first quarter of 2003. Given the numbers, we're satisfied as Steve mentioned with the results of this plan through January 31st of 2003. We'll look into the first part of this year, we have used $44 million of cash to repurchase. 2.6 million shares of which $35 million was used to purchase about 2.1 million shares in 2002.

For the fourth quarter the company generated $8 million in free cash flow during the fourth quarter and $53 million of free cash flow for the full year. To be clear, we define free cash flow to include cash flows from operating activities, less capital expenditures. We had cash and cash equivalents of $40 million on the balance sheet at December 31, and our DSOs at year end stood at 61 days. I'll now turn the call back over to Steve for a discussion of the current market dynamics and long-term growth industry fundamentals.

Thanks, Don. When we talked about market conditions, I think it's important to first talk about the long-term fundamental drivers of our business and our industry. Our high level of confidence in the long-term growth prospects for our business and our industry is based on the fact that in our judgment, the fundamental drivers of our business remain intact. As we have reiterated consistently to the investment community, we believe the long-term fundamental drivers of the temporary healthcare staffing industry continue to be strong and compelling.

First, the shortage of nurses and other healthcare professionals to fill permanent positions is severe. And all evidence suggests that this long-term shortage will increase every year in the foreseeable future. Second, increasing hospital admissions, aging population and technology driven advances and procedures are projected to drive continuing hospital admissions and increasing lengths of stays and acuity. Third, outsourced temporary staffing provides hospitals with a cost effective flexible and high quality solution to achieve their staffing needs. Temporary staffing allows hospitals to manage their largest cost, labor, in line with their census fluctuations. In addition to ongoing daily, weekly and monthly flexible staffing needs, many hospitals have also have significant seasonal fluctuations in their census. All of these demand drivers should grow with rising admissions. And finally, favorable state legislation. We're encouraged by the federal and state initiatives, legislative initiatives limiting mandatory overtime and imposing prescribed nurse-to-patient ratios, such as the one in California which is scheduled to take effect in January of next year.

We believe these fundamental long-term drivers are powerful, clear and proven. One of the most significant drivers of our positive long-term growth prospects is the severity of the nursing shortage. The demand and supply and balance for nurses has created a pervasive nursing shortage which is projected by the federal government to continue to increase in severity every single year through 2020.

While the year to year demands applied dynamics may vary due to short-term influences, we believe the long-term drivers of the nursing shortage are unavoidable. As hospital admissions increase and the nursing shortage intensified over the last few years, hospitals demands for outsource temporary nurse staffing increased at a faster rate than expected. This fueled stronger than expected growth rates for the temporary nurse staffing segment as hospitals sought to increase nurse staffing levels in order to maintain a level of quality patient care.

Over the past year hospitals have focused on ways to maximize their utilization of permanent staff and the cost effectiveness of outsourced staffing. Some of the methods hospitals are using include increased nurse overtime, increased floating to different nursing units and increased patient loads for each nurse.

In addition our client hospitals are placing orders and hiring travelers much later in the cycle as compared to past years. Instead of committing to traveler placements substantially in advance, many placement decisions are being made much closer to assignment start dates. This is resulted in decreased visibility of future travelers working and future demand. We believe that these hospital actions will ultimately not offset the growing nursing shortage and are confident that the impact of these recent hospital activities on travel nurse demand will be temporary. We believe that the industry is currently in a state of transition as it moves as predicted toward the long-term growth rates. I will now turn the call over to Susan Nowakowski, the company’s executive vice president and chief operating officer.

Thank you, Steve. We believe that the strong performance that we delivered in the fourth quarter is continued evidence of the superior execution by our sales and service team. The fourth quarter was another great example of how AMN's flexible and focused operating model and our multi-branding recruitment strategy continues to give AMN a competitive advantage.

Growth in our business is driven by four primary factors. First, the demand from hospitals. Steve talked about marketing conditions today and the effect on demand. I'll talk about what we're doing at AMN to maximize and continue to grow demand. Second growth factor is our ability to attract a supply of traveler candidates. Third, having an effective strategy and operating model to optimize the current opportunities. And fourth, probably most importantly, the superior execution by the entire AMN team.

AMN is the leading provider in the industry, and we believe that the current market environment provides AMN a unique opportunity to master mind the advantages of our superior strategy, our scale and our hospital relationships, all of this to expand our leading position.

Today, more than ever, hospitals are seeking a strong business partner for outsourcing. They want a partner who can fulfill the quantity and quality of their staffing needs, and to help them develop strategies for the most cost effective staffing methods. We're beginning to see the effect of this as some hospitals are narrowing the number of outsourcing partners that they work with. This has the effect of reducing ties to some of the more marginal players in the industry.

As the largest provider of outsourced temporary healthcare staffing, AMN is well positioned with our in-depth support and infrastructure to be the partner who can deliver the most value to hospital clients. In addition to the cost effectiveness of our services, AMN has a strong reputation among hospitals for providing a consistent high quality staff and for working as professional partners with nursing leadership to address their overall work force challenges.

To further capitalize on this market opportunity, we have several initiatives focused on expanding market share and growing overall industry demands for travelers. We have estimated that only about 25% of all acute care hospitals are currently utilizing travelers. We have contracts with a little over 40% of hospitals, but they don't all have traveler needs at any given time. So we have a continued opportunity to increase the number of new clients and to increase the number of existing clients who have open orders with us. While we have been pleased with our new client volume, we have also added staff in our client services department to increase those resources, to increase the talent of this team and all of this with the goal of expanding our client base.

The supply of new traveler candidates joining our brand does continue to grow. During 2002, our individual travel brands averaged approximately 50% more new traveler candidate applications than the prior year. Due to our strong reputation, our unique Internet strength, our competitive programs, and our reputation for having the largest selection of assignments in the industry, we believe our brands are collectively recognized among travelers as the employer of choice. This is important. We think that this is already evidenced by our strong volume growth rates through 2002, and our retention rates, which we believe are the highest in the industry. As some of these smaller competitors may struggle in this market over the next year, we believe that AMN's superior offerings and high standard of service will continue to attract more travelers.

There are also opportunities for growth in our Allied health staffing division. Remember, we already place Allied health professionals. This includes non-nursing professionals like radiology technologists, nuclear medicine technologists, physical therapists, et cetera. We have new initiatives in place this year to accelerate the growth of our Allied health division. The Allied health industry is growing and AMN has significant opportunity to grow market share within this highly fragmented industry. Actually, the shortage of certain Allied healthcare professionals is more severe than nursing. For example, the shortage of radiology technologists is estimated by the AHA to be at least 15%.

AMN has nearly 50% more travelers working than our near nearest competitor. And nearly 8 to 10 times more than most of those second tier competitors. With this size and scale and the benefits that we have from a centralized operating model, we have the opportunity to continue to seek and develop ways to gain efficiencies and productivity. While I have to admit that we do not like to decrease visibility and changing demand environment that we're operating in today, I will say that our management and our sales and service team recognize this as a unique opportunity for AMN to further expand its leading position. We believe our superior results for the last several quarters are evident that the AMN marketing strategy and operating model and our dedicated experienced team does make a difference, and delivers greater value in any environment. Value for our travelers, value for our clients, and value for our shareholders. Now, I would like to turn the call back over to Don to discuss our first quarter guidance.

Thanks, Susan. AMN is continuing to experience year over year growth in traveler account, revenue and earnings. Our earnings release includes specific guidance for the first quarter 2003 and to repeat this, it includes revenue ranging from $197 million to $203 million revenue. This represents growth rates of 14% to 16% over the prior year. This generates net income ranging from $12.1 to $13.1 million and diluted earnings per share of 28 to 30 cents.

We expect the average number of travelers on assignment will increase approximately 8% to 10% for the first quarter of 2003, over the first quarter of 2002. Along with an increase in the average revenue per traveler per day ranging between 5% to 6%.

Since we have an authorized share repurchase program in place, we feel it is appropriate to provide some guidance in this area, including the impact of shares repurchased. We expect to have approximately $43.8 million shares of average diluted shares outstanding for the first quarter of 2003. As usual, our revenue earnings guidance excludes the impact of any future acquisitions. We will not provide guidance for the full year or beyond the next quarter to be reported as our visibility for the future quarters has decreased. Therefore, we are withdrawing our prior guidance for 2003. We encourage investors to focus, as we do, on understanding and relying on the long-term business fundamentals. By doing so, we are confident that AMN and its investors will benefit from the sectors unique strength and AMN's leading position. Steve will now add some closing comments.

Thanks, Don. I would like to thank the entire AMN team for a very successful year in 2002. We are confident in the long-term fundamentals in the outsource temporary healthcare industry and AMN's management team's ability to maintain and enhance our industry leading position. At this time, we would be pleased to take any questions that you have.

Ladies and gentlemen, if you wish to ask a question, please press 1 on your touchtone phone. You will hear a tone indicating you've been placed in queue. You can remove yourself from queue at any time by depressing the pound key. If you are on a speaker phone, please pick up your hand set before you speak. Our first question comes from the line of Mark Allen at SunTrust Robinson. Please go ahead.

Good morning, guys. Congratulations on a strong fourth quarter. You had said in some of your remarks about the trend toward vender consolidation among staff and suppliers. I would ask you to provide any more color, if there is any anecdotal examples, maybe not by name, some examples of what customers have been doing there recently and also maybe address the group purchasing organizations and whether you think that'll have an impact on your business this year.

Sure, mark. Sounds good. There is a trend of some of the hospitals, in particular, some of the chains, to narrow down the number of vendors and partners that they are working with. As the market has expanded so rapidly over the last several years, a lot of new smaller competitors have cropped up. And part of the hospitals initiative to really focus in on achieving the most cost effective high quality outsourced staffing has meant that they've decided that one way they can do that is by narrowing the number of vendors to the larger high quality vendors that can really deliver the quantity and quality of staffing that they need. The results of that has been that they've narrowed down the number of companies that they are working with. You know, I won't name names, but one example would be one large group has narrowed down the number of vendors they are working with from several dozen to, you know, just a couple dozen. And we're certainly one of those those, and the benefit that we receive from that is that we then have an opportunity to gain market share amongst that client.

In terms -- it's the same type of effect on the group purchasing, when group purchasing agents come in, they are really very focused, as they should be, on the quality of service and the infrastructure that a company is delivering with that service. And so AMN is in the best position to compete for those services with the largest most sophisticated infrastructure. Does that answer your question, Mark?

Yes, thank you very much. Good luck, guys.

The next question comes from Jeff Silber at Gerard Klauer.

Let me follow-up with Mark’s question. Susan, you provided an example of a large hospital chain that reduced the number of vendors. I was wondering if you are seeing a trend in terms of a tradeoff. You are able to get on these reduced lists for a tradeoff of any type of price concessions.

I wouldn't say that they are price driven. In fact, in that particular example, the rates went up. But the way that that group can save themselves money is by narrowing the number of agencies that they are working with, so that they can really focus their time better and become more efficient.

So, based on that, and other things, in terms of your guidance for the first quarter, do you see gross margins being relatively in line with where they were last year at this time time?

Yes Jeff, this is Don. As you know, we did not provide specific guidance on margins and we won't be providing specific guidance on margins going forward, but the general margin trend that we have in the guidance for the first quarter, the pricing, the cost structure is not significantly different than our business has been. It's been stable over the last several quarters.

Okay, great, let me ask one more and I’ll let somebody else jump in. You mentioned in terms of potential competition from smaller players how that may be weeding out over time. I'm wondering, are you seeing an intensified competition from the per diem side of the business?

I wouldn't say that we've seen that, Jeff. Nothing that's materially different than what has occurred administrate in the past.

Okay. Great, thanks.

Thanks, Jeff.

The next question comes from Van Brady (ph) at Presidio Management. Go ahead.

Steve or anybody, Susan, could we kind of delve into more detail and what you [inaudible] in talking to hospitals about how the market conditions have evolved and perhaps you could cover the following points, just when did this pushback from the hospitals start. I presume it hasn't been immediate, but apparently it's intensified this quarter for the fourth quarter and in January. And do the hospital people you talk to say look, we've got to the point where we just can't afford big increases in the costs of nurses and therefore, we're going to let them work longer hours as you say?

Okay.

Has there been attempts to get retired nurses back in the sales force? I mean, the nursing force? And when you talk to the clients on a more conceptual basis, how long do they think this is going to continue and what is -- what does this say for service and the nurse ratio laws that are being put in place around the country?

Okay, I'll attack the first part of that and I'll let Steve address the rest of it. In terms of what hospitals are saying, we've heard for the last last, oh, 6 to 8 months that hospitals were becoming more focused on their retention rates and their own recruitment efforts. What we saw, though, really in this last quarter, and particularly, I have to admit in January, we really haven't seen the effects of that on our visibility in our business, and as Steve mentioned, some of the things that the hospitals are doing on top of retention and recruitment, working the nurses more overtime, floating existing permanent nurses to other units and increasing patient loads. Remember, nurse labor is 25% of a hospital's budget. So hospitals are, it's not that they are so focused on reducing that outsource cost, they want to find the most cost effective blend between permanent staff and temporary staff. Temporary staff still provides a very cost effective flexible staffing solution for them. But they want to find the right mix. And since 25% of their budget is permanent labor, they want to maximize the effectiveness of that labor first. And they are trying to do that through some of the methods that we mentioned.

As I said, you know, we really didn't feel the effects of that until January in terms of our visibility and the predictability of demand. In terms of how long that can go on, you know, we're not hearing anything from our hospitals in particular. You can only work a nurse incrementally over time so much. And we can't really comment on how long we think it will be sustained, otherwise we would be providing guidance. That speaks to our visibility and predictability of demand.

I also think that not only can you not work nurses overtime forever, you also can't increase their patient loads on an ongoing basis as well. You asked a question, Van about what's going on legislatively, and I think the fact that hospitals have resorted to increasing patient loads, why states like California have passed legislation to reduce or to actually set a nurse-to-patient ratio. That bill that was passed in California, they had lots of hearings this year. They are done with their hearings. They are into their last phase here and it should be implemented, a ratio, no later -- we're told the first quarter of next year and maybe even the latter part of this year. You know, that bill has been introduced as well in many different states. I know that the bill has been introduced in [inaudible] California, in Connecticut, Hawaii, Massachusetts, New Jersey, and we think -- or I think that this will continue to be introduced in a variety of states because the legislators are recognizing and hearing from their constituents that when their loved ones are in a hospital, there is no nurse there or the nurses are overworked.

As far as the legislative front goes, there are many states -- in fact, 7 states so far have passed legislation to limit the amount of mandatory overtime that a hospital can require a nurse to work. And actually, there is 8 more additional states that have proposed legislation for that and actually a bill was just recently introduced on a federal level to limit the ability nationally for hospitals to require nurses to work excessive overtime. If that answered -- it was a long answer, but you had a long question, Van.

Thanks, Steve.

Our next question comes from the line of Anon Dasay (ph) at SAB Capital, please go ahead.

I have a number of questions. I guess the first is for Don. What was the end of period, I guess that 131 share count and your guidance of 43.8 million diluted shares for the quarter. What does that assume in terms of how many shares you buy back for the quarter and can that change given pricing? The second question for Don is the tax rate, why was it lower in the fourth quarter and can we assume that tax rate to continue on for next year year?

Okay.

I guess you can answer that and I'll follow-up.

On the tax rate at any year end, you have to adjust your tax rate for the year end. It's a little lower in the fourth quarter than it will be going forward, and in the first quarter of 2003. It'll be in the low 39% in the Q3 and that's excluding the guidance. And as far as the share repurchase plan, we're not going to provide specific assumptions for our share repurchase plan because it's too volatile, but it does include, as you can tell, repurchases through January. So, I guess that's as far as we can go on that.

Can you tell me what the share count was at the end of the year?

No, I can just give you the average share count for the -- which is in the press release for the fourth quarter, which was for weighted average shares for the fourth quarter was 45.8 million for the fourth quarter. And then to your question about about -- traveler count, again, we don't provide monthly -- what you are asking for is monthly headcount. We don't provide that because each quarter is an average of the quarter. Typically, and it's true always, the year-end traveler count is always lower than the average for the quarter because the travel count builds in November and declines in December due to seasonal holiday periods.

I'm sorry, my question was year-end share count. Can I take the third quarter ending share count and subtract out the share that you said you brought back?

The third quarter share count was 47.0 million.

Yeah.

Right? And we've acquired 2.6 million through January and the 43 million -- 43.8 million share count for the first quarter also has impacted the treasury method of accounting for that, so I assume some on the share price determined by the market. There is several variables that I'm not going to give you the specifics for.

The other question I have regarded placing -- a lot of what we have talked about of what has happened to the growth comes from the demand side and volume side regarding what hospitals are doing. What is the dynamic that drove pricing down sequentially and why should it increase the 5% or 6% year over year price pricing growth for first quart assumes a slight kick up sequentially from the fourth quarter in pricing, when the fourth quarter pricing was down from the third quarter.

In the fourth quarter there were two components that I mentioned in my remarks. One is that the mix between flat rate travelers and payroll travelers directed a percentage of flat rate travelers went up and the trend has been for the last several years each quarter that the flat rate percentage of travelers has gone down. It went up 1%. That was due primarily to the specific buying patterns of a few large clients that use flat rates. Very few of our customers use flat rate travelers. So that was just that. The other was that the hours worked for December, not the whole quarter so much, but really December, was slightly lower than had been and lower than we expected. We think in part its due to the midweek holidays. They both fell, of course, on Wednesday.

Okay. Thank you.

You bet.

Next we go to the line of Christian McCall (ph) at Boston partners. Please go ahead.

I have three questions. The first is a follow-up one on the last question about the share count -- I want to clarify. The projected share count of 43.8 million, that includes share repurchases through January, but does not in incorporate any potential share repurchases in February and March. I guess the second part to that on the share repurchase topic, could you talk about your willingness to complete the remaining authorization, given that in doing so you meaningfully reduce the liquidity of your public float. That's a two-part first question. The second question is, could you indicate what your working capital needs are in 2003 and if you want to duck providing any sort of guidance for the full year, maybe if you could comment whether you expect [inaudible] levels to improve or deteriorate from the current levels in the fourth quarter. And then my final question is, given that your speech, which was complete with most every superlative in my lexicon, I'm interested to hear what the thought process behind the change and willingness to provide full-year guidance particularly as some of your competitors in the same business seem capable of factoring in these uncertainties.

This is Don. I'll start with the share count questions. The first quarter guidance for earnings per share includes the 43.8 million shares, includes an estimate of activity through the end of the quarter, not just through January.

Okay.

And as I mentioned, I'm not going to be able to provide you specifics on those assumption because there are several.

That's fine.

The second part of your question is our -- adjusting our intention to complete the share repurchase plan up to the $100 million authorized. You are asking for a guidance that will impact the rest of the year. We won't provide any guidance on our anticipation there. I will repeat our comments earlier, and that is that we are confident in our ability, given the long term growth drivers and we are very positive as you made a comment about, and we saw this as an excellent way to increase shareholder value. It's a good thing to do with our cash. The third part of your question was on working capital requirements. Again, I won't provide any inside path the first quarter, but our working capital requirements, if you look at the business, the earnings for the first quarter, if you look at the earnings relative to revenues, it would suggest for the first quarter certainly that our working capital requirements, we don't expect them to be materially different than we see in the past. With regard to the next part of your question on the visibility, Steve would like to address that.

Yeah, I think that we would be doing our investors a disservice, actually of providing the year guidance because the visibility has diminished. We talked about the reasons why. We just think it's the right thing to do, since that visibility has decreased, to not to give that kind of guidance. However, we are very confident in our long-term growth rates and because of the dynamics that I talked about today, and I think that investors really need to focus on that.

But it sounded to me as though the biggest reason for the change in visibility was simply that placement decisions were being delayed but that you remained confident that they would still materialize in a favorable manner. If you are confident that they'll materialize, why are you less confident in providing guidance?

Again, I will talk about the the -- I want to be careful answering your question, because I don't want to be indicating guidance. But, you know, like we said, the placement decisions are being made very close to the start dates and that clearly would indicate that visibility has decreased. But, again, the long-term growth rates of our industry, we believe, are solidly intact.

Okay. Thanks very much.

The next question is coming from AG Edwards. We go to the line of Brook Whitehouse (ph), Please go ahead.

Thank you. It seems to me that you could honestly say there are going to be the same number if not more procedures in hospitals throughout the world over the year 2003 and that if nurses are going to be required at certain ratios, and you keep up your current placement of these nurses, that you are going to have a reasonably good year next year. And I don't see -- if you got 50% of the business and the business is growing, it seems to me that there ought to be some way that you could predict a pretty good 2003.

Well, the admissions going up are something that hospitals have been reporting and you've just made the argument for the long-term fundamental drivers of our business. Admissions are expected to continue to go up, not just this year, but really every year for the foreseeable future. And the nursing shortage is expected to intensify, but we talked earlier about what hospitals are doing today to manage and really maximize the cost effectiveness of their permanent staff to manage those admissions. And there is, you know, a little bit of a transition and what we believe are even some short-term factors going on there the way that they are managing their staffing to deal with those increased admissions. But you've just made the case very eloquently for the long-term fundamentals of our business. Admission will continue to go up. Hospitals will need more nurses every year.

So there will not be, however, any attempt for you to [inaudible] call to have a guesstimate on earnings?

Not beyond the first quarter.

Not beyond the first quarter. When the first quarter is over, and you see trends, is it possible that you might come back and give a guidance for the second quarter?

It's possible. Our intent is not to discuss guidance until the visibility is at least as good as it was before. Another point in history that might be relevant is that we have provided quarterly guidance in the past and we have always exceeded that guidance or hit the high end of that range of that guidance, which means that we have provided, in our judgment, good views when we have it, and we're just not comfortable in giving views given the visibility pattern today. That wouldn't serve you better.

I think you're doing exactly the right thing. I think other industries ought to follow suit, because I think the government has tied people's hands in this. I'm all for you. Thank you.

Thank you.

And we have a question from Jeff Silber at Gerard Klauer. Go ahead your line is open, sir.

Jeff?

Yes, I'm sorry. Can you hear me now.

Are you here for round two?

Yes, please. I've had a number of investors ask me this question. So I'll forward it to you. Have you seen any impact in the increase in call-up of reserves for the potential war in Iraq on the positive or negative side of your business?

No, Jeff, we really haven't. It does happen anecdotally, we do have some orders from that when permanent nurses are called to duty and occasionally we have travelers who are called off, but it's not material, it's really -- we went through this with the gulf war as well, and it's not something that really has a noticeable impact on our business.

So even in terms of the supply shrinking because more folks are being sent overseas and it's making it more difficult to find nurses? Are you seeing that at all?

No.

One quick follow-up. You talked about the Allied side of your business. Can you remind us roughly what percentage of your total business is in the Allied healthcare area?

It's less than 10%..

Okay, fantastic. Thanks.

Next we go to Van Brady at Presidio Management.

Steve, in your answer of one of the previous questions, you said investors should be focusing on the long-term growth of the industry. What would you characterize that as being?

Van, our confidence in the long-term fundamental drivers have not changed. Hospitals expect to continue to see increased admissions driving an increase in demand for nurses and the nursing shortage is expected to increase every single year. But because we are not giving guidance for the year, I think it would not be proper for us to give an exact growth rate. I think that you know, people look at the long-term factors that we have talked about, the nursing shortage which is very public, and the government is projecting significant shortages and the hospital associations are projecting significant shortages in the future and the idea that hospitals in the long run cannot overwork their nurses with either increased overtime or increasing their patient load. I think one can themselves speculate what that growth rate might be.

Well, we're characterizing what hospitals are doing now as kind of short-term steps which will not solve the problem long term. So we have a period where we're going to work through that and you are asking us to concentrate on the long-term growth rate and I don't see how we can have confidence in what that would be unless you have enough confidence to suggest what it would be yourself, let's say if we worked through all of this year, what kind of growth rate should we be able to expect after that?

Well, what you're asking me to do is to give you guidance and --

No, no, I'm not, Steve. I'm not at all. I'm writing this year off entirely, but you're encouraging people to focus on the long-term growth rate and who should know better than you what that could be?

Again, I think for us to speculate on what that growth rate would be -- I mean, we've had, as you know, very strong growth. Even in this fourth quarter and also, you know, this -- the guidance that we're giving on the first quarter, I know that most businesses would think that those are very attractive growth rates, as we do. So, again, I think for us to give -- start giving numbers, I don't think would be appropriate right now, but I think, again, if you focus on the fundamentals of our business, I think most would agree that there are long-term -- very positive long-term growth rates in the future.

Okay, Steve, thank you very much.

You're welcome.

Next we go to Mark Allen of SunTrust Robinson.

Hey, a couple of follow-up questions, if I could. Obviously a couple of things have changed here. The valuations on, you know, your stock, some of the competitors have come down. At the same time you've got the challenges of trying to drive demand in your business, but bottom line, how does this in any way change your posture towards acquisitions?

It really doesn't, Mark. We're always looking for opportunities to expand our position within the temporary healthcare staffing industry, which, we believe as we've said on and on here has very attractive long-term growth prospects. We're always looking at opportunities within our core business of travel nursing and within Allied health which is a small piece of our business, but we think has room to grow. There are also other opportunities in addition to that that would be complementary to our existing business and would have a similar centralized operating model so, you know, all of those are certainly opportunities for us. Actually, the decline in valuations in that respect has been a positive in terms of the valuation expectations of some of those potential companies that have become much more realistic.

And maybe more specifically does this in any way change your opinion towards getting into the per diem nurse staffing business business?

No. It really doesn't. You know, that certainly is an opportunity for us. As we've said often, it's a different business model than the travel nurse business model and so if we were going to do something in that area, we would probably do it through an acquisition, with a proven team that is out there in the market, but, you know, it's not something that I'd say we're looking at in the near term.

And another question, just shifting gears toward competition. Several companies in this space have commented that there are more competitors now than there were a couple of years ago. And my question is, what's the basis for competition? These smaller companies, are they trying to undercut you on price to the hospital? Or are they trying to somehow sweeten the deal for the professional? Maybe just some color on that. How do they try to chip away at your share?

First off, in our -- the smaller companies in -- actually have a hard time recruiting nurses because, like we so often have said, 50% of the nurses come to us from other nurses who work for us. So there is a huge word of mouth system in this business that allows our business and other top tier companies or even middle tier companies to stay ahead of the competition. So when a smaller company offers up a nurse to a hospital and the hospital, like Susan said earlier, are in a particularly in light of the fact of demand, have not really -- are not really signing contracts with -- in any kind of large degree with these smaller companies anymore. We don't see any kind of margin compression because of the smaller competitors. They are working in a much different environment now than they used to. I've been in this business for almost 18 years now, and you know, you see the -- over time, you see this supply and demand go up and down throughout the years. I've seen where in this kind of environment, these smaller companies have disappeared. So, like Susan said earlier, we think it's a tough environment for them. They really can't significantly in our viewpoint hurt our business because they don't have the nurses. The nurses will not participate with the smaller companies because they don't have the orders so it is a real catch 22.

One more question, but relative to your order flow, if you look across -- if you look across the order from hospitals and I guess what would be described as trophy travel locations, desirable travel locations versus less desirable, has there been any change in your mix, in your orders where you have a higher percentage coming from places that would not be as, you know, as easily marketable to a nurse as a popular travel?

No, Mark. There really hasn't been a change in that mix. Our client base is still really very similar to what it's been over the last couple of years in terms of the mix between large teaching facilities, community hospitals and rural facilities.

Again, thank you very much.

Thank you.

At this time there is no one else in queue. We can pause a couple of seconds to make sure no one else has a question. Okay, we do have a question coming from Yun Kim (ph) at Tremblant Capital (ph).

Hi, guys. I have a two-part question. First part is -- you said you saw worsening management in December. And it got worse in January. How has it been in this month.

I think what I said was that we really started to see the effect in January.

Okay.

Yeah.

How is that --

And that's decreased our visibility and, you know, here we are today providing our first quarter guidance and so, you know, I'd say that it's not, you know, that different than what we've seen in January.

Okay. I guess the last question I have is that, having heard you guys talk about that we should focus more on long-term trends and [inaudible] -- I guess I could confirm that I myself am very comfortable with the fact at this point that there is a long-term problem with a nursing shortage, but I'm not sure how that applies to you guys at this point as your demand drivers, given the fact that this looks like this quarter you will be having a sequential decline in travel accounts, despite having extra holidays in December. Your pricing is just getting weaker sequentially for the last few quarters. Given all of that, I think you would all agree there is a permanent and worsening nursing shortage. As an investor, is there any data I can hang my hat on to the fact that perhaps your solution is -- has peaked at the current levels out there? Because obviously, you guys have are not giving guidance despite having confidence in the long-term drivers either.

I don't think data exists that you are suggesting. What does exist out there is demand drivers, hospitals expected increasing admissions which I know you say you understand. Hospitals will need more and more nurses.

Right.

Over the next few years, every single year, actually, and at the same time, the supply of those nurses, the gap between demand and supply will deepen every single year. Also, flexible staffing is a cost effective solution for the hospitals. This is not just a shortage story. Hospitals used outsource flexible staffing because it makes sense for them to have a mix of permanent staff and flexible staffing. And long term, as admissions continue to go up, even if there wasn't a shortage, as admissions go up, you would expect them to use more flexible staff. With the shortage on top of that, you would expect that to be amplified a bit. What's happening today are things that are causing hospitals to manipulate and try to manage sort of on the margin the effectiveness of their -- actually their largest people working, their permanent nurses. But long term, that doesn't change those overriding factors of admission, shortage and that flexible staffing is an important component for them.

Another thing I'd just like to mention is sometimes investors sort of think of this industry as being a new industry, an industry that has just popped up since many of us went public, but this business has been around for 25 years, you know, and this is not a new story here or this is a tried and true industry that's been around for a long time, and I believe it'll be around for a long time in the future.

Thank you.

Next we go to Bud Leedom at Wells Fargo securities.

Good morning. Most of my questions have been answered, but just in terms of pricing, so what you would put out in Q3 of last year in terms of this 4% to 6%, are you backing away from that in terms of your longer term guidance and giving that out on a quarterly basis, or do you still feel comfortable with that type of environment on a go-forward basis.

Bud, this is Don. Our view on pricing going beyond the first quarter is again, something we're not including, but the guidance for the first quarter is 5% to 6% increase per traveler per day.

Right. Just finally, on the number of travelers, obviously we saw that number come down here in Q4, and I was just wondering if maybe you could provide some color on why that is, and if it is possible that we're starting to see some pushback or exit at a higher rate of nurses out of the traveling nurse program in relation to the number of nurses that are coming in? Is there anything on that dynamic or how do we explain some of these lower numbers here here?

Bud just to clarify, our number of travelers for the fourth quarter increased over the third quarter.

I'm sorry, the growth rate of that.

The growth rate has declined and it has declined in concert with the expectations we've been giving for quite a while in terms of the declining growth rate. So, I just want to clarify that. With respect to, I think, the -- to clarify your question about the numbers of nurses retention rate, is that kind of what you're getting at?

I think you are getting at the supply of travelers and is it as a whole increasing, decreasing or staying flat?

Right. Obviously, there seems to be some type of a two-year cycle in terms of the duration of a nurse in the system. I’m wondering at what outer range of total nurses in the pool are we going to start to see that exit rate equal the entry rate.

We haven't seen that. We certainly have more people applying with us today than we did last year, and our overall base database which would include those new entrance minus the people leaving is growing as well.

Okay. Thanks very much.

Thanks.

And the last question comes from Mark Allen at SunTrust Robinson.

I'm going to set the record for questions today.

Yeah.

This is a question that a client had asked, I think it's a pretty good question. You commented that the hospitals are giving you less lead time to respond to their needs, you know, the order lead times are shorter, and the question is, does that mean that perhaps the per diem companies, you know, are able to, I guess, take some business in a sense, because they can respond faster on shorter lead time, if you follow that, maybe just respond to that.

Sure, I guess the short answer is no. We don't see that or hear that happening, because we're certainly still able to respond to that placement with a nurse. It's just not substantially in advance the way it was before. Two things are happening. Some clients are waiting to provide us with the orders closer to the start date. Some clients, however, are still giving the orders in advance, but they are not willing to make a decision on that placement until it gets closer to the start date. So it's a combination of both. But I'd say in either case, we're not hearing that it -- you know, it's not a case of where we can't fill the position because it's only two weeks before the start date and so they send it to a per diem. We haven't seen that happening.

Bottom line, it's not causing you to lose transactions.

I don't believe so.

Okay. Thank you.

And we have no further questions. Please continue.

Thank you and we really would like to thank all of the participants today in our conference call, and we look forward to talking to you again when we announce our first quarter results in April of 2003. So thank you very much.

Ladies and gentlemen, this conference will be available for replay beginning at 10 30 a.m., Pacific time today, running through midnight the evening of next Friday, which is February 21st. You may access the AT&T executive playback service by dialing one of the following two numbers, 1-800-475-6701, or 320-365-3844. The access code for this call is 669347. Those numbers again, 1-800-475-6701 and 320-365-3844. The access code is 669347. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.