AMN Healthcare Services Inc (AMN) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare first-quarter 2007 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Christopher Schwartz, VP of Investor Relations. 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 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 amnhealthcare.com/investors and will be replayed until May 15, 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, may and other similar expressions.

Any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2006, and our current Reports on Form 8-K, which have been filed with and are publicly available from the SEC.

The results reported in this call may not be indicative of results for future quarters. These statements reflect the Company's current beliefs and are based upon information currently available to 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 Developments subsequent to this call may cause these statements to become outdated.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.

Thanks, Chris. Good morning, everyone, and thank you for joining us today to discuss AMN's first-quarter 2007 results. We very much appreciate your taking the time to participate in our call today.

We continue to feel positive about our growth opportunities in each of our service segments. We have a solid demand from our fertility clients and a continued growing supply of clinicians, lining us up for what we believe is the best overall growth opportunity market we've seen in several years.

During the first quarter, our revenues and earnings per share were at the top end of our guidance range, with revenue of $284 million, which is about 12% above last year. If we drill down into our different segments, our nurse and allied staffing revenues grew by almost 13% over last year. Revenue per traveler per day grew by 6% year over year, and volume of travelers on assignment grew by a similar 6%.

This favorable volume trend has been driven by a good demand, but primarily by continued growth in new nurse applicants. While the entire industry is experiencing growth in supply, we do believe that our more aggressive marketing and recruitment initiatives over the last year have helped AMN to capture a greater percentage of this growth in supply.

Our ability to attract new candidates continued to improve during the first quarter. Our new unique nurse applicants grew significantly, both sequentially and year over year. Demand continues to remain relatively strong, and our average bill rate and renegotiated pricing levels are very much in line with our expectations.

While revenue growth in our nurse and allied business was solid this quarter, we are continuing to experience direct cost pressures in housing and health insurance expenses, which resulted in a gross margin contraction of 20 basis points compared to last quarter and 150 basis points compared to last year.

Housing cost increases have been driven by a tight rental market in most metropolitan regions, particularly in the West. Some regions of the country are experiencing record low apartment vacancies due to the higher demand for rental units. This increase in demand occurred right at the same time as many apartment complexes were being converted to condos, creating a smaller supply of rental units.

This high apartment occupancy environment has driven rent increases and less attractive lease terms, resulting in higher average daily housing cost per traveler. Furniture rental and utility rates have also increased, primarily due to the higher fuel costs.

The property management industry is projecting that there will be a lessening in occupancy rates toward the end of the year, and this could certainly give some relief on costs. However, we cannot count on this nor wait, so we are taking appropriate actions to reduce housing costs, and where that is not possible, we will seek to offset these costs through a combination of bill rate increases and reconfiguring compensation packages in those affected markets. We don't want to react too quickly or too aggressively, so this effect will certainly take a little bit of time.

The second area of direct cost increases is in traveler health insurance claims. Since we are self-insured up to a stop-loss limit, there has always been some volatility in claims expense. During the last two quarters, however, we have seen higher average claims. This trend is unusual, and we don't expect it to continue for a sustained period.

In fact, at the beginning of the year, we restructured our health insurance benefit in order to reduce this volatility over time. The new insurance program has been received well by our travelers, and we expect to see the benefit over the coming year as utilization under the older program declines.

Overall, we believe that through continued strong volume growth, plus our efforts to reduce and balance direct costs, and through reduced SG&A spending levels, we will be able to achieve our targeted profitability in this business line for the full year.

As you might recall, O'Grady Peyton is our international brand that recruits foreign-trained nurses for long-term assignments in the United States. Foreign-trained nurses represent less than 10% of our working nurses. The ability to obtain visas and place our pipeline of international candidates has been restricted since November of last year, when the federal government hit quotas for Green Card visas available. This is exactly the situation we encountered about two years ago, but it was temporarily alleviated when Congress passed legislation to recapture unused visas.

We are currently pursuing two legislative avenues. One is a temporary fix to, again, recapture a number of unused visas. The other longer-term path to exempt shortage professionals such as nurses from these visa caps altogether. Until we see notable Congressional action on this matter, we will continue to adjust our international operations structure to reduce our expenses.

Now, turning to our physician staffing businesses, revenue growth trends in locum tenens staffing are also positive, increasing 11% in the first quarter compared to last year. This growth was driven mainly by days filled volume, which reached a record high of over 52,000 this quarter, an increase of 6% year over year. Revenue per day filled increased 4% compared to last year, driven by pricing and our mix of specialty placements.

Gross profit for this segment did decline this quarter to 25.2%, which reflects the mix of physician specialists we have on assignment. We certainly always strive to optimize the margin of each placement. However, we continually balance our available supply with the inherent short-term fluctuations in demand for the different individual specialties. As a case in point, anesthesia and radiology are two highly demanded specialties with relatively higher bill rates, but also a lower gross margin percentage due to the higher pay rates.

Of all our specialties during the first quarter, radiologists were the fastest growing in terms of days filled. That said, our gross margin mix in the locum tenens business looks more favorable as we move into the second quarter. There does not appear to be any fundamental market shift that would prevent us from returning to our prior gross margin levels in the future.

Turning to physician permanent placement, this business generated solid first-quarter results, with revenue growth of 5% year over year. Gross profit margins improved slightly on a year-over-year basis due to our team's ability to increase our average contract revenue. We do believe that there is greater opportunity for growth in this business, and we have been somewhat constrained by a lower number of recruiters. We have several newly trained recruiters who will be producing starting in the next several months, and we believe this will help us to drive stronger revenue growth in the future.

So, summing up, we're still very positive regarding our current and future growth opportunities across all of our service segments. There are obviously current direct cost pressures that we must contend with. However, we believe these are manageable, or in some cases, short term in nature. We will continue to push for greater growth in our higher-margin opportunities within each service segment and effectively manage our expense structure to deliver on our overall profitability target.

And with that, I would like to turn the call over to our CFO, David Dreyer, who will recap our first-quarter results and second-quarter 2007 guidance. David?

Thank you, Susan, and good morning. Revenue for the first quarter of 2007 was $284 million, which was consistent with last quarter and 12% higher than the $254 million reported last year. Diluted earnings per share was $0.23, which compared to $0.29 for the last quarter and $0.24 for the first quarter of last year. Fourth-quarter diluted earnings per share of $0.29 included a $0.05 benefit due to favorable adjustments to our professional and liability insurance reserve.

As Susan previously mentioned, our first-quarter revenue and earnings per share were at the upper end of our guidance range. Revenue generated by our nurse and allied health care staffing segment for this quarter was $200 million, which decreased slightly compared to the $202 million reported last quarter. The sequential decline in revenue was mainly due to two fewer calendar days this quarter and a 1% decline in the average number of travelers on assignment per day, particularly offset by a 2% increase in the revenue per traveler per day. Compared to last year, nurse and allied revenue increased 13%.

Revenue generated by our locum tenens staffing segment this quarter was $71 million, an increase of 5% compared to last quarter and 11% compared to last year. The sequential increase in revenue was driven mainly by two additional physician billable days in the first quarter as compared to last quarter, where there were more holidays. This contributed to the 5% sequential increase in days filled.

Billable days are defined in our locum tenens staffing business as the number of work days in the period as opposed to the number of calendar days, which is how we earn revenue in our nurse and allied healthcare staffing business. On a year-over-year basis, the growth in locum tenens revenue was due to a 6% increase in days filled combined with a 4% increase in revenue per day filled. A larger mix of higher bill rate physician specialties and higher pricing drove the increase in revenue per day sales.

Turning to the first-quarter results for our physician permanent placement segment, we reported revenue of $12.6 million. This represented a $700,000 decrease from last quarter, due mainly to last quarter's refining of the methodology used for calculating deferred revenue. On a year-over-year basis, first-quarter revenue increased 5%.

Consolidated gross profit this quarter was $73 million, representing a gross margin of 25.5%. This compared to a gross margin of 26.2% reported last quarter and 26.9% reported last year. Higher housing costs and health insurance claims in the nurse and allied segment and a shift in the mix of physician specialties in the locum tenens segment primarily contributed to the decline in gross margin this quarter as compared to last year.

Additionally, gross profit this quarter and last year benefited by $1 million and $1.4 million, respectively, due to a reduction to our workers' compensation insurance reserve resulting from favorable historical claims experience.

Compared to last quarter, gross margin declined due to slightly higher wages for health care professionals, along with a higher mix of lower-margin government staffing business in the locum tenens staffing segment. Gross margins by segment this quarter were 23.3% for nurse and allied, 25.2% for locum tenens and 63.2% for physician permanent placement.

SG&A expenses this quarter were $53 million or 18.7% of revenue compared to $51 million or 18.1% of revenue last quarter and $48 million or 18.8% of revenue last year. The higher SG&A expenses as compared to the prior quarter reflected mainly a favorable $2.9 million adjustment to the professional liability insurance reserve recorded last quarter. If you exclude the $2.9 million adjustment, SG&A expense last quarter would have been 19.1% as a percentage of revenues compared to this quarter's 18.7% rate.

On a year-over-year basis, the increase in SG&A resulted primarily from higher employee and office expenses, which were in part due to recruitment-related investments to drive growth in all segments and a $400,000 of additional stock compensation expense this quarter. We anticipate that stock compensation will increase by approximately $0.5 million per quarter later this year as a result of annual incentive stock grants that we just issued in April to our management.

We realize that carefully managing our SG&A spending is an ongoing priority, and we have made progress in the first quarter. We continue to closely manage our SG&A spending levels to help offset higher direct costs in order to deliver on our full-year earnings expectations.

Net interest expense this quarter was $3 million compared to $4 million in the fourth quarter and first quarters of last year. The decrease in net interest expense compared to last quarter was due mainly to our debt reduction using excess cash flow. Compared to last year, the decrease in net interest expense was due to a combination of reduced debt and lower imputed interest expense related to our acquisition of The MHA Group.

Turning to our financial position, we generated $20 million in operating cash flow this quarter, which, in addition to $1 million in cash proceeds from stock option exercises, was used to reduce our debt by almost $4 million during the quarter. We ended the quarter with $10 million in cash on our balance sheet and $170 million in total debt outstanding, generating a leverage ratio of 1.9 times.

Days sales outstanding, or DSO, at the end of this quarter was 60 days compared to 63 days last quarter and 54 days for the same period last year. The decrease in DSO compared to last quarter was due primarily to very focused collection efforts this quarter. The year-over-year increase in DSO was due in part to delays in the cash receipt cycle caused by an increased number of nursing clients undergoing implementations of vendor management software systems.

At this time, I will provide you with revenue and earnings guidance for the second quarter. Second-quarter revenue is expected to range from $289 to $291 million, and diluted earnings per share is expected to range from $0.23 to $0.25. We reaffirm our full-year guidance of $1.18 to $1.2 billion in revenue and earnings per share of $1.10 to $1.14. Our full-year estimate reflects greater growth in the second half of the year similar to last year's trend. We will have even better visibility on our growth in the second half of the year, when we report our second-quarter results, and we look forward to updating you on our outlook at that time.

This concludes my financial overview. At this time, we would now like to open the call up for your questions.

(Operator Instructions). Tobey Sommer, SunTrust Robinson Humphrey.

I was wondering if you could comment on the sequential pricing trends that you've seen in the [corner] staffing business over perhaps the first four months of the year, and then I was wondering if you could comment on demand in that area over the last six or nine months and maybe give some comments on the regional demand that you're seeing as well. Thank you.

Sure, thanks. And you said the nurse staffing business, correct?

Correct, thanks.

Yes, I mentioned in my comments that our average bill rate that were actually billed for the first quarter, as well as what we were renegotiating for for current contracts was very much in line with our expectations, kind of mid-single-digit range. A portion of that is being driven by price on the average bill rate. A little bit is being driven by mix and where people are placed, but price is still sort of the dominant driver in that mix.

In terms of our overall demand, I would characterize it as being relatively consistent. Certainly we've seen dips and increases over the last six months. In fact, I think we talked on our last call that we had seen a typical seasonal dip at the end of the fourth quarter, beginning of the first quarter. We saw it pick up at the end of the first quarter and it sort of tapered off a little bit coming into April.

So, we're pretty consistent in our demand overall throughout the country, and we still feel it's a strong demand. You certainly see pockets where you have more increases than others. Our largest states are still California, Texas, New York -- Colorado has seen a big pickup. Washington saw a pretty big pickup. Florida has experienced a little bit more softness over the last six months, I would say. And Arizona as well, which is primarily due -- it's not really a geographical issue, more due to one system that's down there.

So, overall, we certainly still have far more demand than we have people coming off assignment, and we feel like we've got good placement opportunities.

And as a follow-up, I was wondering if you could comment about the international visa issue, and I know that cuts, perhaps, against you in terms of the nurses that you bring over from abroad, but I was wondering if you are having an opportunity to place domestic nurses in those jobs where hospitals had been counting on a longer-term solution.

You bring up a great point, because we're still working very hard with legislators to get a temporary or permanent fix to the visa issue. Really nothing is moving in Congress right now, but we feel that if and when something, we have a high likelihood that they will get a solution passed. We certainly have the attention of the right people. With one-sixth of the nurses taking NCLEX being foreign-trained, this is a much bigger issue for the thousands of hospitals across the country than it even is for us. So we believe there will be a solution that will be put through.

There is speculation, and the hospitals are using the argument with their Congressmen, that if they don't get fixed, they're going to need to use more agency or supplemental staff. So some say this could actually help us more than it would hurt us. We'd certainly rather there be a healthier fundamental fix to the problem, not only for ourselves, but certainly for the hospitals, again, across the country.

It's too early to tell. I don't think that it's really hit most hospitals and that they've felt the pain of the lack of foreign-trained nurses coming through to where they'd turn to us for a greater demand. But should this carry on for another six to 12 months, then that absolutely could be the case.

And on the cash flow side, you had a very strong cash flow in the quarter. I was wondering if you could comment on what the opportunity looks like for you to be able to deploy some of that cash other than debt repayment activity. Thank you.

Well, first of all, as we've suggested, we don't have any acquisitions on the forefront, but clearly, we have kept some cash available for that purpose as well. So that has really been our major priority. Again, things like a share buyback is not really anything that's authorized or that we believe is the best use of our cash. So really right now, it's accumulate a reasonable balance for possible acquisition opportunities and then, again, to focus on paying down our debt, albeit we'll do it in a smart way as to maximize the benefit by lowering interest expense, i.e., paying down early in the quarter, for example.

Jeff Silber, BMO Capital.

I was hoping we can concentrate on gross margins for a few minutes. You cited some of the issues going on on the housing side and the health insurance side. Can you sort of frame that -- quantify that in terms of the order of magnitude? How much higher are these costs relative to a year ago and last quarter?

Two ways. I guess if you want to -- let's compare the sequential changes. Our consolidated gross margin of 25.5 is basically 70 basis points down from the fourth-quarter average. And so if you look at what made up that 70-basis-point drop, actually higher payroll cost was absolutely 80 basis points unfavorable. Housing and travel costs were 20 basis points unfavorable. And then insurance and other right now is 30 basis points favorable. Don't forget that we have that workers' comp adjustment in there. That's basically making up 35 basis points of favorable contribution.

When you break down and look at the segment-by-segment, nurse and allied were basically 20 basis points down, first quarter compared to fourth quarter. Basically, the housing is about 30 basis points unfavorable. And again, if you look at the insurance and other, that's about 40 basis points favorable, again, most of it workers' comp.

When you look at the locum tenens side of the business, gross margins are 25.2%. That's 150 basis points down from the fourth quarter of 26.7%, and here is where payroll basically contribute to 130 basis points of that unfavorable variance. The payroll difference is really driven by mix, mix meaning, for example, government business actually grew to become a little over 23% of our days filled. Last quarter, it was only 20%. And it's very good business, but it is lower margin. Typically, government margins are like 20% or very low 20s, whereas our average locum margins, as you know, are more like 26%.

There's very good reasons for this business. It is, one, a very reliable source. It definitely has simplified placement requirements, and that really facilitates us in terms of placing new supply fairly quickly. So, very worthwhile business, but it is lower margin.

Physician side, we also saw our radiology, basically, in terms of days filled, grew to like 17% compared to 15% last quarter. And this is a very high bill rate business, but it is also a very high competitive pay rate as well, and so that also had an effect on the payroll rates as well for the margins. So, that's kind of in a nutshell what the basic variances are.

Great. That was actually very helpful. I appreciate that. You mentioned the workers' comp benefit. I think you had one last quarter as well. Is that something that we should be seeing going forward, too?

I don't think so. I think it was a little bit [turned up at us], that we had it two times. First quarter and third quarter is when we have actuarial reviews done of workers' comp. The first quarter is typically a very complete actuarial review. So, it was sort of reflective of the fact that we've had very good experiences here. But I don't believe there's any rationale for predicting a favorable adjustment in the future. I think it was more serendipitous.

In terms of the guidance going forward, does the guidance anticipate margins to continue to be down year over year?

In terms of gross margins on a year-over-year basis, we're actually anticipating slight improvement. On a year-over-year basis, our gross margins this last second quarter, at least on a consolidated basis, was 26.8%. So, I would say that it's probably going to be a similar trend as we had last year, which was actually that the second-quarter gross margins were slightly down from first quarter. We are expecting it to absolutely improve relative to first-quarter margins. So that will be different. In absolute amounts, hard for me to comment, but we do expect an improving level of gross margin in the second quarter.

Great. And one more question on gross margins. I'm sorry if I'm beating a dead horse here. But one thing you did not mention was the impact of the shift, I guess, away from the international business. And if I remember correctly, your international nursing makes higher gross margins than your domestic gross nursing. Did that have any impact on gross margins in the quarter?

We should clarify just what that means. Actually, the gross margins on the international business in total are fairly close to the short term. That's when you consider the upfront investments we make to bring them across. When you then actually look at the time they are working, you are right, there is lower -- there is no housing costs, and so for at least that period of time they are working, it appears to be higher margins.

No, we don't believe this is really having a significant effect -- or very minor effect right now on our gross margins in nursing. The bigger effect, again, has been the housing and the insurance costs that we talked about in our prepared remarks.

One more and I will let somebody else jump in. You mention stock-based compensation increasing, I think you said later this year. Can you quantify when that will happen?

It's really directly tied to when we just -- in April 14, our Board approved a stock compensation grant to our management employees, and historically, that then affects our FAS 123 stock compensation expense. So it really is effective mid-April. That will be literally in the mid-part of Q2. The $0.5 million estimate we gave was more on a full-quarter basis. So that's not Q2; that would be more like Q3, Q4.

Michel Morin, Merrill Lynch.

First, I just wanted to clarify, what was the workers' comp reversal? How much was that, and was it all in the nursing segment?

It's $1.3 million, is total. $1 million of it is in the nursing segment, and then there's a $300,000 adjustment to corporate employee expense and SG&A.

Okay. And then the amount last year was how much?

$1.4 million. And that was all in the nurse and allied, so that was in the direct expenses.

And then, Susan, I was wondering on the locum side, I'm a bit surprised by the growth rates that you been seeing here over the past really three quarters. I think the assumption was that there was tremendous amount of opportunity in this business and yet, right now, it's growing slower than the nursing business. Do we need to readjust our longer-term expectations? Is this kind of the reality of this business?

I think that the topline growth expectations are in line with industry expectations and are relatively in line with our expectations. You've just seen a stronger surge within the nurse staffing business. The market growth expectations for nurse staffing was around the 8%, 9% range. And as we said, we saw 13% growth year over year.

Now, whether we're doing better than the market, it's a little early for us to tell, but clearly, nurse staffing is coming on stronger than I think anyone expected this year. So I wouldn't characterize it as a problem with locum or slower growth as much as stronger growth within nurse staffing.

Okay, and then you mentioned on the perm side that part of what is constraining the growth there is the new recruits. When did these come on board? Is it an ongoing process? And when should we start to see some benefit from these investments?

A great question. Hiring new recruiters is an ongoing process. Admittedly, in the fourth quarter and first quarter we didn't have as many new recruiters coming online as we would have liked. And that does have a direct impact on the ability to drive revenue. The existing team did a fabulous job of driving our revenue results, really being a little bit short-staffed. We have several new recruiters coming online -- well, actually some came online at the end of the first quarter and others within the second quarter. And that gives us confidence that we will be able to drive some stronger growth rates going forward.

So with that in mind, does that also mean that maybe the first-quarter gross margin in that business was a bit higher than it probably should be?

No, not necessarily. That shouldn't have a direct impact. You are certainly still paying commissions, and it doesn't really impact your direct-mail costs and other things that are within your direct costs.

Sounds good. Thanks very much.

Gene Mannheimer, Caris & Company.

Nice quarter. Related to the last question on physician staffing, can you comment on any changes to the locum tenens recruiting organization over the last couple quarters and how that might play out in terms of revenue in the back half? Thanks.

Sure. In terms of the team itself, we did add some significant resources to that team towards the end of 2006. And we believe that we are and more so throughout '07 will see the benefits of that investment as that team becomes more and more productive.

The growth is really being driven right now primarily by increase in days filled. We mentioned that our volume was up 6% year over year, and pricing or kind of revenue per day filled was up 4%. We think that that is a nice healthy mix between volume growth and pricing growth, and probably going forward we will continue to see that sort of blend.

However, I think we actually have even greater upside opportunity on the revenue side through some more structured and disciplined pricing approaches. So going forward, you might see a slightly higher blend on pure pricing in terms of driving the revenue.

But as we said, it does get impacted by mix. So right now, we see strong growth in radiology and surgery, which are higher bill rate specialties. Should other areas -- and we certainly are seeing growth in primary care, in behavioral health and others. Should they start to come on even stronger, it can have an impact on your average revenue per day filled.

Jim Janesky, Stifel Nicolaus.

A couple of questions. Can you kind of rank-order the reasons why you are seeing that the back half of the year is going to be stronger on both the top line and the bottom line?

Sure. And it's a similar dynamic to what we saw last year. The third quarter within our nurse staffing business, the third quarter is typically your largest step up in terms of volume increases, and last year in particular pricing increases. So we expect a similar dynamic.

If we look at our demand and supply today, there's no reason we wouldn't believe that we would have that same kind of step up and growth in the third quarter again this year.

In terms of the locum business and perm placement, I mentioned perm placement -- not a lot of seasonality in that business. It's really driven by being able to continue to build out the team. I mentioned we have more firepower, more recruiters coming online, and we think that will continue to drive that growth in a stronger way than what we've seen in the first half of the year.

Locum continued growth, really, in all segments. There are a couple of segments in particular that we think we've not been as effective at and that we can drive some stronger growth in the latter half of the year. So, I think that they are inherent growth factors that we have seen before within the business, some seasonality, as well as some things that we know that we're doing internally that ought to drive some better results in the second half of the year.

And do you anticipate that you will continue to hire recruiters and make additional investments in marketing, or do you feel that the bulk of that is behind us or will be behind us and, what timeframe?

I think you will see a continuation of what we have been doing. It's working. We were able to drive some very strong supply into all of our business lines and it's really that momentum that is driving our topline growth. And so we feel we need to continue to make those investments.

Okay. In terms of the foreign nurse issue, do you get any sense in talking to the folks that you have working for you or helping you out in Washington that there could be any relief in 2007, or do you think that that could be an aggressive assumption?

Oh, absolutely. There are conversations going on literally today, and I've been out there meeting with legislators, as certainly as other executives from the Company, along with our lobbyists, and we have the attention of the right Senators to get something put in, and they understand the issue. It's really a matter of getting something to move. Now that the supplemental bill is expected to be back in for rework, we think that's an opportunity to get something attached in the form of an amendment. So, yes, I think that there is a strong possibility something will get done in the next couple of months. But we are talking politics, so I've learned not to predict that 100%.

Exactly. And with that in mind, Susan, would you say that your outlook for the back half of the year, that any relief, were it to come on a near-term basis, could be incremental to the outlook that you've provided?

Not necessarily, because by the time something were passed and it were implemented, I'm not sure we would be able to actually get green cards processed and people working. Maybe in November and December, but it wouldn't be enough for us to probably have any impact on this year's earnings.

Okay, so it would be a 2008 type of --

Correct.

Okay. And then final question, for David -- the share count jumped about 1 million shares sequentially. Can you review why?

Sure. I mean, the key reasons is that we did have an extremely high level of employee exercises originally in the beginning. It's not really quite 1 million shares. In the fourth quarter, it was 35,074,000, and then Q1 is 35,283,000. So that's basically the increase there. But it was because of a high level of exercises that occurred during the first quarter.

In terms of our full-year estimates, our Q2, we're estimating it to be 35.4 million and then pretty much that it would grow a couple hundred thousand shares as an average in Q3 and Q4, i.e. 35.6, 35.8. The reason for those smaller increments is, again, we are seeing the employee levels come down in terms of stock option exercises. And again, last year, especially third quarter and second quarter, you had Steve Francis exercising, and it had some impact on the shares as well.

Kevin Baker, Chartwell Investment Partners.

How much do you expect gross margins and operating margins to increase in 2Q from 1Q, please?

Well, we don't actually give the specific guidance on what our operating or gross margins are, but I think as we have talked throughout, certainly in all areas, there's actions that we're taking, in terms of nurse and allied, in terms of managing the direct expenses effectively, so you would expect some modest level of improvement.

And in the locum tenens business, clearly mix has been the big driver there. But I think there's a very high focus on that mix, and so we have not, as you noticed, changed our full-year guidance in terms of earnings or top line. And so basically, that would be reflective of the fact that we're obviously seeing improved gross margins, operating margins as a go-forward trend. And Susan also had made a very clear comment about -- that the second half of the year is usually bigger growth rates than the first half as well. So, without giving a specific answer, yes, we obviously are anticipating some increase in both on a go-forward basis.

Starting in 2Q?

Modest increases in Q2, yes.

Okay, because you need the back half of the year. This is the second quarter where the next-quarter guidance is below consensus. The stock now is down 9%. It's been dropping about $1 an hour since the call started. And I don't understand why a $1.2 billion revenue line does not demonstrate operating leverage, given the growth, and why price doesn't catch up a lot more rapidly than it does. And the risk that we get to the 2Q conference call and it's again -- 3Q is below the 308 and the $0.33 that are out there. When does the operating leverage come into the Company, please?

Well, first, Kevin, regarding operating leverage, we actually are seeing improved operating leverage within SG&A. We're being hit by direct cost pressures. Some of it is externally driven. Some of it we feel that we can just do a better job internally as well. And those are offsetting our ability to get better leverage at the bottom line.

As those things come into line, both I think through our own direct management and being able to juggle the compensation packages of the nurses, drive rate increases to cover them, then we will see greater operating leverage on the bottom line. But, unfortunately, we've got our direct costs and gross margins working against us. So that's why we're not seeing it at this time. Long term, even, for that matter, through the rest of this year, we expect to see improvement on both our gross profit margin and our EBITDA margin through the end of the year.

But housing was being offered as an enhanced benefit a year ago. Why isn't price up enough, given the demand that we're hearing about, so that the margin improvement is already apparent, gross and operating?

Housing costs have been rising at a faster clip. If you look nationwide, we are at a low point in terms of vacancy rates and apartment rentals, not for us but for the nation. And that's driving rent increases, in some markets as much as 5% to 10%. So that's sort of offset our ability to completely cover that with pricing increases, especially since we pass some of those pricing increases along in terms of pay rate increases. What we will do going forward is to use our price increases more to cover the housing costs and hold somewhat firm on the pay rates, and that will allow us to bring our gross margin back in line. So, short story is, housing costs have risen faster than the pricing increases.

Just a longer-term trend, again, if you look at last year, the bigger growth has occurred, and our better ability to leverage really has occurred in the second half of the year. I mean, we don't manage the business just quarter to quarter. We're managing, obviously, on a longer-term horizon. But we're clearly still focused on our full-year '07 earnings results, and as what happened last year, you will see a bigger ability to leverage profitability historically in the second half of the year. So, we are certainly not losing sight of that. In fact, that has been a pervasive sight we've had all along.

Just so I'm clear, then, the pricing trends are strong enough right now as we're sitting here so that the margin expansion, gross and operating, kicks in 2Q such that the full-year guidance can march upward starting on the 2Q call.

You will see some improvement in Q2, but greater improvement more in Q3 and Q4. It takes time for the benefit of pricing increases to flow through, based on placement, because you obtain pricing increases typically for future placement. So it takes a while for you to get some traction on the spread between your bill rate and your housing costs.

But you're absolutely right, Kevin, that we're basically guiding more moderate improvements in our margins in the second quarter and typically stronger levels of leveraging improvement in the second half of the year.

Jeff Silber, BMO Capital.

Just a couple quick follow-ups. I don't think you commented on trends in bookings and orders in the nurse business. I was wondering if you can give us a little bit of color there.

Sure. I think I did mention orders have been relatively stable -- certainly some ups and downs over the last six months, but we would characterize them as relatively strong. Placements are up on a year-over-year basis, our placement volume of travelers going into current and future assignments.

Our recruiter productivity is pretty flat. However, it's somewhat driven by the fact that we have a larger number of newer recruiters that have only been in the job for less than two years. Very exciting for us -- one of the investments we've made over the last year is to invest more in training of new recruiters, and we have seen our greatest productivity increases in recruiters in training and in that sort of one- to two-year mark. So that bodes well for us in the future as we look at future placement volume.

Great. And on the physician side, in terms of the impact of the deferred revenue change, is that all behind us now, or are we going to see more of that impact going forward?

No. That was really a onetime adjustment last quarter. That was $500,000 of incremental revenue. That's really behind us as a onetime adjustment.

Great, and finally, what tax rate should we be looking for going forward? I think it was a little bit below the 40% guidance you had given in the first quarter.

In terms of book rate, I know we came in at 39.3% this first quarter. Our guidance was basically to be around 39.5%. The 39.3% to 39.5% is very much the rate that we are focusing on for the rest of the year.

Tobey Sommer, SunTrust Robinson.

Just a follow-up on the traveler side. What do renewal rates look like? I was wondering if you could describe whether they've been changing over the last -- in the quarter as well as the last several quarters.

Over the last two quarters, they have been relatively stable and flat. We typically talk about rebook rates being in the 70%, 75% range, and they're absolutely right in there. We've seen our growth come primarily from new business, new applications, new supply that we're booking for the first time. And that's very positive for us. While we would always like to increase our rebook rate, that new traveler is likely to stay with us for two, three, four assignments. So having a new person out there working is actually more valuable to us and gives us greater visibility and confidence in our future volume trends than rebooking someone who is maybe on their eighth assignment, because they are less likely to take their ninth or their 10th. So we feel good about our rebook rate, but more so we feel good about our new business or new travelers on assignment.

And speaking of new supply, any additional kind of demographic color you could give us on the composition of that new supply? Any change in either the relative age or level of experience relative to a year or a couple years ago?

Yes, we definitely have seen an increase in the younger nurses with less than two years of experience, which we somewhat expected in that you've seen a larger number of nurse graduates over the last couple of years. That is good for us over the next few years, because our largest demographic is that nurse with two to six years of experience.

The downside is, many hospitals want nurses with at least two years of experience. So you are a little more limited in where you can place those people. But even if you take that younger group out of the new supply, we still have far more supply, double-digit growth year over year and sequentially in our unique new applications.

And a follow-up on a question I asked earlier about the use of cash flow -- David, you kind of suggested that an acquisition isn't likely. Has something changed relative to last time we heard from you on a conference call, when it appeared that perhaps you were at least, after digesting MHA and integrating that business successfully, open to and again kind of actively at least looking?

No, I don't think anything has changed. I think David's comment was more that we don't have something to announce today. You should assume that we are actively and always are -- and I think we've been more vocal in that now that we have integrated MHA, that we're going to be more active in looking at allied opportunities, physician staffing opportunities, things that will help us continue to fill out our service offering to our hospitals. So I think you should assume that we are always looking for good strategic acquisition opportunities that would fit into our service line, our culture, and be financially beneficial for our shareholders.

That's absolutely right.

At this time, there are no further questions.

Great. Well, thank you, everyone, for joining us today and certainly for your continued support of AMN. 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 15. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 868751. International participants, dial 320-365-3844. (Operator Instructions).

That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.