AMN Healthcare Services Inc (AMN) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AMN second quarter 2007 earnings conference call. (OPERATOR INSTRUCTIONS) As a reminder, today's call is being recorded.

At this time then I'd like to turn the call over to Chris Schwartz. Please go ahead, sir.

Good morning. I would like to welcome everyone to the AMN Healthcare Services conference call to discuss the Company's earnings results for the second quarter of 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 August 21, 2007. Details for the audio replay of this conference call can be found in our earnings press release.

I would also like to mention our policy regarding forward-looking statements. As we conduct this call, various remarks that we make about future expectations, 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, our quarterly report on Form 10-Q 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 Developments subsequent to this call may cause these statements to become outdated.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. We appreciate your interest in AMN Healthcare and certainly in taking the time to participate in the call today.

We were generally pleased with the performance of all of our business segments during the second quarter. We reported revenues of $294 million and diluted earnings per share of $0.26, which represented an increase in revenue of 13% over last year and notable growth in our two largest segments of Nurse and Allied and locum tenens staffing. In our largest business of Nurse and Allied staffing revenues grew by 11% over the same quarter last year. This was primarily due to higher volume but that also reflected a more favorable pricing environment which we exhibited over the last year. Our volume of travelers on assignment grew by 7% year-over-year and contributed to about two thirds of the increase. And revenue per traveler per day grew by 4%.

Average bill rates and renegotiated pricing levels have generally remained in line with our expectation. However, we continue to believe that there is more opportunity in this area. The positive pricing environment is partially driven by the general ongoing need for temporary labor and keeping pace with nurse wage increases but also it is fuelled by the overall tight labor market. We still have more open orders than we have travelers coming off assignment each month. However, during the summer months we have not yet seen the increase in demand that we would have expected in certain markets. For example, in California we would have normally expected an increasing travelers working during this time but due to softness in demand we are actually experiencing a slight decline in travelers working in California.

While California is the largest contributor, there are a few other states with a similar story on a smaller scale. As we have surveyed our clients the reasons for the lackluster demand seemed to be consistent with what we are hearing from published report and commentary pointing to flat or even lower admissions during the second quarter. There is also some effect from the high levels of recent new nursing graduates who typically fill medical, surgical floor positions; one of our larger placement specialties. On a positive note there were several markets where demand and placements have increased. As an example, during the third quarter we have seen demand and travelers on assignment increase in several states in the northeast, the northwest and in the central regions.

A recent survey we conducted with some of our key clients indicates that most believe their admissions will be at the same or higher levels during the second half of the year versus the first. And just last week we received significant orders for the fourth quarter which is certainly a good sign. That said, due to the slower ramp up we are anticipating that our Nurse and Allied traveler volume will remain relatively flat on a sequential basis during the third quarter. As you know pressures on gross margins in particular due to higher housing costs and health insurance expenses have been a focus for our team. We are seeing some positive trends which we expect to improve gross margins during the third quarter and through the remainder of the year.

Now, turning to our locum tenens staffing business, which continues to produce solid performance and growth. Revenues in this segment were $80 million representing a 19% increase over the prior year and 12% over the prior quarter. These increases reflect both higher pricing and volume with an increase in days filled reaching a record high of 57,600, a 16% increase over last year and 10% over the last quarter. We continue to see an upward trend in the days available for physicians to work and the number of new providers that are put to work reflecting a market which has both robust demand and supply dynamics. We believe this is a strong indicator that healthcare facility executives recognize the importance of ensuring that they have sufficient short-term and long-term physician resources to drive and expand their revenues and margins.

During the second quarter management focused on improving our gross margin by optimizing both overall business mix and aggressively pursuing higher margins on each placement. These efforts resulted in an improved gross margin for this segment during the second quarter and we believe there will be continued improvement during the second half of the year. Our physician permanent placement segment generated revenue and gross margin that were relatively stable to both last year and the prior quarter. However, if we look at the underlying drivers of the business our future growth opportunities are very positive. Our team drove a double-digit increase in new searches sequentially and we expect this trend to continue to grow into the third quarter as even more new sales team members' transition through our training program and into fully producing sales roles. All of this should translate into stronger growth rates over the next year.

So to recap. During the first half of the year revenue drivers were strong in nearly all of our businesses. Although, our gross margins were less than expected due to higher direct costs our teams did an excellent job of managing and leveraging our SG&A to offset those cost pressures. As we entered the second half of the year we still have solid growth opportunities in a physician businesses but our overall growth is being held back by softer demand in Nurse and Allied staffing. Due to the initiatives we put in place over the last few months we are experiencing more favorable growth margin trends in all segments and we expect to see improvement across the board during the second half. We will continue to carefully manage our cost structure to gain continued leverage where possible. However, we will always be diligent to make the proper investments necessary to keep our business growing.

Looking forward, our business is well diversified in what we still believe are the most attractive segments within the healthcare staffing industry. Our primary focus is to continue to build a stronger healthier business and deliver value to our clients and our shareholders. In that spirit, in May we announced the expansion of our Allied staffing business with the acquisition of Rx Pro Health and Pharmacy Choice. The shortage of pharmacists and pharmacy tax is a critical issue for pharmacies nationwide and we believe presents a growth opportunity and allows us to leverage our strong client relationships. This acquisition fits perfectly into our strategy of continuing to offer our clients a comprehensive staffing solution. And we welcome the Rx Pro and Pharmacy Choice teams to the AMN family.

I am also pleased to welcome Ralph Henderson who has agreed to join AMN Healthcare as president of our nurse staffing division. This is a new position for AMN and will provide further focused leadership on our largest business. Mr. Henderson brings to AMN a highly successful background as an executive leader for Spherion one of the largest staffing providers in the United States, where he managed a $1 billion staffing division. Ralph has a terrific track record for performance and just as importantly is committed to innovation, best in class service, and quality; all factors that have certainly made AMN the leader in our industry. Ralph will be joining AMN in September and we look forward to his leadership in this very important business within AMN. And with that I would like to turn the call over to our CFO, David Dreyer, who will recap our second quarter results and full-year 2007 guidance. David?

Well, thank you Susan, and good morning. We reported revenue of $294 million for the second quarter, which was 13% higher than the second quarter of 2006 and 4% higher than last quarter. Diluted earnings per share was $0.26 which was 24% above the $0.21 reported for the second quarter of last year and 13% higher than $0.23 reported last quarter. Revenue generated by our Nurse and Allied Staffing segment this quarter was $201 million representing an 11% increase over the second quarter of last year and an approximately 1% increase over last quarter. The year-over-year improvement was mainly due to a 7% increase in travelers on assignment and a 4% increase in revenue per traveler per day.

Compared to last quarter the sequential increase in revenue was due primarily to one extra calendar day this quarter partially offset by modest decreases in travelers on assignment and revenue per traveler per day. Our sequential volume decline in the second quarter is somewhat typical in the Nurse and Allied business due to seasonal market trends. Revenue generated by our locum tenens staffing segment this quarter was $80 million an increase of 19% compared to last year and 12% compared to last quarter. The year-over-year increase in revenue was due to a very strong 16% increase in days filled combined with a 3% increase in revenue per day filled.

Volume growth was strong in several specialties but particularly in the placement of primary care physicians. A larger mix of higher bill rate physician specialties and bill rate increases overall this quarter drove the improvement. Compared to last quarter the growth in locum tenens' revenue was due to a 10% increase in days filled combined with a 2% increase in revenue per day filled. In our physician permanent placement segment revenue remained steady compared to last year and last quarter at approximately $13 million. Revenue this quarter was lower than expected due to a negative impact from deferred revenue. However, as Susan mentioned, this is the current effect of what should be a greater revenue opportunity in the future. The deferred revenue increase was primarily caused by growth in billable activity from an increase in producing recruiters.

Second quarter's deferred revenue adjustment was in a negative $600,000 while conversely last quarter's deferred revenue adjustment was a positive benefit of $300,000. The combination of more new searches and anticipated growth in the number of producing sales team members should result in revenue growth during the second half of this year.

Consolidated gross profit this quarter was $75 million representing a gross margin of 25.5%, which compared to gross margin of 26.8% reported last year and 25.5% reported last quarter. Gross margin declined on a year-over-year basis due mainly to higher housing costs and healthcare professional compensation. When comparing to last quarter gross margin appears steady at 25.5%, however, excluding last quarter's favorable workers' compensation insurance reserve adjustment this quarter's gross margin improved by 40 basis points.

On a segment basis gross margins this quarter were 23.3% for Nurse and Allied, 25.6% for locum tenens and 60% for physician permanent placement. All of our segments are showing signs of gross margin improvement as we enter the third quarter. SG&A expenses this quarter were $54 million or 18.2% of revenue, which declined from the 20% last year and 18.7% last quarter. The drop in SG&A expenses as a percentage of revenue both on a year-over-year and a sequential basis was due mainly to our careful management of operating expenses. We've realized that managing SG&A is an ongoing priority and we will continue to closely monitor spending levels and help offset the higher direct costs that are affecting gross margin but at spending levels appropriate to drive growth in the business.

For the full year we expect SG&A as a percentage of revenue to approximate 18.5% as compared to 19% last year. Net interest expenses this quarter was $3.1 million compared to $4.3 million last year and $3.3 million last quarter. The decrease in net interest expense compared to last year and last quarter was due primarily to continued payments to reduce our debt outstanding.

Turning to our financial position, this quarter we generated $16 million in operating cash flow, which in addition to the $1 million of cash proceeds from stock option exercises was used to reduce our debt outstandings by $2 million and pay out $5.5 million for the acquisition of RX Pro Health, which closed on May 21, 2007. We ended the quarter with $18 million in cash on our balance sheet and $167 million in total debt outstanding. We're very pleased that we have reached our -- we have reduced our leverage ratio down to 1.8 times at the end of this quarter compared to 2.8 times a year ago.

Fully diluted shares outstanding for the second quarter were 35.3 million. We are projecting that fully diluted shares will decline to 35 million for the third quarter and 34.6 million for the fourth quarter due to the share buyback program announced last month. On a full-year basis we expect fully diluted shares to approximate 35 million. Days sales outstanding or DSO at the end of this quarter was 60 days compared to 55 days last year but unchanged from last quarter. The year-over-year increase was due in part to delays in our cash receipt cycle as a result of a larger number of our hospital clients utilizing vendor management arrangements.

Now, I would like to provide you with revenue and earnings guidance for the third quarter and the full-year 2007. Third quarter revenue is expected to range from 295 to $297 million and diluted earnings per share is expected to range from $0.27 to $20.29. For the full year our revenue is expected to range from $1.16 to $1.17 billion and diluted earnings per share is expected to range from $1.02 to $1.04. This estimate reflects continued favorable pricing trends and growth in the revenue per traveler per day within the Nurse and Allied segment during the second half of the year. However, Nurse and Allied traveler volume for the third quarter could decline modestly on both a sequential and a year-over-year basis. This reflects both the unexpected slower demand that we have experienced in the early summer months in certain key states and the continued limited availability of visas for foreign nurses.

We expect our physician staffing and permanent placement segments to grow in line with our original expectations driven by continued strong demand in recruiting efforts along with favorable pricing. As we mentioned earlier we anticipate gross margin improvements in all of our segments during the second half. That concludes my financial overview. At this time we would now like to open the call up for your questions.

Thank you very much. (OPERATOR INSTRUCTIONS) And our first question comes from the line of Jim Janesky with Stifel Nicolaus. Please go ahead.

Yes, good morning. A couple of questions. When you look at your outlook for the fourth quarter you had indicated during your prepared remarks that you saw a big jump in orders for the fourth quarter. In the past we have seen, in some cases, a divergence between orders and bookings because the hospitals have pulled back on, on the actual number of nurses that they will decide to book rather than order. Would you say your outlook for the fourth quarter -- is optimistic in the Nurse and Allied area for those orders to turn into bookings or how would you classify it?

Hi Jim. I would classify it as realistic. First of all, the orders that we have recently received for the fourth quarter are somewhat typical seasonal orders that we receive from those states that have a population growth in -- instead of October, November and December. And so there is a pretty steady pattern of traveler account growth in those particular seasonal states starting in October. So that is where those are primarily being driven from. Now will they all turn into bookings, will they stall as we move along, that remains to be seen. But at this point they are bookings for October, November and December.

Okay. And when you look at the trends in your O'Grady Peyton division, we had talked -- this is something that is not unknown about the limitations on visas, has it become directionally worse since your last update or how --?

There really just hasn't been any new news or new information that changes the picture. There has been a few opportunities to have a temporary fix put through on some appropriation bills and because it seems to be anything to do with immigration is very unpopular right now. They haven't really been able to move it. So we are continuing to work with legislators to look for either a temporary solution, which is similar to what we did a couple of years ago, where we go back and recapture unused visas. But we need the right vehicle to get that attached. Do we have the language agreed upon? I think we have the right legislators that are prepared to step up but very little is moving with regards to immigration. Now, on the administrative front, we have seen the some small windows of opportunity where the state department has increased the [availability] of visas available. But we will get an opening for a few weeks and we might be able to get 30 or 40 people put through and then it will close down we're hoping we will get more visas available in September but I wouldn't say it is significant change. So the reality else we continue to have international nurses on assignment that are running off. And we don't have enough new nurses coming on board to get them replaced. So it's certainly a drag on our traveler account at this point.

Okay. And then one last question. If you look at this specifically the State of California, which is of course a very important state, to your company why do you think that the order trends are below what your expectations were when you gave a prior outlook for the back half of the year?

I think it is in line with what we've heard publicly from reports and commentary and then we'd surveyed our own clients both within California and elsewhere and the key drivers [to fend] are lower senses, lower admissions in the second quarter versus the first. Certainly lower than expected. And then in California in particular they have been very aggressive in hiring for permanent positions. You might have even seen some recent reports put out by some significant systems in Southern California and their success in aggressiveness in hiring for permanent positions. The other piece is that California has historically been a big user of medical surgical travelers and with the increase in new nurse graduates they are typically filling those med search (inaudible) positions with new graduates and requiring them to stay in that role for up to two years. Now, the reality is your typical new graduate generally doesn't stay at their first job for more than two years. So, eventually, that leaves an opening for the hospital and for that matter it is good news for us because those nurses tend to then come to the travel industry. But the short-term effect is it does kind of eat up the some of the med search demand that we would have normally expected to see. And California really is -- has the biggest piece of this. There are some other states, Arizona for example some different reasons there is -- appears to be more low senses weather-related they have talked about having no flu season and then there has even been some financial issues with hospitals. It just so happens that those are two of our larger states. I think we probably do more business in those states than anyone and so it affects us.

Okay. Thank you.

Thanks, Jim.

Thanks and we have a question now than from the line of Michel Morin with Merrill Lynch. Please go ahead.

Hi, good morning. I was wondering Susan, what would happen if nothing happens on the immigration front? What is the impact to your outlook how much is baked in?

Well, of course, there will be new visas made available in October when the new year comes around it everything is a little bit unknown. What sort of -- and how long it will be available, and how quickly they will be used up? But there is an October 1st date that is meaningful for everybody where more visas will be made available. So that will help us to some degree, and it is really hard to imagine that this would go on too much longer because one sixth of the new nurses that are taking the NCLEX exam and passing are foreign trained this is a much bigger issue for hospitals across the country than it is even just for us. And in fact, if you look at the number of nurses passing NCLEX in the second quarter year-over-year it dropped significantly. The growth rate dropped significantly relative to prior quarters. So I think hospitals will start to feel the kind of the pain of the reduced number of foreign nurses that are made available to them. So I think you will see greater legislative pressure.

Okay. Thank you. That is very helpful. In terms of the softer demand is there any risk that we might see the softer demand start to impact supply as we have seen in the past?

We have not seen that at all. In fact, our supply trends are very positive right now, both on a year-over-year basis we are still double-digit growth in unique new traveler applicants and -- on a sequential basis it is very strong. So I don't see an immediate impact.

Okay. And just finally, can you comment on Allied and what you are seeing there in terms of growth rates?

The growth rates are different, Allied is -- has many different disciplines. You have therapy where -- PTs, OTs, speech and then radiology technologists. We're seeing the greater growth rates on the rehab side a little bit less so on the radiology side.

But net, net that business is growing?

Yes, we expect continued growth through the second half of the year.

All right, thanks very much Susan.

Thanks, so much.

Thanks, and we have a question then from the line of Tobey Sommer with SunTrust Robinson. Please go ahead.

Thank you. One or two -- expand upon the discussion with the international nurses and prospectively what that can do to profitability? Perhaps taking a look at '08 for example maybe wean out a couple of quarters. I know it cuts both ways so that perhaps if international nurse hospitals out there were starting in January and they in fact they don't start maybe they are going to convert that into an order for domestic travel nurse for you. But what kind of net impact could that have on profitability and EPS in 2008? Thanks.

As you know we have not given our '08 guidance, so it is really hard to make that comment, and as you are expecting us we have done already, this year, we will adjust our infrastructure to, kind of, coincide with our outlook and what is really happening within the market. Meaning, if we need to we will need to cut back that infrastructure. We've have actually already done a bit over the last quarter so that we can maintain an appropriate level of profitability knowing that we are not going to have the revenue growth that we would have expected in the near term. Our guidance this year does not assume a solution to the visa cap. So there is really virtually no '07 impact and whatever impact there is we have already built into our guidance for the year. And as I said we'll just continue to make operational adjustments. Now, on international nurses, have traditionally been a little bit less than 10% of our working nurses it's down more in the single digits at this point so the overall impact -- it's not material and not significant.

Okay. Thank you that was very helpful. And then taking a look at the different emphasis that you can have with managing the business. You had a balance of maybe -- it's apparently a bias towards revenue growth in trying to generate volume growth through the tweaks that you have made in the housing as well as compensation. Going forward, do you think you would have a bias of revenue growth versus shoring up the gross margins. Any changes there? Thanks.&&

I think we are always trying to strike that balance between driving revenue driving volume and driving profitability at the same time. We have a very competitive package to our nurses. We don't believe it is necessary nor for that matter is it a good long-term strategy to try to buy off the nurses by sacrificing profitability short-term in order to drive volume and revenue. That is a strategy that is easily replicated almost instantaneously out in the marketplace. So I see us continuing to, in fact, to try to expand our margins, we're having good success in improving our margins going into the second half of the year. So we will continue on that track and I wouldn't see us -- I don't think that the volume or revenue gross or lack thereof from the second or third quarter has anything to do with what you're doing to try to drive better gross margins. It really is a core demand issue within a couple of key markets.

Thank you again, very helpful. Also one last question and I will get back in the queue. You recently issued a share repurchase authorization of about 1 million shares. Any opportunity, do you think, given great strong cash flow characteristics of the business and the relatively modest debt burden to expand upon that in the coming quarters or years? Thanks.

It's Dave. It is certainly possible, the board had just authorized 1 million shares, which we are going to start executing now in the third quarter and the share estimates that I gave you is just based on that. I sort of think it is a possibility. I think it is really the board and management's call and certainly something we could consider going forward.

In that same context is there any update you can give us on what the acquisition pipeline has looked like recently, any changes, are you seeing more or less and any changes in the relative evaluations that [fellows] are looking for?

I don't think anything different in what we discussed on our last call in that we are certainly looking and talking with companies. I -- we think that there are attractive parts of our segment and even new segments that will be synergistic with our core businesses. The issue is finding a quality company at the right valuation at the right time. We are seeing valuations being driven up slightly by private equity. Although I think that we hope to see that cool off a little bit due to the debt market. So, we're hopeful that we will actually see some more reasonable valuations and be able to look at some things more seriously in the future.

Thank you very much.

Thanks, Tobey.

Thanks, then we have a question now from the line of Gene Mannheimer with Caris & Company. Please go ahead.

Thank you. Relating to the last question on acquisitions. As we look back on MHA it turned out to be a great acquisition as you diversified the product lines. And maybe also with to a lesser extent with the Pharmacy acquisition. When you think about what you are going to buy going forward would it be to complement the core business or might it be in other staffing areas that non-nursing to defend against the sick mentality of the core business? Thanks.

Well, I certainly think being a more diversified company with different revenue and earnings drivers had been beneficial for us and will continue to be more so in the future. In terms of acquisitions to add on to our existing businesses we are probably most interested in first, the physician and allied segments because we are a smaller player. Even though we are the largest in locum tenens we are still arguably only 16 to 18% of the market. It is a very fragmented segment of the industry and we think that we could increase our market share and our footprint by doing some quality acquisitions and consolidations in that area. Allied is an arguably $3 billion industry but it is made up of a lot of different smaller organizations that focused on a lot of different areas ranging from rehab to radiology to pharmacy. So a lot of smaller but attractive opportunities there. And then I mentioned in the past there could be things that are related heavily to clinical staffing but are not kind of in the core of what we do today. What we are likely not to do is to go into businesses that have a different operating model meaning say per diem where you have multiple offices across the country, or a commercial staffing where you are really approaching a very different client and a very different type of professional that you are placing.

Thank you, Susan.

Thank you, Gene.

Thanks and our next -- comes from the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much. I'm not sure how granular you are going to go into the guidance but if we take a look at the reduction in the revenue guidance for the rest of the year is the bulk of that due to slower than expected admission trends or is it due to the foreign nurse side or any color you can give us would be appreciated?

Sure, it is Dave. Again, since we -- pretty we're clear that we were looking at relatively slack volume here in the third quarter. That clearly has a carry forward effect into the fourth quarter, which is why we account for that reduction. Relatively speaking the difference it's -- I think what we focus on was really more the earnings side of it as well. So, it was really driven by the nursing because of the flatter volume that we are expecting in the third quarter and that that has a carry forward effect in October, November. And again, as you know there is a normal seasonality for the month of December as well. That was just the Nurse and Allied segment.

Okay. Maybe, I wasn't clear focusing on that.

Jeff, on the international -- just to finish that on the international. We knew at the beginning of the year we had a visa retrogression issue and that case it wasn't likely to get fixed until April or May. And even knowing that we were expecting a lot of revenue growth in the second half of the year. So the bigger effect is the travel nurse demand going into the third quarter. International was largely already baked into our first cut at annual guidance.

Okay, thank you. And then again just focusing on the foreign nurse side. Do you think that is another reason why gross margins are down in the nurse business. If I remember correctly your international perm gets higher gross margins than the rest of your nurse business.

You are right Jeff, because we don't provide them housings but it is not a significant driver, the housing costs for example are by far the biggest drivers. But there is small pressure in impact there from international.

Okay, great. David, looking at your SG&A guidance for the year. It looks like SG&A as a percentage of revenue is going spike up the rest of the year where it was in the second quarter. But where there any one time thing you did in the second quarter to make it lower than it will be for the back half of the year?

Not necessarily lower I mean -- I think the key message is about the 18.5% that we gave as a full-year guidance. Don't forget will present the full year guidance number as well. And so if you look at the first half of the year we did 18.2% this quarter so we are basically looking at that full-year average. Again, relative to last year, it's pretty significant, it is a 50 basis point reduction. So again I think it was more the full-year estimates that we are talking about. We are maintaining or holding it pretty close to these levels during the second half of the year.

Okay, great . You had mentioned in your prepared remarks that you expect the locum tenens in a position prone business to be tracking in line with those expectations. Can you remind us what those expectations

Well, we actually didn't give you the full-year number by segment but if you recollect at the beginning of the year we talked about the revenue growth at that time it was 9 to 11% increase in that they were pretty much it was consistent in all of our segments. Now, we've just lowered the guidance so basically it's a 7 to 8% annual growth rate. But we suggested that the locums business was still tracking at our original expectations.

Okay, great that is helpful. And then just a few numbers questions. In terms of the Rx Pro Health acquisition. What was the impact in the second quarter in terms of revenues?

Really insignificant. Again at the close at the end of May so it's really insignificant from a revenue and from an earnings standpoint. And even for the full-year it's, as we said, when we made the announcement really relatively insignificant both top line and from an earnings perspective.

Okay, great. And if I remember correctly California is your largest state for Nurse, Allied in the past you have given us some color in terms of how large it was as a percentage of revenue so that if you can give that again I would appreciate it.

Well, I think we generally said it was between 20 and 25% and that is still the case. 20% overall for the organization for the nurse [in certain] businesses it is a little closer to 25.

Okay, great. And then in terms of the share buyback when is the window open, when can you start being in the market to repurchase shares?

Well, basically it is being done with a 10b5-1 plan. And as we announced it would start after we've announced the third quarter when our blackout is finished. We are really not giving any specific information about the purchasing activity obviously for very obvious reasons but it all (inaudible) in the third quarter.

And again, just technically, I'm not saying when you will be but technically, when is the blackout finished?

It is actually -- it starts tomorrow, it opens tomorrow.

All right, that is all I needed. Thanks, so much.

Thanks, Jeff.

Thank you and we have a question then from the line of David Feinberg with Goldman Sachs. Please go ahead.

Yes, it is actually Chris Hussey for David Feinberg. Maybe give you this little context and history in terms of the cyclicality of your business and what you're seeing today a relative to what you have seen in the past with the nursing business. In the past what would you equate what you're seeing today to where you feel something that is happening completely differently right now that is unexpected?

Well, we have normally and at the beginning of this year as we had our outlook would have expected to see a sequential up tick in our traveler volume going from the second to the third quarter. It is traditionally in sort of a normal growth period your large step up in terms of volume from Q2 to Q3. We didn't see that this year largely because of these few states and that is what was different. And we have had periods in the past where we might have had more of an sort of across the board, across the nation reduction an overall flatness in the market. And that is not what we've really seeing here. In fact, if we look at our open orders we had orders that were notably up in nine states and notably down in 10 states. It just so happens that the down states were some of our most significant and larger states such as California. So, I would say this is different, it is fairly unique to a few key states. In terms of what is driving that again we would point that to admissions. Now, we have certainly seen that before but the drivers of that and the reasons that is occurring -- I don't know if we ask our hospitals and then we read the same reports you do, I think there is a myriad of reasons why they think that that is occurring. California, in particular, I think has been hit a little bit harder. I think they have also been helped a little bit more by the recent new grads and hospitals have become more aggressive in their own hiring practices.

Now let me say in the seasonable elements of the business but when you -- do you look at this as being sort of the beginning of a down cycle or do you feel that no, it's just sort of an anomaly something happening in --strangely in certain states and that you are fairly confident that this is a cycle that is going to continue to grow. There is nothing going on with the number of nurses in America that is coming out of grad schools that is allowing you to shift away from temporary nursing or anything like that.

Yes, a great question. We don't think there has been a fundamental shift in the business and the hospital's need and utilization for traveler. I do think there are some short-term impacts that are affecting certain hospitals in key markets right now. But in terms of how and why they are using travelers the overall demand drivers, the overall supply drivers, we don't feel there has been a significant shift there.

As Susan said in the prepared remarks there is regions where we are seeing very positive trends this last quarter as well. So it's kind of a mix right now.

Thanks guys. Good luck.

Thanks Chris.

Thank you and we are showing a follow-up question from the line of Tobey Sommer with SunTrust Robinson. Please go ahead.

My question has been answered. Thanks.

Thanks, Tobey.

Great, thank you. And I'm also showing a follow-up from the line of Michel Morin with Merrill Lynch. Please go ahead.

Yes, thanks. I was wondering if you could give it -- maybe I missed it in your prepared remarks Susan, but could you talk a bit more about what is going on in the perm side. You've had no growth year-on-year. I know that you are expecting some resumption of growth in the second half but what has been happening there?

Sure Michel. Now, we've talked in the last couple of calls about the fact that we were not seeing the number of new sales team members that we had expected and this is a business that is largely driven by the production and the number of marketers and recruiters that you have on the form -- on the phone in your -- in the chairs making the call. We ramped up our recruitments effort in that area, and we are able to get through some new sales team members and they hit the floor largely in April. And more hitting the ground here in August. And the result of that has spanned searches, we're up in the second quarter both year-over-year and quarter-over-quarter the number of placements that we made were up quarter-over-quarter in the second quarter. The number of new contracts were up year-over-year and quarter-over-quarter. We think that now that we have a kind of stronger sales force that instills production that we will start to see more growth. In fact, we know we are because of those metrics and we expect to see greater growth in the third and fourth quarter and more going forward. So it is really a matter of hiring, having the right sales team members in production and on the phone.

And as I mentioned the prepared remarks the deferred revenue played a pretty big impact this last quarter -- if you look back at basically the gross billings which is basically what is being invoiced. It actually grew by $1 million sequentially up to [$13.3] million in Q2 versus $12.3 million in Q1. The deferred revenue adjustment as we mentioned earlier was a negative adjustment. And that really has to do with the mix of revenue and again it was a significant increase the number of new searches which is more upfront level. And also in the middle where there was direct mail. So that shouldn't be underestimated and the fact that the new searches grew sequentially about 10%, which is definitely forward-looking in terms of future revenue. Especially, the fact that so much of it was deferred.

All right. Okay, that was very helpful. Thank you and then just one final one. You mentioned something in your prepared remarks about increased vendor management arrangements. Could you elaborate a bit on that?

Yes, it was the same trend that we talked about last quarter as well and that had some effect with our DSO. It's really been in the nursing and Allied primarily. Where more and more hospitals systems are working with third-party vendor management, software companies, intermediaries. And a typical scenario was basically the payments are basically coming through that third-party. The invoicing is going to that third party so it has added some delay in terms of days sales outstanding.

And how significant is [VMS] now as a percent of your Nurse and Allied revenues?

We haven't actually given it in that perspective it has been more about the number or the percentage of total customers. And while I don't think we have actually given it, it is significant. I mean it's more than a third of our hospital customers.

Okay. And that is presumably growing faster than your top line in that segment?

Yes.

Okay. Thanks very much.

Great, thank you and I would like to turn the call back over then to Ms. Nowakowski for any closing comments.

I would like to thank you for joining us today and certainly for your continued support. We look forward to providing you with a further update on our performance during our third quarter earnings call.

Great, thank you very much. And ladies and gentlemen this conference will be available for replay starting today Tuesday, August 7. At 4:15 p.m., Eastern Time and it will be available through Tuesday, August 21st at midnight Eastern Time. And you may access the AT&T's Executive Playback Service by dialing one 1-800-475-6701 from within the United States or Canada or from outside the United States or Canada please dial 320-365-3844 and then enter the access code 876819. Those numbers once again 1-800-475-6701 for within the US or Canada or 320-365-3844 from outside the US or Canada. And then again enter the access code of 876819. And that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive Teleconference. You may now disconnect.