Cross Country Healthcare Inc (CCRN) 2006 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Cross Country Healthcare first quarter 2006 earnings conference call. (OPERATOR INSTRUCTIONS). I will now turn the call over to Mr. Goldman, Director of Investor and Corporate Relations. Thank you. 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 first quarter 2006 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. Briefly information for this call is also provided in our press release.

Before we begin, I would 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 involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.

These factors were set forth under the forward-looking statements section of our press release for the first quarter of 2006, as well as under the caption, Risk Factors, in our Form 10-K for the year ended December 31, 2005.

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.

Now I will turn the call over to Joe.

Thank you to everyone listening in for your continued interest in Cross Country Healthcare. As reported in our press release issued last evening, our revenue for the first quarter of 2006 was $160 million, up 1% from the same quarter a year ago. And our net income was 4.6 million or $0.14 per diluted share, which represented a 26% improvement from a year ago. Overall cash flow was strong in the first quarter at 10.2 million as we experienced the normal seasonal unwinding following the year-end run-up in receivables outstanding.

I'm pleased with the growth in revenue and earnings that we experienced in the first quarter, along with the strong cash flow that we generated. The driver of the positive momentum in demand that we see continues to be more favorable dynamics in the nurse labor market. However, the resumption of more robust growth rates in our industry has not yet occurred. We believe the primary reason is the continuation of weak admissions patterns at acute care hospitals in the first quarter that reflected an extremely weak flu season this year, which weighed against the improvements we have seen in the nurse labor market.

As a result, we caution investors that the return to the more attractive growth rates we saw in our business in the late 1990s and the first two years of this decade will likely have to await the resumption of stronger hospital admissions growth, reflecting this country's aging population.

In the meantime, we remain focused on taking advantage of the current operating environment to improve our gross margins. We feel this is the most efficient means of improving profitability in the near term, and should allow us to report positive earnings momentum this year for the first time since 2002.

Focusing back on the first quarter, there were some noteworthy results which included bill rates as measured by revenue per hour in our core travel nursing business increased by 4% year-over-year, continuing the favorable trends in this metric. Historically higher pricing has been a leading indicator of the next upward cycle for the travel nurse staffing business.

Our gross margin as a percent of revenue was up 160 basis points in the first quarter in comparison to the prior year quarter. And we secured an additional large vendor managed account in the Northeast that will further enhance our competitive position in that market. We continue to believe in this strategy, and see a number of additional opportunities for us to sustain gradual growth in our vendor management program, given the success we have achieved in serving our existing clients.

Turning to our non-nurse staffing business, our retained search business experienced strong growth in the first quarter, while our allied health, education, and clinical trials staffing business were flat to somewhat weaker in the first quarter compared to the prior year quarter. However, we remain confident in all these businesses and expect to see resumed growth in the second half of this year.

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

Good morning everyone. First I will go over the results for the first quarter, and then review our revenue and earnings guidance that we provided in last night's press release. As Joe indicated, consolidated revenue came in at the upper end of our guidance range at $160 million, up approximately 1% from the prior year quarter, reflecting improvement in our core travel staffing and retained search businesses, partially offset by lower revenue in our clinical trials staffing, per diem staffing and education businesses. On a sequential basis, revenue declined by 2%, reflecting two fewer days in the first quarter as compared to the fourth quarter.

Our gross profit margin was 23.4%, up 160 basis points from the prior year quarter, and down only 10 basis points sequentially, despite the normal unfavorable seasonal factors associated with the first quarter.

The year-over-year margin improvement is due to lower insurance expenses and a widening of the bill pay spread in our travel staffing business, as well as a higher mix of other human capital management businesses which operate at higher gross profit margins than our staffing businesses.

SG&A expenses in the first quarter represented 17.6% of revenues as compared to 16.1% in the prior year, reflecting primarily the aforementioned higher mix of other human capital management businesses, which operates with higher SG&A burden than our staffing businesses, as well as higher corporate legal and compensation expenses.

Net interest expense was $386,000, down 58% from the prior year quarter, and down 39% sequentially, reflecting the further delevering of our balance sheet made possible by our strong operating cash flow, and lower interest rates resulting from the debt refinancing that occurred in November.

Income from operations was $7.7 million, up 7% from the prior year. The current quarter included a minor gain from the discontinued consulting business as collections from remaining outstanding invoices exceeded our expectations. Net income was 4.6 million, up 26% from the prior year. EPS per diluted share was $0.14, which is at the upper end of the guidance range that we provided in February.

Our balance sheet remains strong. We ended the quarter with a debt to total capital ratio of 4.5%, and a current ratio of 2.1 to 1. DSOs at the end of the first quarter were 58 days, down 3 days from year-end. We generated $10.2 million of cash from operating activities during the first quarter, of which 1.5 million was used for capital expenditures. We had $18.7 million of total debt outstanding at the end of the quarter, a 6.7 million reduction from the end of 2005.

We also repurchased approximately 39,000 shares of our common stock during the quarter at an average cost of $17.31 per share. Under our current Board authorization we have purchased approximately 1.3 million shares at an average cost of $14.66 per share. Under the remainder of the current $25 million authorization we can purchase approximately 195,000 additional shares at an aggregate cost not to exceed $5.9 million.

As we 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 92% of revenue in the first quarter, and the other Human Capital Management Services segment, which is comprised of our education and training, and retained search businesses.

Revenue for the Healthcare Staffing segment was essentially flat versus the prior year at $147.6 million. We averaged 5,426 fields FTEs in the first quarter, down 3% versus the prior year, and down 2% sequentially. The year-over-year decline in field FTEs was mostly attributable to our clinical trials and per diem staffing businesses. The sequential volume decline is due primarily to the disruption to production during the fourth quarter caused by Hurricane Wilma.

The average revenue per FTE per week was up 3% versus prior year, reflecting the improved pricing environment in our core travel nursing business. Mobile contracts where the nurse is on the hospital's payroll accounted for approximately 1% of our segment volume, both in the current quarter and in the prior year quarter.

Healthcare Staffing contribution income as defined in our press release was $13.9 million in the first quarter, up 12% compared to prior year, but down 17% sequentially. The sequential decline is due to seasonal factors relating to the resettled payroll taxes and two less billing days in the first quarter as compared to the fourth quarter. Segment contribution margin was 9.4%, up 100 basis points versus the prior year, reflecting an improvement in the gross profit margin due primarily to lower insurance costs and a widening of the bill pay spread in our core travel nurse staffing business, and were partially offset by higher housing expenses.

Turning now to the Other Human Capital Management Services segment, first quarter revenue was $12.2 million, up 9% both on a year-over-year and sequential basis. Segment contribution income was $2.6 million, up 26% from the prior year, and up 47% sequentially. The improvement in revenue and contribution income was due to strong placement activity in our retained search business.

This brings me to our guidance for the second quarter of 2006. 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 in the first quarter was down approximately 1% from the prior year, reflecting continued weakness in hospital admissions. Based on these booking trends, and consistent with seasonal patterns, we project the average field FTE count in the second quarter of 2006 to be in the 5,300 to 5,400 range. We expect average staffing revenue per FTE per week to be up approximately 4% on a year-over-year basis. Revenue for the second quarter is expected to be in the 159 to $161.5 million range.

We expect our gross profit margin to be in the 23 to 24% range in the second quarter, with continued improvement in the bill pay spread and lower payroll taxes, partially offset by higher housing and insurance expenses as compared to the first quarter.

SG&A expenses are expected to be essentially flat on a sequential basis. We expect a 20 to 25% sequential reduction in interest expense in the second quarter, reflecting further debt reduction made possible by our strong cash flow. EPS per diluted share is expected to be in the $0.13 to $0.15 range.

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

(OPERATOR INSTRUCTIONS). Jim Janesky from Ryan Beck & Co.

A couple of questions. Can you drill down a little bit more into the SG&A line, what -- say how much of the higher-than-expected number came from the mix of business versus legal and compensation expenses? And I assume that you're not expecting -- if you're expecting flat SG&A in the second quarter that you expect that some of these trends at least are going to go on at least for another quarter. If you could just give us a little color around that please.

First of all let me preface that. Really the increase in SG&A was kind of baked into our expectations and in the guidance that we provided last February. But to parse it between its components, the relative mix of staffing versus other human capital businesses account for roughly 15% of the year-over-year increase. The remainder is primarily timing of certain legal expenses. As we have disclosed previously, we have a number of lawsuits, a couple of class-action lawsuits, were the activity in the first half of this year is expected to ramp up. And we expect to have higher than normal legal expenses, both in Q1 and in Q2. We also had somewhat higher compensation expenses that -- primarily inflationary in nature.

Would you expect more leverage in the second half of the year possibly?

It is kind of hard to predict how these legal cases will evolve, but we do believe that the bulk of the depositions will occur in the first half of the year. So by the second half of the year we should have some upside on the SG&A line.

Okay, thanks. Shifting a bit towards the -- we've had a pretty consistent increase in bill rates now. Some competitors have said that they really kind of kicked in the December timeframe. I have heard some other folks talk about how it was more towards the middle or the fall of last year that the bill rate increases became sticky. What would -- at what timeframe do you expect that supply can be pulled into the industry following an increase of bill rates now for at least a couple of quarters?

It is a great question. When we look at a high level, the metrics that we think correlate to increases in applicant activity for us, they seem to be pretty well aligned. We are seeing modest inflation in wage rates. We are able to pay more because we're able to bill more. We also see a pretty substantial uptick in new nurse graduates. As they get a year experience under their belts, we would expect to see more and more willing and able to enter the travel staffing model.

Unfortunately, really since the fourth quarter -- I would say subsequent to October last year -- we have not seen any growth in applicant activity. And in fact our applicant activity has been modestly negative for the last five, six months. I'm not sure I can completely explain it. I don't want to blame everything bad that happens to us on the hurricanes that we saw at the end of last year. But it did seem to drop off. We are up close to 20% year-over-year in applicant activity for most of 2005. And really since October of 2005 it has been negative. There may be other factors going on, but the timing just seems to be quite coincident with the very dramatic weather patterns that we saw late last year.

And I believe over time that higher wages and more nurses with the right kind of demographic profile will drive applicant activity. We just haven't seen it so far. When I look at the pattern this year it is improving from January through April, but it is not positive. I don't want to give you -- set your expectation that it is an imminent and rapid increase in applicant activity that we are expecting. We believe it is coming, we just haven't seen it yet.

Just a final question. Stock repurchase, you still have quite a bit left. At 17.30 was roughly the average price. I assume anywhere around that area you would be buying back again and making a decision on cash flow between debt repurchase and stock buyback in the current quarter?

I think we have tried to be opportunistic in our repurchases. I think it is reflected in the average repurchase price to date -- repurchase cost. And even when this authorization is concluded, we would plan to go to the Board for another authorization. And while we can't predict how they would receive that, we believe they would be receptive to putting in place an additional stock repurchase. Again, given the relative stability in the market and our strong cash flow generating capability, we don't see a reason why we wouldn't want to do that.

Having said that, our first choice is clearly to make an acquisition that would generate a higher return on capital, and allow us to show a little more accretion. And we have had some -- we're encouraged in that respect. We do have a letter of intent out with one acquisition as we speak in the $20 million revenue range. That I think would be reflective of the kind of discipline that we have showed historically in the acquisitions that we've made.

Tobey Sommer from SunTrust Robinson.

This is Mike Pitt sitting in for Toby this morning. A couple of quick questions for you. First one on -- it looks like on the bad debt expense that reversed itself in this quarter, could you just give a little bit more color around that? Are you guys collecting a little bit better than anticipated?

Sure. I think that's exactly it. When we determined our bad debt allowance using a combination of specific identification of doubtful accounts, in conjunction with analytical methods where we accrue specific percentages for different aging category, this quarter we had slightly negative expense related to the collection of certain older receivables that were previously reserved against under the specific identification method. At the same time our DSOs have also dropped during the quarter by three days since year end. So our collections have been relatively strong in the quarter.

Another question. Could you touch on the per diem side, maybe give us a sense on how that -- I know it is a small part of the business, maybe how that performed throughout the quarter?

It is the laggard of our business mix right now. It is clearly underperforming. The travel business down, order of magnitude 10% year-over-year. Flat to slightly down pricing, which is reflective of a change in the mix to a higher percentage of lower skilled professionals in that segment. When we speak to the management of that business they are more encouraged than we are looking at a high-level at the metrics of the business. They believe that the business is improving, is firming as we speak. And they're optimistic about the second half. We're probably a little more cautious. We just think it is going to take a little longer for that business to come around. But if they're right, that would be great.

And then on the clinical trial side of the business, I think we have heard some things out in the market that they have had -- the first quarter was a little bit stronger than it appears that you guys are reporting. Any idea -- maybe give a little color around that.

The clinical trials business is much more event driven. While there are a number of small engagements that our clinical trials folks get involved with, what drives the business are the big trials that you win typically through a bid process. And so when we look at what is in the pipeline and the leadtime involved in getting those trials ramped up, we don't see an opportunity to turn the business in the first or second quarters. But we are pretty optimistic that given what we know today, and again kind of the backlog of business and the trials that are coming up -- that intent to be initiated in the second half, we feel very good about our ability to get that business ramped up. And when it ramps up it tends to stay ramped up for an extended period of time in the absence of anything happening to the specific trials, or the trials failing unexpectedly. We would expect our clinical trials business to show growth in the second half of this year.

One last question and I will hop back in the queue. It looks like you guys had a pretty strong quarter in the retained search business. I am just wondering if you could give us a sense of how much of the other HEM services revenue was generated by retained search, and maybe touch on what areas maybe specialties you guys saw a lot of activity in?

Yes, order of -- Emil, do you want to take that?

Within the Human Capital Management Services segment, retained search accounts for roughly 40% of the revenues of that segment. But what is even more significant is that the contribution income was very strong for that business in the first quarter, significantly higher than a year ago.

As far as the mix, it is primarily physicians. We do a little healthcare executive search. We are, I think, a very well respected boutique firm in healthcare executive retained search, but the bulk of the revenues are generated through physician searches.

Jeff Silber from Harris Nesbitt.

If we could just continue on the physician search side. Are you making more of an effort in that area, is that why revenues were up so much, or is just the nature of the market?

We like to think we always apply the same level of effort, and just sometimes you have more success. It is a little bit more difficult to predict that business. There is a nice baseline of retained revenue stream that comes in. But you are -- your performance within the quarter is always going to be driven by how many of the searches you fill. How many new sales you are able to bring in.

I think fundamentally it is not that we're better people that are more successful, we think the market is -- it has been very attractive for a long time. We have excellent management in this space. We have grown the business. We found some new relatively high-level search consultants and salespeople that are able to bring in a higher level of business. We're optimistic about our ability to continue to show attractive trends in this sector.

Great. If I can switch back to the nurse side of the business, did you add any new recruiters during the quarter? And do you have any plans to continue to add recruiters throughout the year?

I believe we're up about net of five during the first quarter from the sequentially -- which is a fairly strong year-over-year increase. We do not intend to add at the same rate that we did a year ago. We do expect to end this year at a higher level of recruitment than we began the year. But we feel at this point we have excess capacity, and we would like to see those recruiters begin to pay for their seats. And at the end of the day it doesn't make a lot of sense to add new recruiters if you're not able to bring in new applicant activity, and again year-over-year improvement in applicant activity. Some of that is driven by the word-of-mouth referrals that the new recruiters are able to generate. But we're not as aggressive this year -- do not plan to be as aggressive in adding recruiters as we were last year.

In your comments about the SG&A expense going up, you also mentioned higher compensation costs. Was it for those new recruiters relative to last year at this time?

It is a combination of things, but that is one of the pieces. The other one relates really to we built up our internal audit function. In the long run we think that is going to result in some cost savings as opposed to the use of outside consultants. But it does show up on the compensation line.

Just again, just jumping back to the nurse business, what type of price increases are you getting on renewed business?

Where we are getting price increases, they are following in the 5 to 10% range. There's also -- it is an oddly bifurcation market there. There are those clients that are literally in crisis mode, and need people here yesterday. And then I think there are those clients they had given us orders, but their admissions patterns haven't played out as they anticipated, so they're kind of a reluctant customer. Those in the former category are not only giving us attractive price increases, but we're putting employees at we're calling crisis rates that are kind of separate and distinct from the baseline of pricing that we typically provide to our customers, which allows us to go out with a much more aggressive package to nurses to try to get them to those facilities.

It is a -- it is not a harmonious market at this point. There clearly are pockets of intense demand, and other pockets -- and maybe broader pockets -- that are a little more like more lackadaisical in their demand. But clearly there are opportunities, and maybe not long-term opportunities, but for us very attractive short-term opportunities to get much more attractive pricing, on the order of 20% in a lot of the cases where we are able to put in place these crisis rates.

That's helpful. And just one final question. Have you seen any change in the number of nurses that are sticking around for another assignment after they finish?

Renewal rates have been favorable for us. Again, the new applicant activity hasn't been, so to the degree that we are able to show relative stability in the volume, it is a function of being able to renew nurses at the same facility they're working at, or put them in another attractive assignment back to back.

[Joseph Gingen] from Atlantic Equity.

I just had a couple of questions. The first one is, do you think you're maintaining market share, losing market share, or gaining market share? I guess both toward -- against your larger competition? And then why don't we put a separate category of the many smaller pieces of the competition.

When I look at the -- let's start first with the larger competitor, AMN Healthcare, in the most recent quarter, if I look at just the raw numbers, while it is a little bit confusing with the acquisition -- I know they tried to break that out -- but I didn't get a crystal clear idea of how much was organic and how much was acquired. My gut is we that had modest market share loss to them in the first quarter.

We do believe when we look at the broader market that we're still taking market share from the smaller clients. Our ability to bring on these vendor managers has been an important element of our strategy. And we think as those smaller clients loss their opportunity to make placements at some of the larger users of travel nursing services, by definition the top two companies are very likely taking market share from the smaller players in the business. There is a very big gap between the largest two companies in travel nursing and the rest of the market. Something on the order of an 80% drop in revenue to the next tier of the industry.

I have one follow-up question on this, and I have one other. Can you identify a reason why you think you have modest market share loss to your large competitor? Do they have some new sales program or are they doing something different than they did a year ago, or is it something you can put your finger on, I think?

This is Emil. It really comes down to the impact of Hurricane Wilma on our production in the fourth quarter. When you look at the cycle of our business a lot of the placement activity that takes place in the first quarter results in working nurses in the first quarter. And our main office was shut down for a week during late October of last year. That definitely impacted the volumes that we were showing in the first quarter. In my mind it is entirely attributable to the impact of Wilma.

You don't see -- and you think it is moderate. It is not significant --.

If you look at the numbers it is not significant. I would just probably add a little bit to what Emil is saying. I think American Mobile is stronger than we are in international recruitment. I think those nurses typically are more willing to go where the opportunity is. So is not like we don't have opportunities today. We have lots of opportunities, but even the nurse applicant that we get, if she wants to go to -- she has -- her discipline is neuro critical care, and she wants to go to Boston, and we don't have a neuro critical care position in Boston, she may not travel. Whereas a nurse coming from overseas, she just wants to get to this country. And if we don't have something in Boston, she will go to Austin, Texas, if that is where the opportunity is. Again, I don't think is a big gap, but it doesn't take much to move the dial in this business on a sequential basis.

As for far as the pricing, I am just trying to fully understand it. I would think, and correct me if I'm wrong, that if admissions were down, or haven't been so hot, that would mean that if there's less pressure on the hospitals to go out and to aggressively recruit travel nurses because they are not -- their level of support is not being thrown off kilter by increases in admissions causing them to need extra nurses, hence causing them to hire more travel nurses. If the admissions were down, why is that -- how are prices going up? Because to me if admissions were down, it would mean to me that demand is down, so you're not going to -- it is not going to force prices up as much. I guess so my question is, why do you think prices are up, given what I see as the admissions down and demand should be down?

It is a fair question. As I said just a second ago, the market does appear to be bifurcated to some degree that there are clients that are actually -- they aren't seeing admissions down, that they're doing relatively well within their market and/or they have specific issues with nursing turnover, or turnover in certain specialties, that they're trying to respond to in a very aggressive way.

The realities are -- I would say our business today is more constrained by supply than demand. But even when a hospital has kind of a couple of quarters picture of their business, and admissions come in below budget, even though they have given us an order, they don't have to fill that order. There is no cost for them to giving us an open position that we subsequently send applicants to.

So demand does matter as well. But what happens when you start a spiral of pricing is that when we go to our clients and we say look, here's what the competitive position is that you're looking at in hospitals of similar size, similar bed size, similar patient makeup. This is what they're paying locally. This is what similar hospitals are paying nationally. As hospitals begin to move up the pricing spiral, there tends to be kind of a pull along effect for all the other clients that we're negotiating with.

Again, if the patients don't show up, and we don't make any placement, it does really cost them anything to give us a price increase. It only matters when we're able to fill those positions. And when patients show up in smaller numbers than anticipated, we're probably going to send -- successfully place less nurses than we might have otherwise.

Michael Morin for Merrill Lynch.

I was wondering if you could give us a bit more color on the gross margin benefit, maybe breaking out the gain from the spread on the travel nursing business side and the contribution from the increased search activity?

We generally don't break out the gross profit margin by segment. But I can tell you that within the bulk of the increase that we saw in terms of gross profit is attributable to the combination of the improvement in the both -- base spread, and as well as the lower insurance expenses that we had in the first quarter. The impact of the slightly higher mix of other human capital businesses is relatively smaller in relation to these two other factors.

I think you made a comment earlier that in that per diem side of the business your managers there are optimistic about the second half, but you maybe a bit more cautious. What would be some of the reasons why they would be optimistic?

They are interfacing with the customer. They just feel that the customer has a little greater sense of urgency, that they're just seeing just better metrics in their business. Like I said, all that sounds great, but when I look at the P&L and the booking activity -- and again the booking activity is very different in per diem than it is in nursing. It can change much more rapidly, whereas the travel business has a longer backlog. You are booking four weeks, five weeks in advance of its contract starting. The contract will last three months. Whereas per diem you never really sure how many people you're going to have on Monday, because on Sunday night you may get a lot of orders. They're just getting a sense of the body language of the customer, what the customer is saying, that apparently feels better than it has felt. I will feel better when it shows up in the P&L.

And then just finally, you mentioned in your release the impact of the flu season perhaps on hospital admissions. Is there anything that you would have detected during the quarter in terms of maybe ending the quarter on a more solid note as you exited, or was it pretty stable throughout the quarter in terms of the volume and pricing?

That is actually an important -- I am glad you asked that question. When we looked at the -- we talk about our open orders. These are orders giving given to us by hospital clients that we put in our systems and then attempt to find nurses willing and able and qualified to go to those positions. We saw roughly a 20% -- a little over 20% drop from the high point of fourth quarter in October to the midpoint of February, which wasn't really alarming. Again, it was kind of consistent with the pace of the business. But also seasonally, as the Florida and Arizona hospital markets get kind of deep into the winter, or snowbird season, they really don't want new contracts to start after a certain date. So even if the position hasn't been filled, they tend to pull those positions.

I guess what has been very encouraging to me is that following that 20% decline 000to the middle of February -- from February to mid February to today we have seen roughly a 20% increase, which is not seasonal. And suggesting to have firmed somewhat. Now the bad news is that as we look at the -- included in our guidance -- which is not what I would have hoped it to be coming out of the first quarter -- was a relatively weak April. So even though demand has picked up, we didn't see a real pick up in booking activity.

Last week was good. This week appears to be pretty good. But April as a whole was not as strong as we would hope it to be, reflecting this resumption of stronger demand. On a year-over-year basis orders for us are up about 10%, a little over 10%, which is good but not great. It is high enough level to grow the business, if we can get a resumption of applicant activity. But again, we're not off to the races in any stretch.

David Feinberg from Goldman Sachs.

Just following up on some of your comments from the previous question. With regard to guidance you talked about 1% booking declines year-over-year in 1Q. And then you had made a comment about weak -- how your outlook in the per diem business is not seeing -- more cautious than perhaps your managers. I am trying to get a sense in terms of the booking activity in 1Q -- you give a mix. Was the 1% decline all travel or was there per diem in there? And then when you look at your outlook for Q2, and per your comments previously, what is the -- how much is the negative impact on the per diem business influencing that versus let's say your travel business?

When we talk about bookings we're strictly talk about what we call fixed term contracts, which means basically travel contracts. The concept of booking really isn't applicable to our per diem business. So that is 1% refers to our travel nursing and travel allied business. As far as the -- on the per diem side, where we have seen some weakness, I should point out that despite this weakness our per diem business still remains profitable. But obviously not at the levels where we would like it to be.

Bilal Basrai from Stanford Financial.

Are you able to tell us what markets you are seeing strength in besides your top three states? I know you mentioned previously Texas, Carolina and maybe the Upper Midwest. From last quarter, the past couple quarters are there any changes in dynamics in those certain markets? And are there any that you can identify that have either strengthened or weakened from the previous quarter or two?

I think that is a fair question. I would say the strongest markets year-over-year right now tend to be the Mid-Atlantic, certain of the New England states,. What had been some of our biggest, strongest markets, California, Arizona and Florida, are all essentially flat to actually somewhat weaker than a year ago. I would say Florida particularly when we look at it year-over-year is probably the most disappointing. It has not been a very strong winter season for the hospitals in Florida. And unfortunately that's a market we tend to dominate. So when they are weak it tends to affect us a little more than some of our competitors.

Texas remains to be a pretty strong market year-over-year. It is not nearly where it was at its peak, but we're very encouraged by a resumption of much more favorable trends in Texas, because historically that has been a top five state. And it is nice to see it strengthen in the last couple of quarters.

Also, when we look at your California market, and the nurse-to-patient ratio legislation there, what percentage of hospitals do you think are now abiding by the legislation? And how much can you say that has helped you versus the previous year or so?

I don't think I have ever seen an accurate statistic. I have heard numbers on the order of 40% are able to adhere to the patient ratios. I think all are trying to abide by it. I'm not aware of anyone that just doesn't care. But clearly there is -- it is all over the map as to how successful they have been in adhering to the ratios. The ratios haven't been tightened. We are what they are. So it has been for us a relatively stable market in California. We haven't seen strength or weakness.

And just two quick ones. Anything new on the foreign nurse recruiting front?

As the market began to strengthen noticeably last year, we made a commitment to get back and ramp up our pipeline of foreign trained nurses. At that time -- again, there is fairly long leadtimes to that segment. We're encouraged by what we have been able to achieve, but at this point our pipeline is relatively modest vis-a-vis what we think our ultimate objectives will be in that business.

We have entered into what we think is an important strategic relationship with a company in India that is healthcare focused, affiliated with one of the most prestigious heart hospitals in India, that we think can be an important pipeline of highly desirable and well trained nurses from that market. But at this point it is less than 2% of the nurses we have in the field were recruited by us in foreign markets other than Canada. So we have a long way to go.

Thanks. And then lastly, I don't know if you're willing to just give us a quick comment here, but you mentioned a pending $20 million acquisition, or at least a letter of intent out there. Would you be able to just tell us what segment this is in, or is it still a little too preliminary for you to say that?

I guess I can give you some sort -- it is in the clinical trials area. Despite what we have described as sequentially less favorable performance in that segment, we love the management we have in that business. We think they are -- they have a lot more capacity to manage a much broader business. We love the dynamics and the profile of that business. It is very fragmented. It is approximately a $20 million acquisition --a revenue runrate company in the clinical trials space, which would make us, we believe, one of the top three players in clinical trial staffing.

(OPERATOR INSTRUCTIONS). At this time there are no further questions.

In that case we would like to thank everyone for participating in this call. And we look forward to updating you on our second quarter. Thank you very much.

This concludes today's conference call. You may now disconnect.