Cross Country Healthcare, Inc. (CCRN) Q2 2012 Earnings Report, Transcript and Summary

Welcome to the Cross Country Healthcare second quarter 2012 earnings conference call. [Operator Instructions] Today’s conference is being recorded, if you have any objections, you may disconnect at this time. Now I would like to turn the call over to the speaker, Mr. Howard Goldman, Director of Investor and Corporate Relations. Sir, you may begin.

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 2012 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, appears, 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 2012, as well as under the caption "Risk Factors" in our 10K for the year ended December 31, 2011 and our other SEC filings. Although we believe that these statements are based upon reasonable assumption, 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. Also our remarks during this teleconference reference non-GAAP financial measures. Such non-GAAP financial measures are provided as additional information that should be not be considered substitute or superior to financial measures calculated in accordance with US 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 have everyone listening in for your interest in Cross Country Healthcare. As reported in our press release issued last evening our revenue for the second quarter of 2012 was $126 million essentially flat from the prior year and the prior quarter. We had a net loss in the second quarter of $14.5 million or $0.47 per diluted share which includes a non-GAAP cash goodwill impairment charge related to the Nurse and Allied Staffing segment. Excluding the impairment charge our adjusted net loss on non-GAAP measure was $0.08 per diluted share. This compares to net income of $0.05 per diluted share in the year ago quarter. Cash flow from operations for the second quarter was $2.4 million. Our second quarter revenue was below our expectations due in large part to the delay of a scheduled large electronic medical record implementation project which had been fully staffed by us. In addition, our earnings performance was below expectations because our cost structure was too high relative to our revenue and we experienced a larger than anticipated increase in direct costs in our Nurse and Allied Staffing business along with lower than expected performance in our other human capital management services segment which contains our highest margin businesses by far. Given our financial results over the coming quarters we'll place greater emphasis on bringing our cost structure into better alignment with our revenue and we will continue to press for higher bill rates to offset some of the margin pressure we experienced relative to direct costs. While we have seen a very significant increase in demand since February lows, our nurse and allied contract booking activity in the second quarter did not immediately mirror the sharp upturn and we've only just begun to generate meaningful sequential booking momentum in the past 2 months. Furthermore, while our second quarter results in this segment were disappointing, since the end of the first quarter we have signed up managed service provider accounts that we believe utilize more than $60 million annually in temporary nurse and allied labor, which should drive sequential momentum for the next several quarters as these accounts ramp-up. Notably, we ended our most recent week with the highest number of open orders we’ve had since October of 2008 and we continue to have a robust pipeline of potential MSP accounts and EMR implementation projects. Looking at our other staffing businesses, both the physician staffing and clinical trial services business, which accounted for 38% of revenue achieved year-over-year and sequential growth in the second quarter. We recently added recruitment capacity based on the improving fundamentals of these businesses. Meanwhile both businesses and our other human capital management services segment which accounted for 8% of revenue were weaker than anticipated. More than halfway through the year it has become evident that 2012 is not shaping up to the year that I thought it would be. Nevertheless, we believe we will resume revenue growth in our Nurse and Allied Staffing business sequentially in the third quarter along with a greater emphasis on controlling costs. This should allow us to generate positive operating leverage as we move forward. And we need to achieve this without disturbing the substantial progress our sales team has made in bringing on significant new accounts, while also executing on the service side of our organization to meet or exceed expectations as new accounts are deployed. At the same time, we plan to continue to push for bill rate increases especially as our cost of housing and insuring our field employees have risen more rapidly than anticipated during the second quarter. It is clear we have much more work to do. Our experienced team has navigated our way through more difficult periods in the past, most recently the deep recession during 2008 and 2009 and I have every confidence we will do it again. And with that I would now like to turn the call over to Emil, who will update you in more detail on our second quarter financial performance. Emil?

First, I will go over the results for the second quarter and then review our revenue and earnings guidance for the third quarter that we provided in the press release issued last evening. Revenue in the second quarter was $126 million essentially flat versus both the prior year and prior quarter. Our nurse and allied staffing and other human capital management services segment registered declines which were offset by low to mid single digit revenue increases in our Physician Staffing and Clinical Trial Services segments, both on a year-over-year and sequential basis. Our gross profit margin was 25.2% down 220 basis points from the prior year and 130 basis points sequentially. Higher insurance expenses reduced our second quarter gross profit margin by approximately 100 basis points year-over-year and 85 basis points sequentially. The bill pay spread in our Nurse and Allied Staffing Business contracted due to changes in geographic mix that typically would have been offset by corresponding reduction in housing expenses which did not occur due to inflation in apartment rental cost nationally. Also contributing to the margin decrease were shifts in the mix of business in our Physician Staffing and Clinical Trial Services segment and a smaller relative contribution from our other Human Capital Management Services segment which has the highest gross profit margin among all of our businesses. SG&A for the quarter was $30.7 million, up 4% from the prior year, but down 1% sequentially. Included in the SG&A expense is an additional accrual related to non-income tax matters of approximately $0.5 million based on revised estimates of probable settlements and expected state non-income tax audit assessment and additional estimates for current year activity. We are working with tax professional advisers and state authorities to resolve these liabilities. Excluding the state non-income tax adjustments related to prior periods, the SG&A expense as a percentage of revenue was up 70 basis points year-over-year, reflecting investments we have made during 2011 in our MSP delivery infrastructure. Because some of these MSP accounts are developing more slowly than we originally expected, we will bring our overhead structure more in line with our near-term revenue. Additionally, SG&A expenses in the second quarter included approximately $700,000 in equity based compensation expenses as compared to approximately $800,000 in the prior year quarter. Adjusted EBITDA margin as defined in our press release was 1.2% as compared to 4.9% in the prior year quarter and 2.4% in the first quarter. Interest expense of approximately $580,000 was down 20% from the prior year quarter and 7% sequentially as we further delever our balance sheet. Subsequent to the end of the quarter, we entered into a new 5 year $75 million credit agreement consisting of a $50 million revolving credit facility and a $25 million term loan to replace our previous credit facility which was scheduled to expire in 2013. The rates in the new facility are based on leverage ratios and will initially bear interest at 200 basis points over LIBOR with no LIBOR floor. Net loss in the second quarter was $14.5 million or $0.47 per diluted shares which included a non-cash goodwill impairment charge of $18.7 million pre-tax related to our Nurse and Allied Staffing business. As disclosed in our 2011 10-K and first quarter 2012 10-Q, we had previously determined that we had a strong[ph] margin between book value and fair market value in several our reporting segments. During the second quarter, we concluded that the book value of our Nurse and Allied Segment exceeded its fair market value resulting in the aforementioned impairment charge. This impairment was triggered by the further decline in our stock price during the second quarter along with slower than expected booking momentum and reduced contribution income in the second quarter of 2012 which lowered the anticipated growth trend used for impairment testing. The adjusted net loss excluding the impairment charge, a non-GAAP measure, was $0.08 while the GAAP basis effective tax rate was 30.4% in the second quarter. The income tax benefit related to the impairment charge was $6.7 million representing a 35.8% tax rate. Because the impairment charge was tax affected at a higher rate than the GAAP basis effective tax rate, it resulted in an anomalous negative tax rate under pre-impairment pre-tax loss. This incremental tax expense contributed to the non-GAAP adjusted EPS excluding the impairment charge. The effective tax rate for the second half of 2012 is expected to be in the mid-20% range. As a reminder, we currently have deferred tax assets which include federal net operating loss carry forwards of approximately $20.8 million which based on current projections we expect to fully utilize over the coming years. Turning to the balance sheet, we ended the quarter with $36.2 million of debt and $6.2 million of cash and cash equivalents. Net of cash or debt to total capital ratio was 11.1% and the current ratio was 2.9:1. Day sales outstanding were 53 days unchanged from the prior quarter but up 3 days from the prior year. As defined in our new credit agreement, our leverage ratio was just under 2:1 and our fixed charge coverage ratio was 2.1:1. We generated $2.4 million of cash from operating activities in the second quarter. The excess cash supplemented with cash on the balance sheet was used to repay $3.5 million of debt during the quarter and to fund approximately $1.2 million of capital expenditures. Let me drill down next into our four reporting segments. We averaged 2,427 field FTEs in the second quarter down 1% versus both the prior year and prior quarter. Segment revenue in the second quarter was $67.6 million down 1% versus the prior year and 3% sequentially. Revenue per FTE per day was up slightly over the prior year due to a 1.6% increase in the average bill rates partly offset by lower average hours per FTE. On a sequential basis, the average revenue per FTE per day was down 1.7% due to lower average bill rates. The book-to-bill ratio averaged 99% in the second quarter and is averaging a 112% so far in the third quarter. Open orders for contract risk position postings increased approximately 40% from the low point in mid-February to the end of June and are up 20% since then so far in the third quarter. Segment contribution income as defined in our press release was $2.2 million in the second quarter representing a 3.3% contribution margin, down 500 basis points from the prior year and 250 basis points sequentially. The margin decline was due to a combination of higher insurance costs reflecting unfavorable accrual adjustments for field health insurance and workers' compensation, higher SG&A expenses including a $260,000 accrual for state run income tax liabilities relating to prior years and a decrease in the bill pay spread due to changes in geographic mix. Normally, we would expect to see an offset to the impact of geographic mix on the bill pay spread from lower housing expenses, but this is not the case currently due to the strong headwind from rising apartment rental costs. Let me turn next to our Physician Staffing segment, revenue was $30.9 million in the second quarter up 1% from the prior year and 6% sequentially. Physician staffing days filled went down 1% from the prior but up 4% sequentially. The increase in revenue was driven by higher staffing volumes of emergency medicine physicians and hospitalists along with higher average revenue per day filled. Segment contribution income for the second quarter was $2.7 million representing an 8.7% contribution margin down 80 basis points from prior year but up 50 basis points sequentially. The year-over-year margin decline is due primarily to higher physician expenses and the change in business mix. The sequential margin increase is due to improved operating leverage. Revenue in our Clinical Trial Services segment in the second quarter was $17.4 million up 6% from the prior year and 3% sequentially. Contract staffing and functional outsourcing accounted for 94% of segment's revenue in the second quarter. Contribution income was $1.6 million, a slight increase from the prior year and up 18% from the prior quarter which included an approximately $300,000 adjustment for prior period sales tax liabilities. So contribution income margin was 9% in the second quarter a decrease of 40 basis points from the prior year quarter primarily due to higher insurance expenses for field staff partially offset by improved operating leverage. Sequentially, contribution income improved 120 basis points due to the reduced impact of estimated state non-income tax accruals. Revenue for the other Human Capital Management Services segment in the second quarter was $10.3 million, down 4% from the prior year and 7% sequentially due to a combination of lower seminar attendance in our education business and lower sales volume in our retained search business following strong performance in the first quarter. Contribution income was approximately $300,000, representing a 2.7% contribution margin, down 620 basis points from prior year and 740 basis points sequentially due to negative operating leverage. This brings me to our guidance for the third 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 or valuation allowances, write-off of debt issuance costs or any material legal proceedings. We project the average nurse and allied field FTE account to be in the 2,425 to 2,475 range in the third quarter. Consolidated revenue for the third quarter is expected to be in the $126 million to $129 million range. We expect our gross profit margin to be approximately 26% and adjusted EBITDA margin to be in the 2.5% to 3% range. Net interest expense is expected to be approximately $400,000 in the third quarter. Based on these assumptions, earnings per diluted share are expected to be in the $0.01 to $0.03 range. This EPS guidance range is based on an estimated effective tax rate of approximately 15% in the third quarter. This concludes our formal comments. At this time, we are going to open up the lines to answer any questions that you may have. Tanya?

[Operator Instructions] Our first question comes from Tobey Sommer from SunTrust.

I was wondering Joe, can you give us a little bit more color on how to reconcile a project delay that impacted the results that you're reporting for the prior quarter and the expectation that new sales will ramp according to plan or could you differentiate the factors involved in those kind of differing influences?

I appreciate the question Tobey it really -- obviously a new element to our business is the fact that large electronic medical record implementation projects are a significant part of our business right now and on the order of about 10% of revenue, it varies quarter-to-quarter. Right now we probably have the largest number of projects we are either staffing or have engaged to staff either as an exclusive vendor or a primary vendor. Given our experience, we've got a lot of great success. The negative aspect of electronic medical technology implementations is they can be delayed, the specific project, typically when they're delayed -- they're delayed with enough notice that we have an opportunity to be organized on how we deal with that delay. The project in the second quarter was with 1 of our largest accounts and the delay was very late. We actually had a lot of nurses that had arrived at the location ready to begin work. A problem was identified in the software, it was a Phase II project. The software had essentially needed to be remediated. So we had a lot of nurses there close to arriving. And when we looked to that project we actually had the -- in our contract with the client we had the right to bill for any nurses that had arrived. Obviously would've been a significant negative to the client, it really -- this problem wasn’t their fault and we chose not to fully bill for the contracts. The client did reimburse us for the direct expenses associated with the cost of getting the nurses there: housing, travel and other incidental expenses. Their contract allowed them not to reimburse us for nurses that had not arrived. So essentially we lost the gross profit associated with the contract. We got our cost back, but there was a $1.5 million to $2 million hit in the second quarter related to our expectation that this project was going to go off as planned because it was literally imminent. It had initially been delayed to the third quarter and is now pushed off really into 2013. As I understand it, the problem with the software is still under reconstruction if you will. This is not a typical situation and it wasn't a typical client. I think we created an enormous reservoir of goodwill with the client, because we did not utilize all the rights that we had in the contract. They worked with us, we worked with them to reallocate the nurses within their system. At the end of the day we had to reallocate a lot of the nurses outside that system. So essentially we spent a lot of time in the second quarter rebooking nurses that had already been booked. So it was a loss of productivity, that is not typical. If the project is delayed, you may have that issue, but you typically have more time to do it in an organized fashion. It was really an all-hands-on deck effort to get these nurses rebooked and it's not how our business flows smoothly. It's easier to fit a nurse into your inventory of positions as opposed to finding a position for a nurse in a specific region in a specific -- with a specific skill set. So it was kind of a worst case scenario, it was not typical and eventually this project will be restarted and we will recontract nurses to fill the engagement. In the meantime, the other issue you talk about are MSP contracts as opposed to EMR projects. MSP contracts are ongoing clinical needs that a hospital has, that they rely exclusively on us to fill, whether we fill it ourselves or in turn subcontract it to other companies in the industry. That is a much more consistent and annuity like book of business that just takes time to ramp up as you get a contract. We've discussed for really several calls now. We have signed a contract with a very large system, one of the largest systems in the country, to be their exclusive provider. It is going -- the implementation process is going slower than we anticipated. There was a high sense of urgency. This client had indicated they intended to do a lot of electronic medical record work in the second half of the year, really beginning in the summer. A lot of that has been pushed off, which is actually good news for us, but the sense of urgency is diminished by the client. But it also gives us a chance to implement this account in a more organized way, an orderly way. But what we’re giving up is the revenue coming towards us more rapidly or certainly less rapidly than we anticipated. We have maintained a higher level of overhead in anticipation of not just that account, but a number of accounts that we are currently are onboarding that we think are very attractive. We've had a very good run rate of winning engagements. We had a very dry spell in 2011, which is really why when you look at us compared to our largest competitor, we have lost share in the last several quarters. But because we believe we have won more than we have lost over the last 6 months, that the likelihood is we will begin to take share back over the coming quarters. That's certainly our expectation and our belief. And it's just the nature of the business. We had a very good run in 2010 of winning contracts and is why we were gaining share in the early part of 2011, but 2011 we did not have the same kind of success in winning contracts and in fact lost a fairly large contract to our largest competitor. So where we are today, I get it. I'm actually not concerned about the top line of the business, probably Tobey, my bigger concern is what happened with direct cost, a lot of that was unexpected. And we will be happy to give you more color on that. But I am confident in our ability to ramp up revenue because as we speak, the number of open orders, excluding orders from this large contract which we anticipate to start showing up in late August, are at their highest levels that they have been since October of 2008. So the market is in better shape than it has been throughout 2012 that I think our booking activity, we had our best weeks booked last week for the entire year 2012. So things appear to be moving in the right direction and we know we have these contracts coming towards us.

How did the open orders compare to kind of the peak of the last cycle, would 2008 represent the peak or was that 1 year or 2 prior?

No, 2008, we are still -- we're about 60% of the peak of 2008. October of 2008 you were starting to feel the impact of the credit crisis and everyone pulling in their horns a little bit. If you go back to the summer of 2008, we had not twice as many orders, but substantially larger number of orders. So we're not back to where we were by any stretch of the imagination, Tobey but we are at a more healthy place, certainly than we've been in 2012 and it's an attractive book of business. A lot of the activity, a lot of the open orders we've had a terrific run, as Emil indicated, we had a terrific run in July alone where orders were up 20% from the end of June to today. So there does appear to be a strong change, I am somewhat -- I caution that towards the end of last year we had a pullback around the budget time; I think a difference was 1 year ago there was a sharp increase in utilization of healthcare staffing by acute care hospitals. I think this year the year-over-year comparisons are much flatter and therefore won’t jump off the budget page as they probably did last year, so I am not anticipating that kind of dynamic this year but we will see, but right now things look very healthy we have a lot going on, a lot of good things happening. We just have to get through this period where we have a mismatch of overhead versus the current run rate of revenue. We do expect to increase it increases slightly in the third quarter and we expect to increase even more in the fourth quarter and subsequently going forward.

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

In your prepared remarks you discussed a number of items that affected your gross margins. Can you give us a little bit more color which of those items you think will continue into the second half of the year or which of those items might have just been an issue in the second quarter?

That’s good question Jeff. Emil you want to take that one?

Yes, let me kind of try to identify some of the larger contributors to the variance. When you look at our gross profit margin on a consolidated basis we were down by 220 basis points year-over-year; a 100 of those basis points related to field insurance, it's a combination of field health insurance and workers’ compensation insurance. And about 70 basis points related to kind of a combination of the bill base spread in housing in our Nurse and Allied business. And then there were smaller contributors in terms of specialty mix and physician compensation in our Physician Staffing business and some business mix impact at our -- much smaller in magnitude at our Clinical Trials and Human Capital Services segment. So focusing on the big ones, on the field insurance what we saw this quarter was a fairly unusual unfavorable claim experience and particularly in the workers’ comp area it was driven more by severity than frequency, in fact the frequency of the claims that we are seeing is below our expectation, it's really the severity, a few large claims that are contributing to the loss, so it's due to the increased expense. So severity is always a lot harder to explain, because it is somewhat random. And it may or may not recur -- my expectation is that we are going to have some high severity at least for the next quarter and it is built into our guidance, but beyond that I believe that there will be some kind of a reversion back to the mean, but it’s very hard to predict when that will occur. The bill pay and housing spread variance is really driven by the -- by rental costs. Generally, as we had a shift in geographic mix in our business, a higher percentage of our revenue are coming from markets where housing costs are below the national average. And generally in these markets our bill pay spreads are correspondingly lower as well because the housing cost that we have to cover is longer. So normally, when you have a decrease in the bill pay spread due to geographic mix, there will be an offsetting decrease in housing expenses. That’s the part that’s missing this time, because of housing inflation nationally, we are not benefiting from that expected decrease in housing cost due to geographic mix. So those are probably the biggest drivers, I would say that the housing cost is something that is going to be with us and our plan is to negotiate bill rate increases to help offset these insurance and housing increases that we’re experiencing and based on our past experience, it is a process that we go through. It doesn’t happen overnight, but generally we are able to push through bill rate increases over time to help offset these cost increases.

Shifting gears back up to the top line, I believe you had said from a revenue perspective incorporated in your guidance for the third quarter you're expecting a sequential increase in the Nurse Allied segment. I am just curious what are your expectations are in the other 3 segments?

Actually in every one of your reporting segments we're expecting sequential revenue increase in the low single digits.

And some of that in our physician business, for example, some of that seasonal, third quarter tends to be the best quarter for the physician locums business. And having said that, it's one of the segments where we get revenue soonest -- that business had a very good July, its best year-over-year comparison of the year in July. So it really does appear the be getting some traction and our search business, which was physician search which was off in the second quarter from the first quarter also had a very good July, but really the only business that I'm concerned about in that I don’t have a ready answer as to how get it back on track is our education business, it's been a very good business for us for a long-time, we have very good management. It just has really struggled due to a combination of more direct competition in the live seminar space and I think a greater utilization of online webinar based seminar products in some of the healthcare specialties and weakness in the economy. I think a lot of the professionals that attend our seminars are often influenced by state spending, particularly Medicaid spending and as I am sure you are aware it's just been a very troubled area in most states where funds are running dry. So there is just probably greater emphasis on cost control, less willingness to reimburse employees for attending live seminars. We believe the long-term for this business is strong, we have some plans in the work to make them more competitive online for that aspect of the business, but in the short-term it is the one that is struggling the most. Everything else, our Clinical Trials business had a good second quarter. It's going to have a much better second half as a relatively high margin account or contract that they will be working on through most of the third and fourth quarters that will move the needle, a drug safety contract that is typically higher margin than the average gross margin of the staffing business in that segment. So we have a number of good things happening which should improve the picture for us as we go forward.

And if I could sneak in just one more numbers question, what should we be modeling for capital spending for the rest of the year.

For the year as a whole I think a good number would be around $2.5 million. We do -- we are expecting to cut back on our CapEx over the next two quarters, our year-to-date CapEx is $1.7 million, so that leaves roughly $800,000 or so spread over the next couple of quarters.

Next question comes from AJ Rice with UBC (sic) [UBS].

A couple of things if I could ask, first of all on the $60 million of MSP business that's sort of ramping up as we move into the back half of the year, can you give us a little more flavor for that, is that -- I'm amusing that's multiple contracts that you've won and is that contracts that you've taken away from another competitor or is that new MSP business, can you give us a little flavor for that?

I believe they're all new, I don't believe any of those -- I'm just kind of going through them, I believe they're all new MSP contracts that there was not an incumbent provider, we are in discussions on several that there is an incumbent, but they are not included in that number, they are just, they haven't been closed. We have a level of optimism that we'll have -- we'll be replacing some incumbents and certain accounts but my recollection AJ that none of those are -- were takeaways.

Okay. And is there an assumption that they contribute significantly in the back half of the year in your guidance or is -- are they more of 2013 opportunities?

Well they're more 2013, but we will see a -- an increase in revenue related to these accounts and certainly in the fourth quarter and to a lesser degree in the third quarter.

On the EMR business I know you talked a lot about what happened with that one contract, can you step back and give us some flavor for how significant that is to the overall business at this point, these EMR conversions and where do you, do you have a sense of where you think we are in the lifecycle of that, I know there's a stage 1, stage 2, et cetera of compliance and are we about halfway through, you think we are sort of at the peak level or do you see it continuing for quite a while?

I know we won't continue forever. I think we are approaching the peak AJ. I think just given our experience, I talked about the substantial increase in orders that we saw in July, a lot of that was order activity surrounding EMR work, which again is high probability of booking the orders, I mean that there's a sense of urgency to get the nurses there, often a greater sense that you have in some of the orders we get -- through -- when there is other vendor manager in place. So this is -- it's good business, it doesn't have the same annuity value that an MSP does, but it’s very good business and it does appear to be increasing historically for us AJ I don't think it's exceeded 8% of our activity at any one time and it probably was right around 8% in the second quarter of this year.

Our next question comes from Tobey Sommer with SunTrust. Your line is open.

Joe, just a follow up on the MSP contract wins, in your recent experience how has your initial estimate of annualized revenue compared to kind of run rate 1 year or so after the MSP contract has been signed?

Tobey, the answer to that is it's overall the map, our largest account currently ramped up pretty slowly, it was a pretty complex engagement as over 200 facilities that are covered by the contract. Having said that in the second quarter, it was as much as 10% of our activity. Partly related to EMR projects that had going on, but it’s a terrific account today whereas in the first 6 to 9 months, it was a lot of work for very little outcome. I would expect the largest of the opportunities that we have to be -- to ramp up somewhat faster because there is less facilities involved. The facilities are in often more desirable locations, while there's certainly some of the facilities in our largest account that are very desirable, some are in pretty rural markets and are tougher to fill, the large one we are working now I believe -- first of all they are great people, they're really enthusiastic. It just -- it is completely new to them, the process is completely new and it's a -- it is still a substantial number of facilities that we are going to have to ramp up. So it is going slower than we initially thought because they had a very high sense of urgency. We were dealing with supply chain, who were really beating with us with a stick to get everything done. Once we got everything done, you know it had a much slower pace than the sense of urgency would have indicated. Notwithstanding that, we still have every reason to believe it's going to be a very desirable account for us to manage. And in terrific locations where nurses are really going to have an interesting in going too for us. So I think it will ramp up faster. I don't think it's going to take 18 months like our largest account did to really show its true value to us. But it's -- at this point I'm expecting it's really going to be the first and second quarters of 2013 where we're really going to see a meaningful value out of this relationship.

Do you have any large MSP kind of renewals coming up over the next several quarters?

Look, within 1 year I think several of them renew. At this point we are reasonably confident we are going to renew the ones that we want to keep, the ones that are the most meaningful to us. A year ago, 18 months ago where there was a large per diem element in the MSP, we were at risk. We often struggled to meet the per diem needs of large MSPs. We have a much better solution today. We've really organized ourselves. It's where a lot of the investments we have made have been put in place and we have very high fill rates at our key accounts. You never know what you don’t know, but right now I feel confident. I believe I have reason for confidence, that we don’t have any significant MSPs that are risks. And like I said, I think there is a greater probability that we will take away MSPs over the next 12 months than lose them.

How would you characterize price competition and sensitivity among MSP clients or perspective MSP clients at this point?

Price is always an element. Most want to see a reduction in their kind of blended price that they’re paying. Often as one of the larger vendors, we’re typically 1 of the companies they pay the most attention to. So often the price where we’re at is below the price that some of the smaller players can come in and they really fly under the radar. So we can often offer a lower price than the hospital is paying, but it’s a price at what we’re currently billing the hospital. It is not typical although certainly not unprecedented that we would lower our price. It depends on the -- how confident we are that we can pass along a lower price in the form of lower wages to nurses in order to maintain our margins. And really again, it's kind of all over the map. There is 1 large 1, we’re working on today, where the price is not where we need it to be. And I think it is not something we would accept and that’s just a risk you take. But we have enough to work on now that I'm -- I don’t think we have to break with our discipline that we’ve been able to establish and bringing these accounts on board. Like I said, we have a lot of revenue. We need to get through the process. It takes months to implement a large hospital system. So we have a lot to work on and I don't think we need to distract ourselves with low margin opportunities.

Thanks, last question for me is if you could comment on the pipeline of MSP opportunities and maybe characterize whether there's a greater proportion of kind of new to MSP clients or opportunity to take a competitor’s MSP client.

Yes, when I look at -- what we view is our pipeline of prospects over the next 12 months, there is a greater share of potential takeaways and again it's hard to takeaway an account. That's why it really hurts my feeling that we lost one. A meaningful one that we wanted to keep, but it is what it is. We do have reason to believe that these opportunities are ripe for the taking, either directly or through conversations with the client or indirectly through other intermediaries. The book of potential prospects is similar to the wins that we quantified since the end of the first quarter on the order of $60 million to $70 million in revenue potential. I would assign the probabilities anywhere from 20% to 80% in those processes. So it's probably blended 50:50 which I think is a representative, I think we have a 50% chance of winning any particular engagement and I think our strategy of -- in areas where our largest competitor has a large engagement, selling against that has worked very effectively for us. It's likely to continue working effectively, but conversely for the same reason, we don't expect to win all the business either, but we do certainly expect to continue to win our fair share.

At this time we have no further questions.

Well we appreciate everyone's participation in this call and we will look forward to updating you on our third quarter later this year. Thank you.

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