AMN Healthcare Services Inc (AMN) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare second quarter 2009 earnings call. At this time, all participants are in a listen-only mode, and later we'll conduct a question-and-answer session. The instructions will be given at that time. (Operator Instructions). As a reminder, the conference is being recorded. I would now like to turn the conference over to our host, Ms. Susan Nowakowski, President and Chief Executive Officer. Please go ahead.

Thank you. Good afternoon. 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 2009. I will be giving an overview of general business trends and our strategic approach to the marketplace. Later in the call we will also have David Dreyer, AMS, Chief Financial Officer give an overview of our earnings results. At this time I would like to introduce Amy Chang who is assuming responsibility for investor relations. Amy has been with AMN for over seven years and has held various roles within the Company giving her a deep knowledge about both the industry as well as our operations. I will now turn the call over to Amy Chang, Vice President of Investor Relations.

Thank you, Susan. Good afternoon, everyone. Welcome to AMN Healthcare second quarter 2009 earnings call. He a replay of this webcast is available at AMNhealthcare.com\investors and will be available until August 20, 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 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 statement that refers 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, 2008, and other quarterly and periodic reports 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 on 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 back over to Susan Nowakowski, AMN Healthcare Services President and Chief Executive Officer.

Thank you, Amy. By now I am sure you have all heard the words we are challenged by the economic market conditions more than you care to. Our industry is clearly not immune to the impacts of this environment. However, I will say that a key differentiator for AMN is that we are steadfast in our execution of the strategic initiatives that will position us to evolve our service lines with the changing healthcare environment and drive future long-term growth. We are the recognized leader and innovator in the industry, and we think this environment provides us with unique opportunities to bolster our position in the marketplace and continue our evolution as a Company.

There are four key areas that set us apart. First, we continue to be focused on maintaining and building stronger client relationships, and we are aggressively pursuing preferred provider and vendor management contracts. Second, we have made significant progress in our new market expansion initiatives to further diversify our service lines. Third, we continue to streamline our operational cost structure to deliver consistent operating margins and improve our margins and profitability as the market resumes growth. And fourth, we have strengthened our balance sheet by paying down our debt and increasing cash putting us in a strong position to take advantage of future market expansion opportunities.

Our ability to remain agile and execute well in the short-term while keeping an eye nurturing our new service lines will allow us to emerge from this economic cycle as a stronger leader and better positioned to capitalize on new market opportunities. Short-term demand trends are still challenging, but have become more stable and are even showing small signs of improvement. Some healthcare facilities are reporting slight growth in admission levels. However, this has not yet translated into a material improvement in temporary staffing demand. The economic environment and high unemployment rates have temporarily made it easier for facilities to recruit permanent healthcare professionals to encourage staff to work more hours, and at the same time reduce attrition rates. This is consistent with the Bureau of Labor Statistics report that healthcare job quits were down in April 31% over prior year.

Similar to the trends we saw in the previous downturn, clinical professionals are postponing retirement, those who left the workforce are returning, and many who were working part-time are now working full time. However, these are not considered sustainable trends in the long-term. Further contributing to lower staffing demand is the challenge facilities are facing in accessing traditional cash flow and capital sources, a significant portion of admissions improvement has been driven by the uninsured, and facilities are seeing substantial increases in their charity care and uninsured discounts. Little or no access to capital caused many hospitals to temporarily put capital expansion plans on hold which in turn affects their immediate need for increased number of clinicians. Despite these short-term trends, the long-term fundamentals that drive our industry have not changed. In order to serve the growing aging population and the expected increase in patient flow due to healthcare reform hospitals still believe it is critical to stay focused on physician recruitment and long-term expansion of clinical services.

Most agree it is not a matter of if there will be an increased demand for clinicians but more a matter of the timing and severity of the shortage that is are looming ahead. While there is still much uncertainty around what will be passed in healthcare reform, most experts believe there will be increased access to care and an increased emphasis placed on preventative and early diagnostic care, both of which will increase the demand for primary care physicians. We anticipate this to be a positive trend for our low tenants business as primary care is our largest specialty.

While the long-term fundamentals are still very compelling in the short-term the economic environment is resulting in lower demand for temporary clinical staff and continues to impact our business, so we have been adjusting accordingly. During the second quarter we experienced a decline in consolidated revenues of 36% over last year. The biggest contributor was a volume decline in the nurse and allied segment which experienced a 48% year-over-year drop in revenue.

While we are certainly not happy with these numbers, we do believe that the strength of our relationships across our broad and diverse client base and our focus on delivering noticeably differentiated service and quality will enable us to grow more quickly as the market recovers. Some competitors have been eliminating their field sales staff. However, we have been careful to reduce and streamline our infrastructure in a strategic way to retain a strong experienced salesforce and minimize the disruption in our client relationships and keep us top of mind as our clients needs increase.

We have already begun benefiting from these efforts this year. Our client satisfaction levels are up year-over-year, and we are experiencing important wins from our aggressive pursuit of preferred provider relationships that give us lead time or exclusivity on orders. The current market environment of low demand and vendor rationalization trends has enabled us to leverage our strengths as an industry leader and position AMN as the preferred provider and master vendor supplier particularly as small competitors grapple with performance and cash flow issues.

In a first half of the year our number of preferred provider relationships increased by over threefold. A specific and important example of this is a recent contract that we secured with one of the largest and fastest growing home health providers in the country where we were selected as a primary supplier with lead time on all orders for their temporary nursing and allied staffing needs. Not only does this help us in generating demand in placements now, but it sets us up to grow faster as the market returns by having these strategic relationships already established.

Our industry leading position has also helped increase our share of the travel nurse supply. It is not surprising that healthcare professionals prefer working with a company that has more orders and financial stability, particularly during these uncertain economic times. As the market begins to grow, we believe our preferred position with both healthcare professionals and clients will enable us to pick up volume and placements more quickly. This has clearly been our pattern during the last two periods of market rebound.

Our locum tenens segment achieved second quarter revenues of $79 million which is 6% lower compared with prior year but a 6% increase over last quarter. Our results were driven by sequential improvements in volume across all specialties. The sequential improvements in surgery and anesthesia were a notable turn and are consistent with the flat to slight improvements in surgical volumes reported by healthcare facilities. While radiology also experienced a sequential volume increase, we anticipate that the radiology environment will remain at lower demand levels until reimbursement rates are adjusted. Although pricing was up in most specialties, revenue per day filled was flat year-over-year due primarily to a mix shift away from our highest bill rate group of radiology as well as some of the internal medicine set specialties.

If you look at our results, excluding the radiology division, revenue was basically flat on a year-over-year basis. Overall our days filled volume for the quarter was down 5% over prior year and was up 4% sequentially. While the physician market has not been nearly as impacted by the economy as the nursing market, it has not been immune to it either.

During the second quarter our overall days available which is a leading indicator of demand was at a lower level compared with prior year. However, we are seeing signs of demand stabilization as we experienced a modest sequential growth in days available across all specialties in the second quarter. Additionally, fill rates continued to be at higher levels over last year across all of our specialties. In addition to focusing on daily execution, we have also dedicated resources to new areas that will fuel our future growth in the physician market.

Last quarter we announced our reentry into the emergency medicine staffing market and have been able to get off to a fast start by leveraging the strong relationships we already have with hospitals. This division is small today, but we seem to be on track to achieving our longer term goal of adding 10 to 20% more revenue opportunity to our locum tenens business as this specialty matures. In physician permit placement second quarter revenues were $9 million which is 34% below prior year.

The decline was driven primarily by a decrease in placement volume and pricing from lower overall demand in new retained search activity. Hospitals continue to focus on physician recruitment as a strategic part of their growth initiative. However, in order to lower their costs, some are attempting to hire physicianing more directly through their own internal recruitment efforts. Over the years we have seen this trend come and go with varying levels of success. Another short-term complication affecting the supply of candidates has been the current housing market which has made physicians less willing to relocate.

In response to the market environment, we have placed a renewed emphasis on sales training regarding the marketing and client education process. This might sound simplistic, but it is a very different sell in today's uncertain economic environment. While most current and potential clients know they will have long-term increased needs for physicians, many are in a wait and see mode and are preferring to recruit more slowly until they have a clearer view of the future. If we can provide them with better information on how the future increase in patient flow will affect them, we can often help them to make a more educated and timely hiring decision.

Across all business lines, we have been pro active and disciplined in adjusting our infrastructure. Some of the cost reductions we have made in direct response to the short-term volume trends. However, many of the changes are permanent and strategic improvements to our business model and cost structure. We discussed several of these initiatives in our previous earnings call and are pleased with the progress that has been made.

During the quarter we have further streamlined our business model through additional moves to consolidate facilities and centralize brand and back office operations which will improve our profitability and better leverage our infrastructure in the future. These changes and cost reductions have taken a tremendous amount of hard work, fortitude and personal sacrifice from our team members. Our success through these transitions is a testament to the passion and commitment of every single person at AMN. I know I speak for the entire management team and our Board when I say thank you to our talented team members for maintaining such an unwaivering resolve and having the courage to execute rapidly on critical changes during this unprecedented time in our market.

Despite the marketing driven declines in revenue, we have kept a steadfast, strategic focus on staying close to our current clients, but we are also investing resources in pursuing new service offerings such as recruitment process outsourcing and dentistry, emergency medicine, and home health staffing. These efforts position us to continue our track record of innovation and executing on our long-term strategy of investing in additional new market opportunities that will be synergistic with our core service offerings. No other company in our industry has increased their service offering reach to the same extent. What's more notable is that we have been able to make these investments while maintaining consistent levels of operating margins. At this point I would like to now turn the call over to David Dreyer, our CFO, who will give you more detail on our second quarter results. David.

Well, thank you, Susan, and good afternoon. Total revenue for the quarter was $199 million, a decline of 20% from the first quarter and in line with the outlook provided last quarter. This decline was driven primarily by lower volume in our nurse and allied segment as we continued to be impacted by economic conditions. Gross margin in the second quarter came in at 27.0% versus 26.4% in the prior year and 25.6% last quarter. The increase from last year and last quarter was due primarily to a shift in our business mix as travel nursing has become a smaller portion of the overall business as well as aggressive management of direct costs.

SG&A expenses which included approximately $3.5 million in favorable adjustments to our professional liability insurance reserves came in at $38 million which was 37% lower than prior year and 24% lower than prior quarter. This lower level of SG&A reflects our infrastructure adjustments in response to the sharp revenue declines we have experienced as well as the insurance adjustments. As a result of continued focus in operating efficiency, we expect our SG&A spending levels to continue to decline through the third quarter and stabilize in the fourth quarter.

As a result of the strategic branding and facility consolidation initiatives, we are recorded a restructuring charge of $2.2 million in the second quarter of which approximately $900,000 was related to severance and approximately $1.3 million was related to lease terminations and other expenses. These actions were taken after a detailed brand analysis while we expect to experience a slight temporary reduction in volume due to the disruption, we have improved our platform for execution in both our existing and new business lines. The Company expects to record additional restructuring costs of approximately 7 million to $8 million in the second half of the year of which about half will be cash outlays in the current year.

The Company's effective tax rate for the quarter was 44.8% compared to 46.9% last year and 28.5% last quarter. The sequential change reflects an updated projection of a smaller full year net loss than previously estimated which requires booking tax at a higher rate to true up the difference. Our full year 2009 effective tax rate is projected to be approximately 28%. As previously mentioned, the primary difference in our 2009 projected tax rate as compared to the statutory tax rate is the impact of permanent differences associated with the restructuring and asset impairments recorded in the first quarter.

The Company recorded net income of $4.4 million or $0.13 per diluted share. Excluding restructuring charges, but including the $0.06 benefit from the adjustment to our insurance reserves, the Company's net income on adjusted basis was $5.7 million or $0.17 per diluted share. The Company continues to generate strong operating cash flow which was assisted by significant reductions in accounts receivable. During the second quarter we generated $36 million of operating cash flow which was used primarily to pay down debt. DSO improved by 2 days to 52 days as the team has done an excellent job managing collections in the current challenging market.

We ended the quarter with $90 million of debt outstanding, a reduction of $56 million since the beginning of the year and a debt to EBITDA leverage ratio of 1.1 times, an improvement compared to 1.6 times a year ago. We are well within compliance of our debt covenants. In addition, we have been able to grow our cash and equivalents by $12 million since year end up to $23 million.

Now turning to our business segments, revenue in the nurse and allied segment was $111 million for the quarter reflecting a 48% decrease from prior year and a 32% decrease sequentially. Travelers on assignment averaged 3,661 this quarter, down 49% versus the same quarter last year and 33% sequentially. Gross margin of 25.0% was 50 basis points higher than last year and 200 basis points higher than last quarter mainly from effective management of direct costs. Average revenue per traveler per day was up slightly due to relatively stable pricing and a slight increase in hours worked. The adjusted EBITDA margin for the segment was 6.2% for the quarter, down 30 basis points sequentially and down 160 basis points from last year due primarily to the revenue decline, outpacing our ability to cut SG&A spending. Revenue in the locum tenens segment this quarter was $79 million, a 63% decrease if last year and a 6% increase from last quarter. The year-over-year decline was due almost entirely to lower volume as revenue per day filled remain generally stable.

Gross margin for the quarter was 26.1%, up 30 basis points compared to last year and down 10 basis points versus prior quarter. Second quarter adjusted EBITDA margin of 11.4% was up 6.3 percentage points from last year and last quarter due to significantly lower SG&A spending as well as the previously discussed professional liability insurance benefits. Backing out the insurance benefits would have yielded a 7.4 percentage EBITDA margin, 2.3 percentage points higher than prior year and prior quarter. Revenue for the physician permanent placement segment was $9 million, down 34% from last year and down 19% from last quarter. These decreases were driven mostly by declines in new search and placement levels along with lower average fees. Adjusted EBITDA margin for the quarter was 24.8%, down 380 basis points compared to prior year and down 300 basis points from last quarter. I will now return the call back to Susan.

Thank you, David. Before I give a brief outlook on business trends, I would like to thank David for his outstanding contributions and service to AMN over the past five years. Earlier this year David made the decision to pursue other career opportunities and has since helped the Company to have a smooth and seamless transition. We will miss David, and he has been such an important and integral part of our executive team. We are pleased to announce that as part of this transition Barry Bailey is joining the AMN team as our Chief Financial Officer. Barry brings nearly 30 years of experience in finance and operations in the healthcare, insurance, and pharmaceuticals industries. He was most recently CFO at Valiant Pharmaceuticals International. Earlier in his career he also served as CFO of Premier, one of the largest healthcare group purchasing organizations in the U.S. We believe Barry's expertise in the healthcare industry as well as his passion for strategic differentiation will add significant value to the entire organization.

Now back to our outlook. Going into the third quarter nursing and allied order levels are still significantly lower than prior year but are showing signs of improvement. At the beginning of the third quarter our travel account was still feeling the effects of the drop in demand earlier in the year, but that should come to an end soon with a stabilization in orders since April and the trailing off of assignments we expect to now see traveler count volume bottom out during the third quarter. Our travel account volume will be slightly lower than otherwise normal due to the expected short-term traveler attrition associated with our brand and office consolidation. Our experience is that these short-term losses are usually recovered in a couple of quarters.

In locum tenens and physician permanent placement early indicators for days available and searches are expected to be up slightly. However, due to the lab time for placements, we anticipate third quarter aggregate volumes will be flat on a sequential basis. Pricing continues to be stable across most of our business lines helping to maintain gross margins. On a consolidated basis, we are anticipating third quarter revenue to decline by approximately 15% on a sequential basis driven primarily by the volume declines in nursing.

As I hope you have learned from our comments today, we remain very focused on four key aspects of our strategy. First, continuing to leverage the advantages of our industry leading position, our strong salesforce and diverse client base and aggressively pursuing preferred provider relationships. Second, our focus and progress in growing new service offerings. Third, our disciplined approach to improving our cost structure to deliver consistent profitability margins and better leveraging the Company's operating model as the market rebounds. Fourth, the prudent management of our balance sheet and significant reduction in debt which positions us to invest in future market expansion that will drive long-term growth and contribute strategic synergies to our core service lines. These key initiatives enable us to address today's challenging environment and deliver consistent margins in the short-term while at the same time position us for long-term growth and expansion of our market leadership position. With that, I would now like to open up the call for questions.

Thank you. (Operator Instructions), Our first question from the line of Jim Janesky with Stifel Nicolaus. Please go ahead.

Hi. A couple of questions. We have now had the benefit of all the competitors, the publicly traded competitors reporting their results in nurse and allied staffing, and have seen the outlook for the September quarter at various levels. Your outlook for the 15% sequential decline and kind of your comments about skewed towards nursing does kind of -- does indicate a little bit of higher decline than some of the competitors are at least projecting. Does that have to do with the attrition you referred to or with the office closures? I didn't quite catch what you meant by that. If you could just clarify that a little bit, I would appreciate it.

Sure, Jim. First of all, we are encouraged by the recent increases in orders, and the momentum that we're starting to see, it is still at a very low level, and so I think we're wanting to be cautious about how much that will actually translate into longer term volumes, so we're probably just being cautious there as well. I also think that it is important that you look at market share gains over the long-term. At these low demand and volume levels, market share can bobble around a percentage or two based on some very low, low numbers, and so our goal is to really build market share over the long-term which I think we have proven that we do.

In the third quarter I do believe we will be impacted slightly more than our competitors because of the consolidation decisions that we have made. Our experience has been, and we have done these things before, that when you combine brands or combine offices, you go through a temporary reduction in the travel account from those brands that you're consolidating, and you typically regain that within a couple of quarters, but it is just a price you pay from going -- making that long-term decision that's right for the business, but maybe losing just a little bit of volume short-term.

Okay. We heard -- shifting gears a little bit we haven't talked about this in awhile, but we heard today something about the federal government is kind of loosening up the Visa program for foreign workers again. Is that something that you think will affect nurses as well or have you heard anything about it?

We haven't heard anything that gives us any encouragement that something will be done within the next six months. I think this is still a 2010 issue they will want to get through the healthcare issues first and then hopefully that will force them to turn to the immigrations as it relates to healthcare professionals, so nothing that's particularly encouraging to us.

Just going back, Jim, to your earlier question, too, regarding the volume numbers across the market, it is also a little bit tough to compare the competitors apples-to-apples because different competitors have different components that are being reported in their nurse and allied segments. For example, we're not in the per diem business. We don't have that segment, and we do agree that hospitals as they're seeing increases in admissions and have increased needs, they might be turning first to per diem to get a daily help as opposed to having to commit for a longer term assignment.

Sure. Thanks. And then shifting gears, David, to SG&A, if I -- is the insurance reserve reversal one-time, do you believe?

Well, yes.

You don't expect it.

We don't expect it. That's exactly right.

If I add that back to the SG&A number and take out noncash based stock comp, I come up with about $39 million in EBITDA, and that's 19.7%. When you made the comments about stability and first of all did you say that you do expect it to be lower in the September quarter and then stabilize in the fourth quarter?

That's correct.

Is that on a percentage basis or off of my, quote, core $39 million?

Percentage basis. If you adjust for that $3.5 million, it is about 21% of revenue. You estimate spending levels.

Yes.

On a go-forward basis we're probably looking at more like 21 to 22% of revenues. You look at the absolute dollars, we're probably leveling at a run rate of $35 million a quarter. You will see that dollar level come down, and that compares to like $50 million is what the quarterly spend was in Q1 that 20%. So roughly averaging 21 to 22% and leveling at 36 million, $35 million per quarter.

Thanks. And just final question. The tax rate for the balance of the year, is around what you reported this quarter, the 44 to 45% range, would that be a good number per quarter for the third and fourth?

Well, we're basically saying the full year is going to get to 28%, and this quarter was really sort of a true up adjustment to get to that level. I would say you're shooting to get towards that 28%, right. On a go-forward basis I know we have had this year big losses which has really made our rate lower than it has been historically, and it is probably in the low mid-40s on a go-forward basis in 2010. This year you should be shooting to average the 28%.

Okay. All right. Thank you.

Our next question is from the line of Tobey Summer with Suntrust Robinson Humphrey. Please go ahead.

This is Frank in for Tobey. Quick question, I guess the gross margins were pretty good in nurse and allied. Wanted to see what trends were in the bill pay spread versus travel expenses and other expenses that may hit that line?

Sure, Frank. In general we have seen an increase in the bill to pay spread within nursing. We have seen some modest improvement in our housing spend, particularly as rents have come down on a year-over-year basis and our team has done a great job of negotiating those, vacancy has been pretty stable for us, and so that helps contribute to the efficiency of our housing. It has been a little bit offset by some increases in health insurance, which is a little bit of a result of the trail off of higher volumes in prior quarters, as well as just generally within the economy what we're being told from our insurance brokers is that all companies are seeing increase in the claims as people might be losing their jobs, and are contemplating that, and there has actually been an uptick in the utilization. We don't expect that to really continue going forward.

As we look at margins going forward within nursing we would characterize them as being stable. We are not looking to dramatically increase our bill to pay spread going forward. We think we're in a good place right now. Certainly we evaluate every hospital, every opportunity, but we also to want make sure that we are priced competitively in a compensation we're offering to the travelers, and especially now as we see demand picking up a little bit we want to make sure that we're at a competitive pay level.

If I could just add, I know your question was really more to pay bill spreads, but clearly mix was a big part of this as well, and if you really looked at what's happened to the physician business as a percentage of the total revenues, it is like averaging 44% of revenues, last quarter it was more like 34%, and so that's obviously had a big effect, and depending on how you look at it, either year-over-year or sequentially, it is a combination of both. It has been improved margins in nursing primarily and it has been this mix issue as well.

Okay. Great. And could you talk a little bit about bad debt trends or the collection environment and what you're seeing there?

Sure. We have seen some bad debt, nothing I would say that's alarming, and in fact our DSO improvement in the large amount of cash that we collected this quarter would be a testament to that. We have seen a bit. There is a vendor management group that we have had some issues with, but I would say it is nothing that we're overly concerned about, and we believe we're managing our collections actually very diligently.

Okay. And looking at the allied side, are you still seeing the same trends in decline in imaging, kind of strength in rehab, laboratory work?

We are, Frank. That certainly is a continuing trend.

Okay. And finally, I guess CapEx for the quarter and your thoughts going forward?

We have been averaging about $1.2 million per quarter, and I would say it is probably likely we're going to continue at that level, so on a full year basis we're probably looking at something like 5 million, at most $6 million for the full year.

Great. Thank you very much.

Our next question from the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much. Wanted to get a little bit more color about your brand consolidation. Have you announced exactly which brands you are consolidating and I am wondering what the thought process was behind that.

Sure. We did announce on our last earnings call that we were consolidating three brands, eliminating three brands and consolidating them into our larger brands. That was RN Demand which was based in Texas, Platinum Nursing, now, the Platinum Allied division continues on, and they had a small nursing component embedded within them, and then our Preferred Healthcare Brand which was based in Ft. Lauderdale. We combined that with the Nurses Rx brand and shifted some of the travelers to some of the other brands where they might have had relationships with other recruiters.

And then more recently -- I am sorry, going back to that announcement, we also talked about the closing of our Charlotte or just right outside of Charlotte office in North Carolina. The more recent announcements have been to close the office in Broomfield, Colorado, which is where our Medical Express brand was housed. We're continuing with that brand. It is a great brand name, has a loyal following of travelers, and some great recruiters, but we're moving most of the recruitment efforts to San Diego along with the retention of some remote recruiters who will continue with their traveler relationships there in Colorado.

So that's -- we're also -- I am sorry, closing that Ft. Lauderdale location of Nurses Rx and also OGP International has a few employees there that will continue working remotely, but just as Medical Express, the Nurses Rx recruiters will now be domiciled primarily in San Diego. What this does for us is allows us to really leverage the strengths of our infrastructure and management team as much as we have enjoyed having those remote offices, we did find that it was more challenging to manage and the productivity levels weren't as strong as those in San Diego. So we believe that over time this will give us a model that we can better leverage the strength of the team and infrastructure that we have within our nursing business here in San Diego.

Okay. That's helpful. Again, I apologize for the details you gave out last quarter.

I think I just gave you a few more details than we probably gave before.

That's what it sounded like. Thank you for that as well.

Yes.

Just drilling down a little bit in the Nurse Allied business, I know historically we have tried to parse your business geographically, and if I remember correctly, you had relatively more share in California than some of your competitors. What are you seeing in California these days and if you can comment on some other geographies, that would be great.

Sure. It is still our largest market within nursing and overall, and in fact some of the more recent momentum that we have seen in orders has come from California. We consider that to be a good thing because they're at clients that we happen to be particularly strong with. Even though our competitors might be in there as well, we tend to get a greater share of the business and the placement. So we're pretty optimistic about our ability to actually convert that increased order volume. Other areas that we have seen some increases, Florida, surprisingly, which has been pretty soft for a long time now. I am talking about increases off of a very low level, but nevertheless increases, Texas, and just really across the country.

Okay. Great. And just one question on the locum tenens side. Radiology comprises roughly what percentage of that business?

It is about 20%.

And can you remind us what your largest specialties are there?

Primary care and anesthesiology is actually almost the same size as radiology, so it has, relatively speaking come up in the ranks, and then surgery and behavioral health would be behind those.

Okay. Great, and then just one numbers question. The decline in DSOs, David, is pretty impressive in this environment. Is that something that we should expect to continue?

I would say really it is probably more likely to go back to the 54 day level. I think that's probably a better average to be using on a go-forward basis.

Okay. That's helpful. David, best of luck to you.

Thank you very much.

Thank you. Our next question from the line of AJ Rice with Soleil Securities. Please go ahead.

Thanks. Hello, everybody. David, I'll also add my best wishes to you.

Thank you, AJ.

Just a couple of questions if I could ask them here. I want to first of all clarify is the $3.5 million of favorable insurance reserve adjustment the same as the professional liability insurance benefit that boosted EBITDA in the locum tenens business?

That's correct. It is really one in the same.

Okay. Can you maybe just -- it sounded like you said you guys had mentioned this before, but I didn't -- I don't recall what gave rise to this. What gave rise to having a favorable adjustment?

Let me just clarify. The total adjustment for the quarter is $3.5 million, $3.1 million of that relates to the physician or locum tenens, so there is also a small benefit for nursing as well, about $400,000. What gives rise to this is we have actuarial estimates done twice a year, Q2 and Q4, and it really is to validate whether we have adequate reserves. Part of this is existing reserves, but also future incurred but not realized, and so based on the actuarial analysis, we make adjustments to our reserves, and so that's exactly what we have done. You will see historically Q2 and Q4 we have had hopefully lesser than this with adjustments both times.

And, AJ, those favorable trends are a result of our own claim activity and favorable trends that we have seen there, but also general national market trends where actuarial rates have been adjusted over the last few months, and that affects their estimates for us as well.

Okay. All right. I guess the way you described it when you were going through the locum tenens business I thought maybe there was something that had been forecast previously that happened as opposed to just the normal review from the actuaries. Okay. Getting in the home health business, has that been signed into contract with leading home health provider, is that traveler nurses you're providing or are you providing per diem nurses?

It is primarily travel, but we will be doing some shorter assignments in conjunction with that, and it is both in nursing and allied, and just to clarify, we're not going to be a direct home health provider. We're a staffing provider to home health agencies. That's actually grown nicely for us. We introduced that last year. And it has already exceeded our expectations both in nurse and as I mentioned allied has actually seen some great progress with home health and now we're starting to see some of the larger systems and providers recognize us as a significant enough player that they will entrust us with these preferred provider relationships.

You care to give us a sense for how big home health is in aggregate today and where it might be a year from now?

I think it is a little bit early to be giving those projections.

Okay. Just in thinking about the business stabilizing, and what level we're stabilizing at, can you just sort of -- obviously one of the dynamics is the seasonality of the business and how that overlays with what we're seeing as potential stabilization. Just sort of walk us through Q2, Q3, Q4, how do your comments about stabilization -- should they be colored in any way by thinking about the natural seasonality of the business?

I don't think so, AJ, because we typically wouldn't see -- even in a normal environment, which we haven't seen for a few years now.

Right. That's why I am trying to remember what normal seasonality looks like.

Normal might be we start to see a rise in our winter orders in kind of the September timeframe. The rise in orders, just going back to your first question, we saw a decline in demand in the first part of the year, started at really the end of '08, was very precipitous during the first quarter of '09, started to see orders stabilize in late March, April, and stayed flat until kind of the late June, July timeframe, and then started to see them rise. That's an earlier point than we might normally see kind of our usual winter pickup, so we saw that as a positive sign that it was more than just a seasonal anticipation. It was really more of a response to overall increased demand, both because of admissions, but also because we are hearing just more anecdotally that the nurses, the permanent nurses are pushing back a little bit more regarding working over time, taking on more patients, working more days, et cetera.

Okay. All right. That's helpful. Just my last question on DSOs, is there any difference in the payment patterns for the locum tenens business versus the traditional travel nurse and allied business? Do you get paid more quickly, less quickly, is that having any impact on the AR trend?

DSOs on the physician businesses are typically pretty close. Let me give you an actual number. Here they are. I am sorry. Basically we're averaging right now about 53 days in the locum and 52 days with the nursing, so 58 days with the perm, so they're all fairly close.

So not much difference. That's great. Thanks a lot.

Sure.

We have a question from the line of [Bonnie Saboko] with Longbow Research. Please go ahead.

Hello, this is Bonnie in for David Bachman. I have a question about your comments, Susan, regarding future market expansion opportunities. Can you discuss where you're looking into possibilities and whether that's going to be near term or further on into 2010, but are we talking about some of your established lines like nurse and travel or are we looking to some of these newer business line that is you have been getting involved in the last year?

Sure, Bonnie. I think it is more on the newer side, certainly we want to have our eyes open and evaluate validation opportunities within our current business. We haven't seen those opportunities where (inaudible) and what we think the long-term prospects are, but again we need to keep our eyes open for those opportunities. Probably more in line with our long-term strategy is to look for areas that we could expand into that are synergistic with our core businesses, so they have some heavy clinical labor component, really leverage our expertise and recruitment credentialing and with our hospital clients, but are different in that they have less exposure to economic cycles, aren't as sensitive, and that would sure come in handy right now, and I think longer term to have a segment of our business that had a more recurring revenue component to it, would be very attractive for us and certainly for our shareholders.

So those are some of the areas, and I am, for competitive reasons not going to necessarily outline the specific businesses, but as we look at our criteria hopefully that helps guide you. In terms of the timing, certainly we want to be prudent in any decision that we make, but I do think that now is a time with our strong balance sheet that we should be absolutely looking to see if that opportunity exists out there, so nothing imminent to announce, but we think it is an important time for us to be looking at continued expansion.

Thank you. That's really helpful. When you mention trying to move away a little bit from perhaps environments that are sensitive to economic shocks you're seeing right now, are we talking also possibly move away from your traditional client base, the hospital sector?

No, no, absolutely not. We feel that it is one of our strengths, the relationships and strong quality and service reputation that we have built over the last 25 years with our hospital clientele.

Okay.

Thanks, Bonnie.

Thank you.

Thank you. I will now turn the meeting back to our presenters for any closing remarks.

Thank you so much, and thank you, everyone, for joining us today and certainly for your continued support of AMN Healthcare. We look forward to updating you on our progress next quarter.

Thank you. Ladies and gentlemen that, concludes your conference. You may now disconnect.