Ladies and gentlemen, thank you very much for standing by. Welcome to the AMN Healthcare Services second quarter 2008 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given to you at that time. (Operator Instructions). I would now like to turn the conference over to your host, Mr. Christopher Schwartz, Vice President of Investor Relations. Please go ahead.

Good afternoon. I would like to welcome everyone to the AMN Healthcare Services conference call to discuss the company's earnings results for the second quarter 2008. For the call this afternoon, we have Susan Nowakowski, AMN's President and Chief Executive Officer and David Dreyer, AMN's Chief Financial Officer. A replay of this webcast is available at amnhealthcare.com/investors and will be replayed until August 20, 2008. Details for the audio replay of the conference call can be found in our earnings press release. I would also like to mention our policy regarding forward-looking statements. As we conduct this call, various remarks that we make about future expectations, plans and prospects constitute forward-looking statements. Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, may, and other similar expressions. Any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. 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, 2007 and our current reports on form 8K which have been filed with and are publicly available from the SEC. 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 us. Developments subsequent to this call may cause these statements to become outdated.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 next earnings release. I will now turn the call over to Susan Nowakowski, AMN's Healthcare's President and Chief Executive Officer.

Thank you, Chris. Good afternoon, everyone and thank you for joining us today. As we enter the second half of what has no doubt been a year of uncertainty for the financial markets, we are feeling very good about our performance and our ability to grow revenues and achieve solid earnings growth for the year. Healthcare services is proving to be one of the most resilient markets in the overall economy and the AMN business model and competitive strategy continues to build our market share and deliver superior long-term shareholder value. AMN's revenue for the second quarter of 2008 was 313 million, 6% higher than the same quarter last year. While diluted earnings per share of $0.27 increased 4% over last year. Revenues in all of our business segments grew on a year-over-year basis with the biggest contributor being the addition of allied revenues from the Platinum Select acquisition we completed in February. We also achieved organic growth in our travel nurse, travel allied and locum tenens businesses. Despite a tight economic environment, we have been able to achieve increases in pricing in gross margin. Revenue for healthcare professional working increased 4%, reflecting the relatively healthy demand for quality clinicians. Just as important, we have been able to grow gross margins by expanding bill pay spreads and lowering healthcare insurance costs. This quarter's gross margin was up almost 90 points over last year, resulting in overall gross profit growth of 10%. The higher gross margin contributed to growth in EPS but earnings per share grew at a slower rate of 4% due mostly to SG&A costs including spending and support of strategic initiatives to further diversify and augment our growth. David will discuss other contributors later. In our nurse and allied staffing business, revenues grew 7% over the prior year…

Thank you, Susan and good afternoon. Consolidated revenue for the second quarter was $313 million, 6% higher than the second quarter of last year and 7% higher than last quarter and within our guidance range. The year-over-year increase in revenue was due mainly to the addition of Platinum Select and growth in our physician staffing businesses. The sequential increase in revenue was due to volume growth and our locum tenens segment, organic growth in our nurse and allied segment and a full quarter of revenue from Platinum Select. Consolidated gross margin in the second quarter was 26.4%, up 90 basis points from last year and unchanged from last quarter. The year-over-year improvement in gross margin was driven by a more favorable bill pay spread in our nurse and allied segment. Although this was the second quarter in a row that we achieved a strong year-over-year increase in consolidated gross margin. We anticipate our gross margin to remain fairly stable. SG&A expenses in the second quarter were up 12% over last year and 9% over last quarter. The increase in SG&A compared to last year was mainly attributable to the acquisitions of Platinum Select and Rx Pro Health along with higher insurance costs in our locum tenens segment while the increase compared to last quarter was due mainly to the higher insurance cost. Also, contributing to the increase this quarter was an increase in bad debt expense related to a bankruptcy involving a large former locum tenens radiology client and higher expenses in support of the strategic initiatives that Susan just mentioned. Despite the growing reimbursement pressure from our non-hospital base radiology customers, we do not believe that we have overall exposure to bad debt loss has not increased. Looking to the second half of the year, we will continue to…

Thank you, David. There are many positive trends in our business today that point to continued health in our markets and growth opportunities for the future. Again, we expect all of our business segments to achieve year-over-year and sequential growth in the third quarter. While there have been no changes in the long-term fundamentals that drive our business, there are certainly some short-term challenges. All in, our full-year revenue growth should exceed the industry average. Even more importantly, our expectations to grow earnings at a stronger pace of 11% to 16%, reflects our team's commitment and ability to continue to carefully manage costs and deliver stronger shareholder value. Because of our diversified business model, we are able to constantly evaluate our market and reallocate resources to pursue the best opportunities. In addition to our focus on efficiency and daily execution, we are also continuing to make investments in some of our newer, faster-growing services to continue to drive new revenue channels. All of these things we have discussed are solid execution, and the continued development of new business opportunities are clearly a reflection of the strength of our leadership and sales and service teams. I want to thank all of the AMN team members for sharing their great talents and their commitment and hard work to continue to serve our clients and to deliver greater shareholder value. Now, we will take your questions.

Thank you. (Operator Instructions). Our first question comes from Tobey Sommer with Suntrust Robinson Humphrey.

Thank you. Susan, philosophically, how are you approaching the bill rates that you are increasing in the split between company's desire to retain that in the form of gross margin and your clients' needs for additional nurses and therefore, then desiring you to pass it on to the nurses in the form of higher pay rates?

Sure. Good question, Tobey. We believe we are in a very good place right now to be able to pass on a very reasonable amount of those pricing increases directly to our travelers in wages. As you know, we are held back from that a little bit over the last year and a half because of rising housing costs but as we mentioned, that is subsided a bit. so that gives us a little bit more room to raise pay rates as we get those bill rate increases. Going forward, we expect our margins to remain relatively stable. by stable, you can have 10, 20 basis point deviation from quarter to quarter and we are certainly strategically out there looking for opportunities to both increase pay rates and where appropriately, decrease pay rates and that can have a little bit of a variance effect. Overall, we expect gross margins to be relatively stable going forward.

I do not know whether you gave this, I apologize if you did. Did you give an organic rate of growth for the travelers in the quarter?

We did not give just the travel and allied organic growth. One thing that we called out was our travel nurse business in particular which grew a little over 2% both sequentially and on a year-over-year basis. The allied business actually grew more than that on a sequential basis. It was relatively flat year-over-year because of the offset in the imaging professionals. On a sequential basis, we have seen tremendous growth in allied.

Thank you. That seems like a real good performance in light of what we have seen from some others talking about the market. Could you give us a sense for how the expected growth for the locum tenens business now that you have worked past some of the issues, how that may proceed because it does seem like the market is fairly attractive in presenting some opportunities to grow a little bit faster than you have recently.

We completely agree with that. I think it is a couple of contributors as we discussed the radiology situation which we think is largely behind us although it is not going to come back with a vengeance. Our team is doing a great job of really driving the business that is available out there. Then, as I mentioned, those western divisions are already seeing some better performance as we enter into the third quarter. We expect our third and fourth quarters to be our highest year-over-year growth rates for the locum's division and as we even look from the first to second quarter, we saw some great sequential growth. I mentioned the 10% sequential growth from Q1 to Q2. We expect to see good sequential growth from Q2 to Q3. So, we think we are on a more positive track there. I will say, also, that we have deliberately chosen to not play in a couple of segments within the locums industry. One in particular is in the emergency department segment and if you look at a lot of the hospitals that are reporting performance, most all of them are talking about emergency rooms being up in terms of admissions and activity. No surprise, as people use that as their first line in avoidance of actually going to their primary care doctor. So we think that that industry, in particular, is a high utilizer of locums and it could be helping to augment the overall growth rates. As I said, we do provide emergency room doctors in our government business but have chosen not to do that in the private industry because of the historical malpractice exposure. We still believe, as of today, that is a good long-term strategy. we will continue to evaluate it going forward.

Thank you very much.

Thanks, Toby.

Thank you. Our next question comes from Jeff Silber with BMO Capital Markets.

Thanks so much. Just wanted to follow-up a little bit on the locum tenens side, can you give us some gauge in terms of how large your radiology practice, also the western area you talked about. Just want to get an order of magnitude of how much that impacted you in the quarter?

We have not broken out the actual percentage of the business. A couple of drivers though, just to put it in perspective. It is currently and has historically for the last couple of years been our second largest division in terms of actual revenue. It actually has a lower per day filled because these have very high bill rates historically. One of the dynamics that we have seen is while volumes have come down, more so, the pricing has had to come down in order to help generate and support the demand that is out there. So, what you have also seen is a little bit of a mix change in our revenue per day filled, which has been hit a little bit harder because radiology has historically had the highest bill rates within the locum segment.

How about on the western territory that you mentioned?

Again. These are sub groups of our anesthesiology and surgery divisions, they are not the entire division; they are just a regional portion. We do not break out the percentage of those. So, our clients would hate to start doing that now because then we might need to do it going forward.

Okay. That is fair enough. Looking out, again, just folks focusing on locum tenens, where do you think you can get a normalized EBITDA margin to?

A normalized, we have said is pretty much we have managed it to an 8% target which we are more or less trending to. We have said all along, we think the business has potential to be at a 10% level, but again we have been balancing investments to grow at longer term. I think to get to a 9% EBITDA margin is realistic but again, it is not going to be next quarter. That is probably with continued growth going forward.

Our three to five year target of 10% has not changed for the business. It is going to require some stronger market growth opportunity on the nursing side of the business in particular to make that happen.

Okay. You answered the question for the company overall which was great. I just was curious on the locum tenens segment itself.

No, actually, I was referring to that as well.

Okay, great. Sorry about that, David.

It is all aright.

In your prepared remarks, you talk about, in the second half of the year, trying to keep SG&A in-line with gross profit. Can you tell us maybe some examples of how you think you are going to be doing that?

Well, we are seeing efficiency gains throughout the company, specific investments that we have made and it is not one big bullet or one big project that is creating these. It really is the continued investment and focus and our team really looking for those operating efficiencies, you know. One example, if you are look for an example is that we and this is not just specific to a particular quarter but on a go-forward basis, we have recently implemented a new document imaging system which will not only help us to more efficiently deliver our documents to our clients and help, it will more so even help us internally in the distribution of paper and by the way, it is a nice, green project which our employees love. That will help us to reduce our FTEs and also provide a more scalable model as we go forward. So, we are constantly looking for those kinds of investments to increase our productivity and operational efficiency.

Okay, great. Just one quick numbers question. What was capital expenditures during the quarter and what should we be looking for the rest of the year?

Capital spending this last quarter was about $2.5 million. We have said all along, it is pretty much trending at about, not quite 1% of revenue so let's say like 0.9 and I would say if you assume that going forward to third quarter, fourth quarter, you are very close.

Okay fantastic. Thanks so much.

Sure.

Thank you and our next question comes from Jim Janesky with Stifel Nicolaus. Please go head.

Hi, Susan and David. Couple of questions, first on your outlook for tightening up the revenue range for the rest of the year, it sounds like when you consider your comments, that that outlook was tightened up mainly because of the nurse and allied segment, is that correct?

No. I would say it was a little bit from each segment. The biggest contributor, definitely from nurse and allied because it is the biggest piece of business for us. While we are certainly expecting a sequential pick-up from the second to the third quarter, it is not as great as we originally anticipated at the beginning of the year. So that is the biggest contributor. Second would be locums and some of the issues that we have discussed and then even term placement to a smaller degree.

So, it not only your outlook from the beginning of the year but even from last quarter is well within nursing. I am trying to get my arms around where, was it because an area that you were growing in has not done well? Or would you attribute it more toward, done as well or would you attribute it more toward more overall weakness in the industry as the year progressed?

I would not characterize it as weakness. We are seeing growth opportunities in the nursing business. They are just not as great as we had expected. So, we are growing but it is not as robust as we had thought it could be at the beginning of the year. Even in March and April as we were looking forward. Within locums, we still believe there with the exception of radiology, there is just as much market opportunity as we saw at the beginning of the year. So, it is not a market weakness issue. I would characterize it as. As you know, as I mentioned in locum, some performance related issues.

Ok. David, within the margins within locum, you say they are not going to recover next quarter. Does that imply that, bad debt expense is going to continue and is this isolated to any one group of hospitals or why would we not expect the margins to recover sequentially?

Well, basically, bad debt, we were trying to suggest was not going to be a trend that we expect to continue going forward.

Ok.

So, that was to clarify that. In terms of gross margins, overall, the message is really that we are going to trend it consistently, including in the locum tenens segment as well. So, it was not that we were expecting deterioration, not at all. I think it is basically expected to trend at that 26% to 27% range that we pretty much suggested all year. So, the main message there was just that we do not see a trend. The radiology businesses and again the reimbursement risk is not our direct risk. I think we have done a pretty thorough analysis and our credit procedures are sound so we have not one isolated situation and I stopped saying it could not happen again. We do not see this as a recurring issue affecting our business.

Ok. Susan, in terms of strategic initiatives from just a very big picture perspective, can you give us an idea of not specifics of what you are doing but as I mentioned from a big picture perspective, how you expect these investments in strategic initiatives to drive your business? Is it a new line of business? Is it more efficiently delivering the services you currently offer? What are your thoughts?

I would say it is more the former, the latter. We are always doing and always should be doing and so we do not consider those of major strategic new offering per se. It is more to continuous improvement of what we already do. The ambulatory surgery centers offering that I mentioned is probably a good example of one of the types of new offerings where we are taking our business model and expanding it into a new client base.

Right.

Especially looking at those where we think you will see greater growth are admittedly small markets today. There are areas where there is believed to be greater growth in the future. It does two things for us. It gives us a new client but a client that is very similar to our existing client. Helps to maybe mitigate risk of some of the patient load that might shift from the acute care setting to those settings over time or from the physician's office to those settings but also gives us another work environment to offer to our healthcare professionals and we believe that is been a real part of our draw is being able to offer our clinicians a very broad, diverse set of work assignments and this just adds to the continuation of that strategy.

Why have not they used the service in the past? Has it been…

I do not think there is been as much of a demand because in fact, many of the nurses in the hospital settings have been drawn to those surgery centers.

Sure.

They are now also finding themselves in a position of shortages and also, as you see more regional and national players emerge through consolidation, it provides more opportunity to serve those markets in a more efficient manner. There are 5600 licensed ambulatory surgery centers nationally and they have been growing at 12%. So, it is a great market but it historically has been very fragmented. We think that it is starting to come together which will provide us a good opportunity to take our national offering and take it to the 5600 facilities. The other side is opening up more clients, opportunities for us and more work assignment opportunities though we are also always looking at new disciplines that we can branch into, again taking what we already do well and then and expanding that into a new clinical area mentioned dentistry a few times, something we did last year. We launched into lab technicians earlier this year and we will continue to look for those opportunities.

Ok. Thank you.

Thanks, Jim.

Thank you. Our next question comes from Michel Morin with Merrill Lynch.

Yes hi good afternoon.

Hi Michel.

Hi just wanted to follow up on an earlier margin on the locums margin at the contribution level David, did you say that you feel that you are trending toward the 8% goal for this year?

Yes. We have been low but basically, our trend line is to get there. It is a going forward. I mean this last quarter, there was pretty high insurance expenses et cetera and we had the bad debt charge. So, that is not representative on a go forward basis. Absolutely, we still intend it to be hovering to the 8% going forward.

Would you be able to quantify what the bad debt situation was in the quarter?

It was about $600,000 total. So, that is the impact that they had on the gross margin. The insurance effect was a little bit higher than normal. They probably had, under 2 million but probably about 1.5 million of higher expenses than previous quarters. We expect that to normalize next quarter as well. So, those two events were not representative going forward. Insurance, if I would spend one second on that, we will see it have its peaks and valleys. We do, partially significantly self-insure and so you will see it wavy a little bit on a quarter-to-quarter basis as you have seen historically but when you look at the percentage of revenue on a full-year basis, it actually been fairly consistent. The locums, it is running about 2% of revenue. That has been pretty consistent on a year-over-year basis. So, as we grow in size, obviously, the revenue growth helps to keep that as a more steady percentage as well.

The insurance portion, does that also fall in the gross margin line?

No, it is in the SG&A. EBITDA margins there.

Right. Okay. Then on the perm side, you had a favorable claims settlement. Could we qualify that as well?

Sure. Basically, it is close to $1 million.

Okay.

I am sorry. $250,000. I apologize.

250,000. Okay. The strategic initiatives, the increased spending on that, is that something that would continue at the rate that we saw in the second quarter or is it a little bit more of a one-time spend?

It is a little bit of both. It will absolutely be continuing to invest in these new areas and we certainly do not have the revenue and margin generation yet to fully cover them or at least not at the normal EBITDA levels. So, certain amount, we absolutely will continue every quarter. However, there was a little bit extra in the second quarter to help us get some things off the ground. I do not think we really want to quantify that.

Right. Okay. That is fair. Then just finally, Susan, you did a good job of walking us through from a geography perspective how things looked from a demand perspective. Did you find supply of candidates to be a constraint to your growth this quarter?

I think it is always a constraint. We can always use more supply to fill that demand. So, yes, it is an issue, but it is not as significant of an issue as I think I have heard out in the market place. Our unique new applicants are down single-digits year-over-year, so certainly a little bit of a hold back for us. However, it is not that much of a driver. What is interesting is that as we look at our new placements, our new travelers that are going on assignment is actually up year-over-year. That is not all just new supply, actually the percentage that is brand new applicants, as a mix is down a little bit but what is up are individuals that have applied with us in the past. Say more than six months ago and have never traveled with us. That is our largest component of new travelers on assignment. That is a good reflection of our recruiters, really digging in deep to the travelers that they have known and tried to build relationships over the years and getting them to convert from perm to travel at this time.

Your renewal rates how have those held up?

They have been pretty, pretty steady to last year.

Okay. Great. Thanks very much.

Thanks, Michele.

Thank you. Our next question comes from Ty Govatos of C.L. King.

Hi, Susan, hi, David.

Hi, Ty.

Hi Ty.

Back to the SG&A for a second, those are pretty big swing factors on the insurance. Can I expect the SG&A to decline sequentially in the third quarter or will use the cushion for more investment spending?

SG&A as a percentage of revenue is expected to decline in third quarter. I think, our run rate, as I mentioned in terms of insurance, again settles out fairly quickly. So, third quarter, you will see it lower in the locum tenens segment. Our baseline we have been running has pretty much been the 18.5% to 19% as a percentage of revenue consolidated. We just finished a much higher 19.2%. So, yes, you will see it come down third quarter and I think we anticipate the trend in the mid 18% range going forward.

Okay. So, in other words, it is going to stay pretty much at the $60 million absolute level.

There about, yes.

Okay. Thanks an awful lot. I appreciate it and by the way, great quarter.

Thanks, Ty.

Thank you.

Thank you. Our next question comes from David Bachman with Longbow Research.

Yes, good afternoon. I want to follow-up, I think on some of Michele's line of questioning about dynamics on the supply front. You know, is there something unique with what you are doing that would be attracting travelers away from competitors or we would assume that nurse and allied travelers would be talking to a number of different customers and when it comes down to making that decision, what are the things they are focusing on?

Four and I do think it makes a big difference and it is probably one of the reasons why in a tight market and we will admit it is a tight market and very competitive, that we seem to be taking some market share. First and foremost is really the recruiter and the relationship that the recruiter is able to build with that traveler. That comes from hiring great people but also developing and training them, so that they can build those relationships and that you have got good follow-up and service mechanisms. Second would be being able to offer a more diverse set of assignments to your candidate. Travelers do not usually want to travel on just one assignment, so it is great if you have got that sweet exclusive. Really, they want to take three, four, five assignments. So, our strategy has been to have more assignments in more locations across the country and I think that that is a draw for travelers, especially when the demand might seem to be tighter across the country, that we have got more to offer them. The other thing is that we have a very competitive benefits offering and by that, I do not mean we pay a lot more than others. I think we are competitive in our pay practices and where needed, we do try to juice it up a little bit. Overall, we are pretty balanced. What we have done is we have tried to invest in other areas that we feel can differentiate us and create a stickier relationship with the traveler long-term. Realigning our benefits to really appeal to those people that are going to be with us longer term, investing in our technology to provide important services to travelers, so that they can stay connected with us. Those might seem like small things but when a traveler is trying to make a decision of who to go with, they are going to look at all of these little added features that we can offer and so I think that those benefits and investments that we have been making over the last few years are starting to pay off for us.

Okay. So, would you say that those three things or so that you have listed there, that you would say that you have come significant distance on improving those over the last couple of years or since maybe the last downturn?

I think that we have incrementally made some very important changes. You know, we have also realigned our teams internally and because of that, I think they are working more closely and in a more efficient collaborative manner and that has helped as well. So, some of it is internal. Execution as well as it is maybe apparent and externally to our travelers.

Okay and what I am just getting at is sometimes it is some of the softer stuff that is being done that actually shows up on the bottom line.

You are absolutely right.

I think most of my questions have been answered but did you give any guidance on where on the share count assumption for the third quarter?

No, I can give that to you though. Basically, as of second quarter, we finished at 34.3 and we are pretty much estimating about 34 for the third quarter and actually, the full year average will probably be close to 34 as well.

Okay. For the full year. Okay and then just one last question here. You mentioned the ambulatory surgery centers, are there some other customer groups or end markets that we should be thinking about that you have seen getting any new traction in over the recent months?

There are but since we have not launched them in the market place, I would prefer not to reveal them on the call if you do not mind.

Got it. Thank you very much.

Thanks so much.

Thank you. Our next question comes from Michel Morin with Merrill Lynch.

On the gross margin front, when you look at your nurse and allied segment, I realize that the outlook for the rest of the year is relatively stable; if we take a longer term view here, Susan, is there still some room for these margins to go further if you maybe look at this in a historical context?

Yes, if the demand and pricing pick up more significantly. I think based on our current demand and the current pricing we are seeing and the 3% to 5% range to maintain stable margins is probably, for us, our best strategy. Should demand pick up more significantly and we are able to get pricing above 5%, I think we could expand our margins. That is what you saw if you are referring to the early 2000s.

Right. Did Platinum Select have an impact on your margin in the segment?

Very little. Not really.

Ok. Great. Maybe just finally, Susan, I do not know if you have shared this before but if you could, it would be great. California is your biggest market. Could you quantify how big that is for you and maybe the top three states, how big they are for you?

Yes, we have usually 20% to 25% of our business in California. For nursing, it tends to be a little closer to the 25% and that is been pretty steady over the last couple of years. Even with some of the fluctuations we have seen in demand. It has been pretty steady. Then because we do a little bit less business in allied and physician, our overall number tends to be around 20. In terms of the top states, it is interesting. It used to be California, Florida and Arizona, were the top states. Now we have mentioned Texas coming on very strong. Some states in the northwest. I do not want to name them specifically. Even though we know our competition is there. We are making some great progress. So, I will just say it is not Arizona and Florida anymore. That is for sure.

Great. Thanks very much.

Thanks so much, Michel.

Thank you. Our next question comes from Jason Omero with ING Investment Management.

Already been answered. Thank you.

Thank you. (Operator Instructions). There are no further questions in queue. Please continue.

We would like to thank everybody for joining our call today and for your continued interest in AMN. We look forward to updating you on our progress next quarter.

Thank you ladies and gentlemen. That does conclude your conference for today. Thank you very much for your participation and for using the AT&T executive teleconference. You may now disconnect.