Cross Country Healthcare Inc (CCRN) 2009 Q4 法說會逐字稿

Welcome to the Cross Country Healthcare conference call. All participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would like to turn the meeting over to Mr. Howard Goldman, Director of Investment and Corporate Relations. You may begin.

Good morning and thank you for listening to our conference call which is also being web cast 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 2009 results for which we distributed our earnings prerelease after close of business yesterday. If you do not have a copy, it is available on our website at www.CrossCountry.com. Replay information is provided in the press release.

Before we begin, I 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 with words such as expects, anticipate, believes, suspects and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different than future rules or performance expressed or implied by these statements. These factors were set forth under the forward-looking statements section of our press release for the fourth quarter of 2009 as well as under the caption "risk factors" in our 10K for the year ended December 31, 2008. Although we believe the statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed on the teleconference might not occur. Cross country Healthcare does not have a policy of updating or revising forward-looking statements and thus should not be assumed 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 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 fourth quarter of 2009 was $124 million down 40% from a year ago. Including an impairment charge and illegal settlement charge taken in the fourth quarter our net income was $0.4 million and EPS was $0.01 per share. Excluding the aforementioned charges, the Company's adjusted earnings per diluted share for the fourth quarter of 2009 were $0.05. . Cash flow was well below the level of recent quarters reflecting a bottoming of the steep decline in revenue that we have experienced in the past 12 months and a normal seasonal slow down in payments from our customers that we as we approached year end. For the year we had record cash flow from operations of $72.3 million. I am especially pleased to highlight a sequential improvement in fourth quarter revenue in our nurse and allied staffing segment. Our largest business and the one which has been hardest hit since the start of the credit crisis. Still below well below year ago levels revenue in this segment reflected improvements in demand and booking activity.

While we were still far from what I would characterize as a normal demand environment, it's encouraging to see our demand met show favorable compared to the prior period, although though are down from the recent peak in October due in part to seasonality as well as rapid retreat of the H1N1 virus. The preceding year and a half was unlike anything I have experienced in my more than 17 years with Cross Country. The contraction and demand we experienced was vicious and relentless.

While this environment is clearly reflected in our top line performance over the past year, I would like to highlight several points. Our Company is operating at its highest gross margin since going public in October of 2001, with our nurse and allied staffing business a significant contributor to our overall improved performance. Even with this focus on margins we believe our market share and travel nurse staffing has increased versus our major competitors during the past 18 months. Pricing discipline in the industry has been strong. And we also generated substantial free cash flow in 2009 that allowed us to reduce our outstanding debt by $70.6 million during the year. While we take pride in our relative results, we are not complacent. The major drivers are business environment, the national labor market and hospital admission trends remain weak. Notwithstanding this weakness, the unique impact on hospital buying behavior resulting from the seizing up of credit markets in fall of 2008 appears to have largely abated and demand for national allied staffing is above a year ago level's. Our physician staffing segment was off sequentially in the fourth quarter while some the decline is seasonal, we also believe the recession, the stock market decline and the weakened housing market have delayed retirement plans of many physicians. These factors along with the reduction in surgeries have resulted in a decrease in demand for temporary physicians particularly in specialties like anesthesiology, which have always been the leading contributor to MDA's locums business. So the slow down in this area has had a disproportionate impact on our results.

In our clinical trials clinical segment, we have seen improvement in the core staffing piece of this business. Though drug safety monitoring regulatory consulting and CRO activity remain weak. Consequently during the fourth quarter, we streamlined operations by consolidating the brands of our nonstaffing services in this segment to gain efficiencies. Looking at the clinical trials marketplace, there are encouraging signs as backlog of contracts for the larger CROs has begun to improve and thus we are optimistic that the fourth quarter will represent the Nader for our clinical trial services business as well.

In summary while the past year was our most difficult as a public company and the operating environment remains challenging, we entered 2010 with more optimism than 2009. With that, I would like now to turn the call over to Emil who will update you with 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 of 2009 and than review our revenue and earnings guidance for the first quarter that we provided in the press release issued last evening. Revenue in the fourth quarter was $124 million, down 40% versus the prior year and 4% sequentially. The year-over-year decline reflects the extraordinarily weak demand that we have been experiencing for the past 18 months. On a sequential basis, the decreases due to revenue declines in our physician staffing and clinical trial services segments, partially offset by revenue increases in our nurse and allied staffing and our other human capital management services segments.

Our gross profit margin was 29.1%, up 270 basis points over the prior year quarter and 180 basis points sequentially. The year-over-year margin improvement was due to a change in business mix among segments coupled with improvements in the pay spread as well as lower housing and insurance expenses. The sequentially improvement is due primarily to lower professional liability insurance and housing expenses.

SG&A expenses in the fourth quarter were down 27% from the prior year and 1% sequentially reflecting our efforts to reduce overhead expenses in the current business environment. Our SG&A expenses in the fourth quarter included approximately $600,000 in equity based compensation expense as compared to approximately $370,000 in the prior year quarter. In 2009, we made a conscious decision to emphasize equity compensation in order to conserve cash, retain key executives and better align the objectives of our shareholders and employees.

Net interest expense was $1.3 million, down 43% from the prior year quarter reflecting the continued delevering of our balance sheet made possible by our strong operating cash flow during the past year. This quarter's interest expense included approximately $300,000 in non-cash charges related to low field utilization and mark to market accounting for our interest rate hedge as compared to approximately $540,000 in the prior quarter. On a sequential basis, interest expense declined 22%. Excluding the aforementioned non-cash interest charges, the sequential decrease was 11%.

Depreciation expense was down 7% from the prior year quarter due primarily to a substantial amount of fixed assets becoming fully depreciated during the year, coupled with fewer new assets placed in service as a result of significantly lower levels of capital expenditures in 2009. During the fourth quarter, as Joe previously indicated, we decided to consolidate a nonstaffing brands within our clinical trial services segment to gain operating efficiencies. These nonstaffing operations accounted for less than 1% of our fourth quarter consolidated revenue. As a result of this consolidation, one of the trademarks will no longer be used and accordingly we took a $1.7 million non-cash impairment charge. Also, during the fourth quarter we reached an agreement and principal to settle class action lawsuit brought against our MedStaff subsidiary in 2005 for $345,000 in order to avoid additional legal fees that we would have incurred had we gone to trial.

The effective income tax rate was 58% in the fourth quarter, up slightly from the 57% rate in the third quarter and substantially higher than the 37% rate that we average in the first half of 2009. The higher tax rate in the second half of the year was due to certain permanent book tax differences as well as the discreet one time items which affected us unfavorably. In the first half of the year, other discreet items had a favorable impact. This coupled with a relatively low book pre-tax income amplified the impact of the discreet items. For the year as a whole our tax rate was 43%. Net income in the fourth quarter was $400,000 or $0.01 per diluted share. Excluding impairment and legal settlement charges, adjusted earnings for diluted share were $0.05.

Turning to the balance sheet, we ended the year with $62.5 million of debt and $8.6 million of cash and short term cash investments. Our leverage ratio as defined in our credit agreement was 1.86 to 1.0 while under the 2.5 to 1.0 ratio allowed. Now the cash or debt-to-total capital ratio was 17% at the end of the year and the current ratio was 3.1 to 1.0. DSOs were 52 days, up two days sequentially but down one day from the prior year. We generated $2.1 million of cash from operating activities in the fourth quarter, despite a $7 million increase in operating working capital. For the year as a whole, we generated a record $72 million of cash from operations, part as a result of a $36 million reduction in operating working capital. Capital expenditures totalled approximately $350,000 in the fourth quarter and $2.5 million for the year as a whole.

The cash from operations augmented by some of the excess cash on the balance sheet was used to repay a net of $7 million of debt during the quarter. Subsequent to the end of the year, we made additional optional prepayments of $4 million on our term debt using our excess free cash flow from operations. For 2009, our revenue was $578 million, down 21% from the prior year. Cash flow from operations was up 42%. Net income for the year was $6.7 million or $0.22 per diluted share as compared to a net loss of $4.61 per diluted share in 2008. Adjusted net income excluding impairment and legal settlement charges was $8 million in 2009, or $0.26 per diluted share as compared to $0.78 per diluted share in 2008.

Let me drill down next into our four reporting segments. Revenue for the nurse and allied segment was $65.4 million, down 47% versus the prior year but up 2% sequentially. We averaged 2314 field FTEs in the fourth quarter, down 44% versus the prior year but up 4% sequentially. The year-over-year decline in staffing volume reflects the steep drop in booking activity that we experienced in the first half of the year, which we believe was caused by a combination of a weak national labor market. Reduction in surgeries and the impact of the liquidity crisis on our hospital clients.

The sequential volume increase is the result of the improvement in relative bookings during the third quarter, which we noted in our November call. Net week's booked in the fourth quarter was down 36% versus the prior year. However, relative bookings defined as net week's book as percentage of the number of FTEs on assignment averaged 1.2% in the fourth quarter. When relative bookings averaged over 100% on a seasonally adjusted basis, as they have in the third and fourth quarters, they are indicative of favorable sequential staffing volume trends.

The average revenue per FTE per week that we reported in the fourth quarter declined 5% from the prior year, due in part to fewer average hours worked per FTE as well as a higher mix of per diem staffing where a significant portion of the hours built come from certified nurse assistants who are billed and paid at lower average rates. The average hourly bill rate in our travelling nurse staffing business was down a modest 2% year-over-year. Contribution income as defined in our press release was $7.2 million in the fourth quarter, down 43% from the prior year but up 15% sequentially. Segment contribution margin was 11%, up 70 basis points from the prior year and 130 basis points sequentially. The year-over-year margin increase is due to improvement in the bill pay spread and lower insurance and housing expenses, partially offset by negative operating leverage. The sequential improvement in margin is due to lower professional liability insurance and housing expenses. For the year as a whole, segment revenue was $313 million, down 40% from the prior year. And the contribution margin decreased by 40 basis points to 9.8% from 10.2% in the prior year.

Let me turn next to our physician staffing segment. Revenue was $33.3 million in the fourth quarter, down 27% from the prior year and 16% sequentially. As we discussed on a prior call, the prior year quarter included eight additional days of revenue due to a change in the effective date of the acquisition. The year-over-year revenue decrease excluding these eight days was 11%. Physician staffing days filled were down 15% from the prior year excluding the eight days and down 10% sequentially. The recession, stock market decline and the weakened housing market appear to have delayed the retirement plans of many older physicians. The factors, along with a reduction in the number of surgeries, has resulted in a decrease in demand for temporary physicians particularly anesthesiologists.

Contribution income for the fourth quarter was $3.8 million, representing an 11.5% contribution margin up 100 basis points from the prior year and 150 basis points sequentially. The margin improvement is due to lower professional liability expenses resulting from favorable claim development and the change in specialty mix. For the year, segment revenue was $152 million and contribution income was $15.2 million. Revenue in our clinical trial services segment was $14.9 million, down 38% from the prior year and 10% sequentially. Contribution income was approximately $900,000, down 73% from the prior year and 44% sequentially. The environment for clinical trial services was weak during 2009, stemming from a slow down in clinical trials caused largely by economic factors and financial market conditions along with uncertainty concerning research and development activities, following the recent wave of mergers and acquisitions in the pharmaceutical and biotechnology sectors. However, we have recently seen an improvement in access to capital markets for biotechnology companies which we view as a positive sign for our business. And as Joe indicated, we are seeing gradual improvement in the core clinical staffing component of this business.

For 2009, clinical trial segment revenue was $71.7 million, down 28% from the prior year, while contribution income was $7 million, down 54% from the prior year. Revenue for the other human capital management services segment was $10.7 million, down 16% from the prior year, but up 11% sequentially. Contribution income was $1 million, down 24% from the prior year but up 51% sequentially. The year-over-year decline in contribution income was due to a slow down in search activity and retained physician search business which has the highest fixed cost structure of all of our businesses. More recently, we experienced an increase in new search sales in the second half of 2009 compared to the first half of the year, which is an encouraging leading indicator for this business. The sequentially improvement in contribution income reflects relatively strong performance of our education and training business. For the year as a whole, segment revenue was $41.7 million, down 21% from the prior year, while contribution income was $3 million, down 60% from the prior year.

This brings it to our guidance for the first quarter of 2010. The following statements are based on current management expectations such statements are forward-looking statements and actual results may differ materially. These statements do not include the potential impact of any future mergers, acquisitions or other business combinations, impairment charges or valuation allowances and any material legal proceedings. We project the average nurse and allied field FTE account to be in the 2,325 to 2,375 range in the first quarter implying essentially flat revenue on a sequential basis for the segment despite two less billable days in the first quarter. On a consolidated basis, revenue for the first quarter is expected to be in the $120 million to $122 million range. We expect our gross profit margin to be in the 27% to 27.5% percent range in the first quarter, and our EBITDA margin to range from 4% to 4.5%. Historically our gross profit margin declines 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 the year. This combination typically results in a sequential decrease in earnings of approximately $0.03 of diluted share in the first quarter.

Interest expenses projected to be in the $1.1 million to $1.2 million range. We expect an be a normally low tax rate in the high single digits in the first quarter of 2010 due to certain discreet items. The impact of which will be magnified by a relatively low book retax income. For the year as a whole, we expect our tax rate to average approximately 40% although there could be significant variances from this average from quarter to quarter due to the timing of this discreet items. Based on these assumptions, earnings per diluted share are expected to be in the $0.01 to $0.03 range. Additionally we expect our debt leverage ration at the end of the first quarter to be around 2.1 to 1.0 well below the 2.5 to 1.0 allowed on our credit agreement.

This concludes our formal comments. At this time we will open up the lines to answer any questions you may have. Christy?

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Tobey Sommer from Suntrust Robinson Humphrey. Your line is now open.

Thank you. Joe, I was wondering if you could describe what the open orders per nurse on assignment look like now versus how they look in the October/November period. Then maybe if you could give us the historical range of that ratio which I know has varied widely over the years. Thanks.

Sure. Tobey, right now we are in a two to three open orders per nurse coming off contract. That is down probably 50% from where it was in October. Then late October where the -- we had a steady march up in part due to the psychology surrounding the start of an H1N1 breakout in most areas of the country.

In addition, there were other factors we believe which were affecting that. But clearly we pulled back and again the seasonality of the business would explain part of that, but we are roughly half where we were on our last call and historically that number ranges between five open positions to ten open positions for every nurse coming off contract. There is always historically a pretty significant overhang. I would describe it as a modest overhang. We have enough jobs for the nurses coming off contract if they are willing to travel to what those jobs are but I would not describe it as a robust demand environment.

Thank you that was very helpful. And then I was wondering if you could give us some color on the VMS space, both from an industry perspective as well as how you have been performing in it. And wondering if you could let us know if there are any material wins or losses on the horizon. Thanks.

Well, it is a continuing trend in the business. We expect that trend to not abate. It is -- there are clear benefits to a hospitals and systems of hospitals that take on VMS providers if those providers are competent at what they do. We believe we are one of those competent providers in the marketplace today. We think if we aren't the top, we are among the most successful in the arena of providing of service providers. Those that take on the VMS role but are providing most of the staffing related to those open orders provided by the VMS client.

There is another segment of that industry that is purely a technology solution to vendor management. That is also a significant trend. And depends on the system as to what they view if they want vendor neutrality. If they do they want to bring on a technology solution, if they want a vendor dedicated to their needs and they will bring on a managed service provider as a vendor manager. My -- in the last several months we've acquired three new VMS contracts which is on a historical basis fairly significant. None of these in and of themselves are enough to move the needle significantly for us, but they're wins that we are happy with. They are attractive assignments for nurses in attractive locations. We continue to go out every day and look for those kind of opportunities. We don't offer the solution to all of our clients. Only those that have potential for significant demand for temporary clinical staff. There are several and one in particular large VMS opportunities currently requesting proposals from not just managed service providers but also technology solutions. We are hopeful our chances of winning those but it's never over until it's over and we never take anything for granted.

Thank you. Last question and I will get back in the queue. You had some changes both to your cost structure and other things over the last two years. I was wondering if you could speak to what the profile might be for incremental margin if we are able to see some sustained revenue growth over the next few quarters. Thank you.

I will let Emil Hensel jump in if he has any disagreement with my take on it. We still have slack capacity. We have reduced overhead substantially year-over-year. But I believe in most of our businesses we have slack capacity that would allow us to achieve outside incremental contribution margin from incremental revenue. I would put it in the high teens, closer to the 20% range. Historically we would guide you 13% to maybe as much as 17% incremental margin. So it's clearly there is more opportunity today than there has been.

What I would not guide you that there is significant -- our expectations are for significant incremental revenue delay are on. We think it's possible but the market clearly has not maintained any kind of momentum one way or the other in the last to several months particularly in the nursing area historically if you got momentum whether it's negative or positive it tends to sustain over a prolonged period of time. And given the dynamics I described regarding the open order count from October to today, we haven't seen that kind of prolonged sustained momentum in the business. So it feels to some degree like we've found the bottom but we are bouncing along it to some extent. And we are waiting for the next catalyst for higher growth which would be a tightening of the labor market or some meaningful change in trend on hospital admissions. Anything to add?

I don't disagree with anything you said. Just in terms of putting the numbers in perspective and look at our P&L on a consolidated basis. Our gross profit is pretty much 100% variable with volume but our SG&A which accounted for 23% of our revenue has some fixed and some variable components. I would estimate that that 23% on a more normalized revenue environment could drop down to the high teens. Given our excess capacity and maybe into the mid-teens which would imply an EBITDA margin closer to double digits versus the 4% we realized in the fourth quarter.

Thank you very much. Very helpful.

Thanks Tobey.

(Operator Instructions). Our next question comes from Jeff Silber with BMO Capital Markets. Your line is now open.

Thank you so much. In your comments you talked about fewer hours worked from the nurse allied division. Was that solely due to the mix shift to more per diem workers? Or anything else going on there?

Emil Hensel has really looked that the extensively. I will let him give you an answer.

Hi Jeff. One of the things that we noted is that there was an unusual pattern of behavior notice second half of December. Generally historically nurses tried to schedule their assignments to end a week or so before the Christmas holiday and then pick up new assignments generally in the first or second week of January. This year because positions were not as plentiful, many of them ended up having to take assignments that spanned the holidays. But what they tried to do we believe is to arrange with their nurse managers for time off during the holidays, patient census permitting. While they were technically on assignment they weren't actually providing hours during those holiday periods when they were able to arrange for time off. So we noted a lower average hour in particularly in the December than we have historically.

And Jeff, just to add some perspective to that. In a normal year, we would expect the peak working nurse count in December to be 40% higher than the low point during the holidays. And this year that kind of peak to trough was 10%. So dramatically different behavior than we've seen in the past. Jeff, you still there?

Yes, I am. So I understand that dynamic occurred in your travel segment as well?

Primarily the travel segment.

That's great. If I could just turn to gross margin. Joe, in your comments you mentioned the price discipline has stayed somewhat strong and it's a good sign. Do you think that will continue as we start to see a pick up in business? I know historically we have seen other players get into the business as demand picks up.

I'm sorry, I didn't catch that question.

In terms of the pricing discipline you said is strong. I know in prior upturns as business pick up we seen other players come into the business and put pricing pressure on margins. I was wondering if you are expecting the same dynamic this time.

I'm really not. If fairly deep into this downturn. And I can give you anecdotal instances of what I would describe as sub optimal pricing behavior. But when you look at the aggregate number in the fourth quarter year-over-year we were down less than 2% year-over-year. We aren't getting a lot price increases. Clearly there is not much impiteous to go back to the client. Our direct costs are generally lower year-over-year which is allowing us to tweak up the gross margin to some degree in the nursing business. Particularly housing expenses. Just quarter over quarter continue to move favorably for us. So there's no driver for price increases.

There are some price decreases in the markets. Some of the 1.9% decrease that we saw year-over-year is -- can be explained by a shift in the geography of our business. So I would actually say this has been a very healthy environment as I noted in my formal comments for pricing. Really in my view only one competitor that can change our behavior as it relates to price and one that we would have to match if they became aggressive and we would match if they became very aggressive. So for we and they have been disciplined in our approach to the market.

That's great to hear.

Just to add to that. If you look at it historically it has become increasingly difficult for a new entrant to come into the travel nursing business. With the advent of VMS contracts and hospitals desire to limit the number of vendors to just a significant providers, as well as significant technology investment that's required to be successful and particularly to get large in this business, we have not really seen any successful new entrance into the market and I don't expect any as the market improves.

I appreciate the color. One quick numbers question. What is the capital spending guidance for the year?

We expect relatively flat capital spending with still in a cash conservation mode. We are full year number was $2.5 million in 2009. And we expect roughly comparable spend rate in 2010.

All right.

Before you -- I want to be sure you realize when we talk about our FTE counts and per diem area doesn't really affect that because we really take the hours that we generate from our per diem business and impute an FTE count. The number of nurses working in per diem doesn't really affect how that average hours work because we always assume the same average biweekly count. Does that make sense? That doesn't move the needle ever for us. If we get more hours in per diem it moves the needle, how many hours of per diem nurses work doesn't change the calculation.

All right. That's actually helpful. I appreciate the color.

Great.

Our next question comes from Tobey Sommer with Suntrust Robinson Humphrey.

Thanks. My question for Emil, could you refresh us as to your bank covenants and which ones I guess we should be focused on in terms of as we roll off maybe some higher EBITDA levels from previous -- from several quarters ago which ones to focus on. Thanks.

Sure. The leverage ratio tests the most important financial covenant and the test is based on the ratio of total indebtedness as defined in our credit agreement to the trailing four quarter adjusted EBITDA which also adds back the non-cash equity compensation. Our leverage ratio was 1.86 to 1.0 at year end which is well below the maximum of 2.5 that's allowed. And we are projecting under 2.1 at the end of the first quarter. In terms of the trailing EBITDA, we are -- we believe we are at the bottom now. So from this point forward I don't expect that to get worse. Now the other significant covenant is interest coverage ratio but given the low interest rate environment we have substantial cushion in this area. We have a 36% cushion on this covenant at the end of the year.

Tobey, just to add to that. We do have an earn out payment that is due on the MD acquisition which will be the final hurdle that we have to get through in the second quarter based on our current modeling of the business. We do get through that. We believe we will have adequate cushion. But that is something that is facing us as we go forward.

And I guess the other important thing to mention is our revolver. We have a $75 million revolver which will be expiring in November of this year. We begun some exploratory discussions with our lenders about the options we have to extend our revolver. And while conceptually we could actually do without the revolver and it will certainly get by with a smaller facility than what we currently have. It's our desire to keep a revolver facility in place. But fortunately the way we have managed our balance sheet has put us in a strong position. And as opposed to having to amend our agreement to covenant problems in 2009 when credit conditions were far less favorable as some of our competitors did, we will be accessing the market to extend the facility due to its normal scheduled expiration. And we have a very supportive band group and fully expect to maintain our favorable borrowing costs relative to our competitors.

Thank you very much for the color. And then, Joe, I wanted to ask you kind of a little bit longer term question. With the industry kind of being cut in of that at least on the nursing side in several of the areas experiencing softness beyond nursing, do you expect there to be some significant consolidation opportunities over the next couple of years? Just kind of wondering what the psychology is of the competitors and the peers that you run into in the marketplace every day? Thanks.

It's a very fair question and I think this is an environment that's ripe for consolidation. Particularly as some of the weaker players just look at the future and maybe a little fatigued and their lenders and equity holders are a little fatigued. In the short term, it is our philosophy not to do anything heroic. We is a tough environment. We will grind it out and block and tackle better than our competitors. That's our goal and so far we have been able to execute on that. Having said that, if something compelling came along, we would be willing to look at it if we felt that we could derive significant benefit for our equity holders. And only if we could derive significant benefit.

One of the hurdles we face is the issue Emil just described is our borrowing cost is currently favorable to market and when I look at our competitors it's significantly favorable to market. Our situation is likely to be different from theirs at a time they entered or amended their credit facilities. But if we kind of look at our borrowing costs and had to reset it to market it, it probably would increase our interest expense on an annual basis and in the neighborhood of $2 million per year. Any acquisition that we would look at would have to get over that hurdle as well. I mean, all of the strategic benefits but we don't want to put ourselves in a position of taking a step back in what remains a tough environment when we work so hard to keep the Company on a firmer footing than most of the companies we compete with.

Thank you very much.

Thank you, Tobey.

Our next question comes from Jim Janesky from Stifel Nicolaus. Your line is now open.

Yes. Joe, you mentioned at least what historically the two most important drivers of the nurse especially the nurse travel industry, employment and hospital admission rates. Is there any change that we should look at going forward and what is your longer or I guess your longer term meaning like your 2010 outlook for the industry? So many of your competitors are still expecting a pretty difficult year.

Well, I wouldn't disagree on any great extent. I think it's going to be a year without the challenges of 2009 but a challenging year to the extent that there is not likely to be significant declines ahead of us but the opportunity to get back what we lost as unlikely to present itself in 2010 as well. So like I said, we intend to grind it out and keep a firm eye on our balance sheet. I don't see a catalyst in the next 12 months today that would significantly change the situation. I think it's a weak economy. There is a lot of regulatory uncertainty that's bouncing around particularly in the health care area that I don't think is helpful for our business. I think a lot of legislative discussion has been such that it's not conducive to strengthening of the labor markets. When you start talking about taxes on labor, taxes generally, those don't tend to be very favorable to restore growth to employment in this country which is what we are talking about when we talk about the labor market. The nurse's husband that has to go back to work. 94% of nurses are women, 70% are married. It's important that they feel secure in their household income for them to reduce the number of hours back to where they were in 2007 on a weekly basis.

That's what we need which will increase the slope of inelasticity of supply in hospitals. That's with a we feed on. There are still nurses knocking on doors of hospitals trying to pick up more hours. Clearly not as many as a year ago. It is a better environment than it was a year ago. It's 20% of what we would like to see in a normal environment. It's a challenge. And so to get back to doubling our head count which is we have to do to get back to where we were, we would need to see orders from our hospital clients four times where they are today and it's just unlikely. Again, I'm not overly optimistic but more optimistic than I was a year ago where we were in free fall and didn't know how bad it could get.

Sure. Okay. And shifting over to the physician staffing market, that until recently held up better than nurse. And you gave the explanations and I think those are very valid. How about the outlook for that? Is it just going to take sometime before doctors start to retire again? Or there is more elective surgeries. That's economically sensitive as well. Want to see where your outlook was in the next quarter but in the next year or so for that market.

I don't want to -- I will give you what I think and then what we were looking at. If I told you that I had it figured out I would be misleading you. I have to look at it at a high level what's changed. This is a business that grew steadily for over two decades. And had its first -- our business had its first down year in 2009 and sequentially was off in the first quarter. Management expects the business to be stronger on a sequential basis as we go forward. I have to reserve judgment just because they know the business better than I do, but I am -- this is not a Management that is accustomed to the business declining. I have to discount that to some degree until we see it in the numbers and the business doesn't have the same kind of lead times. It has forward looking metrics but the not same degree the nursing business does. They tend to be shorter contracts that the physicians work on.

So I have to look back and say this has been a great business. One that has shown significant stable growth over a long period of time. It is likely to show similar growth into the future. I don't think anything structurally has changed. I think a big factor in the current downturn has been the weakness in the housing market. Doctors who wanted to sell their place and move to New Mexico, whatever they wanted to do, are finding that the resale value of their home is substantially less than it was. And it may have encouraged them to work another year or another two years. I think the stock market has recovered significantly from the downturn we saw into March of 2009, I think that's helping. So, I think that's a constructive trend that we've seen. Certainly I'm not - - if I knew what the future would bring in the stock market, I wouldn't be on this call. So, I don't know whether that is going to have legs and will allow those older physicians to carry out the plans they had previously. But, clearly, the environment has changed, we are hearing from hospital employers, they are having more success hiring physicians directly. That's a negative for our business. I'm not sure its a sustainable trend, I just think its an environment issue that we're facing in the worst economic downturn the country has faced in 50 years. 70 years literally.

If you allow me to look even further into kind of the long term demographic drivers of this business, none of that has changed. I mean we still have an aging population demanding more healthcare, we still have an aging physician population, particularly the baby boom generation that's nearing retirement age and we have more females entering the profession. And historically, females have provided less hours of service than males did. So, the prospects for an acute shortage is just as strong now as it was before this current downturn.

Sure, okay, thanks for the color.

Alright, thanks, Jim.

At this time, I'm showing no further questions.

In that case, we appreciate your time and attention on this call and we look forward to updating you in May on our first quarter results. Thank you very much.

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