Cross Country Healthcare Inc (CCRN) 2017 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cross Country Healthcare Earnings conference call for the first quarter 2017. This call is being simultaneously webcast live. A replay of this call will also be available until May 18, 2017, and can be accessed either on the company's website or by dialing (866) 505-9259 for domestic calls and (203) 369-1883 for international calls and by entering the passcode 2017. I will now turn the call over to Bill Burns, Cross Country Healthcare's Chief Financial Officer. Please go ahead, sir.

Thank you, and good morning, everyone. With me this morning is our Chief Executive Officer, Bill Grubbs. This call will include a discussion of our first quarter results for 2017 as disclosed in our press release and will also include a discussion of our financial outlook for the second quarter of 2017. After our prepared remarks, you'll have an opportunity to ask questions. Our press release is available on our website at www.crosscountyhealthcare.com.

Before we begin though, 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, 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 would encourage all of you to review the risk factors listed in these documents. The company undertakes no obligation to update any of its 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 substitutes for, or superior to, financial measures calculated in accordance with U.S. GAAP. More information related to these non-GAAP financial measures is contained in our press release.

Lastly, in order to facilitate a better understanding of underlying trends, we may refer to pro forma information on this call, giving effect to acquisitions and divestitures as though the transactions had occurred at the start of the periods impacted.

With that, I will now turn the call over to our CEO, Bill Grubbs.

Thank you, Bill. Thank you, everyone, for joining us this morning. On our last earnings call, I stated that the first and second quarters of 2017 would be transition quarters. That still holds true as we work to address our new business wins. But even knowing that, I'm not satisfied with our overall results for the first quarter. We did exceed our expectations for gross margin, adjusted EBITDA and adjusted EPS, but we fell short on revenue. And although I'm not satisfied that we fell short on revenue, we're actually in a pretty good position right now and I'll explain that as we go through the call.

But let's start with revenue. As we stated on our last call, last quarter, we won 24 MSPs in 2016 and we've now won 19 year-to-date in 2017. A lot of these wins have not yet translated into accelerated revenue growth for several reasons. First, implementations were taking longer than expected, which is partly due to the sheer number of new programs being implemented. Second, for those programs that are up and running, our new investments in delivery are not yet at the productivity levels we anticipated. And third, and probably the biggest reason, is due to customer delays since most of these are completely new programs with customers that have never had an MSP before. These programs always take long since the customer has such a learning curve and is not always ready to integrate technology, make process changes and so on. So revenue growth has been slower than expected, but this is all just timing. We firmly believe it is coming fairly soon.

From an overall market perspective, we have seen a slight decline in demand for nurses in recent months as compared with the historically high levels we experienced the last couple of years. However, because of our success in winning new business, our total orders remain significantly higher than our current capacity and still provide a very good opportunity to continue growing the company. In fact, I had expected March and April to be a big ramp for new business, but that did not materialize due to the slower integrations I stated previously. As a result, we've guided the second quarter to similar revenue trends that we experienced in the first quarter. The good news is that we believe we have the opportunity to achieve faster revenue growth as we progress through 2017 and into 2018, especially given the new business opportunities we're currently ramping.

Now we've been getting a lot of questions about our new business wins so I thought I would add some additional details. Over the past 16 months, we've won 43 new MSP programs: 24 in 2016 and 19 year-to-date. The total spend for these program is estimated to be close to $200 million. The average program size is $4 million to $5 million, which is about the average of our existing programs. 13 have already been implemented, representing over $80 million of spend, although most of those are not yet up to maximum spend levels. So there's still room to grow even in those programs that have been implemented. 30 programs still need to be implemented, representing over $100 million of spend. There are 2 key larger programs: one at $23 million that has been implemented but is still in the early stages and one at $30 million that still needs to be implemented. The average of the other 41 programs is $3 million to $4 million each. Five of these programs were taken from the competition, 2 from other staffing companies and 3 from independent MSP providers. 38 of the programs are completely new programs, which I see as a very good sign and a positive trend for future business. We started 2016 managing $400 million of spend for our clients. We ended 2016 managing almost $500 million of spend. We projected we will end 2017 managing $700 million of spend or more. Since this is such a step change for us and we have received so many questions, I thought this additional information would be helpful.

So let's review the numbers. Overall revenue grew 6%. As a side note, adjusting for leap year in 2016, our growth rate would have been approximately 100 basis points higher in 2017, something to keep in mind as we go through the numbers to see the underlying growth trends. Nurse and Allied grew at 8% year-over-year, about 50% attributable to the increase in volume and the rest to a combination of price and mix. We expect to continue to grow through both volume and price with the goal of getting back to low double-digit growth given the new business wins. Physician Staffing revenue declined 12% year-over-year. Although that is slightly higher decline than we experienced in the fourth quarter, I do believe this business is on a much better course. We expect to see a significantly lower year-over-year decline in the second quarter and part of the growth coming in the second half. This business has some very good activity that we believe will show results in future quarters. Because of these positive trends, we are in the process of adding locum tenens to some of our existing MSPs, which will further improve their performance. Other human capital services had a decline in revenue of 11% year-over-year, which was entirely driven by executive search. Physician search saw a 25% year-over-year increase, benefiting from continued strong demand in the market and a shortage of physicians. Executive search had an unexpected loss of their top producer due to personal reasons and we are in the process of bringing on new resources to fill that gap. Overall, we see good activity in this business but it is taking longer to get the positive growth than we anticipated and most likely that will happen in the second half.

With our focus firmly on revenue growth, the stronger performance in gross margin, adjusted EBITDA and adjusted EPS supports improved results in the second half. Our workforce solutions group continues to do well, specifically on MSPs. MSPs account for approximately 30% of our total revenue and 34% of our Nurse and Allied revenue, 37% if you don't include Mediscan. As I stated earlier, after winning 24 new MSPs in 2016, we've won an additional 19 in 2017. Of these wins, we still have 30 programs representing over $100 million of potential revenue still waiting to be implemented. As these get implemented and as we continue to ramp those already implemented, our investments should convert into stronger growth for us. In addition, the pipeline remain strong and we expect to have another record year of new business wins in 2017.

I continue to be encouraged with the growth opportunities we have. Demand is still strong, and we believe the overall market dynamics remain favorable for our industry. So let me quickly review some of those dynamics with you. As I stated previously, we believe the number of Nurse and Allied orders is high enough to generate double-digit growth in that segment. Generally, we have an aging population giving a -- living a lot longer and utilizing health care services more often. And specifically, 76 million baby boomers, or about 25% of our total population, are now over 50 years old and will be over 60 years old in the next 6 to 7 years. This group will continue to drive demand for many years. The number of insured people has continued to grow in the U.S. There's still a significant shortage of health care professionals in the market. We don't see a solution to that in the coming years. The change of reimbursements to hospitals based on quality, not volume, should drive a higher need for more health care professionals. There's also more economic pressure on hospitals and other health care facilities that should result in an increase in demand for our continued workforce solutions that customers look for more flexible and innovative solutions to these issues. And recently, due to the physician shortage, which is expected to worsen in the next several years, at least 22 states have passed legislation allowing nurse practitioners the ability to prescribe certain drugs and treat patients without a supervising physician. Even the U.S. Department of Veterans Affairs now gives full practice authority to certain advanced practice registered nurses within the scope of the VA employment, giving them the power to work independently without physician supervision everywhere in the VA network, and we have a very fast-growing nurse practitioner business. Also, we have a stable and growing economy. We don't see any signs of a recession. Many other trends that we expect to keep demand high. We do not see any market headwinds at this time.

So to wrap up, we believe these market and economic trends, our new business wins and the anticipated returns on our investments bode well for growth in all of our service lines. We will continue to make adjustments in our business to ensure we maximize the opportunities we currently have.

So let me turn the call over to Bill Burns, who will review this quarter in more detail.

Thanks, Bill. As Bill mentioned, revenue for the quarter came in slightly below our expectations due predominantly to continued softness in Physician Staffing and search. Both gross margin and adjusted EBITDA were above expectations, driven by performance in our largest business, Nurse and Allied. Overall demand for our services remained strong and we saw year-over-year price improvements in all of our segments.

Turning to the quarter. Total revenue was $207.6 million, up 6% from the prior year and down 7% sequentially. The year-over-year increase was driven entirely by growth in Nurse and Allied Staffing. The sequential decline was predominantly due to normal seasonal trends for the business as well as lower project revenue from the fourth quarter of 2016. Generally, pricing remain strong through the quarter with staffing bill rates rising approximately 3% to 5% across businesses and specialties. Gross profit margin for the quarter was 25.7%, down 30 basis points from the prior year and 20 basis point sequentially. The sequential decline was predominantly due to the impact of the annual payroll tax reset, while the year-over-year decline was due to the higher compensation cost for health care professionals at certain large accounts that we mentioned last quarter. These costs will have a lesser impact on our second quarter results as we began normalizing the compensation costs throughout the first quarter. Additionally, as we have previously stated, we do not anticipate any impact on our ability to grow revenue as a result of normalizing these costs. Also, as expected, health insurance and workers' compensation returned to a more normal level from our experience in the fourth quarter of 2016.

Moving down the income statement. SG&A for the quarter was $47.2 million, representing an increase of 10% year-over-year and 2% sequentially. The year-over-year increase was largely due to investments in our revenue-producing headcount and marketing spend on candidate attraction. Adjusted EBITDA was $6.5 million or 3.1% of revenue as compared with $8.5 million or 4.3% of revenue in the prior year. The year-over-year decline was attributable to both a lower gross margin as well as continued investments in revenue-producing headcount and candidate attraction. With the success of our wins in the managed service programs, we're continuing to fund investments ahead of the expected growth.

During the quarter, we exchanged our $25 million convertible notes for a combination of stock and cash. The convertible notes had a fixed interest rate of 8% and would have become callable after July 1, 2017, at a strike price of $7.10, which is well below our current trading range. As a result of the exchange, we settled part of the obligation using cash, and therefore, reduced the number of shares issued by approximately 350,000 shares. The early extinguishment resulted in a $1.6 million gain on the fair value of the derivative and a $5 million loss primarily on the write-off of unamortized issuance costs.

Depreciation and amortization expense was $2.2 million, down $200,000 year-over-year and flat sequentially. Interest expense was $1.2 million, down $400,000 from the prior year and $200,000 from the prior quarter. The year-over-year decline was due to the refinancing of our senior debt in mid-2016.

Income tax expense for the quarter was approximately $400,000, which is primarily related to the impact from amortization of indefinite-lived intangible assets for tax purposes and was partly offset by a discrete tax benefit of $400,000. As a reminder, the company maintains a full valuation allowance on its deferred tax assets and net operating losses. As profitability continues to improve, all or a portion of the valuation allowance may be reversed in the coming quarters, and on that event, we will realize a significant tax benefit and our ongoing effective tax rate will be more normalized.

As a result of the loss on the early extinguishment of our convertible notes, we reported a net loss attributable to common shareholders of $2 million or $0.08 per diluted share as compared with net income in the prior year period of $19 million or $0.09 per share. Adjusted EPS was a positive $0.05 compared with $0.09 in the prior year and $0.20 in the prior quarter. The year-over-year and sequential declines were due to similar reasons as the changes in adjusted EBITDA as well as lower interest in taxes.

Let me next review the quarterly results for our 3 business segments. Revenue for our Nurse and Allied segment was $183.1 million, up 8% year-over-year and down 6% sequentially. The year-over-year growth was driven by improvements in both volume and price. For the segment, we averaged 7,204 field FTEs for the quarter, up 6% from the prior year and up 1% sequentially. Revenue per FTE per day was $282, up 4% year-over-year and down 4% sequentially. Segment contribution income for the quarter was $15.6 million, representing an 8.5% contribution margin, down 140 basis points year-over-year and down 80 basis points sequentially. The year-over-year decline was largely due to a combination of the higher compensation cost at certain accounts and investments in revenue-producing headcount and candidate attraction.

Turning next to our Physician Staffing segment. Revenue was $21.5 million, down 12% from the prior year and down 13% sequentially. Both declines were the result of a lower volume of days filled. Generally, pricing remains strong with revenue per day filled of $1,592, representing a 5% increase over the prior year. Segment contribution income for the first quarter was $800,000, representing a 3.8% contribution margin, down 260 basis points from the prior year and 530 basis points sequentially. The decline in contribution income was primarily attributable to the lower revenue. Finally, revenue for the Other Human Capital Management Services segment was $3 million, representing an 11% decline over the prior year and 18% sequentially, attributable to a lower level of retained executive searches that Bill mentioned earlier. Due to the revenue decline, segment contribution income was a loss of $400,000 as compared to losses of $100,000 in the prior year and $300,000 in the prior quarter.

Turning to the balance sheet. We ended the quarter with $13.4 million of cash and $38.5 million in outstanding debt at par. As of March 31, we did not have any amounts drawn on our $100 million revolving credit facility. During the quarter, we generated $1.4 million in operating cash due to normal seasonal trends in our business. Though still positive, we generally use more cash in the first quarter due to the impact from payroll taxes and disbursements for year-end compensation. Our days sales outstanding, net of subcontractor receivables, was 58 days, representing a 3-day increase over the prior quarter and a 1-day increase over the prior year, both primarily due to the timing for collections. For the quarter, capital expenditures were approximately $1.1 million and we used $7.6 million in financing activities, primarily due to the early retirement of our convertible notes I mentioned earlier.

This brings me to our guidance. For the second quarter of 2017, we expect consolidated revenue to be between $207 million and $212 million, which assumes a year-over-year growth rate of 4% to 6%. While we don't provide specific guidance on segments, we expect Nurse and Allied will grow in the high single digits through a combination of price and volume.

Turning to gross margins. We expect consolidated gross margin to be between 26% and 26.5%. The sequential improvement is due in large part to the impact of the annual payroll tax reset in the first quarter. Also reflected in the guidance is the continuing impact of the compensation cost I mentioned earlier representing approximately 30 to 40 basis point negative impact for the quarter. For adjusted EBITDA, we expect to generate between $8 million and $9 million for the quarter. And finally, we expect adjusted earnings per share to be between $0.08 and $0.10 for the quarter. This guidance assumes $500,000 to $600,000 for interest expense and a tax expense of between $800,000 and $1 million. It also assumes an estimated diluted share count of 36.1 million shares.

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

(Operator Instructions) The first question comes from John Godin of Lake Street Capital Markets.

Just kind of first on the MSP business. Just looking at the things that you can control, how long does it typically take you guys to get one of those implementations fully ramped, kind of putting aside the customer delays?

Yes, it varies greatly based on a couple of factors. One is the size of the program, one is whether it's a new program or an existing program. Existing programs ramp a lot faster than new programs and smaller programs ramp faster than larger, more complex programs. So a smaller program is probably a 3- to 6-month, where it ramps up to probably getting pretty close to what the total spend is, and a larger program is probably a 6- to 12-month kind of ramping to get to the level of spend that we like to see it at.

Okay. And just kind of moving over to the local business. I know you've mentioned in the past that you see demand for kind of the ambulatory and outpatient centers growing faster than the acute care centers. Could you just us a sense of how that business is performing and kind of how you think about it going forward?

Yes, absolutely. The -- we are still growing our branch operations. I don't have the number here with me.

Branch actually performed quite well for the quarter. They were in the high single digits for the quarter.

Yes. We still see demand in these outpatient ambulatory facilities and we still see jobs growth faster outside of the acute care environment than we do in the acute care environment. So we believe that we're in the right place to be able to take advantage of that and it is contributing. We think that may be able to get back to low double-digit growth as well.

The next question comes from Bill Sutherland of Benchmark Company.

Bill Grubbs, could you just go a little bit more into the issues in the MSP program ramping the 3 issues? Just a little color on that. And how you think it -- how are you thinking about it playing out as you go forward into the next half of the year?

Yes. So I think the biggest reason is the customer delays. And I had kind of forgotten, when we did our guidance, that such a high percentage of these were completely new programs that customers have never been -- never had a program before and they just take a little bit longer. They take longer to work with a customer, and we always implement the technology. We have to integrate that with their time-keeping system, and it just takes a little bit longer to get those people up to speed. But we have quite a few of them in the pipeline that are being implemented in April and May, that they got pushed back a little bit from the first quarter. So I think we have it under control and I think it's on track. The other part is that some of the investments we've made, because it has been such a step change for us, the delivery productivity is just taking a little bit longer to get up to speed as well. I wouldn't mind doing a small acquisition to help our delivery capabilities since we have so many of these programs and it takes so long to build up our capabilities organically. That may help us if we can find an acquisition to augment our delivery capabilities. But I think we have it all mapped out now. We have a schedule in place. We have most of those customers on board with the timing and this revenue will come. It's interesting. We did a study for the board about 6 months ago of all the deals that we've won since I've been here and they wanted to know 2 things: of what you expected in revenue, did we end up at that level? And of what you expected for the gross profit percentage, did we end up at that level? And it was an interesting study to do and it shows at the end, when presented to the board, that we were, I don't remember what it was, but was in like about 1% of the revenue that we expected to get and the gross profit that we expected to get was right on the money. So I feel very good about our projections of what the value is of these deals and what we're going to be able to get out of them. It really is just timing. And I wish I could be a bit more specific of exactly when I see it all coming in. It will be a little bit about different customers and different sized programs, which ones come in first and which ones don't come in first. But we do -- they will come and I do expect a lot of it will come in the second half.

Good, okay. And then the year-to-date win pace of 19, does it feel like the pipeline at least provides the opportunity at that kind of pace with the balance of the year?

Yes, I don't think I would take 19 and multiply it times 3 and we're going to end up close to 60 this year. But we won 24 last year, which was 3x as many as we've ever won in a year. I don't think we're going to stop winning them this year. So I think we'll end up breaking the record again this year. But yes, I believe the pipeline is pretty strong. We're still out there talking to customers. And what I said in the prepared comments, I think it's a really good sign that 38 out of the 43 are completely new. So this isn't the industry fighting over market share from each other or stealing programs from each other. This is brand-new programs getting up and running because of the issues we see in the marketplace and the customers realizing that there's a better way to manage the contingent labor. I think that's a very positive sign.

Just 2 more, if I may. You mentioned something about a little bit of sensing just in the macro, a little softness in nurse demand. Maybe a little color on that, Bill.

Yes. So we have started to see a little bit of a pullback in some of the general market demand for nursing in particular towards the end of the fourth quarter. But I thought it was a little bit of a hangover from the election, the uncertainty of the Affordable Care Act, year-end's normal slowing as you -- as budgets are -- people look at how much money they spent and looking at budgets for the following year. But it has continued at a little bit lower rate through all of Q1. But I think the way to look at it is, and you heard me say this before, when the big step change came in the second and third quarter of 2014, the number of orders and the demand for our services went up so significantly that it became irrelevant. The number of orders was so high, there was no possible way for us to serve that kind of level of demand. So although it's pulled back a little bit, it is still more than double what it was in the second and third quarter of -- certainly the second quarter of 2014. So it's sufficiently high to be able to continue to drive growth. So I don't read too much into it because it seems to have leveled off, but still at very, very high numbers based on historical trends. And I don't know why it's pulled back a little bit and it may bounce back again. Part of it, we believe, when I talked to my staff, they believe that people have been spending so much money on contingent labor for the last couple of years that they looked at their numbers for 2016 and said, whoa, we have to slow this a down a little bit. But if their demands or their patient flows don’t change, that may come back again anyway. But again, it's still, by historical standards, pretty high.

Right. And then last, if you could -- you mentioned -- I'm getting (inaudible) actually, but when you were talking about locums and directionally it's going to -- how that's going to trend, can you just skin it out a little bit more, Bill?

Yes. So I will say although we had a decline in the first quarter, we did have 3 of our specialty areas for the first time actually have year-over-year growth. Our advanced practices, which are our nurse practitioners and physician assistants, actually grew at 37% year-over-year. We had an increase in our primary care in low single digits, 3% or 4% year-over-year, and a very good increase in our OB/GYN, pathology, radiology, oncology sector that's kind of a consolidated one at 27%. We're starting to see the growth come in different specialty areas. We see a lot of activity. I see the change in the attitude of the employees and the excitement that they have, and we track their performance every day. And we can see the future bookings when we book days. Every day, we now have this kind of waterfall process to how many of those days are in May, how many of those day are in June, how many are in July, and we're running ahead of the normal pace of what we'd expect to see or what we have seen over the last couple of years. So yes, I know I've been saying this for a couple of quarters because I do feel good about this, but we will start to see improvement in this business. It feels really good right now. And we'll still have decline in Q2 probably, but I do see it's turning the corner sometime in the second half.

The next question comes from Tobey Sommer of SunTrust.

One question about the MSPs, if I could follow up on that. How long do you think the momentum can continue in -- as you -- the market's evolved and you've -- the big players have captured some of the available market. How might the average size or other characteristics of future MSPs differ from those that are already up and running or slated to ramp here soon?

Yes, that's a very good question. I do think there is some momentum that will carry on because I don't see the issues in the marketplace being solved anytime soon, certainly not the shortage of candidates that we see in the marketplace. I do agree, worrying not that you said it that way but you asked the question, but I do see the size of them probably coming down in the future. I know when I first got here 4 years ago, we never saw a $1 million or $2 million or $3 million program. They were all in that $4 million, $5 million, $6 million, $7 million size. And now we see we win $1 million and $1.5 million programs that never would've happened before. So smaller health care entities are following the trend of the bigger ones, realizing that they're just not getting the attention. They're not getting the supply. And if they don't change the way they do things, they're probably going to be left behind. And so we are seeing that happen. And I think if this starts to become -- the trend continues the way it is now, the average size may come down a little bit. But I'm okay with that because it's basically opening kind of a whole new market to us that didn't exist before.

Okay. And do you see that trend and momentum creating opportunities for you to consolidate some of your supplier network so that you can increase your fulfillment capabilities? How -- maybe you could answer the question by explaining your priorities for acquisitions.

Yes. So my priorities in the past had been local allies -- sorry, school business, local allied and locum tenens in that order. And it was the school business because we think we have the opportunity to take market share and be a bigger player there, that we think it's an underserved market. Local allied because it helps our gross profit margins and net margins. And physician because I'd like to expand specialties and we seek stability in our own physician staffing. I've changed that now. Those are the second, third and fourth now. My #1 priority is a travel Nurse and Allied business, in particular travel nursing, because of all of these new wins that we have. I would like to boost my delivery capability and start to take more market share at our existing MSPs. Our market share, or what we call our capture rate, has increased from 52% about 6 months ago to about 56% or just under 56% this quarter. I wouldn't mind getting that up to 60% or 65%, plus with all the new wins we have, it is taking me longer to develop organically my delivery capabilities than I would like it to be. So yes, consolidating some of our competitors, I think, would be a nice area. So I'd start with travel nursing, is number one; school business, number two; local allied and physician staffing in that order.

Over time, does the growing MSP business mix impact your DSO?

Well, I hope to ask Bill for that. I don't -- I know we're -- I know we've the educated the salespeople to be very cognizant of what we do. I'll get off the top of my head that bigger customers probably have a little bit longer DSO than smaller ones. But I don't know, Bill. Do you know off the top of your head our MSPs have a bigger DSO than general?

No, not typically. I think the overall blend is pretty close. We -- obviously, they do have a little bit of leverage when negotiating that. We'll look at the payment terms for them, possibly giving them more alternative terms. But by and large, I mean, the only issues we might do with DSO are doing the implementations, if there's any technology glitches or anything like that where they just aren't making payments quickly at the beginning. But aside from that, I don't think there'll be a big shift in our DSO. The only thing does move it, obviously, we talk about net DSO, which excludes our subcontractor receivables. The bigger we get, the more subcontractors we have, the larger our gross DSO will look because we'll have more receivables on just a revenue base that we capture.

Okay. And then I wondered, you enumerated several long-term drivers for the business, and I appreciate that. But we do continue to get questions about the importance of the Affordable Care Act and potential changes to it. That's still an ongoing kind of task that the Republicans are trying to push through Congress. Could you just discuss what you think are the most important features of the Affordable Care Act that maybe we should pay attention to? I knew there are a lot of moving pieces and 2 come to mind that I might want you to comment on, Medicaid expansion and kind of preserving that as well as a potential cut in the number of insured people. I'd love your perspective.

Yes. So I've been watching this closely, and it's been interesting. And whether they get something to the House today or not, I don't think the current version will make it through the Senate. So it'll be interesting to see what they do. The 2 most important factors in my view are the Medicaid expansion and the preexisting conditions. I think the general enrollees or the people that came in through the open enrollment, especially those that did it because of individual or employer mandates, probably don't drive a lot of demand because they're helping people. They only did it because they had to. They don't want to get a tax penalty or their employer had to do it because they didn't want to take the penalty as well. I don't think those people have made a difference. So if those get knocked out of the system because they've taken away the individual mandate or the employer mandate, I'm not too worried about that. Even though the existing plan that is in Congress today does leave Medicaid alone, I think, for 2 years. So I feel pretty good about that. But even if the current bill passed and they are leaving in preexisting conditions in some form, that it wouldn't have a huge impact on us overall. 2 years down the road though, if there's a big change to preexisting conditions with these high-risk pools or increase in rates for the preexisting condition and Medicaid gets pulled back, then I'll start to worry about it. But those are the 2 most important things that we think were the big drivers, were preexisting conditions and Medicaid expansion.

Okay. Last question from me. Sorry to dovetail back to the acquisition question, but do you think you're likely to get a deal across the finish line in 2017? Maybe you can just comment on the pipeline.

Yes. So '16 was the first year since I've been in that we didn't do a deal, and it's partly because we're somewhat picky and we want to do the right kind of deal. But we have seen an increase in activity out there. We have been in front of a number than we are -- we're very active. You know how deals are. It's hard to predict whether you're going to get one through this year or not, but I would like to get one through this year, but I won't do a deal just to do a deal. So we'll have to see how the negotiation's going and how the valuations look and whether they're a good culture or strategic fit for us. But we've seen some good culture fits out there. We've seen some good strategic fits out there. We've seen some reasonable pricing. So I would like to get one done this year, if possible.

The next question comes from Mitra Ramgopal of Sidoti.

Just a couple of questions. Bill, I know you mentioned you had about 30 programs to be implemented on the MSP side and I was just wondering where you are regarding your investments and getting sufficient recruiters on board and sort of handle the pipeline?

Yes. I think we're okay on investments. I don't think we need to increase our SG&A. It's just getting some of those investments up to the level of productivity that make more sense for the level of demand that we have. So I don't think we need to make a whole lot of new investments. We have enough implementation resources today. And I believe we have enough recruiters. And I think if I add along development capabilities -- or delivery capabilities, it would be to do an acquisition. So I think we're in pretty good shape from an SG&A standpoint.

So really, the issue is on the customer side in terms of the implementation as opposed to you not having sufficient resources?

Yes, that's exactly right.

That's right.

And just quickly on the Nurse and Allied side, how much of the increase was, say, volume versus price?

We could give -- I think it was about 50-50.

Right. 50% volume this quarter and about 50% price. There's a little mix in the price. So it's always hard to carve that out exactly, but those are the rough splits.

Okay. And then finally on the locum tenens side, I know you are making some changes internally. Is that pretty much behind you and now it's just a question of looking to generate additional opportunities there?

Yes, there's no more operational changes we're making. There's no more leadership changes we're making. I believe we're actually at a level of recruiters and salespeople that we need. It really is about execution now. So that's part of the reason why I feel pretty good. Things have stabilized in that business. We've actually seen some ex-employees come back into the fold. I see a completely different attitude and excitement in the team and an increased level of activity in. Those are the things that when you do a turnaround, you end up seeing the results somewhere down the road. And so better attitude, more activity and a more stable environment. We'll start to see improvement in this business.

The next question comes from A.J. Rice of UBS.

This is Jailendra Singh filling in for A.J. I actually missed the part of the call so apologies if you already answered them. But the 19 MSP wins you had year-to-date in 2017, are those new MSP contracts with hospitals or health systems are just moving to MSP or this is like you're gaining market share? Can you give more color there?

So of the 43, 5 of them would -- I mean, not more than 19. Of the 43, only 5 were taken from the competition, 2 from staffing companies and 3 from independent MSP operations. I don't know of the 19 this year.

Yes, it basically would have been of similar mix. 3 of the 19 were taken from competition, the rest were new.

So I do think this is taking market share from the market. It may not be taking MSP market share because we're not taking programs away from somebody else necessarily. But the fact that we're taking new customers that have never had an MSP before is taking general market share, yes, I believe that's the case.

Okay. And any update on workforce solution business like RPO, predictive analytics and where that stands today for Cross Country?

Yes. So we do have -- we made a very small acquisition beginning of December for -- to get some RPO infrastructure in place. It is growing but it's such a small part of our business today that we're not really calling it out yet. It's still only running $400,000 or $500,000 a quarter at this point. We'd like to get it up to $15 million, $20 million, $25 million. We have won several programs this year that we believe will boost the revenue. And we do think there's a big opportunity for that. But it's still a fledgling business for us, just in its early growth stages. We have a couple of other ones. EMR has kind of leveled off. We're doing under $0.5 million, I think, this quarter in EMR business. So that's not going to be a big part of our business, I think, going forward. We have couple of new EMR projects that will come into play this year. But again, for the whole year, if we do $3 million, I'll probably be surprised. And we do have this outsourcing service called OWS. We do have 2 programs -- 2 additional programs, but they're very small, 2, say, million-dollar programs and we'll have to wait and see how that goes as well. But RPO, I think, is the biggest opportunity to grow more workforce solutions. We do have some predictive analytics programs and some internal resource pools and a few things like that, but nothing significant at this point.

The next question comes from Tobey Sommer of SunTrust.

I was wondering if you could comment on your expectation for pricing going forward, particularly, I guess, in the Nursing and Allied.

Yes. I mean, we're starting to lap some of our big pricing quarters. So I think that's why you saw that pricing -- what was pricing up this quarter?

It's varied by the specialty in business, about between 3% and 5%. So call that mid-single digit.

Yes. So mid-single-digit price increase. I think we can get back Nurse and Allied to double-digit revenue growth. And I think about half will come from price and half will come from volume. So I think we can mention that 4% or 5% price increase throughout the rest of this year. And if we can get 5% or 6% volume growth, then we'll get to double digits. I think that's kind of how it will play out.

Okay. Could you comment about the sequential decline in revenue from 4Q to 1Q? I understand the slow ramping MSPs is kind of influencing the quarter, your expectation there as well as kind of the future in our 2Q guide. But the sequential change was pretty significant. I wondered if there are any other explanatory factors.

Yes. This is the reason why I don't like project business and why I haven't thought of strike business. We did a lot of project business in Q3 and Q4. I think $5 million of project business in Q4 that's nonrecurring. So you almost have to look at the sequential change by taking off $5 million of nonrecurring revenue in the fourth quarter. And then I think it's pretty normal seasonal trend for us. So I don't like lumpy business. I don't like project business. And that's why we don't do a lot of it. We did some favors for customers in Q3 and Q4. I kind of wish we hadn't. I mean, it was nice to have that little boost for a little while but it skews up our comps.

Okay. And then could you comment about like what you're hearing from nurses about travel nursing? Is the word-of-mouth among your nurses in perspective new applicants? Kind of how would you characterize that?

It's pretty good, especially for younger nurses. They seem to -- millennial just behave differently than the rest of the population and this kind of lends itself to I want to be in control of my career. I want to move around a little bit. I want something a little bit more exciting. I don't want to be stuck in that corporate culture. I don't want to have to be told I have to work the third shift on a weekend in the department I don't want to work in. So we still think there's a lot of enthusiasm for travel nursing out there and we haven't seen any follow-up or any negative commentary about it. I think it's pretty good. So everything we hear has been very positive. We've been actually out there having meetings with not only groups of nurses around the country but with our subcontractor agencies as well. And we're still hearing that everybody is very positive about it. They're finding that it rounds out their resume and their experiences more and gives them better opportunities.

Okay. Last question from me is on kind of the turnover of full time nursing, the full time nursing workforce. Could you comment about whether you've seen any evidence that retirement are contributing significantly to that kind of attrition problem at hospitals? And is that something you look for to be kind of a growing factor in the market?

Yes. So I'm actually -- I have my marketing people out looking for a number of data points that I don't have access to today. So I don't know that. I don't have a retirement number. I'd like to find out what it is. Knowing that 55% of nurses are over the age of 50 tells me that there's probably going to be more retirements than there are people coming into the market. But that's the other data point I'm looking at, is I don't have an up to date -- the information I have for new graduates taking the nursing exam every year is about 3 years old. So I'm looking for an update there. We announced in -- last month that we have a new relationship with Broward College of Nursing here in Florida. And I think they're going to be able to give us some additional information as to what some of the trends are in the marketplace. So I don't have information on that. My gut tells me that there are more quits and more turnover in our customers anecdotally from the customers I've spoken to and the fact that the nursing population was getting older and the economy is pretty strong. Even if they're not retiring, we know that they're starting to work less and that's just as big an impact on the industry as if they retire. But I don't have real hard facts on it.

At this time speakers, there are no further questions in queue.

Okay, great. Again, thank you, everybody, for joining us this morning. And we will be back to update you with our second quarter results in early August. Thank you.

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