AMN Healthcare Services Inc (AMN) 2006 Q4 法說會逐字稿

Welcome to the AMN Healthcare fourth-quarter and full-year earnings conference call.

Now, at this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS).

Now, I'd like to turn the conference over to your host, Christopher Schwartz, Vice President-Investor Relations. 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 fourth quarter and full year, 2007. For the call this morning, we have Susan Nowakowski, AMN's President and Chief Executive Officer, and David Dreyer, AMN's Chief Financial Officer.

A replay of this webcast is available at AMN Healthcare.com/investors and will be replayed until March 16, 2007. 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, many, 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, 2005, our quarterly reports on Form 10-Q, our current reports on Form 8-K and our registration statement on Form S3, which have been filed with and are publicly available from the SEC. The results reported in this call may not the indicative of results for future quarters. These statements reflect the Company's current beliefs and are based upon information currently available to it. Developments subsequent to this call may cause these statements to become outdated.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 Susan Nowakowski, AMN Healthcare's President and Chief Executive Officer.

Thank you, Chris. Good morning, everyone, and thank you for joining us today to discuss AMN's fourth-quarter and year-end 2006 results. We appreciate your continued interest in AMN Healthcare and certainly in taking the time to participate in our earnings call today.

We are very pleased with the performance of our business in 2006 and with our financial results for both the fourth quarter and the full year. Overall, our fourth-quarter results exceeded the top end of our guidance range provided to you last November with revenue of 284 million and diluted earnings per share of $0.29.

For the full year, we're proud to have exceeded our goal of becoming the first healthcare staffing company to achieve 1 billion in revenue. This is a significant milestone for AMN, as well as the industry, and we believe it reflects both the strength of our market leadership position and the value that our clients place on the services we provide.

In our largest business segment of Nurse and Allied Staffing, our fourth-quarter results reflected an ongoing strength in our market environment. The most positive trend was our traveler count, which increased 9% year-over-year. This volume growth was driven by continued momentum in our new nurse applicants, which increased by more than 20% over prior year, and by increased placement of travelers who had previously applied with us but had not taken an assignment with us recently. We believe this supply improvement is a reflection of an overall favorable market trend but also AMN's proactive investment in marketing and recruitment-related initiatives.

As we begin 2007, the travel nursing market continues to provide opportunity for growth. While demand is below prior-year levels in aggregate, it is primarily due to declines in certain states where we still believe we have a growing opportunity for placement. More importantly, our flow of new traveler candidate applications continues to exceed our prior-year levels at a significant pace. The outlook for hospital admissions and employment trends during 2007 reflect what we believe will be a stable demand environment for the remainder of the year.

During our last call, we mentioned we were anticipating that Visa retrogression would kick in as the federal government hit quotas for Green Card visas issued for certain countries. This did occur towards the end of the year, and we've been working with legislators to provide a temporary and, ideally, a more permanent fix to the problem. We are optimistic this issue will be resolved during the next few months.

While our international nurse placements represent a very small piece of our overall business, it is actually a much bigger issue for the thousands of hospitals seeking nurses on a permanent basis. Last year, 16% of the total nurses who were passing the U.S. (indiscernible) test were foreign-educated. Legislators are aware of this national supply issue and they just need to act.

Even with the Visa backlog, however, due to the continued strength in our core travel nurse and Allied businesses, we're still expecting greater growth in this segment than we achieved during 2006.

Now, turning to our physician staffing businesses, 2006 represented our first full year with Merritt, Hawkins & Associates And Staff Care, and we are extremely pleased with the success of these business lines. Revenues for our locum tenens business increased 11% in the fourth quarter on a pro forma basis over prior year. This was driven by a 9% increase in days filled volume, and a 2% increase in revenues per day filled. Consistent with the normal seasonal trends, we did experience a 3% decline in days filled during the fourth quarter as compared to the third. However, our team did an excellent job offsetting this with an almost 3% increase in revenue to day filled.

The physician permanent placement business also continued to generate solid results with fourth-quarter revenues increasing almost 21% year-over-year on a pro forma basis and 8% sequentially. Sales production is on a positive track after third-quarter territory realignments which will drive continued growth in future quarters. Profitability in this segment remains our strongest with an EBITDA margin of 30% for the quarter and 26% for the full year.

As our core business segments continue to perform above our expectations, we are also actively seeking acquisition opportunities in complementary businesses. We are focused on service offerings that are synergistic and will enable us to further leverage our national infrastructure. Organic growth remains our primary focus, yet we expect that our targeted strategic acquisition will play a part in our growth strategy going forward.

Summing up, we believe that current market conditions provide opportunity for growth in all of our business lines. Our 2007 guidance reflects a healthy balance of volume growth and increases in our revenue per healthcare professional working in all segments.

We are encouraged by the favorable supply dynamics we're seeing in the market, and we are optimistic that pricing trends will continue to be favorable in 2007, albeit at a more moderate pace than '06. Combined with our continued focus on operational efficiency, innovations in marketing and recruitment and superior client service, we believe AMN is well positioned for continued future growth.

With that, I'd like to turn the call over to our CFO, David Dreyer, who will recap our fourth quarter results and 2007 guidance. David?

Well, thank you, Susan and good morning.

Revenue for the fourth quarter of 2006 was 284 million or almost a 1% increase from the 283 million reported in the prior quarter and a 28% increase from the 221 million reported for the same quarter last year. Fourth-quarter 2006 diluted earnings per share of $0.29 included a benefit of $0.05 due to the favorable adjustments to our professional liability insurance reserve. This quarter's $0.29 compared to $0.28 per quarter for the third quarter and $0.21 reported for the fourth quarter of 2005.

For the full year 2006, revenue increased 53% to 1.08 billion from 706 million reported in 2005. Diluted earnings per share for the year was $1.02 and included unanticipated favorable adjustments aggregating to approximately $0.10 per diluted share. These favorable adjustments consisted of a professional liability insurance reserve of $0.05, a worker's compensation insurance reserve adjustment of $0.03 during the first quarter, and a deferred income tax liability adjustment of $0.02 in the second quarter.

Turning to our segment results for the fourth quarter, we reported 202 million in revenue for our Nurse and Allied Healthcare staffing segment, which was consistent with the 202 million reported for the prior quarter. Although traveler volume during the fourth quarter increased 1% sequentially to 7106, we also experienced a 1% decrease in our revenue per traveler per day, due to normal seasonal trends of fewer hours worked due to the holiday season. Compared to the same quarter in 2005, nurse and allied revenue increased by 28 million or 16%. This year-over-year growth reflected a 9% increase in traveler volume and a 6% increase in revenue generated per traveler, per day. The strong volume growth reflects increased placements during the second half of 2006, along with a full quarter's inclusion of Med Traveler's and RN Demand Nursing and Allied brands acquired in November, 2005. Steady price increases in 2006, combined with a mix shift to hire bill rate professionals within the Allied division, continued to the increased revenue per traveler, per day.

Revenue generated by our locum tenens staffing segment for the fourth quarter was 68 million, which was relatively unchanged compared to the third-quarter revenue and up 11% on a pro forma basis and 72% as compared to revenues reported in the same quarter last year. Revenue per day filled during the fourth quarter increased by 3% on a sequential basis, driven by both changes in the placement mix between physician specialties and general practitioners and modest price increases. However, this was largely offset by a 3% decrease in volume due to the typically lower volume during the holiday season. On a pro forma basis, the full-year 2006 revenues grew 16% over last year.

Our the Physician Permanent Placement segment reported 13 million in revenue for the fourth quarter, representing an 8% or $1 million increase from the third quarter. About half of the sequential growth was organic, and the remainder was due to a refinement of the methodology used for calculating deferred revenue. Fourth-quarter revenue represented a 21% increase on a pro forma basis and a 79% increase, as reported, from the same quarter last year. Excluding the refinement in deferred revenue, fourth-quarter year-over-year growth would have been 16%. We expect revenue for this segment to remain relatively stable in the short-term following this refinement. On a pro forma basis, full-year 2006 revenues grew 19% over last year.

Consolidated gross profit for the fourth quarter was 74 million, representing a gross margin of 26.2%. This compared to a gross margin of 27.1% reported for the third quarter and 26.1% reported for the fourth quarter of last year. The 90 basis point sequential decline in gross margin compared to the third quarter was due in part to the higher housing costs and health insurance claims in our Nurse and Allied segment.

Gross margins by segment for the fourth quarter were 23.5% for Nurse and Allied, 26.7% for locum tenens, and 63.9% for Physician Permanent Placement. Fourth-quarter gross margin in the Physician Permanent Placement segment was higher by 140 basis points due to the refinement in recognizing deferred revenue.

SG&A expenses for the fourth quarter were 51 million compared to 54 million for the third quarter and 39 million for the same quarter last year. The decrease in SG&A expenses compared to last quarter was due mainly to favorable adjustments to the professional liability insurance reserve that totaled 2.9 million, primarily in our locum tenens segment. In comparison to the fourth quarter in 2005, the increase in SG&A expenses resulted primarily from the addition of MHA, along with increased employee expenses to support growth in the Nurse and Allied Staffing business and stock-compensation expense due to the adoption of FAS 123R. As a percentage of revenue, SG&A expenses, including stock compensation, was 18.1% for the fourth quarter, compared to 19.1% in the prior quarter and 17.7% for the same quarter last year. On a full-year basis, SG&A as a percentage of revenue was 19%, which is the normalized rate we anticipate for 2007.

Net interest expense for the fourth quarter was 4 million compared to 4.2 million in the third quarter and 4.6 million for the same quarter in 2005. The decrease in net interest expense from both the prior quarter and the same quarter last year was mainly due to our continued aggressive debt reduction using excess cash flow.

Turning to our financial position, we generated nearly $9 million in operating cash flow during the fourth quarter, which in addition to the 9 million in cash proceeds from stock option exercises was used to reduce our debt by almost $26 million during the quarter. On a full-year basis, AMN generated almost 55 million in operating cash flow, compared to 44 million in 2005. We ended the year with $173 million in total debt outstanding and a leverage ratio of 1.9 times.

Days Sales Outstanding, or DSO, at the end of the quarter was 63 days compared to 59 days last quarter and 57 days for the same period last year. The significant increase in DSO was due in part to delays in the payment cycle caused by an increase in the number of our nursing clients undergoing implementations of vendor management arrangements. These arrangements typically involve third-party vendors specializing in staff procurement systems. We are estimating that our DSO will improve during 2007, and we do not foresee additional risk in terms of bad debt exposure from these arrangements.

At this time, I will provide you with revenue and earnings guidance for the first quarter and the full year 2007. First-quarter revenue is expected to range from 282 to 284 million, and diluted earnings per share is expected to range from $0.21 to $0.23, which reflects the impact of two fewer billing days in the quarter compared to the fourth quarter. Revenue for the full year 2007 is expected to grow 10 to 11% at a range from 1.18 billion to 1.2 billion. We anticipate that the revenue mix by segment will remain relatively similar with 2006, which was 70% Nursing and Allied, 25% locum tenens, and 5% Physician Permanent Placement. We expect earnings per share in 2007 to range from $1.10 to $1.14, which is a growth rate of 8 to 12% from 2006 reported earnings per share of $1.02. However, if you exclude the $0.10 of unforeseen adjustments we experienced in 2006, our 2007 earnings per share guidance reflects a projected earnings growth rate ranging from 20 to 24%.

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

Thank you, David. As we move into 2007, we are very pleased with the market and with our opportunities for growth. We believe that our focus on the fastest-growing and most profitable business segments in the industry, along with our continued initiative to attract a growing clinical supply, will position us well for the future.

At this time, we would like to open the call for your questions.

Very good. (OPERATOR INSTRUCTIONS). Michel Morin, Merrill Lynch.

Good morning. David, I was wondering if you could provide for us the underlying organic growth rates in the Nurse and Allied segment for the number of travelers and the revenue per traveler?

The actual rates, I'm sorry, or the assumed growth rates?

Well, the growth rates in the fourth quarter, if you were to strip out the effect of I think it was something like 300 travelers who came on from MHA a year ago.

Sure, let's see. Our total traveler growth basically for the full year, on a full year-over-year basis, was 6.5%. It was 9% on a fourth-quarter year-over-year basis. If we strip out the approximately 300 average travelers from the Allied and the RN Demand division, it's approximately an organic volume increase I would say of 7% on a year-over-year basis and the revenue per traveler, per day, was about 6% on an organic basis.

Great, perfect. Thank you. Then secondly, on the SG&A front, there was a pretty significant ramp up on the locum side once you back out the favorable adjustment. Susan, you mentioned that in your remarks. Should we think about this along the same lines as to what happened in the nursing side in the second quarter of '06, where there was a ramp up in SG&A and that produced faster growth, or what's happening there?

It's a really similar investment for different reasons. You really drive that business, the locum business, by investing in additional producers and sales personnel that are going to help you drive both orders and the supply side. We did build that production channel in the third and fourth quarter of last year, and we expect it to pay off for us in '07. We don't expect to be increasing that spending at the same rate in '07. We will really be reaping the benefits of that ramp up coming into the next year.

Okay, great. Then just to clarify, David, I think you made a comment about the SG&A rate assumed in the '07 outlook. Were you referring specifically to Nursing or for the combined entity?

That was for consolidated, that we averaged 19% in 2006 SG&A as a percentage of revenue, and then we expect to maintain that rate in 2007.

Great, thanks very much.

Tobey Sommer, SunTrust Robinson Humphrey.

Thank you. I wanted to follow up on the question on pricing, particularly in the travel nurse unit. On a sequential basis in the fourth quarter and then maybe early trends in the first quarter is would you describe the pricing momentum as kind of building or stable?

Toby, throughout 2006, we saw renegotiated rates. This is for contract renegotiation, so it doesn't translate directly through to our increase in our average bill rate. But as we were renegotiating contracts, it was generally in the upper single digit range. As expected, we saw that start to moderate into the fourth quarter, and we expect, into 2007, it will be more in the mid single digit range.

Okay. Then, just wondering, on the share count, was there anything in particular that influenced the share count in the fourth quarter?

It has really been a result of all the stock-option exercises. We've had a little higher run-rate than we had historically with our employees, probably largely due to the stock prices we've had, so our average for 35.1 million for fourth quarter really reflects that.

On a go-forward basis, we're basically estimating Q1 to be around 35.3 million, and for the full year '07, approximately 35.5 million diluted shares outstanding. The reason why that's not increasing a lot is we do expect the level of stock option exercises to probably slow down a bit this year.

Then Susan, you mentioned the M&A market. I was wondering if you could give us a little bit of color. In the past, I think you've talked about opportunities to perhaps build on the physician side of the business, as well as perhaps on the Allied side. Any additional thoughts there?

You are correct, Tobey; that's really where our focus is. You know, we are already the leaders in travel nursing, locum, perm placement. We are number two or three within Allied, but even in locums, for example, where we are number one, we are probably in the 16 to 18% market share range. It's sort of hard to get market data. And so it's still a very fragmented industry, and Allied is even more fragmented. So we believe there are some very quality companies out there that we could add to our platform. We are very pleased with the management teams that we have within those groups and believe that we've got a strong platform to build upon.

There are some other businesses that are complementary to locums and Allied that we might be looking at as well going forward. I don't want to reveal too much about that for competitive reasons, but we believe, over the next couple of years, there will certainly be some attractive opportunities.

Could you refresh our memory as to what you are thinking in terms of how high you take up the leverage ratio, at least kind of initially, after some sort of acquisition? Then maybe on a steady state, where your comfort level is?

Well, you know, our acquisitions probably that we're probably looking at are not going to be as large as Merritt Hawkins. The highest we've ever gotten to a leverage ratio is pretty much a 4 time. That is absolutely the highest that we're comfortable with. But we're not going to be nearly there, I would believe, in 2007 with these acquisitions, given the size of they're smaller. We are under two times right now, so I can't tell you without revealing too much information but we would not go beyond four times, certainly.

Thank you. Then I wanted to ask a last question and I will get back in the queue, related to guidance. You are one of the few staffing companies that gives full-year guidance. Last year that ended up being in--a decent amount of embedded conservativism in it. By my calculation, your full-year reported revenue was 4% better than mid point and EPS was 18 or 20% better than the midpoint of initial 2006 guidance. Is there anything that has changed in your methodology or would it be fair to assume that you also have a certain degree of conservatism embedded in this year's guidance?

Tobey, I wouldn't say anything has changed in our methodology. Certainly, as you sit here at the beginning of the year, you know, we have excellent visibility, I think, through the first and second quarter but historically, the third and fourth quarter have been our biggest step-ups in terms of revenue and EPS. We always have better visibility when we start to approach the sort of July-August time frame. On our second-quarter call is a good time to readdress our guidance. As in any year, there's always a certain level of uncertainty. While we feel very, very good about the demand environment, about the supply environment for all of our businesses, you know, there is uncertainty around Visa retrogression which should be resolved in the next few months, but the timing of that is a little bit uncertain.

We do expect pricing increases, as I say, and are certainly achieving those. But we want to leave a little flexibility, based on our ability to pass the rising housing and healthcare costs on through pricing increases. So, I think it is leaving a little bit of room there to make sure we have flexibility to manage the business.

The one thing I would add also, Tobey, is the unanticipated adjustments we had this year '06 of $0.10, those are not things that we put into our guidance, so that was $0.10 of our delta in 2006. We don't reflect those things in our 2007 guidance either.

Thank you very much.

Jim Janesky, Stifel Nicolaus.

Yes, good morning. A couple of questions. Susan, can you go over--you kind of went through that demand down in prior years in certain states. Can you spend a little bit more time on that and which areas of the country you're talking about?

Sure. As I said, it's down in aggregate but it's actually driven primarily by a few large states. California, Arizona, Florida were probably the biggest states, and they also happen to be the states where we still have the most opportunity. So I want to make sure that people are clear. We still feel we have plenty of opportunity to grow within those markets, you know, driven by a few different things in each of those regions. Florida, for example, is talking about lower senses because of rising housing costs there, so they're not getting as many snowbirds down in sort of the Sunbelt states. California talked about some census issues but also has talked about hiring a lot of new grads in the med-surg positions and maybe not feeling as compelled to comply with the nurse/patient ratio laws because there isn't really a policing effort out there, so a few different anecdotal pieces of information that we're being told.

You know, overall, as I listen to at least the public hospitals that are out there reporting, they are talking about same-store admission increases across the country. So I don't think that we should look at those particular markets as a reflection of what's going on all across the country. In fact, we do have several states where we have increases in demand.

So this was more a fourth-quarter phenomenon or do you think that's going to continue into at least the early part of 2007, where you have visibility?

Well, you always, almost always see a downturn in demand at the end of the fourth quarter and the beginning of the first quarter. It's somewhat seasonal, somewhat driven by budgetary concerns\. Then you start to see it pick back up in February and we are seeing that now.

Okay. You made a comment about census rates at hospitals. You've seen a modest recovery there as we go into 2007. Is that correct? I don't want to put words in your mouth, but is that correct?

Well, no, I'm actually referring to some of the public hospitals that reported their fourth-quarter earnings and their admission trends, you know really reflecting more there. We hear anecdotal information with more hospitals; some are up, some are down. So I don't know that we've got a good crystal ball as to what's happening with admissions across the country, other than what you hear out in the market.

Sure, okay. As we move from 2006 into 2007, 19% SG&A in 2006 and the same percent in 2007. Can we go over why you are not expecting any leverage in that line item? My understanding was the majority of the investments would be made '06, but with the increase in revenues that we're looking at, I would have expected more operating leverage unless we're missing something.

Well, no. Actually, we said pretty much all along that with the investments that we made last year, that we were successful. It really wasn't about cutting back those expenses; it was that we would get topline revenue growth and thus be maintaining fairly consistent SG&A as a percentage of revenue.

Our overall revenue growth rates in '07 are basically that's 9 to 12%, and we pretty much just did 12, 12.5% now in '06. The 19% reflects continued investments in all of our business segments, but continuing in the Nursing, continuing in the locum tenens, maintaining consistent EBITDA margins in those areas, again to drive future growth. So we believe that's the proper thing to do for managing our business, both short-term and long-term.

Are those investments primarily in headcount?

It's headcount and it's marketing and recruitment-related initiatives, things that we believe will drive supply and drive the conversion of that supply. And with growth rates in the 10 to 11% range, we think that is the prudent thing to do to continue to drive, supply fuel into the business, so that we can drive those types of growth rates. If the growth rates were lower, we might not feel as compelled to have that sort of firepower.

One clarification here also is, you know, in 2005, SG&A didn't include stock compensation, so we were talking about, you know, from an 18.5% run-rate up to 19. Well, we are talking now with stock compensation included, so in terms of have we raised the bar in terms of our spending levels, no, I don't believe we have. So there is a definite difference with or without stock comp and we are of course quoting this all-inclusive of our stock compensation as well.

Another minor issue, Jim, is related to international business, which is included in the Nurse and Allied segment. Because of the revenue dip that we expect to see in 2007 in that business, but we're still maintaining an infrastructure and a pipeline to be able to have those nurses ready to place in the future, there's some deleveraging going on in that business. There actually is leverage gain in our core travel Nurse and Allied business in '07, but it's being offset a little bit by the continued investment and commitment we have to the international business.

Okay, that's helpful. The last question is, David, why did cash flow from operations drop so much year-over-year?

Well, the 55 versus 44--

No, no, just in the fourth quarter. I apologize. (multiple speakers)

(multiple speakers) one quarter. Sorry, it actually is not that far off relative to where we were third quarter. But if you analyze our cash flow, there's pretty significant changes in our working capital. Specifically, our Accounts Receivable grew fairly significantly. That's fairly on a year-over-year basis as well, but those were normal operating trends. We had also kind of an increase with some of our accrued liabilities during the quarter, so really I don't think there's anything unusual.

Just to break it down during the fourth quarter, our net income was 10 million. Basically, the tax provision went up 6. Our AR increase was 13. Then basically depreciation and amortization of about 3 million and other items of under 3 got us to that 9 million operating cash flow.

All right, thank you very much.

Jeff Silber, BMO Capital Markets.

I just want to drill down a little bit into your first-quarter guidance; I just want to make sure I understand it. Even when I take out the one-time benefit that you got in the first quarter '06, we are still seeing earnings increase at a slower rate than revenue. If we're going to keep SG&A percentage roughly level year-over-year, is it that the gross margins are down? If that's the case, is it because of the two fewer billing days and the impact on the housing costs, etc.?

Well, we do expect gross margins in the Nurse and Allied basically to be slightly down during the first quarter, so that that's partially it. The trends that we've identified, in terms of housing costs, also higher insurance expenses, again, have been somewhat considered there as well. So if you pretty much analyze the $0.29 for example that we just did fourth quarter to the $0.21 to $0.23, a couple of things--one, there's that $0.05 of the locums malpractice adjustment that wouldn't continue going forward; also, we talked about refining the revenue recognition on that perm placement business. That's about another $0.01 adjustment that we had in the fourth quarter that wouldn't carry into Q1. Then the remainder basically, let's say rounded to $0.01, is really that gross margin issues--which again, higher housing costs, the insurance, and also we've talked all along about the narrowing of the [build-to-paint] spread, and so you take all those three things combined, that's not even about $0.01 of this delta.

And as you said, two less billing days also affects the margin.

Okay, I just wanted to clarify that and that's helpful.

In terms of--and I believe you do this on an annual basis; you give us some kind of gauge of where you are running in terms of numbers of recruiters. I was wondering if you can update that for us and what the plans are in hiring for 2007.

Sure, Jeff. I don't believe we've ever given an actual number of recruiters, but what I can say is we certainly have more trained recruiters on the floor today than we did a year ago. In fact, as a percentage increase, it's one of the largest increases we've seen on an annual sequential basis. We invested heavily in 2006 in training programs for our existing and new recruiters. One thing we're very excited about is that our recruiter productivity in the fourth quarter was up nicely; it was up throughout all of 2006 but it was the largest percentage increase in the fourth quarter, both for our trained recruiters but even more exciting was the increase in productivity for our trainees, new recruiters that we had hired that are kind of entering the floor. So not only do we have more recruiters but we are seeing the productivity on a per-person basis increasing.

Okay, great. Just following up on the comments about demand being down a year-over-year in aggregate, should we assume that bookings are also down year-over-year as well?

Oh, definitely not! (LAUGHTER) That's why we try not to give too many specifics on demand because it really is just one indicator; there are so many other things that go into bookings. You know, placement volume is up on a year-over-year basis. We feel very good about the placement volumes that we are seeing today. That's translated into the higher traveler count volume that you see.

I just wanted to doublecheck that because making that connection didn't make much sense.

I'm glad you clarified that, Jeff!

Okay, sorry. Then just one more thing, in terms of capital expenditure guidance for '07--.

Our capital spending, first of all, in 2006, was just a little bit under 10 million, about 9.7, so that's around 1% of our revenue. 2007 we are also estimating about 1% of our revenue, so that's pretty consistent.

Okay, great. That's helpful. Thanks again.

Jeff, I will just follow up on your question because I think it's an excellent one. You know, demand is certainly an important driver for us but right now, supply is still the most important driver of volume growth for us. A couple of years ago, demand increased 100% over a couple of years and yet we weren't able to convert that to placement volume until we started to see the rise in supply. That's really the good news story here that we've seen over the last six to nine months is the momentum in supply of new applicants traveling with us, as well as people who maybe applied a year ago that hadn't traveled and are now deciding that they want to take several travel positions. So we feel very good about our pipeline going forward.

Okay, great. Thanks for the color.

Michel Morin, Merrill Lynch.

Thanks for taking the follow-up. I was wondering if housing and healthcare--was there anything unusual in the quarter, David, that might have led to the erosion? I know that we've heard about this in the past but have we seen a bit of a spike more recently?

Well, housing we've talked about for a little while. We've seen the costs increasing in general as a percentage in the second half of '06, and that trend is continuing. We are effectively managing it obviously. I think one of the key questions is that you attempt to recover that in your billing rates.

You know, the insurance--again, we are self-insuring our health insurance costs of the nurses, so you do see some variability month-to-month relative to what our claims rates have been, so that can swing a little bit month-to-month. But we see on a generally quarterly basis and certainly on a full-basis, but it's generally fairly consistent that you do see some swings. That's probably just the nature of claims themselves.

So we've been a little cautious certainly relative to short-term, but overall, we again look to try to cover those in bill rates and we haven't made drastic modifications to our gross margin assumptions.

Okay. Then David, we've talked about cash taxes in the past. Would you mind sharing with us what the cash taxes were in the fourth quarter and kind of what your expectation is in '07?

Yes, actually, you know, the fourth quarter--let me just let me cover maybe the full year, if you don't mind, because that's probably what most people are interested in. You know, our actual cash taxes for the full year is a -13%, which means we basically had a fairly significant refund. We actually had refunds of 11 million during the year. That's partly--we, one, filed for the NOL carryback claims and also a refunding of the estimated tax payments that we made in 2005. Our actual payments were about 3 million, so the net here was basically about a 7.9 million net there, but that was actually a refund for the year.

If you look basically on a go-forward basis, what we are expecting in 2007, we really had a significant amount of stock option deductions that we're going to be able to take, so we are expecting the book rate pretty much to remain where it's been. This year, it was 38.2%. Let's say it's around 40% as we've said all along. In 2007, we estimate the cash rate to be somewhere around 20%. That's reflecting, again, the deductions for stock-option expenses that we know we will have next year.

Great, thank you. Then if I can sneak a last one in there for you, Susan? There was some commentary about--obviously there's a lot of private equity investments being made among your client base. Have you seen any change in their behavior as they have gone private?

I can't say any major changes in behavior. Certainly, hospitals are always looking for new, creative ways to better manage their businesses and control their costs. I wouldn't say that has been driven any more strongly or differently over the last year by the private equity investments. If anything, when they involve more financial sponsors and are trying to ensure that they are driving revenue, they tend to be driven to make sure that they are more fully staffed on the physician side in particular, since physicians are such a key component for them to drive revenue and margin. So, I would say, net, maybe that's a slight impact that we've seen is increased interest in demand on the physician side to ensure that they can meet their revenue and margin targets.

Great. Thanks very much.

Tobey Sommer, SunTrust Robinson Humphrey.

I was wondering if you could give a little bit of additional commentary on the bill pay spread, recent trends and I know you are taking a lot of the pricing and converting it into higher pay for the nurses to [lure] supply, but I wanted to get a sense for your expectation maybe for '07, what happened in the bill/pay spread.

Overall, we really--this is David, of course. We expected our bill/pay spread to tighten a little bit in '07 compared to '06, as we've been building our supply. But generally, if you look at our 2006 consolidated, we trended at about 49%. We basically expect a little bit of tightening but we're going to be fairly consistent, we believe, throughout the 2007 year.

Then I just wanted to ask a numbers question, David. Regarding the higher share count in the fourth quarter, it seems like, relative to expectations, the share count also a little bit higher. So am I doing my math correctly? That still would cost about $0.01 in each quarter in '07 as well relative to the Street expectations prior to the report?

I mean, yes, I think you are right. I know you quantified a $0.04 possible difference. I think there was definitely differences certainly in the fourth-quarter numbers that we've adjusted for. I will estimate that was probably around 300,000 shares on average, so there definitely is a difference.

Again, I'm being very clear about the 35.3 in Q1 and the full year of only 35.5, because we do expect the stock-option exercises to level off this year relative to what we've seen in 2006. So, I guess I'm not going to exactly corner an earnings per-share impact there but absolutely the overall differences in the fourth quarter is fairly accurate at about a 300,000-share understatement overall.

Okay. Then I had a question for you about the rise in healthcare claims. You may have hit this; I apologize if you did. But could you give us a little bit of color? Is there anything structural that has changed in your population of nurses and Allied professionals working on assignments to think that that pickup in healthcare claims is going to persist, or is that more likely kind of a one-time blip?

You never say one-time, but honestly, there's nothing structurally that has changed. You know, we do have attractive insurance benefits; we have--basically you can start coverage on Day One. That has had no impact there.

This is really a continuous thing where you see variations of your claims on a month-to-month basis. But as I said, there's nothing structural here but if you trend it out as we always do, certainly on a full-year basis and generally, generally not on a quarterly basis, it has been fairly consistent but we do see swings month-to-month. So no, I don't expect to see anything structurally changing as a result.

Well, as a follow-up, where there any changes in terms of the benefits you offered in 2006 or plan to in 2007?

In 2006, we did roll out a more formal offering of free one-bedrooms to our travelers, which is something that we were basically providing anyway, quite honestly, as we negotiated with each traveler for their package. They would increasingly want a free one-bedroom. So it all comes into play in managing the overall package that you're delivering to the traveler and achieving the margin for the Company.

We run a margin on every placement that we make before we commit to ensure that we are achieving our margin targets. We found that we were more often than not negotiating for that free one-bedroom or at a very low co-pay. So we created a more formalized offering of that.

The financial impact of that was fairly negligible because we were basically already there anyway in offering that. It was just in the way we are presenting to the travelers is a little bit more forward now than it was before.

The only change that we made in '07 is that we are offering a two-tiered structure healthcare insurance program, which now provides for first-day healthcare coverage as opposed to having to wait 30 days. That has not impacted. These claims that you're hearing about are really not from that; they are from people who had been on assignment, were already grandfathered in anyway, so I wouldn't put those two together necessarily. In fact, we believe that this dual offering will help us to keep stable if not potentially lower insurance costs going forward.

Thank you for the color. One last question--when looking at the supply that you are seeing and the pickup of not only new applicants but conversions of people who applied in quarters previously, are they coming from any discernible demographic group? Are these generally the younger, less-experienced nurses or is it the broad range of experience levels? Then I was wondering if you could comment on what you expect the impact to be of recent classes of nurses being a little bit larger. Is that something that gives you kind of an increased level of optimism regarding your ability to drive supply and volume growth?

Sure, Tobey. I do want to give too much color on the demographics of our new supply because we consider that a competitive advantage certainly, and I think our ability to drive greater supply than the competition over the last year has really benefited us, so I don't want to reveal too many of the secrets there. But generally the demographic of where people are coming from has not changed significantly over the last year.

You did hit upon an important point, though, in that the increased graduating classes has brought more nurses that are lower in their experience levels, say one to two years in experience. That's good for us in that they are good travelers that generally want to travel for a couple of years. The better, better demographic for us are nurses who have two to six years experience, because many of our clients want a minimum of two years' experience. So we are actually looking forward to, say, a year from now when some of these larger graduating classes have a little more experience under their belts because I think they will be even more attractive to our clients.

Thank you very much.

Gene Mannheimer, Caris & Co.

Thanks, nice quarter. You know, I realize you don't disclose the number of recruiters in your organization, but can you help us out by talking maybe about the percentage growth in the number of recruiters in '06, and what you might be expecting this year? Thank you.

Well, again, you know, not giving the number, if we talk about the growth, we are probably getting close to giving you the number. You know, I will say it's above single-digit growth in terms of both the sheer number and the percentage growth, but it's not 30% growth. So if that helps you zone it in a little bit more. But as I said, just as importantly to us as the number of recruiters is the productivity of those recruiters, because we are still at relatively lower productivity levels than what we believe we can achieve. So we do plan to add recruiters throughout '07 and expect to end the year at a higher number, but much more importantly, we expect to drive greater productivity across all of our tenures.

Thanks, Susan.

Jim Janesky, Stifel Nicolaus.

Yes, a follow-up question on the housing--are you finding it harder to pass on the higher housing costs that you're experiencing to your customers or do you think that it's a matter of time? In what timeframe would you expect that you are able to normalize the rates so that it's not hurting your margins?

We are able to have those conversations with our clients, Jim, and pass them on. Certainly, some markets are more painful than others because of the housing cost increases. At some point, if we are not able to pass it on, we have the ability to decide to adjust the payrate accordingly, so we try to work with the clients so that we don't have to do that because that ultimately impacts our ability to fill their demand. So, we try to work with them for a few months before we make that decision. So, if we are not able to pass them on, one, we've given ourselves a little bit of room and a little better flexibility there so that we don't have to react immediately, but eventually, if we need to, we will adjust the overall compensation package so we can achieve the margins we need to.

Okay, thank you.

I think we've got time for one more question.

Tom Zeifang, Lucrum Capital.

On the DSO, do you expect to recoup that AR in the first half, or is that something that's going to be linear throughout the entire year?

Well, the AR really has pretty much trended with what our revenue growth rates are, so I wouldn't say necessarily linear. We don't give guidance of our quarter-to-quarter revenue growth rates. But if you go back historically, it's generally going to trend with that.

Yes, I understand that, but your DSO is relative to revenue, so if it was up four or five days year-over-year and it was a -13 million in the cash flow in the fourth quarter, when do you think that will normalize back to what you stated in your opening comment?

Right. Well, actually even in January we've already seen our DSO improve by a couple of days on a consolidated basis, so I mean, as I've mentioned, we expected to see it stable and basically come down a little bit in '07. So we've already seen some of that benefit going forward.

Okay. Then in the opening comments, you talked about applicants being up 20% year-over-year. I would assume that is the fourth quarter, correct?

That's correct. It was actually over 20% year-over-year, and I said that, in the first quarter, we actually saw increased momentum, both sequentially and on a year-over-year basis.

Could you give us a sense of utilization of the applicants? Capacity utilization? Is that increasing or is it static?

Well, if we're talking about our conversion rates of those applicants, you know, we don't give those that exact metrics out. I will say we are pleased with our conversion rates. However, it's a big lever for us and we have a lot of opportunity for improvement there.

So if rates have--if supply is up over 20%, I would assume that you feel that utilization is up (indiscernible) is accelerating. Is that correct?

Well, the 20% is not an exact translation into traveler count growth, because you are replacing those people who are deciding not to re-book with you, and then if you want to grow it on top of that, then you need the additional supply.

Okay, can you give us a net number then?

You know, it's not a metric that we provide, Tom, and it would quite honestly require several metrics to dive into. It's not quite as simple as it may appear.

Okay, and then one last question. On the pricing, on Jim's point, do you think it's going to be more of a back-half raise back to high single digits from the mid single digits, or is it something that you don't think your customers will respond positively to?

I think pricing will continue to be pretty constant in terms of our renegotiated rates, in that mid single digit range throughout the year. It's not as though we expect it to spike in the latter half of the year.

The growth that we generally see in the third and fourth quarter comes more from volume. Certainly, last year, we saw a big step-up in our average bill rate and our pricing from the second to the third quarter, but that was somewhat of a market momentum and a catch-up period for several facilities. So, it's not as though pricing itself will accelerate in the latter half of the year. At least we're not expecting that. It would be more volume-driven.

Okay, and then just one last one I forgot. The ESO for '07--have you given any guidance on that?

No, we don't give guidance on our DSO.

Not DSO, Employee Stock Options?

Oh, we don't give the absolute number, but when I gave the estimated diluted share average for the full year, the 35.5 million, relative to what I just also guided for the first quarter, that would be indicative of what we are expecting from stock option impact on our diluted shares outstanding.

But I think it was 1.8 in the fourth quarter. Is there anything in '07 that would change that on a quarterly basis?

Yes. Actually, our estimated stock compensation basically--this year we finished at about 6.8 million in '06 as a full expense. That was about 0.6% of revenue. In '07, we are estimating it to be around there, so it's going to be over $8 million, between 8 and 9 million, which is a consistent percentage of revenue as what we had in '06.

Okay, thank you.

You know, I understand that we have someone who has been patiently waiting in the queue, so I don't want to cut it off here. Could our host please ask for our final caller?

Okay, we have our final question from the line of [Billy D. Ormond], Atlas Capital.

Yes, thank you very much. Just actually one or actually two quick questions. One is, on the SG&A dollar amount, I guess I was confused whether or not kind of historically the commentary had been whether it would maintain as a percentage of revs or that you wanted to continue to spend a like dollar amount but, over time, as revenues grew, that that percentage would decrease. So, was that a misunderstanding on my part or a little bit in change in posture on yours?

You know, again, Billy, we are continuing to invest in our business and obviously we saw success in 2006, and so we are continuing to make very well-informed investment decisions. I guess, again, if you go back to the comments made guiding 2006, we were talking about basically had a run-rate of 18.5%, which was basically excluding stock comp. If you basically had adjusted that to include stock in there this year, you would have been closer to the 19% rate that we actually are finishing up for the full year and what we are guiding on a go-forward basis. So I don't think there's been any fundamental change. That 18.5 run-rate would have been around the 19 rates that we are now guiding for 2007. So we are actually being fairly consistent.

Billy, ultimately the goal is certainly to decrease our SG&A as a percentage of revenue, but we believe that the spending that we have in place today and that we are planning for '07 is important to drive the double-digit top-line growth that we think is achievable.

Okay. Then a second question would be, on gross margin in the fourth quarter, kind of looking at the 23.5% for nursing compared to the previous year of 24.5, was there anything specific that drove that lower than I guess what I would have expected? How should we think about that going forward? When you look at the progression over kind of the '06 time period it was 24, 24.5, 25.4, which I know had a one-time in it which was closer to 25%, and then the 23.5. How should we think about that line item?

Well, you know, actually, we did have a pretty good change, relative to the third quarter to fourth quarter, but we really have been saying pretty much publicly for awhile that we were expecting to pretty much average around a 24% gross margin in the Nursing and Allied business on a go-forward basis.

Yes, we have come in a little bit lower than that in the fourth quarter but we are not expecting that to trend--downward trend to be continuing. We are still looking at an average of around 24. The average for 2006 is a little higher than that, at 24.6, so the difference between, let's say, at 24, low 24 and the 24.6 is the cautionary adjustments for the things that we've talked about.

Okay, but I guess, as we look towards the first quarter, something back towards that 24% would be a little bit more reasonable?

There would be--yes. I mean we don't give you specific guidance on the first quarter. I think, directionally, what we are saying is we're certainly working to keep it steady back to that long-term, long-range goal for 2007.

Okay, thank you very much.

With no additional questions, please continue.

Well, thank you, everyone, for joining us today and for your continued support of AMN. We are pleased with the start of the year and we believe that the market environment will provide us with the opportunity to achieve growth in all of our business segments. We look forward to updating you on our progress next quarter.

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