Cross Country Healthcare Inc (CCRN) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Cross Country third quarter conference call. At this time all participants are in a listen-only mode. Following today's presentation instructions will be given for the question and answer session. If anyone needs assistance at any time press the star followed by the zero. As a reminder this conference is being recorded today, Tuesday, November 5, 2002. I would now turn the conference over to Mr. Joseph Boshart President and CEO of Cross Country. Please go ahead

This is Joe Boshart, president and CEO of Cross Country. I want to thank you for listening in and for your continued interest in Cross Country. With me is Emil Hensel, Cross Country's CFO. We will review the third quarter results and how we view the dynamics of the market we operate in. Before we do that I will ask Emil to remind everyone about forward-looking statements.

Statements that are predictive in nature that depend upon or refer to future events and conditions that include words such as expects, anticipates, plans, believes, anticipates or similar statements are forward-looking statements. These statements involve known and unknown risks and uncertainties or other factors that may cause our actual results to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors are set forth under the caption risk factors in Cross Country's form 10-K for the year ended December 31, 2001.

Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed on this teleconference might not occur. Cross Country does not have a policy of updating or revising forward-looking statements. Thus it should not be assumed that our silence over time means that actual events are occuring as expressed or implied in such forward-looking statements

Thank you, Emil. I am pleased to report a quarter of growth for our company. The revenue growth is 18 percent over the prior year and growth in EBITDA of 4%. Earnings per diluted share before discontinued operations were 26 cents in line with the previous guidance for the third quarter, up from 18 cents in the prior year quarter. Organic growth remains the primary driver of top line improvement accounting for more than two-thirds of the total revenue improvement over the prior year.

In our core travel staffing business we saw volume growth of 10 percent over prior year as well as improvement in the gross profit per hour during the quarter both sequentially and year-over-year. Our average number of contract staffing personal was 5,548 FTEs during the third quarter. However at quarter end it exceeded 5700 at the end, consistent with a seasonal up tick in activity during the fourth quarter.

While we are pleased to report quarterly year-over-year growth, third quarter volume growth is not as high as it has been or as high as we believe it can be in the future. As we first mentioned in our second quarter earnings call we are seeing a more cautious buying process on the part of our acute care customers. Whereas in the past nurse managers that we worked with were empowered to commit to contracts with us we are often finding today that additional levels or level of approval have been added before contractual commitment is received by us. Irrespective of whether this dynamic is census or budget driven this process has required us to spit (ph) our candidates to more locations before obtaining a commitment from our hospital customers.

This has limited the ability of our recruiters to increase their productivity year-over-year as they have in the past. This cautious posture regarding usage is consistent with response of our clients in the past following rapid increase in usage of our service. I will discuss certain actions we are taking to address this environment in a moment. Despite this short-term slow did you know in the environment that we are operating in, I remain optimistic about the future growth of our company appeared our industry.

It may be very helpful at this time to review the macro drivers of our business. First, the population continues to age, which I think everyone agrees will drive greater demand for health care services over the coming decades. Second there continues to be double digit vacancy rate for professionals across the b country at acute care hospitals. Third, most not for profit hospitals operate at break even levels. That's why they cannot increase wages sufficiently to fill the vacancies for nursing.

Fourth, there is a clear economic benefit to outsourcing some nurse staffing at hospitals. In addition to the macro drivers, there are emerging trends in the industry that we believe will provide benefits to Cross Country. We have seen regulatory initiatives at the state level gaining momentum across the country to mandate minimum nurse to patient ratios as well as to perscribe excessive and or mandatory overtime for nurses. This will increase nursing demand generally which we believe will increase the demand for outsourcing demand in particular.

There is a clear trend on the part of the buyers of our staffing services to narrow the number of vendors that they deal with. This trend should serve Cross Country well as we, with few exceptions, find ourselves on the narrowed list of vendors. Specifically with respect to Cross Country, the net bookings generated by the TravCorps brands ran 6 percent ahead of the prior period.

As you may recall from the previous conference calls, net bookings represent a directional indicator of volume one quarter out. We continue to see a level of demand for our nurses which exceeds the supply of nurses coming off contract with us by several multiples. That multiple today is five to one. We have seen more concerted effort by our hospitals to rein in pricing, the pricing environment continues to be favorable. Average bill rates in our core business were up 8 percent in the third quarter on an hourly basis year-over-year. However we do expect rate increases to moderate to a range of five to 7 percent in the year 2003.

As we communicated in our past quarterly conference calls, we have committed internally to four initiatives to drive increasing travel staffing volume. I would update you on those and tell you about a additional initiative that will contribute to the strong 2003. The first is increase the number of recruiters that we have internally to create more placement capacity for our company. As of September 30, we had 104 travel staffing recruiter FTEs, up from 75 at the end of 2001. We expect to continue to grow the recruiter work force to 115 by year end. Keep in mind that new recruiters typically take six months before contributing meaningfully to bookings.

The second initiative is to tap new sources of supply of nurses. As of September 30 the backlog at Assignment America totalled 375 nurses, up from 317 at the end of the second quarter. Our third initiative is to increase our advertising reach. We have increased our advertising spending significantly, we are in more journals. We increased advertising in existing journals and increased direct mailings. We are collaborating with Johnson & Johnson as their exclusive staffing partner in their campaign to upgrade the image of nursing and raise scholarship funding for nurses in the future. We expect this new relationship will drive more Internet nursing to us via the website denoted to this important effort. We pleased to be working with Johnson & Johnson on this important initiative.

Our fourth initiative is to segment the nurse population. Our purchase of NovaPro, in early January was our first step towards segmenting the nurse population. NovaPro offers each nurse a customized package and in turns markets each nurse individually to its hospital clients based on the packages negotiated with each nurse. We are achieving high double digit growth for in brand in 2002 and made significant investment in overhead devoted to this brand, in preperation for similar aggressive growth in 2003.

Finally our fifth and new initiative, is to build on our long standing reputation of providing quality service in order to obtain preferred provider relationships with our acute care facility customers. We believe that our strategy of working closely with the acute care facilities to understand their needs and giving them 24 hour exclusive rights to each candidate continues to be the right long term model for this industry.

We are engaged in a very focused effort to highlight to our clients the value to them of process in order to extract an advantage beyond pricing in their candidate selection process. We are pleased to announce today that we have entered into an agreement with BHA, a nation-wide network comprised of over 2200 leading community owned health care organizations and physicians to partner with the members and provide them with their travel and per diem staffing needs.

We believe that our business model was an important criteria in the selection process. Recognizing it takes time to realize the ultimate benefit of these initiatives, I remain highly confident in the future and our ability to continue growing America's largest travel staffing brand at attractive rates. As Emil will elaborate on, we project 23 to 27% growth range of EPS in 2003. I will turn it now to Emil for a more detailed discussion of financial results

Good morning, everyone. I would like to go over the results for the third quarter and go over the revenue and earnings guidance for the fourth quarter of 2002 and for 2003 that we provided in last night's press release. As Joe indicated in the third quarter Cross Country recorded revenues of $157.7 million, up 18 percent from the prior year quarter. EBITDA from continuing operations for the quarter was 16.9 million, up 4 percent from the prior year. EBITDA as a percentage of revenues declined by 1.4 percentage points due to higher selling expenses in the travel nursing operations as we continue to invest in increasing production capacity and Assignment America and our per diem business.

Income before discontinued operations was 8.8 million, up 114 percent from 4.1 million in the third quarter of this year. On a per share basis, this quarter's income was up 26 cents per diluted share as compared to 18 cents per diluted share achieved in the third quarter last year. The comparison to prior year is somewhat distorted by the IPO in October of 2001 and by the adoption of FAS 142 on January 1, 2002, relative to the amortization of good will. Assuming FAS 142 would have been in effect in last year's third quarter, net income from continuing operations would have been 5.9 million.

Interest expense for the quarter was 1 million, down 78 percent from last year, reflecting the significant deleveraging of the balance sheet from the proceeds of our IPO one year ago. This quarter we recorded an after tax loss from discontinued operations of $2.9 million which includes an impairment charge of 2.5 million after tax for E staff. E-staff is an application service provider that developed an internet subscription based communications, scheduling, credentialing, and training service for healthcare providers.

As we have indicated in the past, we believe that a health care focused software vendor would be better positioned to market E-Staff technology. Accordingly, we have been pursuing the sale of this business. While we continue to pursue the sale of E-Staff we have decided to retain certain of its assets to support our centralized per diem staffing business.

Net income including discontinued operations and after the E-Staff impairment charge was 5.9 million up 50 percent from the 3.9 achieved last year. Our balance sheet and cash flow generation remains strong, enabling us to execute our load and growth strategy. We end the quarter with a 13% debt to total capital ratio and a current ratio of 2.3 to one.

The days sales outstanding was 53 days down from 55 days in the prior year. In the third quarter we generated 14 million of cash flow from operations and we had 30 million of cash on the balance sheet at the end of the quarter. Although we anticipate a slow down in the cash flow generation in the fourth quarter due to an expected seasonal expected build up of receivables at year end we are on track to generate record making operating cash in 2002.

Yesterday we announced the board has authorized the repurchase up to 1.5 million shares of common stock up to an aggregate price not to exceed 25 million. We believe that Cross Country stock represents an excellent opportunity for the company, particularly in light of our excess cash position. We intend to repurchase these shares from time to time through open market transactions.

Let me drill down next on the two reporting segments. Health care staffing which comprises the travel staffing, per diem and clinical trial staffing businesses and which accounted for 92 percent of the quarter's revenues. And the other human capital management services segment which is comprised of our education and training, health care consulting and physician services.

Revenues for the health care staffing segment increased by $21 million or 17 percent over the prior year. The revenue growth came entirely from allied health staffing operations with our clinical staffing business registering a 7% decline in revenues due to a less favorable operating environment. 68 percent of the revenue growth in the third quarter was organic, with the remainder coming from the acquisition of NovaPro in January of this year. Price increases accounted for 9 million of the revenue increase and volume growth in our nursing and allied health business represented 5 million of the organic growth.

The average number of FTEs on contract was up 10 percent over last year. Staffing contracts for the nurses on our payroll as opposed to the hospitals payroll accounted for 99 percent of our field FTEs, unchanged from the prior year's quarter. Contribution income for health care staffing defined as earnings before interest, taxes, depreciation, amortization and corporate overhead expenses not specifically identified to a reporting segment was 20.5 million in the third quarter, an increase of 4 percent over the same period in the prior year.

Contribution margin for the health care staffing segment was 14.2%, down from 15.8% last year, but half a percentage point higher than in the second quarter. The sequential improvement in contribution margin reflects an improvement in the gross margin partially offset by higher selling expenses. The 1.6 percentage point decline in contribution margin versus last year is due to higher selling expenses in our core travel nursing operations where we have been aggressively building up recruitment and account management teams as well as the lower operating margin at NovaPro which due to its smaller size operates with a higher SG&A burden.

Our developmental businesses, such as our centralized per diem and the Assignment America foreign recruitment businesses, also contributed to the decline in margins as compared to last year. Assignment America which recruits nurses overseas from English speaking countries is not yet generating significant revenues but is continuing to build a pipeline of nurses going through the immigration process.

Turning now to the other human capital management services segment, third quarter revenues for this segment were $12.8 million, an increase of 3.4 million or 36 percent over prior year. 62 percent of the revenue growth was organic, with the remaining 38% coming from the acquisitions of Jennings Ryan and Colt (ph) consulting business completed in March of this year.

The organic growth came primarily from our educational seminars business which registered 51 percent revenue increase over the prior year. Contribution income for the segment at 1.5 million was flat versus the prior year due to higher marketing expenses in our education businesses. Last year's results also benefited from higher attendance at the national conference organized by Cross Country University.

The last item of note in our segment reporting is our corporate overhead expense. These are costs of running our corporate services that are not allocated to a specific business unit. Despite the incremental costs associated with becoming a public company, these costs decreased as a percentage of revenues from 3.7 percent in the third quarter of last year to 3.3% this quarter.

This brings me to updated guidance for 2002 and 2003. The following states are based on current management expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any future merger, acquisitions, other business combinations, or the repurchase of any of our common stock.

As Joe indicated, the fundamentals of our core travel nursing market remain favorable. Bookings in the third quarter were up 6 percent over the prior year but continue to be impacted by internal capacity constraints until such time as the newly hired recruiters become fully productive. Price increases have moderated from the double digit rates we saw earlier in the year but still remain above historical norms. We continue to see a gradual improvement in the gross profit per hour as wage increases have also moderated.

Based on these dynamics, we expect revenues in the fourth quarter to be in the 162 million to 165 million-dollar range. And EPS to be 28 cents per diluted share. For the year as a whole we expect revenues to be 630 to $633 million range, an increase of 26 to 27 percent over the prior year. EPS from continuing operations, excluding nonrecurring secondary operating cost, is expected to be $1.02 per diluted share.

For 2003 we expect revenues to be in the 730 to $765 million range, an increase of 16 to 21%, with the growth coming from the combination of volume and price increases. Volume growth will be driven by a combination of higher productivity from our new recruiters, contribution from our Assignment America program, and growth in our centralized per diem business.

In addition the projections assume that price increases in 2003 will revert to the historical averages of five to 7%. We also project a modest improvement in the EBITDA margins from improved operating leverage. We expect a significant decrease in our interest expense as our three-year fixed rate hedge expires in the first quarter of 2003. EPS from continuing operations is expected to be in 1.25-1.30 range, a 23 to 27% increase over prior year. Thank you for your attention and at this time we will open up the lines for any questions.

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the star followed by the one on your push button phone. If you would like to decline from the polling process, press the star followed by the two. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order they are received. If you use speaker equipment you need to lift your hand set. We ask that you limit your questions to two per participant. One moment for the first question. Our first question comes from Jeffrey Silber from Gerard Klauer Mattison.

Good morning. I would like to focus in on the volume and price assumptions that you had mentioned. I'm specifically interested in what assumptions you are using, first of all, for your fourth quarter '02 expectations.

Jeff, I'll let Emil take that.

Jeff, for the fourth quarter we are basing our projections on a volume increase of 5% and price increases in the six to 7% range with another two percentage points of the increase coming from the other human capital management segment for a total of 12 to 14 percent revenue increase year-over-year.

ANALYSTOkay, great. Now, if I strip out -- I guess I'll call it the non-core businesses and the health care staffing and we focus on travel, if I look at the third quarter numbers, is it safe to assume on a volume basis scbeal the core business was roughly flat, maybe even slightly up?

Na's actually a good point, Jeff. If you exclude clean force from the health care staffing volume numbers we would have been up slightly on a sequential basis. All of the decline sequentially was due to quin force.

Thank you.

Next question comes from A J Rice from Merrill Lynch. Please go ahead with the question.

Hi, everybody. Just a couple questions. First of all on the pricing a little more. You alluded to hospitals being more, somewhat more disciplined in their overall approach to the marketplace. Do you attribute the moderation in year-to-year pricing principally to that? Has there been a change in the competitive landscape?

I think it's more the former. I don't think it's a function of how competitive the market is. We still have one primary competitor that we -- I'm sure they benchmarked each other off of. The hospital had a significant -- hospitals saw a significant increase in usage over the last two years. I think, you know, not surprisingly they are digesting that higher level of yield usage and pushing back to the degree they can. We are not surprised by it. It was embedded in our guidance for this year and we have always said we expect long-term pricing to moderate to a, kind of our historically normal range of five to 7%.

You haven't really seen any change in the way competitors approach the market vis-a-vis you, and so forth?

No, I think on the contrary, I think it's the hospitals are being more disciplined. We are seeing more a very concerted effort to narrow the number of vendors, as I mentioned. As part of that process, it allows them to, you know, have more leverage in the pricing discussions, I believe. And I think it's also regional, A J. This business is very much a local business. You can't extrapolate these comments across the country, but I think directionally that's what we are seeing.

That leads to the other question related to bonds. Last quarter a lot was made about significant differences in geography in terms of the demand for services and so forth. Are you seeing anything this quarter geographically that is significantly out of what the traditional pattern would be? And also I guess it was mentioned last quarter about hospital volumes maybe not being as -- patient volumes not being as strong and impacting results. How did you lead into the fourth quarter what are you seeing there?

Good question. I think we said primarily it was a function of what we saw in the Northeast that we saw some pockets of low census lead. That's what we are hearing from our clients. We hear a lot less of that, A J, today even in the northeast, with exceptions in the mid Atlantic, et cetera. New England indicates they have strong patients census. In the sun belt we see strong inpatient admissions. Hospitals in Florida are telling us at the early stages of the season this year they are already at capacity. That is, directionally a very strong indicator for us.

As I said in the last call we were impacted unfavorably by last season's slow down related to a decline in travel nationally. Clearly that has reversed itself. We are seeing more normal patterns. Hospitals are going to be under the gun to get nurses to the bedside in the southeast and in particular Florida this year. It did impact the pattern of demand that we saw this year. Clearly hospitals held the positions longer. They are looking to have contracts start deeper into the season which probably has mitigated some of the up side for us, but psychologically next year we will be in a much stronger position.

Next question comes from Deborah Lawson from Salomon Smith Barney.

Deborah Lawson and Balab Awak (ph)It's Balab Awak for Deborah Lawson. Last quarter you mentioned the contract completions. There's about a 30% reduction. Can you comment on what you have seen in this past quarter? And secondly in terms of SG&A costs, it was down sequentially and up as a percentage of revenue year-over-year. In terms of a hard dollar level. Where should we expect that to go going forward?

I think what I talked about on the last call is that the metric that we look at that defines the conversion of applicants that we submit to hospitals to positions that they place with us, that conversion to bookings declined. And I will tell you that we haven't seen a significant improvement in that metric. Again, it is a more cautious process. The process is more drawn out, given additional levels of approval within the hospitals. So we are assuming this environment is going to continue and we, the guidance that we've given you for next year is certainly, it is a continuation of the situation. We believe we can continue to operate and grow in this environment by getting leverage from the capacity we added with the additional number of recruiters. As they gain in tenure we believe we will be able to grow in this environment, but it is an environment that is clearly indicative of a more cautious customer. I will allow Emil to speak to you regarding the SG&A expectations

First the SG&A increase you were referring to year-over-year. The primary percentage of revenue has to do with the impact of the acquisitions that we have made, such as the JRK and the NovaPro acquisitions both of which operate with a higher percentage SG&A burden than our core business. As well as the increasing selling expenses in the our travel business as we add recruiters and ramped up the advertising for those businesses.

The third element in the increase is the continued investment that we are making in our developmental business is which are not yet contributing significantly to revenue. The Assignment America for recruitment business as well as the centralized per diem staffing business. As far as going forward, as I indicated in the prepared remarks, we are projecting a modest improvement in operating leverage. SG&A as a percentage of revenue should decline modestly. Perhaps in the order of 50 basis points next year.

Deborah Lawson and Balab Awak (ph)Great, thank you.

Our next question comes from Mark Allen from SunTrust Robinson Humphrey. Go ahead.

Good morning, John and Emil. A question about this BHA agreement. It seems pretty significant to me. Over 2000 hospitals. Joe, how many of those hospitals in that agreement would be, you know, incremental? Is this an exclusive agreement? And just a little color, I guess, on how that agreement factors into your confidence you'll have better revenue growth next year.

Great question. Obviously we are proud and pleased to announce this relationship with BHA. As we looked at their membership prior to this relationship, we worked with slightly in excess of 200 of the member hospitals. And we are aware of other large users of our service, but not necessarily a big cross-country customers that are members. We do see it as a catalyst for growth in the coming quarters.

And just to draw it, Joe, does it amount to a hunting license or is it more than that in terms of your ability to do business with those member hospitals?

The way the -- I probably should speak to BHA as to how their relationship with member hospitals is structured. But we believe there are incentives for member hospitals that are looking to use this service to use a BHA approved provider of that service. And again we are aware of some very significant users of the service where we have relatively low market share for our company, based on our national market share metrics that, you know, we believe BHA will assist in our ability to penetrate those hospitals to a much greater degree than we do today.

The second question is on the per diem business. Can you give us a little update on that in terms of how large that is for you now? How much revenue you think you can get from your per diem business next year? Last year's model is different, so maybe a little bit of color on that.

I don't think I finished answering your first question, which was is it exclusive. Not our understanding that this relationship is exclusive. We do believe that we will look, we will be looked at as a primary vendor of travel staffing services. There is the another participant that will be more likely a primary vendor of per diem staffing services. Having said that we will be a provider of per diem staff under this relationship. We expect it has more up side to our per diem business on a relative basis, but recognize that the per diem business is only about 1% of our business today. We do expect it to double, Emil, is that correct?

That's correct.

In the coming year, Mark. It is a strong area of growth for us, but off a relatively low base. The relative benefit to the company over the coming quarters will be in the core travel staffing business, we believe from this relationship.

Next question comes from Jim Janesky from Janney Montgomery Scott. Go ahead with your question.

Good morning. Following up on Mark's question, it seems as if hospitals are interested, additional hospitals or organizations are interested in these types of arrangements, either with you or in general. And you mentioned that this is an initiative of yours. Can you give us more details as to, you know, how you structure them, you know, in terms of pricing? And you know, why the hospitals choose you over other vendors, for example?

Great question. Generally it's not about price, Jim. It's -- not speaking specifically to the BHA contract although we believe our model was an important criteria in our selection for this relationship. More important to us, we've gone back to our clients and said look, let's review this process with you. We do a great job quality screening our candidates. We pre-confirm them for your facility before we send them to you. If you move quickly, I view the candidate you have a very high probability of getting that nurse to come to your facility. In the last couple of years we have seen the pendulum swing. It's a frantic demand environment towards expediency and away from the focus on quality.

We do see the pendulum swinging back towards quality. We think that benefits Cross Country over the coming year. As the hospitals become more focused on their spending and usage of travel staffing, also in how effective those dollars are spent. You know, does it disrupt their work force to bring on these contract nurses? How much of the time are the nurse managers is spent on interviewing can dates that have a low probability of coming to their facility.

As we have the opportunity to have those conversations with those hospitals, they are rewarding us beyond just pricing, with status in their process that will give us kind of a leg up in that process and give us a reason to continue to offer this high level of service going forward.

Okay, thanks. And as a follow-up question, if you used up your entire share repurchase, it would come out to an average of about $16.67, which is substantially above current levels. Can we assume that you will be buying back shares at these levels then because of the -- it's dramatically different than the average?

Jim, I would just say that we now have the flexibility to use our cash which, as you know, is accumulated on the balance sheet at a pretty healthy rate this year. In the most beneficial way for shareholders going forward. We will continue to monitor whether that will be share repurchase, acquisitions, paying down debt. As we speak, we believe the most beneficial way to use that cash would be to repurchase shares. I think your math is correct that the cap would allow us to continue buying shares at prices higher than the stock is currently trading

Thank you.

Our next question comes from Wayne Cooperman from Cobalt Capital. Please go ahead with the question.

Two questions. First, can you give us more statistics on the recruiters, how many you have, what the outlook is? How many sort of immature recruiters there are? Secondly on the share buy back, what is your guys' target or threshold, sort of debt to cash flow level? It appears you guys have the capacity to do a lot more than the amount you announced.

Thanks, Wayne. I'll take the recruiter question. We had on an FTE basis, 104 at the end of the third quarter. That's up from 95, I believe, at the end of the second quarter and 75 at the end of 2001. We anticipate continuing to add ten recruiters per quarter. We are seeing these recruiters ramp up at or above kind of what we would view historically as a normalized growth of new recruiters. We believe they are going to be a significant -- in fact, entirely the contributor of the volume growth for the company going forward.

We expect our tenured recruiters who currently carry a high level of nurses not to grow in the number of nurses they carry. I spoke before regarding the conversion rate. We are not anticipating in our guidance for next year an improvement in our conversion rate. Obviously if it doesn't improve, that is an up side but we are not anticipating that. We will have more 10-yard recruiter, each quarter they will be further along the cycle. We expect 30 to 40 recruiters to carry the psych alley and later 75 to 85 working nurses on contract.

It's fair to say you have a large amount of your recruiters way below your target?

It's a fair statement, Wayne.

Let me address the second part of the question na deal with the parameters of the share buy back program. You are correct that we have significant capacity on the balance sheet in terms of ability to leverage up the balance sheet. Currently our debt to capital is only at 13% and we do have at the quarter end we had $30 million in our balance sheet. So we clearly could do the entire buy back program just out of the cash on the balance sheet. But setting the parameters for the program, the board looked at kind of balancing the objective of the buy back as well as making sure that there's a sufficient liquidity in the marketplace going forward. We felt that one and a half million share level was appropriate.

Well, do you have a targeted debt to EBITDA so if you buy a million and a half shares and you still think your stocks are cheap, that you can buy more?

Yes, we will continue to assess the appropriate levels. As I indicated, the board's specific approval is for 1.5 million shares.

To answer your question in a different way, Wayne, we are historically -- LBO managers. This company has been levered to a much higher degree than it is today. Again, we will have the flexibility now to look as to whether the most accretive action would be to acquire another company to repurchase our shares or to pay down debt. We will continue to assess that on an ongoing basis. For now we have the flexibility we want to be as responsive as we can to add shareholder value going forward.

Our next question comes from Todd Richter from Banc of America securities. Go ahead with the question.

Todd Richter and Michael Bogarty: Thank you, this is Michael Bogarty (ph) calling for Todd. Last year you said the California was the hot market compared to the mid Atlantic and the southeast. You were going to increase your presence there. Can you tell us what you've done so far and what you plan to do in the future?

It continues to be a hot market. While we have sat down face to face with a number of the larger users of the travel staffing services in California, we recognize that it would just be a long row to who to go through that process with, again, an estate that -- in a state that is going through a crisis to some degree of staffing with the introduction of the patient ratios that will be put in place in 2003.

We thought the more expedient way to achieve that objective really was through the relationship with the BHA. They have members in California that are very significant. That we believe, you know, we know today are using substantial amount of the service that we offer. But we only have today a small share of that. We think it will be in everyone's interest, the BHA, the member hospital and Cross Country, if they are going to use that service, to direct that service toward us. It's a way to take a step up in our presence in California in one shot. We are pretty confident that this is going to have a meaningful impact on our service going forward.

Todd Richter and Michael Bogarty: Just to follow up. Could you tell me, Emil what the CAPEX was for the quarter and what tax rate number we should use for the going forward purposes?

The capex for the quarter was around $2 million, tax rate for modeling purposes should be in the 39% range, between 38 and a half to 39%.

Todd Richter and Michael Bogarty: Thank you.

Our next question comes from Anand Desai from SAB Capital , God request your question.

Kenny Eu (ph): This is Kenny Eu (ph) from SAB. capital. When you talk about incentives that BHA gives the member hospitals, incentives to use you guys as a preferred provider, what sort of incentives would that be outside of volume discounts or price concessions? The second question is, if you are servicing 200 of the 2000 member hospitals of BHA, does that mean that the customer base goes from, you guys talked about affiliated hospitals of north of 3,000 member hospitals before. Does that take the actual addressable market from 3,000 to 5,000 hospitals effectively? Is that the right way to look at it? Are those other 1800 hospitals really hospitals that would be major users of travel nursing?

Good question, Kenny. As it relates to incentives, I don't want to speak to the incentives that, whatever they may be, that BHA could offer to its members. I think that's the sort of question I would direct towards them. Clearly we will offer incentives to the hospitals to use our service. An important element of this contract that, it's not price constrained, but the incentive that we offer, Kenny, as we look at it, as we model the impact, the incentives will be geared towards the hospitals doing the right things right for us. In other words, for example, to allow us to be more productive internally. If there is a cash incentive that we would offer, it would be in return for an action on the part of the user that would, for example, address this conversion issue that we talked about that has affected our productivity.

If we can improve the productivity, that 30% drop in productivity, that's clearly detrimental to us. If we can improve that productivity by offering incentives, they more than pay for themselves as we model out the opportunity. secondly, you asked are these hospitals incremental. Taking a step back today, while we have relationships historically with over 2500 hospitals around the country, at any given time a thousand hospitals are using our services. A little over 200 BHA members today are utilizing our services. It's clearly incremental. I can't speak to how many will ultimately use the service, but we do look at it as an opportunity to significantly expand the universe of hospitals that are today using either our travel staffing service or our per diem staffing service.

Kenny Eu (ph): Thanks.

Our next question comes from Chris Morgan from Hunter Global Investors. Please go ahead with your question.

Chris Morgan (ph): Good morning, guys. Most of my questions have been answered. I want to drill down a little bit more on the Assignment America. You say you have a backlog of 375. How should we kind of look for that to convert as we go into 2003? When does that really start to move the needle?

We will have probably 30 working by year end. We, it has been -- there are certain process issues that continue to slow us kind of on a month-to-month basis. By the end of next year shall if you are modeling, if you assume we have 100 FTEs on average in 2003, it would be a safe number, recognizing -- I think we talked about that the margins of this business after the first three months that the nurse is working for us become more attractive. Roughly 70 to 80% higher than the domestically recruited nurses because we are not offering a housing benefit to these nurses. On an FTE basis if you model the 100, that's pretty safe.

Chris Morgan (ph): Just a follow up on Emil's comments on getting leverage of 50 basis points on the SG&A line for next year, do you guys have an EBITDA target for 2003?

Not at this point, Chris. We do, but you can back into it -- yeah,.

I think if you just assume that our gross profit will be relatively consistent with the current year and you back into the leverage that we indicated on our SG&A, you can back into an EBITDA margin.

Chris Morgan (ph): Okay, great. Thank you.

Our next question comes from Chip Rui from Floy Wassman. Please go ahead with your question.

Couple things. First, Ken, I asked you about the malpractice insurance. I know temporary help agencies have to hold that at the level of the corporation. Is that true for your travel practice as well? And what are the cost trends on the malpractice? And also what are the cost trends on worker's comp? Just kind of a follow-up unrelated, what is the geographic distribution of the recruiters, does the recruiter cover the country or are they territory based?

I will address the insurance rate questions. Let me put the malpractice issue into perspective for us. Professional liability insurance represents a relatively small part of our cost structure, less than 1% of our revenues. The reason for this, a typical hospital malpractice incidence, usually the doctor and hospital are named as the responsible parties. The nurse has only minor if any responsibility as compared to the hospital and the doctor. Our nurses work under the direction and -- direct supervision of the hospital. And they also go through a very rigorous credentialing process and are interviewed both by us and by the hospital. They typically receive performance evaluations every three months. All of these mitigate against negligent hiring claims.

In my 11 years with the company we never had any claim that even came close to our insurance limits. The highest claim we ever recorded was $750,000. Having said this, in the last few years we have been operating in a hard insurance market. Last year for the first time were forced to switch to a claims made policy from an occurrence form and also absorbed a significant deductible.

The net as a result is that we had to pay higher premium costs and had to incurred but not reported losses on our balance sheet. We were successful in renewing policies this year. Again we saw an increase in premiums and deductibles, but the rate of increase was not nearly as great as in the prior year. Professional liability insurance accounts for less than 1% still of our revenue. Still a small part of our cost structure. On the workers' compensation said side we are seeing a much more stable picture. We were very pleased with our renewal in the workers' compensation. We are not seeing the same pressures of workers' compensation as we have seen in professional liability.

Chip, as it relates to the geographic distribution of recruiters, we have only three offices nationwide essentially where we conduct our travel staffing operations in Massachusetts, Boca Raton, Florida appeared we are adding recruiters at all locations.

They are not geographically, [inaudible]

They are placing nurses throughout the country.

Okay.

Ladies and gentlemen, as a reminder if you would like to ask a question, please press a star followed by the one. If you are using speaker equipment, lift the happened set before pressing the numbers. Our next question comes from Jeff Silber. Please go ahead with the question.

Follow-ups. Some of the companies talking about fourth quarter have been discussing a smaller number of billing days because Christmas comes in the middle of the week. I wonder if you can address that, how that might address your business this quarter.

Jeff, because of the nursing, our primary client basis an accuse cued care hospital. It's a 24/seven business year around. We see typically a drop off in activity which is factored into our guidance for this year. As the nurses complete contracts prior to Christmas, anywhere from 20 to 40 percent will go home for the holidays and renew, begin new contracts in the early in the new year. That is a fairly predictable pattern and is again included in our guidance. But those nurses are working. In fact, the hospital, one of the reasons the hospitals want the nurse on contract over the holidays is to provide coverage for the holidays and new years that the staff nurses typically want to take off

No big deal about the midweek Christmas holiday?

I don't view it as a problem at all.

What can you market for the share repurchase, how early after this reporting season?

I believe we have to wait two days from the announcement, Jeff, before we can begin repurchase.

Okay, great. Thanks.

At this time there are no further questions.

We appreciate everyone's participation in this call. We look forward to speaking to you again in three months. Thank you very much.

Ladies and gentlemen, this does conclude the Cross Country third quarter investor conference call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 and enter the access number of 52421. Again, that number is 1-800-405-2236, and enter the access number of 52421. Thank you for your participation. You may now disconnect