Cross Country Healthcare, Inc.

Good morning, and thank you for listening to our conference call, which is also being webcast and for your interest in the company. With me today are Joe Boshart, our President and Chief Executive Officer; and Emil Hensel, our Chief Financial Officer.

On this call, we will review our fourth quarter and full year 2011 results, for which we distributed our earnings press release after the close of business yesterday. If you do not have a copy, it is available on our website at www.crosscountryhealthcare.com.

Replay information for this call is also provided in the press release.

Before we begin, I'd first like to remind everyone that this discussion contains forward-looking statements. Statements that are predictive in nature that depend upon or refer to future events or conditions or that include words such as expect, anticipate, believe, appear, estimate and similar expressions are forward-looking statements.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors were set forth under the forward-looking statements section of our press release for the fourth quarter of 2011 as well as under the caption 'Risk Factors' in our 10-K for the year ended December 31, 2010, and our other SEC filings.

Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed on the teleconference might not occur.

Cross Country Healthcare does not have a policy of updating or revising forward-looking statements, and thus it should not be assumed that our silence over time means that actual events are occurring as expressed or implied in such forward-looking statements.

Also, our remarks during this teleconference reference non-GAAP financial measures. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes 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.

And now I'll turn the call over to Joe.

Thank you, Howard, and thank you to everyone listening in and for your interest in Cross Country. As reported in our press release issued last evening, our revenue for the fourth quarter of 2011 was $125 million, up 10% from a year ago, but down 5% sequentially from the third quarter due mainly the seasonal factors.

Net income in the fourth quarter was $0.5 million or $0.02 per diluted share and included the impact of $0.02 per diluted share per certain tax expenses related to prior years which Emil will discuss in greater detail in a few minutes. This compares to a net loss of $0.19 per diluted share in the year-ago quarter which included $0.21 per diluted share after-tax trademark impairment charges.

Cash flow from operations for the fourth quarter was $3.7 million.

Year-over-year revenue growth in our Nurse and Allied Staffing segment was a strong 18%, but was slightly below our expectations at the time of our last conference call which were based on booking momentum we maintained through October that did not hold for the remainder of the year. I believe 2 issues weighed on our Nurse and Allied volume at year end, one positive and one negative.

On the positive side, at year-end we saw a return to more normal field employee attrition around the holidays would suggest travel nurses who choose to return home to be with their families had more leverage in their schedule negotiations with hospitals than they had for the past several years. This is typical in a supply constraint environment and our business tends to perform much better when supply is the primary driver of results.

On the negative side, I believe there has been some pushback from hospital administrators during their 2012 budget processes. I believe they were unprepared for the pace of recovery in the utilization of temporary Nurse and Allied labor last year.

Assuming our annual staffing volume growth is a proxy for the industry, it is not likely many hospital budgets included 15% growth in this category in 2011. As a result I believe there is more focus on this expense than existed at this time last year and to a lesser extent I believe the impact of the flu season to date has been well below expectations in most senses forecast.

While the net result is that momentum in this segment is not as strong as it existed last fall, I believe our business will continue to grow and our internal expectations are for a re-acceleration as we get further from hospital budget discussions.

At the end of the day, I believe an inevitable outcome of such pushback on temporary nurse labor is declining levels of patient satisfaction and in my experience, hospital executives are unwilling to suffer much patient dissatisfaction for very long. As a point of reference our open orders for travel nurses increased more than 10% last week alone.

Moreover, another key opportunity for us that has grown and continues to grow in importance is staffing of temporary nurse and allied health professionals as hospitals implement electronic medical record technology. I believe an accelerating trend driving growth and demand will be the closing window of generous grants available under the Federal HITECH Act and a growing sense of urgency to get these installation in place and able to demonstrate meaningful use prior to the 2015 deadline.

As a result, we expect that staffing related to the training of nurses to utilize these new technologies will be one of the most important drivers of results in our Nurse and Allied segment in 2012.

Currently, we are engaged in 6 EMR technology implementations, which is the highest number that we have staffed at any one time thus far. More importantly, the pick-up in job creation nationwide among private employers should have a positive impact on our business as we move through 2012.

A strengthening labor market is the best leading indicator of improvement in demand for our nurse staffing services. I believe nurses, most of whom are secondary wage earners in a household, are influenced by how secure they perceive their spouse's job prospects to be.

A strong job market generally results overtime and nurses being less willing to work additional shifts at prevailing wages which in turn increases the likelihood of a hospital calling Cross Country to supplement its staffing.

Net-net, I believe the environment is conducive to continued strong growth for our Nurse and Allied Staffing business. As additional data points, our average hourly bill rate for travel nurse staffing in the fourth quarter increased 1% year-over-year and our new applicant activity during the fourth quarter was up 38% from year ago levels.

Turning to our other business segments. Our clinical trials services business saw modest topline improvement of 3% and physician staffing was up slightly in the fourth quarter compared to a year ago.

However, both these business segments had sequential revenue declines due to seasonal factors.

In 2012, I expect that all our businesses will achieve revenue growth and am encouraged by our activity as we enter the year. With all of our businesses pulling the oars in the same direction, I also expect that we will achieve substantial growth in earnings per share despite a slow start as we gain greater operating leverage on overhead as depreciation and interest expenses decline significantly from 2011.

And with that, I’d like to now turn the call over to Emil, who’ll update you in more detail on our fourth quarter financial performance.

Thank you, Joe, and good morning everyone. First, I will go over the results for the fourth quarter and then review our revenue and earnings guidance for the first quarter of 2012 that we provided in the press release issued last evening.

Revenue in the fourth quarter was $125 million, up 10% versus the prior year, but down 5% sequentially. The year-over-year revenue growth was driven primarily by our Nurse and Allied Staffing segment and secondarily, by our Clinical Trial Services segment.

The sequential decline was due largely to seasonal factors.

Our gross profit margin was 27.8%, down 90 basis points from the prior year, but up 60 basis points sequentially. The year-over-year margin decrease was due partly to a change in business mix, with a higher percentage of revenue coming from the Nurse and Allied Staffing segment, which has the lowest gross profit margin among our 4 business segments.

And partly to a contraction in the bill pay mix within that segment. The change in business mix also contributed to the sequential margin improvement, along with a favorable professional liability accrual adjustment, based on better than expected loss development in our Physician Staffing business.

SG&A as a percent of revenue was down 50 basis points from the prior year, due to improved operating leverage, partly offset by a $668,000 accrual for sales tax and other state non-income-based taxes, for which $507,000, related to the 2008 through 2010 tax years. Since we believe states are becoming more aggressive in their interpretation of non-income based tax liabilities and nexus rules, we completed a preliminary assessment of certain non-income based tax positions and accrued the liability based on our best estimate or probable settlement amounts.

On a sequential basis, SG&A expenses were essentially flat. SG&A expenses in the fourth quarter included approximately $650,000 in equity-based compensation expenses as compared to approximately $700,000 in the prior year quarter.

Adjusted EBITDA, as defined in our press release, was $5.8 million, down 3% from the prior year and 21% sequentially. Interest expense of approximately $700,000 was down 16% from the prior year quarter and 7% sequentially.

The year-over-year reduction reflects the continued delevering of our balance sheet, as well as the expiration of interest rate hedge contracts in October of 2010.

In the fourth quarter of 2011, we reduced our debt by $4 million, which included an optional $1 million term debt prepayment. As a result of our reduced leverage, the borrowing rate on our $41 million term debt will drop from 200 basis points to 175 basis points over LIBOR, during the first quarter of 2012.

Net income in the fourth quarter was $0.5 million or $0.02 per diluted share as compared to a loss of $0.19 per diluted share in the prior-year quarter. The previously mentioned tax related expenses in the fourth quarter of 2011, relate to sales tax and other state non-income based taxes, recorded in SG&A expenses, due to a change in the company’s estimate of certain prior year non-income based tax position.

The tax-related expenses also include, an adjustment to income tax expenses resulting from an overstatement or prior period deferred tax assets or share-based payments. These tax expenses combine to reduce our EPS by $0.02 per diluted share in the fourth quarter of 2011.

The prior year EPS included trademark impairment charges, which equated to $0.21 per diluted share, after taxes. The effective income tax rate was 76.2% in the fourth quarter of 2011 and was unusually high due to the aforementioned adjustment related to an overstatement of deferred tax assets in prior periods.

Excluding this adjustment, the effective tax rate would have been 62.8%. The relatively high tax rate was due to certain discrete items, the impacts of which were magnified by the lower-than-anticipated pre-tax book income.

For the year, as a whole, the effective tax rate was 50.2%. Our effective tax rate, excluding deferred tax expenses that relate primarily to goodwill amortization was 13.1% in 2011.

1. Day sales outstanding were 53 days, up 1 day from both, the prior year and the prior quarter.

Our leverage ratio as defined in our credit agreement was 1.73:1, well below the 2.5:1 ratio allowed.

We generated $3.7 million of cash from operating activities in the fourth quarter. The excess cash, supplemented with cash on the balance sheet, was used to repay $3.9 million of term debt during the quarter, and to repurchase $2.2 million of our common stock at an average cost of $5.23 per share.

Capital expenditures totaled approximately $1 million during the quarter.

For the full year 2011, our revenue was $504 million, up 8% from the prior year. Net income for the year was $4.1 million or $0.13 per diluted share.

This compares to a net loss of $0.09 per diluted share in 2010, which included a $0.21 per share in after-tax trademark impairment charges.

Let me drill down next to our 4 reporting segments. Revenue for the Nurse and Allied Staffing segment in the fourth quarter was $70.3 million up 18% versus the prior year, but down 4% sequentially due to seasonal factors, a pullback in demand as Joe discussed earlier and wind down of contract assignments, as an account we lost in the third quarter of 2011.

We averaged 2,457 field FTEs in the fourth quarter, up 16% versus the prior year, but down 4% sequentially. The year-over-year increase is reflective of the improved demand environment in general and an increased number of Electronic Medical Record implementation projects in particular, where travel nurses are used to backfill for staff nurses undergoing EMR training.

Such EMR implementations are expected to accelerate over the next few years as funding is centered under the HITECH Act end in 2015. The book-to-bill ratio averaged 96% in the fourth quarter which is in line with normal seasonal patterns in the supply-constrained environment.

As Joe indicated earlier, booking activities slowed during November and December, which we believe was due to a combination of hospital budgetary pressures and a mild flu season, as well as an increase in the number nurses who are able to schedule time off during the holidays as compared to the prior year.

Segment revenue per FTE per day in the fourth quarter was up 2% year-over-year due primarily to higher average bill rates. Contribution income as defined in our press release was $5.5 million in the fourth quarter, up 5% from the prior year, but down 13% sequentially.

Segment contribution margin was 7.8%, down 100 basis points from the prior year and 80 basis points sequentially. The year-over-year margin decline is due primarily to a contraction in the bill days spread, higher housing and professional liability expenses, partially offset by lower workers' compensation expenses.

The sequential margin decline was due to higher housing costs along with higher workers' compensation expenses and negative operating leverage, partially offset by lower field payroll taxes and travel expenses. For the year as a whole, segments revenue was $279 million up 15% from the prior year.

Contribution income was $22.4 million, up 5% from the prior year.

Let me turn next to our Physician Staffing segment. Revenue was $27.9 million in the fourth quarter, up slightly from the prior year but down 9% sequentially.

Physician Staffing days filled were down 1% from the prior year and 11% sequentially. The sequential volume decline was due to seasonal factors.

Demand for temporary physician services appears to be stabilizing and we expect a modest year-over-year increase in revenue in the first quarter. Segment contribution income for the fourth quarter was $2.7 million, representing a 9.7% contribution margin, up 20 basis points from the third quarter but down 90 basis points from the prior year.

The year-over-year margin decline is primarily attributable to the impact of the aforementioned state non-income tax accrual while the sequential increase is due primarily to a favorable professional liability accrual adjustment in the fourth quarter partly offset by the impact of the state non-income taxes. For the year as a whole, segment revenue was $119 million down 2% from the prior year, while contribution income was $11.3 million down 13% from the prior year.

Revenue in our Clinical Trial Services segment in the fourth quarter was $15.7 million, up 3% from the prior year, but down 6% sequentially due 3 pure billable days. Contract staffing accounted for 93% of segment revenue in the fourth quarter.

Contribution income was $1.5 million, up 10% from the prior year, but down 34% sequentially. Segment contribution margin was 9.4% in the fourth quarter, up 70 basis points from the prior but down 400 basis points sequentially.

The sequential margin decline was due to the combined impact of 3 less billable days and 2 additional paid holidays, as well as the impact of the state non-income tax accrual. For the year as a whole, segment revenue was $65 million, up 4% from the prior year, while contribution income was $6.6 million, up 3% from the prior year.

Revenue for the Other Human Capital Management Services segment in the fourth quarter was $10.8 million, down 3% from the prior year, but up 5% sequentially. Seminar attendance in our education business, while still 5% below prior year, grew by 18% sequentially.

Contribution income was approximately $900,000, representing a 7.9 % contribution margin as compared to $1.3 million or an 11.6% contribution margin in the prior year. The decline in contribution margin was due to a combination of negative operating leverage and the impact of the aforementioned state non-income taxes in our retained search business.

Looking forward to the first quarter, we are encouraged by the improvement in demand in our retained search and our education and training businesses. For the year as a whole, segments revenue was $42 million, down 2% from the prior year, while contribution income was $3.2 million, down 16% from the prior year.

This brings me to our guidance for the first quarter of 2012. The following statements are based on current management expectations.

Such statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any future mergers, acquisitions or other business combinations, impairment charges, evaluation allowances, and any material legal proceedings.

We project the average Nurse and Allied field FTE count to be in the 2,425 to 2,475 range in the first quarter. Consolidated revenue for the first quarter is expected to be in the $126 million to $128 million range.

We expect our gross profit margin to be in the 26.5% to 27% range and adjusted EBITDA margin to be in the 3% to 3.5% range. Interest expense is expected to be approximately $600,000 in the first quarter.

Based on these assumptions, earnings per diluted share are expected to be in the $0 to $0.01 range. This EPS guidance range is based on an estimated effective tax rate in the mid to high 40% range in the first quarter.

As a reminder for those of you working on your financial models for 2012, while we have guided to revenue momentum in the first quarter, margins are impacted sequentially as we reset payroll taxes for W-2 employees and sequentially we have one less billable day in our Nurse and Allied Staffing segment to absorb high housing costs.

This concludes our formal comments. At this time, we will open up the lines to answer any questions that you may have.

Kevin>

Just to start out with a couple of quick numerical questions. Emil, what's your expectation for 2012, depreciation and amortization expense, interest expense and a tax rate?

Well, I will explain on the depreciation, next quarter we expense essentially flat, but then there will be a step down in the third quarter. So our depreciation expense is expected to decline by roughly 15% year-over-year.

Interest expense is continuing to decline as we delever our balance sheet, and as our borrowing rates decline based on our reduced operating – reduced leverage. And I expect roughly a 35% to 40% decrease year-over-year in interest expense.

And in terms of the effective tax rate, we see that in the mid to high 40% range.

Okay. Joe, I was wondering if you could comment on what the trend is you're seeing for gross margins at the corporate level now that, as you said all the businesses are rowing in the same direction and I know there's some puts and takes in that gross margin, but any color you could give will be great.

Yes, Tobey, I don't expect material movements because last year we did have some bill-pay compression, particularly in the Nursing and Allied business, kind of in a high double digit percentage point -- basis point range. And then we have the impact of the mix changing with our Nurse and Allied business being a lower gross profit margin business and some of the other businesses either not keeping up or actually declining.

So this year we expect the growth rates to be much more similar and we don’t expect the margin pressure, particularly from bill-pay compression to be the same as last year. We are seeing some bill rate increases.

I think as I indicated in our last call, our internal targets are 2% to 3% bill rate improvement and we're running close to 1% right now, it's a -- the 2% to 3% really was an expectation that the momentum we saw in the late summer into the fall would continue and the momentum hasn’t continued. Having said that, as I sit here, I actually think it is a better underlying environment for the business than it was at this time last year.

Even though we did see a pullback in demand around the holidays. Last year that – what typical drives our business, a strengthening labor market and stronger hospital admissions, neither one of those factors was present.

We had a benign -- a neutral labor market and benign hospital admissions which I believe continue today. But I do believe the labor market, which by far is the most important leading indicator of our business is strengthening, is likely to continue strengthening and I think it's going to have a significant and favorable impact on our business as we move through 2012.

One last question from me. Joe, when would be sufficiently past the flu season so that we could see some of that, the impact of that underlying improvement in the national labor market, influence order flow and kind of just be able parse out whatever impact that the lackluster flu season has had on demand over the last few months?

Yes. I don’t think it was primarily the lackluster flu season.

I think that was a factor. I think the bigger factor is hospitals are under pressure from expenses and reimbursements.

That's not atypical, and certainly is their lot in life in most years. But I think it's been more acute this year, that this focus on expense, and I do think there was a more robust recovery than anyone was anticipating in the utilization of temporary labor.

And for a period, hospitals can push back. They'll go to the recruiter and say you're not recruiting sufficiently, effectively.

Where are you advertising? How are you advertising?

So for a period of time they just won’t fill positions, they'll say, forget the temporary labor, we're going try to fill this with a full-time person and eventually that leads to higher patient to nurse ratios. But it doesn’t turn in a month, and hospitals don’t respond and nurses don’t respond to 1 month of really good labor market data.

My own expectation is we are going to need to see 3 or 4 months of job creation in the $200,000 to $300,000 range, month in and month out. And by the late second quarter, we would -- I would expect to see based on that a much stronger momentum in the nurse and allied business.

And again the momentum that we really were seeing last year, in the third quarter last year we were looking at volume momentum, booking momentum in the mid-20% range, I believe we can get back there.

Tobey, this is Emil. I just wanted to correct the one number I gave you in answer to your first question.

The interest expense year-over-year is projected to decline in the 20% to 25% range. I was looking at the wrong sheet when answered that question.

And those numbers you gave Emil are year-over-year numbers on an annual basis or are you referring to that third quarter?

No I'm referring to year-over-year on an annual basis.

Maybe just to expand on the comments about bill-pay spread. So I think you mentioned in the fourth quarter you saw some contraction but it sounds like you're thinking it should turn around have a positive direction to it this year.

Is that – I mean the 1% rate sounds like that's pretty constant, so it's basically that – am I taking it away that markets softened a little bit November-December, but you're expecting it to firm back up and that's why we'll see an improvement in the bill-pay spread, or is there something else going on more than that?

Well, I don't -- I think the bill-pay spread that I referred to or the compression was more of a year-over-year number. I don't think we saw more compression in the fourth quarter than we saw in the third quarter.

So I think that has more or less stabilized and I would expect it to continue to be stabilized with the opportunity to maybe recover a little margin as we go through this year. But I would think it more in terms of stable from fourth quarter level.

The first quarter obviously suffers from the payroll tax reset. We think actually the fourth quarter gross margins in our businesses are reflective of what we can do in 2012.

Okay, that's good. On the comments you made about hospital budgeting in particular this year focusing them in on some of the areas in creating a little bit of pressure, would you say that that's sort of normal pattern and then seasonally sort of second, third quarter you come out of that?

Or is there something unusual this year that may make that timing on when that is less in focus, stretch out a little bit?

Well, I think the dynamics on an individual hospital basis are not unusual. Hospitals that exceed their budgetary authority on utilization of temporary labor typically come back to us and say, “Hey, we got to scale it back.”

Historically, the business would move somewhere else, that you would be able to offset the decline in one account with an improvement at another account. I would describe the environment that we saw during the holidays as more uniform than we would typically expect it to be.

But we were hearing a pretty similar refrain from our clients, that just seems to be more uniform pressure throughout the country because of reimbursement pressure and expense pressure. So yes, we've seen it, I would say it’s unusual for it to be quite so widespread.

Having said that, there are also, in the fourth quarter you had -- you didn't have the expectation for the improving labor market that I think we now have. So I'm actually, I'm personally more optimistic about the business because fundamentally the environment is a better environment than the environment we entered last year with which ended up being a pretty good year.

But I'd much rather see the kind of labor market numbers that we saw in January continue. I think that'll really move the needle on demand.

Okay. And then talking about some physician staffing, I don't know, you're referencing some shifts in different bill rate specialties.

Can you just comment on what specialties are, sort of showing good momentum, which ones are maybe less so, and your relative expectation about what that might mean for the gross margin in that business?

Yes. Obviously, coming as no surprise to you the primary care specialties are the strongest.

Probably important to us, what is now our largest specialty emergency medicine is -- which was weak during most of 2011 has firmed and appears to be improving on a year-over-year basis now. That's very encouraging.

I would still say the surgery-related specialty surgeons, anesthesiologists continue to be weak that we're not looking to those specialties to drive growth but much more so in primary care related specialties. Emil, do you have anything to…

Well, I guess the other relatively weak area would be obstetrics.

Okay. And in terms of – I mean is it materially different impact that those specialties have on relative probability or they're sort of, you see strength wherever you could see strength-type thing?

No, the relative pricing and profitability do vary by specialty. The ER tends to be pretty strong and again as long as that is moving in the right direction, I think this business segment is going to perform better than it has for the last several years.

Okay. Just my final question related to expectation about cash flow.

I don't know whether you're comfortable either on a quarterly basis or even talking about the year ahead, your expectation of free cash flow. I know you got like 17 million that's in current portion of debt, is your assumption in that interest rate decline that you share, Emil, that you'll pay that off or is it that you'll refinance it over time?

Well, we're getting close to the point with our term debt comes to an end in 2013, so our expectation will be that at some point probably around the year from now we'll be discussing a refinancing, but by that time we would have paid off the vast majority of our term debt from free cash flow. So the normal discussions that we would engage in to talk about the new facility that needs to be put in place will probably occur in the first quarter of 2013.

And the expiration of -- the term debt matures in November of 2013.

And A.J., as far as quarterly, maybe you go back and look at a year where the business is growing, we would expect cash flow to be in a range of call it $4 million to $7 million a quarter.

Okay. That’s operating cash flow or is that -- well, I guess it’s sort of minimal CapEx?

Yes, we expect CapEx to be in the $3 million to $4 million range. We have no earnouts so there's really nothing else weighing on the cash flow.

Okay, great. I was going to follow-up on that.

Was the thinking then to be repurchasing shares any time in the future as the debt balance come down?

Yes, I think, as you saw, we repurchased shares in the fourth quarter as there was -- we had some remaining capacity in our credit agreement in the first quarter. We have about 1 million share authorization remaining from our Board of Directors and I think what we have to do is go back to our lenders and just get a little more flexibility than we currently have in our credit agreement.

Our lender group has been very supportive of us and we don’t anticipate a problem in that. And if you look at the price at which we bought back shares, it’s roughly in line with price the stock is currently trading at.

So if we liked it before we probably like it now.

Right, okay. And then I just wanted to switch over to your gross margins and you came in a little above guidance in the fourth quarter, so I just was wondering what kind of surprised you to the upside there I guess?

Probably, the one upside surprise was a favorable professional liability accrual adjustment for our physician staffing business.

Okay. Do you expect that you would get more of those favorable adjustments going, looking out 2012 or is it just too difficult to tell how that's going to work?

Well, we've been – we had favorable surprises than unfavorable surprises and hopefully it will continue. You never know with professional liability but I think in general our loss experience has been better than we expected.

And I don’t have any reason to believe that, that will change but you never know.

Now can you give any more detail in the physician segment, kind of had the turn in the fourth quarter? I don't know if you're – I mean you expect that to be positive year-over-year growth in the first quarter, but would you expect that to accelerate, I don’t know if you could give any more detail about that, on that growth?

Paul, I wouldn’t -- our internal expectations are for single-digit growth in this business, so we expect it to be up in the first quarter in single digits. So I'm not suggesting that the business is going to accelerate.

It may. I would say generally we have less visibility with the physician business than we do with the nurse and allied business and together they make up 75%, 80% of revenue.

But we’ll take growth of any digits, single or double, and -- but it is not our current expectation that the business accelerates as we go throughout the year.

Great. And if I could just ask one more on the EMR contract, you mentioned the 6 contracts, does that -- can you talk about trends there, is there something where there's possibilities coming up that you're seeing more of, or are you kind of waiting for that business to pick up even more?

No, we are aware of a number, a large number of planned implementations and we have a very specific strategy and process by which we go after those. We have a great story to tell from those clients that we've helped to date.

So it is our expectation that it will accelerate as the year goes on. The size of these engagements can range from a few handfuls of nurses to supplement staffing to more than 200.

So it’s a real gamut, runs the gamut of how impactful they can be in our business, but we are aware of a significant number that have yet to begin and we are going to pursue them aggressively.

Just a couple things. You had talked about material earnings growth in the year and there's a little bit of help that happens below the line with the depreciation and interest, but I'm just trying to get an idea of kind of what you're thinking in terms of revenue growth?

Last year, your revenue almost 8% but for the first quarter your revenue growth guidance was kind of in the 3% to 4% range. So maybe I'll ask it this way, I mean do you think you grow revenue faster than the 8% you grew it in last year and is there any detail you can provide around it?

Well, Gary, we don’t provide guidance beyond one quarter out, but as Joe indicated in his prepared remarks, we do expect some acceleration in our growth throughout the year. So you can, I guess extrapolate from that, that we would expect to end up with the higher growth rate for the year as whole as what our expectation is for Q1.

Okay, that’s helpful. And then my only other question is, competitively is there anything noteworthy, is there any -- as the business kind of slowed a little bit, November/December, are you seeing more aggressive pricing behavior by competitors?

Do you have any anecdote kind of just in terms of market share movement or anything that would suggest that you're either outperforming or underperforming what the competition's doing?

I guess the quick answer to that, the answer is no. I'm not aware of anything significant, there's always anecdotal instances of hey, they're trying to buy our nurses.

I am sure the competition has similar anecdotal feedback. When you dig into it there's generally not a pattern to it and it's certainly something we watch very carefully.

Our largest competitor is a public company, they haven’t released their results. Based on the guidance they gave we're not anticipating significant changes to market share.

Generally, when the tide comes in, both companies benefit, when the tide goes out, both companies suffer a little bit. We did lose an account to us, a fairly significant account in the third quarter of '11.

All other things equal, where we would expect that to hurt us and help them. But fundamentally, we don’t think it’s going to move the needle that significantly.

And we do see a lot of good things happening, we believe in our solution on the EMR side is very effective. We market it well and we execute well.

I actually think that’s going to be the more important driver of share in 2012. Certainly more so than it has been in the last 2 years.

As we get closer to this window closing, we've got about 2 years left, and I think the hospitals are, they understand that and are moving forward expeditiously to get these technologies in place and demonstrating the meaningful use that they have to. And again, we've had a lot of success in helping them do that.

Given the little better supply environment, you’re citing and looking forward to though, you’re thought is that bill rate remains pretty rational across the industry?

Yes. Like I said, we continue to expect improvement in ’12.

I would say my own expectations because of a slower start than, certainly I expected coming into the year, that we may we be on the lower end of our expectations rather than the higher end, as we get through 2012. But by year-end, it wouldn’t surprise me to be achieving those kind of year-over-year improvements, at the high end of our expectations.

It’s just as we look at the year as a whole, it’s probably going to be closer to 1% to 2% bill rate improvement than 2% to 3%.

Going back to your reimbursement rates, can you try to frame this for us over maybe towards the latter half of 2012 into 2013 and then any pressure there, on that aspect is going to affect your demand or something in regards to bill pay spread unforeseen?

Yes, just to clarify, we aren’t affected by -- directly by reimbursement rates. We think the hospital customers are.

And historically, some pressure on profitability at our hospital customers can be constructive for us, if they're close to a low single digit profitability or breakeven, they’re much less likely to aggressively move nurse wages up, in order to better clear the market for their facility. And that leaves more open shifts, that it makes economic sense to bring us in to fill.

Again, these pressures are not new, they tend to ebb and flow over time. I would say they are more acute today than they have been.

But as long as our customers aren’t going bankrupt and I don’t think Congress will let that happen, that they will let the not-for-profit hospital industry suffer great significant profit loss and teeter on unviability. I think we’re going to be okay, I don’t foresee a scenario where it becomes more problematic.

I think the bigger driver for our business over the next 12 to 24 months is likely to be the strengthening of the labor market, which will increase the slope of inelasticity of nurse supply, which more than anything else, will have a favorable impact on our business, based on historical context.

Great. Well, just to follow up on that then, is there -- would you expect then, let’s say we take that headwind out, what would be the acceleration in terms of demand without that?

Like I said, it’s a function of the willingness of nurses to work at prevailing wages. And in my experience, almost 20 years in the business, as labor markets improve, nurses, most of whom are secondary wage earners in a houseful, roughly 70% nurses are married.

They tend to be willing to work less hours, if their husbands are more and more gainfully employed and they view their husband’s job as being secure. Instead of working 3 shifts a week, maybe they work 2 shifts a week or 1 shift a week.

So the hospital faces a steeper supply curve, so that they have to – that marginal wage has to be higher. And they would never describe it like this, or I've never heard them describe like this, but they’re only willing to pay, let’s say $27 an hour nationally, if it takes a $29 or $30 an hour wage rate to clear the market, they’re not going to pay it.

So at the end of the day, they’ll have unfilled shifts and if the shifts are unfilled long enough, they're going to call us. And that’s just been my experience in this business.

We have been in a very weak labor market for 3 years now, really probably closer to 4. It does appear to be improving.

The good news about the American economy is very resilient and despite a lot of headwinds, I believe we are seeing significant improvement in the labor market and more than anything else, that is what’s going to drive our business over the next 12 to 24 months.

Got you. So just to clarify, there's not going to be any material impact from that, you believe.

It's going to be all demand driven…

Correct.

In terms of needed healthcare workers?

Right. Demand -- not necessarily because hospital admissions are growing, because nurses are less willing to work at prevailing wages as many shifts as hospitals need them to work.

Joe, I was interested in your perspective. You touched on it already, but if you could give us some more color on your perspective on price competition, particularly for the larger contracts?

I know there had been some, at least it seemed liked to us price competition and if that’s changed at all would be interesting.

Yes, I mean, there have been a couple instances where we felt that pricing for contracts, particularly large contracts was moving in the wrong direction given that the environment was improving. When you're trying to raise your pricing at your -- all the contracts you're working on because you want to offer the nurses an improved wage to move pricing in the other direction for large contracts can be counterproductive.

In an environment where there's less jobs, it can be absolutely the right strategy. We don’t think that’s the environment that we're in.

We think we've hit a little trough here, a bump in the road because of greater focus on temporary labor, but we do think we're in an improving demand environment and certainly likely to be one that is accelerating in that regard. So we don’t expect pricing to be a problem, we don’t expect our competitors to utilize price to gain market share, because it can be very counterproductive.

If you are saddled with a large account where you have below market rates and you're trying to recruit nurses with below market wages, it's a bad situation to find yourself in. We know it, we believe everyone else knows it, and again when you look at the overall -- our blended mix of business and when we see all our competitors report, we don’t anticipate any indication that pricing is declining.

So again I can give you anecdotal instances where, hey what just happened? What are they doing?

But I think when you look at it in an aggregate it doesn’t suggest a significant lack of discipline.

And then just one question to Emil. You had some tax items in the quarter, what do you look at as sort of the EPS from continuing operations in the fourth quarter results you reported?

Well, I look at it as $0.04 because these tax items were clearly related to prior periods, they did not arise from operations in the current period.

Are there any trends in bad debt expense that are worthy of noting, coming out of 2011?

Nothing significant, our bad debt expense was a very consistent. I think it came out to about 0.3% of revenue in the quarter, which is very much in line with our normal experience.

And it's generally more resolution of billing errors or rate corrections, not true bad debt. And our DSOs are very stable, so I don’t see much change in 2012 from that.

And Joe, my last question has to do with real estate market. You're a pretty big renter on the spot market, what are the trends you're seeing and expecting in 2012?

Well, they're inflationary, and we think it is a harder market for rental properties than it has been, I think a lot are reporting around that, our experience is consistent with that. Whereas 2 years ago rental rates were declining, they're now increasing, but they're increasing for us in single digits.

It's not, historically we've seen rental markets increase in the middle double digit range in some years. It's nothing like that, we're still having pretty good success in finding attractive properties at decent rates.

Having said that, it's going up, it's not likely to go down in 2012.

I know you just talked about housing costs. What about expectations for workers' comp costs in 2012 versus 2011?

We see that as remaining steady. We've had relatively good loss development in the second half of 2011 and we don’t see any real change in this area.

In fact, as the economy improves you generally tend to have better loss experience than in a weakening kind of labor market. So as the labor markets strengthen, we think that this could be actually a positive for us.

Okay, great. And what percent of the Nurse and Allied segment staffing volume was -- came from MSP clients in Q4?

About 25%.

About 25%, okay. And a couple of quarters ago you were talking about making investments in infrastructure to support that, the growing MSP business and you expected to see some nice leverage there by the back half of 2011.

And can you talk about that, did that materialize? And can you talk about capacity in place for 2012 and if additional investments are needed?

Yes, that's a great question. We saw some, again if you back out the prior period non-income tax accruals that we took in the fourth quarter, it's something that we don’t anticipate repeating and knock on wood.

We did see some leverage. We're up, based on our guidance, modestly in the first quarter.

There were significant investments that we made and our ability to implement and maintain and retain these MSP accounts. We don’t anticipate significant additional investment going forward.

So we do expect to see -- which is really the basis for our optimism regarding earnings per diluted share improving significantly in 2012. The kind of investment we made is unlikely to be repeated.

We just – it hasn't been locked down, but we've been notified, we've won a fairly large engagement that has a fairly aggressive on-boarding time table that could impact the second quarter for us. So we do expect to see leverage on this investment and this investment really pay off, not just in our ability to win them but to do a great job in retaining -- meeting the expectations which I think if you call the clients we have today they're very happy with the performance that we've been able to achieve for them in a pretty tough environment in 2011.

And I think it’s going to be certainly a source of additional wins as new MSP accounts come to market.

I just wanted to circle back. On the med mal accrual adjustment in the quarter that was favorable, did you quantify that, I missed that?

Well, I didn’t actually quantify it, but order of magnitude, the impact on our gross profit margin was in the 50 basis point range.

Okay. Is it possible to tell us, what's your quarterly accrual, kind of what is the typical run rate on that?

I guess it’s reported in 2 different areas for us. There's a much smaller percentage of revenue in the nurse and allied staffing segment than it would be of course on the physician segment.

So let me just take a min and look up and see if I can give you an idea of what that number is. Give me a couple of minutes perhaps.

Question came back to me. Did the unseasonably warm winter so far impact demand in the snowbird states maybe because people didn’t leave the north to go to the south and pass the holidays in the winter season?

It’s unclear whether it was the snowbirds or really I think the warm winter affected the flu season, maybe more than any other factor. But if I look at Arizona and Florida, the 2 key sunbelt markets that are impacted by snowbird activity, both are down year-over-year, Florida modestly, Arizona significantly.

So you're probably correct that it did have an impact.

Just to get back to Gary Taylor’s earlier question. For our physician business, the professional liability expense is in the range of 1.5% to 2% of revenue and in our nurse and allied staffing business is more in the range of about 0.5% of revenue.

Okay. Well, if there's no other questions, we appreciate everyone’s time and attention during this call and we look forward to updating you on our first quarter.

Take care