Cross Country Healthcare Inc (CCRN) 2004 Q2 法說會逐字稿

Welcome to the Cross Country Healthcare earnings conference for the second quarter of 2004. All participants will be on listen-only until the question-and-answer session. This conference is being recorded. At this time, I'd like to introduce your host for today's call, Mr. Howard Goldman, Director of Investor and Corporate Relations. Sir, you may begin.

Good morning, and thank you for listening in to this conference call, which is also being webcast, and for your interest in the company. With me today are Joe Boshart, President and Chief Executive Officer, and Emil Hensel, Chief Financial Officer.

On this call, we will review our second quarter and year-to-date 2004 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 on our web site at www.crosscountry.com. Replay information for this call is also provided in the press release. Before we begin, I'd first like to remind everyone that this discussion contains forward-looking statements.

Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates, and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results in performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors were set forth under the forward-looking statements section of our press release for the second quarter of 2004, as well as under the caption risk factors in our Form 10-Q for the year ended December 31st, 2003.

Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed in this teleconference might not occur. Cross Country Healthcare does not have a policy of updating or revising forward-looking statements; and thus, it should not be assumed that our silence over time means that actual events are occurring as expressed or implied in such forward-looking statements. And now, I'll turn the call over to Joe.

Thank you, Howard. And thank you to everyone listening in for your continued interest in Cross Country Healthcare. As reported in our press release issued last evening, our revenue for the second quarter of 2004 increased slightly year over year to $167 million, and modestly exceeded the upper end of our expectations provided in May. On a sequential basis, as expected, our revenue declined by 3% from the first quarter, due to the normal seasonality.

We also experienced a modest sequential improvement in our gross margin to 24% and continued to look for -- at ways to further enhance our margins long-term. Cash flow from operations during the second quarter was a very strong $18.5 million, which allowed us to aggressively reduce our long-term debt by 21% to approximately $70 million at the end of the second quarter. For the second quarter, our net income was $5.1 million or 16 cents per diluted share. This was at the high end of our expectations range and sequentially one-cent per share ahead of the quarter.

However, our net income was below the 21 cents per diluted share we reported a year ago. Overall, our profitability in the second quarter was adversely impacted year over year by an increase in our bill pay spread, in part due to increased third party administrative fees and co-marketing expenses that are accounted for as an offset to revenue, as well as higher insurance and housing costs, legal expenses and compliance costs associated with the Sarbanes-Oxley Act of 2002. Looking specifically at co-marketing expenses, they have grown as we have gained success in obtaining and implementing exclusive and preferred provider relationships.

This has been an important part of our strategy for the past two years, and it is largely in response to growing desire on the part of hospital customers to improve efficiency and rationalize the utilization of outsourcing of labor. As we have communicated in the past, when we are an exclusive provider and the only company with those hospital orders, we are put in a stronger position to maintain our improved margins, as we are not competing with other agencies' rate offerings. And more importantly, this give us a competitive advantage in recruiting nurse applicants.

Word of mouth is the most important driver of nurse applicant activity, and being the only company with those attractive job offerings is a compelling reasons for nurses to look at Cross Country as the employer of choice. Focusing back on the second quarter,r orders for contract travel nurses from our contract clients remain well above year ago levels. Meanwhile, as we move through the summer months, we have not yet seen a meaningful amount of winter seasonal orders from our Sun Belt clients that would typically occur by this time.

As a result, we do not yet have a clear sense of when a seasonal pickup in demand might occur. From our vantage point as a leader in nurse staffing, we continue to characterize the behavior of our hospital clients and nurse clients as cautious. While demand for our staffing services is directionally stronger, the trend line is choppy, as hospitals constantly evaluate their expected and actual in-patient admissions and vary nurse staffing requirements accordingly.

At the same time, it will take sometime for nurses to gain enough confidence in our ability to consistently employ them in attractive assignments in order for them to return to travel employment mode. Having said that our clients' behavior remains cautious, we continue to be encouraged by the success of our efforts to secure exclusive and preferred relationships with what are today some of the more prestigious and larger users of supplemental nursing staff services. Some of these more mature relationships have yielded very generous praise of our efforts, which makes securing similar relationships with other hospital clients much easier in the future.

We expect the benefits of this success to be reflected gradually in our operating performance going forward. The continued growth of these strong relationships with our clients has allowed us to realize sustained improvement in the conversion rate of applicants that we send in response to client orders into contract bookings. In the second quarter, the rate at which all applicants converted was up more than 10% from the prior year period.

Due to a decrease in the number of nurse applicants, contract bookings -- historically a good leading indicator of future performance -- declined by 11% from the year ago period on an organic basis. However, this was a 4 percentage point sequential improvement from the rate of decrease we experienced in the first quarter. In sum, while our vol volumes have largely stabilized, it continues to be a challenging operating environment.

While we believe we are transitioning toward a relatively more favorable supply constrained environment, our hospital customers and potential nurse recruits remain cautious. Due to this cautious behavior, our business is not likely to resume meaningful growth in the next quarter or two, although we believe we will continue to increase our market share. As a result, our prior hope for an upturn in our business in the second half of this year is now somewhat delayed, and our outlook anticipates the continuation of the challenging conditions in the nurse staffing market for the remainder of this year.

Before handing the call over to Emil for a more detailed discussion of our financial results, I want to address the new legal matter that was disclosed in our press release last evening. On or about August 5th, 2004, a lawsuit was filed against the company, me and Emil, in the United States District Court of the Southern District of Florida by the City of Ann Arbor Employees Retirement System, purporting to sue on its own behalf and on behalf of all other persons who acquired the company's common stock during the period October 25th, 2001, through August 6th, 2002.

More detailed information about the allegations contained in the complaint are included in our press release issued last evening, as well as in our Form 10-Q, also filed yesterday. As we stated in our press release, this lawsuit is in the very early stages, and we're not able to assign a monetary value to any exposure we may have as a result of the suit. We intend to vigorously defend this matter. With that, I'd like to hand the call over to Emil.

Thank you, Joe, and good morning, everyone. First, I will go over the results for the second quarter, and then review our revenue and earnings guidance that we provided in last night's press release.

As Joe indicated, Cross Country Healthcare recorded second quarter revenue of $167.3 million, which slightly exceeded the upper end of the revenue guidance range that we provided in May. Our second quarter revenue was up 1% from the prior year quarter, but down 3% sequentially, consistent with normal seasonal patterns. The year over year revenue comparison is impacted by the acquisition of Med-Staff in June of last year.

Excluding the contribution from Med-Staff, our second quarter revenue declined by 12% from the prior year. This is directionally favorable to the 14% organic decline we recorded in the first quarter, and is an indication that our core travel nursing business has stabilized. Our gross profit margin was 24%, down 70 basis points from the prior year quarter, but up 70 basis points sequentially due to seasonal factors. The year over year decline in margin is attributable to a combination of a decline in the average bill pay spread, as well as higher insurance and housing costs.

SG&A expenses in the second quarter were up 8% over the prior year, due to the Med-Staff acquisition. On a sequential basis, SG&A expenses were essentially flat, despite increased legal fees and expenses associated with our efforts towards complying with Section 404 of the Sarbanes-Oxley Act. Interest expense was $1 million, up from $700,000 from the prior year quarter, primarily as a result of the delevering of our balance sheet to finance the Med-Staff acquisition.

Net income was $5.1 million or 16 cents per diluted share, as compared to $6.8 million or 21 cents per diluted share in the second quarter of 2003, which included an after-tax charge of 2 cents per share related to the early extinguishment of debt. Our fully-diluted EPS for the second quarter of 2004 was at the upper end of the guidance range that we provided during our May earnings call. Our balance sheet and cash flow generation remains strong.

We ended the quarter with a debt to total capitalization ratio of 17%, and the current ratio of 2.4 to 1. DSOs were 56 days in the second quarter, down three days from the end of the first quarter. Meanwhile, as receivables due from certain accounts have aged, we thought it appropriate to increase our reserve for bad debt, which resulted in additional debt and expense of approximately $500,000 in the second quarter, a 15% reduction from the prior quarter.

Cash flow from operations for the second quarter was an exceptionally strong $18.5 million, as compared to $12.4 million in the prior year. The 50% increase in operating cash flow was driven primarily by the aforementioned decrease in receivable DSOs. Capital expenditures in the second quarter were $1.4 million.

Free cash flow, which we define as cash from operations less capital expenditures and earn out payments, was $17.2 million for the quarter as compared to $11.5 million in the prior year. During the second quarter, we repaid $20 million of term debt, which included an optional prepayment of 19 million. At quarter end, 2.1 million was outstanding under our $75 million revolver credit facility. There were no repurchases of our common stock during the quarter.

Under the remainder of the current $25 million authorization, we can purchase approximately 482,000 additional shares at an aggregate price not to exceed $11 million. Let me drawdown next on our two reporting segments: Healthcare Staffing, which comprises our travel and per diem nurse staffing, Allied House Staffing and Clinical Trial Staffing businesses, accounting for 91% of revenues in the second quarter; and the Other Human Capital Management Services segment, which is comprised of our education and training, healthcare consulting and [INAUDIBLE] search businesses.

,Revenue for healthcare staffing segment was $153 million and the average number of FTEs was 5,806, about at the midpoint of the guidance range that we provided in May. Revenue was essentially flat on a year over year basis, and down 4% sequentially. Volume was up 1% over -- year over year, and down 3% sequentially. Excluding the contribution from Med-Staff, second quarter revenue was down 15%, and volume was down 14% from the prior year, reflecting the more cautious mind-set of our hospital and nurse clients.

The average revenue per FTE per week was down 1 1/2% on a year over year basis and essentially flat sequentially. The small year over year decline in the revenue for FTE per was due to the combination of Med-Staff's per diem business, which has a lower average bill rate than our travel businesses, a modest 0.4 percentage reduction in our average grow rate in our organic nurse staffing businesses, fewer hospital-sponsored extra bonuses and higher third party administrative fees and co-marketing expense, which are accounted for as an offset to revenue.

Mobile contracts, where the nurses is on the hospital's payroll, accounted for approximately 2% of our segment volume, unchanged from the prior year quarter. Healthcare staffing contribution income, as defined in our press release, was $15 million in the second quarter as compared to $19.4 million in the prior year quarter. The decline in contribution income was due to the combined effects of negative operating leverage in our organic business, a decline in the bill pay spread and higher insurance and housing expenses.

This decline was partially offset by Med-Staff, as well as improved performance in our clinical trial staffing and international nurse recruitment businesses. Turning now to the Other Human Capital Management Services segment, second quarter revenue was 14.3 million, up 15% from the prior year, driven by the strong growth of our educational seminars and physician surge businesses. Segment contribution income was $2.3 million, up 85% from the prior year.

Each of our businesses within the segment contributed to the strong operating performance, especially our educational seminars business. This brings me to our guidance for the third quarter of 2004. 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 merges, acquisitions and other business combinations, the repurchase of any of our common stock or pending legal matters. As Joe indicated, in the short-term, we believe we will continue to face challenging conditions in the nurse staffing market. Our bookings in the second quarter, excluding Med-Staff, were 11% below prior year.

Based on these booking trends, we expect the average field FTE count to be in the 5,500 to 5,700 range in the third quarter of 2004. We expect average staffing revenues per FTE per week to be flat to slightly up as compared to prior year. Gross profit margins and SG&A expenses in the third quarter of 2004 are expected to be consistent with the second quarter. Based on these dynamics, we expect third quarter revenue to be in the 163 to $166 million range, and EPS per diluted share to be in the 14 to 16-cent range.

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. At this time, we will now begin the formal question-and-answer session. If you would like to ask a question, please press star one. You will be announced prior to asking your question. To withdraw your question, please press star two. Once again, to ask a question, please press star one. One moment, please. Our first question comes from A.J. Rice of Merrill Lynch. You may ask your question.

Hello, everybody. A couple of questions, if I could ask. Joe, in your prepared remarks, you had talked about not yet seeing the fall seasonal demand pickup that you normally anticipate. I mean, can you give us some more flavor for that -- how significant is that? It seems a little bit early, from my perspective, to be seeing the tremendous up surge. Is it just a bit worrisome, or is it more significant than that?

Well, in a normal year, going back two or three years ago, we would start seeing orders even as far out as January, in July and early August. And while I'm not saying we haven't seen any, we haven't seen enough to anticipate an upturn in volume that would be relatively significant in September. The reason that is, A.J, is because a nurse typically wants to start a 13-week contract before the third week of September in order to finish that contract by the holidays, so she can go home and visit with family. The fact that we're not seeing those kind of start dates suggests that we're not going to see a bump up in the seasonal volume. I think we will have a seasonal business, but it will not start in September as -- which would be, obviously, a favorable development, as it had been in prior years.

Okay. Also, you and Emil both commented about some pressure on the bill pay spread. I know through a lot of this downturn, that spread's been fairly stable. Is there any change that's occurring that you're seeing in the marketplace with respect to that metric?

Well, I think the driver behind that -- the relatively modest decline in the bill pay spread has been really on the revenue side, not so much on the compensation side. We look at our wages on a year over year basis, they are pretty consistent. On the bill side, we did have, as I indicated in our prepared remarks, roughly 4/10% decline in our average bill rate. But more importantly, our average revenue per FTE has been impacted by a phase out of hospital-sponsored bonuses, and also by the impact of co-marketing expenses. And we have not been able to pass through these types of increases, as well as an increase that's in the housing and insurance area, which reduces -- reduced our gross profit margin. But the actual decline in the bill rate, which drove that decline in the spread, has been relatively modest.

I think, A. J., the other moving piece would be potentially to reduce nurse compensation. As Emil said, the compensation is actually pretty flat. But clearly, one of the alternatives in a noninflationary pricing environment -- building environment -- is to reduce compensation to offset any other increases in direct costs that we're experiencing.

Right. So that wouldn't be so much an existing nurse would have to take a cut, but when you bring on a new nurse, you bring them on at lower rates?

That's typically how it works, A.J.

Okay. All right, thanks a lot.

Okay, thanks for calling in.

James Janesky of Ryan, Beck & Company, you may ask your question.

Yes. On the recruiting front, Joe, are you continuing to add, or have you done any alternatively -- have you done any layoffs with your recruiting staff? Or have you just, you know, kind of had them lay off through attrition?

Yeah, we've never had a formal layoff of recruiters, and don't anticipate at any point in the future that we would do that at this point. Having said that, it's been a difficult market for a couple of years. And as a result, particularly in the last quarter or two, we've experienced more attrition. We actually anticipate and have plans to incrementally add recruiters in the current environment. I think we've said on past calls that we believe the largest impediment to growth right now is that we're not sending enough nurse applicants to our clients in response to the orders that they've given us. And part of that formula is just having the right amount of capacity, recruitment capacity, on the phone talking to the nurses. So it is our intention to add to the total number of nurses -- excuse me -- nurse recruiters that we have on the phone, trained and on the phone talking to nurses. Unfortunately, in the last quarter, we had more attrition than the number of new recruiters that we added. So we ended up the quarter with really the lowest number of recruiters we've had in more than two years, excluding the Med-Staff acquisition.

Sure. Sure. And do you feel if you did have additional recruiters that, you know, the amount of nurses you would have been able to put out on assignment would have been higher? I mean, do you think that is a limiting factor?

I believe that's a limiting factor.

Okay, and as a follow-up to the seasonal order question, as your -- as you and your people are talking to hospitals, what are they going to do for the seasonal demand? I mean, do they think it's going to be easier to -- or have they found it easier to recruit full time nurses? Do they plan on just using overtime if they have to, rather than, you know, turning to travel nurse providers?

Well, I think everything you said is true. I think hospitals in the last several years have had success in getting more hours out of the existing workforce that they have drawn on in the past, that nurses are more willing to work overtime hours or go from part-time to more full-time status, working directly for hospitals. And I think that to some degree that continues to be true. You know, while I don't have any specific data to point to other than what's being reported by some of the public hospital companies, you know, we have not yet seen a return of robust in-patient admission patterns, which I think is, in the near term, the most important driver of the kind of level of commitment that we would anticipate from our hospitals that would allow us to return to a growth mode. That -- you know, my impression is that hospital census is flat, generally, and that that's not a great environment to see growth return to the segment. So we're moving -- we haven't continued to climb at steep rates. But when you look at the sequential pattern, there's a modest attrition from the second to the third quarter, which we're not happy about. Typically, we'd like to see that number inch up rather than inch down. But we're not seeing any dynamics that suggest in the very short-term over the next quarter or even two, that we're going to see a bump up in volumes.

Okay, thank you.

Okay, Jim, thanks for calling in.

Toby Sommer of SunTrust Robinson Humphrey, you may ask your question.

Thanks. Two questions. One regarding the supply of nurses. Can you comment -- is there anything you're doing differently from a marketing perspective to attract and encourage, you know, more nurses taking assignments, in addition to, perhaps, your plans to add recruiters? And then I was curious, cash flow was pretty strong in the quarter, cash flow from operations. What was your expectation for the year and sort of uses of cash going forward? Okay.

I'm going to let Emil handle the cash flow question. On the recruitment side, the channels of recruitment are really what they have been historically. And as I said in my prepared comments, by far and away the most important medium of recruitment activity is word of mouth from other nurses in the field. And the buzz among travel nurses has become less positive over the last several years. So you're seeing less new applicants come into the industry. So if we compare our nurse applicant activity year over year, it's down, and down pretty significantly. The positive is that when we compare it from the first to the second quarter, it was sequentially a pretty significant improvement. So it's just a process, Toby, and as we -- as our nurse customers and hospital customers begin to see the same -- on a macro sense -- the same metrics and dynamics we see on a more micro sense, really on kind of the margin of staffing that goes on in hospitals, that you'll see a change in behavior. And we've been through cycles like this in the past, and it doesn't turn overnight. But when we look at the metrics, they're moving in the right direction. They give us more confidence. Having said that, we're just -- we're disappointed that this transition is taking longer than we would have anticipated, based on our experience in past cycles.

As far as the cash flow question, you would be right, Toby, that the first half of the year, our cash flow generation has been remarkably strong. If you look at it in terms of cash -- free cash flow per share, our free cash flow per share number for the first half of the year was more than double our EPS number. It's partly as a result of that three to four day reduction in DSOs that we experienced. And while we don't expect a similar reduction in DSOs in the second half of the year, free cash flow for the year could be as much as 150% of our EPS, so it's very, very strong. In terms of how we will use this excess cash, we believe that right now, debt repayment and opportunistic share repurchases remain the best use of our excess cash, other than, obviously, a strategic acquisition. And in the last quarter,r our emphasis has been on accelerated debt repayment, which long-term give us more financial flexibility and also more flexibility to potentially put another share repurchase program in place when the current one is used up. And in the meantime, we will continue to be opportunistic in our share repurchases, pursuant to the existing authorization, which still has just under half a million shares left.

If I may, a brief follow up, could you comment about the acquisition pipeline, and the opportunities you're seeing relative to the first quarter? Is it more attractive -- is it a strengthening pipeline?

Well, Toby, we're always looking at deals -- it's just the nature of a consolidating industry. I would -- we're not looking just at nurse staffing opportunities. We have -- really like the future and potential of our clinical trial staffing business. So there's other avenues for us to deploy our excess cash flow. I guess the issue is, we do have a pretty disciplined approach, and we have not yet been able to get pricing to the level that we feel that we have not just an opportunity to do something that's accretive, but something that's going to generate a higher return on invested capital than our cost of capital. So it's an ongoing process. I would say the deal flow is consistent. It's just a matter of getting price expectations to a level that we think is fair and reasonable. If you recall, a year ago, we acquired the Med-Staff business for a little over five times trailing EBITDA. That's probably the right number, somewhere between five and six times. But we still see a lot of deals that have price expectations between eight and ten times, which we don't think works in the current environment. But it anticipates an immediate upturn in the business. You know, again, our short-term crystal ball, if you will, is -- you know, again, based on the caveats we've described previously -- just doesn't suggest that there's a near-term inflection point in this business.

Thank you very much.

Mike Werner of Kennedy Capital, you may ask your question.

Hi, thank you. I think most of my questions are answered by the prior person regarding acquisitions, free cash flow. Any sense as to what long-term debt could be by the end of the year? Do you have any sense as to where that might be?

I hate to make a specific forecast on long-term debt, because it obviously depends on a couple of factors. One is what our actual free cash flow will be, and what opportunistic share repurchases we may engage in between now and year end. But in terms of our free cash flow, we can give you a sense of where that's trending, and it's trending towards roughly 150% of our EPS. So you can kind of do the math. And if you assume that we use that excess cash to further repay debt, we could be making substantial prepayments between now and year end. In the order of, maybe -- perhaps not at a rate we've been making in the first half of the year, but still significant.

Okay, great. That's helpful. Thank you.

Thanks for calling in.

Jeff Silber of Harris Nesbitt, you may ask your question.

Good morning. Joe, at the beginning of the call, you were talking about some of your preferred provider relationships. Roughly what percentage of your business are those relationships and what are your goals to get that number to over time?

Well, Jeff, I hate to -- that's probably not a number we want to share, for competitive reasons. It's a double digit figure, and it's really important to parcel it. There's different levels of these -- there's a full spectrum of relationships we have, you know, with the 1,000 clients that we serve at any given point. And the most important relationships are those that are exclusive, that we act in some form as a vendor/manager. In other words, we're trying to fill all the positions, but in the case that we can't, we work with other players in the industry on a subcontract basis to fill the remainders of those positions. That's the most important strategic objective. And we have not achieved any kind of critical mass in that area. But in addition to that, there's preferred relationships where we have positions for some period before other companies get them on a direct business relationship -- vendor relationship -- with the client. That's a more significant number and percent of our business. And then it goes down the spectrum to just technology that we provide to our customers that allow them to interact more efficiently with all vendors, including Cross Country. That does give us a competitive advantage, but not to the same degree that the -- you know, again, the exclusive or preferred relationships do. I will say that these -- the percent of these relationships continues to grow. And we're -- we would actually say it's likely to accelerate and not decelerate. But I think a lot of -- you know, the difficulty, initially, in getting these relationships is you never had one before. And you didn't have really the track record to say, we can do this and do this well. But at this point, we have what I would describe as a number of very satisfied customers that are willing to be very public in their -- and to be references to other clients that are considering a similar relationship. So I would prefer us. We think these relationships will actually accelerate. And they come to us in two forms. One is a structured, kind of a bid process that includes many other companies, and you -- they have a bake off. There's another avenue that's really unilateral and is driven largely by the co-marketing relationships that we have with VHA and the Children's Hospital Corporation, that I don't think a lot of other companies necessarily see. So we're -- you know, think this is a -- continues to be an important opportunity. And as I said earlier, to maintain or improve margins, because the exclusive relationship gives us a unique competitive advantage, and to grow market share.

Okay, great. Thanks. You had mentioned earlier that, at least looking out over the next few months, you're not anticipating the typical seasonal pickup as much as possible, as much as previously --

As much as we'd like.

-- as much as you'd like, excuse me, from your Sun Belt clients. We've kind of heard anecdotally that specifically in the southeast, trends have been a little bit weaker than they have been in the past. I just was wondering if you could comment on your geographic mix of business so far.

Yeah, I would describe Florida as being relatively soft versus other areas of the country. Having said that, while the overall level of demand is soft, our volume in Florida in July is up from what it was a year ago. So I think, you know, again, it's an indicator that we're taking share. And that's obviously, as we've said in the past, what we view as a market where we're particularly strong, because we're located in Florida. And it's always been one of the largest states for demand. And it's important to us to continue to take market share. But the level of -- overall level of demand in Florida -- I would describe as soft of year over year. And if you look at other regions, when we say that, in comparison to say California, particularly, southern California and Arizona and Nevada markets, where, you know, we're seeing stronger levels of demand and more committed customer base, we're actually seeing a reversal of kind of pricing pressure, whereas we've been under modest downward pricing pressure in the last several years. Anecdotally, I would actually say that pricing is more likely to go up and down over the next six months to a year, given the dynamics we're seeing, not just in California, but other areas of the country.

Is Florida still your largest state or has California overtaken it with the legal changes over there?

California at this point is much larger. And again, Florida is much more seasonal. So if you look at the summer in California versus the summer in Florida, that's a little misleading. But on an FTE basis, average for the entire year, California will be, you know, under 20% of our volume, and Florida will be about 15%.

Okay. Great. That's helpful. Just switching gears for this share repurchase. When was the last time you were able to buy shares in the market, and when was the next time you'll be able to buy those shares?

The last time we had share repurchases was in the first quarter, and I believe we have a three-day period after the earnings call before we can resume share repurchases.

I'm sorry, I meant in terms of the quite period before this quarter. When were you able to buy shares last?

We generally enter into the quiet period as soon as our quarterly numbers have been finalized, which typically occurs just shortly after the end of the quarter, or as soon as we have some sense of the quarterly numbers, which typically occurs very close to the end of the quarter.

Okay, great. One more quick one, then I'll let somebody else jump in. On the lawsuit -- I don't know if you'll be able to talk about this publicly. But was there any new allegations, or did it have anything to do with maybe just the statute of limitations expiring? Because if you look, they're looking at investors through August of 2002.

Yeah, I can't say that I've seen everything related to the suit, Jeff, but based on what I've seen, the fact pattern that they are pursuing appears to be that of the period ending August 6th, 2002. There's nothing subsequent to that that I've seen at this point.

Okay. That's helpful. Thanks a lot.

Okay, Jeff. Thanks for calling in.

Matt Butin of Argus Partners, you may ask your question.

Hi, thanks for taking my call. I just want to get your sense, what do you think is different this time around in the cycle?

Matt, a couple of things. One is that we're a relatively newly public sector. This cycle, while it has felt bad, was not as difficult as we once were back in the early '90s, which was also impacted by the evolution of managed care, which changed the dynamics. In the early '90s, most of our clients felt there was a nursing surplus that existed. Whereas even today, while their behavior has changed, they have become more cautious, they have had more success because of a soft job market and encouraging nurses to work more hours, I have not heard any hospital administrator, nurse executive suggest there's anything but a shortage of nurses that is likely to get worse in the coming years. What's different is actually relatively favorable in that the customer never treated us badly there. They are taking this opportunity where they can be more thoughtful to put in place a structure and processes that are much more efficient and cost effective than the frantic demand of the kind of late '90s, 2000, 2001, resulted in the organizations. So, you know, if anything, it's a more favorable environment. They are still -- they are treating us well. We're a vendor that most hospitals would like to say that ,I'd rather hire the nurse myself, but they recognize that that's not always going to be their circumstance. And given the choice, when they have to use outside resources, they want to use the most -- the highest quality, highest level of service that they can get from a vendor. I think Cross Country is that company. That's certainly our belief. So I think, you know, it's taking a little longer than I thought, Matt. Given some of the metrics that we've seen change over the last several quarters, I felt that by the second half we'd start to see year over year improvement in our bookings and thus, ultimately, our head counts in 2004, and I am less optimistic that that's going to be the case, given we're in August, given the trends of bookings in the second quarter, where we're just going to continue in this transition process. I think a difference between this downturn and the early '90s was that the job market remains softer for longer in this environment. The last jobs number was particularly disappointing for July. And it does affect psychology. Again, I'm not a -- no one has ever paid me for my economic opinion. But clearly, you know, that kind of, you know, widely reported number will affect the psychology of those looking at what they need to sustain household income. And you know, clearly, hospitals have made it available to nurses to work more hours, work overtime hours, and nurses are taking -- still taking advantage of that opportunity.

And do you think -- you mentioned the hospital being more efficient. Is this as a result of adopting increased IT? And how far do you think that can go?

I think, actually, more so it's involved kind of a rationalization of how they select and utilize vendors. I've already gone to some length of talking kind of the vendor management process. Not every hospital has gone down some of that path, some of the larger users have, selecting one vendor that -- And it's not -- I also want to take a step back. It's not about price. Clearly, price is an element of every discussion we have with our clients. But for the most part, they are looking to reduce the administrative burden internally of utilizing outsource labor. When you're working with 20 to 60 vendors, every invoice looks different, every invoice has to go through the organization for approval, and it creates a bureaucratic nightmare for some our clients, particularly those that use a significant amount of outsource labor. So to reduce that administrative burden is a key objective for clients. And I think we've done a very good job of creating the systems and the processes to allow them to achieve that objective. So clearly, you know, vendor consolidation. Another change that we've seen is the levels of approval. We're seeing more vendor selection going through purchasing. We're seeing more kind of multiple levels of approval for selection of nurses that didn't exist two or three years ago. While that has dampened demand for our service and has reduced the conversion rate of nurses we have sent -- that we send to our clients regularly, longer term, it's probably not a bad thing. We never expected this business to grow 40 to 60% a year, as it was for a period in 1999, 2000, 2001. But we do believe that a structured and thoughtful process that really works for our client, that doesn't make them feel bad about using our service, is a better long-term environment for us, and is an environment that we can significantly grow market share and be in a structured environment that has companies being certified by the joint commission that levels the playing field is just a better operating environment, better competitive environment for Cross Country to grow its business.

Thank you.

Okay, Matt.

A.J. Rice of Merrill Lynch. You may ask your question.

Yeah. I just wanted to follow up. There's a couple of things that are noted, I know each of these are pretty small, but they are noted in the press release and you mentioned them in your comment. And I'd just like to see if there's any dynamic or unusual items in the quarter, or is it just a trend? The clinical trial staffing, there was a comment about the strength of that, as well as the international nurse recruiting. Can you just comment on those? Then I think there's also a comment or indication you're getting growth in the educational seminars and retained search businesses, maybe comment on those.

Sure, and I'll let Emil jump in with any statistics he feels are relevant. I just think directionally, we highlight those areas of our service because they are significantly up year over year, particularly the clinical trials is up in revenue and has been able to achieve very attractive leverage. That business is very well managed, and has weathered a pretty tough period. It went into a downturn before the nurse staffing business, but it clearly appears to be leading us out of a downturn over the last several quarters and looks to continue to have strength going into the second half.

With trials, or because you're picking up share, vis-a-vis someone else?

I think it's a combination of those things. I think we've seen more opportunities to get larger -- get involved in larger trials and we've been successful in being selected as the vendor in those processes. And when I look at the margins of business, that they have been pretty consistent year over year, so clearly they're not -- they're not winning those trials, or those opportunities, based on giving a price or margin --

Uh huh.

-- which is very encouraging to us. And I think we're seeing more trials, and we're being perceived as one of the better players and better providers in that space. On the education front -- again, after a tough 2003 year, we've seen consistent strong growth in the number of seminars that we provide. But more importantly, the average number of attendees per seminar, which is really where you get the leverage in that business, has gone up. And so the management of that business has done a very good job of having the right programs and the right locations at the right price points, which has allowed us to be -- that business to become significantly more profitable than it was a year ago. And on the international recruitment front -- again, I -- on a relative basis, it's up significantly and gone from a negative cash flow to positive earnings and cash flow in 2004, but it's still a very small part of our -- the number of FTEs we have in the field. We do expect it to continue to grow going forward.

And then just to provide some quantification around the type of growth we've seen in these businesses. In the clinical trial side, we're looking at year over year comparisons that are in excess of 30% on the revenue line. Educational seminars is also very strong, more in excess of 20% year over year comparisons. And Assignment America, which is our international recruitment business, has astronomically high percentage increases, but from a very, very small base.

Okay. All right, thanks.

Thanks, A.J.

Jeff Silber of Harris Nesbitt, you may ask your question.

Sorry, just one quick numbers follow up. In some prior quarters, you've been kind enough to kind of give us the breakdown of the dollar change in healthcare staffing revenue by FTEs, due to, you know, the shift to mobile contracts and by hourly billing rates. I was just wondering if we could get that again.

Yeah, when you look at the drivers in the revenue change, the vast majority of the change is attributable to volume. I would say close to 90% of the change in revenue -- organic revenue -- is volume driven. And the remaining 10% is price and mix. Mix is a relatively small issue, because our percentage of mobile contracts has been fairly consistent year over year at this point.

Okay. That's helpful. Thanks.

Toby Sommer of SunTrust Robinson Humphrey, you may ask your question.

Thanks. Just wanted to do a follow up question relative to your recruiters. You mentioned some attrition, perhaps a little bit greater attrition, in the second quarter than in the first quarter. Wonder if you could give us a sense and quantify that, and then maybe let us know what your plans are for additions, and maybe how large a group the nurse recruiters will be in six months or 12 months, according to your plans.

Well, at this point, we operate, on the travel side, three important brands. The most important is Cross Country TravCorp, which is by far and away the largest brand for travel nurse staffing in the industry. Look specifically at that, I believe we added nine, which was consistent with our expectations. We're looking to add, you know, 10 -- roughly 10 recruiters. Unfortunately, we lost 12 during the quarter. There's no theme. Just again, it's been -- it's tough for new recruiters to gain traction. And you know, we don't pay a lot in base salary. We really want to create the incentives and the environment where those that are successful and doing a great job in servicing nurses will grow their inventory and volume of field placements and potentially make a lot of money, which many of our recruiters do. But for the new recruiters, it's been very difficult for the last several years to get traction. And as a result, I think we, you know, probably saw more than we certainly anticipated in the second quarter. I don't think it's kind of a number that we would expect to see in the third quarter. But having said that, we are going to add more than we expected to add in the third quarter to compensate for the loss in the second quarter, and to make sure that we end up with more recruiters than we thought we would. And the other brands, where we continue to add recruiters at NovaPro and Med-Staff, it is a -- on a similar basis, we want to grow the head count of experienced, trained recruiters in each of those brands, and we will continue to do that until we feel we have the right amount of capacity and are doing a great job of talking to nurses as soon as we can when we get their indication of interest. And then make sure we have -- on a competitive basis -- we're doing a better job of servicing those nurses than any other company in this industry.

Thank you very much.

Okay, Toby.

Once again, to ask a question, please press star one. There are no further questions at this time.

Okay, then, I appreciate it. And at this point we'd like to thank everyone for joining us this morning, and we look forward to speaking to you again in three months. Bye-bye.