Cross Country Healthcare, Inc. (CCRN)

Q2 2010 Earnings Conference Call

August 5, 2010 10:00 AM ET


Howard Goldman – Director, IR

Joe Boshart – President and CEO

Emil Hensel – CFO


Paul Condra – BMO Capital Markets

Chris Rigg – SFG

Tobey Sommer – SunTrust Robinson Humphrey

Gary Taylor – Citigroup



Welcome to the Cross Country Healthcare second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session.

(Operator Instructions) Today’s conference is being recorded and if you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to Mr. Howard Goldman, Director of Investor and Corporate Relations. Sir, you may begin.

Howard Goldman

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 second quarter 2010 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 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 expects, anticipates, believes, estimates 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 statement section of our press release for the second quarter of 2010, as well as under the caption "Risk Factors" in our 10-K for the year ended December 31, 2009 and our other Securities and Exchange Commission filings made during 2010.

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 this 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. And now, I will turn the call over to Joe.

Joe Boshart

Thank you, Howard. And thank to everyone listening in this morning for your interest in Cross Country Healthcare. As reported in our press release issued last evening, our revenue for the second quarter of 2010 was $118 million, down 21% from a year ago. Net income was $1.2 million, down 49% from the year-ago quarter. EPS was $0.04 per diluted share versus $0.07 in the year-ago quarter and cash flow for the second quarter was $13 million. On a sequential basis, revenue was down 3% while net income was up 4% from the first quarter.

As I stated on our last earnings call in May, I believe we have weathered the worst of the downturn in our operating environment. While demand for our Nurse and Allied and Physician staffing services is well off levels of two to three years ago, we expect our sequential performance to improve beginning in September and to continue into the fourth quarter. We based these expectations on improving trends in our Nurse and Allied Staffing business which represented 51% of total revenue in the second quarter.

In this segment, we have seen significant improvement in the demand in most of the country over the past two months, which is very encouraging to us. More importantly, we continue to add attractive new hospital systems to our roster of vendor management clients, which should allow us to take an even larger size of an increasing market opportunity as we move through the second half of this year.

In our physician staffing business, revenue was up slightly on a sequential basis from the first quarter, essentially mirroring the normal seasonal pattern of this business. As such, we cannot yet ascribe revenue momentum in the segment to improvement in underlying demand trends. However the typical fourth quarter seasonal drop in acquisition in the physician staffing business should be more than offset by building momentum in our Nurse and Allied Staffing business.

In our Clinical Trials Services segment we have increased revenue by 4% sequentially as our staffing activity continued to rebound. The strength in staffing was offset partly by continued weakness in drug safety monitoring, outsourcing and regulatory consulting activity. Staffing activity accounted for 95% of our Clinical Trials segment revenue in the second quarter, substantially above the 75% contribution in the year-ago quarter. Even with this somewhat unfavorable shift in mix for our Clinical Trials segment, gross profit margins for the company as a whole were 200 basis points favorable to the year ago quarter.

Our continued focus on profitability and cash flow allowed us to make the remaining earnout payment in April of nearly $13 million to the sellers to the MDA, which we acquired in 2008 without increasing the company’s debt outstanding in the second quarter. There are no more earnout payments facing the company. Subsequent to the payment of the earnout with the support of our lenders, we elected to amend and extend our revolving credit facility to be co-terminus with our term debt facility in September 2013. While Emil will into more detail in a few moments, I would like to point out that we were able to accomplish this without affecting the rate we pay on our remaining $56 million of term loan outstanding, which carries interest rates currently below market.

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