AMN Healthcare Services Inc (AMN) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2006 earnings conference call. At this time, all participants are in the listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Senior Director of Investor Relations, Mr. Christopher Schwartz. Please go ahead.

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 2006. For the call this morning, we have Susan Nowakowski, AMN’s President and CEO, and David Dreyer, AMN’s CFO.

A replay of this webcast is available at amnhealthcare.com/investors and will be replayed until May 16, 2006. Details from the audio replay of this 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, planned 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 31st, 2005, our quarterly reports on Form 10(q) and our current reports on Form 8(k), which have been filed with, and are publicly available from, the FCC.

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 Developments subsequent to this call may cause these statements to become outdated.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 scores. I will now turn the call over to Susan Nowakowski, AMN’s President and CEO.

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

We are very pleased with how the year is starting for AMN. The market environment for all of our business lines continues to be positive, with particularly strong momentum in the physician staffing business. Our teams are doing an excellent job in serving our clients and delivering on their goals. This alignment of the market, our strategy and our people have created results that exceeded our guidance range provided to you last quarter.

Revenue for the first quarter was $254 million, with diluted earnings per share of $0.24. These results represent a 15% increase in revenue and a 14% increase in diluted earnings per share over the fourth quarter of ’05 and a 62% increase in revenue and an 85% increase in diluted earnings per share over the prior year.

Revenue for our nurse and allied healthcare staffing segment increased by 13% in the first quarter compared to the first quarter of last year. About half of the increase was due to the addition of MHA’s allied and nursing business, and the other half was primarily driven by pricing expansion. These pricing increases are a reflection of the continued strong client demand combined with a relatively tight supply of candidates.

In this type of environment, our hospital clients use various methods to be competitive in attracting travelers. One method is to increase the hourly bill rate so that AMN can in turn increase the pay rate. We’ve also seen more hospitals using bonuses, which are billed through AMN, to attract more candidates to their assignments. However, even with these increases, many hospitals still aren’t getting all of their staffing needs met, so they are asking current travelers to work more overtime hours. All of this contributed to a 9% increase in revenues per traveler per day over the prior year and a 3% increase over the fourth quarter.

We do believe that, over time, these price increases will also help to pull more nurses into the industry. This is important, as volumes do continue to be relatively flat due to such a tight supply of candidates.

As discussed in our last call, AMN has several initiatives focused on expanding our new supply of nurses and increasing our supply conversion rates. We are making specific investments in our recruiting and marketing efforts and are seeking expanded and new channels of supply. While these investments will contribute to an increase in SG&A this year, a factor that we’ve already reflected in our guidance estimates, we do believe that these efforts will enable us to access an even greater audience of potential candidates.

We were extremely pleased with the performance of our physician staffing segment this quarter. On an as reported basis, revenues for this segment increased by 63% in the first quarter as compared to last quarter. But remember that the fourth quarter only included about two months of revenues, since our acquisition of MHA on November 2nd. On a pro forma basis, this segment increased 5% over last quarter and 25% growth over the first quarter of last year. This growth was driven largely by volume increases, but also due to favorable pricing.

Physician days filled in our locum tenens business was up 17% year over year. And for the permanent placement portion of our physician staffing segment, we initiated 584 new search engagements during the first quarter. This compares to 468 during the same period last year, an increase of 25%. Trends in all aspects of our physician staffing business were strong during the first quarter, and this momentum is continuing into the second quarter. Available market data indicates that our physician staffing brands, of Staff Care and Merritt Hawkins, continue to outperform the industry and have gained market share over the last year.

Integration efforts are going extremely well, which I attribute to the commitment and the exceptional talent of the team members involved and the similarities of our corporate cultures. We have made considerable progress towards developing an integrated sales approach, which is focused on cross selling services to our most significant clients. Our finance and accounting integration is proceeding well, and our Sarbanes-Oxley compliance activities at MHA are in process and on track.

We have recently combined our three allied healthcare brands into one larger brand under the Med Travelers name. We believe that this change provides AMN with a stronger competitive positioning in this marketplace.

In addition to our positive results, we also announced in yesterday’s press release that we intend to repurchase approximately 1.8 million outstanding shares of AMN stock from the former shareholders of the MHA Group. The total purchase price is expected to be approximately $35 million. The selling shareholders are former owners of MHA, and following this transaction, they will continue to own approximately 400,000 shares of AMN stock, of which 300,000 will be subject to a nine-month lockup period.

AMN’s stock has been under pressure since we filed the registration statement for the MHA shareholders in March. This repurchase should effectively eliminate the perceived overhang and allow the MHA shareholders to partially monetize the value of their prior contributions. Given AMN’s history of strong cash flow, our solid long-term fundamentals and our current favorable borrowing rate, we believe that a stock repurchase at the current price levels is an attractive opportunity to enhance shareholder value.

Summing up, we continue to see favorable market trends, and we believe AMN is well diversified in the most profitable, fastest-growing segment of the healthcare staffing industry today. With solid first quarter financial performance, we believe that we are well under way towards achieving our growth expectations for 2006.

And at this time, I’d like to turn it over to David Dreyer, who will recap our first quarter results, the financial aspects of the stock repurchase, and our guidance.

Well, thank you, Susan. We reported revenue of $254 million for the first quarter, a 15% increase compared to the $221 million reported for the fourth quarter of ’05, and a 52% increase compared to the $157 million reported for the first quarter of last year. Diluted earnings per share in the first quarter of this year was $0.24, which included a $0.03 benefit for a workers’ compensation insurance reserve reduction.

The increase in revenue and net income in the first quarter of this year as compared to last quarter and the same quarter last year was from having a full quarter’s contribution from MHA and improved pricing in the nurse and allied healthcare staffing segment. First quarter diluted earnings per share included a $0.02 charge for stock compensation expense related to our adoption of FAS 123R on January 1st and a $0.01 charge for imputed interest expense related to our acquisition of MHA.

AMN operates in two business segments. The first is our nursing and allied healthcare staffing segment, and the second is our physician staffing segment, which includes both locum tenens staffing and permanent placement staffing. For the first quarter of this year, revenue from our nurse and allied healthcare staffing segment was $178 million, a 2% increase from last quarter and a 13% increase from the first quarter of last year. Revenue from our physician staffing segment in the first quarter was $77 million and reflects a full quarter’s contribution from MHA, as compared to two months contribution last quarter.

Locum tenens staffing revenue accounted for approximately $65 million, or 84% of our first quarter physician staffing revenue, and physician permanent placement services contributed the remaining $12 million, or 16% of revenue. This compares with reported physician staffing segment revenue of $47 million for the fourth quarter of ’05, which reflected only two months of revenue.

Contributing to the increase in locum tenens revenue was a 67% increase in physician days filled from the fourth quarter of ’05. On a pro forma basis, the locum tenens physician days filled of 49,251 grew 8% sequentially, and the permanent placement revenues grew 27% sequentially.

Consolidated gross profit for the first quarter of this year was $68 million, representing a gross margin of 26.9%, as compared to 26.1% last quarter and 22.8% in the first quarter of last year. The increases were due largely to our higher margin physician staffing segments and margin improvement due to pricing increases in the company’s nurse and allied healthcare staffing segment.

Additionally, our first quarter gross margin was higher by 50 basis points due to a $1.4 million benefit to cost of sales for workers’ compensation insurance reserve reduction due to favorable historical claims experience. Gross margin for the physician staffing segment for the first quarter of this year was 31.6%, as compared to 32.2% last quarter. And gross margin for the nurse and allied healthcare staffing segment was 24.8%, including the favorable workers’ compensation adjustment, as compared to 24.5% last quarter.

Selling, general and administrative expenses, or SG&A, were $47 million, representing 18.3% of revenue for the first quarter, compared to $39 million, or 17.7%, for the fourth quarter of ’05 and $26 million, or 16.7%, for the first quarter of last year. The increase in SG&A expenses was mainly due to the inclusion of a full quarter’s SG&A expense from MHA.

Income from operations for the first quarter was $18 million, or 7.1% of revenue, increasing from $17 million, or 7.5% of revenue, in the fourth quarter of ’05 and from $8.4 million, or 5.3% of revenue, in the first quarter last year. The decrease in income from operations margin from last quarter was due to the addition of $1.4 million in stock compensation expense upon adoption of FAS 123R at the beginning of this year.

Net interest expense for the first quarter was $4.1 million, as compared to $4.6 million for the fourth quarter of ’05 and $1.8 million for the first quarter of last year. The decrease in net interest expense as compared to the fourth quarter of ’05 was due mainly to a $1.2 million charge last quarter for the write-off of deferred financing costs associated with our acquisition of MHA. This was partially offset by the inclusion of a full three months of interest expense on the MHA acquisition debt this quarter, as compared to only two months last quarter.

Turning to our financial position at March 31st, AMN generated $18 million in cash flow from operations during the first quarter and had $205 million of debt outstanding. We used approximately $36 million of our cash flow and cash on hand this quarter to fund the cash portion of the $47 million earn-out related to our acquisition of MHA.

Our day sales outstanding, or DSO, at March 31st was 54 days, as compared to 57 days at December 31. The decrease in DSO resulted from the MHA business historically having lower DSO levels than the AMN business, as well as continued improvements in collections within our nurse and allied segments.

Before I discuss guidance, I’d like to provide you some background regarding the stock repurchase transactions. We purchased MHA for $210 million in the form of approximately 75% cash and 25% stock. The stock portion of the purchase price equated to 3 million shares, for which we filed an S3 registration statement in March to facilitate the market trading of these shares.

Yesterday, we announced our plan to repurchase approximately 1.8 million of these shares for approximately $35 million in cash at a price per share to be determined by the 20-day volume-weighted average trading price beginning on April 17th, which is 11 trading days prior to yesterday’s announcement, and ending on May 12, nine trading days after yesterday’s announcement.

The repurchase and expenses will be funded with an estimated $35 million increase in our existing term loan. The transaction is expected to close on May 15th and is contingent upon final lender’s approval and bank funding. Upon completion of the repurchase, AMN’s total debt is expected to increase to approximately $240 million, while on the transaction close on May 15th we expect to add approximately $600,000 of interest expense per quarter this year, which reflects an average interest rate of approximately 7%. At the time of funding, our leverage ratio is estimated to be slightly over three times, but is expected to be below three times by the quarter.

I am now pleased to provide you with updated revenue and earnings guidance for the second quarter and full year. Second quarter revenue is expected to range from $254 to $258 million, and diluted earnings per share is expected to range from $0.18 to $0.20. This includes an estimated charge of $0.03 for stock compensation expense related to FAS 123R. Excluding FAS 123R, second quarter adjusted diluted earnings per share is expected to range from $0.21 to $0.23.

We are reaffirming our full-year revenue guidance, which we originally issues on March 8th, with revenue expected to range from $1.025 to $1.05 billion. Based on year-to-date results, we are increasing our full-year diluted earnings per share guidance to range from $0.78 to $0.82. This updated range reflects the $0.03 benefit from this quarter’s workers’ compensation insurance reserve reduction, offset by a $0.02 increase in our estimated annual stock compensation expense, which was revised to $0.12 from the previous full-year estimate of $0.10.

By excluding the $0.12 estimated stock compensation expense and the $0.02 imputed interest expense related to MHA, our guidance for the full year ranges from $0.92 to $0.96. We will revisit our annual guidance range again next quarter, when we have increased visibility into the second half of the year.

That concludes our prepared remarks. Thank you for joining our conference call today and for your interest in AMN. We would now like to open the call up for questions.

[Operator instructions] Your first question comes from the line of Tobey Sommer from SunTrust Robinson. Please go ahead.

Thank you. Good morning, it’s Tobey Sommer. I have a question, and I may have missed some of your prepared remarks, so I apologize if you already touched on this. Could you describe the recent pricing trends in the legacy travel nurse business and what you’re hearing from customers in this environment where administration – excuse me, hospital admissions have been rather lethargic? Thank you.

Sure, Tobey. There are two parts to that. The first is what are we hearing relative to demand and how it relates to admissions and, more importantly in this environment, the permanent labor market, because we hear anecdotal information about admissions being up and down, but generally we probably hear the same thing you do on a nationwide basis, as they continue to be relatively soft. And yet, our demand today is still above what it was last year. In fact, we’ve seen a little bit more strengthening even over the last couple of months, and so that’s being driven by the tight permanent labor markets, high attrition, high job openings, and number of vacancies at hospitals. We certainly hear that continuing, and the BLS JOLT data would support that theory as well.

In terms of pricing trends, we continue to see new contracts and current contracts being renegotiated at higher rates throughout the first quarter. In fact, the number of contracts or facilities that we’ve renegotiated with and the percentage increase in the first quarter was higher than any other quarter throughout 2005. So the trend of pricing increases is clearly continuing to gain momentum, and that gives us confidence as we look forward in our pricing expectations for the remainder of the year.

Okay. And then I was wondering if you could give us an update on your rapid response brand and see kind of how things are proceeding in that particular niche.

Yes, our Nurse Choice brand, which we launched in July of last year. We’ve been extremely pleased with that new brand. It’s exceeded our expectations through last year and as we kick off this year. Now, it’s still relatively small, so you’re not going to hear us talk about it impacting our overall performance, but I do believe it’s exactly the right service offering at the right time for our clients because it just goes in line with the pricing increases. They need people now, and they’re willing to pay more to get somebody there very quickly.

And then lastly, I was wondering if you could comment on the trends that we saw with the last match day for medical school residences. It looked like the association that runs that commented that there was more interest in lifestyle specialties, and I’m wondering how that may impact your physician staffing business.

Well, if what you’re talking about is the fact that more physicians are seeking to balance their work and life, then, yes, that goes very well for our industry, because that’s one of the reasons that many of your older physicians, say 50+, leave their practice group and work locum tenens, because they can maintain, certainly, a quality of life in terms of their financial income, but also balance that with more time. That’s our largest demographic, and certainly we do travel younger doctors and those in sort of their mid-career, but that older, sort of 50+ -- I wouldn’t say semi-retired, but I mean, wanting to balance that work/life portion of their life. Quality is life is certainly important to us, so as that trend continues, we see that as being very positive for the supply.

I’ll end with two numbers questions and get back in the queue. Could you share with us your expectations for CapEx this year? Cash flow from operations was pretty impressive, and I was wondering if you have an expectation for cash flow from operations this year. Again, I apologize if you gave them in your prepared remarks.

Sure. It’s Dave. Our capital expenditures we’ve always said 1% or so of revenue, but I think this year $6 to $7 million is a pretty good estimate for the full year. If you look at our operating cash flow, you’re right, this quarter it was basically $18 million, and actually, I think a good way that we sort of compare that is if you look at it as a trend to our EBITDA. This first quarter, that’s $18 [million] of operating cash over about $21.8 [million] of EBITDA. That’s 83%. If you look at our full year ’05, we had $44 [million] of cash and $53 million of EBITDA. That was also 83% range, so I think that’s kind of a good indicator as a going-forward trend.

Thank you very much.

Thanks, Tobey.

And next we’ll go to the line of Jeff Silber from Harris Nesbitt. Please go ahead.

Thanks. I just had a quick question on the share repurchase. In running the numbers here, it looks like the MHA shareholders are, obviously, going to benefit from some of the appreciation in the stock. Is there any reason that you didn’t increase the cash portion of the purchase price when it was done with their debt restrictions or something like that?

No. When we first negotiated – in fact, it was more [inaudible] for us to do an all cash deal, but there was an interest in the part of the owners having some equity, and so that was the original discussion. Actually, if you think about it, there’s been a fairly good amount of appreciation between that negotiating point and now. And two, don’t forget they’re still holding onto some shares. This was, in essence, to be mutually beneficial on both sides, but they’re still going to retain some equity. And it’s also [inaudible] for us going forward as well.

All right. So based on this transaction, what share count should we be using for the second quarter or for the full year?

A little over, I think, 35 million – roughly 35 [million]. 33.6 [million] would be the average for basically this quarter and going forward. The actual count, if you want to know the actual number of shares right now, is about 35 million.

Okay, I’m sorry, that would be – what should we use for the second quarter, you’re seeing?

The 33.6 million second quarter.

Is that diluted?

Fully diluted share count. That’s correct.

Okay. Just moving on to something else, in terms of order trends in the nurse/allied business – and again, I apologize if you [sic] missed it. Did you talk about how that’s been trending in terms of how orders have increased year over year?

We didn’t talk specific numbers. We are up year over year, and as I did just mention to Tobey, we have seen a little bit more momentum in the last two months in particular, and that’s been pretty consistent across the country. Our largest states are still California, Arizona, Florida and Texas, and that’s where we saw the largest increases. In terms of specialties, we still are seeing our largest demand in the critical care area, med/surg and ER. Our highest gross areas have been in ICU and ER.

Okay, great. Just moving on to the physician part of the business, I think we’re all fairly familiar with the seasonal trend in your nurse and allied business. Can you just remind us again of the potential seasonal trends in both the locum business and the search business?

Well, there’s not as much of a trend currently. I think what we’re seeing is right now there’s been a fairly steady level of growth. I think if you go back historically, there’s been maybe a bit of a bulge third quarter, but again, I think it’s fairly modest, that it doesn’t have the same trend line as, for example, the nursing does.

And that’s both on the locum side and the search side?

That’s correct.

Okay, great. And you may have mentioned this, and forgive me if I missed it – how much MHA business is in the nurse/allied sector right now?

We haven’t broken out the exact amount of allied and nursing business that is now part of our allied and nurse segment, because we really see them now as combined businesses. What we did discuss, just in sort of relative terms, is that in our first quarter, the 13% increase we saw on a year-over-year basis – about half of that was due to the addition of MHA.

Okay, great, that’s helpful. And did you get CapEx in the quarter?

We have not given the first quarter’s. It should be in the cash flow statement. $1.5 million the first quarter.

All right. Fantastic. I’ll let somebody else jump on. Thanks again.

Thanks, Jeff.

And next we’ll go the line of Jim Janesky from Ryan Beck & Company. Please go ahead.

Yes, good morning. A couple of questions. Susan, part of your presentation was garbled, so I might have missed this, but if you had to give an organic growth rate year over year between nursing and physician, how would that break down?

Well, again, we’ve not given specific organic growth rates, although if you take the flip side of what I just said in terms of our nurse and allied business, if half of the 13% growth was due to the MHA addition, the other half is basically due to organic growth within our previous nurse and allied business, primarily driven by pricing increases because volumes have been relatively flat.

One of the other things I can add on that we’ve kind of given some direction – our 2005 pro forma full year revenue was about $962 million. The nursing and allied was about $688 [million] and the physician about $274 [million]. If you then look at basically what the staffing industry report is showing, which is that the travel nursing is growing at roughly a 5% rate – they have the allied growing at about a 9% rate, the locum tenens growing at a 12% rate – we’ve concurred that we think those growth rates overall are reasonable, and our guidance that we’ve given, that $1.025 to $1.050 [billion] – that’s a 6.5 to a 9% spread, so in essence, we’re reaffirming that we think the staffing industry estimates are reasonable.

Okay.

And Jim, just on the physician business, one thing I did mention in my comments is that they are up 25% on a year-over-year basis from first quarter of ’05 to first quarter of ’06, and volume was about 17% up, driven both by volume and pricing, but to a larger extent, the volume.

Okay, that’s what I missed. That was garbled. When you look at the supply of nurses willing to travel, so to speak, we’ve had pricing up now for – prices taking effect for about a year. You folks are making investments and pulling supply in, yet, as you said and I think the industry has continued to experience, we’re still not seeing that supply pop quite yet. Is it the hospital admission rates that’s holding that back, or do you expect a supply pop, let’s say, in the second half of the year?

We do expect to see supply increase in the latter half of the year, driven by, I think, the macro drivers of pricing increasing. While, yes, pricing has been increasing, it really has just started to take effect in the third and fourth quarter of last year, and even then at relatively modest rates compared to what’s needed to ultimately drive up momentum in supply. I’m very encouraged with what we saw in pricing impact in the first quarter and what we renegotiated and what that can mean in terms of increased pay rates and bonuses for the second and third and fourth quarter. So I think those macro trends of pricing and the momentum that we’re seeing is encouraging to drive through to supply.

Also, the investments that we’re making – we really just started to implement those in the first quarter, and on the last call we talked about the fact that we really don’t expect to see that take effect until the latter part of this year, and even more so ’07 and ’08. I am encouraged that in March and April we did see supply picking up momentum. When I say ‘supply,’ new candidates that are sending in applications.

Okay. And in revenue line, you exceeded that quite handily in the first quarter. As you move into the second quarter and you look at your outlook and your expectations – and on the heels of David’s answer to Jeff’s question about seasonality in the physician perm and allied business – why, at least at the lower end, the expectation for flat revenues in the second quarter?

But we do have seasonality within the nurse business in particular, where you typically see a lower volume of travelers working in sort of the April to June timeframe. So that’s one of the reasons.

I concur with that, and so that explains the low end of the range, in essence.

Okay. And then final question. The 1.8 million shares that you intend to repurchase – there will be about 400,000 shares outstanding. Where is the other 800,000 shares? Were those sold on the open market?

Yes. They have been sold since the filing of the registration statement.

Okay. All right, thanks. That’s very helpful. Appreciate it.

Thanks, Jim.

[Operator instructions] And next we’ll go back to the line of Tobey Sommer. Please go ahead.

Thank you. I wanted to follow up on one of your comments recently, and that was that the improved pricing you’re seeing in recent months comes from renegotiated and new contracts. You saw that perhaps translating into higher pay and maybe bonuses in future quarters. Could you refresh our memory on how big of a price increase you feel you need to be able to restore some of your gross margins but also be in a position to pass some on to the nurses in the form of higher pay?

Well, we are passing on increased pay rates with virtually all of the bill rate increases that we’re receiving certainly on an aggregate basis, and therefore maintaining our bill-to-pay spread. At this time, we don’t intend to necessarily expand that thread and increase our margins. We want to pass on a proportional share to the nurses to continue to encourage that supply to maintain our existing margin. How much do I think we need in order to really drive greater momentum and supply? I think it needs to be greater than 5%, which is what we’re seeing in terms of our renegotiated contracts.

So thinking about the business this business cycle as opposed to just this quarter or this year, how should we think of gross margin and the opportunity for that to expand in the core travel nurse and allied business relative to the levels that gross margin reached in the prior cycle?

This year, we’ve been guiding that we expect our gross margins to remain relatively consistent, so I wouldn’t expect any near-term gross margin expansion, due to those increased prices – increased pricing and sort of holding more to the gross profit line.

That’s right. What we’ve been guiding overall is basically about 26 to 27% gross margin rates. That’s nursing and allied the low 24%, physician staffing in the 31 to 32%. And as Susan mentioned, the plan is clearly to pass on those price increases, not to get the bill rate expansion, for guidance, at least.

I understand. My question is more geared towards thinking out longer-term over a business cycle that’ll last more than this year. Is there anything about the business model that you think has changed the opportunity for gross margins to get as high as they did in the last business cycle if we continue to see improved pricing, et cetera?

I think one change is that the last time we saw gross margins in the, say, 24.5 to 25% range, we were also getting double digit pricing increases, and I think there have been changes – first of all, that was a pretty significant step up and sort of catch up at that time. I’m not sure we’ll see that magnitude of a step up over the next year or two. If we did, then, yes, we would have that possibility. But if we’re in the 5 to 10% pricing increase range, we wouldn’t expect to achieve those types of margins.

Thank you very much.

Thanks, Tobey.

And next we’ll go to the line of Jeff Silber from Harris Nesbitt. Please go ahead.

Thanks, and again, I apologize if I missed this, as well. Did you give any type of volume or pricing guidance that underlined your revenue growth guidance for the second quarter?

No, we haven’t. We’ve been reporting volume and pricing on actual results, but not in guidance.

Is there any reason that we should assume that the trends we just saw this past quarter will change dramatically in the current quarter?

No. I think there’s no reason for a dramatic change going forward.

Okay, great. Just one more numbers question. Is it possible to break out D&A separately? I know you gave D&A together on the press release.

Yeah, just for the first quarter, amortization of $800,000, which is what we’ve been guiding, depreciation of $1.7 million, which is what we’ve been guiding. So, $2.5 million for the quarter.

Okay. Appreciate the call. Thanks again for everything.

And next we’ll go to the line of Gene Mannheimer from Caris & Company. Please go ahead.

Morning. You got a nice quarter.

Thank you.

My question relates to turnover in the traveler business versus the MHA business. Could you characterize whether it’s been higher, lower, flat, and does one tend to be higher than the other?

When you’re talking about turnover, do you mean our rebook rate and our retention rate of our travelers?

Yes.

Yes. For our nursing business, we had retention rates, and we’re still running within the sort of 70 to 75% range, which we believe are the highest within the industry. On a sequential basis, we were up, and basically flat on a year-over-year basis. If you recall, last year we had a pretty nice step up in our retention rates, so we’re pleased with where they are. We think we can do better, but basically they’re in good territory.

In terms of that rebook rate, we don’t really contract that to the physician business because, remember, nurses are working, typically, 13-week assignments, where the physicians might work a couple of days, they might take time off, they might come back and work six months. It’s not as homogenous as the nursing business, so you don’t track the rebook rates in quite the same way.

Thank you.

And your final question comes from the line of [Joe Gegan from Atlantic Equity Research]. Please go ahead.

Yes, hi, how are you doing?

Hi, Joe. Great.

I just have a couple of questions. I notice that the deferred income was $27.9 million on the balance sheet, and other current assets were $26.2 million, and that was up from between $1 and $2 million from before the acquisition. Do you know why those two categories were up so much?

Well, let me explain that. Certainly, the deferred revenue, which I think you might have —

No, no, deferred income – deferred income tax.

Oh, deferred income tax. Okay.

Right.

The deferred income tax largely – you saw a big change in the fourth quarter at year-end, and basically what that related to was – when we did the acquisition of MHA, there was a large – they had restricted shares. The employees held a good amount of those restricted shares that vested because of change of control. I.E., there was a large compensation deduction for tax return purposes. That was utilized to some degree in ’05. It’s also going to be utilized to some degree in ’06, partly due to how the transaction was – earn-out feature in ’06. So that was really the simple largest increase, both at year end and what you’re seeing –

Now, did that add anything to the income statement? Did that add earnings?

No. It basically just was a difference relative to the balance sheet, and then if you look at our cash taxes relative to book taxes.

Okay.

The only thing I can talk to you in the P&L, which is very, very modest, is just, again, with the perm placement business, there’s a deferred revenue, a small component. More than two-thirds of that revenue is actually non-contingent, but the third that does get deferred – there was an impact of $300,000 reduction of revenue this quarter, which, again, it had a 27% growth overall relative to last quarter, so it was fairly negligible to even see the difference.

Okay. And what about the other current assets? Why did that go up so much? I mean, it was $1.9 million before the acquisition, and MHA is there – other current assets before the acquisition was negligible as well.

Okay. Total current assets are $221 [million]. That’s compared to $228.3 [million]. I’m sorry, $612 to $618 [million].

No, no, I’m saying other current assets. That category, I’m talking about.

Right.

It was $26.2 [million], and in the Q3 it was $1.9 million.

The biggest thing appears to be – it looks like the income tax receivable due to the NOLs. That would be the one biggest change, I think, this quarter. I can certainly follow up with you. It’s a pretty probing question, but just what I’m looking at now, that would be the single biggest change. But you know, we can, offline, go through –

So is that a tax loss carried for you’re talking about?

A net operating loss carried for. That’s correct.

And is that from MHA? I thought they were profitable.

For MHA, yes.

But I thought they were profitable before you bought them.

Yeah. It’s really from the share repurchase. I talked about how we had the large deduction. But what I’d like to do, I think, Joe, is go back and analyze that one difference for you.

Okay. I have a couple more questions. The cash flow from operations was $18.025 million.

Yes.

And it was $16.9 million in the first quarter of last year, right?

Uh-huh.

So I guess my question is – you had a net income of $8.3 million this year, and you had a net income of $3.9 million last year, so you’ve more than doubled your income, yet your operating cash flow is almost the same. Is there a reason for that?

Yes. One thing we’ve explained in the past is there’s a big effect on our operating cash flow relative to the change of crude liabilities, in particular compensation expense. So, depending on when the payroll dates hit at the end of the quarter, that alone can cause a pretty big variation relative to the operating cash for a quarter. When an earlier question was asked about how should you look at this from a guidance standpoint, that’s why I suggested really benchmarking it towards our EBITDA as a good go-forward trend rate. But you’re going to see these variations on a quarterly basis because a crude compensation can really vary significantly, depending on the end of the quarter.

I know, but I just find it curious that one of the other analysts at the beginning of the call was saying that it was great operating cash flow when it really isn’t. I mean, if you consider it compared to – you borrowed over $200 million to buy a business and you double your earnings, and yet the operating cash flow is almost the same as last year.

Well, and, Joe, the only other comment I’ll make is we also paid off the cash portion of the earn-out. We covered that pretty much with cash on hand this quarter, so there was definitely an accumulation of cash to do that. That’s about $36 million. So I feel like our cash flow is actually pretty strong.

And at this time there are no further questions. If you have any closing remarks, please go ahead.

Thank you so much, and thank you, everyone, for joining us today, and certainly for your continued support. Again, we believe that the market environment continues to be strong in all of our business lines. We are very pleased with our start to the year and are on a good track to achieving our growth rates for 2006. We look forward to updating you on our progress next quarter.

Ladies and gentlemen, this conference will be available for replay after 4:15 Eastern Time today through May 16th. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 823964. International participants dial 320-365-3844. Those numbers, once again, are 1-800-475-6701 or 320-365-3844 with the access code 823964. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.