Cross Country Healthcare Inc (CCRN) 2004 Q4 法說會逐字稿

Welcome to the Cross Country Healthcare earnings conference for the fourth quarter and year- end 2004. All participants will be on listen-only until the question and answer session. This conference is being recorded. At this time, I would 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 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 fourth quarter and full year 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 website 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 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 and 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 fourth quarter of 2004 as well as under the caption risk factors in our registration statement on form S-3 dated November 3, 2004. Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed on this teleconference might not occur. Cross Country Healthcare does not have a policy of updating or re-advising 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 will turn the call over to Joe.

Thanks, Howard, and thank you to everyone listening in for your interested in Cross Country Healthcare. As reported in our press release issued last evening our revenue for the fourth quarter of 2004 decreased by 8 percent year-over-year to $159.5 million. While our net income increased approximately 8 percent to 5.6 million or $0.17 per diluted share. These results reflect a discontinuance of our healthcare consulting business in the fourth quarter of 2004. Cash flow from operations during the fourth quarter was in excess of $6 million. A strong performance based on historical seasonal patterns that allowed us to reduce our total debt to $42 million at year-end. This compares to a balance of $94 million in total debt at 2003 year-end.

While our core nurse staffing business continue to seek traction during the fourth quarter, our clinical trial staffing, education and retained search businesses all performed well in the quarter and all produced record revenue and profitability for the full year. We were disappointed in the performance of our nurse staffing business during the fourth quarter particularly during the important month of December. We believe generally weak hospital admissions patterns have caused our clients to become even more cautious in booking our nurses on contracts than we have experienced during the past two years. In this regard, we experienced a double-digit decline in open orders from our hospital customers from November to early January. This is especially frustrating for us as we have seen strengthening in our nurse applicant activity during the fourth quarter which has continued into the new year. We are hopeful that the decline in the urgency of demand is only temporary and are encouraged by an increase in the number of open orders since the recent low point in January.

Moreover, we were particularly pleased with strengthening demand in our historically important Florida market since the new year. We also believe another factor that weakened demand in the fourth quarter was the decision in late November by the Schwarzenegger Administration to postpone the further reduction and patient ratios as initially scheduled for January 1st of this year in California. We believe this action contributed to the relatively weak demand in California toward the end of 2004 as compared to the prior year period when the ratios were about to be implemented. However, just last Friday a superior court judge in California rejected the Administration's earlier emergency order and ruled that the more stringent patient ratios go into effect immediately. The governor is expected to appeal the decision. As noted in previous calls we remain optimistic regarding the continued success of our efforts to achieve vendor management status at our larger accounts nationwide.

The continued growth of these relationships with our clients has strengthened our relative attractiveness to potential applicants which we believe is one reason we are seeing stronger activity in that area. Another encouraging development occurred in January of this year when our cross country staffing travel business received certification by the Joint Commission under its new program for healthcare staffing companies. We are proud to be one of the first companies to achieve this new certification. While voluntary, we expect this Jakeo(ph) program will result in differentiation among healthcare staffing providers and that hospitals will increasingly look for the gold seal when selecting a nurse staffing company to meet their temporary staffing needs. In sum, we are directionally less optimistic about our near-term business prospects than we were during our quarterly call three months ago. Nevertheless, we continue to believe in the long-term demographic drivers of our business and are increasingly confident that this market respite has allowed us to take actions that will position us as an even stronger market participant in the future. With that, I would like to hand the call over to Emil.

Thank you, Joe, and good morning, everyone. First I will go over the results for the fourth quarter and full year 2004 and then review our revenue and earnings guidance that we provided in last night's press release. As Joe indicated Cross Country Healthcare recorded fourth quarter revenue of $159.5 million which was at the high end of the revenue guidance range that we provided in November. Our fourth quarter revenue was down 8 percent from the prior year quarter and down 2 percent sequentially adjusting for discontinued operations reflecting the continued softness in our core travel nursing business that Joe referred to earlier. Our gross profit margin was 22.7 percent up 30 basis points from the prior year quarter and up 90 basis points sequentially adjusting for the discontinued consulting businesses.

The year-over-year improvement and margin was attributable to a higher relative mix of revenues from our other human capital management services businesses which operated higher gross profit margins than our staffing businesses. The sequential improvement was due to a combination of a higher revenue mix from our human capital management services businesses coupled with lower housing and insurance costs. SG&A expenses in the fourth quarter were down 1 percent from the prior year despite the higher relative mix of non-staffing businesses which operates with a higher overhead burden than our staffing businesses as well as increased expenses associated with our efforts towards complying with section 404 of the Sarbanes-Oxley Act. On a sequential basis, SG&A expenses were up 3 percent primarily due to SOX's related costs. In the fourth quarter unallocated corporate overhead increased 14 percent sequentially due primarily to higher SOX's related expenses that were partially offset by a decrease in corporate health insurance costs.

2004 was the first year we were partially self-insured in our corporate health program and had a favorable claim experience that allowed us at year-end to define the accrual for this insurance accordingly. Interest expense was $800,000 as compared to 1.5 million in the prior year quarter, reflecting the de-levering of our balance sheet made possible by our strong operating cash flow. Net income from continuing operations was 5.8 million or $0.18 per diluted share as compared to 5.5 million or $0.17 per diluted share in the fourth quarter of 2003. The effective tax rate for the quarter was 31.5 percent as compared to 38.5 percent in the first three quarters of 2004 reflecting certain nonrecurring tax adjustments. The effect of these onetime tax adjustments was a benefit of approximately $0.02 per diluted share.

Our fully diluted EPS, excluding the onetime tax reduction benefit, was $0.16 per diluted share which was at the upper end of the guidance range that we provided during our November earnings call. On October 5, we announced the sale of two of our three healthcare consulting units and that we are pursuing a plan of sale for the third. While we believe these were very solid and attractive practices, we concluded that as a small non-core part of our overall business mix the business was too volatile. We were also disappointed with its low level of synergy with our nurse staffing activities. The sale of the two practices generated an after tax gain of $700,000. However, this gain was more than offset by an impairment charge related to the yet to be sold practice as well as a small operating loss which resulted in a $200,000 net loss from discontinued operations in the fourth quarter. For the year as a whole, our revenues were $654 million down 3 percent from the prior year.

Net income was 20.7 million or $0.63 per diluted share as compared to 25.8 million or $0.79 per diluted share in 2003. Our balance sheet and cash flow generation remains strong. We ended the quarter with a debt to total capital ratio of 11 percent and a current ratio of 2.6 to 1. DSOs was 55 days in the fourth quarter down four days versus a year ago and also down three days sequentially from the third quarter after adjusting for the discontinued healthcare consulting business. Cash flow from operations for the fourth quarter with a strong 6.3 million reflecting the seasonally unexpected benefit of a reduction in DSOs. For the year as a whole, we generated $43.3 million of cash flow from operations. Capital expenditures were $600,000 in the fourth quarter and 4.6 million for the year as a whole.

Free cash flow, which we define as cash flow from operations less capital expenditures and earnout payments, was $5.3 million for the quarter and 36.7 million for the full year or $1.13 per diluted share. We used our free cash flow augmented by the proceeds from the sale of the consulting businesses to repay 51 million of senior debt in 2004. At year-end, we had 42 million of debt outstanding as compared to 94 million a year ago. There were no drawdowns under our $75 million revolving credit facility at year-end. In the fourth quarter, we did not repurchase any shares under our previously announced $25 million share repurchase program. To date, we have purchased more than 1 million shares at an average price of $13.75 per share. Under the remainder of the current $25 million authorization, we can purchase approximately 470,000 additional shares at an aggregate price not to exceed $10.8 million.

Let me drawdown next on our two reporting segments. Healthcare staffing, which comprises our travel and per diem nurse staffing, Allied health staffing and clinical trial staffing businesses accounting for 93 percent of revenue in the fourth quarter. And the other human capital management services segment which is comprised of our education and training and retain service businesses. Revenue for the healthcare staffing segment was $148.1 million and the average number of FDEs was 5,561. Revenue was down 9 percent on a year-over-year business and an 8 percent decline in volume and down 2 percent sequentially reflecting the continued softness in our core nurse staffing business. The average revenue per FDE per week was down approximately 1 percent both year-over-year and sequentially.

Mobile(ph) contracts where the nurses on the hospital's payroll accounted for approximately 2 percent of our segment volume unchanged from the prior quarter and from a year ago. Healthcare staffing contribution income as defined in our press release was 15.6 million in the fourth quarter down 8 percent versus the prior year quarter but up 1 percent sequentially. The staffing segment contribution margin was up 10 basis points on a year-over-year basis and 40 basis points sequentially, reflecting expense control measures taken in response to the current soft business environment. For the full year, staffing segment contribution income was $62 million, down 18 percent from the prior year. The contribution margin was down 1.8 percentage points from prior year due to the combined effects of a negative operating leverage, a 4 percent reduction in the average bill pay spread in our nurse staffing business and higher insurance costs partially offset by improved performance in our clinical trial staffing and international nurse recruitment businesses.

Turning now to the other human capital management services segment, fourth quarter revenue excluding the discontinued consulting businesses was 11.4 million up 10 percent from prior year and up 11 percent sequentially. The revenue growth was driven by the strong performance of our Cejka Search business. Segment contribution income was $2.4 million up 28 percent from prior year and up 74 percent sequentially. For the year as a whole, contribution income was up 49 percent, reflecting the benefits of operating leverage on revenue growth of 16 percent. Both the education and search businesses contributed to the strong operating performance in 2004. This brings me to our guidance for the first quarter of 2005. 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, the repurchase of any of our common stock, pending legal matters or the results of our remaining healthcare consulting business which is accounted for in discontinued operations. As Joe indicated, in the short-term we believe we will continue to face challenging conditions in a nurse staffing market. Our bookings in the first -- in the fourth quarter were 7 percent below the prior year. Based on these booking trends, we project the average field FDE account in the first quarter to be in the 5,525 to 5,575 range, or 7 to 8 percent below prior year. We expect staffing revenues per FDE per week to be slightly down as compared to the prior year due to one less billing day. First quarter revenues are expected to be in the 155 to $157 million range.

We expect gross profit margins to be in the 21.5 to 22 percent range reflecting the seasonal impact of the reset of payroll taxes, lower housing occupancy rates following the holidays, as well as two less billing days than in the fourth quarter of 2004. SG&A expenses in the first quarter are expected to be consistent with the fourth quarter. EPS per diluted share from continuing operations are expected to be in the $0.10 to $0.12 range. This concludes our formal comments. Thank you for your attention. At this time, we will open up the lines to answer any questions you may have.

Thank you. [Operator Instructions] Our first question comes from Toby Summer from SunTrust Robinson and Humphrey.

Good morning. I had a couple of questions. One if you can comment on the pricing environment. It looks like pricing was down a little bit in the fourth quarter. Curious what you are seeing into the new year. And then you talked about some expense reductions. I know in the past, maybe, you've commented on perhaps if the market continued to be challenging being able to strip out some costs. Wondering to the extent you have already done that or there may be some more costs that you could strip out and then I might have a follow-up. Thanks.

Toby, I will take the pricing. I think if you look at the fourth quarter, there's actually two issues that affect pricing. One is actual price per hour that we are able to derive from our customers. And the second is kind of the geographical mix of our business which also can affect the price per hour. And I think as we go into the fourth quarter we tend to migrate our business to more seasonal sun belt markets that tend to have lower pricing than the northeast and the northwest and California tend to. So I remain, as I said on the last couple of calls, optimistic and I would actually say I'm increasingly optimistic for the pricing environment as we go forward. We've had very meaningful discussions with some the larger users of the service nationally. The more sophisticated users that have been probably the most aggressive in trying to drive prices in a negative direction over the last several years. These customers are coming back and having very sincere conversations wondering why their needs are not being met with quality nurses.

And it's an opportunity for us to say, you are as much as 5 to 10 percent below market depending on who that customer is. I feel very good about where we're going to be as far as price in 2005 and I guess at directionally I'm probably more optimistic than I was even three months ago. On the expense control, I think a lot of -- given where we think the market is and certainly we continue to have hopes for a rebound in the market, we certainly don't want to position the Company poorly for an upturn in the business. We don't expect to take a lot more cost out of the business at this point. In fact, I will turn it over to Emil to confirm that as he is the one that monitors the P&L the closest.

Toby, we have taken a close look at basically every line item in our SG&A, both at the corporate level and at the divisional level. And we had some numbers that moved against us such as the Sarbanes-Oxley and we had to take measures to offset that in other areas. But the one thing that we have been very careful is not to cut into the bone. As Joe indicated, we need to make sure that we have enough dry powder in terms of equipment capacity so that when the market turns up, which we cannot predict the exact timing of that, but we do believe that at some point that will happen. We need to make sure that we have the capacity to take advantage of that opportunity.

And then turning to what was I think pretty positive news in the change in supply that you saw in the fourth quarter relative to your experience in the preferred vendor relationships and that kind of thing into this year. Could you describe what you are seeing there?

This is -- I think we talked about this on our last call that we -- well, we had a tough period coming out of the hurricane season here in Florida which impacted kind of our internal ability to drive recruitment and activity, particularly new nurse applicant activity. We did see it improve and we continue to see that through the remainder of the fourth quarter, November, December. And even into January and February we were up in low double-digits in new applicant activity. We think this is a reflection of two things. One is an improving environment as demand improved during 2004.

We think word of mouth begins to get more nurses interested in joining or rejoining the travel nurse industry. And clearly that we have, because of our status as a vendor manager at some of the more attractive locations throughout the country, kind of a unique position we believe to when nurses are considering a travel assignment if they want to go to those facilities that they are really in a position where they have to apply with Cross Country and we think word of mouth drives that decision to call us. We think it's couple things. But we think generally the environment is improving and nurses recognize that and are probably calling us and other companies in the industry.

If you were able -- do you have a means to look at the applicant activity for the slice of hospital customers for which you have preferred relationships and determine if the increase in activity is largely in those hospitals or are you seeing it broadly as well?

You know what? At this point I don't have the ability to assign the applicant to specific hospitals. But it's an interesting question. I think if we drill into it we may be able to get that information. I don't have it at this time. I think it just generally, like I said, we look at the aggregate number of applicants, compare that to the prior year period and we see it running favorably and we look at what would be driving that. We're not spending materially more on advertising. So we think it's really a word of mouth function and that is a function of I think the general state of the industry. And our unique position as a vendor manager at some of the more attractive accounts.

Thank you. I will get back in the queue.

Okay, Toby.

Our next question comes from Chris Rigg of Merrill Lynch.

Good morning. Prefer if you just talk a little more on California. Our understanding, and maybe we are incorrect, but that there is still a fair number of hospitals that are still not in compliance with what I believe is a 6 to 1 ratio. And I think it was supposed to be ratcheted down to 5 to 1 on January 1st. But nevertheless, I was wondering if you could give a little more color as to how many -- what the environment is like out there in terms of how many hospitals are currently in compliance with the old ratio and if there are still a significant number that are not in compliance how that may have affected or why you may have seen a decrease in demand as you got towards the end of the year.

That's -- I think it's an important point, Chris. I'm glad you brought it up. There is conflicting information as to the number of hospitals that are currently meeting or meeting the 2004 guidelines. I've heard estimates as low as 17 percent and as high as 40 percent. So clearly the majority as far as, again, anecdotal information provides, are not meeting the guidelines. Having said that the decision that the Schwarzenegger Administration made in late November, as I recall, clearly lined up very closely with a, what we saw as a precipitous drop in the number of new orders from hospitals in California during the month of December. When we compared December 2004 to December 2003, there were one-third less positions posted in California as compared to the year ago period.

And we couldn't -- we did hear that census admissions were weak nationwide in October, November. So it wasn't -- it could have certainly -- that could have been a driver in that reduction. But that reduction was out of line with the rest of the country. So I can't help but feel that the decision to postpone the further tightening that I believe hospitals were positioning themselves to meet an even more stringent patient ratio mandate. And once that was really forgiven, that they kind of breathed a sigh of relief and either pulled back in the orders they would have placed or just didn't act aggressively in trying to fill the orders that they had given to our industry. We believe because of that, that this decision by the courts in California to overrule the Schwarzenegger Administration will be a net positive for the business.

Okay. And then my other question deals with the preferred vendor and the economics of those contracts. Without getting into too many specifics, but I guess just generally there is always sort of this pull between open orders and nurses sort of willing to work. And I guess once you get locked in -- if you become the preferred vendor, how does that impact that? You essentially saying we're going to get all the nurses for your facility or facilities but at the same time you may not be able to get the supply of nurses to meet their demands so then it's sort of an interesting predicament. I was wondering if you could just talk about how that unfolds.

I would say our experience, actually, has been very good. And one of the reasons we've been so successful in continuing to add these kinds of clients is because our references are excellent. The clients that we provide service to, to my knowledge, are very pleased with the level of service, our ability to fill the majority of their needs. Then, as a vendor manager our ability to work with subcontractors. Many, I don't have the exact number, but more than 20 companies that currently serve us, competitors that serve us as subcontractors to these facilities. And I think we said in the past our experience is we will fill roughly 90 percent of the orders that the hospital or hospitals give us. And that the remaining 10 percent will be filled by subcontractors. We manage that process very efficiently. It's been a pretty good experience for us.

One of the -- I think the reasons that it is particularly -- we've had such good experiences, we control the process. And our conversion rates at these vendor managed accounts are roughly twice the company average or the non-vendor managed clients. We know how the process needs to work. We are able to do it very efficiently and get very high quality nurses to our hospital customers. And meet the needs of our nurses who want a quick answer when it comes to where am I going to work for the next three months? They don't want to see their application languish for 2 weeks while they wait for an interview. We make that process work very efficiently. The hospital gets its needs met. It's -- to them internally it's very administratively efficient and that to us has been the primary reason they seek a vendor manager. While price is always an issue in any relationship we have with our customers, we don't think the decision on vendor management is a price driven decision. We think it's a service and execution driven decision and we've had very good experience in this area during the last two years.

Okay. Thanks a lot.

Okay, Chris.

Our next question comes from Jim Janesky from Ryan Beck Company.

Hi, Joe and Emil. A couple of questions about the recent uptick in orders and how that relates to the flu. We have seen the flu and other respiratory ailments kind of increase. To the extent, let's say, that that happens, meaning that the orders translate into bookings down the road, would that be enough to sustain the Company in the industry for the remainder of 2005? Or do we need some other things to happen and what could those things on the horizon be?

That's really the $65,000 question. We have seen a very encouraging turnaround in the environment since probably mid January. And in particular in, I would say, the last three weeks we have had an extraordinary run of new order activity from our hospital clients. When you look at February and isolations, one of the best months we've had for net new orders in a long, long time. We do believe it is -- and then just anecdotally we're hearing from customers that census has picked up. A lot of it's related to respiratory problems. There's, obviously, a pretty strong flu season in particularly in the south. We don't hear anything about it in the northeast but particularly the south and the west. And we are also hearing that pneumonia is running around which obviously is going to drive inpatient admissions. We do believe that some of the turnaround in the environment is related to these respiratory ailments.

I don't know whether all of it is. I think the job market continues to improve in over -- unfortunately it's like watching a pot of water trying to boil. As you watch it, it never boils. All along the population is getting older. Nurses are continue to get older. The job hasn't gotten any physically less challenging. So we think over a period of time, and what we still can't figure out is what is that period of time, this industry will be in far better shape, but we just don't -- we don't know what that inflection point is and we can't extrapolate the last three weeks which are very encouraging and unfortunately have come too late in the first quarter to affect the first quarter.

We don't know whether that will last over a sustained period of time. And clearly, as we said in the past, hospital admissions are the most likely near term catalyst for our business as we have seen stronger admissions, we are seeing stronger demand. As we speak, the number of orders, open orders, that we have -- or unfilled orders, I should say, from our clients is the highest level it's been -- today is the highest level it's been since the fourth quarter of 2002. And if it stayed there, Jim, I would say it's enough to have a up year for this Company and this industry. What we just can't predict is whether that we will see continued volatility as we did in late November, December and January, or whether we see this is kind of the new plateau of the business. If it is, I think we could have a good year in 2005. If it isn't, I think it's just kind of more of the choppy performance that investors have seen over the last couple of years.

Okay, great. Thank you.

Jeff Silver of Harris Nesbitt. You may ask your question.

Jeff?

Can you hear me, I'm sorry?

We can hear you now.

I know it's been a few volatile years, but under a normalized environment, and there may not be such a thing, what would we be typically expecting from a seasonality perspective, quarter by quarter, for both your healthcare staffing business and your other human capital management business?

That's a good question. They are somewhat similar but not entirely. In a normalize or a flattened environment, we would expect the pattern of our business to be seasonally high in the first quarter, dropping off roughly 5 percent in volume from the first to the second quarter. Picking up modestly in the third quarter as the business -- the seasonal business picks up in September as nurses start assignments that they hoped to finish before the holidays so they could go home and be with their families. The fourth quarter is up again from the third quarter, again because of seasonality. And the fourth to the first quarter are typically flat. And as far as volume, that's essentially what we are seeing this year is that volume is essentially flat from the fourth quarter to the first quarter.

Unfortunately, the first quarter on a margin basis it has 2 less billing days in the fourth quarter and the other issue that Emil alluded to. One other thing that is important as it relates to our other businesses, particularly the Cejka Search, the physician and executive search business that is one of the leaders in retained search in healthcare. Great business. The seasonality of that business tends to run kind of re-calibrating in the first quarter starting off a new year from an incensive(ph) plan basis and then also from our customers kind of restarting their budgets. As it approaches the fourth quarter, the fourth quarter is typically very strong for Cejka as their clients have an incentive to close business before the budget year runs out. And from an incentive plan point of view the sales people at Cejka have a sense of urgency in trying to finalize business before the year-end as well.

So there is typically as much as a $0.01 variance in the fourth quarter to the first quarter just within the Cejka Search business. So there's seasonality in all of our businesses. ClinForce doesn't run quite the same as the nursing business, although the fourth quarter is typically a strong quarter, there's much more of a drop-off and breakage in the fourth quarter because they -- while our nurses work in a 24 by 7 environment, the clinical trial staffing business does tend to take the holidays off. So the month of December is typically not a very strong month as it relates to the rest of the year. Emil, anything you want to add to that?

I think you pretty much covered all the moving pieces.

Just to remind us, Cejka and ClinForce in terms of their relative size within the portfolio. ClinForce -- Emil, you want to take that one?

ClinForce is about roughly 6 percent of our revenue. Cejka is smaller in terms of revenues.

About 2 percent.

Okay, great. That's helpful. You had mentioned a few times in the conversation about your Sarbanes-Oxley cost. Can you tell us roughly what you spent on Sarbanes-Oxley in '04 and what you're budgeting for '05?

Jeff, we spent a lot more than we expected. We ended up spending in excess of $2.3 million. Which -- and that's all the costs related to the 2004 certification. Some of those costs actually end up being spent in the first quarter of 2005, early in the quarter. In terms of budgeting for the 2005 compliance costs, I've heard various estimates ranging from low of maybe 40 percent of your first year cost to high of 70 percent of your first year costs. If we use those estimates you'll end up anywhere between 1 million to 1.5 million for us. How much we spent in our first year compliance.

Obviously, by -- after you're done with the first year, a lot of your documentation is in place but there's still a lot of work in terms of making sure that the documentation is being kept up to date in terms of revising it for any process changes, for all the testing that needs to be done during the course of the year. So it is a very expensive process. And when I give you those costs, that $2.3 million, that's our external third party costs. That number actually hides the internal costs as well as any opportunity costs of projects that we perhaps could have undertaken but we just did not have the resources because of the resources were diverted to Sarbanes-Oxley.

Okay, great. And just one final question. In terms of the tax re-guidance you are using for your first quarter guidance and also what tax rate you would be using for '05 as a whole.

I think our normal tax rate of 35, 38.5 to 38.7 is appropriate for 2005.

Okay, great. Thanks so much.

Okay.

Jeff Harris from Cirrus Capital Management. You may ask your question.

Hi, Jeff.

As of this quarter, it sounds like your debt to capital is down to 11 percent and given the cash generation of the business seems it'll continue to trend down. Any thoughts on as the balance sheet approaches debt free what you will do with the cash that's continuing to be generated by the business?

Jeff, we continually evaluate our optimal use of our excess cash to build shareholder value. We believe that strategic acquisitions at a reasonable price represent the best way to use our excess cash to build shareholder value. Absence such acquisitions, our emphasis in the fourth quarter was an accelerated debt repayment which obviously gives us more financial flexibility down the road. But we will continue to be opportunistic and disciplined in our share repurchase program pursuant to the existing authorization. But we still have another 0.5 million shares that we can repurchase and we do have another 42 million of debt that we can repay. We haven't -- we can obviously still deploy cash towards debt repayment as well. But, again, our preference would be a strategic acquisition at a reasonable price.

Can you comment a little bit on the acquisition environment? Are there interesting things out there?

Yes, there are, Jeff. We can't be specific. I would say we have more conversations going than we have had at any time in the last 12 months. I think there is -- again, it's not just looking for acquisitions that are accretive. We're looking for ones that we feel have a high profitability of generating returns in excess of our cost of capital. And that's generally where the rub is just getting a price that we feel is consistent with the discipline we've tried to show historically. But we do have, we believe, some very interesting things happening. We do expect in 2005 that the core industry, the nursing industry, will continue to consolidate. Again, it was a very disappointing period towards the end the fourth quarter. I think the industry felt it. And as a result, everyone is kind of assessing where they are and what their future prospects are and what the best combinations could conceivably be. And we think as people and players in this industry look at that, we certainly are one of the more logical buyers or ultimate partners for companies as they look to consolidate.

And just one final question. If hospital volumes begin to tick up, or have begun to tick up possibly, what do you think the lag factor would be before you see it in your business? In other words, let's say they were ticking up right now, is it something you would see in a month or in six months or at the end of the year?

Again, the relationship between when we booked the nurse and when the nurse begins generating revenue for the Company, is typically on average about a five to six week lag. And as we said, the orders began to improve really during February. The nadir was during January, but kind of the exciting improvement has occurred in the last couple of weeks. And last week we had -- the Company had a very good week. There is clearly a buzz within the organization. I think our recruiters feel that we've certainly employed the right strategy as far as positioning the Company and they have an opportunity to place nurses at attractive assignments and they have -- at times they are the only ones in the industry with those opportunities. So I think there is more of a sense of excitement in the organization than we've had in quite sometime. It followed a period of real disappointment. So again what I don't want to do is leave you the impression that it's clear sailing from here on in. Right now we feel pretty good about our prospects but obviously we will check back in with you in three months.

Great. Thank you very much.

Vivic Conner from Argus Partners. You may ask your question.

Hi, sorry. Good morning. I had a question, can you give us the average travel account in the quarter. I didn't get that. Maybe it's in the press release, but I missed it.

It was 5,561.

And then what was your guidance for the first quarter, you are saying in the travel time?

5,525 to 5,575.

Okay. And if you -- what is a comments on pricing for next year?

Typically we still believe for 2005 that we will see price inflation for the first time in a long time. I guess I'm increasingly encouraged by the dynamics of the market and what that implies as it relates to our ability to get price improvement. Again, the primary drivers of a deflationary environment are -- appear to be changing their tune. They may or may not be getting their needs met. Some of the electronic intermediaries that have found their way into the market and have achieved success in the weak -- the nadir of the market are -- I think there are certain clients that are disappointed with their ability to deliver to their expectations. And I think it just bodes well for us.

And so why was the pricing then down in the fourth quarter? Wasn't it down like a percent or did I miscalculate that? Year-over-year revenue per traveler per day?

Again, I think we answered that in an earlier call -- earlier question, excuse me, that some of that is just mix. Where the travelers are working and Florida, Arizona where we have a lot of nurses working, more nurses than we did three months ago, tend to be lower priced markets. And that's driven by the relative housing costs in those markets versus California and the northeast and the northwest. And I didn't say the pricing would be up in the fourth quarter. We just expect as we go forward as we are able to achieve price improvements at accounts, add new nurses that start under those contracts, over time will drive prices up. And again we're not -- what we have said is we expect pricing to be up in low single-digits. We aren't expecting a dramatic improvement but we do expect an improvement.

Great, thank you so much.

Just to emphasize one point. What really matters to us a lot more than just the absolute bill rate is the spread between bill and pay. And we have seen some improvement in our gross profit margins. Our expectation is that we will see some improvement in 2005.

Okay, great. Thanks a lot.

Okay, Vivic, good talking to you.

Our next question comes from Toby Summer, Suntrust Robinson and Humphrey.

Thank you. A couple of other follow-up questions. I was curious if you could comment on what it looks like in terms of new hospital construction coming up here this year among your customers, particularly among your customers with a preferred vendor relationships. I know often times travel is used to help get those kind of off the ground and running. And then I was hoping you could comment on any update that you have from your private equity sponsors regarding their shares and mindset. And then you mentioned that the pricing should be kind of directionally positive and that larger sophisticated clients are kind of willing to re-enter dialogues in terms of what they need to do to fill some their open orders. And was curious if you could help reconcile that with public commentary from hospitals about trying to continue to do away with agency staffing and just see if incrementally over the last couple of months or quarter if you have seen any difference in the way the hospitals are viewing agency staffing or if the public commentary is just a little bit different than the way things are in practice.

Okay. That's a lot of ground to cover and we may divide and conquer on that. As far as new hospital construction. I think we are entering what is expected to be almost an unprecedented or certainly in the last 2 decades periods of capital expenditures by hospitals. I can think of two of the larger vendor managed accounts that we are currently working with that are planning very significant new construction which -- and they have let us know that they will expect us to play an important role in staffing those new beds when they are open. So I think that's a positive driver. But Toby, I don't expect that to have a lot of impact over the next six month, 6, 9 month horizon. I think that's 15 to 24 months out for the most part. But I think directionally -- again, we're in this for the long-term and wen think the long-term -- it's just another very favorable long-term dynamic for the industry. I think the key for some investors is what's going to happen over the next couple of quarters and that's just not something -- I don't believe is going to drive the business.

As far as our private equity sponsors, they did file an S3, shelf registration, in November. That registration has been affective for quite sometime. I guess I can't speak for the investors. I've said in the past that they have been in the investment for over five years. We certainly expect them to look to monetize their investment in an efficient way, in an organized way and hopefully a minimally disruptive way at some point in the future. And I think they're -- the fact that they registered the shares suggest they are getting ready to do that. I can't tell you when. I wouldn't want to try to speak for them. And as it relates to what we are saying about pricing versus the public posture of some hospital systems. There's nothing new in the business. This is a dynamic that really has gone on for the 12 years that I have been involved in the business.

That hospitals will look to reduce their utilization of outsource labor and get those nurses to work directly for them either as full time employees or as participants in their pool of self-managed temporary labor. So I would always expect their comments to be the same. Their goal is to use less outsource labor. The reality is that they have been more willing to utilize more outsource labor since the mid 1990s. We are still well above where the utilization outsource labor was in 1998, for example, even despite a pretty soft patch in the last couple of years. And I think it's really, you know, as hospitals have taken the actions that they have taken, what I've heard particularly the public hospitals say is that we've largely done all that we can. We don't expect a lot more benefit from driving down the utilization of outsource labor.

Maybe not all of them are saying that but I know some of the larger ones are saying that to lower expectations for continued improvement in this area which I think generally bodes well for us. It's been a period in which hospitals have been able to meet their needs without us to a much greater degree than was true two or three years ago and I think part of that is the overall economy. Nurses willing to work more hours because they feel they have to to supplement family income. As the labor markets continue to improve and jobs are created outside of nursing, good jobs in manufacturing, the nurses that have re-entered the work force, many of whom are over 50 years of age, didn't come back because they suddenly got the bug to do more bedside nursing. They felt they had to.

And the reason they weren't in actively or as active in the work force is because it's a physically draining and emotionally draining job and they consciously reduce the number of hours they were working. I think given an opportunity they will do that again in the future. Throughout these last couple of years the population of nurses has continued to age in this country and, again, that's probably the most important long-term driver for this business.

And thank you very much. I did have one more question. Emil, you mentioned that the bill pay rate spread improving. Curious if you could just give us a little bit more detail on what your expectations are regarding pay rates and by yourself and the travel industry as well as among hospital customers given the fact that after some flattish years they've recently have improved their wages. Thanks.

Well, I expect that kind of on a same store basis. If you exclude the impact of geographic mix that we will be looking in 2005 at bill rate increases in the low single-digits. Perhaps in the kind of 2 to 3 percent range. I don't necessarily see similar increases on the pay side. So when you factor that in, obviously you will see a disproportionate impact on the spread. If you have a 2 percent increase on bill and even if you have a 1 percent increase in pay, you end up with probably about a two percent increase in the spread. And it could be better than that. On a pay side we don't see the same pressures that we've seen two or three years ago.

Thank you very much.

Once again, if you like to ask a question, please press star, 1.

Well, if there are no further questions --

We do have one.

Okay.

Avi Fisher from Harris Nesbitt.

Hi, thanks for taking my call and squeezing it in. I just have two quick questions. Was wondering if you could just talk about what percent of your volume was on the Mobile side or travel side and what percent was on per diem.

The Mobile mix was approximately 2 percent of our total volume.

I think you are looking for what is the percentage of travel and what is percentage of per diem?

Correct.

There's other pieces to the puzzle. There's also the clinical trials business which is kind of somewhere in between those two.

Okay --

And the allied health business. I would say per diem is roughly 10 percent of the staffing volume, approximately. And travel is the majority of the remainder and, as Emil said earlier, the clinical trials staffing piece is about 6 percent of overall revenues.

So, clinical 6 percent, per diem's about 10 percent -- .

About 6 to 7 percent of staffing volumes.

And how many recruiters did you have at year-end '04 relative to '03?

We ended the year with over 130 which was essentially flat, as I recall. Maybe down a little bit from year-end. We did suffer more attrition. It is our intention to actually grow our recruiter accounts during 2005 and we feel we're off to a good start in achieving that.

Okay. Thanks for taking my questions.

Thank you for participating.

At this time we were showing no further questions.

In that case we would like to thank everyone for participating in this call and we will look forward to updating you in May. Thanks very much.

Thank you for participating in today's conference call.