Cross Country Healthcare Inc (CCRN) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Cross Country First Quarter 2003 Investor Call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question answer session. If anyone needs assistance at any time during the conference please press the “star” followed by the “zero”. As a reminder this conference is recorded on Friday May 9, 2003. I now turn the conference over to Howard Goldman, Director of Investment Relations. Please go ahead, sir.

Good morning, and as our moderator said this is Howard Goldman Director of Investment Relations for Cross Country Health Care Following our stockholder approval at the annual meeting, held yesterday. Thank you for listening to the conference call, which is also being web cast and for your interest in the Company. Today is Joe Boshart, Cross County’s President and Chief Executive Officer, and Emil Hensel, the company's Chief Financial Officer. On this call we review our first quarter 2003 results, for which we distributed our earnings press release after the close of business yesterday. If you do not have a copy it is available at www.crosscountry.com. Replay information for this call is also provided in the press release.

Before we begin I would like to remind everyone that discussions contain, today, forward-looking statement and that certain financial terms may represent non-GAAP measures. Statements that are predict active in nature, that depend upon or refer to future events or conditions whether they include words such as expects, anticipates, intends, plans, believes, estimates, and similar expressions are forward-looking statement. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by forward-looking statement. These factors were set forth be under the forward-looking statement section of our press release for the first quarter of 2003 as well as under the caption “risk factors” in our Form 10K for December 31, 2002. Although we believe these statements are based on reasonable assumptions we cannot guarantee future results. Given these uncertainties the forward-looking statement discussed in this teleconference might not occur. Cross Country does not have a policy of updating or revising forward-looking statement and thus it should be, not be assumed, rather, that our silence over time means that actual events are occurring as expressed or implied in such forward-looking statement. Now I turn the call over to Joe

Thank you Howard and good morning everyone. I am pleased to report on Cross Country’s first quarter results. Our first quarter revenue of $161 million represented growth of 2% over the prior year quarter. Income from continuing operations per diluted share was $0.23 in line with first quarter guidance and up $0.02 for the prior year quarter due to the after tax secondary offering cost in 2002. In our core travel nurse staffing business, while volume declined compared with the prior year, it was essentially flat on a sequential basis with the fourth quarter of 2002. Given the magnitude of the sequential declines in volume reported by several of major competitors, our early recognition of the change in market dynamics has allowed us to better position Cross Country to gain share without sacrificing margin. Gross profit per hour in our Cross County Travcorp brand, the industries single largest nurse staffing brand was up year-over-year as only a portion of our 6% price improvement was needed to attract more nurse in the current environment, and other direct costs items showed modest inflation.

While our first quarter results are largely in line with expectations, they are toward the lower end of our revenue guidance range which is a disappointment to us. The demand environment continued to weaken since our last conference call in mid-February though it did so at a much more modest rate than the prior three month period. Consistent with lower level demand, the conversion rates of the applicants that we send in response to our hospital clients’ orders have also declined. Thus, while we continue to receive a record number of new applicants and we are submitting those applicants to the hospital clients at highest rate in the Company's history, volume of placement is relatively constant over last two quarters but still below last year's level. That’s a condition that we expect to continue over the second quarter as Emil will discuss in a moment.

Looking at the key components of our business, we believe we have addressed our supply and capacity issues for now, which means the focus of our activities for the past several quarters has been to position Cross Country to become the preferred provider to the major users of travel nursing services throughout the country. These activities include a number of initiatives which we’ll not disclose for competitive reasons. One initiative that we have discussed in the past, is our relationship with VHA, a purchasing operation representing approximately 1400 not-for-profit hospitals across the country. We are enthusiastic about the way this relationship is resulting in a win-win mindset among VHA member hospitals and we believe we have barely scratched the service on its impact on our performance. As a result, we remain cautiously optimistic for year-over-year volume improvements beginning in the second half of 2003.

As we first mentioned on our second quarter 2002 earnings call, we continue to see a more cautious buying process in the part of the acute care customers in which they are taking a variety of steps to reduce their usage of outsource nurse staffing. Such steps include one, adding layers of approval for contract nurses, two, engaging in vendor process to reduce the number of approved vendors and three, simply doing more with les by substituting higher patient to nurse ratios and using overtime to fill staffing gaps. Also reported across the country, lower hospital patient census which also effects our demand for service. We believe the soft job market also resulted in full and part time nurses offering more hours of service directly to hospital employers, allowing our customers to fill vacancies without disrupting pay scales, which in recent years has been a primary driver for demand of our service. While in the near term macro environment has been less robust than in several years I remain confident this is a environment Cross Country can perform well relative to our competitors, given the strength of our client relationships and the high quality of our service delivery model.

As we announced last evening, we have reached a definitive agreement to acquire the assets of Med-Staff Inc., one of the largest remaining privately held nurse staffing companies. We expect the acquisition to be accretive to earnings this year. We have three strategic rationales for this acquisition. It provides us with a large travel nurse staffing brand with which to further segment the travel nurse population. Secondly, it provides us with a more substantial platform for per diem nurse staffing than our current organic efforts are likely to generate over the next twenty-four months. We are particularly excited that Med-Staff’s per diem revenues are concentrated in a small number of large offices located along the East and West coasts. This is consistent with our strategy for per diem staffing, which does not foresee a large number of offices scattered across the country but rather in select metropolitan areas where we can achieve significant market share. With this market positioning we believe Cross Country can be more successful in offering a comprehensive suite of services that makes us an even more credible provider of primary nurse staffing solutions. The last rationale for the acquisition is it gives us entry point into the attractive staffing market of nurses provided to clinics and hospitals on military bases. Med-Staff is the second largest player in this niche. In the past, we have staffed these contracts only on a sub-contract basis. With that, I’ll turn the call over to Emil for a more detailed discussion of the financial results and Med-Staff transaction.

Thank you gentlemen and good morning everyone. First I will go over the results for the first quarter and then review revenue and earnings guidance that we provided at last night's press release which includes the contribution of pending acquisition of Med-Staff. As Joe indicated, Cross Country recorded first quarter revenues of $161 million, up 2% from the prior year quarter. Gross profit margins improved 50 basis points over the prior year quarter. This improvement was due partly to the decline in compensation cost as a percentage revenues and partly to a small increase in proportion of revenue release comes from our other human capital management services which operates with a higher gross profit margin but also a higher SG&A burden than our healthcare staffing businesses.

Exchange in mix contributed to the increase in SG&A expenses, which as a percentage of revenues was up 1.6% year-over-year. The primary drivers of the increase in SG&A were the investments we made last year to increase our production capacity and the initiatives we undertook to ramp up nurse sourcing activities. These initiatives yielded a 32% increase in the number of applications received in the first quarter and positioned us for rapid growth when the demand for travel nursing improves. Adjusted EBITDA, a non-GAAP financial measure as defined in our press release, was $14.5 million, a 17% decline from the prior year quarter. As a percentage of revenues, adjusted EBITDA declined by approximately 90 basis points. This was due largely to higher spending related to our previously discussed efforts to increase productive capacity. Interest expense declined by 49% from the prior year quarter primarily as a result of the exploration in February of interest rate swap agreement which resulted in a 238 basis reduction in our effective interest rate, as well as the continued de-levering of our balance sheet made possible by strong cash flow generated in the quarter. Income from continuing operations were $7.4 million in the first quarter up 3% from $7.2 million achieved in the prior year quarter. On a per diluted share basis, income from continuing operations was $0.23 in line with the guidance we provided in February. That income was 7.1 million or $0.22 per diluted share as compared to $7 million or $0.21 diluted share in the prior quarter.

Our balance sheet and cash-flow generation remains strong, providing us significant financial flexibility in executing our long-term growth strategy. We ended the first quarter with a debt to total capital ratio of 8% and a current ratio of 2.5 to 1. The days sales outstanding was 54 days, down two days from the prior year quarter. Cash flow from operations was 15.9 million, up 9% over the prior year quarter. Due to the ongoing discussions relating to the acquisition of Med-Staff, we refrained from purchasing any shares in the first quarter pursuant to our previously announced 25 million share repurchase plan. We continue to believe that the share repurchase program provides excellent shareholder value in the current market and can resume such purchases now that the Med-Staff acquisition has been publicly disclosed. We have $19 million remaining for share repurchases under the current authorization.

Let me drill down next, on our two reporting segments. Healthcare staffing, which comprises travel and per diem staffing, Allied Health staffing and Clinical Trial staffing businesses accounting for 92% of the revenues for the first quarter and the Other Human Capital Management Services segment which is comprised of education and training, healthcare consulting and retained services businesses. Revenue for the Healthcare staffing segment was a hundred $48.2 million, 1% higher than the prior year quarter. The average number ever FDE's was flat on a sequential basis, but down 3% from the prior year quarter reflecting the more cautious buying by hospital clients that we have noticed since the second quarter ever last year. The segments revenue growth was entirely organic and was due to improved pricing offset by lower volume and a slightly higher mix of revenue generating mobile contracts. The average bowl (ph) rate in core travel nurse staffing business was up 6% on a year-over-year basis.

Global contracts with the nurses on the hospital's payroll accounted for 2% of volume as compared to 1% in the prior year quarter. Volume in our ClinForce unit was down 19% year-over-year reflecting a continuation of the weak demand trends for clinical trial professionals that began in the second half of last year. It appears that the decline of demand has bottomed out and we believe ClinForce will see sequential increases in volume based on contracts associated with new phase three drug trials. Our centralized per diem nurse staffing business still operating at a loss due to small size, is beginning to show traction with revenues nearly tripling over the comparable period last year. Healthcare staffing contribution income, as defined in our press release, was $18.9 million in the first quarter down 5% from the prior year quarter. Contribution margin for the segment was 12.7% versus 13.6% in the prior year quarter. This 90 basis point decline in contribution margin was due in large part to our investment in additional recruiters and sourcing initiatives, as well as continuing investments in our developmental businesses.

Turning now to Other Human Capital Management Services segment, first quarter revenues for the segment were $12.8 million, an increase of 11% over the prior year quarter. The segment's revenue growth came primarily from the acquisition of the Jennings, Ryan and Cole (ph) consulting business of March 2002. Contribution income for the segment was 1.4 million versus 1.5 million in the prior year quarter. Margin improvements in our retained search and consulting business were offset by higher marketing cost in our education and training business. As Joe indicated, we reached a definitive agreement to acquire the assets of Med-Staff for a 104 million plus a earn out that is contingent on Med-Staff 2003 EBITDA. The transaction is subject to certain closing conditions and completion of financing. The earn out payment will kick in only if Med-Staff’s 2003 EBITDA approximates 2002 EBITDA and can range up to 37.5 million if the 2003 EBITDA exceeds the prior year's number by $5 million or more.

We are very pleased with the spending acquisition which presents an excellent strategic fit with our travel staffing businesses and provides us with a substantial platform in the per deem and military nurse staffing sectors. In addition to the strategic rationale that Joe previously outlined, the pending acquisition represents an unusually attractive financial investment as well. In 2002 Med-Staff had revenues of $162.2 million, and EBITDA of $19.3 million. The up front payment represents a multiple of 5.4 times trailing EBITDA. And even at the maximum earn out the all in purchase price would be a multiple of less than six times the 2003 EBITDA. We expect that the pending acquisition will be accretive to 2003 EPS by $0.03 to $0.09 per share. Where we fall within this range will depend on a number of factors including the operating performance of Med-Staff, the timing of the transaction and the cost of the financing. The Company intends to finance this transaction with a $200 million in secured credit facilities consisting of a six year, $125 million term B loan and a five year, 75 million revolver. These funds will be used to finance the pending acquisition of Med-Staff, refinance all of Cross Country's existing debts and provide for working capital and general corporate purposes. Post-acquisition, the acquisition the leverage on our balance sheet will remain relatively modest with debt to capital at approximately 30% and debt to pro forma EBITDA ratio of approximately 1.6 times. We expect that the transaction will close in 30 to 60 days.

This brings me to our guidance for the second quarter and full year 2003. The following statements 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 mergers, acquisitions and other business combinations, other than the aforementioned pending acquisition of Med-Staff or the repurchase of any of our common stock. As Joe indicated the demand for travel nursing remains soft as a result of a more cautious buying process by our hospitals. Our bookings year-to-date are running approximately 2% below prior year. Based on these booking trends, we expect the average field FDE (ph) count to be in the 5300 to 5400 range in the second quarter. We expect pricing to be up approximately 3-4% year-over-year and that our mobile mix will be up 1% over the prior year. We continue to see a year-over-year improvement in the gross profit per hour, as wage and housing cost increases have moderated. Based on these dynamics, we expect second quarter 2003 revenue to be in the 155-160 million range and EPS per diluted share to be in the $0.22 cents to $0.24 range. The second quarter guidance does not assume any contribution from Med-Staff, due to the uncertainty as to when the pending acquisition will close. Including the acquisition of Med-Staff and assuming that the current demand environment continues during the 2003, for the year as a whole, we expect full year revenues to be in the 730-765 million range. EPS from continuing operations is expected to be in the range of a $1.02 to a $1.12 per diluted share. This includes estimate $0.02 diluted share relate due to any potential loan fee write-offs associated with the pay off of our existing credit facility. We intend to update guidance when we announce our second quarter results. This concludes our formal comments. Thank you for your attention and at this time we will open up the lines to answer any questions that you may have.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question 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 pooling process, please press the “star” followed by the “two”. You will hear a three tone prompt acknowledging your selection. Please ask one question and one follow up and re-queue for additional questions. If you are using speaker equipment you will need to lift the hand set before pressing the numbers. One moment please. First question comes from A.J. Rice with Merrill Lynch. Go ahead with your question.

Hello everybody. Just want to do ask about the Med-Staff acquisition, flush that out a little bit more. Maybe, Joe, could you go into a little more how that broadens your mix? Do they attach, beyond the military, do they attack a different geography more strongly than you do or do they have a approach to the market somewhat different and I guess related to that, you are looking to grow the business in this uncertain environment, but on the other hand can give us some comfort that you know exactly what you are getting? Maybe give us some comfort about how you know exactly what you are buying given the transition that the whole staffing industry is in.

Okay AJ. Those are good points. As far as the mix of their business, on the travel nursing side, I believe about 25% of revenue is from clients that we don't currently serve. So there is some benefit from that perspective on the demand front but as it relates to kind of where they are in the country, they are a national provider of travel nursing service, just as Cross Country is. Probably more important to us, we want to maintain this brand as a separate brand in offer to offer kind of a segmented benefit package to nurse, one that would appeal more consistently to a segment that perhaps Cross Country doesn't. And probably that is the biggest driver of our interest in the business. On the per diem front, as I said in my prepared comments, the revenues are concentrated in a small number of offices and at the same time are concentrated in a small number of states. Again we strategically want to improve the positioning in a softer environment, Cross Country can be a more credible provider of exclusive service, that we can, as hospitals desire to narrow the number of vendors, we certainly want to give them the option of using only one vendors for travel and/or per diem services. I think this acquisition gives us better opportunity to do that. As it relates to what are we buying, this is not a flash in the pan. This Company has been around for 15 years. We have known the management team for the better part of ten years. We have a lot of respect for them, what they have been able to accomplish. It's a terrific brand relative to other brands in the space. So this is not a small player. We are obviously making a significant acquisition at a time that the industry is stalled but I think it better positions Cross Country to grow in this softer environment.

The follow-up would be I guess, Emil said that -- or he said it is $0.03 to $0.09, potentially additive. Can you give us flavor for how that works with the earn out. Is it only if they hit the earn out. Is it sort of get again if they are flat year to year EBITDA. Is that base line assumption. Maybe give us some flavor as to what do you think they will do is and how likely they will get into that earn out hitting.

A.J. our base case assumption is that the performance of Med-Staff will essentially parallel the performance of Cross Country in terms of both revenue growth and margin. And based on that we do not expect to be anywhere near the upper end of the earn out range. In fact, as I indicated in the prepared remarks the earn out only kicks in if Med-Staff performance improves relative to prior year.

Okay. Okay. Presumably you are okay if they hit the earn out that is beneficial to you, that would be upset.

That would be a high class problem for us AJ.

Our next question comes from Jeff Silber with Girard Klauer.

You were kind enough to give us assumptions behind your second quarter guidance. I was wondering if you could do the same thing for full year guidance stripping out any potential impact with Med-Staff. So I am looking for some of your volume assumptions, your pricing assumptions and gross profit per traveler assumptions.

I will be happy to do that Jeff. Stripping out the Med-Staff acquisition, just looking at current Cross Country business mix, as Joe indicated our assumption is that volume year-over-year will be essentially flat. Our pricing assumption is that we will be in the single, low to mid-single digits, 2-3% range at a whole and gross profit margins will continue and slightly improve over the current level. The first quarter's gross profit margins are typically lower than the rest of the year due to seasonal factors that we previously discussed and we expect a modest improvement in gross profit margins for the remainder of the year.

Okay great. Going back to Med-Staff you mentioned that there were three variables behind the range of your accretion, the operating performance, timing and financing. I think you talked about the first two. Can you talk about some of the financing assumptions behind the deal?

We are refinancing, financing the transaction with a new credit facility that will consist of $125 million of term debt and we are also taking down the $75 million revolver. We do not have yet the exact parameters as to what the rates will be. Our expectation based on current interest rate environment is that it will be a very attractive financing opportunity for us.

When you say attractive I am wondering what you are using for rate assumptions for your modeling purposes.

For modeling purposes we are assuming that the term that would be at a premium of LIBOR of 350 basis points.

And on the credit line?

The credit line would be presumably 50 basis points lower than that. Again that is just for modeling assumptions. The actual number will really depend on the market condition at the time we are in the market.

Back to the earn out, what would the earn out be if EBITDA was flat?

If EBITDA is flat year-over-year, there would be no earn out.

Finally is management going to be locked up beyond the earn out date?

There are five year non-competes with the senior management of the company.

Okay fantastic. Thanks a lot.

Thank you. Next question from Wayne Cooperman (ph) with Cobalt Capital. Go ahead with your question.

I wasn't clear, the guidance that you gave, when are you assuming that the deal closes and how much revenue and earnings are you assuming for this year from the acquisition?

Our assumption, Wayne, is that the deal will close within 30 to 60 days, but for modeling purposes we assume that the deal will close on July 1. So we did not include any contribution of the second quarter but we assume we will get a half a year's

That accretion you are talking about is half a year accretion?

That's correct.

we can double that for next year assuming they are flat and if there is growth there would be --

That is a good assumption.

So you are bringing down assumption off sets a bit?

That's correct. On a going forward there are up front costs that are not recurring in the second year so doubling would be a conservative way to look at that.

Maybe more than double.

For modeling purposes that is not a bad way to start.

Next question from Mark Allen from SunTrust Robinson Humphrey.

Good morning John, Emil. Something that jumps off the page at me, question about your gross profit margin percentages, you actually up a little bit year on year and that is a stark contrast to most every other competitor in the space where they are seeing a couple of hundred basis points compression. So my question is why are your gross margins holding and why do you think that is sustainable.

It's hard to say without knowing the details of their cost structure. We obviously have listened to their calls. We have heard some feedback on higher insurance costs. Obviously we are experiencing higher insurance costs as well and pressure in particular on wages, which I -- you know we have to say that we are not seeing obviously enough to compress our margins, and if you are looking for reasons why that would be true for us not for other companies we offer two items, and again you probably need to speak to the competitors to get additional color on that but we think that, you know, clearly one of the benefits of being the largest brand in the industry is you may not be as vulnerable to smaller competitors, and perhaps more importantly our strategy for several quarters is to really go after the larger users of travel services nursing and give them reason to use us either with a lead time on a primary basis, ideally exclusively. And when you are not comparing, when your nurses aren't comparing your wage package with someone else in is less wage pressure. If your package is the only opportunity you have an advantage. We think going forward mark this is the only opportunity we have as the dominant brand in the industry to continue to, you know, almost like avert with us circle, have nurses come to us because we are the ones with the jobs. Once that kind of word of mouth gets out there and a strong word of mouth referral environment, we think there is opportunity for us to continue to take share in this environment.

Again, kind of a follow up on that thought of trying to be more important to big users, Joe, can you just kind of run through your -- looks like you are creating kind of a 1-stop shopping strategy between high end consulting unit. Now you have added per diem service. Can you give us some elaboration on kind of the big picture strategy and what does this imply for Allied and things like medical billing as you continue on this path?

Clearly that has always been our strategy, Mark, to be a full service human capital management provider to acute care customers. I would still offer that outside of staffing, staffing will always be the dominant component of our service, but that we do try to offer value added services that compliment that core staffing activity. In this environment we are hearing a clear message from our customers that they have been saying and I think some of our competitors have offered on their conference calls that there is a very clear trend on to narrow the number of vendors that they use partly as a means of controlling costs. There is no question that when you have more vendors it has a tendency to inflate your costs. But more importantly it's the administrative burden that it places on a facility when they are interviewing high number of nurses that have low probability of coming to that facility. We want to offer a value added services, services respective six their time that allows them to reduce the amount of time that they spend on filling shifts. We think with this acquisition in particular, we are much more own the road in achieving that as an objective.

Thanks Joe. Good luck in the rest of the year.

Thank you. Next question from Deborah Lawson with Smith Barney. Go ahead with your question.

I was wondering if you could tell us -- I am not clear only the guidance for the rest of ‘03. I know you assume a closing in the Med-Staff deal on July 1. How much, you gave a range of estimates of accretion for that deal, but how much are you assuming on a per share basis the accretion is for calendar ‘03. Could you also comment on -- I don't think you made many comments in opening remarks about how things are going with regard to the new recruiters and how they are performing. That would be great. Thanks.

Deborah I take the first half of that. As in the prepared remarks for the calendar year 2003 the accretion from the Med-Staff acquisition is estimated to fall in the $0.03 to $0.09 per share range.

Right.

And that is again a calendar -- that assumes the half a year of contribution from Med-Staff.

So does the guidance range that you gave out for the year, is that also -- does $0.03 on the low end and $0.09 on the high end?

That is exactly what is built into our -- as well as an additional $0.02 right off of loan fees associated with the refinancing. Already built into that range.

To answer the second part of your question Deb, on the recruiter front we are generally pleased with the performance of our recruiters, as we have been describing one of the challenges that the industry phased and Cross Country faces along with the industry is a drop in productivity relate to do the more cautious process that hospitals have out there. So we do feel that we need more people only the phone to maintain the level of you know a kind of comparable level of activity in the prior year period. The total number of FTE recruiters at the end of the first quarter was 118 a slight drop from the 121 at year end. We are managing toward a range of a 110 to 120. At that rate, when you look at overall number of travelers that we have, it's more in line with our expectations, kind of historically of productivity per recruiter that give us opportunity to grow when the industry makes its turn and we have more of a robust environment. We won't be caught as we were the end of 2001 with inadequate internal capacity to take advantage of a hotter market.

Okay thanks.

Thanks Deb.

Thank you next question from Mr. Jim Janesky with Janney Montgomery Scott.

Hi Emil and Joe. You talk about how 20, you do not serve 25% of the travel clients within Med-Staff, right?

Actually it's the revenue, Jim.

I'm sorry, of the revenue. So, when we look at this Company on a combined entity it's 65% travel, 35% other?

Correct.

What would you say that by acquiring Med-Staff, how much of the revenues will you cannibalize and I assume you took that into consideration when you are looking at forward-looking EBITDA and EPS accretion.

The reality is the in the acquisitions we have made in the core space historically, not only do we not experience any cannibalization, typically there is up side as you open up to the recruiters at the target entity, which typically doesn't have the breath of opportunities that Cross Country does, you typically see an upsurge in revenue. We are not going to model that and no one is going to give us credit for that, but generally speaking, on the contrary we would expect their revenue to get some bounce by just having more opportunity to place nurses.

Is that because the market segmentation, they are clearly going after a different part of the market so to speak?

Certainly their benefit package appeals more consistently to a nurse with different hot buttons than the Cross Country package appeals to but I don't think it's more related to the market segment. I just think that that's been our experience, that you know, our – primary reason, better way to answer the question, Jim, primary reason a nurse will leave you historically is because you don't have the job she wants when you come off contract. So, when you are able to offer that job through a more expanded relationship base your probability of renewing the nurse becomes higher.

With respect to your SG&A expenses, clearly you admit that you are investing through the future and the expense run rate is not really commensurate with your current level of revenues. At what point do you kind of make a decision to say that you are going to pull back on expenses and you know, could there be some addition to the bottom line if the environment further deteriorate or is there opportunity to do it even under the current environment?

That is a fair statement. Obviously we are always looking for opportunities to eliminate spending that just isn't adding to the top line. Having said that, kind of our own expectation is you know, that at the end of this year, we should start to see a firmer environment, that an environment where more robust volume is potential. But we can't -- there is no way of guarantying that and if we fine ourselves in a prolonged slump in demand there is variability in the cost structure. We would have to look for ways to bring cost in line with consistently down market. At this point that is not our expectation. We do expect the market turn. And even in a soft environment, the steps that we have we have taken we believe should allow us to take sufficient share to even grow in the softer environment.

But historic SG&A percentages any, you know, at any point in the future, or would that require demand to go up, you know pretty substantially?

Like I said, a year from now, either demand will go up or we will bring cost down. I think that is a fair statement.

Okay that is fair. Okay thanks a lot.

Next question from Mr. John Body (ph) with Body Brown Asset Management.

I want to go back to gross margin issue or non issue for you guys. Your explanation on size, I have a little bit of trouble with because your main competitor is larger than you. So I wanted to go back. I think one of the things you said you are not seeing any significant wage pressure. Can we go a little deeper into this?

Sure. It's hard for me to give you a complete answer without having the competitors on the line to discuss it. But all I can tell you our margins are our margins and we do believe that our -- because we are first choice generally of the hospitals that we serve, that we don't feel the same kind of pressure that we hear our competitors talk about from smaller companies that may be more aggressive than our package. That is not our experience. As it relates to our competitors having more nurses, that is absolutely true in aggregate. But they are disbursed upon multiple brands that that are all smaller and many substantially smaller than the Cross Country travel core brands. Maybe the flip side of a multiple brand strategy is that that you are more vulnerable to second and third tier competitors. In fairness I think you need to have the configuration with other companies in this space. But we have listened to the calls. Clearly we are experiencing inflation in our insurance costs, that we have discussed that in the past. Clearly based on our performance, we are not seeing the same kind of wage pressure that they are. Since we haven't lost share we feel comfortable in saying that we expect that to continue.

Okay thanks very much.

Next question from Brian Black (ph) with Lamm Partners. Go ahead with your question.

I am wondering if you can give more information on the pro forma kinds of post-deal balance sheet. You said you got a $200 million term B in revolver. Some of that is using to refinance your existing debt. If you role towards or the deal were to close what would be the debt versus carbon the balance sheet?

Well, first the total leverage, total debt to capital ratio would be as I indicated, 30%. We use the proceeds to affect the purchase, which is $104 million, plus any associated fees. Refinance $27.5 million of existing debts. So the total debt on that basis would be $135 million. We currently have approximately $15 million of cash on our balance sheet. We expect that we will maintain that cash balance going forward but we see no immediate need to draw down on the revolver.

135 of total debt post-refi and post acquisition and roughly the same cash level?

Right.

Next question from Jason Kesselman (ph) from Stonebrook Funds.

Hey guys most of my questions have been answered. Quick question, on share repurchase obviously it was for good reason. Going forward generically, you guys have any thought about what you want to do around there and what level of debts you guys are comfortable operating with over the next year or so?

We believe that the level of debt that we have is quite modest based on our relation to our cash flow generation and we cash flow generation and we also believe that the share repurchase program at these prices provided excellent opportunity for us. We have $90 million left to our original authorization and we believe that the Cross Country stock represents an excellent value and we have the ability to complete that repurchase program action.

You would not envision suspending the program.

We do not.

And your guidance does not include generic repurchases.

That's correct.

We have a follow up question from Jeff Silber. Go ahead with your question.

Thanks, you have alluded a few times in the call about segmenting the market with the Med-Staff brand. Joe you just mentioned before some of the benefits that met staff offers may be pushing hot buttons with the nurses in a way different than you do. Can you provide color on how that segmentation would work. Is it kind of like the customized NovaPro segment that you are using or customer based?

May believe on recruitment side, Jeff, and the mix of benefits that you put out there for the nurse. As you know we provide housing benefit to our nurses and we always try to provide a very attractive wage package. Those two items account for the majority of our direct cost. The mix with which you divide those up with vary. What you don't want to do is offer a choice, you know, on the phone with a nurse that, you know, that is not a path that we want to be on. We feel by having brands that have consistent passages and send a consistent message to the nursing community he is the best way to segment the population of those nurses that favor housing as a benefit versus those nurses that favor wages as a benefit. We think that is a really terrific opportunity for us to leverage up.

So, is there any meaningful difference between your gross margins and their gross margins?

They are comparable. And again the way they divide their benefits is different from the way Cross Country divides its benefits. We tend to offer higher wages. They tend to offer better housing packages.

In terms of your customer concentration since we are seeing more of this preferred provider of vendor consolidation, have your top 20 vendor accounts become a larger component of your revenue base?

You know Jeff that is not my understanding, Emil do you have a --

Based on the analysis I don't think that is the case. We will still have a very diversified customer base.

Finally one more quick one. The $162 million that Med-Staff generated last year in revenues, what kind of seasonality was that was it second half of the year versus the first half of the year?

They grew sequentially throughout the year but leveled off as the year unfolded. The highest year of growth rates were in the first half and we expect them to essentially be flat year-over-year.

Great thanks so much.

Thank you, next question from Mr. David Carter with Oakhill Group. Go ahead with your question.

Just a quick question. Most of my questions have been answered. Curious if you could walk us through the genesis of the transaction that was announced this morning. How at this time come about and who was your advisor?

We didn't have an advisor, David. We have known the owners of the business for many years, have tried to stay close as they built their business. As we said early on, this was a team that we had a lot of respect for that built a really high quality brand. So we have let them know that we are interested in their business and we have been in discussions on and off for sometime. Obviously the market multiples have been very volatile over the past year. That certainly played into these discussions. But you know, I think when he looked at his opportunities to sell the business, we were an attractive acquirer, the owners of the business are obviously very concerned about the impact on their employees and I think they had a lot of confidence that we would treat their employees well. That we did have a lot of respect for what they have been able to accomplish. So, it really wasn't a -- it was a match that was pretty clear up front that we wanted to buy their business and they want to do sell to us.

We have a follow up question from Mark Allen. Go ahead with your question.

The question about the foreign root nurse recruitment business Joe, can you give us update about how many nurses are in the pipeline. I guess the question is would there be change in your enthusiasm for that business given the dampening for the demand in the environment?

Great question Mark. At the end of the first quarter we had 367 nurses in the pipeline. We have 12 working at the end of the quarter. They are beginning to come over in greater numbers in the second quarter. My enthusiasm hasn't waned. I will be candid and say it's tougher to place these nurses on the six to nine month contracts that we had intended when we began the policeman in January of 2001. But we are placing them but it is a -- it's a tougher sale than it had been, no question about it.

Another follow up if I may. Can you comment- this acquisition gives you an entrée into the military facility market. Any sense of the size of that market is and how fragmented is it?

I believe the numbers I have seen is a $200 million market. There is actually a high concentration with one competitor and we believe this is the second largest player in the space.

Relative to the geography, I think you made the comment east coast west coast. Can you fine do you tune those per diem locations a little tighter? Where are they located.

The strongest office and really an extraordinary office is in the Philadelphia market. They have a strong presence in South Florida, in Southern California, and a growing presence in Northern California. These are all target markets. These are areas with high concentration of travel nurses working. So again gives us that critical mass that we believe is crucial to being take one-stop-shop for hospitals that desire that be arrangement.

Their per diem arrangements would lay over well with your existing travel?

Absolutely.

Final question, any change in retention rates, the nurses that you have that come for their second and third assignments, have you seen any change there?

We have Mark, we have seen an erosion in our retention rates, high 60% range. As you know historically they have ranged between 70-75% in the last several years. I think it is just a matter of not having the job in the specialty in the location that some nurses want when they come off contract. So it is affecting our retention rates.

If there are any additional questions at this time please press the “star” followed by the “one”. As a reminder if you are using speaker equipment you need to lift the hand set before pressing the numbers. Gentlemen there are no further questions at this time. Please continue.

With that, with no further questions we would like to thank everyone for participating in this call and we appreciate you spending time with us this morning. We look forward to speaking with you next quarter. Take care.

This concludes the Cross Country First Quarter 2003 Investor Call. If you would like to listen to a replay of today's conference dial 1-800-405-2236 or (203)590-3000 followed by access number 534821. Thank you for participation in today's conference.