Cross Country Healthcare Inc (CCRN) 2005 Q1 法說會逐字稿

Welcome to the Cross Country Healthcare earnings conference for first quarter 2005. All participants will be in a listen-only mode 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 first quarter 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’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 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 first quarter of 2005, as well as under the caption "Risk Factors" in our Form 10-K for the year ended December 31, 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 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 first quarter of 2005 was $158 million and our income from continuing operations was $3.8 million or $0.12 per diluted share, reflecting year-over-year decreases of 6 and 19 percent respectively. These results reflected discontinuance of our healthcare consulting business in the fourth quarter of 2004.

Our non-nurse staffing businesses continued to perform well during the first quarter. In particular, our clinical trials staffing, education, and retained search businesses all improved their profitability from the year-ago quarter. But, more importantly, our core nurse staffing business experienced strengthening demand as measured by the average monthly number of open orders from our hospital customers.

While we would ordinarily expect a drop in demand at this time of year due to seasonal factors, demand increased throughout April and is currently at the highest level in the past 30 months. As a result, we are increasingly optimistic that the recent strengthening in demand suggests that our operating performance will begin to reflect year-over-year increases at some point during the second half of 2005.

However, we caution investors that as recently as January of this year, demand and contract booking activity appeared to be weakening, raising the possibility that the recent strength might not endure. While we look at the pattern of contract booking activity during the first quarter, it reflected year-over-year double-digit percent declines at the start of the quarter and by March strengthened to essentially flat. In April, contract booking experienced a double-digit percent increase over year-ago levels, marking the first month since January of 2003 in which our contract bookings have grown year-over-year.

We believe stronger hospital admissions have caused our clients to show a greater sense of urgency in booking our nurses on contract assignments than we’ve experienced during the past 2 years. This can also be seen in rising bill rates, which should result in a 1 to 3 percent increase in our average bill rate by year-end.

We believe another important factor behind the strengthening of demand this year was the Superior Court decision in California rejecting the Schwarzenegger administration’s earlier emergency order freezing nurse-to-patient ratios at the 2004 level. This court ruling ordered that the more stringent 2005 patient ratios specified by legislation go into effect immediately. We have experienced substantially higher demand in California since that decision.

The stronger demand combined with increased applicant activity and improved booking trends as well as continued success in securing vendor-managed relationships with key accounts gives us a stronger sense of optimism for renewed growth in our nurse staffing business than we’ve had in quite some time.

So far we are also the only the publicly traded nurse staffing company to have received certification by the Joint Commission under its new program for healthcare staffing companies. We believe this Joint Commission certification will result in differentiation among nurse staffing providers and that hospitals will increasingly look for the [JCAHO] gold seal when selecting a company to meet their temporary staffing needs.

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 first 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 first quarter revenue of $158 million, which was $1 million above the high end of the revenue guidance range that we provided in March. Our first quarter revenue was down 6 percent from the prior-year quarter and 1 percent sequentially, adjusting for discontinued operations, reflecting softness in our core travel nursing business that we experienced around year-end.

Our gross profit margin was 21.9 percent, near the high end of the guidance range that we provided in March. Margins were up 30 basis points from the prior-year quarter, but down 80 basis points sequentially adjusting for the discontinued consulting businesses.

The year-over-year improvement in margin was attributable to a higher relative mix of revenue from our other human capital management services businesses, which operate at higher gross profit margins than our staffing businesses. The sequential decline in margin was due to seasonal factors relating to the reset of payroll taxes and lower housing occupancy rates following the holidays, as well as to less billing days than in the fourth quarter of 2004.

Professional liability expenses were also up due to increased claim activity. SG&A expenses in the first quarter were up 4 percent from the prior year, reflecting the higher relative mix of non-staffing businesses which operate with a higher overhead burden than our staffing businesses, as well as the effect of negative operating leverage on our core nurse staffing business.

Unallocated corporate G&A was up 10 percent over the prior-year due to expenses associated with complying with Section 404 of the Sarbanes-Oxley Act. On a sequential basis, corporate G&A decreased 4 percent, reflecting a lower level of Sarbanes-Oxley related spending.

Interest expense was $900,000 as compared to $1.4 million in the prior-year quarter, reflecting the [re-leveling] of our balance sheet made possible by our strong operating cash flow in 2004, partially offset by higher interest rates.

Net income from continuing operations was $3.8 million or $0.12 per diluted share, which was at the upper end of the guidance range that we provided in March. Net income, including a $200,000 net loss from discontinued consulting business, was $3.6 million or $0.11 per diluted share. This compares to $4.9 million or $0.15 per diluted share in the first quarter of 2004.

Our balance sheet remains strong. We ended the quarter with a debt to total capital ratio of 11 percent and a current ratio of 2.8 to 1.

DSO’s were 57 days in the first quarter, down 2 days versus a year ago, but up 2 days from year-end 2004.

During the first quarter, we generated $3.3 million of cash from operating activities, for which $2.1 million was used for capital expenditures. We had $41.6 million of debt outstanding at the end of the first quarter.

Last month 1 of our 2 private equity sponsor stockholders sold approximately 4.2 million shares of our common stock in a public offering. This sale substantially liquidated the stockholdings in our Company by Morgan Stanley and its affiliates which they have held since 1999. This transaction was pursuant to a Registration Statement that we filed with the SEC in November of 2004 to register approximately 11.4 million shares of common stock owned by our 2 private equity sponsor stockholders. Neither the Company nor management registered or sold any shares. Consequently, all net proceeds from the sale went to the selling stockholders. However, the Company incurred all fees and expenses relating to the Registration Statement.

Let me drill down next on our 2 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 first quarter, and the other human capital management services segment, which is comprised of our educational, training, and retained search businesses.

Revenue for the healthcare staffing segment was $146.8 million, and the average number of FTE’s was 5,610, above the high end of the guidance range that we provided in March. Segment revenue was down 8 percent on a year-over-year basis on a 7 percent decline in volume. However, sequentially, volume was up 1 percent, the first time we’ve had an organic increase since the fourth quarter of 2002. The average revenue per FTE per week was down approximately 1 percent year-over-year and sequentially.

While our average bill rate in the first quarter was essentially flat, the average revenue per FTE per week was down sequentially due to 2 less days in the first quarter of 2005 than the prior-quarter and year-over-year due to 1 less day than the first quarter of 2004.

Global contracts for the nurses on the hospitals’ payroll accounted for approximately 1 percent of our segment volume, down slightly from approximately 2 percent a year ago.

Healthcare staffing contribution income, as defined in our press release, was $13 million in the first quarter, down 16 percent versus the prior-year quarter, reflecting higher professional liability insurance expenses and negative operating leverage as a result of lower nurse staffing volume. On a sequential basis, contribution income was down 17 percent due to seasonal factors relating to the reset of payroll taxes and lower housing occupancy rates following the holidays, as well as 2 less billing days than in the fourth quarter of 2004.

Turning now to the other human capital management services segment, first quarter revenue was $11.3 million, up 16 percent from the prior-year. The year-over-year revenue growth was driven by the strong performance of both our [Cejka search] and our education and training businesses. Segment contribution income was $2 million, up 46 percent from prior-year. Both the search and education businesses contributed to the year-over-year growth in the segment contribution income.

This brings me to our guidance for the second 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, booking activity was weak during January and February, but improved markedly during March and April. Bookings in the first 4 months of 2005 were 3 percent below the comparable period-- year-ago period. Based on these booking trends, we project the average field FTE count in the second quarter to be in the 5,550 to 5,600 range, or approximately 4 percent than prior-year. We expect average staffing revenue per FTE per week to be up approximately 1 to 2 percent sequentially.

Second quarter revenue is expected to be in the $158 to $161 million range. We expect gross profit margins to be in the $22 to $22.5 percent range in the second quarter, and SG&A expenses to be consistent with the first quarter. EPS per diluted share from continuing operations are expected to be in the $0.12 to $0.14 range.

This concludes our formal comments. Thank you for your attention. At this time, we will open up the lines to answer any questions that you may have.

Thank you. We will now begin the question-and-answer session. [OPERATOR INSTRUCTIONS]. Jim Janesky of Ryan Beck & Co., you may ask your question.

Yes, good morning. A couple of questions-- first, Joe, could you comment on hospital buying patterns in general? I mean we’ve seen some contract staffing rates at some hospitals are up, some are flat to down. Versus a year ago, do you feel that the hospitals are more or less? Obviously, the order trends indicate that they’re more willing to use more staffing, but have the buying patterns recuperated, I would say?

Well, recuperate is a relative term and they’re clearly substantially up, or more than 3 times up from what was the nadir of order activity in our business, but we’re still substantially below the peak of order activity that we saw in 2001. But we clearly see a greater sense of urgency, Jim, and it’s really not just a California phenomenon. Where if I look at my working counts in Florida today, it’s up more than 30 percent year-over-year. We’re seeing prices firm in Florida, which has been a very weak market for the last several years.

So I think we’re generally encouraged and, again, it’s not regionally focused. It’s really across the country we’re seeing a higher sense of urgency in the last couple of months, a higher sense of urgency and a willingness to increase rates to make their hospitals, our customers’ hospitals, relatively more attractive to nurses seeking contract assignments.

And your outlook for revenues in the second quarter has increased versus last quarter. It’s now been several weeks of increased order activity. As you look out, I mean, what worries you for this pattern coming to an end? I mean, what do you think could be on the horizon?

I think-- the truth is we do believe-- we mentioned in our prepared comments, we think it’s higher admissions, which clearly was partly related to the timing of the flu season this year. A year ago it fell before Christmas, this year it fell well after Christmas. But as far as I can tell, the flu season pretty much ended in April in most areas of the country. So when we still look at high and increasing order counts in the last 5 weeks, there has been only 1 week there where orders didn’t go up from week to week. You get the sense that it’s more than just the flu, that there are other drivers of admissions, and that would be very encouraging to us.

But, clearly, if admissions weaken for whatever reason-- that this is not a sustainable inflection point for hospital admissions-- that would be a negative. I also think the other driver is that I think we’re probably seeing higher turnover rates for nursing positions in hospitals, which I think is a function of a much stronger job market nationally. So it’s really a combination of those things, Jim, that is driving I think the improved market over the last several months, and if the job market weakened or admissions weakened, I think that would be something that would concern us going forward.

And, really, that’s why we’re not more bullish than we are. That’s why we’re not providing full-year guidance, because we just-- we still believe there may be some volatility in the market. It’s only a couple of months ago that we were very concerned about the direction of demand and the sense of urgency that our clients were displaying. So things can go wrong, but when we look around the metrics of our business, there’s an awful lot going right right now and it feels pretty good.

Okay. A quick question for Emil-- out of the amount of Sarbanes that you spent in--? Or expenses on Sarbanes for 2004, Emil, what was roughly that figure and how much do you expect to recur in 2005?

Well, for the 2004 certification we spent roughly $2.3 million, a little in excess of $2.3 million. A portion of that was spent in the first quarter, but the bulk of it was spent in fiscal 2004. For 2005, my current best estimate is that we will incur roughly between $1.25 to $1.50 million of expenses-- with third-party. This is not including the internal costs and the opportunity costs associated with Sarbanes.

But the comparison would be about $1.5 to $2.3, right?

That [sounds comparable], Jim.

Okay. All right, thank you.

[Chris Reed] of Merrill Lynch, you may ask your question.

Hi. Thank you. [Chris Reed]. Morning, guys. Do you have the revenue breakdown for the quarter in the staffing division, per diem versus travel? And could you also tell us a little about the booking trends that you’ve seen, the initial pick up in the per diem side or in the travel side or both for that matter?

We’re going to answer those questions in reverse order. I’ll let Emil give you the specific breakout, but I would say the per diem business is not showing the same relative strength that the travel business is, and that’s really not-- that’s not unexpected. Per diem typically performs relatively best at the peak of the market because there is recruiting from the deepest part of the pool, the national nursing pool, whereas, but they’re also competing against hospitals in local markets with the same nurses. So hospitals tend to look at them a little more adversarially coming out of a downturn, so they don’t tend to show the same kind of a pickup that contract nursing companies do. So we’re not surprised that our per diem business is a little bit weaker than our travel business. And as far as the specific breakdown, I’ll let Emil answer that.

Chris, as we indicated, the staffing segment accounts for 93 percent of our total revenues, and travel nursing accounts for roughly a little over 2-thirds of our total revenues, and there’s a lot of [piece] in allied, which is predominantly travel as well, and that accounts for between 7 and 8 percent of our revenues, and per diem nursing accounts for approximately 11 percent of our revenues, and clinical trials between 7 and 8 percent of our revenues.

Okay, thanks. Then I know it’s still relatively a small segment of the business, but in the other human capital management side, in this quarter as well as in the fourth the margin in that business has increased significantly relative to the size of the revenue increase. Can you talk a little bit about it? Is there something going on with the mix of business there or is there just a lot of inherent leverage there?

I think it’s the latter, Chris. There’s good operating leverage in these businesses. These are businesses that are characterized by relatively good gross profit margins and relatively high overhead burden. So as your volume increases, you tend to have a disproportionate benefit on the contribution income line.

Okay. And then I may have missed it, but just in terms of the cash flow in the quarter, did you mention why you saw this year-over-year fall off there?

Well, as we indicated, the cash flow was roughly $3.3 million for the quarter. We had our DSO’s went from 55 days at year-end to 57 days, so that 2-day increase in DSO’s had a $3.5 million unfavorable impact on cash flow. But I guess I really need to put the DSO’s into perspective. The 57 days where we ended up is really within the normal range for us, and it’s in fact about 2 days lower than it was a year ago. What was really unusual was the 55 days that we had at year-end. Having said that, we continue to strive to reduce our DSO’s and 55 days is a reasonable target for us to shoot for going forward.

Okay.

And the other thing that affected cash flow in the first quarter was the timing of the payroll cycle, which resulted in a $4.3 million revolver drawdown at the end of March, but most of that revolver drawdown was repaid by the end of April.

And just to follow up on that, Chris, and I guess as Emil said, in April a $4 million improvement in debt reduction, so-- I wouldn’t look for that every month, but there is nothing that we’re really concerned about as far as cash flow is concerned.

Okay, thank you.

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

Thank you. Good morning. Two questions for you-- 1) could you describe renewal rates, the new bookings picking up? And kind of I’m interested at the same time what the pool of your current FTE’s and their renewal rates look like. And then, 2) could you comment on in terms of demand being up, comment on the breadth of hospitals, whether that’s improved, and also whether the breadth of the specialties of the nurse skills set has improved? Thanks.

Yes. Tobey, how are you? On the renewal rate, that’s actually a very encouraging a story and, again, not inconsistent with an improving market. While the renewal rate was down in the first quarter year-over-year, that’s really largely a function of the activity, the really weak activity, that we saw in January. By the March and April periods, we actually saw renewal rates rebound to what I would describe as kind of historically high levels, well above 70 percent, and, probably most importantly, renewals at the same facility are running at a relatively high level.

So, again, it’s just another data point on strong demand hospitals that have nurses that are working at the facility that are oriented to that facility and doing a good job, the hospital is more inclined to hang on to that nurse as to look for reasons to end the contract and send the nurse away when the contract is completed. So that’s a very encouraging sign that we’re seeing in the last couple of months.

And as far as the breadth of demand, it really is across the board. In the last month, California, since the decision, the court decision overturning the Schwarzenegger administration’s emergency order was appealed, and after that appeal was lost, we’re seeing a substantially higher demand in California. But over the last-- as we looked at the trends in the first quarter, we saw strength in Texas and North Carolina that we had-- Those are important states historically that we haven’t seen a lot of demand over the last couple of years.

As I think I indicated, right before the California decision came down when we looked at our total orders, we had more orders in Florida than we had in California, and I can’t remember the last time that was true. So Florida has come back to a substantial degree from where it was. So we just-- again, even in the upper Midwest, which has been kind of a desert for us, we saw some relatively strong demand in some of the states in the upper Midwest.

So that, in and of itself, when we look, it’s not just a concentrated phenomenon in California. It appears to be a national phenomenon that is driving higher order trends and that’s very encouraging. As it relates to specialties, I don’t think there’s anything specific. I can point you there. I think we are seeing across the board, California with the patient ratio is really focused on Med/Surg. You’re seeing higher demand for Med/Surg in California, but not just California, and Med/Surg is a very important indicator because those typically are the easiest nurses for hospitals to find. So when we see good Med/Surg demand, it’s also a positive indicator going forward.

I guess I had kind of 1 other question. Despite a little bit more modest cash flow in the quarter, given your cash flow generating characteristics historically, you’re going to be able to pay down that debt pretty rapidly. Do you have any thoughts about uses of cash and maybe what the acquisition opportunities look like relative to last time you commented on it? Thanks.

Let me just say, in general, we continually evaluate the optimal use of our excess cash to build shareholder value, and we believe that strategic acquisitions at a reasonable price represent the best way for us to use our excess cash to build such value. But absent such acquisitions, our emphasis last year was on accelerated debt repayments, which gives us more financial flexibility down the road. And, in addition, we continue to be opportunistic and disciplined in share repurchases pursuant to the existing authorization which still has just under 0.5 million shares left.

As far as acquisitions, we believe that there are attractive opportunities out there. But in our core business, we also are very interested in the clinical trials area, and there are geographic-- we have some geographic criteria that we also look at. The key, however, is an acquisition where the price-- the return needs to exceed our average cost of capital. So it really comes down to finding a strategic acquisition for the right price.

Naturally, I think that last point, Tobey, we have been in several discussions in the last 3 or 4 months and there are some that look promising and some that are ongoing, but we really are trying to maintain our discipline on price. We don’t want to get so enthusiastic about a turn in the market and begin to build that into our projections. Our historic discipline is to not assume the market gets substantially better, and if it doesn’t, is this still an acquisition that’s going to yield appropriate returns to us, certainly in building growth but not significant growth that would occur in a strong inflexion in this business.

So we remain committed to finding attractive acquisitions. As Emil said, it’s our first and best use of cash, but only if we believe the returns will be higher than our cost of capital because that’s how you build long-term shareholder value.

Thank you very much.

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

Hi, Jeff. We can’t hear you if you’re there.

I’m sorry. Can you hear me now?

Yes, we can hear you now.

Great. In prior quarters you guys have been kind enough to give us an overview of your top states, and since everything shifted around a little bit, can you just review that for us?

Yes. As we speak, the top 3 states are California, Florida, and Arizona. Arizona has been very strong, up for us nearly 50 percent in the number of working people we have. Florida, which is really Florida at a seasonal high, although we still have a large number of orders to fill in Florida, is now running a little bit above 20 percent of the total volume. California is somewhat north of that. We don’t expect Florida to sustain at 20 percent. I mean, historically, I think as we’ve said, we see Florida as roughly 15 percent of volume, but clearly we’ve seen strong growth in Florida and that’s reflected in the relative share of our total business.

Okay, great. Just moving on to the other staffing business within the healthcare staffing segment, it sounds like on a relative basis that clinical trials is doing a little bit better than allied. Can you tell us just generally what’s going on in those 2 segments?

Yes. Clinical trials, as we’ve said in the last probably 5 or 6 calls, we’ve seen more trials. We’ve seen our management team and organization do a good job of positioning that franchise to be an appealing vendor for pharmaceutical companies looking to make their Phase III trials more efficient. We do see that continuing. We probably won’t see the very strong growth we saw in ’04 repeat in ’05, but we do believe that the business will continue growing in ’05.

When we look at our allied business, again, a business that we think is very well-managed, it’s a more diverse business. It’s really made up of 3 core components-- radiologic technologists, your x-ray techs and MRI technicians, ultrasonographers, rehab professionals, and respiratory therapists. And when we look at those 3 components, radiologic technologists has been very weak. It was the strongest demand area in the early part of 2001, 2002, even in 2003, but has weakened substantially for contract travel positions.

The rehab business is actually, when we look at not obviously in absolute terms but in just the relative terms, the largest overhang of demand based in comparison to the number of working professionals we have in the field. So we do expect to see the relatively highest growth in that area going forward.

And then the last component is respiratory therapy, which is a lot like the nursing business. It has been a pretty steady business for us over the last couple of years. We do see it continuing to grow in 2005. It grew in the first quarter, so we’re encouraged by that. We do believe the rehab business will more than offset the weakness in the rad business in 2005. We do expect to see a little bit of growth in allied in 2005.

Okay, great. And then just a couple follow-up questions on your second quarter guidance-- is there a significant difference in billing days second quarter ’05 versus second quarter ’04?

No, there is no difference year-over-year. The only reason we had the difference in Q1 had to do with a leap year last year.

Our calendar-- our quarters are based on calendar months, Jeff.

Yes. I just wanted to double-check that. I appreciate it. Then also, in terms of the cost for the Morgan Stanley offering, roughly what do you think you’ll be booking in the second quarter for that?

I think our total cost was in the order of $200,000, roughly half of it in the first quarter and half of it in the second quarter.

Okay, great. Thanks a lot.

[Filal Bashai] of [Sanford Group], you may ask your question.

Hi. You mentioned that bill rates are expected to increase about 1 to 3 percent going forward. What are your expectations and what are you seeing for pay rates?

[Filal], right now our expectation is if you look at the aggregate and you see bill rates increasing 1 to 3 percent, we would not expect to see an increase in pay rates. We would expect to see expansion in the bill pay spread, which we in fact are seeing, because we are seeing some pressure, particularly, in the first quarter and even into the second quarter on the professional liability front which we account for as a direct cost. So we are getting some pressure on our gross margins because of professional liability.

So we feel in that kind of range we would not be inclined to increase nurse wages. If we start to see bill rates in excess of 3 or 4 percent, and we have seen some clients increase the rates as much as 10 percent in recent months, then in that case we do go back and increase nurse wages. But we’re kind of talking about in a macro our overall mixed bill rates, we’re still expecting 1 to 3 percent. We’re hopeful we may see more than that by year-end if the present trends continue, but right now that’s our expectation.

Okay, and also in the first quarter the Company did not repurchase any shares. What’s the rationale behind that and at what prices do you think it’s advantageous and makes sense to start buying back shares again?

Obviously, we prefer not to disclose a specific price. I think philosophically we tend to be opportunistic in this area and if we see substantial weakness in our stock, we do have the flexibility to step in. We have the cash available and we have the authorization in place, but I would prefer not to be too specific as to what our strategy is.

Of the shares we’ve bought back to date, [Filal], I think the average price is less than $14. We may not see that price again. We may, and if we do, we’re obviously we’re a buyer. We have bought some shares above $16. So I would like to conclude and finish this authorization. Obviously, when there is volatility in our market, we tend to be more focused on reducing debt, but if we believe we’re on a firmer footing, we would actually be more inclined to repurchase shares and repay debt.

Okay, great. And then, finally, you also see improvement in the business over the past few months. What would it take to be able to provide sort of guidance, kind of a low-end guidance, worst case scenario? I mean is that something that at some point soon you might be comfortable providing?

For longer term?

Correct. Full-year versus--

When you look at-- as we indicated in our prepared remarks, this quarter was characterized with some choppiness. We started off relatively weak in January and February, we followed that by improvement in March, and really very good demand and production in April. We’re really encouraged by the recent strength, but it’s really an issue of volatility. Until the volatility of the demand for our services subsides, we only plan to provide guidance 1 quarter out. Once we start seeing stabilization, lack of volatility, then we will be able to project further out.

And, [Filal], just to follow up on that, I mean in the first 4 months of the year and even into May, in only 2 weeks has the number of orders in the subsequent week been less than the previous week. So there’s been, again, a strong trend. If we saw a trend like that continue into the second quarter and then into the summer months, that would be very encouraging to us. [Evening out] our expectation, there is seasonality in our business that typically hospitals in Arizona and Florida pull back in demand for travel nurses because they don’t want nurses on contract in kind of the dog days of summer in those markets. But, as we speak, there’s still-- we have a significant amount of unfilled demand in both of those markets and that’s very encouraging to us. And if we see that continue, we’ll obviously be in a better position to look beyond the 1 quarter that we do currently.

Okay, thank you.

[Riley McCormick] of [Tracer Capital], you may ask your question.

Hey, guys. A couple questions-- the CapEx for this quarter, $2.1 million--

Yes.

It seems higher. Can you give us a sense for what it’s going to be for the year and the linearity of what we should expect for the next 3 quarters?

Yes. We continue to expect our CapEx to be at or below 1 percent of revenue, which is consistent with what we indicated previously. When we looked at our capital budget in 2005, it was definitely front loaded, so you can expect higher levels of spending in the first half of the year as compared to the second half of the year.

Okay, and then as it flows through the income statement in your guidance, your G&A has been somewhat volatile because of the timing and the CapEx. Does your guidance for next quarter assume somewhat of a pickup in G&A? Or what is your G&A assumption in your $0.12 to $0.14 for next quarter?

Steady from quarter to quarter sequentially.

Okay. And then in your press release when you guys talked, you’re “Increasingly optimistic that the recent strengthening of demand suggests operating performance will begin to reflect year-over-year increases in the back half.” Is that FTE’s? Is that what you mean by operating?

Yes. I mean orders don’t generate revenue, nurses on contract generate revenue. And if the current trends continue, again, we’re seeing high applicant activity. We should be able to convert those applicants into working nurses. That takes time and we would believe by at some point in the second half of this year that the P&L performance of the Company will begin to show improvement over the year-ago period.

Okay, and is that for potentially a full quarter or just for a period, maybe it would last a couple months, or do you expect that for a full quarter there could be year-over-year FTE growth?

Actually, when we-- our expectation, [Riley], again there are all the caveats and forward-looking statements. Based on our experience, when the business turns and because of the momentum and the natural momentum in this business and you have more nurses on contract, therefore more nurses coming off contract to renew, you tend to maintain momentum in one direction or another for some period of time. Obviously, in the most recent period it has been somewhat negative. Once we get positive momentum, we would expect to sustain positive momentum for a number of quarters.

Okay. And then, lastly, I guess in a little bit longer term, your guys’ gross margin has fluctuated over the last few years. Obviously, it’s a down turn. Is there anything that’s structurally changed why you guys couldn’t get back north of 24 percent gross margins in the next, call it, 18 months or at least once we see a turnaround in the underlying business?

I don’t think there’s a structural reason why we couldn’t-- certainly-- that shouldn’t be our target to get back to those levels.

And then, too, there is gradual improvement in the bill pay spread as well as reduction in some of our insurance expenses, particularly, professional liability expenses.

Can you remind us, what is the contribution margin of an incremental dollar? I mean how much of your [COGS] is fixed versus variable?

Rule of thumb, [Riley], where we are today, given kind of the excess capacity we have, we believe the incremental margin should be somewhere in the 15 to 20 percent range.

Okay, that’s on the operating margin?

Right.

Right.

Okay. All right, guys, thanks.

[Arturo Spangriatis] of [WM Partners], you may ask your question.

Hi. Regarding your guidance for gross margin in Q2, are professional liability costs the only significant contributor to the year-over-year decline?

Yes, substantially.

Substantially, yes.

Okay, thanks.

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

Hello, 2 questions-- 1) taking a look at SG&A levels throughout the balance of the year in terms of absolute dollars, should we see that trend down or stable? Just curious what your expectations are there. And then regarding booking trends, I was curious what your experience has been, particularly among the clients that have raised their bill rate sufficiently, so that you can pass on pay rate increases for those assignments?

I’ll take the SG&A part and let Joe handle the booking part. On the SG&A, our expectation is that we will see flat to slightly up numbers. Basically, sequentially flat numbers with perhaps a less than 1 percent increase quarter-over-quarter.

On the booking trends, Tobey, specifically as it relates to those clients that are increasing bill rates, again, if you’re forgetting 1 to 3 percent, we’re not increasing pay rates. So I just want to reiterate that. For those clients that are what I would describe as have a much higher sense of urgency and are really focused on making their hospitals more attractive to perspective contract nurses and are giving us rates in excess of that that allows us to increase pay rates, there are 2 things-- 1) they probably have a lot more orders, and 2) we now have a relatively more attractive package and something we can sell. We can get on the phone and talk to people about something new as it relates to that client. Generally, the reason that the clients increase the bill rates is because it makes us more successful as a vendor getting nurses to them, and I’m sure that’s true in the recent couple of months.

And have you seen any increased activity relative to signing bonuses or other incentives apart from changes in the bill rates?

That’s actually a good question, and the answer is yes. We have seen resurgence in hospital sponsored bonuses, which typically we pass through and obviously pay payroll taxes. We bill the hospital the bonus plus payroll taxes. That’s usually historically kind of a first step where the hospital really wants to control the process and they don’t want you to take any margin out of that additional spending. Over time, we also remind them that it’s important that our recruiters view their accounts as a very attractive account. We don’t necessarily want them managing our business for them. So, ultimately, we would expect an increase in sign-on bonuses to translate into higher bill rates as well, and it’s usually I guess a first step in that process, and we are seeing that today.

Thank you very much.

[OPERATOR INSTRUCTIONS]. Jeff Silber of Harris Nesbitt, you may ask your question.

Thanks. Just one quick follow-up-- I know you’re not giving guidance beyond the second quarter, but in a normal environment what would be the seasonal trends between 2Q and 3Q and 3Q and 4Q?

Jeff, historically, the seasonal markets, particularly Florida, pick up in September. Nurses start-- they want to start their contract before the third week of September so they can be finished by Christmas and go home with their families. That is the normal pattern. So you would see a spike up in September, so when you look at the quarter as a whole, you should have a sequential up-tick in volumes in the third quarter and that is followed by another up-tick in volumes in the fourth quarter as, again, nurses continue to build in those seasonal markets up until they begin to go home in the second week of December.

Okay, and how about seasonality in your non-nurse staffing businesses?

I would describe it a lot less. I mean there is seasonality in the clinical trials business in that the last 2 weeks of the year basically the business shuts down and a lot of the trials are just gone on leave if you will during the holidays. So there is some seasonality in that business. The other businesses really don’t have the same. The summer months are a little weaker in the education business.

And the search business tends to be a little stronger in the fourth quarter, just because a lot of searchers typically get the budgets are in place and they typically try to conclude those searches before year-end.

Okay, thanks.

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

Third time’s a charm. I just had a question regarding if you could update us on your vendor-management relationships, maybe where that is as a percentage of revenue currently, what your expectations are for 2005, and as it comes to-- relates to contract bookings if you’re seeing more growth among those accounts than in the overall book of business?

Okay. That’s a fair question. Right now the percent is in excess between 15 and 20 percent of the Cross Country staffing volume that excludes the Med-Staff business. That’s up from-- I think we gave you previously about a 10 percent number, so it has grown and it has grown disproportionately, both same-store and we continue to add new customers in that area.

We, at some point, Tobey, we’re just going to reassess where we are. We don’t think more than 25 percent of the Cross Country staffing volume will be the right number. Again, when we get there, we’ll assess our effectiveness in meeting the needs of those clients. We just don’t think we can be everything to all clients, and you do take on a higher level of responsibility when you take on one of these vendor-managed relationships. So we want to make sure we’ve got the right clients, the right hospitals that we’re serving in this capacity, and make sure that we do a great job for them.

So we are not aggressively expanding the VMS program as we speak. We’re looking to be very selective as we go forward, because right now it’s a pretty substantial part of the business. It’s definitely-- it’s material and it is far more efficient for our recruiters to send applicants to those accounts where they can very abruptly double the average rate of applicants that we send to non-VMS accounts. So, again, there’s a lot of upside internally as to focus on those accounts. We want to make sure we continue to do a good job for those accounts so we can keep them going forward.

Thank you.

At this time we have no further questions.

With that, we want to thank everyone for participating in the call, for your continued interest, and we’ll look forward to updating you on our next conference call. Thank you very much.