Cross Country Healthcare Inc (CCRN) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cross Country Healthcare earnings conference call for the third quarter of 2016. This call is being simultaneously webcast live. A replay of this call will also be available until November 17, 2016 and can be accessed either on the Company's website or by dialing 800-369-7443 for domestic call, and 203-369-3271 for international call, and by entering the pass code 2016.

I will now turn the call over to Bill Grubbs, Cross Country Healthcare's Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone. Before we review the Safe Harbor statement, I wanted to say a couple of things first. As you know, we announced a few weeks ago that Bill Burns, our Chief Financial Officer, was taking a medical leave of absence. I'm pleased to say that he's recovering well; he's in good spirits. We do not have a specific date for his return, although we are expecting it to be before year-end.

Although I asked Bill to focus completely on his recovery, I am sure he is listening in today. So, on behalf of the Board of Directors, our executive team and all of our employees, I would like to publicly send him good wishes for a speedy recovery.

Filling in for Bill Burns today are two members of our Finance team. Chris Pizzi is our Vice President of Finance, Corporate Controller, Treasurer and acting Chief Financial Officer while Bill Burns is away. Also with me is Athos Michaelides, Vice President of Financial Planning and Analysis. He is also part of our M&A team, and is actively involved with Investor Relations.

So, with those introductions made, let me turn the call over to Athos to kick us off.

Thank you, Bill. This call will include (technical difficulty) third-quarter results for 2016 as discussed on our press release, and will also include a discussion of the financial outlook for the fourth quarter and full year 2016. After our prepared remarks, you will have an opportunity to ask questions while the press release is available on our website at www.CrossCountryHealthcare.com.

Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements. As noted in our press release, forward-looking statements can vary materially from actual results, and are subject to known and unknown risks and uncertainties and other factors, including those contained in the Company's 2016 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as in other filings with the SEC.

I will encourage all of you to review the risk factors mentioned in these documents. The Company undertakes no obligation to update any of these forward-looking statements. Also, comments during this teleconference reference non-GAAP financial measures such as adjusted EBITDA or adjusted earnings-per-share. Such non-GAAP financial measures are provided as additional information and should not be considered subsequent for or superior to financial measures calculated in accordance with US GAAP.

For more information related to these non-GAAP financial measures, is contained in our press release. In order to facilitate a better understanding of the underlying trends, we will refer to pro forma information on this call, giving effect to acquisitions and divestitures, as well as other transactions that have occurred on the start of the previous impact day.

As a reminder, we divested our education seminars business during the third quarter of 2015 and completed acquisition of Mediscan in October 2015. With that, I will now turn the call over to our CEO, Bill Grubbs.

Thank you, Athos, and thank you, everyone, for joining us this morning. For the past two quarters, I've been saying that I feel as good about the business as I felt since I started with the Company. I stated on both occasions that our turnaround efforts and initiatives were starting to come together nicely, and we are seeing that with improved pricing and new MSP wins, but we had not yet seen it in our revenue numbers.

Well, let me reiterate my statement for the third quarter. I feel as good about the Company today as I felt since I started. All the hard work we've put in over the past few years is coming together, we are seeing it in pricing, MSP wins and we are now starting to see it in our revenue growth. I am very pleased with our progress.

So let's get into the revenue growth because it does need some clarification. Obviously $215 million of revenue is well above the $200 million to $205 million guidance number. The overperformance was due to two factors -- a significant volume of project business in the quarter above our normal levels; and two, organic growth from our recruiter investments and Canada sourcing initiatives coming in faster and stronger than anticipated.

I'll touch on the project revenue first, so let me step back just a minute. We generally don't do a huge amount of premium rate business as we don't think that is in the best interest of our customers or sustainable for long periods of time. But we do have some project revenue most quarters which we define as shorter assignments with premium rates.

We don't usually call it out and it's just embedded within our numbers. But this quarter was higher than normal, so we think it's important for you to see what our underlying numbers would be without it. Even though to me this is a business we delivered it and it was there on the demand standpoint, but I still think it's important to kind of see what the underlying trends are.

Our project revenue is related to special requests that clients have because of particular issues they are facing that we believe could put patient safety at risk. Throughout the quarter we received many requests for projects, and during the month of August we placed about 80 nurses on assignment at more than 75 healthcare facilities and over 40 customers.

As we got into September, we received more requests and placed another approximately 107 nurses on these special projects. All in all project revenue was somewhere in the $6 million to $7 million range for the quarter, which means our underlying revenue without the project business was $208 million to $209 million, still well above the guidance of $200 million to $205 million.

I think there's three specific points about this that I think bodes well for the future. First obviously the market remains strong as evidenced by high demand generally, plus these requests for special projects when our customers struggle to find quality healthcare professionals. Certainly we have not seen any slowing in the market at all, and I'll talk about that a little bit later.

Two, our underlying revenue growth was much better than anticipated without the project business, and despite considerable slowdown in EMR business both year-over-year and sequentially. So this is giving us good momentum going into Q4 for the underlying business. And three we were able to fulfill our normal business with better-than-expected growth and accommodate the project business -- project revenue as well.

A year ago we would not have been able to deliver this type of performance, but because of the improvements to our processes, investments in new recruiters and the increase in candidate attraction we are seeing, we were able to deliver. I think this bodes really well for Q4 and 2017 that we are starting to see good results from all of these efforts.

So getting back to the big picture, we grew our revenue by 10% year-over-year, with Nurse and Allied as the biggest contributor growing at 12.6% organically. Organically, I mean without the Mediscan acquisition -- or 8.1% to 8.7% if you pull out the project business. Pick any number you want of those but I am happy to see our revenue growth start to accelerate and we expect that to improve more in Q4.

As I mentioned, the investments we've been making in recruiters and candidate attraction are starting to pay off. We have set a goal to improve our volume growth in addition to our pricing growth by the fourth quarter, and we are on track to achieve both volume and pricing growth in Nurse and Allied going forward. And I'll come back to pricing volume a little bit later.

Mediscan was the other contributor to our increased revenue with pro forma growth [of] 13%. Because of their school business, we tend to look at their numbers from September to August. They are off to a really good start to the new school year and we expect new revenue growth to accelerate in Q4.

Physician Staffing continues to have declining revenues, but I am feeling more and more comfortable that we are on the right track. In my last two visits with the team, I had seen a significant improvement in activity, but more importantly in attitude. Employees are more positive, work together better than ever and are focused on improving performance. All turnaround situations start with getting the team fully aligned and we are making great progress.

Still, we don't expect to get back to revenue growth until next year, but I believe we are on the right track. And we should see less of a decline in revenue in the fourth quarter.

Other Human Capital Management Services are still being affected by the sale of our education seminars business last August, but even with stripping that out, our executive and physician search business is still declining. We are starting to see some stabilization as our new hires get up to speed, we hope to see growth in this business next year also.

From an overall profitability standpoint, we generated $13.1 million of adjusted EBITDA or 6.1% of revenue above our guidance for 5% to 5.5%, due mostly to leverage from higher revenue growth, but also from some cost savings initiatives taken in Q3. Chris will talk about that a little bit later.

The increased level of adjusted EBITDA translated to stronger net earnings and an adjusted EPS of $0.24, again above our guidance of $0.13 to $0.15. The market remains very strong and this quarter we passed a new all-time high in the number of orders we have in Travel Nurse and Allied. This is partly due to the strong market and partly due to new business wins. Again this level of demand, along with our new investments starting to pay off, is a very good combination for us.

That brings me to price. We had strong pricing improvement in both Nurse and Allied as well as Physician Staffing, as you would expect in a candidate-driven market. Physician Staffing as a whole, including our branch practices service line, had a price increase of 4.6% with a pure physician staffing [up] by 6.1%. As we get volumes growing or even flat year-over-year in this business, we'll start to see good revenue growth.

Pricing in our legacy Nurse and Allied business was very strong overall. If you include the project business, we had an 11.3% increase in price with Travel Nursing at 10%, Travel Allied at 3.6%, and our branch operations at 17.6%. These are all great results but we need to look at pricing without the project revenue for a better idea of how we are really trending with our underlying business.

Without the project business, pricing grew 9.5% overall with Travel Nursing at 9.4%, Travel Allied at 3.6%, and branch operations at 13.6%. A very strong quarter for pricing.

Workforce Solutions continues to perform well and we've won 16 new MSP's this year -- actually since I wrote the script, it's actually 18 no, which was the goal -- 16 was the goal for the whole year, and double the number we won in each of the previous two years, but we are at about 18 now.

To wrap things up, I'll reiterate that I feel really good about where we are in the Company today. I want to thank our employees for their hard work and dedication on executing on these initiatives. While I know we are not hitting on all cylinders yet, we don't have every business growing and we are not at an optimal level of profitability, but we are on a great track to continue improving our revenue growth and our adjusted EBITDA [percentage].

As I said earlier, all the hard work we put in over the past few years is starting to pay off. Although there is still a lot of work to do, we do believe we are on track to achieve $1 billion of revenue and $100 million of adjusted EBITDA by the year 2020.

Let me turn the call over to Chris Pizzi, who will review the quarter in more detail.

Thank you, Bill. As you just heard, our third-quarter performance was strong, led by improved pricing in the project business. We are beginning to see strong levels of demand in our largest segment resulting from our candidate attraction initiative. As a result, our revenue, gross profit margin, adjusted EBITDA margin and adjusted EPS for the quarter all came in at or above the upper end of our guidance range.

Turning to the financial results, total revenue for the quarter was $215 million, up 10% from the prior year, and 8% sequentially. The year-over-year increase was driven entirely by growth in our Nurse and Allied and staffing business, which includes the impact from the Mediscan acquisition that closed in October 2015. Mediscan has continued to perform well with revenue growing by 13% on a pro forma basis over the prior year.

The sequential increase was driven by growth in our Nurse and Allied and Physician Staffing businesses. Gross profit margin for the quarter was 27.1%, up 80 basis points from the prior year and down 40 basis points sequentially.

Moving down the income statement, SG&A expense for the quarter was $45.9 million or 21% of revenue, representing an increase of 17% over the prior year and 3% sequentially. The year-over-year and sequential increases were mainly due to the investments we are making in our business such as increasing the marketing spend to attract more candidates, increasing the number of recruiters, and continuing to bolster our Workforce Solutions team.

These investments are gaining traction and we believe will continue to contribute to revenue growth in the fourth quarter and into 2017. Adjusted EBITDA for the quarter was $13.1 million, representing a 7% increase over the prior year and a 19% increase over the prior quarter. Our adjusted EBITDA margin for the quarter was 6.1%, which was above the high end of our guidance range.

We recorded a restructuring charge of $600,000 in the quarter as we incremented certain cost savings initiatives which focused on centralizing our corporate functions and optimizing our branch footprint. As a result of these actions, we expect to achieve $2 million to $3 million in annualized cost savings.

We recorded a $7.1 million non-cash gain in the quarter related to the change in the fair value of our embedded derivatives on our convertible notes. The gain was a function of the decrease in our share price during the quarter. As a reminder, every dollar movement in our share price results in approximately a $3 million change to the derivative viability.

Interest expense for the quarter was $1.4 million, down $200,000 from the prior year and the prior quarter. As you may recall, late in the second quarter, we refinanced the majority of our debt structure to reduce our overall borrowing costs and expand our liquidity.

In accordance with the terms of our credit agreement, we repaid $500,000 of principle on our term loan during the quarter. We are required to make quarterly principal payments on our term loan at an annual rate of 5% of the original $40 million principal balance in year one, 7.5% in years two and three, 10% in years four and five, with the remaining balance due at maturity.

Depreciation and amortization expense for the quarter was $2.1 million, representing a sequential decrease of $400,000 due to the impairment charge taken last quarter. The year-over-year increase of $200,000 is due to the impact from the Mediscan acquisition.

Income tax expense for the quarter was $800,000 and is primarily related to the amortization of indefinite live intangible assets for tax purposes. Net income attributable to common shareholders for the quarter was $14.1 million or $0.22 per diluted share as compared to $5 million or $0.16 per diluted share in the prior year.

The current quarter net income includes a $7.1 million gain on the embedded derivative, while the prior year reflected a $2.9 million loss. Also in the prior year, we recorded a $1.3 million after-tax gain on the divestiture of our education seminars business.

Lastly, adjusted EPS for the quarter was $0.24, which was above the high end of our guidance range as compared with $0.16 in the prior quarter and $0.23 in the prior year. The prior year quarter benefited from achieving higher than anticipated savings from our cost optimization initiative, which we started to reinvest into the business in the fourth quarter of 2015.

Next, let me review the quarterly results for our three business segments. Revenue for our Nurse and Allied segment was $186 million, up 19% over the prior year and 8% sequentially. The year-over-year increase was driven by the Mediscan acquisition, improved pricing and the project revenue. The sequential increase was mainly due to the project revenue and improved pricing. Excluding the project revenue, our year-over-year and sequential growth rate would've been 14% and 5%, respectively.

On a pro forma basis, year-over-year revenue increased 13%, due to improved pricing and the project revenue, which, if excluded, would have increased 9%. Bill rates for the quarter were up 10.5% over the prior year and 4.7% sequentially. The year-over-year growth was driven by our branch and Travel Nursing businesses; the sequential increase was primarily related to our branch business.

Excluding the project revenue, our bill rates for the quarter would have increased 8.8% over the prior year and 3.1% sequentially. We averaged 6,954 field FTEs for the quarter, up 5% from the prior year and 1% sequentially. The revenue per FTE per day was $292, up 14% over the prior year, and 6% sequentially. Segment contribution income for the quarter was $19.5 million, representing a 10.4% contribution margin, down 10 basis points over the prior year and up 20 basis points sequentially.

Turning next to our Physician Staffing segment, revenue was $25.1 million, down 19% from the prior year and up 5% sequentially. The year-over-year decline was entirely due to lower volume of days filled, partly offset by price increases across most specialties. The sequential growth resulted from increased volumes, coupled with price increases. Segment contribution for the quarter was $2.4 million, representing a 9.6% contribution margin, down 70 basis points over the prior year and up 100 basis points sequentially.

Finally, revenue for our Other Human Capital Management Services segment, which now only includes our search business, was $3.3 million, representing a 56% decline from the prior year. This decline was primarily due to the divestiture of our education seminars business in August 2015.

On a pro forma basis, search revenue declined 23% over the prior year and 6% sequentially, mainly due to lower revenue from retained executive searches. Based on these investments we are making in the business and the demand we are seeing, we continue to believe this business will return to year-over-year growth in 2017. Segment contribution loss was $200,000 as compared with contribution income of $400,000 in the prior year and $100,000 in the prior quarter.

Turning to the balance sheet, we ended the quarter with $26.7 million of cash and cash equivalents and $64.5 million of debt at par, which included $39.5 million on our senior secured term loan and $25 million in convertible notes. As of September 30, 2016, we did not have any amounts drawn on our $100 million revolving credit facility.

During the quarter, we generated $19.4 million in operating cash flows, largely due to strength and timing of collections. As a result, our DSO, which excludes amounts owed to subcontractors, was 50 days, resulting in a four-day sequential improvement and a seven-day improvement from year-end 2015. We expect our fourth quarter DSO to be in the mid-50 day range due to seasonality.

Capital expenditures for the quarter were $2.4 million. This amount includes $1.4 million incurred for the buildout of our corporate offices. Excluding these buildout costs, our capital expenditures were $1 million and in line with our expectations for the quarter. As we complete the buildout of our corporate offices over the next couple of quarters, our capital expenditures will continue to run higher than normal.

Our corporate office leases include improvement allowances from the landlord, which they are required to reimburse us a portion of our buildout costs. During the quarter, we received a $900,000 improvement allowance reimbursement, which is included in operating cash flow. Also during the quarter, we received $500,000 of deferred purchase price proceeds related to the sale of our education seminars business, which closed in August 2015.

This brings me to our guidance for the fourth quarter. We expect consolidated revenue to be in the $207 million to $212 million range, which assumes a year-over-year growth rate range of 7% to 10% on a reported basis. This range includes continued project revenue of $3 million to $4 million.

While we don't provide specific guidance for segment, we expect our legacy Nurse and Allied business to grow by low-double-digit and our Mediscan business to grow by low to mid-double-digits on a pro forma basis. Consolidated growth continues to be impacted by underperformance in our Physician Staffing business, which is expected to decline by low-double-digits in the fourth quarter.

Turning to margins, our consolidated gross profit margin is expected to be in the 26.7% to 27.2% range, and our adjusted EBITDA margin is expected to be in the 6% to 6.5% range. From an EPS perspective, we expect our adjusted EPS to be in the $0.22 to $0.24 range, assuming a diluted share count of 32.9 million shares.

We expect our full-year revenue to be in the $818 million to $823 million range, which is about our previous guidance range of $800 million to $815 million. We expect our full-year adjusted EBITDA margin to remain unchanged from our previous guidance range of 5.5% to 6%, which would imply a full-year adjusted EBITDA range of $45 million to $49 million.

This concludes our prepared remarks. And at this point, I would like to open up the lines for questions. Operator?

(Operator Instructions). Tobey Sommer, SunTrust.

Bill, kind of want to ask a question about cash flow and capital deployment. You've done a lot of heavy lifting transforming the Company, and now we are more visibly seeing the effects of that. Where do you see your utilization of cash kind of fueling or pushing that transformation further? Thanks.

Yes. I think the cash -- we would like to use it mostly for acquisitions. If we don't do a deal by the end of this year, this will be the first year that we haven't done a deal, and we have been very pleased with all the deals we've done before. The Allied acquisition in December of 2013, the MSN acquisition in 2014, the Mediscan acquisition last year, have all proven to be very beneficial for us.

We are active in the market. We're looking -- I think you guys probably know by now that we are not going to do a deal just to do a deal. So, we haven't found anything we like at this point, but chances are we will use the positive cash flow and availability to do an acquisition.

Are there particular areas that you could highlight, or would you prefer not to at this point?

No, no, I can tell you. I wouldn't mind adding on to our public into the school business. I think special education and the healthcare professionals in the school setting is a growing area and underserved, and I think we could take market share in that area. We are still a little bit under scale in our Allied offering from a market share perspective, so I wouldn't mind getting more local Allieds; that we only have Allied in 25 to 30 of our 70 branches.

And I'll either try to grow that organically or by something that can help round that out a little bit. I think if we continue to see stability and improvements in Physician Staffing; I wouldn't mind doing something on the Physician Staffing side as well. And then we are looking at a couple of bolt-ons to some of our workflow solutions areas that we think could benefit our relationship with that customer.

Could you maybe discuss good signs or positive signs that maybe you are seeing in Physician Staffing that could point to a bottoming in a turn? Or is it really -- are there any numbers or forward-looking indicators? Or is it mostly esprit de corps and level of effort that's encouraging you?

It's a little bit of both. We have seen -- we obviously track a lot of different numbers, but we have seen their weekly days booked improve over the last four to six weeks. And that's what they actually book in that week, but it could be a month out, two months out, three months out.

And so the fact that they are starting to book at a higher level is obviously a positive financial trend that will catch up in time. But we do expect that they will have less of a declining revenue in Q4; that's where they have to start. It doesn't go from negative 20% to positive 5% or 10% in one quarter or the other.

So we will see, I think, a lessening of the decline revenue in Q4. And more importantly, as you said, it's kind that esprit de corps thing. I just see a change in the attitude. We do tracking of the productivity every day, and I see the emails going back and forth, and people are getting excited about what's happening. I've gotten emails about the new leadership and how the team is pleased with it. It always starts with the people and if the people are on board, the revenue will come later.

Switching gears to the nurse business, could you talk about a little bit more about demand and in pricing, any signs -- I know we are not quite into 2017, but any signs on the durability of that, from your perspective?

Certainly demand. And I know the hospital results were a little bit mixed last quarter; some pretty strong results and some not so strong. We have not seen a dent in our demand, and as I said in the written script, we passed an all-time high in the orders we have. And I think that's indicative of a strong market and some of the wins that we've had. But we have not seen a drop-off in demand at all.

Pricing will be somewhat different. I thought in Q2 that we might see a little bit of a topping off of our price, but obviously that didn't happen; it accelerated even more in Q3. But as we go into next year, and I think pricing will hold pretty decent in Q4 from what we saw in Q3, maybe a little bit of drop-off but not much.

But as we get into 2017, especially when we start lapping Q2 and Q3, which were strong pricing quarters for us, I don't think we will be able to maintain this year-over-year pricing increase. It will start to soften a little bit as we get into those hard comps next year.

Just to clarify, when you say soften, do you mean go down? Or just the growth rate go down?

The growth rate will go down -- it won't be negative, but it won't be as positive. So our overall Nurse and Allied was up about 9%, 9.5%. That may slow down to 5% or 6% or 4% or 5% or whatever the right number is. I think it will still have an increase, but not as high. The good news is we expect to be back to volume growth in Nurse and Allied in Q4, and going forward. So that will offset some of that deceleration off the pricing growth.

Okay, thanks. But last question from me, you've had a lot of momentum in new MSP signings. How long do you think this trend is likely to continue in the space and at the Company? Thank you.

I think it has a chance to continue to grow. If the market stays this tight, our customers need to find a solution to a more efficient way of finding healthcare professionals. And manage service programs are a great way to do that. And I think it's kind of proven in the marketplace today.

And so we still see quite a bit of demand out there, we still have a pretty big pipeline. We obviously had won 18 year-to-date, which is a big number for us. So I really don't see it slowing down. It's still only 32% of [minors] in Allied, that business. Our revenue grew so much this quarter, it's a little bit less than it was last quarter. And I think it could go high as 50% or 60%.

Thank you very much.

A.J. Rice, UBS.

Maybe a couple of questions. First of all, just, Bill, if you could explain a little more about what exactly is project revenue? It doesn't seem like it's particularly concentrated in a fee facility like a strike project or something. What are we looking at there? It seems like it's pretty spread out.

It is. It's kind of all over the map. We have some of this in every quarter. And as I said before, we don't really like to push and promote premium rate business. But we -- for some reason this quarter, we just started to get a significant amount of demand where hospitals said that they were suffering, and we have a relationship with them, and we try to help them out as best as possible.

So we did ramp up and started to deliver on some of those requests. But it's all over the place. It may be that they -- they're opening a new wing and they just can't hire the permanent people fast enough. It may be that they have -- their census is going up, and they are caught short. Could be that they have an increased level of staff turnover or an increased amount of leaves of absence.

It could be a variety of things. We do periodically support a strike. We don't have a strike business, we don't plan to have a strike business, but that does come into play every now and then in some quarters as well. But there's really no way to specifically say what it's about, because it is all over the board. And it was a 75 to 80 different healthcare facilities in over 40 customers. So, the reason for shift in that every single one.

Okay. The branch business had a nice acceleration. I think in the previous two quarters of this year, you've been at sort of 5% growth and 8% growth, and all of a sudden it's 17%. Even if you take out the project, it's still 13%. Is there anything to call out there? Obviously you've got strength across the board, but I'm particularly interested if there's anything on the branch businesses to highlight.

Yes. We are pretty pleased with the branch business. It has continued to grow throughout the year. Part of it, I think, is what we are seeing in the healthcare industry is that shift from large acute-care hospitals treating patients to these local ambulatory and -- what's the other word? (multiple speakers) -- outpatient facilities. And those are serviced on a local basis.

So these walk-in clinics, physician offices, rehab centers, and so on and so forth, tend to be delivered on a local basis. And we've been driving to make sure we can take advantage of that, and I think you are seeing that in our branch numbers.

So, yes, we are pretty pleased with that. We did have a little bit of expansion as well of our local Allied business. Remember I told you it was only -- used only be in about 23 of our 70 branches; I think it's now in 30 -- or 30 -- 30 of them. So there's a little bit of expansion in our local Allied and we want to do more of that as well.

Okay. And then on the investments you've been making to Internet and otherwise, social media, to get broader access to recruiters -- or to new nurses, that's obviously put pressure on the SG&A line. Is at least just as a percent of revenues? Are we sort of at a normalized run rate? Or do you think it's going to continue to grow faster than revenues for a while?

That's a good question. I think we'll -- as we grow, we will continue to get leverage, but you're right. There's an argument that says I don't want to slow down this momentum, and I don't think I will slow down the investment just to chase some adjusted EBITDA percentage. I think us continuing to get market share and to keep our momentum and revenue growth going, I don't want to stop that.

So it's a little bit hard to tell. I mean, I don't think it will significantly outpace our revenue growth, I think it's had -- we did it mostly for nursing this quarter, actually from June onward, and we do want to roll out some of these same initiatives to Physician Staffing, Mediscan and our search business. So there may be a little bit more investment going into next year. But I don't think the percentage will significantly go up from where we are.

Okay. And my last question, on the seasonal pickup that you sometimes see in Florida and other places where there's a seasonal pattern of utilization, I am assuming you've got some visibility on what that looks like now. Are you seeing sort of a normal seasonal pickup, below, above? What would -- how would you describe that aspect of your business?

It's a little bit hard to tell because demand is so high right now that it masks normal trends. And because we are now driving more candidate flow, we are probably going to buck our normal trend of this normal drop-off in seasonality from Q3 to Q4, that's going to be mitigated somewhat this year. So I think, yes, we are seeing normal seasonal trends, but we are bucking them a little bit because of new wins, candidate attraction and just a significant amount of demand overall.

Okay, all right, thanks a lot.

Yes.

Bill Sutherland, Emerging Growth Equities.

Bill, just one last question on the special project business. Did it continue into October?

Yes. We will have $3 million or $4 million of project business in the fourth quarter as well.

And what do you think kind of the baseline level of that business has been, just quarter in quarter out? $1 million or $2 million?

Yes, probably under $1 million. We probably do under $1 million of project business every quarter, so there is a baseline there that we tend to have, but it just really accelerated over the last four months -- actually three months, August, September and October. But that is kind of offset though, and I haven't said what the numbers are, but somebody -- I'm surprised hasn't asked me yet.

Our electronic medical records business actually was significantly lower in this quarter. We only did about $400,000, which is down $4 million sequentially and $3 million year-over-year. So I'm pretty pleased that we actually made up for that headwind with normal business, and obviously the project business helped to offset that as well.

Well, that begs the question -- EMR is kind of at a run right now, do you think?

At $400,000? No. Maybe for the fourth quarter, it won't improve whole lot, but we do have a couple of projects early next year that may bump it up again. We used to run $2 million to $3 million a quarter; we ran $4.5 million in the second quarter. I don't think it will get back to $4 million or $5 million, but it may bump act up to $1 million or $2 million a quarter. It's not going to go away, I don't think. It just slowed down. We had a couple of projects that got pushed out a little bit and that gave us the headwind this quarter.

Got it. And the decline in the contribution margin at Physician Staffing in the quarter, I think I see a pretty meaningful drop here, if I got my numbers right --?

Yes. I don't have -- Chris can look it up, I don't have the numbers right off the top of my head.

You know what? It looks like actually you're comping against a tough margin last -- I mean, a very high margin last year.

It could be. But generally what would happen is, with declining revenue, you're going to have a little bit of deleverage, and then also because we have new management, we're offering investments back into this business. So I'm happy to offset a little bit of the contribution so I can get this engine back to growth again. So you will see a little bit of deleveraging and a little bit of investment.

Okay. And then there's a lot of numbers that you guys gave out on the price -- you know, reported versus without project. So just a clarification. Nurse and Allied, the pro forma growth in revenue was about in line with the price improvement? Is that -- so basically neutral volume?

Volume -- our revenue growth in legacy Nurse and Allied, take Mediscan out of it, was predominantly driven by price.

Okay, just wanted to get a clarification on that. And then finally --

Just -- it was 11.3% on a reported basis from a price perspective, but revenues grew by 12.5%.

Okay, 1% volume.

Yes.

And then last, on the investment in IT and so forth, are you largely done this year? And then would you see those annualized savings mostly starting next year? Or will it take some time?

Well, no, this was -- so the restructuring costs in this quarter were about cost savings. The IT project was about changing our legacy system that would eventually get us to some efficiencies, but those efficiencies weren't projected to come in until 2018 anyway. But I think it's worth talking about the IT project a little bit weak.

We've kind of gotten to a point where we've gone through our process mapping, we've gone through the GAAP analysis, we've gone through our business requirements, and we are at a point now where I've actually put the project on hold.

All the work that we've done that I just described will still be useful to us down the road, but between our internal resources, external resources and some competing priorities related to candidate sourcing and candidate attraction initiatives, I put that IT replacement project on hold for a little while. Because I need to get at these other things and I want to make sure that we have a sufficient level of resources on this project.

So we probably won't incur ongoing costs in that project for two or three quarters going forward. We will have some in Q4, but probably none in the early part of 2017.

Okay. That's it for me, thank you.

Randy Reece, Avondale Partners.

I wanted to dig in a little bit about your candidate sourcing improvement trajectory. If you could give us a little bit of an idea of how much qualitatively things have improved in terms of applicant flow, and just how -- what percentage of the business those improvements touch and what the next step will be?

Yes, I'm not sure I want to particularly say exactly how much, but we have increased our candidate flow by multiples. So it's multiple times bigger than it was before. So it's been very successful.

We had set -- based on the conversion rates of leads to applications and applications to placements, we had set a target that would drive double-digit growth in Nurse and Allied going forward. We are exceeding those targets and we feel very good about the initiatives generating what we want.

Right now, expecting just Nurse and Allied, and we have not rolled it out to the rest of the business, but we plan to do that early in 2017, maybe some of that in 2016 -- in the fourth quarter of 2016. So right now it's Nurse and Allied, which is 80% of our business, but we will roll it out to The other Businesses as well. It's proven to be a very good initiative for us.

Thank you very much.

Matt Blazei, Lake Street Capital Markets.

Yes, just one quick question, guys. I think you said pricing was actually up 4.5% [vision] -- could you give a volume number there?

Yes, so volume was [down] -- you have the number; it's in your script, I think. It may not be on a percentage basis. Do you have it handy? Yes, what was volume down based still, year-over, Matt?

Yes, please.

It was up 5% volume from -- what was the 5% revenue? I don't have the number. (multiple speakers)

5% was revenue, yes.

It's in Chris' script. (multiple speakers) Oh, you don't have the numbers, I'm sorry. While they're looking that up, Matt, anything else?

No, that was it, everything else has been asked, thank you. (multiple speakers) You can get back to me after.

It was down 19% in revenue year-over-year, so the volume has to be more than that. Maybe about 25%. We'll get back to you on that.

All right, thank you.

Joe France, Cantor Fitzgerald.

Thank you, Bill. I just wanted to follow-up -- you highlighted in your formal remarks the MSP wins in the quarter. Could you talk a little bit more about that, and tell us what the current pro forma number is in terms of the contribution to nurse staffing revenue overall?

Yes. So MSP revenue in Q3 was 32% of our legacy Nurse and Allied business, if you take Mediscan out, and 26% of total Cross Country Healthcare revenue for the quarter. It's actually down a little bit from last quarter because our revenue grew so much outside of the MSP's, but MSP's continue to grow quite well. Most of this is actually from previous years' wins. We don't have a lot of ramp up in the 18 wins we've had year-to-date. So the 18 wins we've had year-to-date will more effect next year than they do this year.

That's great. And then the Mediscan acquisition, I had that it's like either the end of October, the first week of November, so basically two-thirds of the last quarter. So are we talking in terms of comp about $6 million or $7 million of revenue and $600,000 or $700,000 of EBITDA?

Yes, so last year we only had two months of it. So on a -- so we had about $6.6 million of revenue, if I remember correctly. And so this year, the baseline, on a pro forma basis, would've been last year, would've been about $10.1 million, $10.2 million, and we expect it to grow double-digit. It will grow at 30%, 35% year-over-year. So the $10.2 million will end up being $13 million or $14 million in Q4.

It came out it was actually in your numbers last year was -- you said $6.6 million?

$6.6 million, yes.

That's awesome, thank you.

And our last question is from Mitra Ramgopal from Sidoti. Your line is open.

Just a couple quick questions on the MSP wins. I don't know if you could give a sense in terms of size of the contracts you are seeing? And is it mostly from new customers or are there any other competitive wins?

It's mostly new customers. And our average size of MSP's runs about $7 million or $8 million. I would guess these are about -- if you add them all up and divide, it's about what our average MSP is. So I think they would average about $7 million or $8 million per MSP.

Okay, thanks. And also, just quickly on the project business, I know you had mentioned a year ago you probably wouldn't be able to handle the business you saw. Do you feel comfortable looking out to 2017, for example, if you were to see current levels pick up, do you have a pretty good handle in being able to take the business on?

Yes, I mean, we have a lot of demand. We don't really need to look at it. This is more about now starting to be able to deliver on the demand we have. And the fact that we grew faster on our organic growth as well as the project revenue, and we were able to deliver all of it, I think is a good sign that we can now start to take a bit more market share going forward, now that we -- you know, this whole turnaround effort has been about improving processes, getting recruiters onboard, up to speed, increasing the number of candidates that are coming in the door, all of that I think is -- bodes well that we will be able to fulfill a higher percentage of orders we have going forward.

Okay, thanks again.

At this time, we have no further questions.

Okay. Well, thank you, everyone. I appreciate your joining us this morning. And we look forward to updating you with our fourth-quarter and full-year results in March. Good bye.

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