Cross Country Healthcare Inc (CCRN) 2007 Q1 法說會逐字稿

Welcome to the Cross Country Healthcare first quarter 2007 earnings conference call. All participants will be able to listen only until the question-and-answer session. This call is being recorded. If you have any objections you may disconnect at this time and now I will turn the meeting over to 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 first quarter 2007 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.CrossCountryHealthcare.com. Replay information for this call is also provided in the 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 condition, 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 in 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 session of our press release for the first quarter of 2007, as well as under the caption risk factors in our form 10-K for the year ended December 31, 2006. Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed on this teleconference might not occur. Cross Country Healthcare does not have a policy of updating or 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 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 for the first quarter of 2007 was $176 million, up 10% from the year ago quarter. Our net income was $4.8 million or $0.15 per diluted share and exceeded the prior year by $0.01 per diluted share. While we are very pleased with our topline performance our goal continues to be to both increase staffing volumes and to restore our margins.

Our gross margin was modestly down year-over-year due entirely to our lower mix of revenue from our other human capital management businesses which operate with much higher gross margins. In our staffing business a widening of the bill pay rate spread more than offset increases in housing and professional liability expense. Similarly, our operating margin was flat year-over-year in the first quarter reflecting better leverage on our overhead that was offset by higher bad debt reserves related primarily to two slow-paying hospital accounts located in the U.S. Virgin Islands. Both of these hospitals are quasi-government-sponsored facilities and we fully expect to receive payment from them over time.

In one account we have an 18-year history and have occasionally gone through similar slow-paying periods but have never had any significant write-offs. In the other we are currently collecting on a monthly payment plan and have ceased placing nurses there until the balance has been paid. The increase in our housing expense is due to two factors. First, inflationary costs driven by the tightening of inventory in the rental market due to the national condo conversion of such properties over the past two years, and second, a strategy we implemented last August to improve our competitive position by providing free single housing as part of our standard package. As this benefit enhancement anniversaries in the third quarter of this year we expect easier comparisons and more opportunity to expand margins. In addition, we expect rental markets to soften along with the overall housing market as the year unfolds.

With respect to our professional liability expense each additional quarter removed from October 2004 when a new occurrence-based insurance plan was put in place should result in improving trends as far as the tail of incidents under our previous less favorable insurance policy becomes more distant. Although we expect these recent pressures to spill over to some degree in the second quarter, we believe they will moderate substantially in the second half of the year.

For the first quarter pricing in our healthcare staffing business was up 5% year-over-year, and we experienced favorable momentum in our staffing volumes. FTEs increased 6% on a year-over-year basis and 1% sequentially from the fourth quarter of 2006. Our organic travel staffing volume increased 3% year-over-year and 1% on a sequential basis. Moreover for the first time since 2002 our organic staffing volumes for the full-year are expected to be higher than the prior year. The entire staffing volumes are primarily driven by our travel nurse staffing business but also reflects substantial organic improvement in our clinical research staffing business as well as supplemental contribution from Metropolitan Research acquired in August of last year.

Improvement in our contract travel nurse staffing business is being given by the current dynamics of the nurse labor market and not a resumption of growth in hospital admissions. We believe these labor market dynamics have created increased turnover in full-time hospital nursing positions. In addition we believe modest improvement in hospital admissions above the expectations of hospital administrators would result in disproportionate benefit to our nurse staffing business. Even without this upside we do see organic growth in our business continuing during the remainder of 2007 reflecting an adequate level of demand and rising applicant activity.

Even though staffing volume in our per diem staffing business was still down from the prior year quarter, it increased 4% sequentially in the first quarter. Given this trend we maintain optimism that our per diem business has stabilized and can contribute to overall growth at some point during the remainder of 2007. Our clinical research staffing business performed particularly well in the first quarter on an organic basis. We are also pleased with the performance of the recently acquired Metropolitan Research business. We remain very encouraged about our prospects in the clinical research area and continue to actively pursue acquisition opportunities in this sector of the market.

We believe our clinical research staffing business represents the best current opportunity to invest our excess cash at attractive rates of return for our shareholders. Meanwhile, we continue to evaluate a number of M&A opportunities in our other business lines as well in an acquisition environment that I would describe as robust but highly competitive.

Our other human capital management business segment was down year-over-year in the first quarter. Our retained physician search business continues the weak trends which began in the fourth quarter of last year. While this is the least predictable business that we operate, unit management remains confident that the environment will support continued growth. You may recall that this business has produced record results for us for the past three consecutive years.

Our education business experience lower average attendance per seminar for the first quarter of 2007 but we are very encouraged by recent trends in this business. So looking at the big picture I remain optimistic about our Company's prospects in 2007. Labor markets continue to create new jobs and real wages are rising in the economy. Based on our historical experience we believe this dynamic will result in hospitals facing a more inelastic supply of nurses that will encourage them to turn to us with a greater sense of urgency to fill an increasing number of vacant shifts for nurses.

This week is National Nurses Week. Before we continue with detail on our results I wanted to thank this country's nurses for the tireless service on behalf of our most vulnerable citizens. I want to especially thank the thousands of nurses working for us at hospitals throughout the country and in our corporate offices for making Cross Country the great Company it is. With that, I would like to now let Emil update you in more detail on our financial performance for the first quarter of 2007.

Thank you, Joe, and good morning everyone. First I will go over the results for the first quarter and then review our revenue and earnings guidance for the second quarter that we provided in last night's press release. Consolidated revenue in the first quarter came in above the high end of the guidance range that we provided in February at $176 million, up 10% versus the prior year and essentially flat sequentially. Approximately 40% of the year-over-year increase was due to the acquisition of Metropolitan Research. The remaining 60% of the growth came from organic increases in our travel staffing and clinical research staffing businesses, that were partially offset by decreases in our per diem staffing and retained physician search businesses.

On a sequential basis our clinical research staffing and education and training businesses saw revenue increases that were partially offset by a decrease in revenue in our nurse staffing business due to two fewer days in the first quarter as compared to the fourth quarter. Our gross profit margin was 23%, down 40 basis points from the prior year quarter due entirely to a lower mix of revenue from our other human capital management businesses which have higher gross profit margins than our staffing businesses. We continue to see year-over-year improvement in the (inaudible) spread in our core travel nurse staffing business but this favorable dynamic was offset in part by higher housing and professional liability costs.

As expected, our gross profit margin was down 50 basis points on a sequential basis due entirely to the reset of payroll taxes in the first quarter. SG&A expenses in the first quarter represent a 16.8% of revenue, down 90 basis points from the prior year, reflecting partly the benefits of operating leverage due to higher staffing volume and pricing and partly a lower mix of other human capital businesses that operates with a higher SG&A burden than our staffing businesses.

On a sequential basis SG&A as a percent of revenue was up 60 basis points. Approximately 50% of this increase was due to the reset of payroll taxes, and the remainder due to higher personnel and legal expenses. Bad debt expense was $785,000 in the first quarter. As Joe indicated due primarily to an increase in reserves based on the aging of accounts of two specific slow-paying customers in the U.S. Virgin Islands.

Net interest expense was $486,000, up approximately $100,000 from the prior year quarter but essentially flat sequentially. The year-over-year increase reflects the impact of the Metropolitan Research acquisition, as well as a $6.7 million pretax payment for the previously disclosed settlement of a class-action lawsuit. The effective tax rate in the first quarter was 38.7% unchanged from prior year. Going forward for modeling purposes we expect our tax rate for the remainder of the year to be approximately 38%.

As of January 1, 2007 we adopted FIN 48 resulting in no material impact on our financial results in the first quarter. Net income in the first quarter was $4.8 million or $0.15 per diluted share as compared to $4.6 million or $0.14 per diluted share in the prior year. Net income was at the high end of the guidance range that we provided in February.

Our balance sheet remains strong. We ended the year with a debt to total capital ratio of 6.5% and a current ratio of 2.6 to 1. DSOs at the end of the first quarter were 59 days, down one day from the end of the year but up one day as compared to a year ago. Cash used in operations in the first quarter was $1.6 million reflecting the aforementioned $6.7 million pretax payment, as well as incremental working capital associated with the increase in revenue. Capital expenditures in the first quarter totaled $1.8 million or approximately 1% of revenue.

We repurchased approximately 125,000 shares of our common stock during the first quarter at an average cost of $18.56 per share. This activity concluded the November 2002 stock repurchase authorization and during the first quarter we commenced a new $1.5 million share repurchase program authorized by our Board of Directors in May of 2006. The average cost of repurchases under the just concluded 2002 authorization was $15.04 per share.

Let me drill down next on our two reporting segments; healthcare staffing, which comprises our travel and per diem nurse staffing, travel allied health staffing and clinical research staffing businesses accounting for 93% 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 segments was $164.2 million, up 11% versus the prior year and flat sequentially despite two fewer days in the first quarter. Approximately 40% of the year-over-year revenue increase was due to the acquisition of Metropolitan Research. The remaining 60% organic revenue increase resulted from a combination of improved pricing and higher staffing volumes. We averaged 5,732 field FTEs in the first quarter, up 6% versus the prior year and up 1% sequentially. Staffing volume in the first quarter was above the high end of the guidance range that we provided in February.

Bill rates as measured by revenue per hour in our core travel nurse staffing business increased by 5% year-over-year continuing the favorable trend in this metric. For the segment as a whole the average revenue per FTE per week was also up 5% versus the prior year. Global contracts were the nurses on the hospitals payroll accounted for approximately 1% of our segment volume, both in the current quarter and in the prior year.

Healthcare staffing contribution income as defined in our press release was $14.8 million in the first quarter, up 6% versus the prior year. [Payroll] contribution margin was 9%, down 40 basis points from the prior year due to higher housing, professional liability and bad debt expense partially offset by continued improvement in the bill pay rate spread.

Turning now to the other human capital management services segment first quarter revenue was $11.9 million, down 3% from the prior year due to a decline in revenue from our retained physician and healthcare executive search business, that was partially offset by a revenue increase in our education business. Segment contribution income was $2.1 million, down $490,000 or 19% from the prior year, but up 8% sequentially. This brings me to our guidance for the second quarter of 2007. 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, significant repurchases of our common stock or pending legal matters.

We project the average field FTE count in the second quarter to be in the 5,550 to 5,650 range, up 8 to 10% over the prior year. Historically we experienced a seasonal sequential decline in our staffing volume from the first quarter to the second quarter that ranges from 2 to 5%. Travel bookings were up 1% in the first quarter and were up approximate (technical difficulty)% in April. Revenue for the second quarter is expected to be in the $174 million to $177 million range. We expect our gross profit margin in the second quarter to be in the 23 to 23.5% range. SG&A is projected to be flat on a sequential basis.

The assumptions EPS per diluted share is expected to be in the $0.15 to $0.17 range. This compares to $156 million in revenue and earnings of $0.14 per diluted share that we reported in the second quarter of 2006. 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) Mike Fitz, SunTrust Robinson Humphrey.

SunTrust Robinson Humphrey. Thank you for taking my question. First question is just on the bill pay rate spread. It seems like you guys continue to see nice improvement there. Just wondering if you can comment on the opportunity that lies ahead and if you can see continued opportunities for that to improve.

We do, Mike. We very consciously, as bill rates have continued to rise in the mid single digit range, very consciously have been disciplined in what we do insofar as increasing nurse compensation because we feel the increase in the housing benefit is a significant benefit. And the reason we put it in place was we felt dollar for dollar it had more value to our current nurses and prospective nurses that were looking to become travel nurses. And so we think as particularly as we get to the second half and bill rates continue to improve as they have, we have had a very good first quarter and frankly the best month of the year so far was April as it relates to bill rate increases year-over-year in the contracts that were renegotiated. We maintain a lot of confidence in our ability to continue to have an opportunity to improve margins and increase that bill pay spread going forward.

On the other HCM services business just wondering what your expectations are going forward for that business. Should we assume a resumption of growth from this point on a year-over-year basis?

We do and I will let Emil jump in if he has anything additional to say. Certainly our internal plans show both improving for the remainder of the year. We have at this point, we have more visibility in the education business. The education business is back on track in the last six weeks that relates to book registrants for future seminars that they are going to offer. So we have a lot of confidence in that business's ability to show revenue growth in future quarters. The physician and executive retained search businesses are really less predictable. There is a level of predictability because of the retained search income stream. But the actual placements that are made in a specific month or a specific quarter are much less easy to predict. Having said that, our expectation is that these businesses will grow in the second half of the year.

One last question if I could on the bad debt expense I know you said you've got some plans in place to collect from those customers, just wondering what you are expecting as far as the second quarter how much that may drop off.

We expect a sequential reduction in our bad debt expense, it is very hard for me to exactly quantify it, but directionally it should be down on a sequential basis, and directionally up on a year-over-year basis.

This is actually [Armand Givorkin] calling in for Matt Ripperger from Citigroup. Could you quantify the enhanced housing benefits that you implemented in August of last year and what will be the impact on your margins once that annualizes?

Housing benefit if we just focus on our core business amounts to roughly, the increase in our housing costs roughly 200 basis points margin on a year-over-year basis. I would say it is split between the -- reason for the increase is split between the inflationary impact of housing, as well as the benefit increase that we provided. As Joe indicated in the prepared remarks, the benefit had to do with the standard package that we offer to our travelers. This benefit was rolled out for new assignments beginning in the third quarter of last year. Our previous standard package we were offering free two-bedroom shared housing to our travelers. The new benefit package offers free one bedroom which does cost more but it is a valued benefit to our travelers.

In the past they would have to pay an upgrade fee to us to get the free one bedroom apartment. What is important, though is that as we move into the second half of the year the increase due to this benefit change will begin to abate as our comparables reflect the benefit being offered in the second half of last year. On the inflation front, we believe that this was driven by a reduction in the rental inventory due to the condo conversion over the last couple of years. But this again should also moderate sequentially in the second half of the year as the rental markets begin to soften now that the condo conversion is behind us. So really these are the two main drivers of our housing costs.

And how much did the nurses have to pay you previously if they wanted to get a one bedroom apartment on their own?

Normally they would pay us a private apartment fee that equated to our cost differential for renting a half of a two bedroom as compared to a one bedroom. Generally that number rages within 200 to $300 a month.

Just to add a little more color as to what drove us to enhance this aspect of our package, historically when I joined this business in the early '90s most of our nurses were in housing that we provided to them, and most were in free shared accommodations or paying us a fee. Over time as the industry has matured and nurses have become more savvy, many go out and find their own housing. We pay them a stipend driven by the cost of housing in a specific location, and we have particularly to those accounts that are exclusive to us we have built into our bill rate of the facility sufficient margin to offer free housing, specifically for assignments at those accounts. So over time the number of nurses that either were paying us a private apartment fee or living in our (inaudible) accommodation dropped significantly below 50% of the nurses on contract with us. And our recruiters have been telling us for years if we could offer free private housing they would be much more effective in convincing first-time travelers to come to work for us. Because it is clearly part of the process that a new nurse goes through to choose the company that they are going to work for on that first assignment.

So at the end of the day we looked at we were largely paying for this free private benefit and getting or paying for at least half of it and getting zero percent of the marketing value to new nurse applicants. And we just decided the time had come to really extend this benefit to all nurses. And the good news for us, is we are seeing an impact on the percent of new applicants that we acquire actually going to work for us. And that is very encouraging that now our strategic rationale for offering the benefit is being supported by the actual results of the business.

That's very helpful. Thank you. The second question if you could just give some color on the supply of nurses that you are seeing and what kind of increase in applicant volumes are you seeing year-over-year.

In the first quarter it is averaging about 10% up, roughly 10% up.

Okay, and finally, what is your bad debt policy? How do you decide when to reserve?

We follow both on a statistical approach and a specific identification. Certain accounts are reserve based on specific identification method, and then we apply an overlaying analytical approach that looks at the various aging buckets and applies a certain percentage to each bucket as we reserve for bad debt.

Okay, great. Thank you so much.

Michel Morin.

This is actually Elliot Fruchter calling and for Michel Morin from Merrill Lynch. Good morning, guys. Can you give some color please on the recruiter growth trends perhaps and recruiter turnover?

The number of recruiters in our nursing and allied business, travel business, is actually down about five from year end so it is kind of a misnomer to describe it as growth. It is negative growth. We feel we have more than adequate capacity; we don't feel that the obstacle to growing the business. We significantly increase the number of recruiters in 2005 and I've really been letting those recruiters mature over time. We do still have attrition every year and we bring on new classes to replace that attrition that does occur. I don't have a specific turnover for you, Elliott, but I would at the top of my head, I would guess it is in the high teens.

You would characterize that as stable, then?

Yes, I think even in the best of markets it was low double-digit turnover. Most of our recruiters are in Florida. We do tend to have more of an itinerant population down here in Florida. People are rarely do you meet someone who was born and raised in Florida. The only two I know are my daughters. So we do see a lot of people coming and going. We try to maintain a relationship; if we've invested in a recruiter we have the capacity to set them up in their home. Nevertheless we do get turnover, particularly those recruiters that are trailing spouses, that their husbands get relocated. It is not an uncommon occurrence for us.

And now turning to the EBITDA margins in the health (inaudible) we noticed a decline of 40 bips points year-on-year. Can you walk us through the components of that?

Well, the primary reason behind that is the bad debt expense charge that we recorded. The affect of that charge is approximately 45 basis points. If we look at the fundamentals of the business at the gross profit line that business is actually slightly -- that segment is actually slightly up with the benefits of the improved bill pay spread partially offset by the higher housing and professional liability costs. We've been successful in our ability to leverage overhead companywide. Our SG&A as a percent of revenue was down 90 basis points.

But offsetting some of this benefit has been the higher-than-expected bad debt reserve. Which has to do as Joe indicated, with the two U.S. Virgin Island accounts and it is really part of the statistical methodology that we apply to the aging of the receivable bucket, not really to any specific concern on collectibility.

I am concerned more with the SG&A leverage in the healthcare business. Can you give us at least directionally what you see there? Do you see further leverage available on the SG&A and the healthcare business?

We clearly have opportunities to leverage our SG&A as we grow our revenues.

Is there anything that you could quantify year on year in the first quarter for us?

Well, probably the best way to look at the inherent leverage in our staffing business is to look at the incremental margin that we can bring down on incremental revenue. And we estimated that number to be between $0.14 to $0.15 for incremental dollar. So when we look at our current EBITDA margin and look at what the incremental margin would be, and you can kind of work the numbers backwards and come up with the improvement in SG&A. But that is the fundamental driver of our operating leverage. That marginal revenue generates above-average marginal contributions.

Okay. Thank you very much.

Jeff Silber.

BMO Capital Markets. Just a couple follow up questions from some of the prior Q&A. Getting back to the housing benefit, have your competitors matched this one bedroom benefit?

The truth is for the most for part, most of the smaller companies that we compete with had been offering this benefit for years and they do that for really practical reasons. Since they don't have enough nurses often to match them in a specific market they are likely to do what we call a negative upgrade and put them in private housing. So they take the step of if we're going to have to offer it anyway we might as well market it. The only significant competitor that had not offered it historically was AMN, and they have also recently upgraded their offering to include free private housing as we understand it.

Just wanted to double-check on that. And again just keeping with this gross margin theme I just want to make it clear, were gross margins up year-over-year in both segments but just because of the negative mix shift that's why gross margins were down for the company overall?

They were up in the healthcare staffing segment, and Emil is going to determine whether they were up.

They were slightly down in the human capital management segment.

That's fine -- (multiple speakers) I was more concerned on the healthcare side, so again we're up in healthcare status year-over-year.

Yes and just to clarify, they weren't necessarily down in either piece of the other human capital management business; in fact they were up in the education business. What hurt us was that the greatest decline was in our physician retained search physician healthcare executive retained search business and that has the highest margin. So within that component there was another shift in mix that also hurt us.

A mix shift within a mix shift?

Exactly.

On prior calls you have given us -- and forgive me for not using the right term but just some gauge of re-ups in terms of nurses accepting new assignments, and also requests for nurses coming off assignments. Can you give us an update on those as well?

Our renewal rates are actually returning to more historically normal levels in the range of 70%. Really not inconsistent with -- they had been improving in 2006, so we are seeing what I would say is a positive sign on renewal rates. And as it relates to the number of opportunities I would put it in the range of five to six for every nurse coming off contract.

We've seen at an aggregate level probably a 10% drop, a little less than a 10% drop year-over-year in the aggregate number of orders. But given the metric I just described for you we perceive the current level of environment as adequate. I would not describe it as a great market, but it is adequate in that we have increasingly attractive jobs from a total package standpoint year-over-year, and they are in locations and in settings that nurses would find very desirable. So we have unfilled orders in very attractive assignments, and that is a very good indicator for the health of the business.

That's good to hear. Just a few numbers questions and then I will let somebody else jump on. I think you gave us revenue in volume growth excluding the MRA acquisition. Did MRA have a major impact on the contract revenue per week change?

MRA's -- you're right, Jeff, MRA does have a higher average revenue per week than the rest of our staffing businesses. But again, it is a relatively small part of our total volume. Probably the more -- the cleaner statistic is the revenue per hour in our core travel nursing business, and that number was also up 5%.

And then a couple more number ones. Do you have stock-based compensation for the quarter? I know it is relatively minor but if you had it handy that would help.

It was really insignificant for us in this quarter.

Okay, good. And one more question on guidance. What share count are you using for your second quarter guidance?

Essentially flat on a fully diluted basis. The number is 32.8 million.

Fantastic; I'll let somebody else jump on. Thanks.

Tobey Sommer.

SunTrust Robinson Humphrey. I wanted to dig into the supply and new applicants. I was wondering -- could you give us any demographic things that are noteworthy? Are more of the new applicants younger nurses or is it relatively the same portion that you would expect historically.

We don't ask that on the application. Historically from time to time we will survey our nurses to try to determine their age and the demographics. So we haven't done that on a real-time basis. Generally speaking our new applicants tend to be younger, single nurses. The fact that they are rising would suggest that the mix of our nurses is becoming more skewed toward the younger nurse.

And then Joe, was there any noteworthy trend if you look at the business in the [quarters] travel unit from a geographic basis?

As it relates to applicants or the where the nurses are actually working?

Applicants or orders or pockets of strength or weakness that you've noticed over the last several months.

The applicants typically come from referral, so they are generally driven by where we have nurses working. And if we look at the kind of geographic mix of our business in an absolute basis Florida is our strongest state, year-over-year in the increase in the number of nurses working in that states. California is the weakest for us, as it relates to a decline in the number of nurses working in that state. We are seeing relative strength in some historically important states for us, like the Carolinas, particularly North Carolina, Texas. So we are seeing pockets of strength outside the Sunbelt.

Arizona is up for us currently in working people, but the demand in Arizona particularly as you come out of season and so you are comparing year-over-year the same kind of seasonal period is off significantly. So we would expect Arizona to weaken in coming months. But we have one of our more important vendor managed accounts in Arizona that has sustained us and could conceivably sustain us at a higher level of working personnel even though the overall level of demand is declining or has declined in Arizona.

In taking a look at kind of the overall package of compensation that you are offering your travel nurses versus the overall compensation that change in overall compensation at full-time nursing positions. Is it your sense that the rate of change in the comp that you all are able to offer travel nurses is changing more rapidly than full-time nurses at this stage?

Yes, that would be a very fair statement. We feel that the hospitals aid into the premium that we would offer vis-a-vis a full-time nurse. And the 2003 and 2004 period began to equalize in '05 and I think has been improving from a travel nursing perspective relatively since then in '06 and '07.

Great.

Toby the value of that housing benefit in that analysis.

Yes, thank you. And I had a question for Emil. With the statistical impact on bad debt is there a possibility that some of that could reverse in future quarters?

Absolutely. Because it arose due to the aging of the buckets, if we are successful -- not if but when we are successful in collecting these older receivables you could potentially result in a credit on that line.

Historically we have very little as it relates to hospitals reneging on invoices or services that we provided to them. Typically what we would categorize as bad debt is really a credit adjustment that occurs after the relevant accounting period is closed. It is highly unusual for us not to collect invoices. And (inaudible) accounts this is a situation where I would describe if you can't stand the heat don't go in the kitchen. We know exactly what we're getting into when we provide service in the Caribbean. The people that are managing the payables process they are really government bureaucrats, and there is not a lot of pressure you can exert on them. We have a very good relationship. I am personally engaged in a larger of the two accounts and collecting these receivables. We have the attention of senior executives at the facility. We have been at this for a very long time at that facility and have had higher levels of unpaid receivables that go farther back in time that have been fully paid in the past. So I have no reason to think that we won't collect for these specific two accounts going forward.

Great. And then just I noticed in the press release you mention opportunities perhaps to deploy some of the capital that you've got on the balance sheet and available to you. And I wondered if you can just comment ob what the M&A market looks like relative to a few quarters ago. Thank you.

It is very active, Tobey. We are probably seeing more deal float than we've seen in five or six years. It is not customary for us and I don't want to get into too much detail -- we do have two letters of intent signed today. If we are successful in bringing these transactions to closure it would represent an opportunity, probably in aggregate not unlike the Metropolitan acquisition in August of last year with, and businesses with similar offerings to Metropolitan we view as a very successful acquisition for us. It is really given us an even greater incentive to focus our energies proactively in the clinical research area.

Having said that, there are a number of other opportunities out there that we are evaluating. Our experience has been particularly in the nurse staff area that multiples have been very sticky on the high-end. There are still a lot of private equity interest in this space. It just strikes me the private equity tends to have lower hurdle rates than we appear to have for whatever reason. And we do commit to our shareholders that we will maintain a discipline in our acquisition strategy. We believe in the clinical research area maybe because there are smaller deals flying under the radar of private equity buyers that we are able to get what we perceive to be better value and a better opportunity to achieve returns on invested capital higher than our cost of capital. Emil, I don't know if there is anything you wanted to add to that.

I just want to reiterate that (inaudible) obviously need to keep in mind that just having a letter of intent does not guarantee the completion of an acquisition.

Thank you very much.

(OPERATOR INSTRUCTIONS) At this time I am showing no further questions.

With that we would like to thank everyone for participating in this call, and we will look forward to updating you on our second quarter results hopefully in early August. Have a great day.

Thank you. This concludes today's conference; thank you for participating. You may disconnect at this time.