Cross Country Healthcare Inc (CCRN) 2007 Q2 法說會逐字稿

Welcome to the Cross Country Healthcare second-quarter 2007 earnings conference call. All participants will be able to listen only until the question-and-answer session. This conference is being recorded. If you have any objections you may disconnect at this time. 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 second-quarter and year-to-date 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'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 expect, anticipate, intend, plan, believe, estimate, suggest, 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 are set forth under the forward-looking statements section of our press release for the second quarter of 2007 as well as under the caption Risk Factors in our Form 10-K for the year ended December 31, 2006 and our 10-Q for the quarter ended March 31, 2007. 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'll turn the call over to Joe.

Thank you, Howard, and thank you to everyone listening in for your interest in Cross Country Healthcare. As reported in our press release issued last evening, our revenue for the second quarter of 2007 was $175 million, up 12% from a year ago. Our net income in the quarter was $5.5 million or $.17 per diluted share, a 23% improvement from the prior year quarter. Cash flow in the second quarter was $$10.2 million as compared to $9.9 million in the year ago quarter.

Our improved results in the second quarter reflect the continued positive momentum of our travel nurse staffing business as well as the organic growth of our clinical trial services business which was substantially supplemented by the acquisition of Metropolitan Research in August of last year and AKOS in early June of this year. As is clear from our reported results, the Clinical Trials Services segment is our most robust performer so far in 2007 benefiting from more drug trial activity and a greater focus on drug safety.

More recently on July 18th we completed the acquisition of Assent Consulting which, combined with the prior acquisitions in our organic business, allow us to expect 2007 pro forma revenue from our Clinical Trials Services segment to be approximately $100 million. We are very excited about the growth prospects and opportunities these businesses bring to our existing ClinForce business, which we acquired in 2001, giving us a platform for growth in this attractive market.

With the addition of the recent acquisitions we have established a significant geographic footprint in the U.S., have a presence in the European market and have a more complete range of contract staffing and outsourcing services to global pharmaceutical and biotech customers. As a result we believe we have the foundation firmly in place, along with a strong management team, to become one of the leading companies in our sector. Given our strong balance sheet and cash flow we expect to continue to be opportunistic in seeking additional strategic acquisitions in this area.

At the same time we are very encouraged by the organic improvement in our travel nurse staffing business in the second quarter that was driven by a 5% increase in hourly price and a 6% increase in our travel nurse staffing volume marking the highest growth in our staffing volume since 2002. Contribution margins also showed improvement year-over-year as higher bill pay spreads and lower health insurance expense offset continued pressure from housing, professional liability and bad debt expenses. As Emil will describe in more detail shortly, we expect these pressures collectively to abate somewhat in the third quarter allowing margins to expand in the second half.

With respect to hospital admission trends, we believe they remain weak but, as noted by at least one public hospital company, use of contract labor has increased which is consistent with our perspective that the nurse labor market dynamics have deteriorated for hospital employers. As we have pointed out on our last several calls, the improvement in our travel nurse staffing business is being driven by the dynamics of the nurse labor market and not by a resumption of growth in hospital admissions. We continue to believe that our current level of demand is sufficient to sustain our growth in this business.

Our education and retained search and businesses both showed renewed top-line growth in the second quarter. However, each of them incurred higher operating expenses partly reflecting increased direct-mail cost in the education and training business and higher legal expense in the retained search business. As a result contribution income for our other human capital management segment was down $300,000 from the strong quarter a year ago. However, for the second half of this year we expect contribution income for these businesses to improve.

Overall I'm encouraged by the results and trends of our businesses and believe that our positive momentum will continue through the end of this year. With that I'd like to let Emil now update you in more detail on our financial performance. Emil?

Thank you, Joe. Good morning, everyone. First I will go over the results for the second quarter and then review our revenue and earnings guidance for the third quarter that we provided in last night's press release.

As Joe indicated, consolidated revenue in the second quarter was $175 million, up 12% versus the prior year, and was essentially flat sequentially. Approximately 38% of the year-over-year increase was due to the Metropolitan Research and AKOS acquisitions. The remaining 62% of the growth came from organic increases in our travel staffing, clinical trial services, education and retained search businesses which was partially offset by a decrease in our per diem staffing business.

Of note the normal seasonal revenue declined that we typically experience in our core travel nurse staffing business was much smaller than in recent years. Our gross profit margin was 23.7%, up 60 basis points from the prior year quarter due primarily to a higher mix of revenue from our Clinical Trials Services businesses which have higher gross profit margin than our Nurse and Allied Staffing businesses. In our travel nurse staffing business improvements in the bill/pay spreads and lower health insurance costs were largely offset by higher housing and professional liability costs.

Looking forward to the second half of 2007 we believe the year-over-year increases in housing and professional liability expenses will begin to moderate. On a sequential basis our gross profit margin was up 70 basis points primarily due to lower payroll taxes. SG&A expenses in the second quarter represented 17.1% of revenue, unchanged from the prior year. The benefits of operating leverage due to higher travel nurse staffing volume and pricing were offset by a higher mix from our Clinical Trials Services segment which operates with a higher SG&A burden than our Nurse and Allied Health Staffing businesses.

On a sequential basis SG&A as a percentage of revenue was up 30 basis points due to a higher mix of other human capital management businesses which operate with a significantly higher SG&A burden than our other business segment. Bad debt expense was $480,000 in the second quarter, up of approximately $300,000 on a year-over-year basis, but down $300,000 sequentially. We made significant progress in collecting old receivables from two specific slow paying customers in the U.S. Virgin Islands which accounted for the sequential improvement. We expect to make further progress on this front in the third quarter.

Interest expense was $529,000, up approximately $200,000 from the prior year quarter reflecting the impact of the metropolitan research and AKOS acquisitions. The effective tax rate in the second quarter was 37.8% as compared to 38.7% in the first quarter. Going forward for modeling purposes we expect our tax rate for the remainder of the year to be approximately 38%. Net income in the second quarter was $5.5 million or $0.17 per diluted share as compared to $4.4 billion or $0.14 per diluted share in the prior year. And income was at the high end of the guidance range that we provided in May.

Our balance sheet remains strong. We ended the quarter with a debt to total capital ratio of 7% and a current ratio of 3.1 to 1. DSOs at the end of the second quarter were 60 days, up one one-day from the end of the first quarter. We generated $10.2 million of cash from operating activities during the quarter as compared to $9.9 million in the prior year. We used $8.9 million of cash to fund the acquisition of AKOS and $1.8 million for share repurchases. We purchased approximately 105,000 shares of our common stock during the second quarter at an average cost of $[17.53] per share. Capital expenditures in the second quarter totaled $1.7 million or approximately 1% of revenue.

With the acquisitions of AKOS in June and Assent Consulting in July revenue from our clinical trials services business segment is now at approximately $100 million on a pro forma basis for 2007. Given our desire to provide more transparency and consistent with public reporting guidelines, beginning with the second quarter we are breaking out the former healthcare staffing segment into two segments -- Nurse and Allied Staffing and Clinical Trials Services.

Our Nurse and Allied Staffing segment, which accounted for 82% of second-quarter revenue, consists of our travel and per diem Nurse and Travel Allied Health Staffing businesses. Our Clinical Trials Services segment accounted for 11% of second-quarter revenue and consists of our legacy ClinForce business and the Metropolitan Research and AKOS acquisitions and going forward will include Assent Consulting as well. Other human capital management services forms our third reporting segment and it's comprised of our education and training and retained service businesses accounting for 7% of the quarter's revenue.

Let me drill down on each of these three reporting segments. Revenue for the Nurse and Allied Staffing segment was $143 million, up 6% versus the prior year, but down at 1% sequentially due to normal seasonal factors. We averaged 5067 field FTEs in the second quarter, up 3% versus the prior year, but down 1% sequentially due to the same seasonal factors. Note that this metric now excludes the field FTEs from our Clinical Trials Services business which had previously been included in our former healthcare staffing business segment.

Travel nurse staffing volume was up 6%, the highest year-over-year growth rate since the second quarter of 2002. Partially offsetting the strong growth in Travel Nurse Staffing volume was an 11% decline in per diem staffing volume due primarily to the loss of a military contract that was rebid as a small-business set aside for which we did not qualify. 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 up 3% versus the prior year as the aforementioned 5% bill rate increase was partially offset by fewer than expected hours worked per week due to less over time.

Nurse and Allied Health Staffing contribution income, as defined in our press release, was $12.9 million in the second quarter, up 7% versus the prior year. Segment contribution margin was 9%, up slightly from the prior year. Continued improvement in the bill pay spread as well as lower health-insurance claims were largely offset by higher housing, professional liability and bad debt expenses.

Revenue in our Clinical Trials Services segment was $19.6 million, up 88% from the prior year. Approximately $7 million of the $9 million revenue increase was due to the acquisitions of Metropolitan Research and AKOS. At the same time organic revenue grew by 19% over the prior year. Since the acquisitions have broadened our service offerings beyond the ClinForce base of pure clinical trial staffing to now include more drug safety and regulatory services, field FTE counts are no longer as meaningful a metric.

Contribution income for the Clinical Trials Services was $3 million, up 112% from prior year. Segment contribution margin was 15.2% as compared to 13.4% in the prior year due primarily to the Metropolitan Research and AKOS acquisitions which operate at higher margins as well as organic improvement.

Turning now to the other Human Capital Management Services segment, second-quarter revenue was $12.6 million, up 7% from the prior year. Both our retained search business and our education and training business contributed to the year-over-year revenue growth. Segment contribution income was $2 million, down $300,000 over the prior year primarily due to increased direct mail costs in our education and training business and higher legal expenses related to our retained search business which are not expected to continue.

This brings me to our guidance for the third 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 or other business combinations, significant legal proceedings or significant repurchases of our common stock.

Travel bookings were up 3% year-over-year in the second quarter. Based on this we project the nurse and allied average field FTE count in the third quarter to be in the 5000 to 5075 range. Revenue for the third quarter is expected to be in the $181 million to $184 million range as compared to $163 million in the third quarter of 2006. We expect gross profit margin in the third quarter to be in the 23.5% to 24% range. EBITDA margins are expected to be in the 7% to 7.5% range representing 60 to 110 basis points sequential improvement.

A number of factors contribute to the expected margin improvement including one extra day in the quarter over which we can leverage our housing cost, lower professional liability expenses, determination of a third party co-marketing agreement, lower legal expenses as part of the results of the dismissal of a previously disclosed class-action lawsuit against MedStaff in California, incremental contributions from the newly acquired Clinical Trials businesses, and finally lower projected bad debt expense. Based on these assumptions, EPS per diluted share is expected to be in the $0.19 to $0.21 range.

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

(OPERATOR INSTRUCTIONS). Jim Janesky, Stifel Nicolaus.

Yes, good morning, Joe and Emil. A couple of questions. Joe, can you give us an idea of how the seasonal order trends are coming in and just overall where you're seeing strength, whether it's geographically or -- I guess that's the best way to look at it is geographically? But first to comment on the seasonal orders.

I would say the seasonal orders are slower than they were at this time last year. Last year we really had a lot of success in getting our Florida and Arizona hospital customers to post earlier. This year really only one major client is on the docket so far for the November to April seasonal market when the population surges in both Florida and Arizona.

In speaking to clients I think there were little -- if you recall, last year there was a very warm winter up until the holidays. Central Park, it was 85 between Thanksgiving and Christmas and it just didn't encourage people to get on the plane and come down to Florida. So I think the hospitals don't feel the same urgency to get those positions to us earlier. Having said that we have a clear sense that it will be a good season for us and we are having very positive discussions regarding contract pricing.

So other than the fact that the positions have not come in today versus this time last year we had many of those positions in, I'm not particularly concerned. And when I look at our working counts in both Florida and Arizona, even though the orders are down year-over-year, the number of people we have working in both Florida and Arizona are up.

The state where we're clearly seeing the most unfavorable dynamics year-over-year is California where positions and our working counts are down. Other than California, and I guess I would say Massachusetts I would throw into that bucket, is a little soft year-over-year. Most other significant states for us are showing favorable trends. The mid-Atlantic, Texas, are really showing very positive -- the Rocky Mountains, The Northwest we're seeing very encouraging trends and the story is pretty much the same around the country.

Okay. What would you attribute that to? You said that your organic growth is the highest that it's been in five years, but there is no meaningful improvement in hospital admission rates over that five-year period, certainly not recently. How do you -- what would you attribute that organic growth strength to?

As we have said on probably the last couple of year's worth of calls, we don't think any favorable dynamics that we're experiencing can be traced back to hospital admissions. We think hospital admissions have been essentially flat or only modestly up for the last four years. And to me hospital admissions represent an upside, but clearly not a current driver of growth in our market. The market is all about the dynamics of the nursing profession; a continued aging of the nursing profession. Clearly the fact that the government, the Immigration Department is not letting more foreign trained nurses in or coming in in the same numbers that they had historically is choking supply of a source of nurses that hospitals had leaned on to a greater and greater extent over the last several years.

So really to me it's about the nurse labor market dynamics. The economy, despite what you may be hearing, we think continues to be strong. The labor market continues to be strong. It definitely could almost be a Goldilocks labor market where net job creation continues month in and month out. Productivity is up, wages are up and therefore nurses who are typically secondary wage earners do not feel compelled to work as many hours as they might otherwise which creates opportunities to fill shifts. And that's really what's been driving the business and what I believe continues to drive the business and what is likely to drive the business for the remainder of this year and 2008.

Okay. One last question. Shifting to the cost side, Emil, when you talked about why you expect EBITDA margins to go up in the third quarter you did not include any relief in the housing side of the equation. What is your outlook for housing in the third and even as we move into the fourth quarter?

Actually I believe I mentioned that one of the factors on a sequential basis, Jim, will be our ability to better leverage our revenues -- housing costs over our revenues in the third quarter simply because we have one extra day in the third quarter. In terms of fundamentals, the primary reason that our housing costs have been increasing was a decision that we made to improve our standard housing benefit that we offer to our traveler. This benefit was rolled out for new assignments beginning in the third quarter of last year.

Previously our standard package was a free two bedroom shared housing. And if the traveler wanted a private one-bedroom apartment they had to pay a fee to us. Our new housing benefit offers free one-bedroom housing. So as we move into the second half of the year; the year over year housing increase is due to the benefit change will begin to abate. As a secondary reason for higher housing expenses the housing cost inflation, which we believe was driven by a reduction in the inventory of rental units due to the condo conversion boom -- this should also begin to moderate at some point as the rental markets are expected to soften now that the condo conversion boom appears to be over.

Okay. Thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much. I want to go back to the Nurse Allied segment for a second, and I'm not going to ask you to comment about specific competitors. But a lot of the other companies in the space aren't seeing the kind of organic volume growth that you saw in the second quarter and aren't projecting the same kind of growth sequentially going into the third. What are you doing differently that they're not?

Well, we've talked for a couple of years at this point about our success and our efforts to build a significant position in what we have described as a vendor manager for large users of travel nursing services. This effort has been, like I said, very successful and continues to have traction. We just brought on another major system in the Northeast over the last quarter or so. We have several more lined up over the next several quarters. There are limits to our ability to onboard these systems, a lot of work that goes on internally, our team has done a fantastic job of building and managing the business but we do a great job for every client that we take on in this capacity.

So I think maybe we have more jobs -- these are essentially exclusive accounts for us and they're, again, historically very large users of service. So it's conceivable we have accounts that some of the other companies don't have, but -- and I think, as always, geographic concentration matters. We tend to dominate Florida two other public companies tend to have more significant market concentration in California which today I believe is the weakest state year-over-year as far as demand is concerned and I think there are specific reasons why that's true. I think this has been the hottest market and unfortunately over the last several years has been a disadvantage for us because of the patient ratios which have been phased in over the last several years.

But at this point the ratios are out there. I think the hospitals have largely adjusted to those ratios. They've been creative and had a sense of urgency and on-boarding new nurses. But their efforts to fill shifts in California have probably sucked nurses out of other markets and that's the beauty of this business, it is a logistics business. So in other states where we have strong relationship with clients their needs have increased because of the State of California's efforts to meet these patient ratios.

Beyond that I am really not in a position to tell you why they feel the way they feel. I feel actually more optimistic about our prospects today than I did three months ago. Nothing has changed from my perspective. Demand year-over-year has really been off somewhat for the entire year, but as we said in our first-quarter call and as I'm reiterating today, it is in my view more than sufficient for us to continue growing the business.

And as I just described for Jim, other than California some of the reason for the current softness is really a slower receipt of seasonal orders than we had at this time last year. But based on what I'm hearing, we have no reason to believe that those seasonal orders are not coming it and that we won't have a very good fourth quarter in the states of Florida and Arizona.

Okay, great. That's helpful. Again, just sticking with the nurse allied segment and less focusing on gross margins, I just want to double check. Were gross margins up year-over-year in the second quarter? If so why and again, is that something you're expecting to continue going into the third quarter?

Jeff, our overall gross margins were up and we don't normally drill down to the segment level for gross margin purposes. We believe contribution income is really the more significant financial metric and the contribution income was up marginally in the Nurse and Allied segment. What we had is positive effects of the improved bill pay spreads as well as lower health insurance claim costs that were offset to a large extent by the higher housing costs, higher professional liability expense.

And in terms of that trend, again, that's something you think that will continue going into the third quarter? We don't have third-quarter numbers for Nurse Allied last year so it's tough to kind of kind of gauge what base we're talking from.

Right. No, we expect improvement sequentially. Our professional liability expense is expected to come back closer to our normal levels in the third quarter and we also will benefit from, as I mentioned earlier, the better ability to leverage our housing expenses as our revenues are growing.

And the determination of a third party co-marketing agreement that was pretty substantial on a quarterly basis for a variety of reasons. Again, these are things that we know will happen. We're hopeful that some other things could be positive contributors to sequential gross margin improvement. And just to follow up on your previous question, Jeff, without giving you the specific number, it was a very modest increase in gross margin for the Nurse and Allied business, really driven by the increase in bill pay spread which was sufficient to offset higher than expected housing and professional liability expense.

All right, great. A couple other quick ones and I'll let somebody jump on. Is there anything special in terms of the seasonality of the clinical trials business now with all these acquisitions that we need to be aware of?

Not particularly. There is a drop-off, just as there is in our nursing business at year end where a lot of the pharmaceutical companies literally shut down between the holidays. And we generally have -- we keep the personnel on contract. So that tends to be a bit of a hit, but it was a hit last year for us and we don't see anything different this year as it relates to that.

Okay, great. And then what share count should we be using for the third-quarter guidance.

32.7 million fully diluted.

All right, fantastic. Thanks.

Thank you, Jeff.

Tobey Sommer, Suntrust Robinson Humphrey.

Thank you very much. I just wanted to dig into your perspective on demand. And, relative to your strategy, over the last couple years you've been explicit with your view that you tried to shore up your margins a little bit and get growth as the market presented that opportunity. I wanted to just ask you to comment on -- given the demand environment that you see now, is there any difference in how you're going to pursue the growth going forward? Will you still have the same emphasis on gross margin in addition to revenue growth? Thanks.

I don't think our position or our strategy have changed. We do feel it's appropriate for us to recapture some of the margin that we lost following 2002. We think we offer a very fair business proposition to our clients. They certainly can't do for themselves what we do for them as cheaply as we do it for them. So we think with the kind of pricing we're getting, ultimately we will have both wage growth and bill pay spread expansion which will be sufficient to continue growing our margin going forward. We think there are upper limits on that, but we're a long way from those upper limits, a couple hundred basis points at this point. So really that's to me our first and foremost objective.

Some of the other business strategies we employ, just as I described our vendor management strategy, I think certainly it is conceivable that it will allow us to also gain share in the market as we become the exclusive provider to more and more of the largest users of Travel Nursing Services going forward. We want both, don't get me wrong, but if I had to rank the priority it's margin improvement and then market share expansion.

Thanks, Joe; that's helpful. Regarding the vendor management -- that was something that a couple years ago was the theme that you hit on quite a bit. And then maybe, if I recall correctly, a year or so ago it was something that maybe you suggested you were not necessarily deemphasizing, but not necessarily growing a lot. You said you had one new major hospital system sign up in the quarter. Prospectively, do you expect to continue to expand your hospital relationships with better management?

Good question, Tobey. I think originally what I said was we thought maybe there was an upper limit to how many of these clients we could service with the level of attention and the commitment that we provide to all of these clients. So we said, look, when we got to 20% of our volume we probably would stop there and assess how successful we were in achieving all of our objectives -- our own internal objectives and the objectives of the clients that we serve. Having done that we felt that we had more capacity.

Again, you can't bring on three or four a quarter. Like I said, a lot of work goes into it. We don't have unlimited resources to go out and do the things we need to do to be successful in this role. But we believe we can bring on several a year successfully and that's -- given the pipeline that we have that's pretty consistent with our forward-looking expectations. At this point it's all about reputation. We have a very strong client list that has supported us in this role, believes in the value proposition that we offer them and the efficiency which we bring to them in their utilization of outsourced labor.

And so it's much easier for us today to get one of these clients than it was three years ago, particularly for the first one where we had to say, well, we've never done this before, but we think we're going to do a good job for you. At this point we have a number of very large systems that we've been very successful in providing the service to. Like I said, our team has done a fantastic job of executing the strategy and I believe it is an ongoing strategy for us as we go forward.

Thanks. I wanted to ask you a question about the new candidates that you're seeing in terms of the travel nurse. Is there any discernible difference or demographic that you're seeing that's driving those new nurses? Are they any younger or coming from any part of the country in particular or is it broad based?

It's broad based. When I look at the historical perspective of our applicant activity they tend to come to us from the states where we have the highest concentration of travel nurses which is really a function of the very strong word of mouth -- reputation that drives nurses to apply with various companies when they actually go to work for companies. Probably one of the most important trends that we are seeing as it relates to new applicant activity is that more of the applicants -- a higher percentage of the applicants that we bring on are actually going to work for us.

Historically applicants apply with a number of companies, certainly at least two, and our experience is they tend to work for the company they first go to work for. So it's really one of the reasons we -- last year at this time we introduced the free private housing benefit because it was such a differentiating point for smaller companies which offered the benefit because they had no choice but to put nurses in private housing; they didn't have enough market concentration in a typical market to offer -- to really execute shared housing.

So since they were going to put them in a single bedroom anyway they might as well market it and it was a very effective marketing for them vis-a-vis us. And that's no longer true. And as a result of that and I believe that nurses that look at -- gee, I want to go to this hospital or that hospital ultimately and Cross Country is the only company that works with that hospital, I might as well work for them because there are switching costs for nurses if they go from one company to another. I think that's also a function of -- or a factor into why we're seeing higher percentages of applicants come to work for us.

I'll ask one last question and then I'll get back in the queue, thank you. I was wondering if you've seen any abatement of private equity in the M&A arena and if you think that will help your prospects for strategic acquisitions at attractive multiples. Thanks.

I would say in the first part of your question -- I think the credit market, whatever disruption is going on in the credit market is too new for me to say I've discerned an impact. The second part of your question -- do I expect an impact if this situation continues -- yes, I do. I've seen a couple of experts in the area talking about potentially two multiple turns, lower valuations for some deals, and that's really -- when I look at where we've lost, we've been two multiple turns below a lot of these nurse staffing opportunities, the auctions that have gone on, we've been way below where the private equity has been.

So I'm actually encouraged and optimistic that we'll be able to put our balance sheet to better use going forward because there are reportedly a number of properties that are coming to market. We certainly -- we're one of the least levered companies in the space and we think that could be a competitive advantage to us as we go forward.

Thanks a lot, Joe.

Elliot Fruchter, Merrill Lynch.

Good morning. I'd like to focus first on the clinical business. Looking at the pro forma figure of $100 million for 2007, if we exclude Assent Consulting it looks like you're expecting about a flat 2H versus 1H. I was wondering if that was related to the seasonality you spoke to earlier or if you can just speak generally about the visibility of that business and the impact, the risk, the upside and the downside of a new trial.

Um --.

Emil, do you want to take a shot at that? It is not our expectation that the organic clinical trials business will be flat. They're actually going to have an excellent third quarter. But Emil, I don't know if you have anything specific you can --.

I agree with that. I think, based on the current organic trends, we don't see any reason why we should not have also organic increases on a year-over-year basis when comparing second half of '07 to '06. So it's not just an acquisition story, it's really our organic business has been performing quite well.

If we look at the performance of the base ClinForce business versus the acquisitions, ClinForce is growing the fastest. It's top line is close to 20%, bottom line more than 20%. So it's been a very strong performer for us in the second quarter and we think that's going to continue in the third quarter.

Okay, great. And again, on the risks to the up side and the down side of a trial coming on or off?

They're unchanged. I mean, it is a somewhat more volatile business from that perspective. We have worked hard to diversify the client base away from the mega large [cap pro forma] into a broader client base that cushions the down side of a trial ending unexpectedly. At the same time, there are also trials that end expectedly. That's certainly true and I think it's the nature of this business; it's why we are willing to pay a lower multiple for acquisitions because of the somewhat greater volatility.

But having said that, we think this is a terrific space that is growing very rapidly and we are so much better positioned today than we were a year ago with the acquisitions that we've made to get into really hot areas like drug safety -- AKOS gets us into really an advisory role for companies looking to navigate the different drug trial process in each of the countries in Europe and even some outside of Europe, which gives us a much earlier window into what drugs are going to be brought to market.

So we really like our position in the market. We really like the management we have running these business. We have brought on excellent management with some of the acquisitions we've made. We've supplemented our management with outside hires. So we think we have a very strong position that is likely to be an important part of our business mix going forward. Emil, I don't know if there's anything you want to add to that.

You've covered it all.

Okay, great. And can you provide any additional color on your plans internationally?

Well, AKOS is really our first what I would describe as international acquisition. When we looked at it -- again, it's primary focus for us was its activity in the drug safety area which is a, we think, an important strategic area for us to grow in. But also, as I indicated, their 20-year presence in that advisory capacity to companies introducing drugs in various countries throughout Europe. And when you look at where trials are done, 90% of trials are done either in the U.S. or Europe. So we felt Europe was the best, most logical market.

More trials are global in nature, particularly when you're talking about some of the larger pharmaceutical companies, so we think we have -- it was appropriate to have a footprint in Europe and we certainly are open to expanding our presence in the European market as well as some other markets -- I don't want to give too much away -- through acquisition. And I think it just makes us a more credible vendor to some of the larger pharmaceutical companies bringing drugs to market throughout the world.

Okay, great. One final question. On the other human capital management services, can you talk about the top line acceleration in growth? Is that a function of easier comps or is there a changed environment there?

I think the environment in our -- the service business remains positive. We've also seen strong year-over-year improvement in our education and search business. When we look at some of our leading indicators in terms of seminars, booking trends. We are seeing a resumption of growth. That business has been a bit choppy earlier this year, but it's back on a nice growth trend.

In fairness, the fourth quarter was not a particularly strong quarter for us for these businesses. We think we will have more momentum in both these business heading into the second half of the year than we might have had a year ago.

Great. Thank you very much.

There are no other questions at this time.

Okay. Well, we appreciate those that have joined us for this call, for their interest in Cross Country and we will look forward to updating you on our third quarter later this year. Thanks very much.