AMN Healthcare Services, Inc.

Thank you, Lori. Good afternoon everyone.

Welcome to AMN Healthcare's Second Quarter 2012 Earnings Call. A replay of this webcast will be available until August 23, 2012 at amnhealthcare.com/Investors.

Details for the audio replay of the conference call can be found in our earnings press release.

Regarding our policy on forward-looking statements, various remarks and characterizations we make during this call about future expectations, projections, plans, prospects, events or circumstances constitute forward-looking statements. Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, should, would, project, may, variations of such words and other similar expressions.

It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our annual report on Form 10-K for the year ended December 31, 2011, and our other filings with the SEC which are publicly available.

The results reported in this call may not be indicative of results for future quarters. These statements reflect the company's current beliefs and are based upon information currently available to it.

Developments subsequent to this call may cause these statements to become outdated. The company does not intend, however, to update the guidance provided today prior to its next earnings release.

This call may also contain certain non-GAAP financial information. We make available additional information regarding non-GAAP financial measures in the earnings release and on the company's website.

On the call today are Susan Salka, our President and Chief Executive Officer, as well as Brian Scott, our Chief Financial Officer. Joining us during the Q&A session will be Ralph Henderson, our President of Healthcare Staffing and Bob Livonius, our President of Strategic Workforce Solutions.

I will now turn the call over to Susan.

Thank you so much, Amy. Good afternoon everyone and welcome to AMN Healthcare’s 2012 Second Quarter Earnings conference call.

As we passed the midpoint of 2012, we are pleased to report solid performance with second quarter revenue, gross margin and adjusted EBITDA margin all exceeding the company’s guidance. These results reflect the outstanding efforts of our team and everyday execution in our core staffing businesses as well as our continued progress as the innovator and health care workforce solutions.

In the second quarter, we saw a sequential revenue growth and gross margin improvement across all business segments. This is a good inductor of an improving market and demand trends.

Second quarter consolidated revenue of $236 million exceeded our guidance range and was up 7% year-over-year and 4% sequentially.

We also achieved a consolidated adjusted EBITDA margin of 7.7% which was better than anticipated. Consolidated gross margins were 28.4%, higher than our expectations and higher than prior year and quarter.

Our performance was driven by several key factors. First it is clear that the evolving sophistication of our clients is translating into greater differentiation of our capabilities in the market.

managed services programs, recruitment process outsourcing, electronic medical records, implementation staffing and other workforce consulting services.

These enable clients to manage their clinical talent pool and provide better patient care at a lower cost. In the second quarter, approximately 1/3 of our Nurse and Allied revenue was from MSP clients who are relying upon us to manage and fill their clinical staffing needs.

This MSP model is already migrating into advanced practice and the physician space as well. In the second quarter, we continued to win new MSP and RPO contracts due to the strength of our offering and our ability to deliver higher fill rates to our clients.

In a recent staffing industry analyst report, AMN Healthcare was named the nation's top healthcare MSP provider with 3x the gross spend under management as the next largest clinical staffing company in this space.

A second key contributor to our strengthening results is our constant focus on every day execution, coupled with investments in our future. Our integration activities last year and the improved gross margin management have begun paying off, as we continue to experience operating leverage through revenue growth.

At the same time, we're making investments in marketing spend and building innovative recruitment approaches to drive more candidate supply. We feel quite confident in the demand growth expected over the next few years and we believe these increased investments are needed to ensure that we have the quality and the quantity of clinicians available for our clients.

Despite this slightly higher level of SG&A spending from these initiatives, we still anticipate continuing to improve operating leverage and we believe we're on track to achieve our 10% adjusted EBITDA margin target.

Now, let's turn to our results by business segment. Second quarter Nurse and Allied revenue was $159 million, up 13% year-over-year and 3% sequentially.

This growth was slightly better than expected driven mainly by the Travel Nurse business, where revenue was up 19% year-over-year and 3% sequentially.

The growth was driven by strong fill rates, rebook rates and an increased supply of nurse applicants. While orders were softer at the beginning of the year, in the second quarter, they grew consistently and today orders are up slightly year-over-year.

The stronger demand was nationwide and came from both MSP and traditional client accounts. Clients with orders and clients with clinicians on assignment, were also both up year-over-year and sequentially which is always a good sign of a healthier client and order base.

Going in to the third quarter, July orders are up in the double-digits over the second quarter, and we expect to see our third quarter Traveler count volume up in the mid-teens year-over-year.

Now turning to local staffing. Second quarter revenue was down 11% compared to prior year and 1% sequentially.

Revenue was impacted from the lower demand in certain markets as well as candidate supply constraints and the disruption from operational changes.

As planned, our New York office opened in April and our Philadelphia office recently opened to support 2 large MSP clients we implemented during the last year. Second quarter Allied revenue was up 14% year-over-year and 8% sequentially.

The growth was experienced in our therapy business as well as the imaging, respiratory and lab specialties.

The Allied team continues to invest in marketing spend to drive more candidate supply. They also continue to experience strong rebook rates and improvement in sales productivity.

In July, order levels have remained relatively steady and we anticipate third quarter revenue to grow modestly on a sequential basis and at mid-single-digits year-over-year.

Locum Tenens second quarter revenue was $68 million, down 5% year-over-year and up 6% sequentially. This year-over-year decline was due mainly to continued volume and pricing decreases in radiology.

Without radiology, segment revenue would have been roughly flat.

The sequential growth is the strongest that we've seen in 2 years and was due to improvements in both volume and bill rates. The sequential volume increase was due to higher days filled with behavioral health, ER and anesthesia.

Second quarter Locums gross margin improved by 240 basis points year-over-year and 80 basis points sequentially.

This was due primarily to improve bill rates and bill to pay spread resulting from the margin enhancement changes we put into place at the end of last year. Days sold in the second quarter were sequentially flat and going into the third quarter overall Locums revenue is expected to flat sequentially and down year-over-year in the mid-single-digits.

We believe our Locums business has significantly more opportunity for improvement in volumes, pricing and margin management. The team is making good steady progress towards our target of a double-digit EBITDA margin for this segment.

Over the past 2 years physicians have been swiftly moving over to the hospital employment model and we may be seeing some signs of the dust settling as more hospital facilities begin to have a higher level of ongoing replacement, recruitment and coverage needs for physicians who leave or are on vacation.

To this point, the demand for hospitalist, ER physicians and other hospital based specialties has been rising at a faster pace. In physician improvement and placement, second quarter revenue was $10 million, up 1% year-over-year and 6% sequentially.

The growth in the second quarter was due mainly to higher placements from the increase in new searches.

In the second quarter new searches were up sequentially with the largest increase being in family practice. However, some of these contracts certain a larger number of searches which are activated over a longer period of time and have less near-term impact on placements.

As a result, we are conservatively anticipating our third quarter position from revenue to be flat sequentially. Over the next few years demand for both traditional, health care recruitment and staffing and innovative work force solutions is expected to grow significantly.

Every week new articles are published about the severe shortages that are anticipated in the nursing, physician and allied professions.

The shortages will be fueled by the ageing clinical labor force which will begin retiring in greater numbers. At the same time, demand for health care services will accelerate due to the broader access to health insurance and the growing medical needs of the ageing population.

In anticipation of these looming, severe shortages and the impacts of health care reform, health care executives more than ever are looking for new innovative solutions to deal with their challenges of delivering excellent patient care at a lower cost. As a result, they are seeking highly capable partners who they can collaborate with and trust to deliver on their core staffing needs and develop new solutions.

AMN has a proven track record of delivering in this more demanding and differentiated market. Our strategy is clear and it seems to be right in line with what our clients need and want from a workforce partner.

We will also continue to evolve and invest in opportunities that will enable AMN to be a valuable partner for our clients in the future as their operating models continue to shift. The solid results we are reporting today and the continued progress on our work force solution strategy is a direct reflection of our standing team.

Every team member at AMN has an impact on our ability to help our clients and clinicians achieve their goals. I would like to recognize and thank our team members for their continued solid execution and passion for delivering excellence.

It is this level of talent and engagement combined with our clear differentiated strategy that has set us apart in the marketplace and ultimately enables to deliver more shareholder value.

I will come back to you in our Q&A session along with Ralph and Bob to help answer your questions. But for now I will turn the call over to Brian.

Thank you, Susan, and good afternoon, everyone. Second quarter revenue was $235.8 million up 6.9% from last year and 4.1% from last quarter.

Our gross margin for the quarter was 28.4% up a 110 basis points from last year and up 50 basis points from last quarter. The year-over-year and sequential increase was due to improvements and bill to pay spread in both the Locum Tenens and Nurse and Allied segments significantly more than offsetting direct cost pressures from higher housing rent and travel costs.

SG&A in the quarter totaled $50.3 million or 21.3% of revenue, compared to 21.8% in the same quarter last year and 20.8% in the prior quarter. The year-over-year improvement was due to the absence of integration related expenses and improved SG&A leverage, partly offset by higher professional liability cost and increased spending on candidate supply and workforce solutions initiatives.

The sequential increase resulted from the prior quarter including the $2 million refund received from the California Employment Development Department, more than offsetting the operating leverage improvement. We expect total SG&A expenses in the third quarter to increase sequentially by about $1 million driven in part by investments being made in our strategic workforce solutions and new recruitment and candidate supply initiatives.

Our nurse and allied segment revenue increased 13.3% from the prior year and sequentially by 3.1% to $158.6 million. Volume grew 8% year-over-year and 3% sequentially to 5,592 average health care professionals on assignment.

Revenue per day was up 5% year-over-year and less than 1% sequentially on higher bill rates and a year-over-year increase in hours worked. Nurse and Allied gross margin increased year-over-year by 90 basis points and sequentially by 30 basis points to 26.7%, with improved bill-to-pay spread exceeding the higher housing costs.

Second quarter Nurse and Allied operating income was $18.4 million or $11.6% of revenue. The operating margin was 130 basis points higher than the prior year and 50 basis points higher than prior quarter from the improved gross margin and SG&A leverage.

Our Locum Tenens segment of revenue of $67.6 million was 4.9% below prior year but was up 6.4% from the prior quarter. With a sequential increase reflecting a 1.7% increase in day sold and 4.7% in revenue per day per sold on higher average bill rates.

Gross margin at 27.9% was up 240 basis points from the prior year. And sequentially by 80 basis points due primarily to improve the bill-to-pay spreads.

Our Locum Tenens segment reported an operating income of $6.1 million or 9% of revenue, 130 basis points higher than prior year and 200 basis points better than prior quarter. Within our physician permanent placement segment revenue increased year-over-year by 1.1% and sequentially by 6.2%.

Excluding the prior year adoption of the new revenue recognition accounting standard, revenue was up year-over-year by 10% on growth in new searches and placement. Physician Permanent Placement operating income for the second quarter was $1.9 million or 19.7% of revenue.

Interest expense in the quarter included the writeoff of $8.6 million of non-cash deferred financing and original issue discount and a $1.2 million prepayment penalty associated with extinguishing the previous credit facilities.

Excluding these debt refinancing costs, interest expense in the quarter was $3.8 million, which compares to $5.5 million last quarter and $5.6 million last year. For the third quarter, we expect interest expense to be approximately $3.9 million.

Our tax rate in the quarter, tax in the quarter was 83% which was significantly impacted by the year-to-date tax rate against the small pre-tax loss.

Excluding the impact of the debt refinancing, our second quarter and full-year projected tax rate is approximately 45%, which is lower than our previous estimate of about 50%.

Our total cash taxes paid this year are expected to be $1 million to $2 million, resulting in a cash tax rate of less than 10%, due in large parts continued utilization of tax benefits from the Medfinders acquisitions.

On a GAAP basis, diluted earnings per share from continuing operations were $0.0 for the second quarter. Excluding the impact of the debt refinancing cost in the current quarter and the Medfinders integration expenses in the prior year, our diluted earnings per share was $0.11 this quarter, which compares to $0.07 in the prior quarter and $0.03 in the prior year.

Operating cash flow for the quarter was $21 million and capital expenditures for the second quarter were $1.2 million. Day sales outstanding excluding the retained home healthcare account receivable were 53 days compared to 56 days in the last quarter and 54 days in the second quarter last year.

As of June 30, our cash and equivalents totaled $15.5 million and our total debt outstanding net of discount was $194 million. Our debt to adjusted EBITDA leverage ratio is calculated for our credit agreement was just over 3x.

The company made $4 million in voluntary debt prepayments during the second quarter and has made an additional $20 million in voluntary debt prepayments thus far in the third quarter. This brings our under discounted debt balance as of today to $176 million.

Based on this lower debt balance, we expect our leverage ratio to be under 2.75 times at the end of the third quarter. Now let's turn to our guidance for the third quarter.

Consolidated revenue is expected to be between $236 million and $240 million, representing year-over-year revenue growth of 3% to 5%. This guidance is based on anticipated sequential growth of 1% to 2% in the Nurse and Allied segment with revenue essentially flat sequentially in our physician business segment.

Gross margin are expected to be approximately 28% to 28.5%. SG&A expenses as a percentage of revenue are expected to remain consistent with the prior quarter.

This includes approximately $1 million in cost related to the strategic initiatives to grow our future candidate supply and enhance our workforce solutions. Adjusted EBITDA margin is expected to be approximately 7.5%.

And with that we would like to open up the call for questions.

Just a couple of questions maybe if I could ask, you referenced in the release and then in your comments couple of times, the favorable bill pay spread, the higher bill pay spread both in the locums and the Nurse and Allied. It sounds like some of that you are attributing to the initiatives that you guys yourself have taken, I wondered if you thought any of it might be market related or better turn to the market?

Just maybe spend a few minutes, just expanding on what you are seeing exactly.

I think for your question, A.J., I think you may have heard us mention in the last couple of calls that we believe we had opportunity to improve both our pricing as well as our gross margins based on market information that we have seen through some of the locum organizations. So we think that we have more room than what you have even seen.

I would say that our increases are more are coming up to the market level as opposed to may be the market itself increasing.

With that said, I do believe that you will continue to see pricing opportunities particularly within the fast growing specialties, such as hospitals and ER, those areas that are expected to be driven even more by health care reform as we see more and more demand in those areas and more severe shortages. And I'll let Ralph may be comment on some of the details of the specific things they have been doing to help drive those improvements.

Sure A.J., this is Ralph. On the locum side first, about 2/3 of that increase is from our own internal initiatives to get pricing moving back up to market levels.

The team has done a great job. I think as taking a look at what’s happening in the marketplace and working with our customers, to get those prices back at the right levels.

We have a little bit of an impact on mix there as well, but not a lot. On the Nurse and Allied side, we have been talking about our price increase initiative there now for I think 4 quarters and the team there has executed very as well a big shift on our travel nurse business and in our local business towards higher prices.

Allied has had some success there as well, but they have benefited from a mix shift, but they have move more towards physical therapist and a little less in the PTAs or the Physical Therapy Assistance and so that’s been beneficial to us. But from a market perspective having the demand up slightly higher than it was in Q1, I would say that did help our internal initiatives take effect.

And I want to ask you about the $1 million of expenses run through SG&A for the strategic initiatives around future candidate supply and new workforce solutions, and maybe I should remember this, but is that been a recurring expense that you have been incurring or is that and do you think that will stay in the second half or is that going away and maybe expand a little bit about what you are exactly doing there?

Sure, A.J. Those initiatives are relatively new.

We had little bit of activity in the second quarter, but they are really ramping up more in the third and fourth quarter, so I would expect a third quarter to be again in that incremental $1 million and the fourth quarter even a little bit more than that and having that taper off as we go into 2013. Now we do have revenue expected to be associated with those investments.

I would put them into 3 categories. The first and the most impactful is around digital transformation.

Our work to really improve the experience that our candidates have with us on the Internet, through mobile media and do ensure that our jobs are anywhere and everywhere they want to be looking for employment opportunities. And so we think it will be great opportunity to help increase supply somewhat short-term, but even more so quite so honestly it’s a longer-term investment to make sure that we have the supply available as we expect demand for all clinicians quite honestly to be ramping up pretty strongly over the next couple of years.

The other 2 initiatives are around work force solutions. I’ll have Bob to speak to that and then the third is around ramping up and accelerating growth in areas where we are already seeing growth.

So there are really more existing staffing and recruitment business where we see some momentum and expect those trends to continue and so we are building up our sales force in our marketing today in anticipation of driving more revenues in 2013.

So Bob, I’ll have you chat about the workforce solutions piece.

The new workforce solution, this is Bob. The new workforce solutions for our clients looking to enhance some of the service offerings we already have, but what's exciting, for example, we just announced a new service called Locums Billings.

It’s revolutionary in the marketplace. It’s the first time in the industry that we've ever been to help our clients actually bill for their locum services that they provide on sites for hospitals.

They have challenges in doing that. We think we’ve finally cracked the code and now have the ability to help our clients in a way that no one else in the industry does.

So it’s exciting. It’s not huge on its own and the revenue impact is relatively small, the benefit though to our clients and our ability to deliver our locums is going to be a great example of these kinds of investments that Susan is talking about.

We’re also, as Susan pointed out, enhancing and accelerating some of our existing businesses, both on the MSP side and the RPO side and we’ve chosen to add some additional sales resources and infrastructure resources to help us to be more effective even in penetrating more wins in the marketplace. We think we’ve got some momentum and we feel like if we can capitalize the momentum in the short-term, with some of these investments, it will really pay out for us over the coming year.

Just a couple of questions and I missed just a couple minutes right in the middle of the call. So refer me to the transcript, if I am asking to repeat anything.

The first question I had was you know, the gross margin was obviously better than your guidance and as we look back every other quarter, every third quarter or so that gross margin over the last couple of years has come in better than expected. So I guess kudos for giving a conservative guidance.

But my question is, what's kind of the factor driving that upside of gross margin versus your expectations; is there a consistent factor that generally has come in better over the last couple of years or are there different reasons for it?

I think it’s been different reasons; having a couple of quarters and you go back to the first quarter of last year we had a workers’ comp actuarial adjustment, so those are kind of, we don't really know those until they occur. But if you look at the results we had in the second quarter this is Brian by the way, it really had more to do with really good execution by the team.

I think in locum tenens particularly, we were probably being a little bit conservative just making sure that the initiatives we put in place really were going to translate into results and it did come in even better than we had expected. So the team’s done a great job of really executing on that initiative overall and then as we talked about our ability to manage our direct costs and have those bill rate initiatives in the Nurse and Allied kind of diversion as well as drivers.

There were no unique items in the quarter that drove that margin.

It sounds like the bill rates are firm and improving on the pay side what's the trend there? Are you seeing, I mean you are obviously seeing improving spread, are you seeing higher pay levels or is that holding steady?

This is Ralph again, I’ll handle that one. We have seen upward pressure on physician and travel nurse compensation, but we've been able to manage it within the range that we've been able to get from our customers in terms of price increases, that's why, and a little bit better, on a spread basis than our overall margin, so that's added a few pennies here and there.

We are seeing quite a big increase in our applicant supply, I think we are up 34% year-over-year on applicant supply. So you are getting people who are most interested in returning to travel and that helps, the more candidates, the better we are able to manage health care practitioner pay.

And what do you think is the major factor on that supply being up, I guess may be historically we would have thought, it would take a little stronger macro job environment to see the travel supply picking up. Do you think there is a different dynamic in this cycle?

Susan might want to comment on the prior cycles. On this one I think a couple of things.

I think we have done quite bit of fine-tuning our process over the last couple of years and so our marketing is just far more targeted than it used to be and it’s converting at higher rates almost double what it was in kind of the peak of the market in 2008. We also have been able to use technology better than we ever had in the past and when Susan talks about the digital transformation, I think there is even opportunities to do stuff in that area like the mobile devices which will increase our conversion in our supply trends as well.

And then just kind of disproportionately investing in our recruitment resources, so the demand market kept coming back and we invested a little early in recruiters - in adding additional recruiters in all of the businesses and that’s helped us well. So just pure recruiter execution and recruiter productivity.

So I don’t know about the prior cycles. It’s my first comeback out of a recession.

Probably the only thing to add, I think Ralph hit on all of the key points. The difference between this cycle and the prior 2 that we have seen is the duration of the contraction and the suppression in demand and that probably created a longer suppression in the supply and so you have some pent-up supply that has been wanting to come back or come into the travel industry.

And so as a percentage, yes we are seeing more applicants come in, but remember it's also smaller base, so we are still not back to the weekly new candidate flow that we were adding in our peak levels. So while we are very pleased to see it improving and at the pace that we are seeing and we are doing all that we can to accelerate that and drive it, we still have ways to go to, get back to the historically high levels of new supply.

But that’s why we are investing in the digital transformation project, our recruiters and all those things that we think can help us accelerate it at a faster pace. The other thing that benefits us are the MSP relationships that we have and been able to convert more of that new supply that comes in the door because of the productivity and efficiency that we have in getting those people placed and the word of mouth that comes from that I think helps feed on itself as well.

My last question, can you just touch on housing costs a little bit. I know periodically, particularly in certain markets, Florida et cetera, that's kind of crept up and created some pressure on margins.

Can you just kind of give us your state at the rental market I guess right now, where your thoughts are?

Yes. So I think as most people know and what you read and we experienced the same rental costs are going up across the country and it's certainly worse in certain markets versus others, but unfortunately we are in the more attractive larger MSAs where the rental costs are the most challenging.

So we felt the same trends. Some of the statistics are nationwide rent costs are expected to continue to go up 5% per year for the next few years.

And I say that's in line with what we are seeing. We've generally seen kind of a 3% to 5%.

So our team is doing a really good job, staying within or maybe slightly under the national averages, but we have to work hard to make sure that we don’t let that get out of hand. But that’s where the pricing increases also become important.

We talk about bill rates being important for driving compensation, but we also need them to cover rising housing costs. In addition to the lease cost themselves, you also have the need to manage vacancies.

Vacancies are at an all-time low for the nation's apartment property managers and so we need to make sure that we keep our vacancies low as well, so that we don’t have idle space sitting there that we’re paying for. There again, our team has done a really good job of reducing our vacancy days, rooms that are sitting there without somebody in them that we are billing for and so I think we've got it well managed today, but it's something that we’re going to be have to vigilant about for the next couple of years.

It's not going away anytime soon.

I just want to get caught up on our interest expense expectation, so I think you said $3.9 million in the third quarter. Is that kind of what you expect or can just give us like the annual run rate you’re expecting?

For this year, it's going to be $3.9 million. I think I mentioned this fee in the second quarter, excluding the debt refinancing cost is $3.8 million and because we were making those voluntary payments, it accelerates the non-cash amortization of our deferred financing cost.

So our cash interest is going down obviously as we pay down the debt, but the larger the payments we make, you take a bigger interest hit non-cash interest hit in that quarter. So, $3.9 million is our estimate for the third quarter and then about $3.5 million for the fourth quarter.

Okay. And is it fair then you know, that $14 million, $15 million range for 2013?

Yes, that’s probably in the right range.

Okay, and then I know you mentioned for the Nurse and Allied of 1% to 2%, did you say sequentially, is that right in the third quarter?

Yes.

And then also I just on the clarifying SG&A, you were talking about maybe going up more than $1 million in the fourth quarter, is that relative to the third quarter or the second quarter?

That’s more the spending on these initiatives. It's a little bit more in the fourth quarter than the third quarter.

But would you expect the SG&A to come down in the fourth quarter compared to the third?

Not necessarily. It will be relatively consistent, I think if anything with that extra spending, you would have some offset as you just measured cost but I wouldn’t expect this may go down in the fourth quarter.

Okay, then just lastly, you purchased some shares in the second quarter. What's your share count expectation for the third quarter?

We have not purchased any shares. So the share count was 46.4 in the second quarter.

It would be about 46.6 in the third, 46.7 in the fourth quarter. So the full year average would to be about 46.5.

And that’s a fully diluted share count including the common and the preferred shares.

I wanted to talk a little bit radiology. It's been a little bit of a drag for a while.

What is, can you remind us of the size of the business at this point and do you see any opportunities for that turning and then secondly can I just get thoughts for stock comp for the year?

Sorry this is Ralph, is this Toby?

This is actually Frank here for Toby.

It's roughly about 7% of our total locums revenue now and so it's down considerably. I think it was really about 10% at the same point last quarter.

It was 22% at the peak.

Yes, so you can see that it's come down considerably and it's less impactful to us now because it's becoming a smaller and smaller percentage. I don't think that we have any signs that we will see some improvement in this market, I mean it's, I think I called this out on our last call as, what was our biggest strength for so many years right, has become our greatest weakness over the last few quarters as that business because of reimbursement rate changes just, changing dramatically as well as new technologies in the industry and other things that just made that the work more efficient and so they needed fewer radiologists.

What we have done, the team has done I think a really good job, have begun shifting those resources into more opportune specialties like emergency room, and emergency room medicine, hospitalist, advanced practice physicians in behavioral health. So I think that those things will start to result in some growth.

It's going to be a little lumpy, because as you move people out of one specialty and into another their production isn't as high and so that's why you see us kind of forecasting flat growth on a quarter-over-quarter basis. And so give me a little bit of time to turn that and get people aligned on the right specialties but after we rebalance we expect to see industry level growth rates in locums.

I covered everything you wanted on radiology.

Yes, the other was stock comp for the year?

Yes, it will be consistent with the second quarter about $1.6 million in the third and the fourth quarter.

I was wondering if you could talk a little bit more about the trends that you are seeing in terms of the nurse applicants and specifically I was just wondering what the percentage increase that you are seeing and how much of it would you attribute to your efforts. I know it's hard to separate but your efforts relative to just the number of people who are considering traveling again generally speaking.

Mark, this is Ralph. I guess I'll continue on my role here.

On just the travel nursing side that applicant increases about 24%, so I talked about 34% was in nurse and allied combined, 24% just on the nurse side. I do believe that a lot of the supply that's coming into the market is supply that has gotten more comfortable with the demand level.

I think we mentioned on the last call that close to 1/2 of our people going out on assignments for people who hadn't been on the assignment in more than a year. So we are seeing that trend continue and that certainly shows strength in the business.

Our efforts, our increased marketing efforts are making the process easier for people to apply and all of that probably contributing kind of if I wanted to sort of allocate it, maybe 2/3 of it and 1/3 of it feeling better about the marketplace. One of the things that we haven't talked about in a while is kind of the number of active clients that we have and we did some research on this just prior to the call and I think probably worth sharing, at the peak of the industry in 2007 and 2008 we had about on any given day about 2,500 active clients.

We just got back up over that level again. The number of orders that we have at each of those clients is still down, about 1/2 of what it was at the peak of the industry but the number of active clients has increased and again these are probably things that our supply here, they hear about orders, they see travelers coming back and that makes them more comfortable leaving their permanent positions and moving into travel positions.

And this is where I think we also should have an advantage in our ability to grow our supplier faster because we do have probably twice as many travelers working than any other competitors out in the field and they are telling their friends and family about the opportunities and where they are working and that’s like having many more recruiters out there generating supply for you. Word of mouth referrals grew significantly for us in the first half of this year and that’s important, because word of mouth referrals also have the highest conversion rates to actually becoming travelers and so in addition to our increased marketing spend which we think is absolutely essential to be reaching out to those people who don’t know existing travelers, we have the benefit of having this strong workforce out there that creates its own self-driving recruitment efforts.

Great and was there any nurse disruption revenue in the quarter?

No, there wasn’t; nothing significant. There were some EMR implementation projects; as there are every quarter and we like to add business and we are known as being either the leader or one of the absolute top leaders in providing that service.

But it is a somewhat lumpy business and that you may have several implementations in one particular quarter and just a few in the next. And I would say second quarter was a nice quarter for us for EMR implementation, we are expecting more in the third and fourth quarter, but they may not be quite at that same level.

How much were the EMR implementation revenues?

We don’t really call out the specific number or revenue, because it is small, less than $5 million in a quarter, so and we wouldn’t want to get into I think reporting on that every quarter.

And then with regards to MSP wins; can you talk a little bit more about the pipeline in terms of hospitals that are putting in employees?

In MSPs, I think we are hitting on all cylinders, but I feel pretty strong about what’s going on there. We have had I think the advantage in many cases of actually wining many MSPs in the same market.

We are starting to see a pattern where within a particular concentration of a market we might get one, and then 2 and then 3 and 4 of the same market and we are actually seeing that that works for us because it actually attracts more candidates to market and we have clients who often times can’t use all of our nurses all the time so we can keep those specially local nurses busy with other MSPs, when they are not busy at another. So having that exclusive relationship where you’re seeing all the orders, all at the same time is really powerful in terms of being able to very target the recruiting efforts to those markets.

And while our competitors actually have been trying to sell against that little bit by going into those that last hospital happens to be in the market and we don’t have as an MSP, and talking about that as a disadvantage. So we actually feel like that we can overcome that and Ralph I think you’ve got an example of where, actually did some study on that.

And in one market in Southern California we have I think close to 7 MSP clients. There was kind of a hypothesis that if you have too many that your fill rates might decline slightly because you wouldn’t have enough nurses to cover all of the, I guess the demand for the marketplace.

So we did a correlation analysis to take a look at what happened to fill rates when we added MSPs in the market. Well and behold, we found out that actually are internal fill rates went up, the more MSP business we added to the overall portfolio.

And just in case you try to have the traditional business, it didn’t. The traditional business fill rate actually jumped up at the same time as well.

So it was great evidence that the market you know is ready for one single large provider and doesn’t have to be fragmented in order to operate effectively.

This is Bob again. I think the other driver in this MSP is the whole quality aspect.

I don't know if you saw an article on modern healthcare talking about hospital-borne infections and the impact it's going to have on quality if you don’t have enough nurses covering the patients that you have; it’s a great article for our industry talking about why it's actually less expensive for you to bring in more nurses than its going to cost you for the infections that are created by not having enough; pretty powerful story. And as clients move more and more in to this sophisticated model of getting paid for performance and quality, they're beginning to really recognize the value of having a partner that can make sure that when they have needs that the orders are filled.

And that’s the uniqueness I think of the MSP model because you know, we don’t fill them all ourselves. We fill a high percentage of them, but rely on over 600 different providers as our subcontractors.

It is the largest by 3x and 4x; others, but we really feel about that has enabled us to be much more effective in our MSP program. So the short answer is our pipeline is very strong.

Can you just, you are very close to all the dynamics occurring with the hospitals. What are you hearing from them in terms of, are they thinking about cost pressures or reimbursement rates and how they are going to deal with it?

Mark, what we’re hearing is it they’re starting to recognize that health care reform is going to have an impact on their work force and they’re going to have to think differently about how they manage that workforce and we’ve seen that translate into a desire to have stronger partnerships and therefore contracts such as an MSP relationship or RPOs. Relationships as they may not have considered just 5 years ago.

They are wanting to be proactive today to try to get their arms around their spend, yes for today, but even more so they are thinking 3 to 4 years out and how do they make sure that they can have their arms around their costs, reduce their overall spending and yet still maintain the quality and quantity of clinicians that they need going back to what Bob said, they recognize its going to get harder to recruit clinicians across the board with the ageing clinical population coupled with an ageing population and health care reform, the shortages across all clinical specialties are expected to be really severe. I am sure you saw the front page article in The New York Times talking about the physician shortage and how severe that's expected to be due to health care reform.

So this is really resonating with clients today and so I think that's driving more of the appetite for partnerships and arrangements such as MSPs and they are trying to think more into the future and less about just how do we manage things today.

Great, well, thank you, everybody for joining us today. We do appreciate your continued support of AMN and we look forward to updating you on our progress next quarter.