AMN Healthcare Services Inc (AMN) 2003 Q2 法說會逐字稿

Thank you for standing by and welcome to the AMN Healthcare Services 2003 second quarter earnings conference. At this time all phone participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. If you should require assistance during the conference please press star and zero. As a reminder, today's conference is also being recorded. Speakers joining us for today's conference include Steven Francis, Chief Executive Officer; Susan Nowakowski, President and Chief Operating Officer; Donald Myll, Chief Financial Officer; and Joseph Marino, our Director of Investor Relations. At this time I will turn the conference over to Mr. Marino, please go ahead.

Thank you and good morning. I would like to welcome everyone to the AMN Healthcare Services conference call to discuss the company's earnings results for the second quarter of 2003. A replay of this web cast is available at www.amnhealtcare.com/investor and will be replayed until August 12, 2003. Additional information regarding non- GAAP financial measures are also available at the same website. 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. Forward-looking statements identified by words such as belief, anticipate, expect, intend, planned, will, may and other similar expressions. In addition any statement that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as result of various important factors including those identified in our quarterly report on Form 10-Q, for the quarter ended March 31, 2003 and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2002. Both of which have been filed with and our publicly available from the SEC. Many of the results reported in this call are for partial year and may not be indicative of results for future quarters 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 it's next earnings release conference call. I'll now turn the call over to Steven Francis, AMN Healthcare's Chief Executive Officer.

Thank you Joe. I would also like to welcome everyone to AMN Healthcare's second quarter 2003 earnings conference call. We thank all of you for your participation in today's call, and I appreciate your interest in AMN. Yesterday, we reported our financial results for the second quarter of 2003, and this morning we will provide you with some insights regarding our strong earning results for the quarter, our confidence in the long-term fundamentals of our industry, and some of our proactive initiative that we are implementing to maximize our opportunity in today's market, and position AMN for the growth that we firmly believe will drive our business in the long-term. Let me begin with some financial highlights from our second quarter. The second quarter of 2003 was a solid quarter for AMN both operationally and financially. AMN continued to generate solid financial results in the quarter with revenue of 183.4m generating diluted earnings per share of $0.27. AMN continues to be the leader within the travel healthcare staffing industry. During the quarter, we had an average of over 7350 temporary healthcare professionals working on assignment at over 1000 facilities across the country. While this represents a slight decrease of 4% from last year, this volume is actually above our forecast and guidance for the second quarter that we provided in April. This up tick was a result of higher than expected short-term assignment expansions in the latter part of the quarter. AMN continues to have more traveling healthcare professionals working than our closest competitors. And we have contracts with over 40% of the country's acute-care hospitals. Our large base of healthcare professionals and geographically dispersed hospital clients provide us with a significant referral source to continue to attract and place new travelers. We believe that our leading industry position reflects hospital desire to utilize high-quality nurses and allied healthcare professionals and to seek value added services from their staffing partners. We believe these key decision factors provide AMN with a competitive advantage. Now I would like to provide an update regarding current market conditions and the more widely recognized fundamental drivers in the temporary healthcare staffing industry. During our last two earnings calls, we talked about changes occurring in hospital staffing patterns for the travel nurse and allied healthcare professionals. These changes have lead to reduction in the demand for our services. I would like to address three specific trends with - in our industry that we believe have had the most significant short-term impact on demand for temporary healthcare staffing. First, over the past year possibilities have increased their recruitment investment, and more importantly increase their efforts to retain their permanents back. Their efforts are being aided by the weak economy.

The resulting lower attrition and stronger recruitment means there are less vacancies available for all the travelers. Second, an additional trend impacting hospital demand is the recent slower than expected hospital census growth and increased budgetary pressures. In order to make needed impact on cost up with our aggressively stretching the productivity of their labor pool of which nursing possess of about 50%. One way to have those are using to reduce the cost to (ph) to squeeze more productivity from their permanent nursing staff. Business report that the number of patients they require to care for has risen, and many nurses are being asked, and in some cases are required to float to other hospital units outside their core specialty. In the short run, these methods can cut cost, but in the long-term, well the likely result and higher burnout in attrition. In fact, these are some of the most common complaints by nurses that lead to the high-attrition incurred by many hospitals during the proceeding five years. We believe that most nurses will tell you that these are not favorable trends in nursing profession, and can ultimately result in less than desirable patient care. Third, the current economy coupled with the highest national unemployment rate in over nine years has also impacted recent demand by contributing to the willingness of nurses to accept additional overtime and increased patient load responsibility in the short-term. Nurses might be more willing to work additional overtime and increase their patient loads within the current slightest economy, and if there is spouses, for example, have lost their jobs or the spouse's compensation has been decreased in anyway. As I mentioned previously, the changes in the hospital demand trends for the travelers have resulted in less visibility in our business and that remains the case today. But, we firmly believe that many of the current productivity stretching efforts recently being implied by hospitals are not sustainable over the long- term. In fact, the long-term drivers of our industry continued to be strong. Today, that's what I would like to talk about.

First, hospital machines and the number of beds are expected to increase over the next five years. New openings and new facilities green belt will drive the increase in bed count along with anticipated demographic driven admission growth. These all contribute to an increased need for temporary and permanent nurses. Second, the nursing shortage is also projected to grow in severity for the foreseeable future. Hospitals will likely experience increased difficulties in recruiting the number of nurses needed to care for the expected rise in admissions and equity levels. Finally, the regulatory environment is promising. In effort to ensure patients receive a minimum level of clinical attention while in the hospital and to limit the increasing pressure on the nursing profession to go beyond State Board practices, State Legislatures continue to attempt to limit mandatory overtime and implement safer patient-to-nurse ratios. In July, California finally announced the nurse-staffing ratio that will go into effect January of 2004. The ratio set were even more conservative than we thought they would be. While we recognize that recent market conditions will continue to put pressure on our short-term growth prospects, we believe that macro long-term fundamental drivers of our industries are powerful, clear and proven.

Before I hand the call over to Susan Nowakowski, I did want to mention an announcement back in May of this year. That's when Susan was promoted to the President of AMN Healthcare Services. Susan's new role will allow her to expand her focus on operations and enhance the attitution (ph) and delivery of our already industry leading services. It allows me to focus more of my time on strategic initiatives in the long-term positioning of AMN. Susan has been with AMN for over 13 years and I have the utmost confidence in her ability as AMN's new President. Susan?

Thank you Steve. I really appreciate your support and the support of our Board and [Inaudible]. And although I have been with company for some time, I can tell you that I am more excited about the future than I have been about any of the previous 13 years. The reason is that, while the current industry conditions are certainly not our preferred environment, we believe that this market does present significant opportunities for AMN to build for long-term shareholder value. These kinds of turbulence in the industry create opportunities for AMN to further differentiate our services from the rest of the competition, and to expand our leading position. This is actually similar to what happened in the late 1990s, we never sit in the market. At that time our team recognized these changes as an opportunity and we developed differentiated strategies and business models to maximize our opportunities into growth and expand the share. Today, we believe the current short-term turbulence provides us with a similar widow of opportunity. AMN has earned our leadership position by differentiating our services from the competition. We think there are three elements that have allowed AMN to achieve its leadership position. The first element is our strategy. The way we market to and deliver services to our two important clients are hospitals and travelers. The second element is our flexible business model. This is the way we organize our sales and service teams to ensure that we are delivering superior service to our clients. This third element that makes AMN different is our team. We've been very fortunate and disciplined in assembling the most tenured, talented and committed team in the industry. But, while our strategy, our business model and our great team have made the difference for our clients in the past, we know we cannot remain static. Another reason we've been so successful is our ability to recognize changes in the market environment and to make necessary changes in our strategy. Now, I would like to a glimpse at some of the etiquettes that we have underway to maximize this market opportunity. We'll start first with enhancements to our strategy. Of course behind AMN's success is our single staffing partner and multiple recruitment training strategy.

To further enhance this approach, in April of this year we advanced our seventh brand, Puretech staffing. Puretech focuses exclusively on allied healthcare professionals like Bradcad (ph) and we have professionals such as TTs and OTs. Now, while we have been working with allied healthcare professionals for years, we previously mix these professionals in with our nursing brands. Now, by speculating this brands, it allows us to offer benefit and services that are unique to the allied health staffing industry and this will allow us to be more competitive and build market share in this segment of our business. It's our goal to build the largest allied healthcare staffing division in this industry, and we believe that we are in a good path to achieving that goal. The second strategic enhancement that we have underway is to continue to develop strong hospital relationship into deeper and more collaborative partnership. With a reduced demand for temporary staff, hospitals are reducing the number of staffing partners with too many contracts. Facilities that might have worked with many companies last year are narrowing down to two or three staffing partners. Now, of course we want to be one of those two or three, but more importantly we want to be the client-preferred provider. In such cases, we may actually pursue an exclusive relationship. This wasn't the strategy two or three years ago because at that time, we could not fulfill 100% of the staffing. But, today we often can. Hospitals are not seeking less service from the pure staffing providers. They are actually seeking more service. And as the largest provider of travelers in the industry, we believe that AMN offers a broader and deeper scope of services and more resources to respond to our clients' changing needs. We believe this gives AMN a competitive advantage through our ability for offer these value added services that others don't offer or in most case can't offer. So, we are actually very encouraged that hospitals are scrutinizing existing partners and demanding more service, not less.

One example of a new client program we launched is our preferred partner program. This program is seen offered to a select group of AMN clients that desire to streamline their out source staffing needs and to take advantage of additional services we offer that can create cost savings for their hospital. While I won't describe the details of the program for obvious competitive reasons, its clear objective is to deliver a differentiated suite of services to the hospital. And in return, for our increased investments, we expect to gain a greater percentage of market share at this client. So, those are kind of examples of strategy enhancements we've launched and we'll continue to implement over the next few months. The second key differentiator I mentioned is our flexible business model. We have several initiatives underway to make tweaks in our model, our processes, our systems to maintain our agility and our cost runner reputation in the market. Cost of the demand pattern have changed in a few ways and we've been changing our models to accommodate it. One of the most significant changes is the hospital desire to have traveler's stored assignments very quickly. Hospitals used to plan staffing needs at six to eight weeks. But today, hospitals are waiting until much closer to their acts of staffing need dates to make a commitment to a higher traveler. This means our systems, our recruitment methods and the availability of travelers must be adjusted to meet this change and we've made several systems and recruitment process changes to accommodate this quick start trends. We've also focused and directed our marketing effort to be certain that not only are we recruiting more candidates, but more importantly we are recruiting candidates who we expect to meet the hospital quick-start needs. While our management team has clearly demonstrated our ability to flat our operations model to reduce expense with a reduction in traveler volume, we also believe that there are areas in our model where we can build the business by making investments. For the most important areas where we are making investments is our Hospital-Client Management Group. In order to establish deeper and more collaborative partnership, we are expanding our client services and Account Management team. This will allow our sales and service groups to spend more time interfacing with these clients to better understand their needs and be certain that AMN is maximizing services that we have to offer. So, hopefully this gives you a glimpse of some of the initiatives that we have underway and why we see this current market environment while not positive in [Inaudible] as a real opportunity for AMN fulfilled stronger market position in the long run.

Now, one question that we are frequently asked by investors is how is the market stabilized. The answer to that question probably depends on which metrics you're looking at. The demand from hospitals which, we often call are orders has stabilized. In fact, our orders have been basically flat since April. The pressure to renegotiate pricing have also stabilized over the last few months. So, as these factors have stabilized, then why is our traveler account is expected to decline from the second quarter to the third quarter. This is due to what we call, the lag factor. Because we are contracting our travelers in weeks in advance and then they're working for approximately three months and a large number of travelers extend on assignments, it does take several months for the full impact of a change in demand to translate into traveler account. The second question, we often receive is whether the industry is expected to experience a normal seasonal trend of increased demand that we have historically seen during the fourth quarter. The answer is that it is just too early to tell. We usually start to receive those increased fall means in mid-to-late August. We had talked a lot about demand for our services today, but I don't want leave without addressing the issue of supply because supply is still a very important factor in our success. We continue to recruit an increasing number of new healthcare professionals, which we believe is a validation of our strong brand recognition, and the fact that a certain number of healthcare professionals prefer to have flexibility and options in their careers. This has been especially evident with our international placement brand O'Grady-Peyton, which places nurses from English speaking countries into the US. We've seen a significant increase in the number of nurses interested in traveling to the United States, and our team has done an excellent job of continuing to improve our immigration and licensing processes, and shortening our average time to bringing nurses to the US. So, I think this provides you with a helpful insight regarding some of the strategic and operational initiatives and programs that we are implementing to take advantage of the changes going on in our industry today. Now, I will turn the call over to Donald Myll, our Chief Financial Officer to look at our financial results and guidance. Don?

Thank you Susan. As Steve mentioned earlier, AMN continue to generate strong financial results in the second quarter of 2003, exceeding our revenue and earnings guidance. We reported revenue for the second quarter of $183.4m representing a decline of 4% from the second quarter of last year. Diluted earnings per share for the second quarter increased to $0.27 representing an increase of 4% over $0.26 reported in the second quarter of last year. Our gross profit for the second quarter was $42m at a 22.9% gross margin. This represents a slight decline from the gross margin reported in the second quarter of last year, and a 50 basis point improvement over the 22.4% reported in the first quarter of this year. This improved gross margin over the first quarter was primarily attributable to a reduction in insurance expense for our travelers. We continue to effectively manage selling, general and administrative expenses during the second quarter which improved to 12% of revenue representing an improvement of 80 basis points from the second quarter of last year. SG&A expense totaled $22m in the second quarter, 10% below the $24.4m reported in the second quarter of 2002. SG&A expense, as a percentage of revenue increased slightly in the second quarter of 2003 compared to the first quarter of 2003 primarily due to the decrease in revenue. Adjusted EBITDA, as defined in yesterday's press release decreased 9% from the second quarter of 2002 to $20m. The adjusted EBITDA margin of 10.9% for the second quarter reflected a 60 basis point decline from the second quarter of last year due to the reduced first-half margin and was inline with the EBITDA reported in the first quarter of this year.

Now, let me provide more detail of our key drivers of revenue in the second quarter. The $7.8m decrease in revenue of 4% as compared to the second quarter of last year was primarily the result of lower travel account and slightly lower revenue per traveler per day. Our travel account declined 4% to an average of 7,355 travelers working in the second quarter of 2003 as compared to 7,636 working travelers in the second quarter of 2002. This contributed an $8.3m decline in revenue. The second quarter's average revenue for traveler per day at $274, remained relatively consistent with the second quarter of last year and was slightly lower than the first quarter of this year. year-over-year pricing increases of that 5% generating increased revenue of $2.9m in the quarter and this was offset by a 3% point increase in the mix of flat-rate traveler contracts or a $3m decrease in revenue. We also benefited in the second quarter from an increase of $1.3m in revenue over the prior year attributable to a small acquisition that we completed in April of 2002. Turning to our financial position, AMN's balance sheet remains strong and debt free. We generated $21m in free cash flow during the second quarter of 2003. We defined free cash flow to include net cash provided by operating activities at $25m plus capital expenditures of $4m. At June 30, we had cash and cash equivalents of $43.5m and our DSOs stood at 57 days, showing a year- over-over improvement of six days from June 30 of 2002, and a slight improvement sequentially from 58 days at the end of the first quarter of 2003. We continued to make progress during the second quarter of 2003 with our $100m share repurchase program, and remained committed to focusing the company's resources that deliver value for our stockholders. During the second quarter of 2003, we used almost $5m to repurchase approximately a half million shares. Since the inception of the program, we had used $71.2m to repurchase nearly 5m shares. This represents about an 11% of our total shares outstanding prior to the share repurchase program. I will now update our revenue and earnings guidance. Our practice of providing revenue and earnings guidance for the next quarter to be reported remains in place. Overall guidance for the third quarter is based on a continuation of recent industry dynamics discussed in our first and second quarter earnings calls. For the third quarter of 2003, the company expects to generate revenue ranging from $165m to $171m representing a decline of 16% to 19% from the third quarter of 2002.

The company expects net income to range between $7.5m and $8.6m for the third quarter of 2003, which is expected to generate net earnings per diluted share between and $0.18 and $0.21. The company expects to have approximately 41m average diluted shares outstanding for the third quarter. We expect the average number of travelers on an assignment for the third quarter of 2003 to range between 6,600 and 6,800 travelers representing a decline of between 15% to 17% from the third quarter of 2002. Average revenue per traveler per day is expected to be relatively flat for the third quarter of 2003 compared to the second quarter. Before opening up the call for questions. I would like to provide additional insight regarding our earnings guidance for the third quarter. The estimated decline in earnings for the third quarter is due primarily to a reduction [Inaudible] account. [Inaudible] increases in SG&A expenses as a result of our move in consolidation into a new building and due to our investment long-term earnings growth opportunities. These investments will reduce our short-term profitability but we believe will support our long-term growth. We do not anticipate significant declines in gross profit margins in the third quarter. Steve, did you want to add anything else.

Actually yes, Di I -- checking with the important to rap up our prepared remarks with the summary of the three main points that was made during this call. First, first point is that, we are very pleased with our better than expected results for the quarter. Second is that, we continue to firmly believe in a long-term drivers of our industry and lastly, we are very focused on hospital initiatives that will benefit us for many years to come. And with that I think, we are ready for questions.

Any viewers to ask a question please press star than one on your touch-tone phone. You'll hear a tone indicating you've been placed in queue, you may remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick-up your handset before pressing the number. Once again, if you have a question please press star than one on your phone at this time. We do have a question from Jeff Silber with Harris. [Inaudible] I'm sorry.

It's Harris [Inaudible]. Good morning.

Good morning.

Diane, I just wanted to clarify something you said on the guidance but, when you talked about gross margins are not expecting a significant decline, are we talking year-over-year or sequentially.

Sequentially.

It is one of the double check that.

yeah.

In your comment you mentioned a reduction in insurance expense on the gross margin side that helped [Inaudible] some of the gross margin arousing (ph) we saw last quarter. Can you give us a little bit more color on that?

Yes, the first quarter, you may remember had a - we mentioned it did bring on our margins little bit. We transitioned to a more self-insured type of help insurance arrangement late last year, in the transition is about has caused our expenses to increase a little bit in the fourth quarter then the first quarter. And now that's normalized with the self-insurance plan and we are not totally self-insured, we do have protection against [Inaudible] types of events. But, with that kind of coverage it's a little less predictable but we don't - we have our arms around it, we don't expect it to impact our margins significantly going forward.

Okay, looking at your revenue for traveler per day there was a slight sequential decline from the first quarter, is there any specific reasons for that to decide the aspects of the market your talking about. Are you seeing any impact from that sort of the ramp-up of your allied help program?

Let me speak some of the contractual qualities and then perhaps, Susan can talk about the market. The revenue for traveler today is impacted negatively or down, it's not only negative by the fact that we had an increase in flat rate travelers, because those were slightly lower revenue per traveler per day. So that's what brings down the actual pricing of our contract, the hourly bill rate in the contract in the second quarter versus earlier quarters. With that about 4%, 5% over last year and about 0.5% or a little bit more over sequentially over the first quarter. So that would indicate that the pricing as Susan mentioned is less pressured. Susan any additional color on that?

No, I think they got it.

Is there any impact from the ramp up of Sarah Tech staffing at all or is it still too small?

It's too small.

Okay and finally one more and I'll let somebody else jump in. Susan, you talked about, you know, trying to develop some more exclusive relationships with your hospital clients by providing value- added services. Is there any extra fees that you charge for that or is that just bundled into the typical rates?

It's different for each client. We really do customize the program to meet their needs and what they are trying to accomplish and that's different for every facility. So sometime there's an increased cost, sometime it's bundled in. So, we're really very bothered to meet their needs and [Inaudible].

Great and would you offer any type of volume discounts in these type of programs?

That hasn't been the norm. That's not a standard, I think, out in the industry and we are not going to divulge the intricacies of the program for competitive reasons, but that's not a standard offering.

Okay, I appreciate it. Thanks a lot.

Thanks Just.

And our next question comes from Mark Allen with SunTrust Robinson Humphrey, please go ahead.

Hi, good morning. You'd mentioned that part of the upside, surprising as you are in the second quarter, as you'd had some unexpected short-term extensions from your hospital customers and my sense is that a number of hospitals were seeing some pretty improved admissions growth in the month of June and somebody is trying to kind of reconcile that with the more cautious guidance going into the third quarter. It seems like you've made going a little momentum come out of the second.

Mark I think that, that is a product of the hospital waiting until as late as possible to make a decision to hire a temporary staff to meet their admissions, and so rather than, and also the desire to, you know, maintain a little more flexibility, uncertainty on the hospital's part is to -- what admissions are going to be like in the third and fourth quarters. So what we thought is that they were waiting until the last minute and then they were extending people for a shorter duration. So we did have this sort of, you know late in the quarter a little boost from our shorter-term extensions of existing assignments and that could be because of the June phenomena you are talking about.

Mark Allen] And then you had mentioned that historically the lead time on orders have been more like six to eight weeks, where would you say that is, now you said it was shorter but any color on what the lead time is now?

More like one to three, would be typical for facilities today. You know that's sort of the average order, you have your seasonal needs where, you know, we haven't actually gotten our seasonal needs in yet, but you do have some facility starting to plan ahead months in advance, but just as your on-going standard needs, hospitals are wanting to wait until close to the start date to actually make a decision.

And a final question and this should be related to I guess vendor rationalization. My question kind of deals with how far have we gone into this phase with the hospitals? You know -- now you're in the baseball game, a nine inning game are we in the third inning or we're in the seventh inning, in terms of hospitals trying to call down their vendor lists.

Boy I don't know that I want to -- not that -- I'm not that big of a baseball fan so, I don't know but I'm going to try to guess, which innings that we're in. But I will say that the larger systems and facilities and the clients that you like more travelers have probably gone through that sort of an initial cycle. There has been a couple of clients that have gone through a couple of cycles, have been to rationalization, and have narrowed down a couple of times. So I don't think that the game is over, I think that you're continuing to see additional vendor rationalization, but I will say that some of the larger users of travelers have gone through that process already.

Thank you and good luck in the second half.

Thanks Mark.

Our next question comes from the line of David Verlander (ph) with Wiesel Partners.

Hi. Good morning.

Good morning.

I was just thinking about the three reasons you gave for why business has slowed and what jumped out to me was that organic growth was very healthy in 2000, 2001, and 2002. So, years in which the economy was slowing or we were even in a recession. So, it would suggest that the biggest reason for the drop-off in business would be that hospitals are working a lot harder to curb costs. So, which would suggest that when the economy comes back here business might not follow. What am I missing in that logic? Does that make sense?

We believe that when the economy starts to rebound that our business will do much better. And the reason, and I said it a little earlier is because when the economy is tight the nurses, and I think the studies have shown this and the surveys have shown this, are more willing to work harder, because when there is unstable economy people generally don't leave jobs. And you have a lot of nurses that may generally work part-time are working fulltime. In our recent survey by the American Organization of Nurse Executives said that over 60% of nurses are working more overtime today than they were the previous year, and the same survey talked about nurses having patients as well. So, we think that when the economy starts to improve, hospital admission start to go up, when there is more money in the system because states are going to, - their Medicaid budgets are going to get fuller, we think that nurses will work - the nurses that are working now will work less and that there will be a demand for our services.

But I guess what I am trying to understand is that in 2000, 2001, 2002, those were all years where the economy wasn't doing well and the stock market wasn't doing well. I would think the nurses would be inserted in those years to work more hours but it - and you grew right through that period, you know, just fine. It all seemed to have, you know.

But the reason we grew was because hospitals were really caught off guard in the 90s. You know, it reminds of what [Inaudible] in the early 90s, about '93, '94, hospitals were really working hard to reduce their cost and, you know, in fact they laid nurses off back then. They are not laying them of now because of the shortage, but they actually laid them off back then. And what happened was hospitals were - they got themselves in a situation which I think is [Inaudible] for that, in which they got themselves in a sever shortage and because of that they reacted by swinging the other way in a very, I think - it caught us off guard how fast it swung back, needing a lot of nurses to just meet their basic staffing needs.

So the demand for 2000, 2001, and 2002 - that level of demand was unsustainable for you guys. It was sort of a bubble period for your industry.

I think that it was a - it went up very quickly, and we because of our multi-brand strategy, because of our ability to recruit, a lot of nurses were able to meet that demand better than anybody else in the industry. And when that demand started to go back up again, when the economy improves and nurses don't feel they have to perhaps work as many hours, because may be their husband was laid off of a job, we think that we are going to be able to seize (ph) that again. I feel very confident in that.

Okay. My second question is, what are your longer-term margin targets? I am not talking about next quarter or even next year. You know, when your business does come back, where do you expect or where would you expect your margins, either operating margins or EBITDA margins to kind of level off at.

I'm not going to be able this time, because of our guidance policy that is beyond third quarter. We are not really going to be able to respond correctly to that question.

Okay. Okay, I appreciate it.

And our next question comes from Matthew Ripperger with J.P. Morgan.

Hi. Thanks very much. Just a couple of questions here. First of all, could you give us your payroll in flat-rate contract, our percent mix in the quarter and did that change at all from the first quarter?

Yes Matt, it did. For the second quarter, it was about 94% of our - all of our contracts were payroll contracts, and to repeat the statistic for the first quarter, it was about 95%. So there was about a one-percentage point switch. Compared to last year second quarter, it was 97% payroll contracts. It's been moving about a percentage point, a quarter, sort of.

Okay. And why would hospitals in this environment prefer to have the nurses on flat rate versus payroll?

Well Matt, we haven't, it is not a preference where they are moving from payroll to flat rates, it is really a by product of the fact that we have several older clients, who we have been working with since the mid 1980's, when all of it was on flat-rate and they have just never switched over to payroll and the demand at those facilities have increased and the number of travelers working at those flat rate facilities have increased and you put that up against the fact that the travelers working at the Penelope (ph) accounts have declined, then increases year overall net. But we haven't offered flat rate contracts for years now and in fact, we still continue to have some of the flat rate facilities converting over to payroll. It is just the matter of where the demand for travelers is.

Okay, great. And the second question I had is, given your focus on expanding the business lines, I wanted to see if you could comment on the per diem business and whether you feel that the synergistic set with the travel business and any other [Inaudible] business that you have.

That's a good question Matt. I think there are few factors that we look at, when we look at per diem and as you know, historically we have not pursued the per diem business, because quite frankly their growth rates were just not where travel was and being a leading travel company, we really focused our efforts on that. However, as we talked about hospitals are looking more for -- I think this is a bid over bomb, but hospitals are looking for, some hospitals serve [Inaudible] so that would make us perhaps more looking favorably at per diem and also quite frankly the long term growth rates for per diem and travel healthcare have come closer together. So, because of the fact that our growth rates are similar to theirs, it's something that I think that we would not look at in the future.

Okay, great. And then the last question I had for Susan, I wanted to see if you could provide any color about geographic demand; whether in specific or broad regions where you are seeing different trends?

Sure Matt. We haven't given specific numbers on regions in the past, but maybe I can try to give you just a little bit of color around, just to give you an idea. On the Southwest, we have seen the most decline in both the order from the facilities, on Southeast, I'm talking Southeast, and also in the number of travelers working. We have seen a decline in all regions of the country and in the West, we have seen a decline in the orders but the traveler account has actually remained relatively flat, where it seeks to the desire of the hospitals to really bring people on, and the nurses wanting to go to that region. So, it is not a drastic change in any particular region, again the Southeast is probably the most notable change.

Great. Thanks very much.

Thank you.

and if there are any additional questions, please press star, then one on your phone at this time. We do have a question from Vivette Conow with [Inaudible] partners. Please go ahead.

Hi, good morning. I just had a question in terms of the guidance for the next quarter. I am just wondering, do you have any visibility into that or you are just being extremely cautious in terms of the travel account, you know, getting back to the earlier question, hospital admissions seem to have picked up. Can you just help us reconcile that?

We have - constantly said that we have pretty good visibility out one quarter. So, I would say that the guidance we have given is really our best shot, and has tangible visibility to it. Going back to the second quarter travel account, it really wasn't so much the traveler account numbers that - we only beat the traveler account on the high-end of the guidance by a little bit, couple of percentage points. That really wasn't the driver for our earnings per share favorable result. It was really everything else, better margins, better cost savings and so on. So, I don't think the traveler account is so mysterious for that one quarter, we have pretty guidance on it.

So, you think your SG&A is going to be up a lot more, is that what you are saying, in the third quarter?

Yes. In the third quarter, as Susan articulated, several programs in terms of improving our operational model and our marketing opportunities and also we are finally consolidating all of our office space here in San Diego. We have told many investors that we have met that we are - we occupy think 4 or 5 different buildings, and 7 or 8 different spaces as we have grown over the years. We are finally consolidating into one office building that we are just operating [Inaudible] for so that that will build some facility for our infrastructure and space to grow for the future. So our costs in the third quarter and going forward will be a little higher.

Okay, great, thank you.

Thank you.

We have no additional questions at this time.

Well, thank you all of you for your time this morning, and we look forward to talking to you again when we announce our results for the third quarter. And that completes today's call.

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