AMN Healthcare Services Inc (AMN) 2005 Q1 法說會逐字稿

Welcome to the AMN Healthcare 2005 First Quarter Conference Call. [OPERATOR INSTRUCTIONS.] At this time, I would like to turn the conference over to the Senior Director of Investor Relations, Mr. Christopher Schwartz.

Good morning. I would like to welcome everyone to the AMN Healthcare Services Conference Call to discuss the Company’s earnings results for the first quarter of 2005. A replay of this webcast is available at www.amnhealthcare.com\investors, and will be replayed until May 24, 2005. 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 are identified by words such as believe, anticipate, expect, intend, plan, will, may, and other similar expressions. Any statements 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 a result of various important factors, including those identified in our Annual Report on Form 10-K for the year-ended December 31, 2004, our quarterly report on Form 10-Q for the period ended March 31, 2005, our current reports on Form 8-K, and our registration statement on Form S-3, which have been filed with and are publicly available from the SEC.

The results reported in this call may not be indicative of results for future quarters. These statements reflect the Company’s current beliefs, and are based upon information currently available to us. Developments subsequent to this call may cause these statements to become outdated. The Company does not intend, however, to update the guidance provided today prior to its next earnings release. I will now turn the call over to Steven Francis, AMN Healthcare’s Executive Chairman.

Thank you Chris. And also with me today is Susan Nowakowski, our President and Chief Executive Officer, and David Dreyer, our Chief Financial Officer, who will be discussing our performance and our results today.

Again, good morning and thank you for joining us today to discuss AMN’s first quarter results for 2005. We appreciate your interest in AMN, and thank you for taking the time to participate in our earnings call.

As we discussed during our March conference call, in conjunction with our Annual Shareholders Meeting last week, I did transition to the position of Executive Chairman of the Company, and Susan Nowakowski was promoted to President and Chief Executive Officer. Susan, who also currently serves as a Director for AMN, has been with the Company for over 15 years, and was President for the last two years, and Chief Operating Officer since 2000.

During her tenure, Susan has contributed greatly to the strategic growth and operational excellence of the Company, and over the last years in particular has worked closely, very closely with me to position AMN as the premier healthcare staffing company in the U.S. I am confident that she is the right person to lead AMN to its next growth phase.

This has been a busy quarter for AMN. In addition to the leadership transition that I just described, we filed a shelf registration for affiliates of Haas Wheat & Partners, who have owned a significant share of AMN since 1999. We also announced two public offerings of common stock under this shelf, totaling over 11 million shares. The first offering included the sale of 2.3 million shares, and was completed on April 22. The second offering of 9,250,000 shares, with an option for 1.4 million shares, was just announced yesterday.

Only Haas Wheat & Partner affiliates are selling in this offering, which represents all their shares. Neither the Company, management, or I have registered to sell any of their shares of common stock under this registration statement. In conjunction with this secondary offering, Susan Nowakowski and David Dreyer will be meeting with investors beginning in New York this week. And I know that they look forward to talking with many of you in person.

If you follow California politics, you may be aware that the mayor of San Diego has recently and unexpectedly resigned from office, amidst financial difficulties facing the city. And for those of you who know me personally, you are likely to be aware of my interest in public service. That said, my transition from CEO to Chairman has provided me with the unique opportunity to consider candidacy for Mayor of San Diego. I have not yet reached a final decision on whether I will run for Mayor. But I expect to announce my decision in the near future.

And with that, I’d like to hand the call over to our CEO, Susan Nowakowski. Susan?

Thank you very much Steve. I appreciate your confidence and support, and certainly that of the entire Board. And I am really looking forward to leading the Company to new heights and greater shareholder returns in the future. We are pleased to report that our results for the first quarter were at the upper end of our guidance provided in March. AMN generated revenue of $157 million in the first quarter, and diluted earnings per share of $0.13.

During the quarter, we had an average of 6,450 temporary healthcare professionals, who were working on assignments at over 1,000 facilities across the country. This traveler count was a 1% increase over the fourth quarter of 2004, representing our second consecutive sequential increase in quarterly traveler count. And today we’re projecting volume growth to continue into the second quarter.

First quarter average traveler count was flat on a year over year basis, making this the first time in seven quarters that we have not experienced a year over year decline in volume. This trend reversal is anticipated to continue into the second quarter. And we expect average traveler counts will increase on a year over year basis. These improving results are being driven by the continued strengthening in our market environment. Demand from our clients has gained additional momentum.

During the first quarter, open orders from our hospital clients grew over 40% from the first of the year. And this increase continues today. Some of the states with the strongest growth were California, Arizona, Florida, Texas, and New Jersey. But more importantly, we have seen growth and stability in demand across the entire country. In fact, orders grew or remained stable in 43 states during the first quarter. This just speaks to the health of demand in our business today.

We believe that the increase in demand has been driven by three key factors. First, many hospitals around the country experienced an increase in hospital admission levels during the quarter. Second, we realigned and refocused our client sales team to better serve our hospital clients.

And third, I think most of you are aware that a California judicial ruling in early March has required hospitals to adhere to a more stringent nurse to patient ratio that was originally supposed to be in effect on January 1 of this year. While this ruling is currently under appeal, our hospital clients have responded by increasing their orders with us, in part due to a return to the higher nurse to patient ratio.

The recent reinforcement of California’s nurse to patient ratio law has sparked interest in other states, who are taking similar actions. Currently five states -- Florida, Illinois, Rhode Island, New York and Missouri -- have legislation pending to Mandate a nurse to patient ratio requirement. In addition, in January the governor of New Jersey signed legislation that requires New Jersey hospitals to make daily public disclosures of their nurse to patient ratios.

Hospital admission rates across the country have shown signs of positive improvement, as compared to the modest slowdown that occurred in the second half of 2004. Several publicly traded hospital systems reported sequential increases in admissions in the range of 2-3% in the first quarter. We are indeed hearing the same anecdotes of census increases from our own clients across the country.

While market forces are clearly helping drive demand in our industry, we believe that efforts of our team are also positioning us well within the market. Specifically, we made several alignment changes in our client sales team during the first quarter. And we believe this has contributed to the increased orders that we have experienced since the beginning of the year. Today our orders are at the highest point since late 2002. And we believe this sets us up very well for continued growth throughout the rest of this year.

However, as you know, demand is only half of the equation. In order to grow revenues and earnings, we also need to have growth in traveler supply. And we’re pleased to report that we are seeing continued strength in our new supply indicators. Unique new applicants have continued to increase at a double-digit rate in the first quarter of 2005. This is an increase over the same period last year, and on a sequential basis.

The Company has now experienced continued year over year improvements in unique new applicants since the third quarter of 2004. We believe that this growth in unique new traveler candidates is largely being driven by the increased availability of assignments, but also by the powerful word mouth referrals, and an improving economy, specifically the unemployment rate. As many of you are probably aware, the unemployment rate dropped to 5.2% in March of this year.

These demand and supply trends have produced improving volumes for the past two quarters. And we’re projecting that this trend will continue throughout the year. The strength in our business has been across all service lines, including our short-term travelers’ offerings, our longer-term international nurse placement, and TheraTech Staffing, our travel allied healthcare brand, which is small, but is at an all-time high since we launched that plan in 2003.

We always like to provide you with a glimpse at some of AMN’s internal initiatives as well. During April and May we launched a new proprietary online customer service center for our travelers. This is an innovative online tool, designed to drive traveler loyalty and service efficiency, by allowing our travelers to access assignment information online 24/7.

Our goal for the Traveler’s Service Center is to provide a unique service advantage to our travelers, further differentiating our leadership position in the industry, but also optimizing our back-office efficiency. Initial feedback from our travelers has been very, very positive.

AMN recently underwent its review for JCAHO certification as a multi-site provider. We were the first company to undergo this broader, more comprehensive multi-site provider certification review. The other companies that have received JCAHO certification thus far have received only a single site certification. We expect to receive our JCAHO certification later in the second quarter.

As our core business continues on an improving track, we are also actively seeking acquisition opportunities in complimentary healthcare staffing businesses. We are focused on those opportunities which are synergistic with our client base, and provide opportunities to leverage our back-office infrastructure. While organic growth is our primary focus, we expect that strategic acquisitions will play a part in our growth strategy for the future.

Now I will turn the call over to David Dreyer, our Chief Financial Officer.

Well, thank you Susan. As Susan highlighted earlier on this call, we reported revenue of $157 million for the first quarter of 2005, generating diluted earnings per share of $0.13.

Revenue for the first quarter represents a decrease of 1% from the fourth quarter of 2004, and a decrease of 3% from the first quarter of last year. Revenue declined in the first quarter of 2005, as compared to the fourth quarter of 2004, mainly due to two fewer billing days in the first quarter. The year over year decline in revenue was reflective of a decrease in revenue per traveler per day, and one less billing day in the three months ended March 31, 2005.

Diluted earnings per share for the first quarter was $0.13, as compared to $0.15 for the fourth quarter of 2004, and $0.14 for the fourth quarter of 2004. Our average traveler volume increased by 1% sequentially from the fourth quarter, to 6,350, and was in line with the prior year. Our first quarter traveler volume, revenue and earnings per share, were all at the upper end of our guidance range, and we believe our consistent with the modest growth outlook projected for the healthcare staffing market during 2005.

Gross profit for the first quarter was $35.7 million. This represents a gross profit margin of 22.8%, in line with our expectations of approximately 23% margin. Compared to the prior year’s first quarter, gross profit margins increased by 60 basis points from 22.2%, but were 50 basis points lower than the 23.3% reported in the fourth quarter of 2004.

The decline in gross profit in the first quarter from the fourth quarter was due to the combined impact of lower revenue from having two fewer billing days in the quarter, and a $900,000 adjustment to the workers’ compensation reserve. Absent the adjustment to the workers’ compensation reserve, the gross margin in the first quarter of 2005 would have been comparable to the 23.3% reported in the fourth quarter of 2004.

Selling, general and administrative expenses totaled $26.2 million during the first quarter, compared to $24.6 million in the first quarter of 2004, and $26.4 million in the fourth quarter of 2004. SG&A expenses in the first quarter of 2005 were comparable to the fourth quarter of 2004, which is consistent with management’s objective of holding SG&A spending levels stable in order to leverage more operating profit.

The year over year increase in SG&A expenses in the first quarter of 2005 relative to the first quarter of 2004 was due mainly to growth in employee expenses, and increases in professional liability insurance cost. Although stable for the last three quarters, the year over year increase in SG&A spending reflects the increased spending that resulted from management making selective investments in prior quarters to our infrastructure in anticipation that the staffing market would return back to growth.

Income from operations was $8.4 million for the first quarter of 2005, compared to $9.5 million for the first quarter of 2004, and $8.9 million for the fourth quarter of 2004. The decrease in income from operations as compared to the prior quarter reflects the drop in revenue and margin due to two fewer billing days, and flat SG&A spending levels. The year over year decrease in operating margin was mainly attributable to higher SG&A spending in the first quarter of 2005, relative to the same quarter of 2004.

I will now focus on some of the key drivers of our revenue for the first quarter. Average revenue per traveler per day during the first quarter was $274, which was slightly higher than the prior quarter, and was 1.6% lower than the $279 reported for the first quarter of 2004.

The sequential increase from the prior quarter was due mainly to normal seasonal holiday effect of the decline in hours worked by our travelers during the latter half of December. The year over year decline in the average revenue per traveler per day was mainly reflective of the change in hours worked, and the greater mix of travelers working in the lower billing rate stages, such as Florida and Arizona.

Net interest expense in the first quarter was $1.8 million, compared to $2.1 million in the first quarter of 2004, and $1.8 million in the fourth quarter of 2004. The year over year decrease in interest expense was reflective of the Company’s strong cash flow and aggressive reductions of debt during the year.

The income tax rate was, as expected, 39.5% in the first quarter, compared to 38.5% in the same period of the prior year, and 36.5% in the fourth quarter of 2004. The increases were due mainly to the recognition of certain state tax benefits in the prior year.

Turning to our financial position, at March 31, AMN generated $16.9 million in cash flow from operations during the first quarter of 2005. And, as of March 31, 2005, cash and equivalents were $10.5 million, while total debt outstanding was $92.5 million. This debt balance reflects a reduction of $9.2 million, or 9% during the first quarter of 2005. Moreover, we have reduced debt by $44.5 million, or 32% in the last 12 months since March 31, 2004. Day sales outstanding for the quarter were 63 days, reflecting a reduction of six days from March 31 of last year, and unchanged since December 2004.

I will now turn our attention to revenue and earnings guidance for the second quarter and the full year 2005. For the second quarter of 2005, revenue is expected to range from $159 million to $162 million, reflecting an increase in the average number of travelers on assignment, ranging from 6,375 to 6,475, and the addition of one more billing day during the quarter, as compared to the first quarter of 2005. Second quarter diluted earnings per share is expected to range from $0.13 to $0.15.

We reiterate our full year 2005 guidance, issued on March 8, 2005, with annual revenue ranging from $654 million to $660 million, or a 4-5% growth compared to 2004. Diluted earnings per share is expected to range from $0.64 to $0.68, or 16% to 24% growth, compared to 2004. Based on the favorable traveler volume we experienced in the first quarter, and the volume growth projected in the second quarter, we are now estimating that more of our annual revenue growth will be driven by volume rather than price.

Gross margin in 2005 is expected to remain at approximately 23%. Our diluted earnings per share is expected to benefit from the combination of modest growth in revenue, combined with leverage for maintaining or slightly improving our gross margin, managing relatively stable SG&A spending levels, and lower interest expense from continued reductions in our debt balances.

Our guidance for the second quarter and the full year 2005 anticipates continued economic recovery and continued stability in unemployment rates, along with modest growth in hospital admission levels, continuing throughout the year 2005, and does not include any acquisitions. As Susan previously indicated, our demand and supply metrics have both been positively impacted during the first quarter, by improving hospital admission levels and declining unemployment. And, as such, we are reiterating our full year guidance.

The positive revenue growth that we experienced during the first half of the year has slightly refined the timing of revenue growth previously projected for the third quarter of 2005, such that the third quarter revenue is expected to grow at 5% to 6% sequentially over the second quarter 2005 projected revenue.

That concludes my financial overview. I’d like to turn the call back over to Susan for some final comments.

Thank you David. We believe that the fundamental drivers of our market are aligning to produce an environment for growth. We have experienced two sequential quarters of increased traveler volume. And we are on track to realize another increase in traveler volume for the second quarter 2005. The strength in our demand and supply gives us confidence as we look forward to the second half of the year. And with that, I would like to open the call up to questions.

[OPERATOR INSTRUCTIONS.] Tobey Sommer with SunTrust Robinson Humphrey.

Thank you. Good morning. I was wondering if you could talk about renewal rates on your travelers coming off contract, and what the breadth of orders looks like. In other words, are you getting not only higher absolute number of orders, but orders from more hospitals? And then maybe the breadth in terms of specialties in the nursing profession. Thanks.

Great Tobey. Thanks for the questions. A few of them buried in there. The first, on our traveler re-book or retention rates, we’re very pleased with where our retention rates are. And this is measured by people coming off of assignment, and re-booking with us either at the same assignment or new assignment. And we’re up on a year over year basis by a couple percentage points. And that’s a very favorable trend for us.

Into the breadth of the orders and assignments that we have to offer, we think this is very important, and probably one of the more positive trends that we see. And that’s because travelers want choice in the assignments that we’re offering to them. And I think that’s been one of the things driving the new supply into our market, is that they now have more choice than they’ve seen in the last two and a half years.

I mentioned that we saw orders grow or remain stable in 43 states across the U.S. in the first quarter. If you look at the number of clients that we have orders with today, just to kind of put it in perspective, that’s up over 50% on a year over year basis. So the sheer number of facilities where we have open orders has grown significantly. And that obviously translates into more opportunities to offer to our travelers.

And we think, as the largest provider in the industry, that sort of size gives us an advantage when we’re out marketing to both new supply, and certainly existing travelers. The retention rates of those people wanting to sign up with us again are more likely to do so if there is more to choose from.

Thanks. And then I had one follow-up. If you could comment on your expectations for bill pay rates. Any changes there? And if you’re seeing any movement regarding signing bonuses and other sort of non-pay rate incentives to encourage supply? Thanks.

Sure. Regarding bill rates first, as David mentioned, at the beginning of the year we talked about our growth coming roughly half from volume, half from pricing increases. And we’re seeing, as the year shapes up, that probably a little bit more of the growth will come on the volume side. That shouldn’t be interpreted as a poor pricing environment though.

In fact, when demand is at such a high point, it generally gives us more opportunity to increase pricing. And it’s not driven by us as much as it is the market and the hospitals’ desire to be competitive, to attract travelers to come to their assignments. And if their volume needs have gone from 10 travelers to 50 travelers, then they may need to increase their bill rate, so that we can, in turn, increase the pay rate to the nurses.

Our goal would be to either maintain a relatively stable bill to pay rate ratio, which we have certainly been able to do. And that’s our key going forward. Or, maybe over the long run, be able to expand that a bit. If you look at sign-on bonuses, that’s another way hospitals can increase the attractiveness of their assignments. And we’ve seen that trend increasing over the last six months as well.

Thank you very much.

[Jeffrey Harris] with [Serius] Capital.

Hi. Just a quick question on the $900,000 workers’ comp reserve. Is that a one-time true-up? Or is that something that’s going to be ongoing in future quarters?

No. It’s a non-recurring adjustment. We’ve basically had to account for a change in our claims. And so it’s a one-time adjustment, and would not continue going forward. So I would not factor that in going forward.

Were there any other one-time items in the quarter that would have affected earnings similar to this?

Not really. I think the trend rate, certainly in the margins, is certainly predictable. As I mentioned on the call, we’re continuing to manage the direct expenses, to improve the gross margins slightly going forward. And, with the SG&A expenses, again, our management objective has been to keep that stable. And so I think that’s been very consistent.

Thank you. That was my question.

Jeff Silber with Harris, Nesbitt, Gerard.

Thanks a lot. Just a couple of questions, first on the guidance, and then a follow-up from last question. If we consider the workers’ comp adjustment non-recurring, I think you said you did about 23.3% gross margins in the quarter. And you’re still keeping a 23% guidance number for ’05. Should we expect, again adding back that workers’ comp adjustment, should we expect gross margins to be continuing to increase sequentially from the 23.3% level?

Actually, I think what we’re suggesting is that we’ve given guidance that the 23% is an average rate, and that on an annualized basis, that we’re looking to increase that slightly. I think that 23.3%, which is what the fourth quarter rate was, and would have been an equivalent rate in the first quarter, there is one other item in the first quarter as well.

We had a small adjustment to depreciation expenses, which is also in there. It’s very small. But I think right now, when I gave the guidance of improving the margin, that was really more on an annualized basis, and not to keep growing it off the 23.3%.

Okay. But the depreciation adjustment shouldn’t really have anything to do with gross margin.

That’s right. You’re right. It’s down on the SG&A level. It was another small, very minor one-time item that I forgot to acknowledge.

Okay. Yeah. I Actually saw that in the Q. And also just a guidance question. Are you still comfortable with the 1-2% sequential revenue growth in the fourth quarter?

Yes. And we have not changed that.

Okay great. At the beginning of the call, I think it was in Susan’s remarks, you gave a little bit of a hint of potential acquisitions. And you talked about some complimentary businesses. Can you give us a little bit more color on what you would consider complimentary?

Sure Jeff. Complimentary to us means that we’re able to leverage our relationships with our hospital clients, and provide them with a broader set of services. There are companies within the health care staffing industry that are already serving these clients. And our clients are coming to us, asking us for these services.

Those that would be most attractive would be the ones that have more similar operating models to our national sort of centralized operating model. So locum tenens in the physician business, Allied health, which we’re already in, but there are companies out there that do nothing but provide allied health. That could increase our footprint and offering to our clients; pharmacists, which are sort of part of allied health, would be another component.

How about permanent placement services?

That is a possibility. It’s less similar in terms of operations, and even the sale to our clients than people might expect. So it’s probably a little further out from our sight now.

Okay great. One more, and I will let somebody else jump on. Obviously with the strong demand in California, I am assuming California is still your largest state. Can you roughly tell us what percentage California is of your business, and kind of rank maybe the top three or five states accordingly?

It is our largest state still. And I think we mentioned on our last call that it was approximately 30%. I’d characterize that as more 25-30%. And that doesn’t convey any weakness in California. That’s for sure. It’s been one of our strongest growth states in terms of order. But it speaks to more the growth and opportunity in the other states.

And we see that as a very attractive, healthier environment, if we can spread our business out across more states. Our other top three states would be Arizona and Florida. New York comes right behind those. We’ve not provided specific percentages on how much business is in those states. But each of those has grown over the last quarter.

Bilal Basrai with Stanford Group.

Can you talk about the trend in monthly bookings in the quarter from January through, actually all the way up to April please?

You know, we don’t usually provide inter-quarter dynamics, unless they’re unusual. And I would say that the first quarter bookings were not that unusual relative to any other quarter that we would have seen. There are certain trends that you tend to see every quarter. What I will say though is that our first quarter certainly saw increased placement volume over the fourth quarter, significant increase. And in the second quarter, we are up on a year over year basis in our placement volume, which is the first quarter that we’ve been up on a year over year basis. So we think those are both very positive trends.

Okay. But versus kind of your main comp, who saw a little soft patch in perhaps January/February, that’s something that perhaps you have not experienced, or can’t really comment on?

You know, you always see some natural trends going on within a quarter. And in the first quarter, it’s sort of its own animal. And I would say that slower bookings in the first month of the quarter is not an unusual trend in any quarter, but particularly in the first quarter. And we didn’t feel that the dynamics that we had going on in our first quarter were abnormal. So, clearly they picked up through the quarter. And that is a normal trend for us.

Okay. Is there anything new to report on in the international business?

Yes. Two things. One, the business is doing very well. And our team is doing an excellent job growing that business. I think in the past we’ve reported that it’s been less than 10% of our business. And it’s continuing to gain momentum on that. But positive more for the future even is we’ve talked on the last couple calls about a visa retrogression issue that we’ve had with the INS, which was not going to be affecting us so much in 2005, but was more of an issue in 2006 and beyond.

We’ve had some very positive progress on that, working with folks on the Hill. They’ve prepared an amendment to a Bill pending on the senate floor, which would provide 50,000 schedule A visas, primarily for nurses, but also for therapists and some other professionals. So this would be very positive for us. We think that it’s very likely that it will progress and be signed by the President. And that could have some positive effects for us, again not so much this year, because I am not sure it impacted us much anyway. We knew that at the beginning of the year, but more so for 2006.

Okay. Great. Thank you.

Nicholas Aberle with Caris & Company.

First question, just wanted to get some color on the competitive environment, and any material market share shift that you have seen out there over the course of the last couple months.

Well, in terms of material, as you know, there’s no aggregate market share data available across the industry. And so the best that we can do is follow our own accounts, and our own tracking of how we’re doing, and then also look at our public comps. As you recall, in the fourth quarter of 2004, we experienced sequential growth in volume, while some of our reporting competitors declined in the fourth quarter. So that was a sign that maybe we’d pick up a little bit of market share in the fourth quarter.

As we look to the first quarter of this year, it appears as though we’re all growing in aggregate at a relatively consistent pace. So I think it would be hard for anyone to say that they’re picking up significant market share. Certainly we can point to accounts within our own book of business where we’re gaining market share. So we feel like we’re doing a good job where we want to gain that share. But in aggregate, I think that our growth rates are fairly reflective of the market environment.

Okay. And I don’t know if this is something you could talk to. But with respect to visibility, I mean Cross Country out there is saying that there is still a lot of volatility in the market, and that they’ve continued to say they’re not going to provide any full year guidance. I mean do you guys just have better visibility at this point, because of your geographic breakdown? Or is there something else going on there?

I can’t really speak to why they wouldn’t be providing guidance. From what I understand, they’ve experienced increases in demand, just as we have. I would guess that our strengthening in the fourth quarter probably has something to do with our earlier confidence in the market. And that’s not surprising.

Maybe being the leader within the industry, having, I think, a more aggressive supply growth strategy, it’s possible that we have been able to capture some of that growth opportunity earlier, which provides us with more confidence going forward. But I think that the entire industry is seeing the growth in demand today. And no one is expecting that to change significantly in the near future.

Okay. And you had given us a handful of states that have seen strength to this point this year. Where are you still seeing pockets of weakness out there in the market?

Those seven states.

Yeah. I mean is there anything significant there?

No. No. There’s no major holes out there. So, and those seven states are relatively small states. So we’re seeing growth widespread, and we’re seeing it where it counts.

Okay. And then a couple of questions for David. Debt planning, obviously you guys have done a great job on taking down debt. Are you guys going to continue at the same pace that we’ve seen over the last couple of quarters, going forward?

The general answer is yes. We’re going to use our operating cash flow, and continue to pay down the debts. I think, as you know Nick, the operating cash flow does somewhat vary quarter to quarter. And one of the main reasons is just the changes in our accrual balances, depending on the number of pay dates specifically in the quarter. And so there is some variation in the amount of operating cash flow. But yes, we’re going to continue to use the available cash to pay down the debt.

And do you have an initial estimate of the expenses for the secondary offering?

We don’t yet. The accounting treatment though, basically it looks like it would be capitalized. It would not be an operating expense, is what our current understanding of the GAAP accounting is.

And then lastly, Sarbanes-Oxley, how do we model that in, in terms of going through the year on a quarter to quarter basis impact?

Sure. The total spend last year, third party expend, was a million five. And right now I think our estimate is pretty much we’re going to spend 50% of that. So let’s say $750,000. And I think it’s probably the majority of that is going to be in the second half of the year. Pretty much there is some amount that’s equal. But probably the second, third, fourth quarter is a fairly even distribution.

All right. Thank you.

Jeff Silber, a follow up question, from Harris Nesbitt.

Thanks. I was wondering if you could talk a little bit about the TheraTech business. Where are you seeing the growth coming from in terms of the specific specialties?

Sure Jeff. We’re seeing the growth come primarily on the rehab therapists side, physical therapists, and occupational therapists. And I think that’s what we’re hearing across the industry as well. We’ve seen quite a surge of demand growth in that area.

So we think there is real opportunity there. And we’re seeing just sort of moderation on the radiology side. We were never that huge in radiology anyway. So my guess is that if there’s been softness in that business, we’ve not felt it as much as others. But clearly the growth we’re experiencing and anticipating for the future is more on the rehab side.

Okay. Thanks a lot.

Tobey Sommer with SunTrust Robinson Humphrey.

I was wondering if you could give us a sense for what your expectations are this year for cash from operations. Thanks.

We don’t actually guide a number. But it really has trended with our EBITDA. Last year, 2004 EBITDA was just shy of $43 million. And the operating cash flows $39 million. And I think that’s a pretty consistent way to estimate it going forward for 2005. We haven’t actually given the guidance on the amount. But, again, it’s going to trend pretty close to our EBITDA.

And, as I mentioned earlier to Nick, there is definitely some quarterly variation. Again, a lot of that based on really the number of pay dates that affects the accrued liabilities, change in working capital. But in annual amounts, it should trend well with EBITDA.

And then I was wondering if you could give us maybe a little bit more color on the Travelers Service Center. Maybe the origins, what brought that on? Was that stuff you heard out in the field from some of your travelers? Or is that an initiative on your part more to leverage the expense side of your business?

It really is driven by our clients and what we’re hearing from them, not in terms of others having something. Because, from what we hear, there isn’t anything really comparable to our offering, which is quite comprehensive. And it was driven twofold, one, driven by our travelers asking us for more information, readily available, online, 24/7, and so that they could access that, without having to call into us. And remember, these people are working shifts all different times of the day, and over the weekend. And they need access when they need it.

So it really came from focus groups and inquiry by our travelers. But there is certainly an operational efficiency advantage here as well, by being able to answer their questions on line, with relatively little or no friction. It certainly helps to decrease our overhead cost in providing them with that information.

So we’re real excited about it. Some of the things that they can do online might sound simple to you. But one of the number one calls we get every week from travelers is did you get my timecard, and what’s my paycheck going to be. So, being able to offer those things online will certainly allow them to access that information and feel better about their assignments.

Thank you very much.

[Andrew Cuevo] with MAK Capital.

Good morning. I missed the first part of the call, so I apologize if this was addressed. Back in 2003, you had bought 25% of the outstanding shares at $18 per share. And you levered up the Company to do so. I was curious if you would consider re-levering the Company to participate in this share offering, which, if judging from the last 2 million shares that were offered, would take place somewhere around $14 per share?

This is David. Actually, no. There is no repurchase program authorized right now. That’s a, right now, it is not our priority. Again, our priority in terms of the use of our cash or to incur more debt would really be around acquisitions. And we’ve talked pretty much about what those acquisitions would be like, synergistic in terms of the customer, and infrastructure, accretive to our earnings. And, again, a lot of that is within the healthcare staffing, locum tenens, allied health, and of course travel nursing. That is really the focus, and where we would incur more debt. It would not, right now, be for any repurchase.

[OPERATOR INSTRUCTIONS.] And at this time, I am showing no further questions in queue.

Great. Thank you again everyone for joining us today. David and I look forward to seeing many of you over the next two weeks.

Thank you very much. [OPERATOR INSTRUCTIONS.] And that does conclude our conference for today. Thanks for your participation.