Cross Country Healthcare Inc (CCRN) 2017 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 2017. This call is being simultaneously webcast live. A replay of this call will also be available until November 16, 2017, and can be accessed either on the company's website or by dialing (800) 570-8798 for domestic calls and (203) 369-3294 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 third quarter results for 2017 as disclosed in our press release and will also include a discussion of our financial outlook for the fourth quarter of 2017. After our prepared remarks, we'll open the lines for questions. A copy of our 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, 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 obligations 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. As a reminder, we completed the acquisition of Advantage RN on July 5 of 2017, which was effective as of July 1, 2017. And the results of their operations have been included in our reported results for the entire quarter.

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

Thank you Bill. Thank you everyone for joining us this morning. This was a good quarter for us, bouncing back from the two transition quarters in the first half of the year.

We improved adjusted EBITDA margins even with the distraction of an acquisition and 2 hurricanes. Although, we will see a short term negative impact to revenue in the fourth quarter due to hurricanes, our performance this quarter sets us up for a much improved financial performance in 2018. We also continued our strong momentum with new MSP wins. We've won 25 new programs this year to-date, surpassing the record number of wins in 2016. The MSP implementations are progressing and we are seeing an increase in orders from these accounts with most of the revenue from these new wins coming in 2018.

The Advantage RN acquisition which closed as of July 1, is off to a slow start relative our expectations. I believe there is a few factors contributing to the performance in the quarter. As often happens, there were some distractions associated with the acquisition, but we believe that we will get back on track as we progress through the fourth quarter.

Additionally, we have not yet fully aligned our processes and therefore we've not seen the positive impact of increasing our MSP capture rates as anticipated. As we progress through the fourth quarter, we will be automating much of the information that needs to flow between our two systems.

We'll most likely not see the results until the first quarter of 2018. But I want to emphasize that we expect this to be another good acquisition for Cross Country supporting growth and improved profitability. The fact that we've had a slow start does not change the strategic aspect of the acquisition. So overall, we grew revenue just over 6% for the quarter, which was about the middle of our guidance range. We had a minor negative impact from the hurricanes in the third quarter and we fell short of revenue expectations of the Advantage RN acquisition for the reasons I described above.

Our underlying business was about where we expected it to be. I was very pleased that we exceeded guidance for adjusted EBITDA and adjusted EPS, which reflects our renewed focus on improving margins with a goal of 8% adjusted EBITDA before the end of 2019.

Nurse and Allied grew at over 7% on the quarter, mostly due to the acquisition. Remember, we are lapping the large project business we had in 2016 in both the third and fourth quarters. So, underlying growth is negatively affected by this headwind. After seeing demand in our Nurse and Allied segment decline in the first and second quarters and level off in the third quarter, we are now starting to see an uptick in demand in the fourth quarter driven by general market trends and our new MSPs ramping up.

Within Nurse and Allied, we continue to see very good results from our branch operations where we are taking advantages of demand for per diem services and the shift in the market from acute care facilities to ambulatory and outpatient facilities as well as longer contract assignments in the local markets.

Also within Nurse and Allied, our Mediscan business, in particularly, our school business is growing at double-digit rates which we expect to continue in 2018.

Physician staffing had a decline in revenue of just under 1% after showing a slight growth in the second quarter. But as I've said for a while now, this business is on the path to recovery and I feel good about where it is trending. Within Physician Staffing, our Advanced Practices business which includes physician assistants and nurse practitioners continues to grow at double digits on the back of strong demand. I expect the whole Physician Staffing business to be back to year-over-year growth in 2018.

Other Human Capital Management had a decline in revenue of just under 5% year-over-year, revenue with such businesses can be lumpy, so I don't feel this negative growth in this quarter is a problem longer term.

Now for the fourth quarter, we are expecting a sequential decline in total revenue due to the impact from hurricane Irma which forced the closure of our Travel Nurse and Allied office in Florida, as well as softness in the Advantage RN business.

We estimate the impact from the hurricanes to be approximately $4 million for the first quarter with some continued impact carrying into the first quarter, but this is really a one off impact and we should bounce back once we lap those lost assignments. And as stated previously, we believe we can get Advantage RN aligned into our MSP process and start to see positive impacts from that in 2018 as well.

In fact, we believe we are in a good shape for the start of 2018. Demand seems to be improving for Nurse and Allied, and this business should recover from the hurricanes by mid first quarter which will improve our Travel Nursing trends which is our largest business. And with continued momentum in MSPs, our branches and Mediscan, we should be in a position for further growth in Nurse and Allied in 2018. Plus we expect Physician Staff and Other Human Capital Management, we're trying to grow for the year as well.

I completed my fourth year at Cross Country as CEO in July this year. And I'm very happy with the progress we've made. We've accomplished a lot in a relatively short period of time and we're a much improved company both operationally and financially. We have a strong management and team of topnotch professionals delivering our services. We're seeing our longer term improvement initiatives starting to come together and we are very well positioned for strong execution in the coming years. I believe that we have a solid foundation and as a result of all of our efforts will be reflected in continuous improvement of our financial results as well.

For 2018, in addition to growing the top line, we are very focused on improving our adjusted EBITDA margins. Overall, we expect to see mid-single digit revenue growth. And in addition to the leverage we expect from that revenue growth, we've implemented efficiency and productivity improvement initiatives to support our overall margin goals. As we approach $1 billion of revenue, we believe we could start to improve our adjusted EBITDA margins and reach 8% in 2019.

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

Thanks, Bill. As Bill mentioned, we met or exceeded all of our guidance ranges for the quarter. The severe weather experienced during the quarter had a relatively minor impact on our third quarter, but it's expected to have a more significant impact on our fourth quarter. We estimate that impact for the fourth quarter to be approximately $4 million in lost revenue for the quarter with a lesser impact carrying into the first quarter of 2018. I'll touch more on the fourth quarter forecast in just a moment.

In addition to successfully closing our Advantage RN acquisition at the start of the quarter and refinancing our debt structure, the company has taken further actions to improve our operating leverage through tight cost containment measures and targeted reductions. We incurred approximately $700,000 in restructuring costs during the quarter and expect to take an additional charge in the fourth quarter. The total savings generated from these actions is expected to be between $6 million and $7 million, when fully realized.

Turning to the quarter, total revenue was $228.5 million, up 6% from the prior year and 9% sequentially. The majority of the growth came from the addition of the Advantage RN acquisition as well as continued strong growth in our Mediscan business. On a pro forma basis, revenue declined approximately 5% with a decline in all 3 segments. Our legacy Nurse and Allied business was down approximately 7% due in large part for the non-recurring project business in the prior year.

In addition, Advantage RN fell short of our expectations as they experienced a softening in demand in their core business as well as delayed hiring decisions by their clients.

We view this as a short-term challenge and expect Advantage to return to year-over-year growth as we get into 2018. Gross profit margin for the quarter was 26.5%, down 60 basis points from the prior year and 50 basis points sequentially. The declines were primarily due to the impact from the Advantage RN acquisition, which operates at lower gross margins than the rest of the business, due to its mix.

Margins in our legacy Nurse and Allied business were up 50 basis points sequentially as the higher compensation costs from early in the year have normalized.

Moving down the income statement. SG&A for the quarter was $47.3 million representing an increase of 3% year-over-year and 2% sequentially. The year-over-year and sequential increases were entirely due to the impact from the Advantage RN acquisition at the start of the quarter, which added approximately $3.1 million to our results.

Excluding the acquisition, our SG&A was down 4% over the prior year and 5% sequentially. Both those declines were due to the tight cost controls and cost savings generated in the quarter from the targeted reductions, I mentioned previously. Our ability to reduce cost was driven primarily by improved productivity and leverage of both our shared service center, as well as our existing operations in India. We estimate the savings realized in the quarter to be approximately $900,000 and expect to realize an additional $500,000 next quarter.

Adjusted EBITDA was $13.8 million or 6% of revenue as compared with $13.1 million or 6.1% of revenue in the prior year. The year-over-year increase in the dollars was largely attributable to the impact from the Advantage acquisition as well as the cost savings I mentioned a moment ago. We believe we have sufficient resources and investments in candidate attraction to continue growing the business as our MSPs continue to ramp.

Depreciation and amortization expense was $2.8 million, up $800,000 over the prior year and $600,000 over the prior quarter. Both of these increases were due to the impact of the acquisition. Interest expense was $1.2 million down $200,000 from the prior year and up $700,000 from the prior quarter. The sequential increase was due to the high level of indebtedness, as a result of the Advantage acquisition. The income tax expense for the quarter was $200,000, which was $600,000 lower than both the prior year and prior quarter. The decline was due to a couple of discrete items realized in the quarter.

As a reminder, the company maintains a full valuation allowance of its deferred tax assets and their operating losses. Based on our current projections, we anticipate that all or a significant push of the valuation allowance will be reversed in the coming quarter. On that event, we will realize a significant tax benefit and our ongoing tax rate in subsequent quarters should be more normalized. While we may return to a more normal tax rate in 2018, we believe that our net operating losses will offset the majority of cash taxes until early 2019.

Net income attributable to common shareholders was $6.7 million or $0.19 per diluted share as compared with $14.1 million or $0.22 per diluted share in the prior year. The prior year included a $7.1 million non-cash gain on the valuation of the derivative in the convertible notes, which were called earlier this year. Adjusted EPS was $0.23 compared with $0.24 in the prior year and $0.16 in the prior quarter.

Let me next review the quarter results for our 3 segments. Revenue for Nurse and Allied segment was $200.5 million, up 7% year-over-year and 11% sequentially. Both the sequential and year-over-year growth was driven by the impact of the Advantage acquisition. And on a pro forma basis, revenue for the segment was down 6% over the prior year, driven primarily by the impact from the non-recurring project revenue in the prior year and a decline in premium rate orders for travel nurses.

Excluding the project revenue, hours were essentially flat year-over-year. Revenue per FTE per day was $283 down 3% year-over-year and up 2% sequentially. We averaged 7,706 field FTEs for the quarter, up 11% from the prior year and 8% sequentially. Segment contribution income for the quarter was $20.7 million representing a 10.3% contribution margin, down 10 basis points year-over-year and up 30 basis points sequentially.

Turning next to our Physician Staffing segment, revenue was $24.9 million, down 1% from the prior year and up 1% sequentially. While this business continues to make progress, we were pleased to see that advanced practices, which includes specialties such as physician assistants and nurse practitioners grew by 36% over the prior year. Generally pricing remained strong with revenue per day filled of $1,562 which was down just slightly from the prior year largely due to the mix of business.

Segment contribution income for the fourth quarter was $1.3 million representing a 5.4% contribution margin, down 420 basis points from the prior year and 290 basis points sequentially. The sequential decline was largely due to lower operating leverage as well as investments we made in revenue producing headcount.

Finally revenue for our Other Human Capital Management Services segment was $3.1 million, representing a 5% decline over the prior year and 15% sequentially. The decline was primarily due to the timing for certain placements and retain searches during the quarter. Segment contribution income was essentially breakeven as compared to a loss of $150,000 in the prior year and income of $240,000 in the prior quarter.

Turning to the balance sheet, we ended the quarter with $10.8 million of cash and $100 million in outstanding debt at par. As of September 30, we did not have any amounts drawn on our $115 million revolving credit facility. During the quarter, we generated $3.2 million in operating cash bringing the year-to-date total to $28.7 million. Collections were lower in the quarter than expected due primarily to the weather related closure of our corporate office for several days in the final weeks of the quarter.

Our days sales outstanding, net of subcontracted receivables were 57 days representing a 2-day increase from the prior year. Generally, we continue to believe that our DSO for the company should average in the mid 50s, with the exception of some timing for the collection at certain period ends and the impact of collections from the weather should be normalized in the fourth quarter.

For the quarter, capital expenditures were approximately $700,000. We used $86 million for the purchase of Advantage and generated $61 million from financing activities, predominantly due to the incremental borrowings for the acquisitions.

And finally this brings me to our guidance. We expect consolidated revenue for the fourth quarter of 2017 to be between $223 million and $228 million, representing a range of flat performance to approximately 2% growth year-over-year. This range reflects an estimated $4 million of weather related impact on the fourth quarter as well as the loss of the project revenue reported in the prior year.

Gross margins are projected to be between 26.3% and 26.8% consistent with the trends reported in the third quarter. For adjusted EBITDA, we expect to generate between $13 million and $14 million reflecting the sequential decline in gross profit on the lower revenue, partially offset by incremental savings from the restructuring in the third quarter.

We estimate the impact on adjusted EBITDA from weather to be approximately $1 million. And finally, adjusted earnings per share is expected to be between $0.18 and $0.20 for the quarter. Assumed also in this guidance is $2.9 million for depreciation and amortization, $1.2 million for interest expense, $1.2 million in stock compensation expense, and a tax expense of $1.2 million and a diluted share count of 36.2 million shares.

And lastly, the guidance does not reflect the potential impact of the reversal of the valuation allowance for tax purposes, which could be as much as $43 million. With that, this concludes our prepared remarks and I would like to open the line up for questions. Operator?

(Operator Instructions) We have our first question from Bill Sutherland from The Benchmark Company. Your line is now open.

Perhaps, we can get a little more color on the slow start for Advantage RN. So, to what degree do you kind of think of this more about just processes that you need to have in place versus any issues at their end within market demand and so forth?

Yes, I mean, we've seen a slowdown in demand in the first and second quarter of this year. They saw a little bit of that as well. But the real variance versus expectations was about their ability to fill our MSPs. And they're on two different systems and so we've had to put a manual process in place. They've put about 40 or 50 travel nurses into our MSPs in the last four months. I expected that to be 150 to 200, so it is just well behind the pace that we expected and it is about aligning our process to make sure that they get the orders in a timely way and the submittals can come in. All of our MSPs run through the same system internally. It's not the same system that Advantage works on. So getting the two systems to talk to each other and not having a manual process is the goal, and we just weren't able to get that done in the third quarter. We believe we will be able to get that done in the fourth quarter and streamline that so that they can get faster coverage on those orders.

Okay. And then the incremental revenue that you and we are all expecting from all the MSP wins, just take us through the timing of all that once again. I had thought maybe we'd see a bit more in the fourth quarter.

No, we'd always said that most of this was coming in 2018. We are seeing a pretty good uptick in orders at these new MSPs as they ramp up. The new wins, the 25 new wins this year represents about $100 million of revenue opportunity and if we continue to fill mid 50% of it, that's a $50 million to $60 million opportunity for us. If we up our capture rate, it could be a $60 million to $70 million revenue opportunity. But most of that comes next year. Bill, I think has a little bit more on that.

Just to put some color on the MSPs, in the last 21 months, we've won 48 MSPs, representing roughly $200 million in spend. About 43 of those are now live, but they are still continuing to ramp, so there is about 5 that have still not been implemented mostly from 2017. And so the total remaining spend to implement from what we expected at the time the contracts are won is about $100 million of opportunity. So, they're moving through the process of getting up and running, but the ramp is still occurring. So, we're pleased that the progress has moved so far over one quarter. If you look back to Q3, we had far fewer actually live. So, the MSPs are now really getting into this implementation phase and as the existing orders wind down, we will start to be able to take on that finance.

In almost all of the orders that we've seen the uptick over the last couple of months, are all orders for 2018. So maybe a few will start in December, but usually these are all orders for January and February.

Okay. The large projects, can you remind us kind of what your comp is like for the third quarter and fourth quarter?

Yes, I believe we called out $6 million to $7 million of revenue that had been generated from the project in the third quarter and $4 million to $5 million, really those numbers are up towards the higher end. So, it's on average close to about $12 million of revenue in 2016 from the project that won't recur this year.

And then finally, Bill Grubbs, you said you have a lot of confidence that Locum would have a more sustainable growth rate next year. What is your confidence based on?

Yes, so it's really about the trend and progress on volume. If you go back and look at the times when they were down year-over-year, 15% to 20%, they were driving 5% to 10% increases in price, which means that they were down 25% to 30% in volume. This last quarter, it looks like they were -- the volume in Physician Staffing overall was down 0.4%, basically flat year-over-year. And the price, mostly due to mix, was down about 1%. That's what's [growing]. So what gives me a comfort level is, they've gotten the volume back up again. And that's really what's going to drive their growth going forward. So they've kind of solved the volume problem and they are now back to year-over-year flat, and if they can get any kind of volume going forward and even some slight price increases either through normal market increases, there is still a shortage out there or through mix of business that's what gives us the comfort level that they can get back to kind of low-single digit growth next year.

Maybe one follow-on on that. So either the hospital volume trends that we're all hearing about or the woes of some of the physician management companies, no impact that you're seeing -- it's just, it seems like maybe you are seeing some impact just based on how your volume trends are going, both Locum and in traditional nurse placement? Let me [give] question with you.

Yes, less so in Locum, but we are seeing, especially on non-MSP Nurse and Allied business that we are seeing a lower conversion rate. We're not converting as many orders or as many submittals into placements that we used to. So, our non-MSPs are certainly slowing down, and that maybe -- we track our hospital trends and it may be that generally they're [sliding] a little bit. Our MSP trends though are pretty strong, our revenue under management is up double digits this year, our actual revenue from our own MSPs is up high single-digit numbers.

If you look at how much of our legacy Nurse and Allied. So if you don't count Mediscan, you don't count Advantage RN, our percentage of revenue that comes from MSPs is up to 39% and that's up from 33% last year and 37% last quarter. So we're getting everything out of our MSPs right now, but I think, you are right, the general market and based on what we're seeing there from customers, is somewhat slow for us. But this is what I've talked about in the past, this is why we believe that winning 40 some new MSPs in the last 21 months, and starting to see those ramp up and focusing on increasing our existing capture rate should sustain growth even with a slower market.

But all that said, this is the third quarter, we are seeing an uptick in general demand in the market and an uptick in our MSP demand. So, those dynamics that we experienced in the third quarter may get a little bit better as we go forward.

We have our next question from Brooks O'Neil. Your line is now open.

Hi guys, this is John on for Brooks. I appreciate you taking questions. Just kind of going back to the Advantage RN, a little bit longer term, how do you guys see gross margin trending going forward as you start to get that ramped up?

Yes, they were at a lower gross margin than us generally and partly due to the fact that they had a large percentage of their business through other people's MSPs and incurred the management fees associated with it. So we think there is two ways that they'll get higher margins. Part of it is, having less dependence on other people's MSPs and doing more of our own MSPs without incurring the management fee. We don't publicly talk about their [marketing] generally, but I think they have probably a 100 to 150 basis point improvement over the next 12 months, is my guess.

For the quarter, the reported impact from Advantage was about 55 basis points of impact to the consolidated results for Cross Country, just to give you the magnitude of where they are. So that opportunity will continue to offset as Bill mentioned, direct their business back to our MSPs and recover that 400 or 500 basis point [advent] fee that they pay.

Awesome. That's helpful. And then just going back to your MSP wins, I believe last quarter you were at 25 of those, call it I think 43 then that were in stages of implementation, now you're up to, I believe, 41 you said. As far as the number, 39% of revenue flowing through MSP contracts, I just -- where do you see that going moving forward? I mean how much higher can that number go, call it, over the next 12 months?

Yes, and that 39% was over our legacy Nurse and Allied business, without Mediscan and without Advantage. Just to make it --.

I haven't -- overall, in Nurse and Allied, it was at 32% capture rate, I mean percentage of our total revenue. But remember we added Advantage this quarter as well, which brings that number down a little bit. There's not a specific goal of how much of our revenue comes through our MSPs, it's kind of a little bit market driven. I don't want to be completely dependent on our MSPs, I want to participate in the general market as well. I do think that, that percentage -- if the market stays the way it is, which is where we're having a lower conversion rate on non-MSP business and our conversion rate on MSPs is holding up pretty decent, that probably will go up to somewhere in the 40%s. But I don't have a particular goal of getting that up to a certain point. If I can grow my non-MSP business fast, then I don't care if it stays at 39% or 40%.

Okay and then just one more, I know last quarter you kind of mentioned some of your customers' hiring trends were ticking down a bit and the interview process was taking a little bit longer. I guess, maybe if you could give an update and some more color on how you've seen kind of that dynamic develop over the past quarter and so far into Q4?

So Q1 and Q2, we did see a slowdown and it needs from our customers generally, both MSP and non-MSP. We saw that level off in Q3, and now we're seeing an uptick. So from Q3 to the first quarter of Q4, it's actually our orders in Nurse and Allied are up high-single digit numbers sequentially. So I feel pretty good that we seem to be bouncing back from some low level in Q3 from the declines we saw earlier in the year. But we're still seeing a little bit of slow decision making from our customers. And as I said a lower conversion rate, we're not getting as many deals closed in our non-MSPs as we used to see. But I'm hoping that now that we're seeing the demand tick up a little bit, that we'll start to see better decision making at our customers, they usually go hand in hand, but it's still a little bit slower than the normal.

Our next question comes from Tobey Sommer from SunTrust.

I want to start out with a kind of broad question, how do you assess the company's ability to grow in this slightly slower patient volume environment in the tension that exists there on the downside with a strong, relatively strong labor market for nurses in their propensity kind of to not want to work full time as much as they used to?

Yes, it's interesting. There's this push-pull kind of thing out there. We're seeing a lot of our customers still with sticker shock at how much money they spent on contingent labor in '15 and '16 and maybe even early on in '17. Certainly, we still see the nurses want independence, they want control of their career, they still want to be out there and be travelers and although there is a shortage of candidates in certain skill sets and geographies, I think that side of the equation will probably stay somewhat the same.

On the growth from --- from demand from our customers, I do think ours is about our MSPs and even if the $100 million of revenue that we've won this year, our customers decided to cut back and that become $85 million or $90 million, that's still a growth opportunity for us. So hopefully, we will capture 60% or 70% of $80 million or $90 million instead of 60% or 70% of $100 million. So, I think our ability to grow will be dependent pretty much on the MSPs we've won over the last 1.5 or 2 years that I think can sustain us for the next couple of years. I'm not sure that answers your question fully but --.

When did or will the new automated process go live in the fourth quarter to allow the acquisition to kind of fill MSP orders more quickly?

Yes, it's going to be later in this quarter. I'm going there Tuesday of next week to talk to the team there. And I'm bringing my Head of -- the President of our Workforce Solutions Group that runs all of our MSPs and we're going to make sure that we've captured all of the issues of why we're not getting the ramp up that we expected. As I said we put 40 or 50 people into our MSPs through Advantage RN, sounds pretty good in a 4-month period of time, but I expected that to be 3x or 4x that level. So, I'll get a better understanding when I'm there next week, but I don't think we'll have an automated solution till later in the quarter, but that really is, it is this manual people working in two different systems and trying to be efficient, it's causing us to be slower than we wanted and slow in this business is -- it's just not good for getting placements closed.

I guess, absent the financial impact of that on the company, are you still hitting your fill rates at those customers by relying more heavily on the subcontractors or are those fill rates in jeopardy?

Our service level agreements at our MSP customers are fine. We are not in the penalty box at any customers. We're in good shape either through our own fill rates or using subcontractors. And as I mentioned, a higher percentage of our own revenue is now coming through MSPs. So, obviously we're doing a decent job of capturing our share of that business. So, no our fill rates are -- capture rates are in very good shape.

I just wanted to ask a little more detail nuance question on the uptick that you described in terms of orders so far in the fourth quarter, high single-digit sequentially. Are both MSP and non-MSP orders up sequentially, but just by varying amounts?

Yes, actually I wanted to make that point actually, it is both non-MSP and MSP and probably about 50:50 of the orders that, by the way, this is Travel Nursing in particular. For Travel Nursing orders that are up sequentially that's the high double-digit -- high single-digit growth is probably about half non-MSPs and half MSPs.

What is the -- of the MSP wins that you had in kind of revenue ramp, what's the direct staffing wallet share that the company already had at these customers? I'm just trying to access the incremental opportunity versus whatever you may have had because some of these customers must have been existing?

Yes, I don't know if I have the exact numbers here with me, but almost all. In fact I just had my strategic accounts with you call yesterday, almost all of our new MSP wins have very little or no revenue to begin with. So most of the $100 million that we've won in the 25 programs this year will be incremental, whatever we get out of that $100 million.

What's the source of the MSP growth? Is this new customers to MSP or are you winning market share from like a category of players, so as not to mention names? That seems to be fueling your growth.

There is no category in particular and we're winning them -- I think most of them are new. So, these are new players who never had an MSP before, which I think is a very positive trend generally. And it's not a particular category. I mean, there is some very small ones that we're winning, that are $1 million to $2 million kind of remote hospitals and then there's some that are big systems. We've implemented a $30 million program in a 3-phased approach that now is fully implemented, not fully ramped, but fully implemented as of this month. We have another one that we've just signed that's about $20 million that they want us to get implemented by January, which is pretty fast by most company standards.

These are completely new customers with almost no revenue to begin with, they're not part of a GPO relationship or other association relationship, they're just -- we went out there and won them. They were both competitive and we feel pretty good that as I said, last couple of quarters this is just us getting our act together. It's okay, it's taking 4 years, but this is getting our act together in our Workforce Solutions Group, in our sales group, in our turnaround efforts. So, there is no one reason why we're winning them other than we're just doing a better job. And I do think, I think we're taking market share, but not necessarily that -- I don't think market share means we are stealing it from a competitor, I think it's market share that we're probably winning more than our normal share in the marketplace.

Last question for me, on the M&A front, could you describe your on-going priorities for uses of available capital?

Yes we still would like to buy in the school area. Our school business has grown over 30%. Our school business is growing between 30% and 40% year-over-year. Right now, we think there is a great opportunity to expand our services on a more national basis. And the best way to do that would be to make another acquisition. So, that's where really where our -- we think the best opportunity is.

The pipeline is okay, there is a few that we're looking at, but there is not a lot out there and not a lot of big ones. So, these will all be $20 million to $50 million of revenue, probably at the most.

But that's really where the focus is, in particular is on school business acquisitions. If we really do see the turnaround in physician staffing coming and we see more stability there and as I said earlier, I feel really good that they've got the volume kind of back under control, then I might look at physician as well. And then possibly only because we just seem to be hovering on that edge of growth and profitability in our search business, I wouldn't mind getting an add-on to my search business if there is something decent out there.

Our next question comes from Mitra Ramgopal from Sidoti.

First, Bill, I know in the past you had mentioned ECA was a nice catalyst for you. Given the uncertainty right now in healthcare, is that a concern for you as you look out into 2018?

Yes I don't know. It's interesting, I read an article a couple days ago about some of the states are struggling with the message to the new open enrollment period where they are sending out the message saying "don't forget to sign up for your healthcare this year" and their constituents are saying "we didn't think the Affordable Care Act existed anymore, we thought it was dead." So, I don't know what will happen with open enrollment. But the general open enrollment and certainly the people that signed up because of the mandates were always less important to me. So if an employer was forced to give somebody insurance, because they had more than 50 employees, they were probably giving a healthy person health insurance that wasn't using a lot of services or if an individual didn't want to pay the tax penalty and signed up because they felt obligated to they probably didn't need the services either.

It's really the people that especially the Medicaid expansion that we've seen have generated a lot of demand in the market and that is still pretty much in place. So, I'll have to wait and see what the open enrollment is and see if that changes the people that are participating in the Affordable Care Act next year. I guess, time will tell, but it doesn't worry me a whole lot right now because it's mostly business as usual going forward.

And when we look in terms of both the segments, physician staffing, obviously you've made some changes there in terms of personnel, et cetera. If you can update us how you feel in terms of addressing that issue and also on nurse staffing side, the RN acquisition was meant to fill a hole given all the MSP wins. But as you look out now, is there anything you really feel that you need to address or are you pretty comfortable in terms of your staffing right now?

No physician staffing has a good president of the division. He has got a top guy that runs physician staffing side, with 2 great lieutenants, one running the sales, and one running the recruitment. I feel pretty good there. And then we've got a person who is running our advanced practices and physician staffing who is growing that business at a decent double-digit growth. So, I think physician staffing has what it needs, in fact, it has enough staff, it doesn't need to make any investments to get to $105 million, $110 million, $115 million of revenue. They just have to ramp up some of the people that have been hired over the last 12 to 18 months. So I feel really good about the physician staffing.

Nurse staffing is our legacy, Nurse and Allied and we've had a strong management team there for a long time. I feel good about the Advantage RN acquisition, even though it's off to a slow start, that's really just execution on our part. Not, not getting at things fast enough, but they are in pretty good shape and they have been, I think dealing with a slightly slower market and with slow decision making and less premium rate business in the marketplace, but handling it very well. So no I feel there is not a lot for us to do here other than start looking at efficiencies and productivity improvements and some of that will require some technology changes.

Our focus right now is, if the market is going to grow at single -- mid single digit numbers, I think we can -- we could follow that. And then, our real focus is on improving our adjusted EBITDA margins and we've been focused so much on growth for the last few years and trying to get as much leverage as we could. But now, we're really focusing on that, that profitability. We had that, the two investment quarters this year, and we don't need to do that again going into next year. So, starting to focus on improving the 6% adjusted EBITDA margin that we had this quarter is really what we're looking at. In fact, we are kind of looking at this quarter as kind of the baseline going forward.

And if you look at this quarter, there is $300,000 to $500,000 of negative weather impact and call it a $1 million to $2 million of negative Advantage RN impact, we're really at a kind of $230 million run rate with, with 6% on the bottom line. And I think that's kind of our new base line going forward and forget what the comps are year-over-year in Q3 and Q4 because of our product revenue. If you look at this $228 million to $230 million kind of baseline at 6%, I think that's a good platform to build better profitability going forward.

There are no more questions in queue right now.

Okay thank you operator and once again, thank you everyone for joining us this morning and I look forward to updating you with our fourth quarter and full year results in early March. Thank you.

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