Cross Country Healthcare Inc (CCRN) 2013 Q4 法說會逐字稿

Welcome to the Cross Country Healthcare full-year and fourth-quarter 2013 earnings conference call.

(Operator Instructions)

I would like to remind all parties that the call is being recorded. If you have any objections please disconnect at this time. I would now like to turn the meeting over to Mr. Emil Hensel, Chief Financial Officer of Cross Country Healthcare. 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 is Bill Grubbs, our Chief Executive Officer.

On this call, we will review our fourth-quarter and full-year 2013 results, for which we distributed our earnings press release last evening. 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 would first like to remind everyone that this discussion contains forward looking statements. Statements that are predictive in nature, that depend upon or refer to 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 statement sections of our press release for the fourth quarter of 2013, as well as under the caption, risk factors, in our most recent 10-K and our other SEC filings. Although we believe that the statements are based on 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 that 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 refer to non-GAAP financial measures. Such non-GAAP financial measures are provided as additional information, and should not be considered substitutes for, or superior to, financial measures calculated in accordance with US GAAP. General information related to these non-GAAP financial measures is contained in our press release.

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

Okay, thank you Emil, and thank you to everyone for your interest in Cross Country Healthcare.

First, I'd like to start by thanking Emil for his 23 years of service. As we announced in our press release last evening, he will be retiring as a Director and as our Chief Financial Officer. Emil started with the company after it was acquired by W.R. Grace, I think at the time, we were about $80 million in revenue, and Emil has been with us as we have grown, through the W.R. Grace time, our private equity ownership, and through the process of going public.

Emil has been through three CEOs, many acquisitions and divestitures, and all of the ups and downs in the economic cycles. He was more than a CFO, having first been involved in operations many years ago, but mostly, he was the person that helped the Company to grow by building our infrastructure and financial systems and controls.

I spoke with Joe Boshart the other day, our former CEO, who worked with Emil for 20 years, and although he said a lot of positive things about Emil, the one that stood out, was that Joe said he slept well at night knowing that Emil was a man of integrity, and would keep the Company on the right track financially. On behalf of the Board, management, all of our employees and the shareholders, I want to thank you, Emil, for your 23 years of service, and I wish you well in retirement.

On April 1, Bill Burns will join Cross Country Healthcare as our new CFO. Bill brings over 20 years of financial experience, and has both public company and staffing industry experience.

Emil has agreed to remain with the Company as a special advisor through June 3 in order to assist us with a smooth and orderly transition. I welcome Bill to the Company, and again, Emil, we wish you well.

So, I will provide a review of the quarter, and then an update on our strategic initiatives, and the progress we are making so far. Emil will cover full-year results later, and I'm happy to take any questions you have on the quarter or the year.

Let me start with an overview. Revenue in the fourth quarter was $109 million, down 2% from the prior year, and up 1% sequentially.

Although organic revenue, not including the acquisition we made in early December, was slightly below expectations this quarter, I am pleased with our progress, our financial discipline, our new pipeline, and the progress we have made on our initiatives, and I will talk about those a little bit later. Those right now are favorably impacting our growth in 2014.

We did finish Q4 with positive momentum, and that has continued into Q1. Our revenue in our Nursing & Allied segment was up 1% year-over-year. Revenue declined 6% in Physician Staffing and 11% in our Other Human Capital Management segments.

Our adjusted EBITDA margin was 1.6%, within our guidance of 1% to 2%. Remember, in Q3, our adjusted EBITDA was 2.7%, because of the cost cutting initiatives earlier in the year. I had previously announced that we would be reinvesting most of the cost savings into new growth initiatives, which we have done.

At the end of the year, we incurred non-cash impairment charges related to certain trade names, as well as a change in the valuation of our deferred tax assets. Emil will clarify some of these issues later in the call.

As a result, loss from continuing operations after taxes in the fourth quarter was $35.5 million, or $1.14 per diluted share. Excluding acquisition costs, as well as the non-cash valuation allowance on our deferred tax assets, and impairment charges, income from continuing operations and loss per diluted share would have been approximately breakeven.

Gross profit was 26.2%, up 120 basis points from the prior year's quarter. The margin improvement was primarily driven by lower insurance costs and lower housing costs in our staffing businesses. Our team continues to do a good job in driving efficiencies in our housing program.

Also as well as an increase in the bill pay spread on our Nursing & Allied segment, excluding the recent acquisition, and partially offset by higher physician provider fees. As I mentioned earlier, in our Nursing & Allied staffing business, year-over-year revenue was up 1% and 6% sequentially. Organically, revenue was down 4% year-over-year, and up slightly sequentially.

After a couple of quarters with anemic demand, we saw strong demand toward the end of Q3 and all through Q4, driven by new electronic medical records projects, and increased orders from our MSP customers. Our book-to-bill ratio was 102% in Q4, and is running at 105% in Q1 2014. As a result, we're now seeing our nursing headcount grow, and we expect that to continue.

We continue to experience decreased demand in our Physician Staffing business in Q4. Revenue was down 6% year-over-year, and 8% sequentially, due in part to seasonality. However, we did see positive trends in December, with revenue up year-over-year, and that trend has continued into the first quarter.

Our Other Human Capital Management Services segment was down 11% year-over-year, and essentially flat sequentially. Our search business showed weakness throughout the quarter, our education business showed sequential growth. Our search business continues to be sluggish in Q1, however, we are seeing positive trends in our education and training business.

Since these are our first public statements since the acquisition we made in early December, let me make a few comments regarding that. On December 2, 2013 we acquired the Allied health business of On Assignment for $28.7 million. Our strategy, our stated strategy outlines the need for us to grow our allied and per diem businesses, in order to be competitive in those sectors and to serve our existing customer needs, especially in our MSPs.

The acquisition brings us approximately $40 million of additional Allied business, which more than doubles the market share we had previous to the acquisition, as well as 23 new office locations that provide a platform for per diem growth, and an opportunity to cross sell all of our services. In addition, this business give us access to smaller local customers, as well as ambulatory care facilities that we didn't previously have, and which we view as growth areas in 2014.

We're on track for completing the integration by the end of the second quarter, and the business has continued to perform well. The business is expected to be $0.04 accretive in 2014. In a couple of minutes, Emil will give you more detail on Q4, the full year, and some guidance on Q1.

For the last couple of quarters, this is where I provided an update on our strategic initiatives. Rather than do that, let me give you a big picture view on where we are so far in 2014. Remember, we are still providing guidance on a quarter by quarter basis, but I think some general commentary is in order, since my focus has been on 2014, since I became CEO in July of last year.

All of our businesses have shown momentum coming out of Q4 into Q1, with one exception, our search business, which has continued to under perform. Although we are working on improving this business, it is only about 3% of our revenue, and has a minor impact on our overall numbers.

The strong book to bill ratio from the end of Q3 through Q4 for our Nursing & Allied business is starting to show results, in our working healthcare professional numbers in Q1. This business had strong Q1 last year, based on a very strong flu season, so year-over-year comps are tough to beat.

However, we expect sequential growth from Q4, and expect good momentum going into Q2. Of course, this business also benefit from a full quarter of the acquisition, as well.

The acquisition is also performing well in Q1, going forward, though, when the integration is complete, we will no longer track, discuss this business on a standalone basis. We will lose visibility to that after the integration is complete.

Our physician business had year-over-year growth in December, and that trend continued so far this quarter. We have made a number of changes and investments into this business, and they are starting to produce results. Our education and training business is also on a positive trend, and should show year-over-year growth in Q1, although they have had many cancellations due to the bad winter, and the bad weather this winter.

Let me talk about the weather impact on all of our businesses. Here is some specific stats. We had 56 seminars in our education and training business were canceled so far this quarter, due to weather issues.

12 of our per diem and Allied branch offices were closed, an average of two business days. Two of our travel Nurse & Allied staffing locations in Massachusetts and Pennsylvania were closed for 2 to 3 business days, and our Physician Staffing office in Atlanta was closed for three business days. Although it is difficult to determine the exact financial impact of these closures, we estimate a revenue reduction of $1.5 million to $2 million for this quarter.

Getting back to our initiatives in 2014, managed service programs, or MSPs, continue to be an area of focus for us. We are not yet seeing significant increase in our MSP pipeline, although we have some decent activity right now, the ramp-up time for our new investments in this area is typically six to nine months. These new investments are on track so far, and we expect to see an increase in the pipeline by the end of Q2, and into the second half.

Overall, I am pleased with how we came out of 2013, and the progress we have made with our strategic initiatives. I believe we will continue to see improved results in Q1. I'm feeling good about 2014 overall, in fact, I will come back after Emil gives guidance for Q1, and talk a little more about our progress.

At this point I'll turn the call over to Emil, our Chief Financial Officer, to go over the fourth quarter in more detail, and our first-quarter guidance.

Thank you Bill.

First the results for the fourth quarter. Revenue in the fourth quarter was $109 million, down 2% from the prior year, and up 1% sequentially.

Our fourth-quarter revenue includes $3.4 million from the acquisition of On Assignment's Allied health business, which closed on December 2. Organic revenue in the fourth quarter came in below our expectations, primarily due to a less robust demand environment in our Physician Staffing and search businesses.

Our gross profit margin was 26.2%, up 120 basis points from the prior year, and 10 basis points sequentially. The year-over-year margin improvement was due primarily to a combination of lower housing and field insurance costs in our staffing businesses, partially offset by higher provider fees and expenses in our Physician Staffing business.

SG&A for the quarter was $26.9 million, down 0.4% year-over-year, but up 6% sequentially. The sequential increase is due partly to the impact of the acquisition, and partly to higher compensation expenses, reflecting new investments in growth initiatives that Bill mentioned earlier.

Equity based compensation expense was approximately $500,000 in the fourth quarter, down 24% from the prior year. Adjusted EBITDA, as defined in our press release, was $1.8 million, representing a 1.6% margin.

Interest expense of $215,000 was down 50% from the prior year, reflecting the repayment of our revolver balance from the proceeds of the sale of the clinical trial services business in the first quarter, but up 13% from the third quarter, due to the debt draw-down needed to fund part of the Allied health acquisition. In conjunction with our annual testing of indefinite lived intangible assets, we recorded a pre-tax non-cash impairment charge of $6.4 million, related primarily to trade names used in our Physician Staffing segment.

Revenue in this segment came in below our expectations, due to a soft demand environment, resulting in a lower revenue forecast, which is the basis for calculating the fair value of our trade names. Pre-tax loss from continuing operations was approximately $7.3 million, as compared to a loss of $1.3 million in the prior year, and pretax income was $0.8 million in the prior quarter. The current quarter includes approximately $500,000 of acquisition-related expenses, in addition to the previously mentioned $6.4 million impairment charge.

In the fourth quarter we recorded $31.2 million valuation allowance in our deferred tax assets, based primarily on the cumulative loss position. This non-cash charge does not impact our ability to utilize our $78 million pretax tax NOLs, which expire in 16 to 20 years. Once we have sufficient positive evidence for future taxable income, we will be able to reverse some or all of this allowance.

Loss from continuing operations after taxes in the fourth quarter was $35.5 million, or $1.14 per diluted share. Income from discontinued operations was $0.3 million.

Net loss was $35.2 million, or $1.13 per share. Excluding acquisition costs, as well as non-cash valuation allowance on our deferred tax assets and impairment charges, net income and earnings per diluted share would have been approximately breakeven, as shown in the table labeled reconciliation of non-GAAP financial measures, in the press release we issued yesterday.

Turning to the balance sheet, we ended the quarter with $8 million of cash and cash equivalents, $8.6 million of debt, and a current ratio of 2.1 to 1. Day sales outstanding was 51 days, down the one day from the prior-year quarter, but up two days from the third quarter. Net cash used in operations was $2.9 million, reflecting the two day sequential increase in DSOs.

For the year as a whole, net cash provided by operations was $8.7 million. Capital expenditures totaled approximately $1.1 million in the fourth quarter, and $1.8 million for the year as a whole.

Revenue for the full year 2013 was $438 million, down 1% from prior year, while adjusted EBITDA from continuing operations was $8.4 million, up 110% from prior year. Net loss was $1.12 per share, as compared to $1.37 per share loss in the prior year.

Let me drill down next into our three reporting segments. In our Nursing & Allied staffing segment, we averaged 2,531 field FTEs in the fourth quarter, including 226 FTEs from the acquired business. On an organic basis, our average field FTEs were down 6% from prior year, and up 1% sequentially.

Segment volume came in at the high end of our guidance range provided in our October call, and reflects a consistent strengthening of our booking activity, that started in the middle of the third quarter. For the fourth quarter as a whole, the book-to-bill ratio averaged 102%. The book-to-bill ratio is averaging a strong 105% so far in the first quarter.

Segment revenue in the fourth quarter was $71.2 million, which included $3.4 million from the Allied health acquisition that closed in December. On an organic basis, segment revenue was down 4% from prior year, and up 0.6% sequentially. Organic revenue per FTE per day was up 2% from the prior year, due to higher bill rates, and down 0.5% sequentially, due to fewer average hours worked per FTE.

Segment contribution income, as defined in our press release, was $5 million in the fourth quarter, representing a 7% contribution margin, up 190 basis points from the prior year, and down 10 basis points sequentially. The year-over-year margin improvement was due to a combination of lower housing and insurance costs, as well as the continued widening of the bill pay spread, partially offset by an increase in SG&A due to compensation expenses. For the year as a whole, segment revenue was $279 million, up 0.4% from the prior year, our contribution income was $19.2 million, up 69% from prior year.

Let me turn next to our Physician Staffing segment. Revenue was $28.9 million in the fourth quarter, down 6% from prior year, and 8% from prior quarter, due to lower volume, partially offset by pricing improvements. Physician days filled were down 8% from prior year, reflecting the soft demand environment, and 10% sequentially, in part due to seasonality.

The average revenue per physician days filled was up 5% from prior year and 1% sequentially. Segment contribution income for the fourth quarter was $1.8 million, representing a 6.2% contribution margin, down 180 basis points from the prior year, and 80 basis points sequentially. The year-over-year margin decline was due to a decrease in permanent placements, as well as higher provider fees and expense reimbursements.

The sequential design due primarily to a favorable professional liability accrual adjustment in the third quarter. For the year as a whole, segment revenue was $121.4 million, down 2% from prior year and contribution income was $8.6 million, down 19% from prior year.

Revenue for the Other Human Capital Management Services segment in the fourth quarter was $9.1 million, down 11% from the prior year, and essentially flat sequentially. The year-over-year revenue decline was due primarily to fewer retained search sales in our physician search business, and secondarily, to less seminars held by our education business.

Segment contribution loss was $133,000 as compared to income of $534,000 in the prior year, and $55,000 in the prior quarter. The decrease in contribution income was due to negative operating leverage in our search business, partially offset by margin improvement in our education business. For the year as a whole, segment revenue was $38 million, down 8% from prior year, while contribution income was $745,000, down 62% from prior year.

This brings the to our guidance for the first quarter. The following statements are based on current management's 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, evaluation allowances or any material legal or restructuring charges.

We project the average Nurse & Allied staffing field FTE count to be in the 3,050 to 3,100 range in the first quarter. Consolidated revenue is expected to be in the $119 million to $121 million range. We expect sequential revenue growth in our Nurse & Allied segment in the high teens, roughly evenly split between organic and acquired growth, and essentially flat revenue from our Physician Staffing segment, and our Other Human Capital Management business segments.

We expect our gross profit margin to be in the range of 26% to 26.5% which includes the expected negative impact of the payroll tax reset, as well as the favorable impact of the acquisition, and adjusted EBITDA margin to be in the 1% to 2% range, which assumes no additional weather-related closings or cancellations. As Bill mentioned earlier, there was an estimated impact so far this quarter of $1.5 million to $2 million in revenue from the weather, and $400,000 to $500,000 of adjusted EBITDA impact. Our adjusted EBITDA margin guidance without the weather impact would have been 1.5% to 2.5%.

Interest expense is expected to be approximately $250,000 in the first quarter. Depreciation and amortization expense is expected to be up sequentially by approximately $250,000, reflecting the impact of the acquisition.

Let me turn the call over to Bill, for some concluding remarks.

Before we go to questions, I wanted to comment on our guidance. I have already received some feedback that there were some higher expectations for Q1. Let me tell you, nobody is more impatient that I am to see positive momentum, but from my perspective, we are actually right on track to where I expected to be.

Let's review how we got here. In June, right before I became CEO, we started a cost-cutting initiative.

We saw those results show up in our Q3 numbers. We reinvested those savings into growth strategies in Q4, and although there has not been a huge amount of time for those investments to impact our results, they are starting to take hold.

Let me talk about Nurse & Allied. Although Nurse & Allied staffing had a very good Q1 last year because of the strong flu season, we still may end up with year-over-year growth for Q1 this year.

But if we don't, we will have year-over-year growth in travel nursing for the quarter, and Nurse & Allied will have year-over-year growth for February and March. That is giving us momentum, going into Q2.

Physician Staffing had year-over-year growth in December, and quarter-to-date, through January and February, we are also up year-over-year, and we are seeing more demand in this area. Our education and training business is also on a good track, and we might still have year-over-year growth, even with the weather impact.

We would have definitely had year-over-year growth without the weather impact, but we average about 400 seminars per month, and we had a 56 cancellations us through February. That is a lot for us to absorb. But even with that, we still may end up with year-over-year growth in our education business.

We are hoping that these weather issues are one-time issues, but regardless, the underlying trend is pretty positive. I feel pretty good about our progress. Our two largest business, Nurse & Allied and Physician seem to be in a very positive track, education business seems to be on a positive track, and it's only our Physician & Executive Search business that is underperforming today.

We will have good sequential growth overall in Q1, and specifically in Nurse & Allied. Also, our MSP business is expanding and growing, and although most of our investments will take six to nine months to ramp up, we have been successful in three areas:

One, we have expanded the scope of services in seven of our MSPs, and we also won a new facility, a very large facility, in one of our existing MSPs as well. We have had increased order flow in our MSPs, and we are filling a higher percentage of our MSP position.

If you remember, at the beginning of Q3, we were filling about 76% of all the orders we got. At the end of Q3, we were filling about 80%. Last week, we filled 85%.

We have seen a pretty good uptick in our MSP business, and it is currently at a run rate of about $150 million on an annualized basis, which is about 50% of our Nurse & Allied business, and 30% of our business overall. Our guidance would have been $121 million to $123 million in revenue, and 1.5% to 2.5% adjusted EBITDA, without the weather impact, and that is exactly where we expect it to be, and we expect to continue with steady progress and improvements in subsequent quarters.

That concludes our prepared remarks. At this point, operator, can we open it up for questions please?

(Operator Instructions)

Tobey Sommer, SunTrust.

Emil, congratulations, and good luck in retirement.

Thank you very much, Tobey.

I wanted to ask about pricing, primarily in the nursing business, but to the extent you want to make comments but other businesses that is fine. I asked the question in the context of average revenue per day down in the quarter, some color that you can provide in -- with respect to that would be helpful.

Let me start Emil, with the actual bill rate and pay spread, and I don't know the stat on the average per day. Tobey overall, our travel nursing, in particular, the bill rates are up about $0.23 from last quarter, and they are up about 0.5%.

They're up about 2% from the same quarter last year, a little above $65 average bill rate on the travel nursing. The bill pay spread has also improved, and that's the fourth quarter in a row that we have been able to increase the bill pay spread, that is up about 2% from last quarter, and almost 4% from the quarter, the same quarter of last year.

We feel pretty good about the travel nursing pricing overall. What do you have for the average?

We need to factor in the impact of the acquisition, because the average bill rates for our Allied health business that we acquired significantly lower than our overall average for the segment as a whole. If you look at it just from an organic basis, the revenue per FTE per day for the segment would have been up approximately 2%.

That is right. I forgot about that. The average bill rate, by the way, Tobey, in the new acquired business is about $30 an hour, less than half of what we have in our travel nursing business.

Perfect, that's helpful. My next question has to do with the book-to-bill that you described in the quarter, and then quarter to date, and I think 105% so far in the first quarter. Is there any color you can provide on how that trend looks within the first quarter, by segment?

That number, Tobey, refers to our Nurse & Allied segment only.

It is specific.

It is specific to that. I should point out though, that seasonally, that is an extremely strong number.

We have been tracking this statistic for the past nine years, and 105% is the highest we have had. We had one other year that we had -- for these same weeks, that we had 105%, so this is a very strong number.

Refresh my memory if you could, Emil, since you have looked at the historical data recently. In a typical year, wouldn't 1Q be down sequentially?

It has been in the last three or four years with one exception, we weren't recovering from the great recession. But the guidance that we have for the current quarter, even on an organic basis, is close to 10%. It is a significantly better sequential story that we have had in the past.

Tobey we are not too surprised. We have been stating for a couple of quarters now, at the end of Q3, we had very strong book-to-bill ratio and all through Q4. But remember, travel nursing and travel allied our booked 30, 60, sometimes at the end of the year, 90 days ahead.

You get a lot of orders for January even in the September/October time frame. That strong to book-to-bill ratio has to eventually catch up.

You can't carry on with a strong to book-to-bill ratio and not see it catch up eventually. You are seeing that in the sequential Q4 to Q1, with a very high single digit, if not double digit sequential growth.

The last question I will ask, and then I'll get back in the queue is, could you describe the progression of cost synergies from the Allied acquisition throughout 2014? Are there any knowable quarters or months, in which you get a little bit of cost savings?

In the Allied acquisition? The Allied acquisition really, that didn't come with cost synergies. In fact, we didn't really pick up any corporate support functions with it.

We picked up a business -- if you look at the 8-K filing, we picked up a business that last year did $40 million of revenue, and a little over $4 million of contribution. We actually had to add cost into that in order to service that business, so we took about a $3.5 million EBITDA number out of that business. There really is no significant cost synergy.

We are combining it with a couple of our offices, so there are some offset to the cost we had to add in there, with some cost savings from seven or eight of the offices that we are combining together, I actually think it is nine offices we are combining together. To be honest with you, the offset isn't enough. We actually had to add cost into it, to run this business.

Thank you very much. I'll get back in the queue.

Josh Vogel, Sidoti & Company.

Good luck, Emil.

Thank you, Josh.

My first question is regarding the valuation allowance. I was just curious, where have your expectations changed?

Did you have to take this allowance due to timing or did it relate to the MDA acquisition? I'm just curious if you can give some detail there.

The impairment charge that we took was on trade-ins related to MDA, and the way -- we do our annual impairment testing in the fourth quarter. Because the revenue for MDA came in lower than we expected, as compared to what our last valuation was done a year ago, even though our growth rates are essentially similar, or basically the same as they were in the prior year, they are off a lower base.

The impact of that is a normal revenue stream upon which we then calculate a hypothetical royalty rate, that determines the value of the trade names. That is just a mechanical exercise, and that exercise yielded $6.4 million pretax impairment charge on the trade name.

What about on the deferred tax asset?

The deferred tax asset is more of a technical consideration. Because we're in a cumulative loss position, it is very hard to overcome the negative evidence of the utilizability of our deferred tax assets.

We fully expect to be able to utilize these assets. We have $78 million of NOLs on a pretax basis.

We have lots of time to use it, 16 to 20 years to use it. It is not much question in my mind that we will eventually be able to reverse these, but under the accounting guidance, we really have to book our valuation allowance, because we could not overcome the negative presumption, the negative evidence of the three-year cumulative loss position.

Okay, that's helpful. Thank you. Bill, you were talking about improving fill rates on the MSP front, and I may have missed it, I'm sorry, but can you talk about the MSP pipeline in the physician market?

We have one locum tenens MSP today. We are in discussions with several of our other existing MSPs to expand it into the locum tenens area, but we have not closed any of those deals yet. We still have one locum tenens deal, although there does seem to be interest in that area, we are working on that going forward.

Our pipeline is essentially the same. We have some decent level of activity for new MSPs, and if I had to make a guess, we will close one or two before the end of the quarter. But it is really, the investments we put in there, I don't really expect those to kick in until the end of Q2, maybe into the beginning of the second half of the year.

We never had a separate dedicated sales team for our workforce management solutions, and we do now, but again the ramp-up time is significant for that. We have been, as I mentioned earlier, very successful at our fill rate. If you remember, we used to fill that 85% of our travel nursing jobs, about 50% of our Allied jobs, and 35% of our per diem jobs.

We have increased in all three areas. We are now filling close to 90% of the travel nursing, we have had a couple of weeks on the Allied side that has been close to 70% fill rate, and our per diem is up, close to 50% now. We're just doing a better job of that.

Plus we have expanded after we acquired the Allied business from On Assignment, and we now have a larger footprint. We've gone to some of our MSPs, where we have these local Allied offices and we have expanded the scope of our services, and signed new amendments to expand the services to the local Allied business, and we have seen success there as well. Our MSP business is growing, but mostly off the back of expansion of existing programs.

Just a couple of housekeeping items. First do you know, do you have expectations for CapEx for the year and the tax rate?

We expect about $3 million of CapEx for the year. The tax rate is a little hard to talk about in tax -- in percentage terms, because of our essentially breakeven pretax number that we are expecting.

What I can do is give you the range of what we think the tax expense is likely to be in Q1. We think it is going to range between about $150,000 benefit on one end of the spectrum to about a $300,000 expense at the other end of the spectrum, so it translates to roughly either $0.005 EPS benefit or $0.01 expense.

Just lastly, as you generate cash, are you going to be focused on paying off the small debt balance? Should we expect interest expense to decline throughout the quarters, throughout the year?

Absolutely, acquisitions are other ways to utilize our balance sheet, we were certainly -- the second priority would be the repayment of the debt.

Great. Thanks so much. Good luck again, Emil.

Thank you.

Ty Govatos, TG Research.

Emil, before I ask the questions, again, best wishes, and you will be greatly missed.

Thank you very much. I appreciate it.

Can you give us a rundown of what the SG&A might look like in the first quarter, and how it will progress through the year?

We expect our SG&A expense in the second quarter to be --

In the first quarter.

In the first quarter to be up sequentially, primarily as a result of the impact of the full quarter impact of the acquisition, as well as some of the growth initiatives that we have invested in. The magnitude of the increase on a sequential basis is likely to be about $3 million.

And pretty much stay at that level for the year, or are there some savings in there?

No, that pretty much stays at that level.

Okay. Other question I guess is maybe for Bill. The Other Human Capital sector, how do you view that whole area now? Are you investing there for growth, harvesting the cash flow, can you give us any kind of color on that?

We are looking at, if you look at the physician and executive search, that has been underperforming now for a number of quarters, so we are looking at some initiatives to get that back on track again, and that has to do with restructuring of the sales, and looking at some of the cost base, and some of the marketing, and all of that. That is a little bit of a turnaround at this point.

We believe that is a key core business of ours. It is complementary to our locum tenens and our other healthcare staffing businesses, and so we need to get that back on track again.

Our cross-country education is actually on a decent track. We have made some investments, mostly in its website and its online capabilities, which is -- we have been predominantly an in-person seminar business, training business going -- in the past.

Going forward, we need to shift more and more. Our online bid, although a very small part of our revenue, is growing at a pretty decent pace. We have made some investments in that area and we expect that to help contribute to its growth overall, and as I mentioned -- if we hadn't had 56 seminar cancellations, which is a big number for us, it is actually on a very decent trend, and we think that is going to continue throughout the year.

Thanks, I appreciate the time.

Jeff Silber, BMO Capital Markets.

This is actually Henry Chen calling on behalf of Jeff. Just had a question about physician demand. I know you mentioned a little bit of a slowing over the quarter. If you could just provide some color and some of the drivers or factors behind any of that demand slowdown?

I think Emil may have a different specialty list, I have it somewhere, but it is probably buried. I'll just talk generally.

We don't know 100% sure. It seems to be a variety of reasons.

We did see a trend a little bit in the second half of last year, where physicians seem to be more willing -- physicians quite often are independent. Certainly, our locum tenens are independent, and many physicians that work at acute care facilities are independent providers.

Many of them now have decided to take permanent employment in the hospital systems, just because of circumstances, maybe uncertainty with the Affordable Care Act and liability insurance or whatever reasons. I think that drove some slowdown in demand from the locum tenens side. We think that is past us now and that trend has stopped.

So as I mentioned, we saw year-over-year growth in December. We've seen year-over-year growth through the first two months of this year, and the demand certainly is starting to improve. Emil can you give a little more color on where some of the ups and downs are.

In the fourth quarter we had year-over-year decline, significant declines in the primary care area, reflecting the dynamics of physicians taking hospital employment, and hospitals having less need for locum tenens as a result of that, at least in the short term. We also saw declines in pediatrics and emergency medicine.

These are partially offset by some growth in other specialty areas; anesthesia was up year-over-year, oncology was up, and a couple of other areas. The declines outweighed the improvements.

We have also, Henry, adjusted a little bit of -- we have put some investments in the business, we adjusted our go-to-market strategy slightly. We have always had a slightly different model on the specialties and we have added some kind of enterprise salespeople to go out there and sell locum tenens to MSPs, as well as the full suite of services.

We always sold the services on a specialized basis, and we had now have a more comprehensive approach to selling. We expect that, and in fact, we think some of the increase is a benefit of that investment, and we hope to improve on that going forward.

Great. Thanks.

AJ Rice, UBS.

This is Brandon Fazio for AJ.

The question is, your thoughts on EBITDA margin progression, as you think over the next year or two, what you think you need to report from an organic revenue growth standpoint to get to margins pending your longer-term role of high single digits?

And also just on your investment side, it sounds like you're pretty much done with the sales force investments, now just reaping some of the benefits from those investments? I'm just wondering, an update on where those things stand?

I think you are right. We've made most of the investments. There are a few people that we have hired in January and February that may not have been 100% reflected in the numbers, but basically, we have made all of the investments, and you're right, now it is to get them up to speed and get the benefit of those investments, and some of that will come in subsequent quarters, so we feel pretty good about that.

The goal is, to get an 8%-plus EBITDA over time. Go ahead, Emil, do you want to?

For the year as a whole, it's going to take a couple of years to get to that number, but we expect to make steady progress throughout the year with our adjusted EBITDA margin rising gradually as the year progresses.

Okay, thank you.

Tobey Sommer, SunTrust.

A few modeling items. For the first quarter and the full year, what do you expect equity comp to be, CapEx, and I guess you already mentioned the tax rate, so I will table that one.

I think we gave you CapEx as $3 million for the year.

Equity comp was about $500,000 this last quarter, we may see a slight uptick in the third quarter from that. Our equity grants are typically done in early June, but not a significant increase.

Thanks, that's helpful. Bill, from a broader perspective, I wanted to ask you a question and maybe hear what you have to say about healthcare reform, and how your customers were behaving, when you came aboard last summer, and into the fall. Primarily, I'm talking about nursing.

Then, maybe what you are hearing from them or about their plans, not just next month or next quarter, but over a couple-year period. What do you see the opportunity may be for hospitals to utilize nursing a little bit differently?

We have obviously been in a lot of discussions, in our regular meetings and quarterly updates, and so on and so forth. I think they have a number of responses.

They all believe there will be increased demand. I think President Obama said 4 million people have signed up for the Affordable Care Act, there will be more. I forget what the stat was in Massachusetts, but a huge percentage signed up within the last 30 days of the program in Massachusetts.

There will be millions of people that come into the system, and usually the ones that sign up, especially the ones that signed up early, are the ones that probably need the insurance more than the young healthy people that may or may not sign-up long term. They are all expecting an increase in demand.

They seem to be prepared, they seem to look at what happened in Massachusetts. Massachusetts had a large increase in emergency room attendance, after they implemented a similar program. The people here seem to be ready for that.

They believe that if these people coming to the emergency room, if you've got a broken leg they will treat you, if you got a sore throat they will send you down the street to their walk-in clinic that they have invested in over the last four or five years. We've seen a lot of investment in these hospital systems into clinics, we have seen a couple of them actually build clinics right next to their emergency room, so they can actually shift the people over.

And what they're saying is that, it is usually expensive to treat somebody in an acute care hospital generally. It's even more expensive to treat them in the emergency room. By being able to put them into a clinical or ambulatory center environment, it is a cheaper overall environment, but also they will tend to be treated by a physician assistant or a nurse practitioner, and so we're seeing a lot of that trend. They seem to be prepared for that.

The biggest benefit that I have seen, though, is because they're not 100% certain of the total impact, they are looking at the use of contingent labor slightly differently, and they seem to be looking at staffing their core team to 80% of 85% of what their peak expectations of demand would be, and using contingent labor in a more strategic way going forward. We're starting to see that at several hospital systems that have already implemented programs in a different way, similar to what you have seen in other segments of staffing, where IT departments or call centers have used contingent labor more strategically.

Hospitals have come late to this. We used to be a necessary evil, and now they're starting to embrace the concept as a way to be able to flex up and down in the peaks and troughs of demand. So far, I haven't seen any negatives, there are some negatives in the hospital systems for reductions in reimbursements and penalties for readmissions and things like that.

But generally they seem to be prepared and ready to use contingent labor the right way, and/or get into the ambulatory business more than they have in the past. Which is part of the reason, the strategic reason for the acquisition we made, the 23 offices we acquired, more than half of their business is in non-acute care environments, and that gives us a go-to-market strategy that we never had before to service that part of the market.

My last question has to do with the amount of time between matching up a nurse and then having that nurse start the travel job. Have you seen any changes in the duration of time between those two events?

No. I think it still -- I remember the last report, it's still about 30 days.

31 days.

Towards the end of a fiscal year, you do start to see a little bit of an extension of that, although we didn't really this year. But as I mentioned earlier, in September and October, we started to get orders for January, which was a big part of our higher book-to-bill ratio, because people start just planning for the next fiscal year, when they get into the fourth quarter. Generally, I'm pretty sure, at my last report, it was still about 30 to 31 days from the time you get an order to when somebody starts.

That number really hasn't fluctuated much. It has ranged over the past 15 or 20 years since we have been tracking it, between 4 to 5 weeks.

Thank you.

Sir, I am showing no further questions at this time.

I appreciate everybody's interest and your questions today, and we look forward to presenting our Q1 results, and I don't remember what the date is on that. Sometime in May. Thank you very much.

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