Cross Country Healthcare Inc (CCRN) 2011 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Cross Country Healthcare fourth-quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to Mr. Howard Goldman, Director of Investor and Corporate Relations. Sir, you may begin.

Good morning, and thank you for listening to our 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 2011 results, for which we distributed our earnings press release after the close of business yesterday. If you did not have a copy, it is available on our website at www.crosscountryhealthcare.com. Replay information for this call is also provided in the press release.

Before we begin, I'd first like to remind everyone that this discussion contains forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, believes, appears, 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 2011, as well as under the captioned risk factors in our 10-K for the year ended December 31, 2010, and our other SEC filings. 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. Also, our remarks during this teleconference reference non-GAAP financial measures. Such non-GAAP financial measures are provided as additional information, and should not be considered substitutes, or superior to financial measures calculated in accordance with US GAAP. More information related to these non-GAAP financial measures is contained in our press release.

Now, I'll turn the call over to Joe.

Thank you, Howard, and thank you to everyone listening in for your interest in Cross Country. As reported in our press release issued last evening, our revenue for the fourth quarter of 2011 was $125 million, up 10% from a year ago, but down 5% sequentially from the third quarter, due mainly to seasonal factors. Net income in the fourth quarter was $0.5 million, or $0.02 per diluted share, and included the impact of $0.02 per diluted share for certain tax expenses related to prior years, which Emil will discuss in greater detail in a few minutes. This compares to a net loss of $0.19 per diluted share in the year ago quarter, which included $0.21 per diluted share of after tax trademark impairment charges.

Cash flow from operations for the fourth quarter was $3.7 million. Year-over-year revenue growth in our nurse and allied staffing segment was a strong 18%, but was slightly below our expectations at the time of our last conference call, which were based on booking momentum we maintained throughout October that did not hold for the remainder of the year. I believe two issues weighed on our nurse and allied volume at year-end, one positive and one negative. On the positive side, at year end we saw a return to more normal field employee attrition around the holidays, which suggests travel nurses who choose to return home to be with their families had more leverage in their schedule negotiations with hospitals than they had for the past several years. This is typical in a supply constrained environment, and our business tends to perform much better when supply is the primary driver of results. On the negative side, I believe there has been some pushback from hospital administrators during their 2012 budget processes. I believe they were unprepared for the pace of recovery in the utilization of temporary nurse and allied labor last year.

Assuming our annual staffing volume growth is a proxy for the industry, it is not likely many hospital budgets included 15% growth in this category in 2011. As a result, I believe there is more focus on this expense than existed at this time last year, and to a lesser extent, I believe the impact of the flu season to date has been well below expectations in most senses forecast. While the net result is that momentum in this segment is not as strong as existed last fall, I believe our business will continue to grow, and our internal expectations are for re-acceleration as we get further from hospital budget discussions.

At the end of the day, I believe an inevitable outcome of such pushback on temporary nurse labor is declining levels of patient satisfaction, and in my experience, hospital executives are unwilling to suffer much patient dissatisfaction for very long. As a point of reference, our open orders for travel nurses increased more than 10% last week alone. Moreover, another key opportunity for us that has grown and continues to grow in importance is staffing of temporary nurse and allied health professionals, as hospitals implement electronic medical record technology. I believe an accelerating trend driving growth and demand will be the closing window of a generous grants available under the federal high-tech act, and a growing sense of urgency to get these installations in place and able to demonstrate meaningful use prior to the 2015 deadline. As a result, we expect that staffing related to the training of nurses to utilize these new technologies will be one of the most important drivers of results in our nurse and allied segment in 2012.

Currently, we are engaged in 6 EMR technology implementations, which is the highest number that we have staffed at any one time thus far. More importantly, the pickup in job creation nationwide among private employers should have a positive impact on our business as we move through 2012. A strengthening labor market is the best leading indicator of improvement in demand for our nurse staffing services. I believe nurses, most of whom are secondary wage earners in a household, are influenced by how secure they perceive their spouse's job prospects to be. A strong job market generally results, over time, in nurses being less willing to work additional shifts at prevailing wages, which in turn increases the likelihood of a hospital calling Cross Country to supplement their staffing.

Net net, I believe the environment is conducive to continued strong growth for our nurse and allied staffing business. As additional data points, our average hourly bill rate for travel nurse staffing in the fourth quarter increased 1% year over year, and our new applicant activity during the fourth quarter was up 38% from year-ago levels. Turning to our other business segments, our clinical trial services business saw modest top line improvement of 3%, and physician staffing was up slightly in the fourth quarter compared to a year ago. However, both business segments had sequential revenue declines due to seasonal factors. In 2012, I expect that all our businesses will achieve revenue growth, and I am encouraged by our activity as we enter the year. With all of our businesses pulling the oars in the same direction, I also expect that we will achieve substantial growth in earnings per share, despite a slow start, as we gain greater operating leverage on overhead, as depreciation and interest expenses decline significantly from 2011.

And with that, I would like to now 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 then review our revenue and earnings guidance for the first quarter of 2012, as we provided in the press release issued last evening. Revenue in the fourth quarter was $125 million, up 10% versus the prior year, but down 5% sequentially. The year-over-year revenue growth was driven primarily by our nurse and allied staffing segment, and secondarily by our clinical trials services segment. The sequential decline was due largely to seasonal factors.

Our gross profit margin was 27.8%, down 90 basis points from the prior year, but up 60 basis points sequentially. The year-over-year margin decrease was due partly to a change in business mix, with a higher percentage of revenue coming from the nurse and allied staffing segment, which has the lowest gross profit margin among our 4 business segments, and partly through a contraction in the bill pay mix within that segment. The change in business mix also contributed to the sequential margin improvement, along with a favorable professional liability accrual adjustment based on better than expected loss development in our physician staffing business.

SG&A as a percent of revenue was down 50 basis points from the prior year, due to improved operating leverage, partly offset by a $668,000 accrual for sales tax and other state non-income-based taxes, of which $507,000 related to the 2008 through 2010 tax years. Since we believe states are becoming more aggressive in their interpretation of non-income-based tax liabilities and nexus rules, we completed a preliminary assessment of certain non-income-based tax positions, and accrued the liability based on our best estimates of probable settlement demands. On a sequential basis, SG&A expenses were essentially flat. SG&A expenses in the fourth quarter included approximately $650,000 in equity-based compensation expenses, as compared to approximately $700,000 in the prior-year quarter.

Adjusted EBITDA, as defined in our press release, was $5.8 million, down 3% from the prior year, and 21% sequentially. Interest expense of approximately $700,000 was down 16% from the prior-year quarter, and 7% sequentially. The year-over-year reduction reflects the continued delevering of our balance sheet, as well as the expiration of interest rate hedge contracts in October of 2010. In the fourth quarter of 2011, we reduced our debt by $4 million, which included an optional $1 million term debt prepayment. As a result of our reduced leverage, the borrowing rate on our $41 million term debt will drop from 200 basis points to 175 basis points over LIBOR during the first quarter of 2012. Net income in the fourth quarter was $0.5 million, $0.02 per diluted share, as compared to a loss of $0.19 per diluted share in the prior-year quarter.

The previously mentioned tax related expenses in the fourth quarter of 2011 relate to sales tax and other state non-income-based taxes recorded in SG&A expenses, due to a change in the Company's estimate of certain prior-year non-income-based tax positions. The tax-related expenses also include an adjustment to income tax expenses, resulting from an overstatement of prior period deferred tax assets for share-based payments. These tax expenses combined to reduce our EPS by $0.02 per diluted share in the fourth quarter of 2011. The prior-year EPS included trademark impairment charges, which equated to $0.21 per diluted share after taxes. The effective income tax rate was 76.2% in the fourth quarter of 2011, and was unusually high, due to the aforementioned adjustment related to an overstatement of deferred tax assets in prior periods.

Excluding this adjustment, the effective tax rate would have been 62.8%. The relatively high tax rate was due to certain discreet items, the impacts of which were magnified by the lower-than-anticipated pre-tax book income. For the year as a whole, the effective tax rate was 50.2%. Our effective tax rate, excluding deferred tax expenses that relate primarily to goodwill amortization, was 13.1% in 2011. Turning to the balance sheet, we ended the quarter with $42 million of debt, and $10.6 million of cash and cash equivalents. Net of cash, our debt-to-total-capital ratio was 11%, and the current ratio was 2.3 to 1.

Days sales outstanding were 53 days, up one day from both the prior year and the prior quarter. Our leverage ratio, as defined in our credit agreement, was 1.73 to 1, well below the 2.5 to 1 ratio allowed. We generated $3.7 million of cash from operating activities in the fourth quarter. The excess cash, supplemented with cash on the balance sheet, was used to repay $3.9 million of term debt during the quarter, and to repurchase $2.2 million of our common stock at an average cost of $5.23 per share.

Capital expenditures totaled approximately $1 million during the quarter. For the full year 2011, our revenue was $504 million, up 8% from the prior year. Net income for the year was $4.1 million, or $0.13 per diluted share. This compares to a net loss of $0.09 per diluted share in 2010, which included a $0.21 per share in after-tax trademark impairment charges. Let me drill down next to our four reporting segments.

Revenue for the nurse and allied staffing segment in the fourth quarter was $70.3 million, up 18% versus the prior year, but down 4% sequentially due to seasonal factors, a pullback in demand that Joe discussed earlier, and the wind-down of contract assignments at an account we lost in the third quarter of 2011. We averaged 2,457 field FTEs in the fourth quarter, up 16% versus the prior year, but down 4% sequentially. The year-over-year increase is reflective of the improved demand environment in general, and an increased number of electronic medical record implementation projects in particular, where travel nurses are used to backfill for staff nurses undergoing EMR training.

Such EMR implementations are expected to accelerate over the next few years, as funding incentives under the high-tech act end in 2015. The book-to-bill ratio averaged 96% in the fourth quarter, which is in line with normal seasonal patterns in a supply-constrained environment. As Joe indicated earlier, booking activity slowed during the November and December, which we believe was due to a combination of hospital budgetary pressures and a mild flu season, as well as an increase in the number of nurses who were able to schedule time off during the holidays as compared to the prior year. Segment revenue per FTE per day in the fourth quarter was up 2% year over year, due primarily to higher average bill rates.

Contribution income, as defined in our press release, was $5.5 million in the fourth quarter, up 5% from the prior year, but down 13% sequentially. Segment contribution margin was 7.8%, down 100 basis points from the prior year, and 80 basis points sequentially. The year-over-year margin decline is due primarily to a contraction in the bill-base spread, higher housing and professional liability expenses, partially offset by lower workers compensation expenses. The sequential margin decline was due to higher housing costs, along with higher workers compensation expenses and negative operating leverage, partially offset by lower field payroll taxes and travel expenses.

For the year as a whole, segment revenue was $279 million, up 15% from the prior year. Contribution income was $22.4 million, up 5% from the prior year. Let me turn next to our physician staffing segment. Revenue was $27.9 million in the fourth quarter, up slightly from the prior year, but down 9% sequentially. Physician staffing days filled were down 1% from the prior year, and 11% sequentially. The sequential volume decline was due to seasonal factors.

Demand for temporary physician services appears to be stabilizing, and we expect a modest year-over-year increase in revenue in the first quarter. Segment contribution income for the fourth quarter was $2.7 million, representing a 9.7% contribution margin, up 20 basis points from the third quarter, but down 90 basis points from the prior year. The year-over-year margin decline is primarily attributable to the impact of the aforementioned state non-income tax accrual, while the sequential increase is due primarily to a favorable professional liability accrual adjustment in the fourth quarter, partly offset by the impact of the state non-income taxes.

For the year as a whole, segment revenue was $119 million, down 2% from the prior year, while contribution income was $11.3 million, down 13% from the prior year. Revenue in our clinical trial services segment in the fourth quarter was $15.7 million, up 3% from the prior year, but down 6% sequentially, due to three fewer billable days. Contract staffing accounted for 93% of segment revenue in the fourth quarter. Contribution income was $1.5 million, up 10% from the prior year, but down 34% sequentially.

Segment contribution margin was 9.4% in the fourth quarter, up 70 basis points from the prior year, but down 400 basis points sequentially. The sequential margin decline was due to the combined impact of three less billable days and two additional paid holidays, as well as the impact of the state non-income tax accrual. For the year as a whole, segment revenue was $65 million, up 4% from the prior year, while contribution income was $6.6 million, up 3% from the prior year. Revenue for the other human capital management services segment in the fourth quarter was $10.8 million, down 3% from the prior year, but up 5% sequentially. Similar attendance in our education business, while still 5% below prior year, grew by 18% sequentially.

Contribution income was approximately $900,000, representing a 7.9% contribution margin, as compared to $1.3 million, or an 11.6% contribution margin in the prior year. The decline in contribution margin was due to a combination of negative operating leverage, and the impact of the aforementioned state non-income taxes in our retained search business. Looking forward to the first quarter, we are encouraged by the improvement in demand in our retained search, and our education and training businesses. For the year as a whole, segment revenue was $42 million, down 2% from the prior year, while contribution income was $3.2 million, down 16% from the prior year.

This brings me to our guidance for the first quarter of 2012. 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, or other business combinations, impairment charges or valuation allowances, and any material legal proceedings. We project the average nurse and allied field FTE count to be in the 2,425 to 2,475 range in the first quarter. Consolidated revenue for the first quarter is expected to be in the $126 million to $128 million range.

We expect our gross profit margin to be in the 26.5% to 27% range, and adjusted EBITDA margin to be in the 3% to 3.5% range. Interest expense is expected to be approximately $600,000 in the first quarter. Based on these assumptions, earnings per diluted share are expected to be in the zero $0.00 to $0.01 range. This EPS guidance range is based on an estimated effective tax rate in the mid-to-high 40% range in the first quarter. As a reminder for those of you working on your financial models for 2012, while we have guided to revenue momentum in the first quarter, margins are impacted sequentially as we reset payroll taxes for W-2 employees, and sequentially, we have one less billable day in our nurse and allied staffing segment to absorb housing costs.

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

Yes, sir. (Operator Instructions)

Our first question today comes from Tobey Sommer with SunTrust. Your line is open.

Thank you. Just to start out with a couple of quick numerical questions. Emil, what is your expectation for 2012 depreciation and amortization expense, interest expense, and a tax rate?

As I explained on the depreciation, next quarter we expect essentially flat, but then there will be a step down in the third quarter. So, our depreciation expense is expected to decline by roughly 15% year-over-year.

Interest expense is continuing to decline as we delever our balance sheet, and as our borrowing rates decline, based on our reduced operating -- reduced leverage. And I expect roughly a 35% to 40% decrease year-over-year in interest expense. And in terms of the effective tax rate, we see that in the mid- to high-40% range.

Okay, thanks. Joe, I was wondering if you could comment on what the trend is you are seeing for gross margins at the corporate level now that, as you said, all the businesses are rowing in the same direction. And I know there are some puts and takes in that gross margin, but any color you could give would be great.

Tobey, I don't expect material movement, because last year we did have some bill rate compression -- bill pay compression, and particularly in the nursing and allied business. Kind of in a high double-digit percentage point, basis point range. And then we had the impact of the mix changing with our nurse and allied business being a lower gross profit margin business, and some of the other businesses either not keeping up or actually declining.

So, this year we expect the growth rates to be much more similar, and we don't expect the margin pressure, particularly from bill pay compression, to be the same as last year. We are seeing some bill rate increases. I think, as I indicated on our last call, our internal targets are a 2% to 3% bill rate improvement, and we're running closer to 1% right now. The 2% to 3% really was an expectation that the momentum we saw in the late Summer into the Fall would continue, and that momentum hasn't continued.

Having said that, as I sit here, I actually think it is a better underlying environment for the business than it was at this time last year, even though we did see a pullback in demand around the holidays. Last year -- what typically drives our business -- a strengthening labor market and stronger hospital admissions, neither one of those factors was present. We had a benign, a neutral labor market, and benign hospital admissions, which I believe continue today.

But I do believe the labor market, which by far is the most important leading indicator of our business, is strengthening, is likely to continue strengthening. And I think it's going to have a significant and favorable impact on our business as we move through 2012.

Thanks. One last question from me. Joe, when would we be sufficiently past the flu season, so that we could see some of the impact of that underlying improvement in the national labor market influence order flow, and just be able to parse out whatever impact that the lackluster flu season has had on demand over the last few months? Thanks.

I don't think it was primarily the lackluster flu season; I think that was a factor. I think the bigger factor is -- hospitals are under pressure from expenses and reimbursement. That's not atypical, that certainly is their lot in life in most years. But I think it is more acute this year -- this focus on expense.

And I do think there was a more robust recovery than anyone was anticipating in the utilization of temporary labor. And, for a period, hospitals can push back, they will go to the recruiter, and say -- you are not recruiting sufficiently, effectively, where are you advertising, how are you advertising? So, for a period of time, they just won't fill positions. They'll say -- forget the temporary labor, we are going to try to fill this with a full-time person, and eventually that leads to higher patient-to-nurse ratios. It doesn't turn in a month, and hospitals don't respond, and nurses don't respond to one month of really good labor market data.

My own expectation is we are going to need to see three or four months of job creation in the 200,000 to 300,000 range, month in and month out. And by the late second quarter, I would expect to see, based on that, much stronger momentum in the nurse and allied business. And again, momentum that we really were seeing last year. In the third-quarter last year, we were looking at volume momentum, booking momentum in the mid-20% range. I believe we can get back there.

Tobey, this is Emil. I just wanted to correct one number I gave you to -- in answer to your first question. The interest expense year-over-year is projected to decline in the 20% to 25% range. I was looking at the wrong sheet when I answered that question.

In those numbers you gave, Emil, are year-over-year numbers on an annual basis, or are you referring to that third quarter?

No, I'm referring to year-over-year on an annual basis.

Thank you very much.

Thanks, Tobey.

Our next question comes from AJ Rice with Susquehanna Financial Group. Your line is open.

Thanks. Hello, everybody.

Hi, AJ.

Maybe just to expand on the comments about bill pay spread. So, I think you mentioned in the fourth quarter you saw some contraction, but it sounds like you're thinking it should turn around and have a positive direction to it this year. Is that -- the 1% rate sounds like that's pretty constant. So it is basically that -- am I taking it away that markets softened a little bit in November/December, but you are expecting it to firm back up, and that's why we'll see an improvement in the bill pay spread, or is there something else going on more than that?

I think the bill pay spread that I referred to, the compression that I referred to, is more of a year-over-year number. I don't think we saw more compression in the fourth quarter than we saw in the third quarter. So I think that has more or less stabilized, and I would expect it to continue to be stabilized with the opportunity to maybe recover a little margin as we go through this year. But I would think it more in terms of stable from fourth-quarter levels. The first quarter, obviously, suffers from the payroll tax reset. We think, actually, that the fourth-quarter gross margins in our businesses are reflective of what we can do in 2012.

Emil, do you have --? (multiple speakers)

Okay, that's good. And on the comments you made about hospital budgeting, and particularly this year, focusing them in on some of these areas, and creating a little bit of pressure, would you say that is a normal pattern, and then seasonally second, third quarter you come out of that? Or is there something unusual this year that may make that timing on when that [is less in focus] stretch out a little bit?

I think the dynamics on an individual hospital basis are not unusual. Hospitals that exceed their budgetary authority on utilization of temporary labor typically come back to us and say -- hey, we've got to scale it back. Historically, the business would move somewhere else. You would be able to offset the decline in one account with an improvement at another account. I would describe the environment we saw during the holidays as more uniform than we would typically expect it to be. We were hearing a pretty similar refrain from our clients, that there just seems to be more uniform pressure throughout the country, because of reimbursement pressure and expense pressure.

So, yes, we've seen it. I would say it is unusual for it to be quite so widespread. Having said that, also in the fourth quarter you had -- you didn't have the expectation for the improving labor market that I think we now have. So, I'm actually -- I'm personally more optimistic about the business, because fundamentally the environment is a better environment than the environment we entered last year with, which ended up being a pretty good year. But I'd much rather see the kind of labor market numbers that we saw in January continue. I think that will really move the needle on demand.

Okay. Talking about the physician staffing, and I know you were referencing some shifts in different bill rates, specialties. Could you just comment on what specialties are showing good momentum, which ones are maybe less so? And your relative expectation about what that might mean for the gross margin in that business?

Obviously, it comes as no surprise to you, the primary care specialties are the strongest. Probably important to us, what is now our largest specialty, emergency medicine, which was weak during most of 2011, has firmed, and appears to be improving on a year-over-year basis now. That's very encouraging. I would still say the surgery-related specialties -- surgeons, anesthesiologists continue to be weak. That we're not looking to those specialties to drive growth, but much more so in primary care-related specialties.

Emil, do you have anything to --?

I guess the other relatively weak area would be obstetrics.

Okay. And in terms of -- I mean, is it materially a different impact that those specialties have on relative profitability, or they're -- you see strength wherever you can see strength type thing?

No, the relative pricing and profitability do vary by specialty. ER tends to be pretty strong. Again, as long as that is moving in the right direction, I think this business segment is going to perform better than it has for the last several years.

Okay. Just my final question related to expectation about cash flow. I don't know whether you are comfortable, either on the quarterly basis, or even talking about the year ahead, your expectation of free cash flow. And I know you've got like $17 million that's in current portion of debt. Is your assumption in the interest rate decline that you shared, Emil, that you will pay that off, or that you will refinance it over time?

We're getting close to the point where our term debt comes to an end in 2013. So, our expectation will be that at some point, probably around a year from now, we will be discussing a refinancing, but by that time we would have paid off the vast majority of our term debt from free cash flow. So, the normal discussions that we would engage in to talk about the new facility that needs to be put in place will probably occur in the first quarter of 2013. And the expiration, the term debt matures in November of 2013.

And AJ, as far as quarterly, I think if you go back and look at a year where the business is growing, we would expect cash flow to be in a range of, call it $4 million to $7 million a quarter.

Okay, that's operating cash flow, or is that -- I guess that's minimal CapEx, basically?

We expect CapEx to be in the $3 million to $4 million range.

Right. Okay.

We have no earn-out, so that there is really nothing else weighing on the cash flow.

Sure. Okay, that's great. Thanks a lot.

Okay, AJ. Thanks for calling in.

Our next question comes from the line of Paul Condra with BMO. Your line is open.

Great, thanks. I will just go ahead and follow up on that. Would the thinking then to be repurchasing shares any time in the future then, as the debt balance comes down?

I think, as you saw, we repurchased shares in the fourth quarter. We had some remaining capacity in our credit agreement in the first quarter. We have about $1 million share authorization remaining from our Board of Directors, and I think what we have to do is go back to our lenders and just get a little more flexibility than we currently have in our credit agreement. Our lender group has been very supportive of us, and we don't anticipate a problem in that. And if you look at the price at which we bought back shares, it is roughly in line with the price that the stock is currently trading at. So, if we liked it before, we probably like it now.

Right. Okay. Thanks. I just want to switch over to your gross margins. You came in a little above guidance in the fourth quarter, so I just was wondering what kind of surprised you to the upside there, I guess?

Probably the one upside surprise was a favorable professional liability accrual adjustment for our physician staffing business.

Okay. Do you expect that you would get more of those favorable adjustments in looking at 2012, or is it just too difficult to tell how that is going to work?

We've been -- we had more favorable surprises than unfavorable surprises, and hopefully it will continue. You never know with professional liability. But I think, in general, our loss experience has been better than we expected. And I don't have any reason to believe that will change, but you never know.

And then can you give any more detail around, in the physician segment, kind of had the turn in the fourth quarter? I don't know -- do you expect that to be positive year-over-year growth in the first quarter, but would you expect that to accelerate? Can you give any more detail about that growth?

Paul, I wouldn't -- our internal expectations are for single-digit growth in this business, so we expect it to be up in the first quarter, and in single digits. So, I am not suggesting that the business is going to accelerate. It may. I would say, generally, we have less visibility with the physician business than we do with the nurse and allied business, and together they make up 75%, 80% of revenue. But we will take growth of any digits, single or double, but it is not our current expectation that the business accelerates as we go throughout the year.

Great, and if I could just ask one more on the EMR contracts. You mentioned the six contracts. Can you talk about trends there? Is this something where there is possibilities coming up that you are seeing more of, or are you waiting for that business to pick up even more?

No. We are aware of a number, a large number of planned implementations, and we have a very specific strategy and process by which we go after those. We have a great story to tell from those clients that we've helped to-date. So, it is our expectation that it will accelerate as the year goes on. The size of these engagements can range from a few handfuls of nurses to supplement staffing, to more than 200, so it's a real gamut -- runs the gamut of how impactful they can be in our business. But we are aware of a significant number that have yet to begin, and we are going to pursue them aggressively.

Okay, thank you.

Thanks, Paul.

Our next question comes from Gary Taylor with Citigroup. Your line is open.

Hi, good morning.

Hi, Gary.

Just a couple things. You had talked about material earnings growth in the year, and there's a little bit of help that happens below the line with the depreciation and interest, but I'm just trying to get an idea of what you're thinking in terms of revenue growth. Last year, your revenue, almost 8%. But for the first quarter, your revenue growth guidance is in the 3% to 4% range. So, maybe I'll ask it this way -- do you think you grow revenue faster than the 8% you grew it in last year, and is there any more detail you can provide around it?

Well, Gary, we don't provide guidance beyond one quarter out. But as Joe indicated in his prepared remarks, we do expect some acceleration in our growth throughout the year. So, you can, I guess extrapolate from that, that we would expect to end up with a higher growth rate for the year as a whole, as what expectation is for Q1.

Okay, that's helpful. And my only other question is, competitively, is there anything noteworthy, is there any -- as the business slowed a little bit in November/December, are you seeing more aggressive pricing behavior by competitors? Do you have any anecdote in terms of market share movement, or anything that would suggest that you are either outperforming or underperforming what the competition is doing?

I guess the quick answer to that is, no. I'm not aware of anything significant. There is always anecdotal instances of -- hey, they are trying to buy our nurses. I am sure the competition has similar anecdotal feedback. When you dig into it, there is generally not a pattern to it. And it is certainly something we watch very carefully.

Our largest competitor is a public company. They happen to release their results. Based on the guidance they gave, we are not anticipating significant changes to market share. Generally, when the tide comes in, both companies benefit; when the tide goes out, both companies suffer a little bit. We did lose an account -- to us, a fairly significant account, in the third quarter of '11. All other things equal, we would expect that to hurt us and help them. But fundamentally, we don't think it's going to move the needle that significantly.

And we do see a lot of good things happening. We believe our solution on the EMR side is very effective. We market it well, and we execute well. I actually think that's going to be the more important driver of share in 2012, certainly more so than it has been in the last two years. As we get closer to this window closing, we've got about two years left, and I think the hospitals, they understand that, and are moving forward expeditiously to get these technologies in place, and demonstrating the meaningful use that they have to. Again, we've had a lot of success in helping them do that.

Given the little better supply environment that you are citing looking forward to, your thought is that bill rate remains pretty rational across the industry?

Yes. Like I said, we continue to expect improvement in '12. I would say, my own expectations, because of a slower start than certainly I expected coming into the year, that we may be on the lower end of our expectations, rather than the higher end as we get through 2012. But by year-end, it would not surprise me to be achieving those kind of year-over-year improvements at the high end of our expectations. It's just, as we look at the year as a whole, it is probably going to be closer to 1% to 2% bill rate improvement than 2% to 3%.

Okay, thank you.

Thanks, Gary.

Our next question comes from Vishnu Lekraj with Morningstar. Your line is open.

Yes, good morning, everybody. Going back to your reimbursement rates, can you try to frame this for us over maybe towards the later half of 2012, into 2013, and if any pressure there on that aspect is going to affect your demand or something in regards to bill pay spread unforeseen?

Just to clarify, we aren't affected directly by reimbursement rates; we think the hospital customers are. Historically, some pressure on profitability at our hospital customers can be constructive for us. If they are close to low single-digit profitability or breakeven, they are much less likely to aggressively move nurse wages up in order to better clear the market for their facility, and that leaves more open shifts. It makes economic sense to bring us in to fill. Again, these pressures are not new. They tend to ebb and flow over time. I would say they are more acute today than they have been.

But as long as our customers aren't going bankrupt, and I don't think Congress will let that happen, that they will let the not-for-profit hospital industry suffer great, significant profit loss, and teeter on unviability, I think we are going to be okay. I don't foresee a scenario where it becomes more problematic. I think the bigger driver for our business over the next 12 to 24 months is likely to be the strengthening of the labor market, which will increase the slope of inelasticity of nurse supply, which, more than anything else, will have a favorable impact on our business, based on historical context.

Great. Well, just to follow up on that then. Is there -- would you expect, and let's say we take that headwind out, what would be the acceleration in terms of demand without that?

Like I said, it's a function of the willingness of nurses to work at prevailing wages. And in my experience, almost 20 years in the business, as labor markets improve, nurses, most of whom are secondary wage earners in a household, and roughly 70% of nurses are married, they tend to be willing to work less hours if their husbands are more and more gainfully employed, and they view their husband's job as being secure. Instead of working three shifts a week, maybe they work two shifts a week or one shift a week, so the hospital faces a steeper supply curve.

So that they have to -- that marginal wage has to be higher, and they would never describe it like this, or I have never heard them describe it like this. But they are only willing to pay, let's say, $27 an hour, nationally. If it takes a $29 or $30 an hour wage rate to clear the market, they are not going to pay it. So at the end of the day, they will have unfilled shifts, and if the shifts are unfilled long enough, they are going to call us. And that's just been my experience in this business.

We have been in a very weak labor market for three years now. Really, probably closer to four. It does appear to be improving. The good news about the American economy -- it is very resilient, and despite a lot of headwinds, I believe we are seeing significant improvement in the labor market. And more than anything else, that is what is going to drive our business over the next 12 to 24 months.

Got you. So just to clarify, there's not going to be any material impact from that, you believe. It's going to be all demand-driven, in terms of needed healthcare workers?

Correct. Not necessarily because hospital admissions are growing, but because nurses are less willing to work, at prevailing wages, as many shifts as hospitals need them to work.

Got you. Great. Appreciate it, thank you.

Thanks, Vishnu.

Our next question comes from Tobey Sommer with SunTrust.

Thank you. Joe, I was interested in your perspective. You touched on it already, but if you could you give us some more color on your perspective on price competition, particularly for the larger contracts. And I know there had been some, at least it seemed like to us, price competition, and if that has changed at all, would be interesting. Thanks.

There have been a couple instances where we felt that pricing for contracts, particularly large contracts, was moving in the wrong direction, given that the environment was improving. When you are trying to raise your pricing at all the contracts you are working on, because you want to offer the nurses an improved wage, to move pricing in the other direction for large contracts can be counterproductive. In an environment where there is less jobs, it can be absolutely the right strategy. We don't think that's the environment that we are in. We think that we've hit a little trough year, a bump in the road, because of greater focus on temporary labor, but we do think we are in an improving demand environment. And certainly likely to be one that is accelerating in that regard.

So, we don't expect pricing to be a problem. We don't expect our competitors to utilize price to gain market share, because it can be very counterproductive. If you are saddled with a large account where you have below-market rates, and you're trying to recruit nurses with below-market wages, it's a bad situation to find yourself in. We know it, we believe everyone else knows it.

And again, when you look at the overall -- our blended mix of business, and when we see all of our competitors report, we don't anticipate any indication that pricing is declining. So, again, I can give you anecdotal instances where -- hey, what just happened, what are they doing? But I think when you look at it in aggregate, it doesn't suggest a significant lack of discipline.

Thank you. And then, just one question to Emil. You had some tax items in the quarter. What do you look at as sort of the EPS from continuing operations in the fourth-quarter results you reported?

I look at it as $0.04, because these tax items were clearly related to prior periods. They did not arise from operations in the current period.

Are there any trends in bad debt expense that are worthy of noting coming out of 2011?

Nothing significant. Our bad debt expense was very consistent. I think it came out to about 0.3% of revenue in the quarter, which is very much in line with our normal experience. And it is generally more resolution of billing errors or rate corrections, not true bad debt. And our DSOs are very stable. So, I don't see much change in 2012 from that.

And Joe, my last question has to do with the real estate market. You're a pretty big renter on the spot market. What are the trends you're seeing and expecting in 2012?

They are inflationary. We think it is a harder market for rental properties than it has been. There has, I think, been a lot of reporting around that. Our experience is consistent with that. Whereas two years ago rental rates were declining, they are now increasing, but they are increasing, for us, in single digits. It is not -- historically we have seen rental markets increase in the mid-double-digit range in some years. It is nothing like that. We are still having pretty good success in finding attractive properties at decent rates. Having said that, it is going up. It is not likely to go down in 2012.

I guess I misspoke; one last question. I guess it just escaped me. I'll take it off-line. Thanks.

All right, good deal. We will be here.

Our next question comes from Josh Vogel with Sidoti and Company. Your line is open.

Thank you. Good morning. I know you just talked about housing costs -- what about expectations for workers' comp costs in 2012 versus 2011?

We see that as remaining steady. We have had relatively good loss development in the second half of 2011, and we don't see any real change in this area. In fact, as the economy improves, you generally tend to have better loss experience than in a weakening labor market. So, as the labor market strengthens, we think that this could be actually a positive for us.

Okay, great. And what percent of the nursing and allied segment staffing volume came from MSP clients in Q4?

About 25%.

25%, okay. And a couple quarters ago, you were talking about making investments in infrastructure to support that -- the growing MSP business. And you expected to see some nice leverage there by the back half of 2011, and can you talk about that? Did that materialize? And can you talk about capacity in place for 2012, and if additional investments are needed?

Yes, that's a great question. We saw some -- again, if you back out the prior period non-income-tax accruals that we took in the fourth quarter, it is something that we don't anticipate repeating, knock on wood; we did see some leverage. We are up, based on our guidance, modestly in the first quarter. There were significant investments that we made in our ability to implement and maintain and retain these MSP accounts. We don't anticipate significant additional investment going forward.

So, we do expect to see -- which is really the basis for our optimism regarding earnings per diluted share improving significantly in 2012, that the kind of investment we made is unlikely to be repeated. It hasn't been locked down, but we have been notified. We have won a fairly large engagement that has a fairly aggressive onboarding timetable that could impact the second quarter for us. So, we do expect to see leverage on this investment, and this investment really pay off, not just in our ability to win them, but to do a great job in retaining and meeting the expectations. Which, I think if you call the clients we have today, they are very happy with the performance that we've been able to achieve for them, in a pretty tough environment in 2011. And I think it is going to be, certainly a source of additional wins as new MSP accounts come to market.

Okay. That's all I have now, thank you very much.

Our next question comes from Gary Taylor with Citigroup. Your line is open.

Hi. I just wanted to circle back. On the med mal accrual adjustment in the quarter that was favorable, did you quantify that? I missed that.

I didn't actually quantify it, but order of magnitude the impact on our gross profit margin was in the 50-basis point range.

Okay. And is it possible to tell us -- what is your quarterly accrual, what is a typical run rate on that?

I guess, it is reported in two different areas for us. There is a much smaller percentage of revenue in the nurse and allied staffing segment then it would be, of course, in the physician segment. So let me just take a minute and look up to see if I can give you an idea of what that number is. Give me a couple of minutes perhaps.

Sure, I will just jump off. If you get it, I will listen for it. Thank you.

Thanks, Gary.

Our next question comes from Tobey Sommer with SunTrust. Your line is open.

Thank you. The question came back to me. Did the unseasonably warm Winter so far impact demand in the snowbird states? Maybe because people didn't leave the North to go to the South and pass the holidays in the Winter season?

It's unclear whether it was the snowbirds, or really, I think, the warm Winter affected the flu season, maybe more than any other factor. But if I look at Arizona and Florida, the two key sunbelt markets that are impacted by snowbird activity, both are down year-over-year -- Florida modestly, Arizona significantly. So, you are probably correct that it did have an impact.

Thank you.

And we have no other questions in queue at this time.

Just to get back to Gary Taylor's earlier question -- for our physician business, the professional liability expense is in the range of 1.5% to 2% of revenue. And in our nurse and allied staffing business, it is more in the range of about 0.5% of revenue.

Okay. If there's no other questions, we appreciate everyone's time and attention during this call. We look forward to updating you on our first quarter. Take care.

Thank you for joining today's conference. This concludes today's call. You may disconnect at this time.