Cross Country Healthcare Inc (CCRN) 2008 Q4 法說會逐字稿

Welcome to the Cross Country Healthcare fourth-quarter and year-end 2008 earnings conference call. All participants will be in a listen-only mode. After today's presentation, we will conduct a question-and-answer session. (Operator Instructions). Today's conference call is being recorded. If you have any objections, please disconnect.

I would like to turn the call over to your conference host, 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 fourth-quarter and full-year 2008 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 but depend upon or refer to future events or conditions or that include words such as expects, anticipates, believes, estimates and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.

These factors were set forth under the forward-looking statements section of our press release for the fourth quarter of 2008, as well as under the caption risk factors in our 10-K for the year ended December 31, 2007 and our SEC filings made during 2008. 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.

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 fourth quarter of 2008 was $206 million, up 13% from a year ago, and above the high end of our guidance range for the fourth quarter we provided in November. The increase is entirely due to the contribution of the recently acquired MDA physician staffing business.

For the fourth quarter of 2008, we reported a net loss of $161 million owing to a non-cash goodwill and other intangible asset impairment charges of $244 million that were substantially due to our annual goodwill impairment testing. Emile will provide more detail on these impairment charges in a moment. Excluding the impairment charges, our earnings per diluted share were $0.18 for the quarter. This result exceeded the high end of the guidance range, as well.

Cash flow for the fourth quarter was $10 million.

The deterioration in the environment for our Nurse and Allied Staffing segment which it operates in continued and accelerated during the past three months. Demand, as expressed by the number of open orders from our hospital clients, is down more than 50% since the start of this year. This is the most difficult environment we've seen since the mid-1990s.

We believe the deterioration had several causes, including unfavorable credit market conditions for hospitals since the collapse of the auction rate securities market, and exacerbated by the bankruptcy filing of Lehman Brothers, which have significantly increased interest expense and reduced profitability for our hospital customers.

Most not-for-profit hospitals have seen material declines in the value of their endowment funds. And the dramatic deterioration in the economy and national labor market since the third quarter is likely encouraging nurses to work more hours directly for hospitals, thus greatly reducing the hospital industry's reliance on the kind of outsourced labor we provide. And finally, hospital admission trends have been weak according to anecdotal reports.

As a result of these factors, we find ourselves in a very weak demand environment, and I see no catalyst that has the potential of reversing these negative dynamics for our nurse staffing business in the near term. Our working nurse counts have declined substantially less than demands because of our ability to renew nurses on contract at the same facility, and we believe we benefit because of our industry-leading vendor management service offering where we have exclusive accounts.

Nonetheless, we are trending unfavorably. Therefore, we have taken a number of steps to reduce costs in this segment so that we can optimize profitability to the extent possible in a declining volume environment. These steps include reducing employee headcount, as well as advertising expenses targeted toward new nurse acquisitions.

Employee headcount at the end of January in our Cross Country Staffing division was down 15% from September 1, roughly equivalent to the decline in staffing volume for this division since that date. At the same time, fourth-quarter applicant activity was up 20% year-over-year. We believe this is due in part to the perception of nurses that Cross Country has more jobs to offer them in a very constrained job market. This is one of the few times in my 16-year tenure that we have more nurses calling us than we can place. This dynamic gives me confidence, however, that we can further reduce print and Internet advertising spending without harming our ability to attract new applicants.

Lastly, we plan to reduce capital spending in the Nurse and Allied Staffing segment to maximize the cash flow of this business, that will in turn accelerate the delevering of our balance sheet during the period.

The performance of our other businesses in the fourth quarter fell within the range of the strong performance by our Physician Staffing segment and the weak performance of our Nurse and Allied Staffing segment. We believe the performance of our Physician Staffing segment reflects the dichotomy between physicians and nurses in our health care system. Physicians are needed to admit patients into a hospital, and are therefore considered revenue generators. Nurses, by contrast, are viewed as an element of care and are not specifically reimbursed. As a result, nurses are the largest cost center within a hospital, and when times are tough, healthcare facility operators strive harder than ever to get revenues up and costs down. Thus, demand for physicians is relatively strong and demand for nurses is relatively weak.

While the past is not necessarily a predictor of the future, this concept is validated by the performance of these two sectors of healthcare staffing during and after the recession of 2001, when Physician Staffing grew at low double-digit rates, while Nurse staffing declined from 2002 to 2003.

In our Clinical Trials Services business, work generated by small biotech companies has clearly been impacted unfavorably by the chaotic financial market environment, at the same time pharmaceutical companies have refocused or scaled back their R&D programs while looking more to licensing or acquiring new technologies and potential products to support their growth. However, since the start of the year, we have seen more projects coming to market from stronger players, and we are more encouraged generally than we were in November for the prospects of this business in 2009.

While our outlook overall is certainly not what I would hope it to be, it is important to put this picture into perspective. In the fourth quarter, our Nurse and Allied Staffing segment represented approximately 60% of our total revenue and an even lower share of our profitability, and we expect this relative contribution to decline in 2009. This is due to the weak environment for this business, as well as to the steps we have taken over the past several years to substantially diversify our revenue sources beyond our roots as a company with near exclusive reliance on acute care hospitals and their demand for outsource Nurse and Allied Staffing.

We have been able to do this because of the very strong free cash flow we generate from our businesses, an attractive element of our business model that we expect to continue. Thus, we remain on sound financial footing with a declining level of debt in this uncertain economic environment.

During this difficult period, our operations team will be focused on continuing to provide a high level of service to our healthcare facility customers and the healthcare professionals that look to us for assignment opportunities, and in so doing, take market share, particularly as hospitals continue to reduce the number of vendors they work with. I believe this is occurring in our Nurse and Allied business and will likely accelerate as we go forward.

With that, I would like now to turn the call over to Emil, who will update you in more detail on our fourth-quarter financial performance.

Thank you, Joe, and good morning, everyone. First, I will go over the results for the fourth quarter and full year 2008, and then review our revenue and earnings guidance for the first quarter of 2009, as we provided in the press release issued last evening.

Revenue in the fourth quarter came in at $205.9 million, up 13% versus the prior year and 16% sequentially. Fourth-quarter revenue was $7 million higher than the upper end of our guidance range, reflecting stronger-than-expected contribution from MDA. On an organic basis, fourth-quarter revenue was down 13% year-over-year and 5% sequentially as a result of the deteriorating business environment that Joe referred to earlier.

Our gross profit margin was 26.4%, up 70 basis points year-over-year, but down 20 basis points sequentially. The year-over-year margin improvement was due primarily to the continued improvement in the bill-pay spread and lower professional liability expenses in our Travel Nurse Staffing business, partially offset by higher health insurance, workers' comp and travel expenses, as well as a reduction in high-margin drug safety related revenues in our Clinical Trials Services segment.

SG&A expenses in the fourth quarter were up 23% over the prior year and 17% sequentially due to the acquisition of MDA. SG&A represented 19% of revenue in the fourth quarter, up 150 basis points over the prior year and 20 basis points sequentially, reflecting negative operating leverage in our Nurse and Allied Staffing business, as well as a change in business mix.

The non-Nurse and Allied Staffing segments accounted for about 40% of revenues in the fourth quarter as compared to 21% a year ago. These segments operate with a significantly higher SG&A burden than our Nurse and Allied Staffing segment.

As Joe indicated, we have taken measures to reduce employee headcount and certain discretionary overhead expenses to bring our SG&A expenses in line with the reduced demand for our services.

Net interest expense was $2.3 million as compared to approximately $800,000 both a year ago and in the third quarter. The increase reflects the additional debt taken down to fund the MDA acquisition, partially offset by lower interest rates. During the fourth quarter, we repaid $12 million of debt.

During the fourth quarter, we conducted our goodwill impairment analysis, as required under FAS 142 and FAS 144. Based on these analyses, we recorded non-cash impairment charges of $244.1 million pretax for Goodwill and other intangible assets. The impairment charges relate primarily to Goodwill in our Nurse and Allied Staffing segment, and result from a combination of depressed equity market values, along with lower near-term projected growth rates in our Nurse and Allied Staffing business.

These factors arise from the significant downturn in the US economy and adverse labor and financial markets that deteriorated rapidly during the fourth quarter of 2008. The majority of the goodwill impairment is attributable to our initial capitalization in 1999, which was treated for accounting purposes as an asset purchase. And the remainder to subsequent staffing acquisitions made through 2003. These impairment charges are not expected to have any impact on our cash position, expected future cash flows or liquidity under our credit facility.

Net loss in the fourth quarter was $161.3 million, or $5.22 per diluted share. The loss related to the previously mentioned impairment charge was $167 million on an after-tax basis, or $5.40 per diluted share. Excluding the impairment charges, EPS was $0.18 in the fourth quarter, $0.01 above the upper end of our guidance range, reflecting the stronger-than-expected contribution from MDA.

Turning to the balance sheet, we ended the year with $133 million of debt and $10 million of unrestricted cash. Our leverage ratio as defined in our credit agreement was 2-to-1 at year-end, while under the 2.75 ratio required under our credit agreement. Net of unrestricted cash, our debt-to-total-capital ratio was 33.5%, and the current ratio was 2.9-to-1 at the end of the year.

DSOs at the end of the year were 53 days, down six days as compared to a year ago and down one day sequentially.

We generated $10.1 million of cash from operating activities during the fourth quarter and $51 million for the year as a whole. This compared to annual cash flow from operations of $36 million in 2007, $33 million in 2006 and $31 million in 2005.

Capital expenditures totaled $1.3 million in the fourth quarter and $4.7 million for the year as a whole.

For 2008, our revenue was a record $734 million, up 2% from the prior year. Cash flow from operations was up 42%. We had a net loss for the year of $142.9 million, or $4.61 per diluted share, which included the aforementioned impairment charge of $160 million after tax. Excluding the non-cash impairment charges, net income for the year was $24 million, or $0.78 per diluted share, as compared to $0.76 per diluted share in 2007.

Let me drill down next into our four reporting segments. Revenue for the Nurse and Allied Staffing segment was $123.5 million, down 14% versus the prior year and 4% sequentially. We averaged 4155 field FTEs in the fourth quarter, down 15% versus the prior year and 4% sequentially.

The decline in staffing volume reflects a weakening national labor market on the demand for our services, as well as the impact of the liquidity crisis on our hospital customers' ability to fund their operations.

Bill rates as measured by revenue per hour in our Travel Nurse Staffing business increased by 2% year-over-year. Contribution income, as defined in our press release, was $12.7 million in the fourth quarter, down 18% from the prior year and 11% sequentially.

Segment contribution margin was 10.3%, down 60 basis points from the prior year and 80 basis points sequentially. The decrease in margin is due to negative operating leverage, partially offset by continuing improvement in the bill-pay spread.

For the year as a whole, Nurse and Allied Staffing segment revenue was $525.8 million, down 9% from the prior year, and the contribution margin improved by 70 basis points to 10.2% from 9.5% in the prior year.

Let me turn next to our newest segment, Physician Staffing. Revenue was $45.7 million and contribution income was $4.8 million, representing a 10.5% contribution margin. On a pro forma basis, Physician Staffing days filled increased 1% from the prior year and revenue per day filled increased 11%.

MDA staffs a broad range of physician specialties. Within the largest specialty groups, MDA had strong year-over-year volume growth in emergency medicine, primary care and OB/GYN, partially offset by volume declines in pediatrics and radiology. Pro forma revenue for the year as a whole was $167 million, up 10% from the prior year. On an as-reported basis, the MDA acquisition was accretive to our 2008 EPS by approximately $0.04 per diluted share.

Revenue in our Clinical Trial Services segment was $23.9 million, down 5% from the prior year and 6% sequentially. Contribution income was $3.4 million, down 12% from the prior year and 10% sequentially. Short-term momentum in this segment has slowed due to delays in the startup of certain clinical trials and the scaling back of R&D projects. We are encouraged, however, by new projects that have come to the market since the beginning of the year for which we are being considered.

For 2008, Clinical Trial Segment's revenue was $99.1 million, up 9% from the prior year, while contribution income was $15.3 million, up 6% from the prior year.

Revenue for the Other Human Capital Management Services segment was $12.7 million, down 4% from the prior year, while contribution income was $1.4 million, down 28% from the prior year. Contribution margins were negatively impacted by a slowdown in new search activity in our Retained Physician Search business and by lower average seminar attendance in our Education business.

For the year as a whole, segment revenue was $52.8 million, up 4% from the prior year, while contribution income was $7.4 million, down 2% from the prior year.

This brings me to our guidance for the first quarter of 2009. The following statements are based on current management expectations. Such 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, any impairment charges, any material legal proceedings, or any significant repurchases of our common stock.

Travel bookings were down 27% year-over-year in the fourth quarter, reflecting the weak demand in our Travel Nurse and Allied Staffing business. Based on this, we project the average Nurse and Allied field FTE Count to be in the 3575 to 3625 range in the first quarter.

Revenue for the first quarter is expected to be in the $173 million to $176 million range. We expect our gross profit margin to be in the 25.5% to 26% range in the first quarter, and our EBITDA margins to range from 5.5% to 6%.

Interest expense is projected to be approximately $1.7 million in the first quarter, and our effective tax rate is expected to be in the 43% to 44% range. Historically, the gross profit margin in our Nurse and Allied Staffing business decline sequentially from the fourth quarter to the first quarter due to the reset of payroll taxes, as well as two less days in the first quarter of 2009. This combination frequently results in a sequential decrease in earnings of approximately $0.04 per diluted share.

Based on these assumptions, EPS per diluted share is expected to be in the $0.08 to $0.10 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) A. J. Rice, Soleil Securities.

Hi, everybody. A couple questions, if I could ask. Joe, you referenced some headcount reduction as well as expense management efforts that you are putting in place. Is there any way to flesh that out and talk a little bit more in detail about how much potential savings there could be? I know you mentioned print advertising and Internet advertising as well as a place you could get some savings.

I guess at a high level, I don't have the exact numbers in front of me, A.J. If you look at the total Company headcount, excluding MDA, which was acquired in September -- but on September 1 to the end of February or even into March, we are down roughly 160 headcount, which order of magnitude is roughly a $7 million SG&A salary reduction, including benefits.

Okay.

Advertising expense is down more than $0.5 million on a run rate basis year over year. And of course, there are other discretionary items that we've really screwed down that have less impact, but just to send a message to the organization that we are doing everything we can to maximize the cash flow from this business, such as travel restrictions, we are going to attend less trade shows, things of that nature.

Okay, that's a good flavor. On the write-down of the goodwill and intangibles, I know a lot of that isn't amortized,. But is there any income statement impact from that write-off in terms of amortization expense that is going to go away going forward?

There was a very small impact related to a customer relation intangible that we wrote off, but it's in the order of maybe $100,000 or so per year.

Okay. And then finally maybe for this round, just to ask, I know you referenced that you still have availability under the share repurchase program. I wonder if -- can you just update us? You did pay down debt obviously in the quarter nicely. Is there -- are you at a point yet with the bank credit agreement that you can go out and repurchase? How much -- what leverage ratio has to change if you're not yet there to get you to that point?

At this point, it is not so much the leverage ratio that is constraining us from repurchases, but the fact that we have a basket for repurchases that is based on our cumulative net income from the date the credit agreement was put into place. And as a result of the impairment charge, absent any waivers from the lenders, we are technically not in the position now to repurchase because we have a negative basket.

Okay. So if the charge-off counts, then I guess it will be quite a while, like you said, unless you go back and redo your bank deal or get a waiver.

Get a waiver or an amendment.

And candidly, AJ, even if we didn't have that restriction, we would be totally focused on delevering the balance sheet. It is an unattractive environment at this point. We can't say that we've found the bottom. We think directionally momentum is still negative. And as a result, we are really very focused on delevering as we go forward.

Okay. All right, thanks a lot.

Jim Janesky, Stifel Nicolaus.

A couple of questions. First, when you look at the segments in the first quarter, would you expect that the Nurse and Allied Staffing would be down more on a revenue basis year over year than the bookings you experienced late in the fourth quarter, meaning higher than 27%?

I think that the booking is a very good indicator as to the revenue performance that we expect for that segment in the first quarter. So I think it will be roughly in line with that number.

Okay, great. Thank you. And Joe, that number -- so let's just round it up to 30% -- the decline seems to be somewhat higher than what some other companies in the space that we talk to are expecting in the first quarter. Do you think that -- I mean, you've always been pretty representative of the industry -- down 30%. That is a dramatic decline. Do you expect that is what is happening within the industry as well?

We don't think our performance is -- in fact, I think we are taking market share. I think you need to look at the performance on a sequential basis, Jim. Sequentially, I believe our headcount is going to be down roughly, I think, order of magnitude about 15%. We think that most players in the industry are seeing greater reductions.

At a high level, I think we've probably lost share over the last two quarters. We have been very focused on margin, as we saw the environment getting more and more difficult. Again, we are trying to optimize the cash flow from the business to look at the Company as a whole and make sure we are optimizing the value of that business to our overall results.

Having said that, we actually have a very good competitive position right now, particularly because of our vendor managed accounts, which are some of the largest users of Travel Nurse and Allied Staff. So I actually think we have a strong competitive position, but it feels kind of like a pyrrhic victory because the pie is shrinking fairly rapidly.

So I hear what you are saying, but again, on a sequential basis, I think I am very comfortable with our relative performance to the market. Emil, I don't know if there's anything you want to add to that.

I think your assessment is -- sequentially, based on the information that has been provided by our competitors, it does appear that we are poised to take significant market share in the first quarter.

Okay. And Joe, do you see anything on the horizon as 2009 progresses possibly -- I guess the President is holding a healthcare summit today. That could allow the demand trends in -- especially nurse travel, so the booking trends could improve. Will -- are there any thoughts that the new healthcare package would drive -- it will drive more patients into hospitals, but maybe not the types of patients that necessarily pay their bills, so there could be implications for pricing as well as bad debt expense. I was just wondering what your thoughts are. Are we just kind of poised to have a very difficult 2009 for the industry?

I think the answer at a high level is yes, to all your points. I think there are things that are going to help the business directionally, if you look at, in isolation. More Medicaid funds for states that are really budgetarily constrained right now and are squeezing hospitals, I think would be a positive for us. I think a strong flu season, which we are starting to hear some noise about a building flu season in certain areas, would be a positive, just to see more inpatient counts around the country and within various geographic areas of the country.

So again, I think there are -- and I think that generally the healthcare bill will be helpful to the hospital industry, which, as I indicated in my prepared comments, one of the big problems right now is just the sense of hospital operators that they are really cash constrained and their cost of funds is significantly higher than it was six months ago.

You take all that into consideration, I still think, even with those stronger tailwinds to our business, the headwind of a dramatically weaker labor market, which I believe is very weak and potentially getting weaker -- I don't know what the number tomorrow will be, but I think it's going to be very ugly for net job losses in the economy. That will likely encourage nurses that had really cut back on the hours they provided to hospital operators to make themselves available for more shifts, which will lead hospitals to call us less often.

So I think that headwind is likely to be stronger than the potential pickup in tailwinds from the items I mentioned and that you bring up. I just -- I hope I'm wrong, but that is just our expectation currently.

Okay. Thanks for the comment.

[Frank Atkins], SunTrust Robinson Humphrey.

Good morning. This is Frank in for Tobey. I wanted to know if you could talk a little bit about bill-pay rate trends you are seeing, and pricing pressure that may or may not be out there.

We are continuing to see single-digit increases in our average bill rate on the order of 2% to 3%. We expect that to continue into the first quarter. And our bill-pay spread is continuing to widen. So fundamentally, these are obviously positives from a gross profit standpoint, and we don't see any immediate change in this dynamic.

Okay, great. And could you talk a little bit about geographic areas of strength and weakness? Last quarter, you mentioned northwest and midwest as positives. Florida is still weak. Any update there?

Frank, I would just say directionally, everything has weakened in the context of our prepared comments. It is a weaker environment (technical difficulty) for us. Some states in the Mid-Atlantic, the Northeast, are directionally stronger, and largely because of our vendor managed accounts in those areas. But it is a very tough environment across the country right now.

Okay, great. And a quick numbers question. I guess you mentioned CapEx, some control there. Can you talk about your expectations going into 2009?

We ended up the year with our CapEx of about $4.7 million, I believe was the number. And that is about 6/10 of a percent of revenue. We budgeted a comparable amount for 2009. However, quite frankly, if the environment remains weak, we will probably defer some of those expenditures. So we may end up with a number that is even lower than the 6/10 of a percent of revenue that we achieved in 2008. And keep in mind that historically, our CapEx tended to be around 1% of revenue, so we are already at a lower spend rate than our historical average.

Okay, great. Thanks so much.

Paul Condro, BMO Capital Markets.

Good morning. Just a couple quick questions. How much debt did you repay in the current quarter?

Was the question how much we repaid in the current quarter?

Yes, I think in the press release, you gave over the last five months. I was just wondering how much --.

Right. We actually made a significant prepayment in our term debt already in this quarter of $6 million.

Okay, can you give any --?

Overall debt was down about $13 million in the first two months of this year, Paul. That includes repayments of the revolver -- payments on the revolver as well.

Okay. Thank you. The other question is your stock compensation this quarter.

The equity compensation expense was approximately $300,000 in the fourth quarter and about $1.2 million for the year as a whole.

Can you give any expectations for 2009?

I'm sorry, you were cutting out for a second.

Expectations for '09.

We expect our equity compensation to go up versus '08, and it is quite frankly a conscious decision, as we are -- we will be reducing our annual bonus payment and replacing them with longer-term equity gains.

Okay. Thank you. And then my last question is can you go over the earnout provisions for the MDA acquisition?

There is an earnout for MDA that we expect that to be paid in the March/April timeframe, and it is approximately $6 million to $7 million.

Okay. Thank you very much.

David Bachman, Longbow Research.

Good morning. Just a couple of questions here, sort of on the bigger picture and then the smaller picture. You mentioned taking share, and a competitor has mentioned that as well. So I assume it is from smaller -- or maybe not -- but where is that share coming from?

And then just more broadly, when you have this kind of an industry downturn, it really has the potential to sort of reshape the industry moving forward. And I just wonder if you could sort of just talk about sort of what you -- where you see the industry in a few years and how it sort of comes out of this downturn.

David, I think when you talk about our largest competitor, like I said earlier, it is -- looking at the numbers, it looks like they took share certainly over the last several quarters. And again, kind of qualitatively looking at the information that has been provided for the first quarter, we expect to get some share back, but that may or may not occur, depending on how the actual results come out. But that is our current view of the business.

I am sure both of us are taking share from smaller companies that are, in addition to the overall level of job orders declining, they are also being excluded from more and more accounts, as those accounts narrow the number of vendors they work with. And generally, the two largest companies continue to be vendors because they provide the bulk of staff, and the hospitals are looking to have their relationships with third-party contract labor providers to be more efficient. And that means generally working with less companies.

So the small guys are really struggling more on a relative basis, based on everything I have heard and seen, and have a relatively high level of confidence in that statement.

As we go forward, historically, this business is very manageable in the context of as revenue declines, it is -- because you are operating out of one location, you can typically scale your expenses to the environment in order to survive. You make a lot less money as a small company -- in the travel business. I think the per diem business has different dynamics. There is more overhead because of the number of offices that you operate. But in the travel business, you are able to scale your expenses enough to survive.

We have seen -- a couple of our subcontractors have sent us notice that they are getting out of the business. But it is not my expectation to see some of the more significant second-tier players exit the business. I think they will be able to get through this period. And we do expect long-term that it is going to be a very attractive business. We have to get through this very weak environment, regardless of how long it takes, to get to that position.

And I'm of a view that the worse it gets in the short term, the better it will be in the long term. Because you will see hiring by hospitals decline, the opportunities -- wage increases for nurses will flatten out, probably become negative in real terms over the coming years. And that is really consistent with how the industry has operated historically. And therefore, enrollments in nursing schools will drop, and at some point, you will have a very rapidly aging professional RN population not being supplemented by younger nurses entering the profession, which should create a very dynamic and attractive environment for us.

That is not what we are looking at today, but we still believe that is what we will see in the future.

Well, that's a helpful longer-term perspective. Can you provide an update on the tax-advantaged sort of initiative that you talked about earlier -- at the end of last year?

We've implemented that program back in August for assignments that were booked after a certain date in the summer. And it's progressed extremely well. We have seen a noticeable impact in applicant activity. Our applicant activity was up 20% year-over-year in the fourth quarter. And that is unusual, because typically in an environment where demand is weak, you tend to see a decrease in applicant activity, as nurses are less willing to take travel assignments due to the uncertainty of another job down the road.

But despite that, we saw a very substantial increase in our applicant activity, up 20% year-over-year. And we believe that the primary driver of that is the more attractive compensation plan that we can offer to our nurses.

Okay, great. And then just one last question, switching to Clinical Trials. Can you just provide a little bit more color, remind me, are there certain segments of that Clinical Trial business that you are sort of better positioned in or have sort of more higher level of competencies, just so I can understand that business a bit more?

David, at a high level, the business is still more than two-thirds just staffing. We staff professionals engaged primarily in Phase III trials. That element of the business is actually performing pretty well, the staffing component.

Where it has been more of a struggle year-over-year is in the much smaller piece of the business that is what most people think of as traditional CRO activity, where you are outsourcing the entire trial on behalf of a biotech or pharmaceutical company bringing a new compound to market. We've seen -- we were kind of a boutique in that segment. We would be working generally with smaller biotech companies rather than large pharma companies, which is really the purview of the Covances and PPDs of the world.

The biotech companies are becoming cash-starved because it is more and more difficult to raise money. So they are really looking at what they are willing to spend money at, what kind of compounds they are going to move forward with, what they can move forward with at any given time. And we've seen certainly in the fourth quarter a pullback on the part of those companies. So that is the headwind of that business primarily.

We are reasonably confident of winning a relatively significant trial that we hope will start in the second quarter, which is important because we have a relatively large trial ending over the summer.

We also, in the drug safety aspect of our business, which is in the area of $10 million of revenue, we just won for that business a relatively large contract that we expect to start early in the second quarter.

So it looked very bleak in the fourth quarter, where everybody just had gone on a buyers' strike in the clinical research area. We are now seeing compounds come back to market. It seems like things have loosened up a little bit. It is probably not going to be as dynamic as it was for much of the last five years, but it looks like it is going to be better than it looked in the fourth quarter.

Okay, that's helpful. Thanks. I'll jump off.

At this time, we have no further questions.

We appreciate everyone's participation in this call and we will look forward to updating on our first-quarter results in May. Thank you.

This will conclude today's conference. All parties may disconnect.