AMN Healthcare Services Inc (AMN) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the AMN Healthcare fourth quarter 2008 earnings conference. (Operator Instructions).

As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Director of Investor Relations, Mr. Christopher Powell.

Good afternoon. I would like to welcome everyone to the AMN Healthcare Services conference call to discuss the Company's earnings results for the fourth quarter of 2008. For the call this afternoon 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 available until March 12, 2009. 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 can 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, 2007, 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 Developments subsequent to this call may cause these statements to become outdated.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.

Good afternoon everyone, and thank you for joining us today for our fourth quarter earnings call.

Companies that achieve sustainable leadership positions always balance between investments that will build a stronger, healthier company for the future, while at the same time remaining agile and adjusting to the short-term market trends. In the current economic environment striking this balance is more critical and more difficult than ever.

Fortunately, AMN Healthcare's 24 year history and strong leadership position show our proven ability to strike this balance better than others in our field. Throughout previous economic recessions AMN Healthcare has executed effectively, built market share and emerged in a stronger leadership position.

Our strategy of leveraging the advantages of our size, our differentiated business model, and our diversified service lines, combined with our talented team and solid financial fundamentals, give us the ability to be proactive in our marketplace. It was solid execution of this strategy by our employees that allowed AMN to increase our market share and achieve record revenue of $1.22 billion, adjusted EBITDA of $96 million, and $1.06 of pro forma diluted EPS in 2008.

The Nurse and Allied segment experienced single digit growth that moderated throughout the year. Specifically short-term nurse staffing experienced consistent, year-over-year revenue growth of 2% to 3% over the past three quarters. Based on comments and reports from competitors and their own clients, it is clear that AMN has been expanding market share over the last year.

Our broad and diversified client base enabled us to better weather this market relative to the competition. To this point, in 2008 our top 10 clients in Nurse and Allied staffing accounted for only 9% of revenues in that segment. As hospitals reduce the number of staffing companies they use, we are well-positioned to retain our slot as one of their providers and to gain market share.

Our ability to offer the largest selection of assignments to nurse candidates becomes an even greater differentiator in a down market. While orders are significantly down, we believe we still have about twice as many assignments to offer than our closest competitors.

Despite lower levels, there is still an overall consistent need from hospitals for clinical staff to serve the health care needs of the general population. During the earnings call of one of the major hospital systems, they mentioned that they will "continue to protect the labor at the bedside", and that they will need more nurses next year than this year to take care of increasing volume level.

Some competitors are forced to turn away high-quality candidates in today's market, because they just don't have enough assignments to offer. Our larger selection of assignments also helps us to retain our existing working travelers. This strength was best reflected in the fourth quarter, where our short-term nurse traveler count was flat with prior year, as many competitors experienced declines.

Our decline in overall nursing volume was due primarily to international nursing, which was down about 200 nurses, as we continued to fill effects of visa retrogression.

The pricing environment remains relatively stable in nursing. During 2008 our average revenue per traveler per day increased by 3%, with the fourth quarter rising similarly over the prior year. On top of this, we have seen continued improvement in our housing and insurance costs, allowing our short-term nursing business to achieve gross margin improvement of 60 basis points in 2008 over the prior year.

In our Allied division we are positioned well in the long term to serve the staffing disciplines that are projected to be the fastest-growing, such as rehab therapy, laboratory and pharmacy. During 2008 our rehab specialties experienced 9% growth. However, the Allied industry continues to be impacted by the declines in the imaging specialties. In the fourth quarter we also began to experience a drop in overall Allied orders, although less significant than the drop in nursing.

We continued to lead the locum tenens industry with revenues of $322 million, or 4% higher than the prior year. Our revenue results were a combination of strong double-digit volume growth in behavioral health and dentistry, as well as our largest specialty of primary care. This growth was offset by continued decline in radiology, and some softness in surgery and anesthesia in the second half of 2008.

Our aggregate days filled volume improved 2% year-over-year. And our revenue per day filled contributed the other 2%. Several of the physician divisions actually experienced stronger pricing growth, but these were offset by the pricing declines and relatively lower mix of radiology placements, which typically have the highest daily bill rates.

Gross margins for the year improved slightly at 26.3%, up 30 basis points over 2007, driven by improved bill to pay spreads, but partially offset by lower temp to perm placement fees.

In 2008 our top 10 clients in locum tenens accounted for only 6% of revenues in that segment, indicating our low client concentration. Going forward we continue to see strong but moderating growth in primary care, behavioral health and dentistry. However, there are some external trends, such as fewer physician vacation days, some physicians who are delaying their retirement, and pressure on state and county budgets that could affect the growth rates.

In Physician permanent placement we reported 2008 revenues of $51 million, which was flat with prior year. The consistent need for quality physicians to drive revenue and margin at health care facilities helps provide a more sustainable demand environment than experienced by permanent placement companies in other industries.

For example, during recent earnings calls, major hospital systems reported that expanding their physician recruitment is a key strategy for gaining market share. One hospital CEO said, "I think our physician recruiting is probably the best thing we can do to increase market share". According to another CEO, their success in the face of a weakening economy was due in part to their success expanding their active physician staff.

While the long-term drivers of our business remain well intact, and potentially more compelling than ever, we must deal with the realities of the short term and proactively adjust our infrastructure to the expected lower revenue and volumes.

To this end, we have taken a number of steps to ensure we achieve operational efficiencies, and are the right size to accommodate the decline in travel nursing and Allied orders.

We, of course, looked first externally to eliminate costs through lower spending with third-party vendors. Those efforts have been very fruitful, and we will continue to pursue more external opportunities throughout the year.

But our largest cost center is our employee expense. Over the past three months we have implemented a variety of measures, including minimal replacement for attrition, and a reduction in our workforce. This week we also announced the consolidation of three of our smaller nursing recruitment brands, which will result in lower future operating expenses, including a further reduction in our workforce and the closing of our Huntersville, North Carolina office.

These initiatives to streamline our travel nursing operations by consolidating physical locations and rationalizing our eight travel nurse brands down to five, were decided in conjunction with a long-term, strategic brand study that we launched in 2008.

As part of the study we surveyed that over 3,200 current, former and prospective clients and health care professionals. The results confirmed that AMN Healthcare has significantly higher overall brand ratings than our competitors. Specifically, we were rated particularly high as having an excellent reputation, being easy to work with, being innovative, and filling assignments quickly.

Although we are adjusting our infrastructure and redeploying resources to reflect the current market conditions, we have also been careful to continue supporting initiatives that diversify our productline and broadened our client base for the future.

During 2008 we launched three important new service offerings, including recruitment process outsourcing and staffing services in the home health market and ambulatory surgery centers.

The recently announced economic stimulus package and proposed federal budget includes significant health care-related spending that will likely drive increased need for physicians and nurses, although the timing and the magnitude of that impact is certainly very difficult to predict.

A large portion of the spending is focused on increasing access to health care services. Also, there is long-term funding towards health information technology. We believe that this will also drive an increased demand for temporary physicians and nurses as hospitals implement new systems. In fact, this past year we have already worked with a number of clients who have begun such technology installations.

As a thought leader in the industry, we believe it is very important that we stay on top of these and other trends. As such, we're excited to mention that in December Dr. Michael Johns, Chancellor of Emory University in Atlanta, joined AMN's Board of Directors. Dr. Johns previously lead Emory University's Health Sciences Center, which includes the Schools of Medicine, Nursing and Public Health, along with Emory Healthcare, the largest healthcare system in Georgia.

In addition, prior to Emory he served as Dean of the Johns Hopkins School of Medicine. We are very, very pleased to have Dr. Johns as a Board member. With his deep knowledge of the health care system, he can further enable AMN Healthcare to continue being the industry thought leader.

At this point I would now like to turn the call over to David Dreyer, our CFO, who will give you more detail on our full year and fourth quarter results.

Good afternoon. Consolidated revenue for the fourth quarter was $296 million, 3% higher than the same quarter last year and 6% lower than last quarter. The year-over-year increase was due mainly to the acquisition of Platinum Select Staffing last February, along with volume growth in the locum tenens staffing segment.

The sequential decrease in revenue was mainly from the lower volume in our nursing business that Susan discussed earlier. Fourth quarter revenue was within our revenue guidance given on October 30.

Consolidated gross margin in the fourth quarter was 25.7%, down 90 basis points from the same quarter last year, and unchanged with last quarter. The year-over-year decline was driven mostly by lower gross profit contribution from our higher margin businesses, such as international nursing and the Physician permanent placement, along with continued shift in the mix of specialties within our locum tenens staffing segment.

Gross margin remained unchanged from the prior quarter, despite a typical fourth quarter seasonal downward trend as travelers end assignments early for the holidays.

SG&A as a percentage of revenue in the fourth quarter was 18.6%, down 100 basis points from last year and 50 basis points from last quarter. The improvements were driven primarily by cost-cutting initiatives started during the fourth quarter, along with favorable trends in bad debt and insurance expenses.

SG&A was down 8% compared to prior quarter, mostly in employee cost and third-party expenses, as management slowed down hiring and spending. In addition, last quarter's SG&A included a $1.6 million charge for restructuring and legal expenses associated with our Pharmacy Staffing division.

Depreciation and amortization expense in the fourth quarter was $3.6 million, slightly lower than prior quarter, and up 12% over last year, due mainly to the acquisition of Platinum Select.

Net interest expense for the fourth quarter was $2.7 million, down 9% compared to the same quarter last year, and up 5% compared to last quarter. The fluctuations were mainly due to changes in average LIBOR rates.

The effective income tax rate for the fourth quarter was 47.5%, compared to 39.4% for the same quarter last year, and 34.4% last quarter. These tax rates have been adjusted for the per diem tax matter we discussed last quarter. Management is currently working with advisers to develop alternatives for reducing the future impact to our tax rate. On a go forward basis for 2009 we estimate our effective tax rate to remain consistent at the mid 40% range.

Please note that beginning last quarter all prior period earnings per share amounts reported have been adjusted to reflect the per diem tax adjustment. Fourth quarter fully diluted earnings per share of $0.23 was at the higher end of guidance. This was $0.02 lower than last quarter's -- last fourth quarter's earnings per share of $0.25, and $0.05 lower than last quarter's earnings per share of $0.28.

The year-over-year decline was mostly due to lower results in the Permanent Placement segment, while the sequential decrease was due mainly to the higher effective tax rate.

Fully diluted earnings per share of $1.02 was negatively impacted by $0.03 due to charges taken in the third quarter for the pharmacy business restructuring, along with $0.02 of charges for sales reserve adjustments in our Permanent Placement division during both the third and fourth quarters.

Pro forma 2008 earnings per share without these charges was $1.06, which was 3% above 2007's full year GAAP earnings per share of $1.04. Fully diluted shares outstanding during the fourth quarter were 32.9 million, down 4% from last year and 3% from last quarter, reflecting share repurchases during the year.

We did not repurchase any shares during the fourth quarter. And with access to credit markets tightening up, we are focusing on conserving cash and do not anticipate repurchasing any more shares in the short term. Our average fully diluted shares outstanding for the year were 33.8 million.

The Company generated $14 million of operating cash flow during the fourth quarter, which when combined with $7 million of net cash on hand and $7 million of revolver draw downs during the quarter, were used primarily to pay estimated taxes and reduced debt.

Full year operating cash was $16 million lower than last year, primarily because of the higher cash tax payments. DSO at the end of the quarter was 57 days, down two days from last year, and up a day from last quarter. The Company continues to focus on its collection efforts to drive strong cash flow.

We ended the quarter with $146 million of debt outstanding and a leverage ratio of 1.5 times adjusted EBITDA, a slight improvement compared to 1.6 times a year ago. The Company's debt agreement with lenders has a more stringent leverage ratio covenant that includes letters of credit and capital leases, and requires the resulting leverage ratio to be below 2.5 times in the fourth quarter and below 2 times in 2009 and beyond. Our covenant ratio at the fourth quarter was 1.7 times, well within compliance.

Our debt agreement also includes a covenant for fixed charge coverage, or adjusted EBITDA divided by scheduled interest and principal payments, that must exceed a ratio of 1.25. This ratio was 2 at year end, also well within compliance.

Now turning to our business segments, revenue in the Nurse and Allied segment was $207 million for the quarter, 5% growth year-over-year, but down 5% sequentially. Travelers on assignment averaged 6,865 this quarter, up 3% year-over-year, but down 4% from last quarter.

Gross margin at 23.6% was down 80 basis points from last year, due mainly to the lower revenues from our higher margin international nursing division. Sequentially gross margin remained steady as the loss of the international nursing margin was offset by favorable bill pay spreads.

The adjusted EBITDA margin for this segment was 6.9% for the quarter, down 50 basis points from last year due primarily to higher insurance costs. Compared to prior quarter, adjusted EBITDA was up 60 basis points.

Revenue in the locum tenens segment this quarter was $76 million, a slight increase over last year, but a 10% decrease from last quarter. The sequential decline was a result of a 9% decrease in days filled volume. Gross margin for the quarter was 26%, consistent with last year, and down 60 basis points from last quarter.

Fourth quarter adjusted EBITDA margin of 7.9% was up 230 basis points from last year and steady sequentially, with both comparisons affected by a favorable actuarial insurance adjustment reported in the fourth quarter.

Revenue for the Physician permanent placement segment was $12.2 million, down 7% from last year, and 3% from last quarter. This year's fourth quarter revenue was impacted by an unfavorable sales reserve adjustment. Adjusted EBITDA margin for the quarter of 23.7%, down from last year, and up from last quarter, was driven by lower SG&A expenses.

Management performed required impairment testing of goodwill and other long-lived assets effective December 31 in accordance with GAAP, and concluded that there was no impairment. However, should the Company have a sustained decrease in market value, this would be an indicator that goodwill should be reevaluated for impairment. If a charge were to be recognized, it would not impact compliance with our debt covenants, as it would be a non-cash expense.

With that, now let me return the call back to Susan.

As I hope you have learned from our comments today, we're very focused on building and sustaining for the long term, while remaining balanced with the need to expand our leadership position today and adjust the Company's infrastructure ahead of the challenging market conditions.

We are confident that we are well-positioned to navigate through this market environment. Like most industries, the current economic environment is making it more difficult to forecast our annual financial performance and provide meaningful guidance. Therefore, we will continue to share general business trends, but we will no longer provide specific quarterly or full year financial guidance.

During the first quarter order levels have slowed for most of our business lines, most significantly with Nurse and Allied. This has resulted in travel nurse volumes declining by double-digit percentages both sequentially and year-over-year.

In locum tenens aggregate volumes are trending fairly consistently with prior year and prior quarter levels.

Pricing is stable across most of our business lines, helping to maintain gross margins. On a consolidated basis we are anticipating first quarter revenue to decline in the low to mid teens on both a year-over-year and sequential basis, driven primarily by volume declines in nursing.

The Company expects to record a restructuring charge of approximately $3 million in the first quarter related to employee severance benefits and lease termination costs.

Non cash restructuring expenses are expected to total $400,000. We expect these restructuring actions to result in savings of approximately $10 million for 2009 and $15 million annually thereafter.

As I said earlier, we have taken proactive steps to manage our business and strengthen our operating model through this economic downturn. There are three key aspects of our strategy that we continue to focus on. First, capturing more market share by leveraging our client base. Second, proactively adjusting our cost structure and capturing additional productivity gains. And finally, pursuing further penetration in emerging market opportunities in client segments.

We're working very hard to ensure that we can flex our our operating model in the short term, while at the same time making the appropriate investments to be well-positioned and innovative in the long term.

With that, we would now like to open up the call to your questions.

(Operator Instructions). Tobey Sommer, SunTrust Robinson.

I was wondering if you could give us a little bit more color on the moderating pricing that you described. Perhaps talking about it on a customer size basis or geographic basis, if that is helpful. And then maybe how long ago it started. And you said you don't expect pricing erosion, so maybe you can comment on that as well?

Sure. First, I will address nurse staffing. I would say there is not a particular region or client size, although certainly the larger clients have more of an impact if they're not willing to increase rates, or ere even more so designed to keep rates solid or flat. I don't think there's a big distinction there that you can make.

We do have standard cost of living increases built into our contracts. So there's a certain amount of somewhat natural pricing increases that will occur across the board. And then for those clients that do you have orders, they still want to make sure that they are competitive in their bill rate which translates through to the pay rate.

But with that said, in past year we have been experiencing about a 3% increase in our revenue per traveler per day. We expect that to moderate to flat to just maybe slightly up. We're pretty confident as we sit here today that the pricing increases that we expect to receive will offset the pricing decreases. And there will be some. There will be some clients out there that will want to bring their rates down, because they just don't have the quantity of needs that they have had in the past.

Turning to locum, we have continued to see some pretty strong pricing across all of the divisions, with the exception of radiology. With the softness in demand in volumes have come a need to also reduced the pricing. So going forward we expect that to continue. So it somewhat offset the increases that we expect to continue to see an our other areas.

Within Physician Perm Placement, we expect pricing to be relatively stable. We are the high-priced solution out there. We provide a premium service, and for that charge probably a higher price than your typical contingency type of firm. So we hope that in this environment we will be able to maintain that pricing, but there could, of course, be some opportunity there for softness. Does that help?

That does. Thank you. If I could ask another question. We have been hearing a lot about hospitals from a fundamental standpoint perhaps not quite seeing as much demand from admissions. But I'm wondering if you could comment about their own financing? It seems like there may be kind of artificially low demand because of hospitals really trying to conserve cash. Is that something that you are feeling out in the marketplace?

It is something we are hearing from our clients somewhat across the board, that they actually have needs and demand, but they're having to conserve all operating cash to continue to proceed with maybe some capital projects, whether they be equipment or building related. So there may be a bit. It is hard to quantify, but there may be a bit of pent-up demand there that could be relieved when they start to see better cash flow themselves.

Jim Janesky, Stifel Nicolaus.

When you look at the total revenue declines that you expect in the first quarter, and your comments that locum tenens and physician are relatively stable, when you then flow that through the numbers, and we're talking about a pretty dramatic decline in Nursing and Allied approaching 20% both sequentially and year-over-year.

First, is that our expectation? And has the -- you commented about the hospital environment, but has the employment market also had a negative effect on the demand for travelers?

First, the latter, yes, absolutely. I think the unemployment rate has had an impact on the demand for nurses, as more permanent nurses are picking up more hours going from part-time to full-time, going from retirement back into the workforce. We hear that from the nurses themselves. We hear that from our clients. And I think you have even seen hospitals say that publicly. I think that will definitely continue to have an impact.

In terms of the volume trends for the first quarter, we're not providing specific guidance, but I think you have basically rephrased pretty accurately what we have said in our comments that fairly stable trends in locums and Physician Perm Placement, nursing, down double digits year-over-year and sequentially.

What do you -- with the cost reduction plans in place, and along with the revenue comment, what expectation do you have for EBITDA margins in terms of a decline in the first quarter?

Do you expect, David, for example that -- you were down sequentially about $5 million in SG&A, could you expect something of that magnitude again into the March quarter, keeping in mind that there is payroll resets and revenue decline?

We don't have the payroll reset, because we amortize that throughout the year. But no, I think as our comments stated, generally we are seeing a downsizing of our SG&A expenses.

The one caveat in the first quarter is the restructuring that we have mentioned, almost $3 million. So when you put all that in I think -- we're not going to give you guidance on an EBITDA margin number, but you basically have I think consistency, and then you've got the cost from that restructuring.

But ex the restructuring you would still expect a decline in the EBITDA margins, just because of the trends?

We're really not giving that guidance. If you notice we specifically didn't give earnings guidance, so nor would we provide EBITDA guidance for the first quarter. Sorry, Jim.

When you look at the rest of 2009 from a demand perspective, especially on the nurse travel side, do you see anything -- if current trends persisted both within hospitals -- I mean, while some hospitals are increasing physician recruitment, we have also heard that other hospitals might be laying off both nurses and physicians. And the employment market, I don't expect that it is going to improve throughout 2009.

Do you see anything on the horizon that, other than market share gains as you mentioned, possibly healthcare stimulus package that could increase patient admission rates, do you see anything on the horizon that could improve demand as we move throughout the year?

I think it is uncertain. Which is again why we're not really looking forward and providing clarity on where we think things are going. The things that we think can help us are the market share and the fact that we ought to be able to provide more assignments to more candidates to hopefully maintain and grow more of our piece of the business.

The economic stimulus package should provide some increased demand for first primary care physicians, which is our largest segment in locum. And then secondarily, if you increase admissions into the facilities, it should drive an increase demand there as well. It is just hard to quantify how much that will be and exactly when it will happen. But we see those as only being potentially positive for our business.

That's understandable. Thank you.

David Bachman, Longbow Research.

Commendable job on navigating through a tough environment in the fourth quarter. Just looking at the $10 million in cost savings in '09, and then $15 million annualized, and just thinking about how those roll on through the year. I mean, it is sort of looking that once we get into the back third and fourth quarters of the year that those cost savings will be fully realized across both of those quarters, and maybe some coming on in the second, is there much more of an impact in the fourth than the third, for instance?

There is some impact that will certainly start in the second quarter carrying forward. I wouldn't say it is necessarily straight line. But no, we are recognizing the benefits starting in the second quarter.

That's helpful.

The first quarter is obviously impacted by the cost of restructuring (multiple speakers). And again, I wouldn't say it is straight line, but definitely there is benefits. The nature of the cost are lease expenses and employee costs. And so certainly the employee costs you'll see savings. With the lease expenses, since that is all expensed in the first quarter, you'll see some savings from that as well.

Then I guess -- you're not providing guidance for the year, and obviously there is no visibility there, but is it safe to say though that as we move through the year, we anniversary some of the downturn that we have seen, at least in nursing volumes, so that by the time we get towards the fourth quarter -- at least from a comparative point of view, we're a little better off than we are in the first quarter, maybe from a revenue perspective?

Certainly the four fourth quarter comps will be the easiest on a year-over-year basis. So I would agree there. It just depends upon where the market goes between now and then.

Operator Instructions). Jeff Silber, BMO Capital Markets.

I'm going to try again on another guidance question. In looking at your press release, and I know you chose these words carefully, you say so far in '09 we've got volumes specifically for nursing down double digits. And then you're looking for consolidated revenue to be down low to mid teens. Should we infer from that the double digits is higher than low to mid teens? You can't fault me for trying.

No, you go. I think you know the mix of our business well, so I think you can probably do the math and get something close to what you're suggesting.

Fair enough. I will work on that. Let me just go back to business overall. Susan, in your comments you talked about the fact that you still want to make sure that you are positioned well to take share. I'm just wondering does pricing come into that? Are you going to be changing your pricing strategy in order to keep doing that?

No, we're not. We do find that it is a great opportunity now to be out talking to clients, even if their needs are low, or even in some cases nonexistent. It is actually one of the traps many companies fall into is they pull back so much on their sales resources that they forget to stay in touch with their clients, both the travelers and the facilities.

So it is really important that we are out there talking with them. And if their needs are down, they don't need as many providers. We have seen many facilities pull back and rationalize the number of companies that they are working with.

In fact, one of the largest utilizers of travel nurses across the country just decreased the number of vendors by about 50%. So there is a real opportunity for us to really solidify our position, and in some cases, actually gain a preferred status, where they are willing to give us the orders ahead of the competition.

In fact, over the last five months we have been able to increase the number of preferred status accounts in our nursing business by almost 50%. So it is a good time for us to be out there buildings stronger relationships with clients.

David, I just want to go back to something you had said in your comments. And forgive me, I may have misheard this. But I think when you're talking about gross margins in the locum tenens business you talked about a favorable actuarial insurance adjustment. Can you give us a little bit more color and maybe potentially quantify that?

That is correct. It was approximately $1 million favorable actuarial adjustment. If you go back to our insurance trends, we had fairly significant cost back in second quarter, and now we are seeing a credit. But if you look for the full year, it is trending under 2% of revenue -- the malpractice insurance cost for locums. And that is actually very consistent with what we have expected in prior years.

Great, that's helpful. Just another couple of quick numbers questions. What is your budget, or what would you be guiding for capital spending in '09?

This year in 2008 it came out to basically being 0.7%. It has been below the 1%. So that 0.7% is pretty much a rate that we would assume. There is a lower revenue base so it is under 1% of revenue.

In terms of stock-based compensation, what should we be looking for this year?

It is pretty much right now -- this is one I guess I'll give you an estimate -- a number for, at least for the first quarter. We did finish at $9 million for 2008, which is obviously out there. Our first quarter runrate is about $2.8 million, and we are probably looking at a $9 million full year stock comp expense.

A.J. Rice, Soleil Securities.

Real quick, just a couple of questions. I just want to make sure I understand the gains (inaudible). You guys have in the current portion of debt about $50 million. So I guess in three different buckets. You have $11 million in cash. And it looks like to me in the fourth quarter you're free cash flow was about $12 million. I guess we don't know what it is, but you're probably [looking] for it to be lower, at least in the first half in that.

Is any of that debt that is due in the next 12 months roll automatically? Or could you give us some feeling for if there is any issue there, or if you feel comfortable you'll be able to address it?

When you say in roll, it is primarily -- it is under revolver and our Term B. We basically have, let's say, $120 million of Term B outstanding. We've got about $30 million of revolver.

So that is -- there is no call event of any sort. So our term goes out to 2010 on the Term B. It is 2011 on the revolver. So there is really no immediate pricing events. Again, we talked about covenant compliance. We believe short-term certainly we are going to be in compliance.

So if you looked at the leverage ratios that we report to the banks, there is basically, we believe, plenty of room. So again we don't see any events that would trigger anything with our debt right now. We would like to refinance at some point, but clearly, that is not now. We will be patient.

I guess I was just focused on the portion, the current portion, (technical difficulty) some of it was amortized down. I need to go back, I guess and look at that.

But maybe just quickly on a couple of other items. I think, Susan, you mentioned beyond radiology that there had been a couple of areas where there have been a little bit of softness. I know anesthesiology was the one you mentioned. Can you just go back to those and is there any rationale for the slowness in your mind that might make us feel like it is either just a very temporary volatility, or something that may be a little under term for some of those areas that you pointed out? I think it was three or four.

Sure. It was surgery and anesthesia, which are obviously somewhat tied together. We started to see some of that in the third quarter, and continued into the fourth quarter. Although anesthesia got hit just a little bit harder.

We do think there is some impact from fewer elective surgeries occurring, which has been pretty widely reported. Although the bulk of our business is really more around general surgery, so we have to believe that there is some opportunity there internally as well to improve.

The other thing that we are seeing in some of these areas like anesthesia, where you had group of physicians that are providing services to the facilities, is if their overall income is down, whether it be their own investments, or just availability of work, they are less likely to bring a locums in to help augment, because they need the income themselves.

So we are seeing some doctors that might have historically taken time off, even over the holidays, just stay put in order to make sure they preserve their own income. And that eats into a little bit of the demand.

We do hope and believe that surgery and anesthesia will do better going into the 2009. So far it looks a little bit better for anesthesia, but surgery is just a little bit more choppy.

Is the surgery highly hospital placements, or is there any meaningful percentage that is going to ambulatory surgery centers?

It is primarily hospital.

The last question I will just ask is you had -- obviously you talked about some of the cost initiatives, working -- some of the things you've done with the vendors already and some additional things you are looking at, as well as the downsizing of divisions or the brand structure.

Can you give us some flavor for how -- I don't know if you guys are willing to put dollars around any of that -- but how meaningful those are? Sort of trying to gauge what cost savings have already been implemented and what you're -- still to come in the future.

Sure. I'm not sure we can answer all of it. For the restructuring piece in the first quarter, which was really the reductions in force, the brands consolidation, and the facility consolidation, the annualizing saving is expected to be about $15 million. It is $10 million in 2009, $15 million thereafter.

However, on top of that, we would expect that there could be continued savings from maybe further attrition. I mentioned that we're very selectively replacing positions where people may be leaving the organization. So I would expect that there could be some further opportunity there.

Then on top of that we have our third-party vendor pieces, where we have downsized either our utilization of their services or we have negotiated better rates.

Now that is within the SG&A. Beyond that our team has also done a really good job in housing, for example, and being able to negotiate better lease terms, particularly in our nurse housing. We've are aided a little bit by the market environment certainly, but the team has done a great job. And it is actually brought our average daily rent cost, just kind of pure rent costs, down on a year-over-year basis.

So we think there is further opportunity even in some of our direct cost areas. And that will help us also maintain some stable margins.

That's great. One just clarification on you are saying some things you have done with the vendor using less of their services. I guess maybe I am at the end of the day here, not thinking of it, but what is an example of some -- of a vendor that you don't need as much and that you are using?

Some might revolve around information technology. If there are projects that we were working on that would maybe require us to go outside of the Company for a particular expertise. And we have certainly skinnied back the number of projects that we're working on within the Company, which then translates through to needing less services externally.

Then just really across the board. We have a philosophy, leave no stone unturned -- maybe it is even no pebble unturned -- and looking at every single vendor and opportunities to go back to them to ask for reductions in our spending. I thing every company is doing that.

And certainly on our side of finance, certainly that was things like audit fees, tax advisers, internal audit. Those things still need to be done, but we're trying to leverage much more of the work in-house so that we really reduce our use of the outside parties.

Tobey Sommer, SunTrust Robinson.

Just a follow-up question on the pricing. And maybe from a competitive perspective, I know being the largest you're not necessarily a price taker from your competition, but you have you noticed any different behavior out in the marketplace at this point?

Not with any significant competitors. You certainly always have a lot of pricing pressure. And I would say in locums for example, as the market has grown and become more attractive, you bring in more smaller companies that might be willing to be creative on pricing. So our team has done a great job of combating that, but probably more pressure there.

In nurse staffing we haven't seen any of our major competitors doing anything that would suggest that they're trying to buy the business with lower pricing. I think people have learned over the years that that is a hard hole to dig yourself out of.

So we're not feeling significant pressure there. But still, as I mentioned earlier, we have to be out in front of the clients, continuing to sell the value that we bring to the table so that we can make sure we maintain our pricing.

Then just a question on market share. You are confident that you been able to take market share in recent quarters. Is the volume decline that you have seen in nurse staffing, is it perhaps even more severe at the industry level in your opinion?

I think it has been, at least through what has been reported publicly and what is expected in the fourth quarter. If you just go back to the third quarter, for example, when our short-term travel nurse business was basically kind of flat on a year-over-year basis, some of our competitors were reporting double-digit declines then.

In the fourth quarter, while we might not have all the reported numbers, there is indications that they were again expecting double-digit declines, and our travel nurse business was basically flat on a year-over-year basis.

On top of that, we do get reports from some of our larger clients and systems, and just to point out one example, one of the larger systems across the country, we have currently 3.2 nurses working for every single nurse that our top competitor has. That was 2.8 in the third quarter. So we pretty significantly expanded our market position, we think, in some of our larger clients.

Then just to review the convents about volume trends in the first couple of months of the year, could you refresh my memory as to whether there is any difference between the double-digit declines and what an organic rate of decline may be for the first quarter? Is there any acquisition contribution in that first quarter?

No. we did have the Platinum Select acquisition in the first quarter of '08. But when I'm talking about double-digit declines I am really talking about nursing. And that would be pure organic.

We have no more questions in queue. Please continue.

Great. Thank you everyone for joining us today. We appreciate your interest in AMN. And we look forward to continuing to update you on our next earnings call.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.