Cross Country Healthcare Inc (CCRN) 2005 Q3 法說會逐字稿

Welcome to the Cross Country Healthcare Earnings Conference for Third Quarter, 2005. (OPERATOR INSTRUCTIONS)At this time, I'd like to introduce your host for today's call, Mr. Howard Goldman, Director of Investor and Corporate Relations. Sir, you may begin.

Good morning, and thank you for listening 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 our third 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, suggests," and similar expressions are forward-looking statements. These statements 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 third quarter of 2005, as well as under the caption "Risk Factors" in our form 10K for the year ended December 31st, 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 third quarter of 2005 was $163 million, and our income from continuing operations was $5.2 million, or $0.16 per diluted share, roughly in line with year-ago performance. While the market for temporary nurse staffing has not returned to the high-growth environment that we saw from the mid 1990s through mid 2002, I am pleased that our performance in the third quarter improved sequentially. Moreover, I continue to be encouraged by the dynamics and direction of the current business environment.

Some of the more important metrics worth noting are, we are at the highest level of demand, as measured by open orders for contract nurses, that we've seen since 2001. We are in an improving pricing environment with year-over-year bill rates rising for the first time since late 2002. We're achieving increasing gross margins, with the third quarter up 150 basis points year-over-year, and we're experiencing higher applicant activity, with the third quarter up more than 10% year-over-year. I believe the only ingredient missing to drive meaningful growth in our staffing, volume, and profitability is a return to a higher trend line of in-patient hospital admissions growth. I believe the soft admissions trends have not allowed our contract bookings to maintain a consistent slope of growth, and even before Hurricane Wilma, we saw volatility in bookings week to week, despite rising order levels and applicant flow.

As noted in recent earnings calls, we continue to strive to increase our recruitment capacity in our travel staffing business to take advantage of an improving business environment. In the third quarter, we raised travel staffing recruitment headcount to 168, up from 154 at the end of the second quarter. So far this year, we have increased our net recruitment headcount in the travel staffing business by 25%. We believe more experienced recruitment capacity will be an important element in driving growth in what is increasingly a supply-constrained environment.

While supply will likely continue to increase in importance as we go forward, our relationships with our hospital customers will also remain a critical element of our success. I want to recognize our team for their excellent execution in our vendor management initiative. I believe today Cross Country is recognized by large users of outsource nursing services as the best vendor management solution. While we see competitors losing VMS contracts in an increasingly difficult recruitment environment, I believe our ability to execute and create value for the majority of customers we serve in this capacity to be at its highest level and increasing. I further believe these relationships with some of the most desirable hospitals throughout the country will be a compelling differentiator among companies for prospective nurse applicants going forward.

While our travel nurse staffing performance is still far from its potential, it is difficult for me not to be optimistic.

Looking at our non-nurse staffing businesses, we saw a continued positive performance during the third quarter. Our clinical trial staffing, retain, search, and education and training businesses each improved profitability from the year-ago quarter. We have been pleased with our success over the years in finding attractive acquisition opportunities at appropriate prices to expand our service offerings to our health care clients. We continue to look for additional opportunities to redeploy our strong free cash flow and acquisitions that present the potential for high returns on invested capital.

Now ,before handing the call over to Emil, I want to take a moment to expressly thank our employees for their effort and dedication to our Company during and following Hurricane Wilma. In what was the most significant storm in Palm Beach County in our operating history, I believe the impact on our business could have been more severe were it not for the actions of our employees at our Boca Raton headquarters and particularly at our back-up facilities in Waltham, Massachusetts, and Tampa, Florida. Their efforts allowed us to meet our commitments to the hospital clients we serve and the health care professionals we employ.

With that, I would like to now let Emil update you in more detail on our financial performance. Emil?

Thank you, Joe, and good morning, everyone. First I will go over the results for the third 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 third quarter revenue of $163 million, up 4/10 of 1% from the prior year quarter as adjusted for discontinued operations, and up 2.5% sequentially, reflecting stabilization in our core travel nurse staffing business.

Our gross profit margin was 23.3%, up 150 basis points from the prior-year quarter, and 360 basis points sequentially. The year-over-year margin improvement is due primarily to a widening in the [bold base] spread and lower insurance costs in our core travel nursing business, as well as a relatively higher mix of revenues from our other human capital management services businesses, which operate at higher gross profit margins than our staffing businesses.

The sequential improvement is due primarily to the $5.3 million pre-tax professional liability charge that we took in the second quarter.

SG&A expenses in the third quarter were up 9% from the prior year, and essentially flat sequentially. The year-over-year increase reflects the higher relative mix of non-staffing businesses, which operates with a higher overhead burden than our staffing businesses, as well as the investments we have made to increase our recruitment capacity that Joe referred to earlier.

Unallocated corporate G&A was up 21% over the prior year, and 2% sequentially. The year-over-year increase was due primarily to higher compensation and legal expenses.

Net interest expense was just under $1 million as compared to $1.1 million in the prior-year quarter, reflecting the delivering of our balance sheet, made possible by our strong operating cash flow, partially offset by higher interest rates.

Net income from continuing operations was $5.2 million, or $0.16 per diluted share, essentially unchanged from prior year. The third quarter EPS was at the upper end of the guidance range that we provided in August. Net income, including a $258,000 net loss from the discontinued, was $5 million, or $0.15 per diluted share. During the third quarter, we abandoned our efforts to sell the remaining consulting practice that was not sold in October, 2004, and shut it down.

Our balance sheet remains strong. We ended the quarter with a debt to total capital ratio of 8% and a current ratio of 2.1 to 1. DSOs were 59 days in the third quarter, up three days versus a year ago and one day as compared to the end of the second quarter. During the third quarter, we generated $11.2 million of cash from operating activities, of which $1.9 million was used for capital expenditures. We had $31.3 million of total debt outstanding at the end of the third quarter, a $7.1 million reduction from the end of the second quarter.

We also repurchased approximately 126,000 shares of our common stock during the quarter, at an average price of $18.61 per share. Under our current board authorization, we have purchased more 1.1 million shares at an average price of $14.28 per share. Under the remainder of the current $25 million authorization, we can purchase approximately 344,000 additional shares at an aggregate price not to exceed $8.5 million.

During the fourth quarter, we expect to conclude a refinancing of our credit facility with a new, $75 million revolver, with an incremental $50 million accordion feature. As a result of the refinancing, we expect to reduce our interest rate spread over LIBOR by 175 to 200 basis points. In conjunction with the refinancing, we also expect to take a $0.03 per share after-tax charge for the early extinguishment of debt, related to the prepayment of the existing credit facility. A closing of the refinancing is subject to certain conditions and there can be no assurances that those conditions will be met.

I'd like to drill down next on our two reporting segments, health care 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 third quarter, and the other human capital management services segment, which is comprised of our education and training and [inaudible] businesses.

Revenue for the health care staffing segment was $150.8 million, down 6/10 of 1% on a year-over-year basis, but up 2.5% on a sequential basis. We averaged 5,574 field FTEs in the third quarter, 1% below prior year but up slightly sequentially. The average revenue per FTE per week was up 7/10 of 1% versus prior year, and 2.2% sequentially. The sequential increase is partly due to one more day in the third quarter, as compared to the second quarter, with the remainder due to higher bill rates. Mobile contracts for the nurses on the hospital's payroll accounted for approximately 1% of our segment volume, down slightly from approximately 2% a year ago.

Healthcare staffing contribution income, as defined in our press release, was $16 million in the third quarter, as compared to $15.3 million a year ago. Segment contribution margin was 10.6%, up 50 basis points versus prior year, reflecting an improvement in the gross profit margin due primarily to a widening of the [inaudible] base spread in our core nurse staffing business, as well as lower insurance expenses.

Turning now to the other human capital management services segment, third quarter revenue was $11.7 million, up 14% from the prior year. Segment contribution income was $2.2 million, up 60% from the prior year. Both our retained search and our education and training businesses registered strong revenue and earnings growth.

This brings me to our guidance for the fourth quarter and full year 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, or pending legal matters.

Booking activity was up 3% in the third quarter versus a comparable prior-year period, but so far in the fourth quarter bookings have been adversely impacted by the loss of productivity resulting from Hurricane Wilma. Based on these booking trends, we project the average field FTE count in the fourth quarter to be in the 5,500 to 5,600 range. We expect average staffing revenues per FTE per week to be essentially flat on a sequential basis, as the effects of bill rate increases will be offset by a higher percentage of revenues coming from Sun Belt states, where bill and pay rates are typically below the national average. Revenue for the fourth quarter is expected to be in the $160 million to $163 million range. Revenue from continuing operations for the full year 2005 is expected to be in the range of $640 million to $643 million range. We expect our gross profit margin to be approximately 23.5% in the fourth quarter, or about 20 basis points higher than in the third quarter. SG&A expenses are expected to be flat to slightly up from the third quarter. We estimate the impact of Hurricane Wilma on fourth quarter revenue to be approximately $2 million, and the earnings impact to be approximately $0.01 per diluted share. As I indicted earlier, we expect to incur a $0.03 per share charge during the fourth quarter for the early extinguishment of debt related to the refinancing of our senior debt facility. EPS per diluted share from continuing operations, including the impact of the hurricane, but excluding the charge related to the early extinguishment of debt, is expected to be in the $0.15 to $0.17 range. This would bring full-year 2005 EPS from continuing operations to be in the $0.47 to $0.49 range, which includes the $0.10 per share charge for professional liability that we took in the second quarter.

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.

q-and-a

[Operator Instructions] Jeff Silver, Harris Nesbitt.

I know you talked about the impact of Hurricane Wilma on your business. Was there any impact before that, in terms of last quarter, with the other hurricanes, with Rita and Katrina, specifically?

Not-- if there was, Jeff, they've kind of washed the positives and the negatives. We had a handful of nurses in the New Orleans area that were redeployed. We had more in the Houston area, but Houston wasn't impacted like New Orleans was. We did see an offsetting benefit of nurses in the Louisiana market looking to leave the state and find employment outside the state. We definitely saw a disproportionate number of nurses coming to us from that state, so kind of on balance, I would say if it was an impact from those storms, it was mitigated by whatever positives that came out of it.

OK, so based on that, the FTEs that you reported in the third quarter was a little bit below the guidance that you provided us. I'm just curious, was there any specific reason that caused that?

Well, Jeff, let me try to address that. When we provide our volume guidance, we rely primarily on bookings as an indication of next quarter's volume. The one part that's a little difficult for us to predict is the per diem volumes, and when we look at our volumes in the third quarter, our per diem business was softer than we anticipated. Per diem accounts for roughly 10% of our total volume, and it was down roughly 11% on a year-over-year basis, so had it not been for the shortfall on the per diem side, it would have come in someplace closer than the mid-point of our guidance range. As it is, we came in slightly half a percent below the low end of our guidance range.

Is there any specific reason you can attribute the downtake in the per diem business?

I think the per diem business is probably even more adversely impacted by soft admissions in hospitals. It could also be very much market-specific. We just may have per diem rents to markets that are relatively weak, but unlike the travel business, where the decision to book a nurse is more of a long-term decision, the decision to employ a per diem nurse can be made at the last minute. So your admission trends, your patient senses is soft, you're likely to use less per diem nurses than you would otherwise,.

Okay, that's fair enough. Just one more and I'll let somebody else jump on. I know you're not getting any guidance beyond the current quarter, but I'm just curious, right now, are the trends you're seeing going into 2006 the typical seasonal trends that we should be expecting to be seeing, and if you could just kind of remind us what those are?

Yes, Jeff. Historically, if you go back fourth quarter and first quarter were generally the peak of volume, and you saw a ramp-up of order activity from hospitals in particularly the Florida and Arizona markets beginning in the summer, and this period that we've just been through is probably the first time we've seen that historically normal pattern occur in the last certainly three years, so that's the good news. I think as we head into the first quarter, we are above the target of open orders that we had as enter this year, so we're encouraged by that. And historically, Jeff, I know we talked about orders don't drive revenue -- only bookings drive revenue. Having said that, nothing correlates more to volume historically than do open orders. So we feel that specific metric is encouraging as we head into what would be a seasonally strong period for us.

Okay. Thank you for the color.

Thank you. Our next question comes from A. J. Rice, Merrill Lynch.

Hi. Just a couple of things and maybe I'll come back to that guidance question. The DSOs being up year-to-year three days and up one day sequentially, is that just a normal ebb and flow, or is there any dynamic going on there that's worth talking about for a minute?

I think it's more the former than the latter. I mean, the increase in DSOs, it's not attributable specifically to any one account or any one region in the country. I mean, to put it into perspective, the 59 days is within the normal range for us, as our DSOs typically fluctuate between the mid-50s to the low 60s. Fifty-nine is clearly higher than we would like it to be. Our target is around 55, but it's not alarmingly so. We are focused on reducing our DSOs, and we made significant progress in collecting sort of older receivables in October. So looking forward to year-end, we normally will expect an increase in DSOs at year end versus the third quarter, but that's just a normal seasonal increase.

Okay. I think in your prepared comments you mentioned that you felt like, particularly, I guess, with the comprehensive programs you're picking up share. I don't know whether you'd say the same for your outright travel nursing portfolio, but I know, for example, in Telestaff, a major player is having some issues. There has been some consolidation away from you. Could you just sort of comment on the competitive landscape and flush that out a little bit more where you think you might be picking up some share, if you are?

Well, at the accounts where we serve as a vendor manager, there is no question we've picked up share. Typically, these are very large users of travel nursing services. When I look at our performance against some of the public players, particularly on the travel nursing side, I don't see significant change in market share. I will tell you, A. J., given just in the context of the comments I just made to Jeff, we feel volume will ultimately flow from the increase and even significant increase in orders that we've seen this year. In the short-term, however, and this management team has prioritized margin improvement. We think it's the lowest hanging fruit to profitability improvement. As we are able to increase prices, we've been able to shore up the bill pay spread and recapture some of the margin we've lost over the last several years. And we continue to be focused on that. As a result, it is likely that we do lose some competitive battles for nurses at certain accounts where we're not the exclusive provider.

So, I don't -- market share is important to us, A. J. I don't want to say it's not, but in the short-term, margin improvement is what we're most focused on. We think the largest, particularly the two largest players in the industry will get disproportionate market share improvement as the business continues to ramp up just because of the vendor consolidation that's occurred in most of the accounts that use travel nursing services. Again, we're not really focused on it. We certainly haven't lost share, but we don't think we're picking up significant amounts of share.

Right. Okay. My last question, just to try to come back to that question of [inaudible] beyond the fourth quarter. I know you formally don't give your guidance for quite a while for '06, but if we're to take your guidance from the fourth quarter and annualize that, for lack of a better thing to do, it looks like you're suggesting you would expect to end the year with a run rate of earnings of $0.65 to $0.70 annualized basis. Can you just sort of at a high level give us some feel for -- would it be appropriate to think of that at the annualized earnings base going into next year, and then to project I guess with the rebounding market some level of growth off of that? Is there any chance that you would give us some sense of what type of growth off of that base, if you're comfortable with that base, that we should be looking for?

I'm going to answer that, A. J., because if Emil did it, it would sound like guidance, and it's not our intention to provide guidance for the full year of '06. But I would say conceptually, a couple of points on what you just raised. Typically, the first quarter of the year is sequentially weaker from an EPS standpoint in the fourth quarter, all other things equal. Generally, the volume in the first quarter looks a lot like the volume in the fourth quarter. Just because you're resetting payroll taxes, you have more in efficiency and housing, and there are less days in the first quarter than there is in the fourth quarter. Having said that, this business generally is a momentum business. It's not an equilibrium business. It's either getting better or it's getting worse. I believe it's getting better and therefore we would expect some kind of sequential improvement in EPS at some level in the fourth quarter. Again, at a high level we have -- I guess I don't want Emil to comment on this, but I think that's a fair comment. I believe it's getting better and therefore I believe after the first quarter we should see improvement in EPS.

Okay, that's great. Thanks a lot.

Thank you. Our next question comes from Toby Summer, SunTrust Robinson Humphrey.

Hi. Good morning. I had a couple of questions. One, in the past you had given a metric or expression of open orders per nurse on assignment ratio. I was wondering where it stands currently and maybe compare it to the trough and the peak of the last cycle?

It's close to 10 times overhang right now, Toby, which is high by historical standards. Some of it's good news, some of it's bad news. The volume of nurses coming off contract is lower than it was at its peak, and certainly the physicians are still well below where they were at their peak, but there's a significant overhang of demand in the market right now, which is contributing to the, like I said, some of the positive metrics, the pricing improvement. We ultimately -- I think we talked about it in our last call, pricing has actually improved during the year, so we came in hoping for a 1 to 3% price improvement. We're seeing in the contracts we're re-negotiating generally more substantial price improvement than that. So ultimately in that kind of range we would expect to improve nurse wages, which we think will be certainly an asset in trying to recruit nurses to us. So I hope that gives you some color on what you're looking for.

Where do things kind of bottom out as an expression of that same kind of ratio?

Closer to 2 to 1, and maybe even a little less than that. It never got down to 1 to 1, but it was alarmingly close.

Okay. And then you referred to rising nurse wages, and I'm going to try to frame a question that will -- what is the difference between the wages being paid in your highest bill rate accounts versus our average bill rate account? I'm just trying to get an estimation of kind of how much more some of your nurses are making versus average nurses?

That's a very interesting -- I don't have that statistic right in front of me, Toby, but if you'll give me some license, the variance is probably on the order of $10 per hour.

And is it fair to say that the higher paid nurses are probably working for accounts that you've recently gained a bill rate increase?

Not necessarily. Some accounts wanted to remain competitive throughout. Generally, the highest paying accounts are in California or the Northeast. Historically, those tend to be higher wage areas of the country, and the lower paying accounts are some of the larger users that have had more leverage in the down cycle. A lot of them -- a lot of the larger users are re-thinking their strategy and you're seeing some pretty significant increases from customers that have more leverage in the down cycle. So the reality is I believe that spread is shrinking, but I don't think it's only because we've just recently renegotiated the contract. It's certainly a factor and historically the highest paying contracts, the most recent ones are re-negotiated. I think that's -- there's certainly an element of truth in that, but it's not the only factor.

Sure. And if you were to adjust for geography and size of customer, would you guess that your more recent contracts, the nurses working on those are making a couple bucks more an hour?

Yes, I think that's a fair statement.

Okay. And then could you --

At least a dollar more, Toby. I don't want to -- margin recovery first. I mean, that is part of the discussion we're having with our clients, that we know you want us to be focused on you, and part of being focused on you is allowing us to make a decent amount of money on the transaction. But there are some accounts where we've increased several dollars.

Okay. Could you characterize what the environment is like regarding signing bonuses and retention bonuses to sign up the same nurse at the same hospital?

I don't see a lot of retention bonuses from hospital. I mean, I'm sure it's occurring, I don't think it's a macro trend. I do think you're seeing hospitals coming back to signing bonuses, that hospitals that haven't really offered them for several years now, are getting more focused on recruiting nurses, particularly full-time nurses. It is a dynamic -- probably what I see the most of, Toby, are what we call hospital sponsored bonuses, where the hospital says okay, here's what I'm going to pay you, but I'd like to pay your nurses $1,000 to $2,000 for a 13-week contract. It's always kind of a step in an improving pricing environment, and really what they're trying to do is make sure we don't make any margin on the incremental amount, and ultimately we certainly will pass it on to the nurse, but as part of the discussion going forward is that it's great for the nurses, but, again, we want to make money and we want to focus on you as an important client, and we need to have a decent gross margin to do that. But we are seeing more of those hospital-sponsored bonuses today than we did a year ago.

I'll ask two more questions and I'll get back in the queue. Should we -- I was wondering if there has been any variation in average number of hours the nurses had been working per week, and then I was wondering if you could comment on retention rates. Thank you.

Toby, the average number of hours has been remarkably consistent over prior years, and I would say that our retention rate has shown improvement in the recent quarter.

The third quarter was actually a good number by historical standards, Toby. It was over 70%. I will tell you, October directionally has been a weaker month. We think, again, as I said in my prepared comments that the one factor that really isn't going our way, I believe, and I don't have a strong, again, global statistic to support it, but the hospital census also drives our business, not just nursing turnover, and I didn't see the same strength in renewals in October that I did see in the third quarter.

Thank you very much.

Our next question Gi Val (ph) for [inaudible].

Hi. This is G. Val from Citigroup. A couple of questions here. I just wanted to circle back with your last comment about hospital admissions and the impact on your business, because what I'm confused about is, it sounded like the challenge of the business is still on the supply side, but then you said you want -- you would hope that admissions trend would be stronger in the hospital. So should we draw the conclusion that the correlation is between hospital admissions in terms of correlation between volume?

Yes. I think you shouldn't exclude that factor as being an important issue to this business. Again, it's not the only factor. I think turnover in nursing positions, which we believe has increased sequentially during the course of 2005 is probably what is influencing the dynamics of the market that I talked about earlier. But I don't believe we've seen any kind of upside surprises in admissions which generally gooses up or even can supercharge the sense of urgency that the hospital has, our customers have in booking the applicants that we do send to them.

In the reverse, if admissions come in a little lighter in the short-term than they were anticipating in the seasonal market or any other market, we may see our applicants sit on the desk of our customers without any action in a positive or negative, and that's not a good environment for us. This is a time-sensitive, perishable transaction that if we send applicants, that nurse may be talking to another company, and they may be submitted at a client that has a higher sense of urgency. So that's not a good dynamic for us, and I think that dynamic exists today, Gi, so it's not -- As you can see from our results in our guidance, it's not a steep inflexion that we're engaging in. While we're more optimistic and we're pretty confident that volume is going to increase, it's a little frustrating the pace of improvement that we're seeing.

Okay. And, secondly, can you just give more color in terms of the 10% increase in the number of applicants, and are you seeing some new supply in the market, or are you seeing some people who left two years ago coming back? Maybe just give some more color there and how is it compared to recent trends?

More the former, Gi. I mean, well, I know a lot has been said about the increase in enrollments in nursing programs that may negatively impact our business. It actually, when you correlate our applicant activity to graduations from nursing programs, it's actually a very strong positive correlation. So we think it's a real good thing that we're seeing more graduations from nursing schools, and probably the most significant factor in us getting more nurse applicants, they are new nurses with a year experience in the industry interested in seeing different parts of the country.

Okay, last question on the pricing side. The guidance for the fourth quarter has some impact in terms of a makeshift that reduces the comparison. Can you give me a sense of what would be a pricing comp for the fourth quarter before the mix, the makeshift impact?

Gi, what we are seeing is that our fundamental pricing -- when the contracts that we're negotiating are in the mid-single digits on average, but at any one time we already negotiate a portion of our contract kind of on a rolling basis, so we figure any given quarter we may renegotiate a quarter of our contract. So based on that, normally you would expect something between a 1 to 1.5% sequential increase. However, that increase is being offset by a change in mix to where the [inaudible] stays where the average pricing is lower.

Okay, great. Thanks.

(OPERATOR INSTRUCTIONS) We have a follow-up question.

Thanks. I was wondering if we could talk a little bit about California. If I remember correctly, you get about 20% or so of your volume on the travel side from California. I know it's been a very hot state because of the change in laws over there, but now that we're starting to anniversary some of that stuff, is California still a very hot market for you?

Well it's still the largest market. It is -- in the most recent months, the volume of nurses working in California is up year-over-year, so that's great. Having said that, it's not up as much either in absolute terms particularly with Florida or in percent terms with Florida. And Florida historically has been a more -- a state where we have higher market share, where we tend to be a more dominant provider. The activity in Florida is up very significantly year-over-year. We're still well below where we were at the peak, but it is absolutely moving in the right direction. That's probably more important to us, Jeff.

Okay, great. At the beginning of your remarks, you talked about potential acquisitions. I know some of the other companies in the states have brought them out into the locum tenens area. I was wondering if we could just get your thoughts about that business? Would that be the type of business you might be interested in entering?

Yes. I think we've said in prior calls that we view physician staffing as a like business. It's a very different dynamic. It's not something we'd enter organically. We would enter through an acquisition. I guess our issue has been as we've looked at potential acquisition candidates in that space that the price expectations are very high and it is difficult for us to meet our return objectives when we model out the business. It's not just about the business being accretive; we want to make sure we're employing our capital at higher rates of return than our cost to capital, and if we don't have a high level of confidence we can do that in a normal environment, then we're not going to make an acquisition, and so far that's been our experience.

Okay, great. And one more question about JCAHO certification. Have you found that certification helps you in negotiations with customers, maybe even attracting new customers?

Directionally yes, but I would say it's a very small factor right now. I think the hospitals are still digesting what it means, which of their vendors, now that we've gone through one annual cycle, have been able to become Joint Commission certified. Most of the major players in the industry are certified at this point. So I would say it's something we feel we have to do. We think long-term it becomes -- as the hospitals understand it and what the value is to them during an accreditation review by JCAHO, it will become more important, but today it's not a big driver in the business.

Okay, great. Thanks again.

I have a follow-up question from Toby Summer, SunTrust Robinson Humphrey.

Thanks. I was wondering, Emil, if you could give us the share, the current share count?

On a fully diluted basis, it's approximate 32.9 million.

Okay. And then, Joe, I was wondering what the local nurse market looks like? I know at the peak you were getting a decent slice of your volume from nurses who were working a little closer to home, and I was wondering if you could give us a little color as to what that looks like currently?

It's improving. It's well below where it was at the peak. Again, you have to have a very significant overhang, and we talked about what the overhang is today to give those nurses confidence that they'll be able to find jobs close to their home consistently. So I think we're improving in our ability to offer that, and improving in our ability to get those nurses to the psychological point where they accept us as a full-time employer.

Is there any difference in pay rates for those as opposed to your other travelers?

No.

And then just a little color on the strength that you commented on in the Florida market. Is that a function perhaps despite Wilma of more of the snowbird population heading to Florida given that there were fewer hurricanes in Florida this season than last?

I haven't heard that. I just think more of the hospitals were -- a lot of the orders came in before hurricane season kind of hits its peak in August-September. Generally, by October you're not anticipating a significant storm. That's why this one was so much of a disappointment to us and somewhat of a surprise. I just think it's more of a function -- it's more and more difficult for hospitals to get the nurses they need. We had strength in orders in the summer in Florida, much more so than [inaudible], so it's not just the snowbird population is more committed to coming down; I think it's also just the fundamental environment down here is improving.

I was wondering if you could share with us what your estimated productivity was -- how many days you may have lost last year because of hurricanes, and maybe characterize what the difference would have been this year?

That's a great question. A year ago, the office was never closed. We never lost power. The office is strategically located very close to an important substation, that's why we like it here. We had minor fluctuations in power during Francis and Jean last year, which hit us pretty hard, but the office was open for business a all times to our employees. Having said that, when a hurricane is coming, there is kind of a week of frantic activity, of people putting up hurricane shutters. If you've ever done that, it's -- it takes forever. It's brutally destructive to your finger joints, which makes it difficult to type. But we never -- we didn't experience what we did this year, which was a full shutdown. Even this week we do have power. We obtained a generator, but happily the power was restored to the building, so we were open as of Sunday. We still have schools closed in most areas in Palm Beach and Broward County, where most of our employees live, so we're not at full throttle, but it is far superior this week as opposed to last week, where 60 to 65% of the employees generating more than half our revenue were unable to access systems, phone lines, etc. So it was much more destructive this year than last year.

Thank you very much.

I am showing no further questions.

Okay. If there are no further questions, I just want to thank everyone for participating in the call and joining us this morning. We'll look forward to updating you on our fourth quarter results in the new year. Take care.