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…

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…

[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…

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.

Thank you and thank you for joining today's conference. You may disconnect at this time.