Cross Country Healthcare Inc (CCRN) 2005 Q2 法說會逐字稿

Welcome to the Cross Country Healthcare earnings conference for the second 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, our President and Chief Executive Officer, and Emil Hensel, our Chief Financial Officer. On this call we will review second 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 would first like to remind everyone 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, suggests and similar suppressions 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 second 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 can't 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 revising forward-looking statements and thus it should not be assumed 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.

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 from the second quarter of 2005 was $159 million and our income from continuing operations was 1.3 million or $0.04 per diluted share, reflecting year-over-year decreases of 3 and 73% respectively. A major driver of the year-over-year decline in income was an after tax charge of 3.2 million taken in June for professional liability expense, as discussed in our press release issued June 20. Despite the year-over-year decline in second quarter revenue and profitability in our healthcare staffing business segment, I continue to be encouraged by the dynamic and direction of the current business environment.

As Emil will discuss in a few moments our range of expectations for the third quarter suggest that staffing volume will be stable on a year-over-year basis and slightly up sequentially, and more importantly gross margins in our core nurse staffing business are expected to improve both year-over-year and sequentially in the third quarter, even if we were to adjust the second quarter margin for the significant charge taken in June. We believe there may be an upside to our volume forecast because a, a meaningful increase in new recruitment capacity in our travel staffing business that we added in the first half of this year. So far this year we have increase our recruitment head count in the travel staffing business by 20, raising our our total recruitment head count to 154.

We believe many of these new recruiters are now sufficiently experienced to begin making contributions for the remainder of this year, though the productivity of new recruiters is less predictable than with tenured recruiters. Demand in our travel nurse staffing business, as measured by the average monthly number of open orders from our hospital customers, remain near the high point for the year through the second quarter and the first week of August. This has been true, even though reported and anecdotal information would indicate that hospital admission patterns were less than robust. On the supply side we continue to experience higher nurse applicant activity through the second quarter. Resilient demand for our nurse staffing services in the face of somewhat soft hospital census, combined with solid application flow suggests to us that the long awaited return to historical employment patterns of the aging nursing population could be starting to occur.

As a result we believe turnover in nursing positions is increasing which we also believe is the most important driver of demand in the current environment. We would look to stronger admissions to enhance the sense of urgency of our hospital customers and booking the applicants that we send them. Demand in California has remained strong since the superior court decision in the state rejecting the Schwarzenegger administrations's earlier emergency order freezing nurse to patient ratios at their 2004 level. We are also very encouraged that we have seen the first hospital offer a specific bill rate premium for companies certified by the joint commission. Cross Country Staffing's travel nurse business was certified by the joint commission earlier this year and we expect J-Co certification will ultimately cause more hospitals to offer a distinction in how they utilize and compensate agencies.

All in all, we see greater willingness on the part of our hospital customers to accept higher bill rates in order to attract nurses to their facilities throughout the country. This more than anything is likely to be the catalyst for stronger growth in volume and profitability going forward as higher bill rates allow for margin expansion and higher wages to attract more candidates to us. Turning to our non-nurse staffing businesses, they continue to perform well in the second quarter, in particular our retained search and clinical trial staffing businesses improved profitability from the year ago quarter, while our education business produced a solid quarter but one that fell short of the excellent performance in the previous year. With that, I would like the hand the call over to Emil.

Thank you, Joe, and good morning, everyone. First I will go over the results for the second quarter and then review our revenue and earnings guidance that we provided in last night's press release. As Joe indicated, Cross Country Healthcare recorded second quarter revenue of $159 million, down 3% from the prior year quarter as adjusted for discontinued operations, but up 1% sequentially reflecting stabilization in our core travel nurse staffing business.

Our gross profit margin was 19.7%, down 265 basis points from the prior year quarter and 220 basis points sequentially. The margin decline is entirely due to the $5.3 million pre-tax professional liability charge that we announced in June, which had a 332 basis point impact on our gross margin. As a reminder, we classify professional liability expenses as a direct cost, unlike some of our competitors who classify it as an SG&A expense. Absent the charge, our gross margin would have improved 67 basis points over the prior year quarter, and 112 basis points sequentially, reflecting improvements in the bill base spread in our core travel nursing business, as well as a higher relative mix of revenues from our other human capital management services businesses, which operate at higher gross profit margins than our staffing businesses.

SG&A expenses in the second quarter were up 5% from the prior year reflecting the higher relative mix of non-staffing businesses which operate with higher over-head burden than our staffing businesses, as well as the effect of negative operating leverage in our core nurse staffing business. Unallocated corporate G&A was up 14% over the prior year, due primarily to higher compensation in health insurance expenses. Interest expense was just under $1 million as compared to 1.2 million in the prior year quarter reflecting the de-leveraging of our balance sheet made possible by our solid operating cash flow partially offset by higher interest rates.

Net income from continuing operations was 1.3 million or $0.04 per diluted share, including the $0.10 charge associated with the aforementioned professional liability claims. The second quarter EPS was at the upper end of the revised guidance range that we provided on June 20. Net income included a $77,000 net loss from the discontinued consulting business was 1.2 million or $0.04 per diluted share. This compares to 5.1 million or $0.16 per diluted share in the second quarter of 2004. Our balance sheet remains strong. We ended the quarter with a debt to total capital ratio of 9.8% and a current ratio of 2.221. DSOs were 58 days in the second quarter, up three days versus a year ago and up one day as compared to the end of the first quarter, but still within our normal range.

During the second quarter we generated 6.3 million of cash from operating activities of which 1.9 million was used for capital expenditures. We had 38.4 million of total debt outstanding at the end of the second quarter, a $3.2 million reduction from the end of the first quarter. Let me drill down 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% of revenue in the second quarter, and the other human capital management services segment, which is comprised of our education and training and retain surge businesses. Revenue for the healthcare staffing segment was 147.2 million, down 4% on a year-over-year basis but up slightly on a sequential basis.

We averaged 5,556 field FTEs in the second quarter, 4% below prior year and down 1% sequentially. The average revenue per FTE per week was up .4 of a percent versus the prior year and up 1.2% sequentially. The sequential increase is primarily due to one more day in the second quarter as compared to the first quarter. Mobile contracts were the nurse is on the hospital's payroll accounted for approximately 1% of our segment volume, down slightly from approximately 2% a year ago. Healthcare staffing contributions income, as defined in our press release, was $9.5 million in the second quarter as compared to 15 million a year ago. The segment contribution margin declined 332 basis points to 6.5% from 9.8% a year ago. The decline in contribution margin is entirely attributable to the aforementioned professional liability charge, which reduced the staffing segments' contribution margin by 359 basis points.

Turning now to the other human capital management services segment, second quarter revenue was 11.8 million, up 12% from the prior year. Both our retained search and our education and training businesses registered double digit revenue growth. Segment contribution income was 2.1 million, up 10% from prior year, driven by the strong performance of our retained surge business. This brings me to our guidance for our fourth 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.

Booking activity was up 3% in the second quarter versus the comparable prior year period. Based on the booking trends we project the average field FTE count in the third quarter to be in the 5,600 to 5,700 range, which represents a 1 to 3% sequential increase from the second quarter of 2005. We expect average staffing revenue per FTE per week to be up approximately 1 to 2% sequentially. Revenue for the third quarter is expected to be in the 161.5 to $164.5 million range. We expect our gross profit margin to be approximately 23% in the third quarter, essentially unchanged from the second quarter after adjusting for the professional liability charge, and sequentially higher gross profit margins in our healthcare staffing segment are mitigated, somewhat, by seasonal decline in the other human capital management service -- management segment revenue.

We expect SG&A expenses to be flat to slightly down from the second quarter. EPS per diluted share from continuing operations are expected object in in the $0.14 to $0.16 range. This concludes our formal comments. Thank you for your attention, and at this time we will open up the lines to answer any questions that you may have.

[OPERATOR INSTRUCTIONS] Our first question comes from Mr. Tobey Sommer of SunTrust Robinson Humphrey.

Good morning. Wanted to start out, Joe, looking at your commentary that suggested to you that nurse turnover and not hospital admissions is helping to spur higher demand. Wonder if you can give us a little bit more color. I guess today we got job openings and quits data for the month of June and I guess it does echo your comment. Job openings up about 18% and quits up about 15% in the healthcare segment, but I was just wondering if you could give us your perspective relative to admissions and how the turnover of nurses is really impacting your demand?

Tony, Tobey, excuse me, when I look at the first and second quarter, I think we saw census and admissions a little stronger than expectations and maybe a little stronger than they had been running for more than a year, so you had a sense that clearly census was a driver in the increase in demand that we saw beginning really the first couple of weeks of January this year, from what was for us a relatively weak December period, but as we entered April and May, and particularly June, what we were hearing was that census was weakening from the first quarter, that the flu season really ended in March, and that, you know, just the, the admissions were not running at the same rates as the first quarter.

And yet we saw continued increases in the orders that we were receiving from our customers. So, given that there aren't that many moving pieces in what drives demand for our service, it really points to -- only to increases in turnover which we're hearing anecdotally. I think some of the experts in work force management and healthcare are pointing to a, kind of a drop out of those nurses, particularly those over 50 that re-entered the workforce in the last couple years that, you know, clearly and the information highlighted and I think you've done a good job of bringing that into the discussion, that turnover rates are increasing while the, the aggregate statistics you talk about are really total labor in healthcare.

It is not just nursing. Clearly nursing is a, is a very important part of that, typically 25% in a normal hospital, so my mind there is no question that's what it is. Now, having said that, we believe a, a higher degree of census, a pick up in admissions would be very helpful to the business. It would increase the sense of urgency among the customers in booking nurses, but given the soft environment, softer environment that we saw in the second quarter and the increasing level of demand, we're pretty comfortable saying that, that turnover is really what's driving the current environment.

Then regarding the generally favorable pricing environment, sounds like you're, you know, again incrementally, more positive on the direction of pricing relative to last time you held a conference call, and I just wanted to get a sense for how you're going to manage those price increases in terms of capturing the margin for the firm versus passing some of it through to the nurses to, you know, propel volume growth and kind of give it a little more juice.

That's a geal good question. You see in our numbers for the second quarter that we clearly have a focus in our, in our healthcare staffing segment on margin improvement. We lost margin in, in a weaker price environment because there was just no way for us to recapture the higher costs we were experiencing and particularly in professional liability and health insurance. We are now able to to recapture that and I think I've said in the past, that our expectations were priced -- we were looking for price in kind of the 1 to 3% year-over-year increase rate. And at that level we would not increase nurse wages. As I said on our June call we are more optimistic. When we're getting price increases, and just to be clear we're not getting price increases across the board, but, where we are getting them, we are generally getting them in the 5% plus range which, in that range, we would be inclined to increase nurse wages which we believe will allow us to both increase margins as well as attract more nurses to us. So it's, it is an encouraging development. The pricing environment has firmed throughout the year and as we speak is probably the firmest it's been during the year. Firmest it has been in probably three years.

In -- just to get a little bit more color on the, on the distribution of those increases, are you finding that the large teaching hospitals, kind of your bread and butter, are more of them increasing their prices than your overall book of business on average?

No, I don't believe I can say that. I think it's a combination of, of clients that are re-entered the market for travel nurse staffing services, are willing to pay a higher price point than what is our, kind of our average for the nation, but clearly those users that, that -- that use a large number of travel nurses have a greater sense of urgency today and we are seeing increases at some of our largest clients which gives us a lot of confidence that we will see increases in average bill rates and we still expect to increase the bill pay spread as we go forward so, I it's like I said, it's encouraging I wouldn't put it on any specific group of clients. We think it is across the board.

One last question and I will get back in the queue. You mentioned clients perhaps re-entering the market. Are you billing more clients today than you were last quarter or a couple quarters ago?

Not significantly, but, you know, it -- directionally it is up.

Thank you very much.

Thanks, Tobey.

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

Thanks. My question has to SG&A. Emil, you had mentioned that you expect SG&A to be flat to slightly down in the third quarter. I was wondering if you can give us a little it of color on that? And then, looking out to next year, and I know you're not providing any guidance beyond this quarter, but, but what should we expect for sort of a normalized SG&A level, assuming that business is back, you get the price increases you're expecting, and volume continues to pick up?

Jeff, the SG&A increases that we have seen on the year-over-year basis were really a combination of a number of, of different factors, such as the higher mix of human capital management businesses, the effect of negative operating leverage on nurse staffing volumes, as well as the increased investments that we had made in recruitment capacity and the higher corporate health insurance that we experienced in the current year. So, when we look forward -- some of these factors will not really be present going forward.

We expect our mix to shift more towards staffing, away from human capital management. We -- our volumes are projected to increase sequentially, so at least on a sequential basis you're not going to be look -- seeing these types of negative -- the effects of the negative operating leverage, and -- so based on these, we -- our expectation is that SG&A will be slightly down third quarter versus second quarter. Longer term, you're right, we do not provide guidance, long-term guidance, but there is benefit from operating leverage as we go forward. One-way to look at it is that on an incremental basis, the last marginal dollar of revenue on the staffing side typically generates contribution income for us that's in the high teens. So you can sort of back into the, the, the leverage that's built into our numbers.

Okay, great. Actually, that was going to be my next question so I appreciate that. You talked a little bit about California earlier, Joe, can you tell us roughly what California is as a percentage of your healthcare staffing business?

It is in the low 20% range, Jeff.

And I am just wondering, in some of the other states you mention and prior calls like a Florida, like a Texas, if you can just give us some general information, geographically, in the other areas?

Well, where we're seeing growth year-over-year is one of the, the more encouraging data points. It's really -- it's not California for us that's driving the business today. It is strength in Arizona, Florida, Texas, North Carolina, New York, that historically have been important markets that are well below their peak activity for us, but are up year-over-year and moving in the right direction and again, pricing is firming in these markets, so to me that's a very -- we're not -- California's not going to -- we're not going to live and die on California. We need the rest of the country to, to resume growth and I believe we're seeing that.

Okay. Great. One final question. It's great to see the added recruiters, it really give us us a lot of confidence and I'm sure you as well. When was the last time you added recruiters in the healthcare staffing business excluding any acquisitions?

2003, but because of the softness in the market attrition reduced that number pretty quickly.

Okay, great. Thanks again.

Okay, Jeff.

Math Ripperger of Citigroup, you may ask your question.

Hi, thanks very much. Just a couple questions. As a follow up to the recruiter question, I'm just trying to get a sense of when you look at productivity of recruiters, how we should get our hands around how much placement volume they could handle? So, for instance, right now, if you look at your 154 recruiters it looks like they're placing about 12 people per month and I just wanted to see if you could give us a sense in terms of when you look at the underlying opportunity to add volume off of your current recruiter infrastructure, where could you go with that number?

Yeah, that's -- as I said in my prepared comments, it's a little less predictable than the productivity of a tenured recruiter which clearly, also varies depending on the strength of the recruiter. But, for, for a new recruiter that we bring on, we don't expect a lot of activity in the first three months. We, we -- while they may be booking nurses because of the lag in our business from the time of the booking to the actual start of the contract, we're -- it is not or expectation we'll see a lot in the first three months, but from three to six months, we do expect to see nurses on assignment and by the end of the year, we hope to see about 30 plus nurses on assignment for every recruiter that we bring on.

Okay. And then do you anticipate adding more over the course of the year or is this going to be it for awhile?

We expect to add more through the -- in the second half.

And any, any sense of how many?

No, I would rather not guide you to that. I, you know, clearly it's -- what I quoted to you is net number while our retention rates are improving I think as the environment and just the general morale improves, it is a little, a little less predictable like, you know, on a gross basis, so, you know, the number of hires it would be in the 10 to 20 range, but the re.. you know,what we will end up net, may be -- it is likely to be less than that.

Okay. And the second question I had is just related to the comments about the bill rate trend improving. I just wanted to see if you can give any color as to whether -- how much of that trend is captured in your 3Q guidance of revenue per week up 1 to 2% sequentially or is the, the improvement in the bill rates that you're commenting on going to be something that's going to be more reflective in the fourth quarter?

Well, I think it is a gradual process, Matt, what we are seeing is, as Joe indicated, a greater willingness for hospitals to accept bill rate increases, but it's of course not across the board, and you also need to remember that this is kind of a gradual process because at any one time we only re-negotiate a portion of our active contracts, so it will take a full year roughly for the full effect of these increases to be, to be seen. The other factor to remember is that the revenue per FTE numbers that you see, although, are up are somewhat masked by the change in mix that we're experiencing.

We have a relatively higher proportion of our business currently coming from states such as Florida and Arizona where bill rates as well as pay rates tend to be below national average, so when you look at an average bill rate number, and you don't adjust for this mix you, you end up with a lower number than what your bill, true fundamental bill rates trends are actually trending at.

Okay, I understand. And the lasts question is just, Joe, you commented that you're seeing some of your contracts renewing in sort of the 5 plus percent range. I wanted to see if you can give any characterization in terms of how much or what percentage of your contract business that would represent?

I don't think I can. Again, it is a moving target. I would say at this point it's well less than half, but I would also characterize that as a ratio that's increasing.

Okay. Actually one last question is, could you comment on the per diem business that you've got and are they, you know, originally the sense was that the travel business would lead a recovery. Are you still of that view and are you seeing any change in the underlying dynamics for the per diem operations as well?

I'm still of that view, although, in in the most recent weeks we've seen a pick up for our per diem business. It's just, again, we're not, we're only in roughly 20 markets, so I would not view our per diem business as a window on the overall market, you know, that can be unique characteristics of the specific markets that we operate in, but we've seen some encouraging signs in recent weeks, but clearly when you look at the per diem business year-over-year versus the travel business year-over-year, per diem is weaker.

Thanks very much.

Okay, Matt. Thanks for calling in.

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

Hi. It's actually Chris Rigg for A J. Good morning, guys.

How are you?

Doing fine. I guess, most of my questions have actually been answered already, but, the one thing I would really love some color on is the fact that trends seem to be improving pretty significantly, but at this point, and you're obviously just comfortable, you know, providing guidance one quarter out. I was wondering if you could sort of provide us some color as to what's keeping you awake at night or what sort of concerns you so that you can't provide annual guidance at this point? You know, what, what is making you reluctant to do so?

I guess I'd, rather than a specific thing, I think we believe that the 13 week contract nature of our business really gives us very good revenue and gross profit visibility one quarter out, but beyond that, you have such key forecast drivers as nurse applicant activity, assignment renewal patterns, booking trends, these depend on many factors that are increasingly difficult to forecast the further out you go.

So we feel that rather than provide specific guidance beyond next quarter, we believe that our shareholders will benefit more by getting our views on the supply and demand dynamics of our market and the trends that we are seeing, which they can then use to develop their own longer term forecast.

Okay. I guess, then, going forward, do you think you, you probably would no longer issue annual guidance at any time or is it just sort of in the current environment you're in?

Well, I never say never but, we do not have any current plans to issue guidance beyond one quarter out.

Okay. Okay. And then the only other follow up I had is just, cash flow for the first half even if you exclude the liability charge looks like it was still down pretty substantially year-over-year. I was wondering if you could provide, you know, sort of a high level outlook, at least for the second half, to give us some idea as to where you think you might come out relative to the 2004 figure?

Let me first explain the kind of the first half of the year, cash flow performance and what really drives that. What really drives our cash flow comparisons is the change in the receivable days outstanding. At the end of the second quarter DSOs increased by three days as compared to year end, to 58 days, but to put that into perspective, 58 days is still within the normal range for us. DSOs generally range from mid-50s to the low 60s with high-end of the range typically occurring at year end. So, what was unusual was really the 55 days that we had at the, at year end 2004 which was 6 days lower than at year end 2003.

Now the impact on the cash flow is that you have the combined effect of a three-day year-over-year increase that we had in June, plus a six-day decrease at June 31, the combined impact of that is 9 DSO days, which translates into roughly $16 in the increase in the change in receivable and virtually -- and explains virtually all of the unfavorable year-over-year cash flow variance.

Just to clarify, Chris, Emil, was that six days variance was at December 31.

Right.

It's three days -- three day year-over-year at June 30. So, total of nine days.

Nine days, right.

So then, now as far as going forward, we don't provide cash flow guidance because of the difficult in predicting quarter-to-quarter changes in working capital, but while we don't provide any guidance, in a year when the working capital requirements are steady, we would expect our free cash flow per share to exceed our EPS due to the cash flow benefit that arises from the tax deductability of good will amortization.

And Chris, just as a follow up when we look at receivables , even though we've had a three-day run up year-over-year, from the end of the year to the mid-point, we've actually seen an improvement in the most bucket of receivables. So I would actually argue the receivables are a little higher quality than they were at the end of the year. But unfortunately, the increase in the most current receivables, then in particular the increase in the accrued and unbilled receivables, is what's driving, at the end of day, a less than robust cash flow for us. We don't think anything fundamentally is off the rails with our cash flow.

Okay. Thanks, a lot.

Okay, Chris.

Mr. Tim Janesky of Ryan Beck, you may ask your question.

Hey, Jim.

Yeah, good morning. Historically your customers in the seasonal market, such as Florida, would start to give you indications or even orders for seasonal business in the winter months. Can you give us an idea of what the trends are in the more seasonal markets?

Yeah, it's one of the more encouraging data points. We're getting positions earlier for the winter months and the start dates are sooner than they have been the last couple of years.

Okay. And so you would expect that year-over-year that that business could be or will be up?

Yes.

Okay. Follow up to the bill rate, you said in markets you're getting 5% plus increases. Can you give us what the company average is in the second quarter?

Well, again, that's, that's only for contracts that are re-negotiated, Jim, so it's -- I'm not sure if I answer the question -- for those that are re-negotiated, the average is about 5%.

Oh, I see. Okay.

Because we're not re-negotiating all the contracts, the answer I'd give you would be misleading because, you know, again, there -- I think the, I think the sequential improvement in bill rates that Emil talked about a little bit ago is a good indicator that the, the activity that we've seen in the first half is beginning to show up in higher bill rates and we do expect bill rates to improve roughly 1%, a little more than 1% sequentially.

Okay, so what you -- your comment about you're getting them in some markets, it is more that those are the ones that you're negotiating, well, I don't want to put words in your mouth. I guess the question is, on getting them, we're getting them where you're re-negotiating them, but you're not getting a push back, you know, in any substantial way when you do go forward with price increases?

I would understand characterize it that we don't get push back. But I would -- you know, it's a process that you go through with your client to give them information about what's happening nationally, what, what the client's bill rate, what wage rate to the nurse that implies and how that wage rate compares competitively with other hospitals, so I think as we go through that process we just see a greater willingness and acceptance on the part of the client to say, you know what, I understand and I agree with you that we need to have more than just a -- an inflationary increase for you to recapture your margin.

We would like to see our -- the wage rates you pay for nurses come to go our facility increase and therefore we're willing to give you an even greater increase.

Okay. All right. Thanks. That's very helpful.

And, and there's no -- again, no specific region. It's really -- I believe there are important data points in virtually all regions of the country, it's a national phenomenon, but I also there have been price decreases in the first half. I don't want to tell you that, you know, this is a ground swell and a, you know, title wave of price, but clearly it's moving in the right direction and it's really, as I look at the last -- in the context of the last three years, this is the best pricing environment we've seen in three years.

Okay. Thanks. And as a follow up to the question on the margins, I mean, do you see anything either structural or cyclical in your business or within the industry that would prevent margins from, at some point in time, getting back to historical highs of around 8.5% EBITDA margin level?

No, and I'd be disappointed if we can only get back to 8.5, Jim, I, you know, I think, historically, we did as high as 12 to 13%. That remains our target.

I meant recent historical. You're right, yeah, '03 they were that high.

If, if we, if we continue to move -- the momentum of this business continues to move in the right direction, we can argue with the pace of change, I mean, to be honest I'm a little disappointed given, you know, some of the positive data points that we see that, you know, we're not picking up a little bit faster but clearly we've done the right things, the business is moving in the right direction, the, the just the general morale and the sense of optimism is much higher internally today that, you know, again, the pace is what it is, but it's, it's moving in the right direction and overtime, it may be two years, it may be three years, we would expect to get back to historical margins the Company was able to achieve.

Okay. Thank you.

Mr. Bilal Basrai of Stanford Financial Group, you may ask your question.

Yeah, hi. I understand there was legislation passed in May, making it easier for foreign nurses to come to the United States and just wanted to know, is there anything that you and the Company are doing to bring these nurses over, and if you can give us an update on the international business?

Sure. Right now our international business is in the 1 to 2% range of our volume, Bilal. It's an organic effort we began in 2001. Unfortunately just as the demand environment was peaking, and so it -- that disrupted our opportunity to ramp that business up at a more aggressive rate. We believe, but we do believe going forward, it will be an important part of our growth and I would say an increasingly important part of our growth as the demand environment continues to firm and and the acceptance of hospitals for foreign trained nurses increases.

I don't think what happens in a specific state impacts the business nearly as much as the federal limits on the green cards that are issued and specifically the countries which limitations affect. That's something we continue to navigate. But having said that, I'm optimistic about our ability to recruit overseas. I think we have an experienced team and, and one that understands the vagaries of the markets that we recruit from and I think have, we've developed some important relationships in, in some countries of origin that give me confidence that international recruitment will be a much higher percentage of our business mix than it is today, sometime in the future.

Okay, and also in terms of your vendor management relationships, it looks as though a couple of quarters ago, maybe 10% of your staffing volume came from those relationships and maybe about 15 to 20% last quarter and can you tell us where it's at currently, and probably what you expect over the next couple of quarters or so?

Yeah, it is -- we, we continue to add what we view as important and very desirable vendor managed clients in, in the most recent quarter, the volume, and I, when I say the percent, it's the percent of our Cross Country staffing business mix, is in excess of 20% and approaching 25%, and as I've said in the past, 25% is kind of where we, we will take a deep breath and assess, you know, how successful we are in meeting the needs of our current vendor managed clients. We want to do a great job for them because we believe these clients will be an important competitive advantage in recruiting nurses to the Company, so we want to make sure we're really we continue to get the great referrals that we have from those clients. If, if we add more in the future, they will have to be compelling, I mean it'll have to be a REALLY attractive opportunity and again a facility that nurses -- it is a destination facility of nurses really -- they know the name of the facility, they want to go to that facility. So, I don't rule ought the possibility we will add more in the future, but I'm very pleased with the success of that program, our ability to execute on plan and deliver the kind of volumes that we targeted as we deployed the plan early on.

Okay, and in the human capital management business it looks as though rev-- margins were down slightly both year-over-year and sequentially as you mentioned and you mentioned some weakness in education business. Can you tell us a little about that? What cause that had and is there seasonality to that business?

The -- when we -- the education business, and again it's one of the more successful acquisitions that we've undertaken. It's a, it's a terrific business. Had a great quarter a year ago. What's driving the decline in margins primarily is, while we are able to successfully offer more seminars in the quarter, the average attendance per seminar was down and that average really is what drives the margins in that business, so we're working on identifying topics that will be able to garner and attract higher numbers of attendees.

If it will really easy there will there would be a lot of people in that business. I think we have an excellent management time and infrastructure to identify those programs and optimism that we will be able to achieve at that in the future. We were not able to achieve it in the second quarter and it's likely that the year-over-year performance in the third quarter will also be, be weaker.

Okay. Last question, bad debt was down, a decent amount, on absolute basis both sequential and year-over-year. Can you tell us what happened there?

As I said, when you look at the quality of the receivables, despite the increase in the data outstanding, there was an improvement and the, particularly the most age bucket which is reserved at the highest rate, so it -- by decreasing the amount of receivables in that significantly age bucket, we were able to take a, a lower reserve for bad debt in the quarter. Emil, I don't know if there's anything...?

I think Joe, you've emphasized the important thing is that the quality of the receivable's actually improved, even though the data outstanding went out. Our process is a combination of specific identification, and we really didn't have any, any major issues on that side, and we also look at the aging buckets and that's where the -- that's allowed us to book a relatively deminimus number in the second quarter.

All right. Thank you.

You're welcome Bilal.

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

Thanks. I may have missed it in your prepared remarks, but, you know, on the June conference call you mentioned bookings I think up 3% at that time, we're, you know, six, seven weeks from that period now. If you go out roughly the same distance, are bookings up at a higher percentage at this point?

So far in the third quarter they're essentially flat, Tobey. As I think I indicated, June was directionally weaker than the first couple of months of second quarter as we look at the pattern of the business and so far in the third quarter, first couple of weeks of July were not particularly strong. However, the last three weeks have been much more encouraging and the week we're currently in looks very strong. The bookings are, you know, kind of a function of the submission activity, the submission of applicants in the preceding week and early in the current week and that activity is very encouraging.

In talking about the vendor management relationships, just curious what the price increases look like in that subset of clients and given the fact that we're supply constrained, what is it, what is it like for you to be able to fill the -- and satisfy those clients needs? Just wondering if you could speak to that?

I would say we, we generally get high marks from the vendor managed clients, that we serve. The, you know, the effort has become more problematic. We're, we're pleased that we have a large number of subcontractors, competitors that we, we typically run up against that have agreed to work with us on a subcontractor relationship, so at the end of the day, we're able to meet those needs.

As I look directionally at the percent of fill rate that our nurses are filling, versus subcontractors, that number has trailed off a little bit in the last couple of quarters, and it's something that, you know, clearly we want to emphasize internally through our intentions, and when I look at the pricing and the margins of those contracts, they're, they're generally higher than the company average, and because we -- of the relationship and we're offering more service, which is why the margins are higher.

We're doing more for those clients than we would for a normal client. And because of the relationship and I believe the credibility and the trust that the clients have in us, the education process that I talked about before describing where they are in the market competitively with other hospitals in their own market or, as well as nationally, I think we've had pretty good success in, in getting those clients to give us the tools we need to be successful for them.

And is there a relationship between the increase in your recruiter head count and the gain in vendor management accounts or are some of those new people being focused on those accounts in an effort to bring up your fill rate of their needs?

No. It's a, it's just an increase in the capacity. We believe orders nationally are going unfilled today, and that if we put more experienced people on the phone with nurses we'll be able to fill more positions.

And lastly, I know cash flow is probably likely to be a little better here in the second half. Debt levels are, are still down and I know we heard from you in June, but, you know, any changes to what you think regarding uses of cash?

While we continue to evaluate the optimum use of our excess cash to build shareholder value and we continue to believe that a strategic acquisition at a reasonable price represents the best way to use our excess cash, but absent such acquisition our emphasis is likely to remain on accelerated debt repayments, which we view as giving us yet additional financial flexibility down the road. But, I would also not rule out share purchase if it's purchase is on an opportunistic basis.

We intend to remain disciplined in our share repurchase program. We did not repurchase any shares in the second quarter but we do have the aggressing authorization which still has just under a half a million shares left.

And could you refresh our -- my memory as to how many shares are currently in the hand of your private equity sponsors?

About 7 million, Tobey.

Thank you very much.

You're very welcome.

Mr. Joe Gagen [ph] with Atlantic Equity Research. You may ask your question.

Yes, hi, how are you doing. I have a couple of questions. The first question is around the visibility. I've been told that, for example, for new orders that it's only a one to two week period between when the nurse is ordered and when the nurse actually arrives at the site to start working, right? I've been told that by some who works in the industry and what's been described to me from various different companies that are in your space that it's three to five weeks.

And then another thing I've been told is that for the nurses that are out at the hospitals already working during their 13-week stints, that they decide to renew or the hospital decide to do renew them a month in advance, so I just want to wrap my arms around what truly is going on here in this industry around the visibility on those two buckets. First bucket being new orders for hospitals, second bucket being the renewals and I have a follow-up question.

Joe, there is a distribution to the nurses that we do book, in a given week. Some are going to start the following Monday, but the average for us is right around five weeks and that is, has been very consistent for a long period of time. It may swing plus or minus a week but not significantly from that number, and on the renewals, certainly we encourage a discussion with the hospital to renew as soon as possible. We start talking to the hospital a month into the contract to get them thinking about renewing the nurses and we're talking to the nurses about whether they're happy on the assignment. We typically give them four to six weeks because generally the first couple of weeks -- there's more they don't like about the assignment than they like but once they get comfortable in on area their mind set changes and the thought of not having to pack up and move to another facility becomes more and more attractive. So I think the, you know, when those conversations occur with the hospital and with the nurse may, may vary somewhat, but we -- from our perspective we want to know as soon as upon because that keeps our housing costs as low as possible, it allows to us give notice to our housing vendor that we intend to keep the lease open, month to month; I would say directionally our renewal rates are up and you know, that's again, another encouraging data point, but I don't have anything -- I am not sure if I am answering your question.

All right, all right, I have one other question in regard to this first question, and then I have another one, is that all right, so, if you could look at roughly approximately what percent of your revenues are for new orders for new placement in hospitals and what percentage are existing nurses opting to go reup or the hospitals opting to rehire them for an additional thirteen weeks?

We don't look at a renewal as an order. We, we look it as -- only, you know, the -- a new position as an order, so when we talk about open orders, we're talking about new positions.

Okay, but do you know what percentage of revenues are for extending the thirteen weeks compared to new orders.

I see. Renewals account for approximately 30% of the bookings.

Renewals are 30%. Okay. My other question is this. I am just trying get a general understanding of what really is transpiring in this industry.

In the first quarter your competitor and yourself were describing things getting really better, right, and the reasons given were because in the end of the year the employment situation and the hospital admissions were going to be the driving factors, right? Now, there's a different story, quote unquote story being told, the new story is that there's more openings in the healthcare industry and there's more attrition and we're getting away from the admissions, hospital admissions story because that seems to be not really valid because it was just flu related in the first quarter.

And then if, then if I combine that with the fact that if you really and also right now, now we're hearing stories about higher prices. right? So if I combine that with the fact that your revenues are really, you know, 158, 159, they're still at all time lows, so I'm trying to like equate, what's reality as far as things getting better?

Well, I'm, you know, I'm not sure I would characterize our story as changing and I'm up here looking at multiple data points that you've heard from various companies, but there are two things that influence our business. One is, is the level of patient admissions and probably more importantly, how those admissions compare to the expectations of the clients that we serve, if they come in if they're expecting only 1% increase in patient admissions they get 2%, that's very meaningful to us, if they're expecting 1% and get 0, that's a negative data point for us.

And then the other, the other important driver of demand is the willingness of nurses to work overtime, the willingness of older nurses to work full time hours as opposed to part-time hours or essentially retiring because it is a very physically demanding profession, so I think both of those factors will influence the business and when we look at kind of the reality of what's going on of the, you know, the public statements of, of the large chain, hospital chains out there, while admissions were stronger in the first quarter, they were not particularly strong in the second quarter and yet as we look at our business, demand increased from the second quarter into the from excuse me, the first quarter into the second quarter, so clearly to me I would like both to be moving in the right direction.

I think that'll be really helpful to the business, but I'll take either one because when we look at the guidance that we're offering, while the second quarter was [inaudible] of revenue, that sequentially we're up in the third quarter so I don't think it's necessarily consistent. I --we never suggested that this would be a hockey stick turn around, but we're pleased that we were finally able to stabilize the volume because as you go quarter to quarter, there's two things that influence the business. One is the number of nurses you have on contract coming off contract that can be renewed, and the other is how many new applicants are you adding that will be first time travelers in the subsequent quarter, so to stabilize the business, is important in order to create an environment in which momentum can begin to be positive.

Okay. Thank you.

Joe, let me just clarify the issue between first time travelers and travelers that are renewing. We -- at any one time the percentage of travelers that renew for up for, reup for another assignment for us approaches 70%, so.

All right, hold it, so, 70% of your existing travelers renew, for an additional 13 weeks?

On average. I mean that number can vary but it's a good good historical number.

That's within thirty days of contract ending.

So, if you look at our total weeks booked in any given week, roughly a corresponding percentage come from those renewals.

I'm sorry, what?

A corresponding percentage of our total bookings in any given week will come from renewals, in other words, 70%.

Right, but overall, if you looked at the revenues, only 30% of the revenues are from the renewals.

No, no, I'm sorry, that was 30% at the same facility. I think we're, we're answering two different questions.

Right.

Okay.

It depends on whether you're looking from a nurse's perspective or from the facility's perspective.

Okay, good. All right,, thank you.

[OPERATOR INSTRUCTIONS] Mr. Goldman, at this time there are no further questions.

Thank you, Martina, and thank you all for listening in to our second quarter call and we look forward to speaking to you again and updating you on the direction of the market for the third quarter. Thank you.