Cross Country Healthcare Inc (CCRN) 2007 Q4 法說會逐字稿

You will be asked to record your name prior to asking your question. I would like all parties the conference call is being recorded. If you have objections you may hang up at this time.

I would like to turn the conference call to Mr. Howard Goldman. 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 fourth quarter and full year 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 events in the future such as conditions or includes words such as expects, anticipates, believes, estimates and similar expressions are forward-looking statements.

The 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 fourth quarter of 2007 as well as under the caption risk factors in our 10K for ended December 31, 2006, and our quarterly reports on Form 10-Q issued during 2007 as well as in our 10k for the year ended December 31st, 2007 which is expected to be filed in the coming days. Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results.

Given these uncertainties, the forward-looking statements discussed in this teleconference might not occur. Cross Country Healthcare does not have a policy of updating or revising forward-looking statements and thus it should not be assumed that our silence over time means that actual events are occurring as expressed or implied in such forward-looking statements. And now I 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, Inc. As reported in our press release issued last evening, our revenue for the fourth quarter of 2007 was $182 million, up 3% from a year ago. Our net income in the quarter was $7.3 million or $0.23 per diluted share. Our earnings per share were in line for the prior quarter which included a gain of $0.04 per diluted share related to the partial reversal of a legal settlement charge.

Cash flow for the fourth quarter was $20 million, the highest ever quarterly cash flow for the company reflecting both improving margins and strong collections of receivables. Our fourth quarter performance resulted in full year 2007 revenue also reaching a record level of $718 million. In addition, our 2007 earnings of $0.76 per diluted share were up 49% on a reported basis. As outlined in our press release, the prior year included an after tax charge of $0.13 per diluted share related to the settlement of a lawsuit.

The improvement in our results in the fourth quarter and full year largely reflected a substantial increase and contribution from our clinical trial services business along with continued margin expansion in our nurse and allied staffing business. In our nurse and allied staffing business we had some very bright spots including our bill pay spread expanded during the 2007 and in the fourth quarter was the highest since we became a public company in 2001 helping to partly offset inflation and housing and insurance over the same period. Our housing costs as a percent of revenue declined substantially for the second consecutive quarter reflecting our heavy focus on bringing this important area of cost under control.

Revenue per hour continued to rise in the low single digit range since we've seen for the past several years and per diem staffing showed both year-over-year and sequential staffing volume improvement in the fourth quarter. These dynamics resulted in substantial profit margin improvement in our nurse and allied segment in the fourth quarter, both year-over-year and sequentially which gave rise to the segment's profit improvement despite softer staffing volumes. Looking at staffing volume, the momentum achieved in nurse and allied staffing during the first half of this year stalled in the most recent quarters as weak hospital admission trends and softening labor markets particularly in key states such as Florida, Arizona and California have reduced demand for our service. On a national scope, the pace of decline in our demand is not alarming especially in Texas and Washington state which are showing strong year-over-year trends.

That being said, I am encouraged by a recent improvement in our order activity. Orders are up about 35% since the end of January partly due to the late flu season this year and have stabilized on a year-over-year basis. The biggest rebound in our orders over the past month has been in California and Arizona. For us, California was the first major market to experience a significant softening of demand. So we believe the uptick there could be a signal that a reversal in booking trends in our other key states may not be far behind. We know that there has been much discussion as to whether the economy is in or is about to enter a recession. In any event, we believe our company is much better positioned today to weather such an unfavorable economic climate than it was entering the last recession.

First, we believe we have a stronger position in the nurse and allied staffing space and we did in 2002 because of our vendor management strategy along with our acquisition of MedStaff in June of 2003. Second, during the past two years we have redeployed cash thrown off by our nurse and allied staffing business into the higher margin clinical trials services market. This market has recently had more favorable growth dynamics than the nurse and allied staffing market. At a result, we have diversified our revenue since becoming a public company in 2001 and more significantly, the contribution income generated by our clinical trials services business in the fourth quarter of 2007 was $3.8 million. That was 18% of total company contribution income, 3 1/2 times the level in the fourth quarter of 2001 when it was 5% of total contribution income.

So even if the labor market deteriorates further we believe the actions we have taken will better insulate our company from its consequences. And lastly, admission trends have been essentially flat since 2003 and hospitals appear to have incorporated a lower level of expectations into the nurse staffing plans. Consequently we believe there is a greater potential for an upside surprise in admissions which will create a more favorable dynamic for us.

Now turning to our clinical trial services segment, we continue to be pleased with the performance of our legacy business and the three acquisitions we've made over the last two years. While staffing remains the focus of our efforts in this market we are now also well positioned to achieve growth from increasing drug safety monitoring and contract research outsourcing going forward as a result of expertise we have acquired. We also have obtained a much more attractive geographic footprint for this business primarily in the U.S. as well as in Europe. In our other human capital management businesses, our education and routine research businesses both achieved top line growth in the fourth quarter. Despite this improvement, contribution income was down 4% from the year ago quarter.

Our education business was not able to offset the combined cost of higher postage rates and greater mail volumes and our retained position and a health care executive search business experienced higher commissions related to placements made during the fourth quarter as clients typically desire to conclude searches before year end for budgetary reasons. Although the timing of higher commissions resulted in higher expenses in the fourth quarter, this dynamic bodes well for the momentum of our search business going into 2008. Typically a higher number of placements leads to more searches in future periods.

In summary, as a chief executive I'm pleased with the operating performance of our company in the fourth quarter and for the full year 2007. And as a shareholder, I'm highly disappointed in how this performance failed to adequately translate into greater shareholder value. Management will however, strive to achieve continued improvement in our operating performance and will seek to take advantage of our financial flexibility and balance sheet strength to generate greater share holder value in 2008. With that I would like to turn now the call over to Emil to update you on our financial performance.

Thank you, Joe, and good morning, everyone. First, I will go over the results for the fourth quarter and full year 2007 and then review our revenue and earnings guidance for the first quarter of 2008 that we provided in last night's press release. Consolidated revenue in the fourth quarter was $182 million, up 3% versus the prior year but down 2% sequentially. The year-over-year increase was due to the clinical trial services acquisitions while the sequential decrease was primarily due to the lower staffing volume in our travel nursing business that Joe referred to earlier. Our gross profit margin was 25.7%, up 220 basis points from the prior year and 90 basis points sequentially.

The year-over-year margin improvement is due to a combination of a higher mix of revenue from our clinical trial services business, which have higher gross profit margins than our nurse and allied staffing businesses, and continued improvement in the bill pay spread in our travel nurse staffing business. The improvement in the bill pay spread was also the primary driver in the sequential margin improvement along with lower housing and insurance costs. SG&A expenses in the fourth quarter were up 12% year-over-year, and less than 1% sequentially. The year-over-year increase is due to a combination of higher compensation expenses including approximately $200,000 of FAS 123 related equity compensation costs, the additional overhead associated with the two clinical trial acquisitions and increase mailing cost in our education business.

Net interest expense was $764,000, up 58% from the prior year quarter, but down 5% sequentially. The year-over-year increase reflects the additional debt incurred to finance the clinical trial acquisitions, while the sequential decrease reflects the repayment of $4.8 million of debt during the quarter made possible by our strong operating cash flow. The effective tax rate in the fourth quarter was 35.2%. The lower than expected tax rate was due to the true up during the quarter to our revised full year 2007 tax rate of 37.5%, which was approximately 1 percentage point lower than previously estimated. Going forward for modeling purposes we expect our tax rate for the first quarter to be in the 37 1/2 to 38% range.

Net income in the fourth quarter was $7.3 million, as compared to $7.5 million in the same quarter a year ago. Earnings per diluted share were $0.23 in the fourth quarter, unchanged from the prior year which included the partial reversal of a legal settlement charge equivalent to $0.04 per diluted share. Absent this prior year reversal, our EPS would have increased more than 20%.

Our balance sheet remains strong. We ended the year with $39 million of debt and $9 million of cash. Net of cash, our debt-to-total capital ratio was 7% and the current ratio was three to one at year end. The DSO at the end of the year were 59 days, down two days from the end of the third quarter.

We generated $19.9 million of cash from operating activities during the fourth quarter. As I previously indicated, we used $4.8 million for debt repayment, another $4.9 million for share repurchases and $1.6 million for capital expenditures. We repurchased 357 and 500 shares of our common stock during the fourth quarter at an average cost of $13.63 per share. Additionally since January 1 of 2008, we repurchased 600,000 shares of our common stock leaving just over 265,000 shares available for repurchase under our May 2006 authorization. On February 28, 2008, our board authorized the repurchase of an additional 1.5 million shares of our common stock subject to the terms of our credit agreement.

For the year as a whole, our revenue was a record $718 million, up 10% from the prior year. Net income was $24.6 million, up 48% from the prior year. Earnings per diluted share were $0.76 in 2007 as compared to $0.51 in 2006, which included a charge of $0.13 per diluted share for legal settlement. During 2007, we generated $36 million of cash from operating activities, a 9% increase over the prior year. Capital expenditures for 2007 were $.3million. Let me drill down into our three reporting segments.

Our nurse and allied staffing segments which accounted for 7 and 9% for fourth quarter revenue consists of our travel and per diem nurse and travel allied staffing businesses. Our clinical trial services segment accounted for 14% for fourth quarter revenue and consists of our legacy ClinForce business plus three recent acquisitions, Metropolitan Research acquired in August of 2006, AKOS acquired last June and Assent acquired last July. Other human capital management services forms our third reporting segment and is comprised of our education and training and retain search businesses accounting for 7% of the quarter's revenue. Revenue for the nurse and allied staffing segments was $143 million, down 1% versus the prior year and 2% sequentially. We average just under 4,900 field FTEs in the fourth quarter, down 4% versus the prior year and 2% sequentially. The smartest decline in volume primarily reflects lower demand for travel nurses in California, Florida and Arizona.

Bill rates as measured by revenue per hour in our core travel nurse staffing business increased by 4% year-over-year continuing the favorable trend in this metric. Nurse and allied staffing contribution income as defined in our press release was $15.6 million in the fourth quarter, up 5% from the prior year, and up 9% sequentially. Segment contribution margin was 10.9%, up 70 basis points from the prior year and 110 basis points sequentially. The margin improvement was driven by the continued widening of the bill pay spread.

Revenue in our clinical trial services segment was $25.2 million, up 32% from the prior year due to the two acquisitions we made in 2007. The sequential basis revenue declined by 4% from the particularly strong results achieved in the third quarter, largely due to a slowdown of activity during the holidays which coincides with a normal reduction of activity in the pharmaceutical industry. We continue to be very pleased with the performance of both our legacy ClinForce business and our acquired clinical trial businesses although we recognize that due in part to their smaller size they are more susceptible to event risks type of potential startup delays and their early termination of trials. Contribution income for the clinical trial services segment was $3.8 million, up 52% from the prior year. Segment contribution margin was 15.2%, up 200 basis points from the prior year, due primarily to the impact of the acquired businesses which operate at a higher margin than our legacy staffing business.

Turning now to the other human capital management services segment, fourth quarter revenue was $13.3 million, up 16% from the prior year and 1% sequentially. Both our retained search and our education and training businesses contributed to the year-over-year revenue growth. Segment contribution income was $1.9 million, down 4% from last year due to increased direct mail costs in our education and training business. On a sequential basis, segment contribution income increased 15%.

This brings me to our guidance for the first quarter of 2008. The following statements are based on current management expectations. These expectations 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 down 7% year-over-year in the fourth quarter, reflecting the relatively soft seasonal demand for travel nurses. Based on this, we project the nurse and allied average field FTE income in the first quarter to be in the 4,750 to 4,800 range, down 6 to 7% year-over-year.

Revenue for the first quarter is expected to be in the 175 to $178 million range. We expect our gross profit margin in the first quarter to be approximately 24 1/2%, up approximately 150 basis points from the prior year, but 120 basis points lower than in the fourth quarter primarily due to the reset of payroll taxes and one less billing day in the first quarter. EBITDA margins are expected to be in the 6 to 7% range. Interest expense is projected to be in the 600 to $700,000 range. Based on these assumptions, EPS per diluted share is expected to come in between 15 to $0.17. This concludes our formal comments. Thank you for your attention. At this time, we will open up the line to answer any questions that you may have.

Thank you. [Operator instructions] Our first question comes from Tobey Sommer from Suntrust Robinson Humphrey.

You come in orders since January had picked up nicely. I was wondering if you could or have any sense for parsing out the potential late flu season effect versus a more durable trend in a pickup in demand?

Toby, I'm not sure I can do that. Clearly the end of January represented a low point and I think clearly the seasonal business that we would expect in Arizona and California was much weaker than we would normally expect. The customer doesn't tell us. It's a flu-related opening. It's just that clearly they are seeing more patient volumes and they are trying to respond quickly to the pickup. I would just caution that we are encouraged by the recent dynamics and really has been week to week where you see in a building if I reported that pickup a week ago it would have been in the low 20% increase. So we had a nice pickup in orders last week. And we are up year-over-year, probably for the first time in 16 months. Until those orders translate into bookings, I won't get too excited. And the fact that we really haven't seen a commensurate short-term pickup in bookings, lead me to believe that they may not be as durable as we'd like.

Thank you. And then cash flow in the quarter was quite strong. Is there anything unusual in that? Or is it just good performance from all of the businesses?

Nothing terribly unusual about it, Tobey. The major contributors to the cash flow in addition to net income was a reduction in receivables. We had a two day drop in our DSOs which accounts for $4 million of cash flow. We had an increase, deferred taxes are always a factor due to the tax deductibility of goodwill. When we look at the year as whole which is probably a little more meaningful than to look at any one quarter, we have $36 million of cash flow which was about 9% higher than last year. But it's important to note that what impacted our cash flow 2007 was a $6.7 million pre-tax payment that we made in the first quarter to settle the California class action lawsuit. So had it not been for this payment our cash flow from operations in 2007 we would have actually exceeded $40 million, year-over-year increase would have been around 22%. So in just a strong year, there is a fair amount of volatility in our quarter to quarter cash flow primarily due to changes in working capital which can be influenced by such factors as the timing of the payroll cycle in relation to the quarter end and any change with the net's receivables. And clearly when our revenues are growing we will expect our cash -- we expect to tie up some working capitals and receivables.

Right. Thank you, Mil. Joe, one last question and I will get back in the queue. You ended your prepared remarks by saying we obviously grew revenue in earnings and had a good cash flow year but that didn't translate directly into a strong shareholder value. You said that this year you would take further steps and additional steps. What sort of plan do you have in place to kind of increase the correlation between your financial performance and shareholder value?

Toby, there are things we can control and things we can't control. We can't control the multiples that are assigned to the space that we operate in. Being a member of small cap or increasingly micro cap is not a good club to belong to today. Having said that, we think we have a lot of financial balance sheet flexibility, the board recognizes the opportunity to reduce the outstanding share count and has given us the authorization to buy back another million and a half shares in addition to the balance of the previous authorization. And we think in this environment there's's -- given our debt-to-total capitalization, increasingly an opportunity for those companies that have the profile to go out and do acquisitions, it's a much less competitive environment than it was for the last several years in this space. We are encouraged on a number of fronts. Again, the things we can't control we will just keep advancing the ball and growing our business and improving the operating margin profile of the business. But those things that we can act upon, we will act upon and use the tools that we have at our disposal to achieve what we hope will be greater shareholder value in 2008.

Thank you. Our next question comes from Jim Janesky with Stifel Nicolaus.

Yes, hi, Joe, Emil. A couple of questions. First on the nurse travel space, can you give us an idea why you saw -- why you think California has rebounded and in that answer maybe imply why Arizona and Florida might rebound? Or is there not really a link?

Well, I want to caveat my response by saying there is what I believe. I believe those three states were were among the most impacted by what was a very hot housing market that became a very cold housing market. We saw the earliest impact of a softening housing market which truly softened a couple years ago. It wasn't the sub prime that hurt housing. Housing had begun to decline well before the sub prime market and hit the fan, if you will. So California was probably a six months ahead of the declines that we have seen in the second half of '07 and Arizona and Florida. And in January in particular it had been improving in the fourth quarter, the momentum wasn't the right direction although they were still negative year-over-year. In January, the operating metrics of California are positive. Orders are up. Bookings are up. And as a CEO, that's again. and orders are great but when it's not until they translate into bookings that we get excited and we were excited that we are seeing higher levels of booking activity in California. So if the same kind of timing holds true and Florida and Arizona are six months behind California, then we would hope the other key states to kind of get back in line with the rest of the country. As I said, several times, if you exclude California, Florida and Arizona we were up in orders. We were up in bookings -- we were up in working nurses throughout 2007. But unfortunately those are three of our top five states accounting for roughly 40% of activity so you can't exclude them. If they get healthy and assuming the economy doesn't take another leg down, I think there is certainly the prospect for us to show much more favorable volume trends in the second half of '08 than we saw in the second half of 07.

You mentioned that that hospitals are adjusted -- have adjusted staffing levels to align themselves with a poor hospital admissions rate environment. Does that mean that even a very small surprise to the upside could drive a much larger than historical increase in the use of travel nurses? Or will they first turn to per diem. What are your thoughts?

I think it depends on the hospital. Each one has its own manner in which they respond to unexpectedly high census. Some will force their nurses to work overtime. Some will try to get by with higher patient to nurse ratios. Having said that, an outside surprise in census is typically disproportionately favorable to our performance than it is to the hospital's performance. Just as an unexpectedly soft admissions trend tends to be disproportionately unfavorable. Again, it's all about expectations. It's not the absolute level of admissions that drives our business. Even though I would say all the things equal more admissions are better than less admissions, it's what do the hospital expect. If they expected admissions to be flat, and they got a half of a percent or a 1% increase in admissions, that's going to be very favorable to us in the short term. I we had 2% admissions growth, going forward for two quarters, I would expect our volume trends to be at least 10% ahead year-over-year, responding pretty quickly to that favorable environment.

Okay. And now last question, shifting to clinical trials, you have referred to that business in the past as being somewhat lumpy both on the upside and the downside. Can you give us an idea of what the back log is? Have you seen any change in the core underlying demand or the spending in the clinical trials area and you think it's just a matter of time before we see that business start to accelerate?

That's our current expectation, Jim. First of all, take a step back. We had a great third quarter in that business. I mean, everything that could go right, went right and that's not a situation where we are accustomed to. Generally something will go unfavorable to your expectation. The fourth quarter was little less favorable. We had a significant contract that ended during the third quarter, really right at the end of the third quarter, the end of September. We replaced some of it, not all of it. And in the first quarter we see again a kind of a, the seasonal pattern flow into the first quarter. We felt we were going to have one major contract start in the first quarter that now looks to be delayed and another smaller one was delayed. That's the kind of the nature of that business. We aren't big enough in that space to be indifferent to the timing of when a contract starts. When they are pushed back it does has an impact on our business. When I look at the backlog of contracts that we have won, it suggests at worst, we are stable organically in 2008, vis-a-vis 2007. Having said that, there is a lot of activity, a lot of situations that we remain involved in and have the opportunity to win that I am hopeful that we will see much more favorable sequential perform in that business and I know the operating management of business is very confident in their ability to grow the business in 2008.

Okay, thank you.

Thank you, our next question comes from Jeff Silber with BMO Capital Market.

Thank you so much. Just to continue on the clinical trial side, in the press release it talks about the bulk of the growth came from the recent acquisitions you made. Was there any organic growth in that division in the quarter?

Not in the fourth quarter, Jeff. For a couple of reasons. As I indicated the one contract that did come off was in the organic piece of the business year-over-year and I would -- the management hasn't hung their hat on this. We did put in place a new operating system beginning in August for that business. Platform that really took our people off the phone with our clients and required them to sit in on training on the new system. While I describe that exercise as having gone pretty well, it wasn't necessarily disruptive. There weren't a lot of things that fell through the crack from the performance side of the business. Inevitably when you take people off the phone, you are going to have a slowdown in your momentum. Again, I would look that the as an exogenous event -- we had to do that we felt to allow the business to be more robust from an integration standpoint. Integrating the new acquisitions we made onto a more robust platform. We like what we have now. Just was a process to get there and that probably slowed the momentum of the organic business as well in addition to losing what was a pretty significant contract that just ended. And we had -- held out some hopes that it will be reviewed and turned out it wasn't.

Okay, so in terms of the guidance you are given for the first quarter, should we assume -- what should we assume from a sequential perspective in the clinical trials business?

Sequentially we are expecting the revenue in that segment to be essentially flat to slightly up. So it's kind of probably flat is the most reasonable assumption. Let me clarify. In your first question, when we talk about the organic part of that business, we were including both our legacy ClinForce business and the Metropolitan Research business which was acquired in 2006. If you just look at our legacy business in the fourth quarter, we did achieve growth year-over-year. It's just that the Metropolitan Research which was -- is more prone to lumpiness, as you phrased it due to the nature of the contracts that they have, had that termination of the contract at the end of the third quarter.

Okay. I appreciate the color. Thank you. And go back to the nurse travel side of the business. I think in your prepared remarks, Joe you talked about the bill pay spread. You say it was the highest since the company had gone public?

That's correct.

And I think in other remarks you talked about the bill rates going up -- about 4% year-over-year. How much do wage rates change?

Less than that. It's an increase, but a smaller increase in wage rate.

So the bulk of the widening of the spread was more on the housing cost and other employment costs that you talked about?

No, no. Compensation didn't go down. It went up but at a less rapid rate than bill rates. Housing costs were also up, but also less rapidly than bill rates.

Okay.

There's a leveraging effect of course, because if the -- if the wage rate goes up at a lower rate than the bill rate, the actual differential is going up disproportionately.

Okay. In terms of looking forward to 2008 and I know you don't give annual guidance, but just in terms of capital spending and appreciation and amortization, what should we be expecting in 2008?

We are expecting to spend roughly 1% of our revenue in CapEx. Our depreciation and amortization on the sequential basis is expected to be relatively flat. You call it about 2.5 million a quarter.

Thank you. Our next question comes from Michel Morin with Merrill Lynch. You may ask your question.

Good morning.

Good morning, Michel.

I was wondering, I think a few months ago, Joe, you mentioned that the gross margin outlook was very solid and you were pretty hopeful about the outlook for 08 continuing that momentum. Is that still the expectation? I think you'd actually quantified that 100 base points might be feasible in '08.

Yeah, Emil.

I think that's entirely correct.

And we still hold it to that. The issue I think that is the upside. The down side is the top line growth is less than we would like it to be.

Right. Okay. And then you mentioned that your per diem is up both sequentially and year on year.

Correct.

It's just interesting that you had some slowdown on the travel side. Is there anything specific that where you benefited on the per diem side. Or is it just that the comps have gotten so easy now that you've kind of turned the corner there. There is anything specific we should be aware of there.

Little bit of both. Some of the volume momentum is in disciplines that we do not place on the travel side. For example, LPNs and CNAs. And per diem is more market specific. There's obviously, we're in far more markets on the travel side, . So the dynamics can be different. We are not in Arizona in the per diem business. And today when you look at the volume momentum of the travel nurse business, it's the most significant decline that we are seeing anywhere in the country. Just if we can take out Arizona, we would be showing much better trends in the business. So there is specific reasons. I wouldn't read too much into that. And clearly the comps and per diem had gotten

Right. Just finally on the tax, you gave us an idea for the first quarter. Emil, could you do the same thing for the full year 08. Should it be materially different from 07?

Well, again, our expectation for the first quarter is based on our current projection for 2008. Barring any changes in mix that remains our full year expectation.

Great. Thanks very much.

Thanks for calling in.

Your next question comes from Bruce [Ackerman] with Sandhill Equity Research. You may ask your question.

Bruce, are you there? I think we lost him.

Mr. Ackerman, your line is open. Our next question comes from Tobey Sommer with Suntrust Robinson Humphrey, you may ask your question.

Thank you. Joe, wanted to dig into the bill rates a little bit if I could. Wondered if you had discernible regional trends, for example, in some of the weaker markets over the last couple of months, are those bill rates still keeping a pace with the average bill rate increase?

I have not seen any discernible difference regionally. I think we keep -- and just to clarify. It's not every account that when we negotiate are we getting 4%. It's as much as 10% and clearly it's zero in some cases. But when you look at the average, it's pretty encouraging. Those that are renegotiated and we are getting increases. We were typically getting more than 4%. It's obviously averaging out with those that we aren't getting an increase or not renegotiated at that point in time.

And if we step back and take a look at or think about how the cycle typically progresses. You know, you get a period of demand followed by bill rate increases and then volume. This moderation of demand in certain markets has not been followed by a softening in bill rates which will be more characteristic of a downturn, right?

It's a fair comment. And not to say that it can't. It certainly hasn't happened yet. By all indications, our internally our expectations are slightly, we've been saying 4 to 6% bill rate going forward. I would say today, 3 to 5%. We just have because of the dynamics you described, we just want to be a little more cautious in our expectations. What we have realized does not suggest things are softening on the bill rate front. And so we remain encouraged that there is not a wholesale -- the tide is not going out nationally. That it's been market specific and even in those markets, we have been able to get fairly attractive pricing which allows us to offset some of the inflationary cost items in our wage and compensation package and benefit package. And I -- it gives me a lot of confidence that what we can count on in '08 is continued margin improvement.

Right. Thank you. That was helpful. And then if I parse out and think specifically of your cost to services and leave the pay rate aside, do you have any expectations regarding insurance and housing rates? Anything you are seeing in the marketplace for example in the real estate market that may change the rate of growth in your expense there?

I think in the housing area we believe that rental markets are beginning to soften in most markets. That's moderate our housing costs. Obviously puts us in a better negotiating position with the landlords. We are also improving our housing efficiency by focusing on reducing the number of open bedrooms. On the assurance front, we have kind of a longer term trend in professional liability that we expect that line item to decrease over time. As I mentioned in previous calls, what drives that is in 2002 to 2004 period we had a high self-insurance retention. The further we get away from 2004, the smaller the tail associated with those losses become as part of our total cost. So while they could be some fluctuation in this area over the long run, we expect this line item to decrease. Health insurance is something that we do expect to increase over time. It's just tied to over health care inflation. And the third major insurance line for us is workers compensation which has been relatively stable over the years. We don't expect much change in the percentage of compensation.

Thank you very much, Emil. Specific question on the clinical trials business. You talked about that revenue being lumpy and cited a specific contract entered around the end of the third quarter. To what extent has there been customer concentration historically within that segment in sort of what was the largest percentage of revenue from a specific customer.

The largest customer that we have accounts for less than 3% of our consolidated revenues and less than 20% of the segment revenue. I should point out in this particular customer's case, we are involved in more than 20 different trials with this customer. So there is any one trial terminating early it's not that catastrophic. It's not like you're losing 20% of your business. Independent decisions associated with each trial. Early termination or delayed start is not catastrophic. It can hurt you but it's not catastrophic.

On an individual trial basis, would it be fair just to take ten or 20 projects and divide that 20% by that? Or one or two of those projects substantially larger than the others?

There is one project that is larger but it sends many different trials. It's a functional outsourcing type expertise where you are not really tied to a specific trial but rather to a functional area where the customer has contracted with us to provide a service in different trials.

Just again, try to give you context, Tobey. The contract that ended at the end of September that we referenced a couple of times represented about 4%, little less than 4% of the segment's aggregate revenue. 4% doesn't sound like much, but it's -- we felt it. And we are just -- we certainly have reduced the customer concentration as we made the acquisitions we made over the last two years. We expect to continue to reduce it going forward. We think there is a number of opportunities to add on to this business through acquisition going forward at reasonable prices. So we would expect to see this volatility become less magnified and certainly become less impactful on the sequential performance of this business. But today it clearly there is that potential for one contract to move the needle quarter to quarter. It is -- we just started breaking out the segment so you don't really have historical color. We certainly have seen it internally. Overall we love the performance of this business. It's been an excellent acquisition. The management we acquired when we bought the business in 2001 is still with us. We are very -- we have a lot of confidence in their ability to manage a business through the ups and downs and realized very attractive profitability from the segment and we have acquired some excellent people that have stayed with the business post acquisition so we like what we have and feel very good about our prospects in this area.

Thanks. And one last question, Joe, you did initiate or added to your company share repurchase program and availability. To what extent could you get even more aggressive than that and as the stock comes in here, really take a chunk out of the diluted shares. Is there a price at which you become even more aggressive?

The lower the price, the more aggressive we become. And you've seen that just in how we managed our stock repurchase over the years. We don't rule anything out. There is not a -- anything on the table that we said we're just -- we are not interested in doing that. We want to use our capital to the best advantage of our shareholders. And again, we don't exclude anything from that opportunity. Our board clearly has been supportive and has confidence in our ability to be disciplined in the execution of a stock repurchase program. And if we go through this next repurchase quickly and we have the authorization under our credit agreement to do more, we would expect that they would give us that opportunity.

Thank you very much.

Thank you. Our next question comes from Jeff Silber with BMO Capital Market. You may ask your question.

Just a couple quick follow-ups. Joe, you mentioned one of the ways you might look to increase shareholder might be some potential acquisitions. I'm just curious, in terms of the multiples, since the public company multiples have contracted so much, have expectations on the private company side followed suit?

Jeff, you have been around long enough to know that it doesn't, they don't go lock staff. That's seller expectations tend to be pretty sticky coming down the curve. We would just say that first of all, investors need to know that we were always looking at acquisition opportunities. We look to build the businesses that we currently operate and increase the critical mass of those and operating leverages of those businesses. And we also look at other opportunities within the health care human capital space that we're not currently in, such as physician locum tenants, such as the coder and biller area that we don't have a presence in today that we think both of those opportunities are very interesting. And we think based on what we've seen there are prospects in our core activity today that are more interesting and less competitive than they have been for several years. So just have that expectation that we are on the hunt to find those acquisitions that are going to be accretive and provide a strong return on investment capital going forward. And I think our track record is pretty strong in that area.

Sure. That's fair. Can you give us any color in terms of roughly what multiples are ranging these days?

Well, we would say to any prospective seller. We were trading at seven to eight times EBITDA. Your expectations should not be above that. If you look at acquisitions we made in the clinical trial space in the last two years they ranged from little over five to as much as eight times trailing EBITDA. And that's pretty much a range that we think is manageable for us. Again, there may be a platform acquisition that we are willing to stretch for a little bit. We still have to hit our performance criteria as it relates to accretion and return on capital. And that's the discussion that we have with prospective sellers.

Okay, Great. And then one more guidance question to Emil. What share count should we be using for the first quarter?.

31.5 million. And the repurchases to date this quarter of approximately 600,000 shares.

Great. That was going to be my question as well. Thank you so much.

Thanks, Jeff.

Again, if you like to ask a question, press star-one on the touch-tone phone. One moment please. Sir, at this time I show no questions in queue.

In that case we want to thank everyone for participating in this call and we look forward to updating you in May on our first quarter performance. Thanks very much.

Thank you. At this time that does conclude today's conference. All parties may disconnect.