AMN Healthcare Services Inc (AMN) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare 2005 Second Quarter Earnings Conference Call. [OPERATOR INSTRUCTIONS] As a reminder, today's call is being recorded. At this time, I'd like to turn the conference over to the Senior Director - Investor Relations, Mr. Christopher Schwartz. Please go ahead sir.

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 2005. A replay of the webcast is available at www.AMNHealthcare.com/investors and replayed until August 18, 2005. Details of 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 a believes, anticipates, expect, intent, plan, will, may, and other simular 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 F3 which has 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 current beliefs and based upon information 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 Developments subsequent to this call may cause these statements to become outdated.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 it's next earnings release.

I will now turn the call over to Susan Nowakowski, AMN Healthcare's President and Chief Executive Officer.

Thanks, Chris. Good morning and thank you for joining us today to discuss AMN second quarter results for 2005. We appreciate your interest in AMN and in taking the time for participate in our earnings call.

First, we'd like to extend a warm welcome to our many new shareholders who became owners of AMN stock as a result of the secondary offering that we completed on May 27. And, of course, we always look forward to the opportunity to speak with our existing shareholders.

We are pleased to report that AMN generated revenue of 161 million for the second quarter and diluted earnings per share of $0.14. During the quarter, we had an average of 6,388 temporary healthcare professionals working on assignments across the country. This marks our third consecutive sequential increase in Traveler account. And more importantly, the first time in eight quarters that our average Traveler account increased notably on a year-over-year basis. We're projecting these trends to continue into the third quarter, with average Traveler account again expected to increase on a year-over-year and sequential basis.

Hospital orders at the end of the second quarter were up approximately 70% year-over-year. On or last call we talked about the significant growth in client orders since the beginning of the year, and this growth has continued into the second quarter. In fact, our client orders have grown almost 50% since January 1. Throughout the country, demand was up in 45 states during the first half of the year. Some of the states with the largest increases were California, Arizona, Florida, and North Carolina and Texas. There are, of course, some seasonal fluctuations in certain regions that occur. But overall, we are continuing to receive client feedback, which points to a tight, permanent, labor mar -- market and generally solid in missions growth.

We believe that the tight labor market is being driven in part by the continued downward trend in the national unemployment rate. And if you follow the BLS job data for the healthcare industry, both job openings and voluntary job quits have increased on a year-over-year basis through May 2005. We believe these factors have partially driven the increase in demand we've seen throughout the first half of the year.

While the rise in hospital demand has certainly been positive and an important indicator for our growth potential, our supply continues to increase at a slower growth rate. However, the fourth -- for the fourth quarter in a row, our unique new Traveler applications were up on a year-over-year basis in the second quarter. This slower but steady supply growth has helped fuel our growing Traveler account. We believe that our differentiated multi brand recruitment model and our aggressive Internet presence continue to provide AMN with a competitive advantage in a tight supply market. Growing our supply of temporary healthcare professionals and continuing to expand our market demand opportunity, are two of our top objectives. So I'd like to tell you about some of the important initiatives we completed in the last quarter in support of these objectives.

First, on the supply front. International supply channels continue to be a small but growing source of nurses to meet the increased needs of our hospital clients. You may recall that in the fourth quarter of last year, there were certain restrictions put in place that delayed the immigrant Visa processing for nurses that were born in the Philippines, India and China. AMN in conjunction with other healthcare organizations and individual hospitals worked hard, early in the year, to reach out and educate legislators on the negative impact that this could have on the future nurse supply. Due to these efforts, federal legislation was passed in May, which addressed Visa retrogression by increasing the eligible immigrant Visas for nurses. This is a positive for AMN and our clients in that it will help us con -- to continue to grow our foreign supply of nurses.

The next initiative completed during the second quarter was the launch of our new quick-start staffing solution. NurseChoice inDemand. This service is different from our traditional Travel brand, in that it provides hospitals with nurses who can begin assignments immediately. Rather than the typical three to five weeks it takes for a travel nurse to start. NurseChoice is targeted towards a slightly differently nurse profile than our Travel nurse recruitment brand, since these nurses need to get fully credentialed and begin an assignment within one to two weeks. They are also typically scheduled for shorter durations of four to eight weeks, guaranteed 48 hours per week, and command a higher bill rate, due to the more urgent timeframe.

Hospitals have been utilizing this type of quick-start staffing solution provided by other staffing companies for several years now. But this is AMN's first entry into this niche. The differentiated nature of NurseChoice inDemand provides AMN with a potential to expand both market demand opportunity and nurse supply. It's only been a month. But our NurseChoice team already has nurses on assignment. And it appears to be off to a strong start.

Now moving on to service delivery. In early June, AMN Healthcare was awarded the Gold Seal of Approval for Corporate Certification from JCAHO's Healthcare Staffing Services Program. We're proud to say that AMN Healthcare was the first Company to receive a Corporate Certification which provides for a broader and more comprehensive certification at multiple Company sites. These types of investments in expanding our supply channels, news service offerings and quality service delivery will help AMN to continue to improve it's competitive positioning and growth potential for 2006 and beyond.

Now, I'd like to turn the call over to David Dreyer, our Chief Financial Officer. Who will recap our second quarter financial results and provide you with an update on our guidance. I'll come back and make a few comments about our outlook for the remainder of the year.

Thanks, Susan. As Susan mentioned earlier in the call, we reported diluted earnings per share of $0.14 for the second quarter, which was at the mid point of our guidance range. The current quarter's earnings per share compares to the $0.14 for the second quarter of last year and $0.13 for the first quarter of this year. Revenue of 161 million for the second quarter represents an increase of 5% from the second quarter of last year and an increase of 2% from the first quarter of 2005. Gross profit for the second quarter was 37 million, representing a gross margin of 23.1%, in line with our expectations and 30 basis points above both the prior quarter and the second quarter of last year. The slight increase in gross margin was primarily attributable -- attributable to decreased housing and health insurance costs.

Selling general and administrative, or SG&A expense, totaled 27 million, representing 16.6% of revenue for the second quarter. This spending level was slightly higher in dollars from the first quarter SG&A, but lower by 10 basis points as a percentage of revenue. Compared to the prior year, SG&A expense increased 10% or $2 million primarily due to a normal and inflationary cost increases and selective additions to headcount over the last year. Income from operations totaled 9 million for the second quarter, increasing from 8.4 million in the first quarter of 2005. And increasing as a percentage of revenue from 5.3% to 5.6%. Compared to the prior year operating income declined slightly from 9.2 million or 6% of revenue.

I will now focus on few of our key drivers of revenue in the second quarter. The 7 million or 5% increase in revenue from the second quarter of 2004 was driven primarily by the 4% increase in volume. The second quarter's average revenue for traveler per day was 1% higher than the prior year at $277, an increase sequentially 1% from the first quarter of 2005. The sequential growth rate in average revenue for traveler per day reflected a more favorable mix of traveler's working in higher bill rate states and some nominal increases in average bill rates. Net interest expense in the second quarter was 1.7 million, compared to 2.1 million in the second quarter of 2004, and 1.8 million in the first quarter of 2005. The year-over-year decrease in interest expense was reflected by the Company's strong cash flow and aggressive reductions of debt over the last 12 months.

Turning to our financial position, AMN generated 9.2 million in cash flow from operations during the second quarter of 2005, as of June 30, 2005. Cash and cash equivalence were 15 million, while total debt outstanding was 89 million. This debt balance reflects a reduction of 13 million or 13% since the beginning of the year. Moreover, we have reduced debt by 40 million or 31% in the 12 months since June 30, 2004.

I will now provide revenue and earnings guidance for the third -- third quarter and full year 2005. For the third quarter of 2005, revenue is expected to range from 165 million to 168 million, reflecting growth in the average number of travelers on assignment, which is expected to range from 6,400 to 6,500. Third quarter diluted earnings per share is expected to range from $0.17 to $0.19. We project full year 2005 revenue to range from 654 million to 658 million, or 4% to 5% growth compared to 2004. And diluted earnings per share to range from $0.64 to $0.66, or 16% to 20% growth as compared to 2004.

The full year guidance is within our original range, but now that we're halfway through the year, we're narrowing the range to reflect year-to-date results and our current visibility on the second half of the year. Gross margin in 2005 is expected to remain at approximately 23%. Our 2005 earnings per share continues to benefit from the combination of modest growth in revenue, gross margin stability, leveraging of SG&A, and declining interest expense from continuing reductions in our debt balances. This guidance for the third quarter and full year 2005 anticipates continued economic recovery with continued stability in unemployment rates along with modest growth in hospital admission levels for the remainder of 2005, and it does not include any acquisitions.

That concludes my financial overview. I'll turn the call back to Susan before we open up for questions.

Thanks, thanks David. Overall, we are pleased that the year is tracking within the range we originally projected for 2005. Strong demand and an increased supply of new travelers have enabled us to grow our Traveler accounts on a sequential quarterly basis. Also as projected, we have been successful in maintaining a relatively flat SG&A, and expect to be able to continue to do so for the remainder of the year. The leveraging effect of this growing revenue and a flat SG&A is best seen in our current guidance for the third quarter. Where revenue is projected to grow sequentially 3% to 5% and EPS is expected to grow 21% to 36%.

What has been delayed from what we originally projected for 2005 is the timing and impact of pricing increases. While we have been negotiating bill rate increases since the beginning of the year, they occurred at a slower pace than expected during the first and second quarters. Towards the end of the second quarter, we did see greater traction as more hospitals have sought to increase their competitive positioning to attract the contract labor they need. We expect to see a modest impact from existing and new pricing increases during the third quarter and a greater impact in the fourth quarter. Even with the effect of these delayed pricing increases, however, our full year 2005 revenue is expected to grow approximately 4% to 5%, and our annual earnings per share is expected to grow 16% to 20% over 2004.

And with that, we'd like to open up the call for questions.

[OPERATOR INSTRUCTIONS] Jim Janesky, Ryan Beck & Co.

Yes. Good morning. Thank you. When -- when you look at your Traveler account within the quarter, it was about in the middle of -- of the range that you expected last quarter. Are there any trends going on that you -- when you look at the outlook for demand on the horizon over the next couple of quarters? Has that outlook and your bullishness about the recovery in the industry, has that changed at all?

Hi, Jim. Not really. Our volume is pretty much on track. Which I guess is reflected in the fact that we came in in the middle of the guidance on volume. Volume is pretty much on track because of the continued strength in demand. Like I said, what's maybe changed in our outlook since the beginning of the year, especially has been the impact of pricing increases, which have come later in the year. Since demand has remained strong through the -- the last several months, we're starting to see hospitals now want to discuss more pricing increases. So that they can increase their volume. Because they're just not getting the volume that they need.

Did the supply issue you alluded to in your prepares comments, did that have anything to do with holding back the Traveler account from coming in at the upper end of the range?

Well certainly if we have more supplies, we could always book more people. So I guess in that way, yes. You know, we -- we always want more supply. But, you know, it was certainly enough to come in with a sequential increase and come in within our range. So we were satisfied with it. But we'd certainly like to, you know, create even more momentum in supply.

Okay. Thank you. Now shifting to SG&A. You know, it is -- it is -- you expect it to be flat sequentially in the third quarter? Is that correct?

Yes, we do. This is Dave. The SG&A expense was slightly higher this quarter as compared to first quarter. As we mentioned in the prepared remarks, employee costs was -- was the component of that. And what I'm referring to things like merit increases and the standard bonuses. One other comment I should also make is one of the other expenses in SG&A is that we had a write-off of a bankruptcy. It's a hospital in New York. And you know, pre-tax, this was, you know, almost 300,000, net of tax, about 200,000. That was truly an -- kind of an isolated occurrence. Not seeing any trends in this area at all. It was a unique. But that was also one of the variables that made the expense come higher this quarter as compared to prior quarters.

Will you be able to -- do you think you'll be able to get back to prior EBITDA levels as you grow into the new productivity of the new hires and when -- and you look at pricing trends, et cetera?

If you're referring to the EBITDA for example, of the last several quarters, yes, we're looking at honestly growing that. That's commensurate with the earnings per share guidance and the revenue guidance we've given going forward. So I guess if you're assuming growing it back to levels commensurate with what we've guided, yes.

Okay. Thank you.

Chris [Rigg], Merrill Lynch.

Good morning it's Chris Rigg for A.J.. Just a couple of quick questions on NurseChoice. Are the relative -- can you provide a little color on the relative margins in that business versus the traditional line of Travel staffing?

Sure, Chris. And probably for competitive reasons, we don't want to provide too much. But what we'd say is that -- that type of service does command a higher bill rate because you need to pay the nurses more in order to get them to start. These aren't the traditional travel nurses that are thinking ahead one to two months in advance. These are people that are willing and ready to go within one to two weeks. And then they go and they work 48, 60 hours a week, and they're only there for four weeks and then they might take some time off. So you need to pay them a lot in order to get them to be willing to do that. Therefore, the higher pay rate along with the higher bill rate comes out to margins that are pretty simular to our Travel Nurse Business. It's certainly at the bottom line of EBITDA level we'd -- we're expecting them to be simular as well. Although we don't really track our brands down to the EBITDA level, the, you know, overall economics of the business are very simular.

Okay. Is there some sort of comp -- competitive advantage you think you gain by expanding into this line of business rather than the Traditional area given that the margins are relatively simular both -- in both areas?

Sure. We absolutely do. If you think of our current staffing spectrum that we offer hospitals, we have the Traditional Travel Business, which provides nurses generally from eight to thirteen, maybe at the outset 26 weeks. That's a very established service offering within the industry. Has been for decades. And many hospitals have gotten accustomed to planning ahead for those nurses that they need a month down the -- the line.

We also have, of course, our international nurses who are on assignments for 18 months. Hospitals are booking them anywhere from six to 12 months in advance. And then they're there for a much longer period of time. So we've seen an increase demand for nurses the longer term periods.

But what -- what we've seen an even bigger increase in request for are nurses who can start immediately. Hospitals are -- are at such an urgent demand that they can't wait the three to five weeks it might take for Traditional Travel Nurse to get there. And so they have a need that we're not filling. There are other companies out there that are filling this need by providing nurses who can start quickly. -- they need a nurse that can be there longer than a Traditional Per Diem, they need them more than one or two shifts. Need them there for four or six weeks. But they don't want to pay the higher rate nor are they sure they need them lodger than that. so there is this sort of -- the -- the niche that is between Per Diem and Travel that we've not been playing in before.

Is that sort of geographically specific -- the demand for -- for NurseChoice services like in California, for example? And then with that could -- could you also just give us sort of a high-level update the political, legal debate out there with regard to the -- the nurse, patient ratios? It seems like you read something, you know, every couple weeks that it's going one way or the other. So any color would be great.

Sure. Getting back to the regional question. I wouldn't say -- first of all, it's early for us we're a over month into it and. while we've gotten nice traction from the chute, the clients we have will take -- are across the country. It's not particularly region specific. So it is specific to those areas that have the most critical needs. So there are certain pockets where it seems to have been more well accepted than others.

In terms of the legislative environment, as you know as of the spring, there were seven states that have introduced legislation simular to California's nurse to patient ratio. Those -- most of those died as the legislative groups went into recess over the summer except for Illinois, which has survived and will continue on. It remains to be seen whether those will be revised again. Like you we hear mixed stories on the front. The fact that they have been, you know, introduced at sort of that magnitude across the country, leads me to believe that it's an issue that will continue to come up.

Okay. Thanks a lot.

Thanks, Chris.

Tobey Sommer, SunTrust Robinson Humphrey.

Thank you very much. I have a question maybe we could start on pricing. You said the price increases gained in traction, I guess a little bit later than you thought, but billed in the second quarter. And you expect that to continue in the third and then in the fourth. Could you tell us kind of the order of magnitude of price increases you're getting? And whether you're seeing more customers agreeing to price increases at the 4% level or higher?

Hi, Tobey. I'm not sure we want to get that granular for competitive reasons. Let me see if I can give you a little bit of color though. First of all, yes, you're right. We saw more traction in the second quarter versus the beginning of the year. Both in terms of the size of the increases that hospitals you were willing to consider and the number of nurses that it would impact. The other that happens is many times hospitals will negotiate a bill rate increase for future nurses not the existing nurses that are working. So it just naturally takes some time for pricing increases to flow through once you actually place people into those new assignments. What we have seen in the second quarter, more hospitals agreeing to increase pricing for existing travelers that are on assignment as well in order to keep them there and incent them to extend at that same hospital. So that's one trend.

In or -- in terms of the magnitude of the pricing increases, we have seen those increase as well. Maybe one other note is the pricing increases that we've seen have been pretty well spread across the country. If you look at our top ten states with pricing increases, in fact, they're split exactly 50/50 in the west and the east. So it's not so specific to one region of the country.

I guess without getting too tied up to the -- the 4% idea, my question was geared towards trying to get a sense for whether you're seeing a large enough price increase in some customers to allow you to pass on a higher pay rate to the nurses?

We do do that selectively. And, in fact, certainly part of our strategy continuing to drive supply growth is to continue to create that buzz out in the industry that the Travel profession is becoming even more attractive. So absolutely selectively we pass that on.

Would you say you're doing that at an increasing rate re -- recently? Say in July relative to earlier in the year?

No. I think for competitive reasons, we -- we wouldn't necessarily want to give an indicator of how much more or less we're passing on.

Okay.

But the fact that our gross margins are expected to remain stable at the 23% range, would probably, you know, give you an indication of that.

Sure. And then -- I was just wondering -- when we look at the sequential growth, you're looking for in -- in -- in the third quarter and then in the implied Traveler accounts for the fourth, based on the annual guidance. Could you give us a sense for the composition of that growth, be it the international nurses, the emerging NurseChoice unit and then, perhaps, your more Traditional Travelers?

No. We don't break down our volume in those categories for, you know, sort of for -- for the public. What I will say is that NurseChoice is -- is new. And so I wouldn't expect much there. That's really more of a 2006 story. We're pleased with our initial start. But it's going to have relatively modest impact in 2005.

Our international division is approximately 10% of our nurse volume. So it has picked up in terms of, you know, the percentage of our nurses working. And we expect that to continue. It's -- especially with the Vi -- Visa retrogression issue fixed. We think it will continue to be a growing portion of our business.

And then if I can ask another question on the NurseChoice. You're increased exposure, I guess, to the -- the say kind of rapid response business. Do you think that that will give you greater sensitivity into the extent to which you could raise prices in the less expensive Travel Nurse core business? And therefore, kind of save your hospital customers some money by perhaps replacing rapid response nurses after one stint with Travelers?

Absolutely. We think that we want to provide hospitals with a cost-effective solution to meet their need. And sometimes their need is so urgent and the cost affective point is for them to pay more. But they don't want to do that for three or six months. So part of the package that we offer along our [spectrum] is, if you need a nurse immediately, we can get them there, it's going to cost you more. And if you need a nurse for an extended period of time, if that's three months, then we can bring a traveler in to -- to fill that slot after that initial short-term assignment is over. Or if you nurse for an even longer extended time, we can bring an international nurse in for 18 months. So we believe to the hospital it really offers a suite of services that they can customize to really meet their needs, which can change for them throughout the year.

You know the other thing I'll say about NurseChoice it's obviously focused on meeting a critical need of our hospitals, but it is also focused on -- on attracting a slightly different nurse profile and a way for us to increase supply. Their are other nurses out there that don't want a traditional travel assignment. They don't want to sign up for three months. They can't be away that long. And they're really focused on the money. They'll go anywhere and they'll work 60 hours a week for good money. And so this really appeals to a slightly different nurse demographic. And we feel we'll be incremental to our nurse supply.

And then from a modeling perspective, David, just want to make sure I understood the -- the SG&A implications for the third quarter. Would the SG&A be flat on a sequential bla -- basis or roughly flat, including the write-off or excluding the write-off?

Well I think excluding. The trend actually would be slightly down. You know, we'd said that it's pretty much going to be consistent at around this 26 million level per quarter. I think, you know, the trend for the immediate quarter, yes, if you excluded it would be comparable. But even slightly south of that. That we're still looking at the 26 million per quarter average for the year.

And then I'll -- I'll wrap up and I'll get back in the queue. Just from a balance sheet perspective, your debt levels are -- are coming -- coming down nicely. You're still throwing off a -- a good deal of cash as the business typically does. I want to get a sense for what your current th -- thoughts are regarding uses of cash?

Well, our priority, again, has been to pay down the debt. And we continue to do so. You'll notice there was a bit higher balance in the cash and cash equivalence. But that's really all about the timing of the pay dates. It's really nothing more than that. We're going to continue to pay down the debt aggressively. We've always mentioned if we find an acquisition opportunity that meets our strategic objectives, and we've been through this, ones that would have synergies with our customer base, with our back office systems, and that would include things like Locum, it would include Allied Health. Of course we would then begin to use cash for that purpose. However, we'd probably use debt as well. So we continue to pay down the debt aggressively with our cash flow and we'll continue to do so.

Thank you very much.

Thank you.

Thank you, Tobey.

Jeff Silber, Harris Nesbitt Gerard.

Thanks, and good morning. I have a question about gross margins. If I remember correctly last quarter there was a negative adjustment because of a change in workers comp reserve. So if we kind of add that back last quarter, it looks like gross margins went down a little bit between the first quarter and second quarter. And I've always assumed in this business, gross margins go up sequentially between the first quarter and second quarter. I was wondering if you can address that?

Well the -- the total effect of that worker's comp adjustment was about $900,000 in the first quarter that we had made. And I believe that was equivalent of about 10 basis points. So act -- actually if you had adjusted for that, I think we're improving at this second quarter margin is actually -- well, slightly down. Let's say if we take the -- the 10 basis points. We would be fairly close, slightly down. I think it would be -- I'm just doing the math quickly, right now. 30 basis points is what the total for the -- the $900,000 adjustment was. So we would have been at about 23.2 first quarter, had we not had the adjustment. So you're correct. It's slightly down. I don't believe it's really materially different. If you go back and look at our trends, we've been averaging 23% .0 for the entire 2004. And we've again guided in the 23%, maybe slightly north of that for 2005. And we're still holding to that. We believe that's how we're going to finish this year.

Okay. And just to, again, just drill down a little further on this line item. One of the other companies in the space cited higher than expected housing costs, and if I remember correctly at the beginning, you had a decrease there. Can you just tell us generally what's going on on that side of the market?

Well year-over-year it's down. We -- as the economy improves, which is generally good for our business. You do have to fight the -- the fact that there's higher occupancy at apartments. And it effects the -- the overall rate. So we have seen select areas increase their housing costs. And our team works to try to balance that out. But I think what you heard, was it was down on a year-over-year basis.

And is that something that you're finding that hospitals are willing to absorb in terms of bill rate increases? Are they amenable to that?

Yes, that goes back to my earlier comment of how much are we passing along. If we get a bill rate increase, we are going to evaluate, are we having other cost rise in that area? And some of that bill rate increase may pay for higher costs. We look at the nurse compensation package as the whole package. And so when we're deciding how much to pass onto the nurse we have to take all of those components into consideration. And certainly as we're talking to hospitals, you know, they know if the real estate market is going up. So it's typically a good argument for us to use as to why we need to increase the rate.

Okay. Great. And in prior quarters you have given us an update on your exposure to California. I was wondering if you can you do that again?

Yes, we're -- we're running at about 25 to 30% of our total travelers working. I think in the past we've said approximately 30. So you can interpret that as down slightly. But that's really a good news story for us, because we had a growing Traveler account. And it means that the demand and placements are picking up in other areas of the country. And you know we said all along, that -- that it's better for us if we're seeing demand grow throughout the country. And that's what we're seeing.

Okay. Very helpful. Thanks a lot.

Jim Janesky, Ryan Beck & Co. Please go ahead.

Yes. Thank you. A follow-up to the margins within NurseChoice. There are some of your competitors in that area that actually have lower margins than your Company average. And you indicated that's where you -- you think that the margins in NurseChoice will kind of shake out. Are you approaching the market or the delivery model differently that allows you to have better margins?

You know, I'm not sure that we know enough about what are our competitors put in their gross margins, first of all, to know whether an apples-to-apples comparison. You know, we're -- that's not something we're really measuring ourselves against. We're measuring against our own business and what we're trying to achieve. Now we do have a larger infrastructure. A national scope. My hope would be that we would be able to leverage our size better and get better margins out of this business.

Okay. Thanks. That's -- that's help. And as you look at other lines of business that you're considering going into, what -- what would -- what other marks do you think are attractive? And would you get in organically or through acquisition?

We've been pretty vocal about our growth strategy and -- and acquisitions being a part of that in the future. Within the nursing business, we've just launched the NurseChoice brand. And I think we'll continue to invest primarily in our current brands. Although, if there are niche opportunities within nursing that would allow us to get into a -- a sort of a niche or a segment that we're not in or we're not [physically] strong in , we'll look at that.

Our bigger priorities are probably expanding into other healthcare staffing services that we're not in today but or synergistic with our core businesses, like Allied Health, which we are in but we could increase our foot print by making an acquisition in the area. Locum, the physician business which is a well-established industry. And pharmacists, you get into some of the smaller, sort of niche providers, but there are other types of professionals our hospitals are seeking from us. More likely that we're going to -- we're going to expand into those types of businesses that are -- have a simular operating model, meaning they're centralized in their infrastructure and yet have a national scope as opposed to businesses that might have multiple offices across the country like Per Diem.

okay. Thank you.

Thanks.

[Isa Kanu, Arges Partners]

Hi. Good morning. I just wondering in terms of the pricing increases that you're -- you're being able to get from your customers. So should we interpret that as -- as basically [inaudible] gross margins are staying flattish. That you are passing it all onto the cust -- to your -- to the nurses?

Yes. I think that's reasonable [Vavic]. As we've talked about, we're focusing on growing supply. And so I would not, you know, increase the gross margin in the model. Again, I've guided the 23%. And I still think that's a very good rate to go. Price increases that we've talked, you know, in our increase for the revenue 3% to 5%. It's probably somewhere around half of that, 1% to 2% or so of that increase. And we'll largely pass that on.

Three to five is what? What did you say? That's the price increase?

That's what we've guided as our revenue increase for third quarter.

Right. Okay. Thank you.

Steve Denowski, Sapphire Capital.

Can you talk about the competitive landscape, specifically do you think you're -- you're actually taking share, sort of holding your own, or passing on business that you don't want for -- for some reason? And, you know, feeding share? And then I -- I have a follow-up after that.

Okay, Steve. We haven't seen any significant changes in the competitive landscape. As you know in this industry, there's not a lot of public data available on market share so it's -- it's really hard to know on a quarter-to-quarter basis. But from our own internal information and in monitoring our own clients, we believe that there hasn't been any shifts, really in market share over the last couple of quarters. You know competitively, some -- some minor things that we're seeing are that some of the preferred provider and VMS contracts that were set up over the last couple of years have started to come under more pressure. And in some cases have even changed hands or opened up. A year ago you saw more and more hospitals wanting to sign up VMS contracts. We're still seeing some clients that want to do that today. But we're also seeing clients that are now opening those contracts up to other providers because the sole provider that they chose before, has not been able to meet their needs. And that's not surprising to us, because as demand rises across the country, it does put you under a lot of pressure to try to fill all of the positions or nearly all at -- at an exclusive or preferred provider. So that's probably the only sort of new competitive change that we've seen over the last quarter.

Okay. And then from a follow-up perspective. You know, you guys have the -- the NurseChoice Program. What are you seeing from your competitors? I don't know you don't want to giveaway your competitive secrets. But I'm sure you won't care about giving away your competitors. [ Laughter ]

Well I haven't seen anyone else enter into this niche recently. As -- as far as we know we're the only one. But I wouldn't be surprised to see others because it's a very attractive niche. Those companies that are in this niche have reported that this business has grown for them over the last couple of quarters, I believe. So we think it's an attractive place to be.

Are you seeing any other programs, things that you aren't doing from the competitors?

Nothing significant.

Okay. Thanks.

Thanks, Steve.

[Andrew Cueva, MAK Capital].

Hi. Good morning. I was wondering if you could you give me a sense of what the SG&A impact in the quarter was of the NurseChoice Program?

Well, that is an investment that was already built into our guidance, and our projections for the year, Andrew. So, you know, I don't know that calling out the impact of that would have been significant. It's, you know, relatively small because we already have an existing infrastructure for marketing and sales. It's really, you know, nominal relative to our results for the quarter.

Thanks.

Tobey Sommer, SunTrust Robinson Humphrey.

Thanks. I would just wanted to step back and take a look at the Rapid Response market as a whole. Do you have a sense for how large that market is in -- in -- in dollar terms?

You know, it's really hard to -- to pin it down, because sometimes it tends to sort of bleed a little bit into the Per Diem market. And there's not a lot of public players out there that are in this market. So, you know, we sort of have to take our own estimate. We'd probably prefer not to try to peg what that number is. Now there are companies out there, public companies, that have re -- revenues, annual revenues in the range of $80 million that are in -- in this business. So that gives you a sign of what's possible in terms of this niche for us.

Thank you very much.

Thanks.

Ross Nelson, CD Capital.

Hi. Good morning. Do you guys have any concern regarding hospital admissions coming in recently a little weaker than -- than a lot of people had expected? I think you -- you saw some of the more recent hospital operators come in at about 1% on average when I think expectations were in kind of the three-ish percent range? Has that affected your business at all?

We continue to hear our clients talk about full beds and an admission growth. And I know there has been some noise out there about them being less than expected. But if you look at the hospitals that have reported, I think that, you know, they've ranged anywhere from 1.2% to 3.4% on their same facility admission growth. So, you know, that's not as much as they have expected or liked. But it's still respectable growth in their admissions. And we haven't seen it -- that effect our orders. I guess if that's what you're asking.

Yes. Yes. If you looked down the line of -- of hospitals, you see kind of anywhere from down one to -- I think the highest I've seen so far is about 2.6%. So that -- I mean, that was just quite weaker than expected. And that was kind of a disappointment for a lot of them. I was just wondering, you know, what -- if it's -- if -- I guess how dependent, you know the business is going forward based on -- your growth is based on admission growth, I guess?

Well it is one variable. And when we put our guidance together at the beginning of the year, we were estimating 1% to 2% admission growth throughout the year. And so -- it is an important factor. But there are other factors that play into as well. Such as the hospital's ability to manage it's own permanent labor pool. So you could have let's just say no admission growth, but if the hospitals are having a more difficult time managing their own labor pool, say their attrition has gone up, then that can result in increased demand for us.

And one of the things that we've seen is the continued decline in the general unemployment rate. Which we believe is one of the reasons why you've seen a continued increased in hospital job openings and the number of job quits. I think I mentioned that on my -- on my earlier remarks. That we've continued to see increases on a year-over-year basis in the number of health care job openings and the number of quits. Which means attrition is a problem for -- for the hospitals and a certain amount of the demand for our nurses comes from that churn and that attrition.

Okay. Thanks a a lot for answering.

Thanks.

[Jeff Fier, Skiritai Capital]

Yes. Can you hear me?

Yes. Hi, Jeff.

Hi. I was just trying to get a little bit underst -- better understanding in terms of your price increases. And as, you know the previous caller had mentioned, hospital admissions have been slowing. In terms of your confidence in getting those price increases, what gives you the confidence given it seems like demand on the hospital side maybe slowing somewhat, while at the same time the overall supply of traveling nurses continues to grow, not only with your Company but others?

Well in terms of our guidance, our guidance is built on both pricing increases that we know we've already negotiated and in many cases already have nurses working at or booked at to start in the future. So we have some much visibility on our average bill rate and what that's looking like for the third and the fourth quarter. And then we are also building in some new pricing increases for -- for the future. And that's based on current conversations that we're having with hospitals across the country.

Is there one hospital that is a -- that -- your largest customer?

You know we don't have a particularly high customer concentration. So I wouldn't say that any one client would have a significant impact. But we have had a few of our larger clients with increased bill rates that are hitting in the third quarter.

Thank you.

Thanks so much.

Tobey Sommer, SunTrust Robinson Humphrey.

My question was answered. Thank you.

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Great. Thank you everyone for joining us today. We look forward to talking with many of you over the next couple of months.

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