Good morning, ladies and gentlemen, and welcome to the Cross Country Healthcare Earnings Conference Call for the First Quarter of 2017. This call is being simultaneously webcast live. A replay of this call will also be available until May 18, 2017, and can be accessed either on the Company’s website or by dialing 866-505-9259 for domestic calls and 203-3691-883 for international calls and by entering the passcode 2017. I will now turn the call over to Bill Burns, Cross Country Healthcare’s Chief Financial Officer. Please go ahead, sir.

Thank you and good morning, everyone. With me this morning is our Chief Executive Officer, Bill Grubbs The call will include a discussion of our first quarter results for 2017 as disclosed in our press release and will also include a discussion of our financial outlook for the second quarter of 2017. After our prepared remarks, you'll have an opportunity to ask questions. Our press release is available on our website at www.crosscountryhealthcare.com. Before we begin though, we need to remind you that certain statements made on this call may constitute forward-looking statements. As noted in our press release, forward-looking statements can vary materially from actual results and are subject to known and unknown risks, uncertainties and other factors including those contained in the Company's 2016 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as well as in other filings with the SEC. I would encourage all of you to review the risk factors within these documents. The Company undertakes no obligation to update any of its forward-looking statements. Also comments during this teleconference reference non-GAAP financial measures such as adjusted EBITDA or adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for 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. Lastly, in order to facilitate a better understanding of our underlying trends we may refer to pro-forma information on this call giving effect to acquisitions and divestitures as though the transaction had occurred at the start of the periods impacted. With that, I will now turn the call over to our CEO, Bill Grubbs.

Thank you, Bill. Thank you everyone for joining us this morning. On our last earnings call, I stated that the first and second quarters of 2017 would be transition quarters. That still holds true at work to address our new business wins, but even knowing that, I'm not satisfied with our overall results for the first quarter. We did exceed our expectations for gross margin, adjusted EBITDA and adjusted EPS, but we fell short on revenue and although I am not satisfied that we fell short on revenue, we're actually in a pretty good position right now and I'll explain that as we go through the call. Let's start with revenue. As we stated on our last call -- last quarter, we won 24 MSPs in 2016 and we've now won 19 year-to-date in 2017. While these investments have not get translated into accelerated revenue growth for several reasons. First, implementations are taking longer than expected, which is partly due to the sheer number of new programs being implemented. Second, for those programs that are up and running, our new investments and delivery are not yet at the productivity level we anticipated and third, and probably the biggest reason is due to customer delays since most of these are completely new programs with customers that have never had an MSP before. These programs always take longer since the customer has such a learning curve and is not always ready to integrate technology, make process changes and so on. So, revenues came in slower than we expected, but this is all just timing. We firmly believe it is coming fairly soon. From an overall market perspective, we have seen a slight decline in demand for nurses in recent months as compared with the historically high levels we experienced the last couple…

Thanks Bill. As Bill mentioned, revenue for the quarter came in slightly below our expectations due predominantly to continued softness in physician staffing and search. Both gross margin and adjusted EBITDA were above expectations, driven by performance in our largest business Nurse and Allied. Overall demand for our service remained strong and we saw year-over-year price improvements in all of our segments. Turning to the quarter, total revenue was $207.6 million up 6% from the prior year and down 7% sequentially. The year-over-year increase was driven entirely by growth in Nurse and Allied staffing. The sequential decline was predominately due to normal seasonal trends for the business as well as lower project revenue from the fourth quarter of 2016. Generally, pricing remains strong for the quarter with staffing bill rates rising approximately 3% to 5% across businesses and specialties. Gross profit margin for the quarter was 25.7% down 30 basis points from the prior year and 20 basis points sequentially. The sequential decline was predominately due to the impact of the annual payroll tax reset, while the year-over-year decline was due to the higher compensation cost for healthcare professionals at certain large accounts that we mentioned last quarter. These costs will have a lesser impact on our second quarter results as we began normalizing the compensation costs throughout the first quarter. Additionally, as we previously stated, we do not anticipate any impact on our ability to grow revenue as a result of normalizing these costs. Also, as expected, Health Insurance and Workers Compensation returned to a more normal level from our experience in the fourth quarter of 2016. Moving down the income statement, SG&A for the quarter was $47.2 million, representing an increase of 10% year-over-year and 2% sequentially. The year-over-year increase was largely due to investments in our revenue-producing…

Thank you. We'll now begin the question-and-answer question. [Operator instructions] The first question comes from John Godin of Lake Street Capital Markets. Your line is open.

Hi guys. I appreciate you taking questions, just kind of first on the MSP business, just looking at the things that you can control, how long does it typically take you guys to get one of those implementations fully ramped, putting aside the customer delays?

Yeah it varies greatly based on a couple of factors. One is the size of the program. One is whether it's a new program or an existing program. Existing programs ramp a lot faster than new programs and smaller programs ramp faster than larger more complex programs. So, a smaller program is probably a three to six month where it ramps up to probably getting pretty close to what the total spend is and a larger program is probably a six to 12 month ramping to get to the level of spend that we would like to see it at.

Okay. And just moving over to the local business, I know you've mentioned in the past that you see demand for ambulatory and outpatient centers growing faster than the acute care centers, could just give us a sense of how that business is performing and how you think about it going forward?

Yes absolutely, we are still growing our branch operations. I don't have the number. Brach actually performed quite well for the quarter. They were in the high single-digits for the quarter. We still see demand in these outpatient ambulatory facilities and we still see jobs growth faster outside of the acute care environment than we do in the acute care environment. So, we believe that we're in the right place to be able to take advantage of that and it is contributing. We think that we'll be able to get back to low double-digit growth as well.

Awesome. All right. Thank you very much guys.

Thank you. The next question comes from Bill Sutherland of The Benchmark Company. Your line is open.

Thanks. Good morning, guys. So, Grubbs could you just go a little bit more into the issues in the MSP program ramping the three issues just a little color on that and how you're thinking about it playing out as you go forward into the next half of the year?

Yes so, I think the biggest reason is the customer delays and I had kind of forgotten when we did our guidance that such a high percentage of these were completely new programs that customer never been -- never had a program before and they just take a little bit longer. They take longer to work with the customer. We implement a technology. We have to integrate that with their timekeeping system and it just takes a little bit longer to get those people up to speed, but we have quite a few of them in the pipeline that are being implemented in April and May that they got pushed back a little bit from the first quarter. So, I think we have it under control and I think it's on track. The other part is that some of the investments we've made because it has been such a step change for us, the delivery productivity is just taking a little bit longer to get up to speed as well. I wouldn't mind doing a small acquisition to help delivery capabilities, since we have so many of these programs and it takes so long to build up our capabilities organically. That may help us if we can find an acquisition to augment our delivery capabilities. But, I think we have it all mapped up now. We have a schedule in place. We have most of those customers on board, with the timing and this revenue will come. Its interesting, we did a study to the Board about six months ago of all the deals that we won since I've been here and they wanted to know two things, what do you expected in revenue, did we end up at that level. And what you expected from a gross profit percentage, did we end up at that level? And it was -- it was an interesting study to do and it shows at the end to the Board that we were, I don’t remember what it was, but I think it was like about 1% of the revenue that we expected to get and the gross profit that we expected to get was right on the money. So, I feel very good about our projections of what the value is of these deals and what we're going to be able to get out them, it really is just timing and I wish I could be a bit more specific of exactly when I see it all coming in. It will be a little bit about different customers and different sized programs, which one is coming first and which ones don’t come in first. But, we do -- they will come and I do expect a lot of it will come in the second half.

Good. Okay. And then, the year-to-date win pace of 19, does it feel like the pipeline at least provides the opportunity for that kind of pace for the balance of the year?

Yes, I don't think I would take 19 and multiply it times three since we got to end up close to 60 this year. But, we won 24 last year, which was three times as many as we ever won in a year. I don’t think we're going to stop winning them this year. So, I think we'll end up breaking the record again this year, but yeah, the pipeline is pretty strong. We're still out there talking to customers and what I said in the prepared comments, I think it's a really good sign that 38 out of the 43 are completely new. So, this isn’t the industry fighting over market share from each other, stealing programs from each other, this is brand-new programs getting up and running because of the issues we see in the marketplace and the customers realizing that there is a better way to manage the contingent labor and I think that’s a very positive sign.

Just two more if I may, you mentioned something about a little bit of sensing at least in the macro level softness in nurse demand and can you give color on that Bill?

Yeah, so we've started to see a little bit of a pullback in some of the general market demand for nursing in particular towards the end of the fourth quarter, but I thought it was a little bit of a hangover from the election, the uncertainty of the Affordable Care Act, yearend normal slowing as budgets are -- people look at how much money they spent and looking at budgets for the following year, but it has continued at a little bit lower rate through all of Q1. But, I think the way to look at it is and you've heard me say this before, when the big step change came in the second and third quarter of 2014, the number of orders and the demand for our services went up so significantly that it became irrelevant. The number of orders was so high that there was no possible way for us to service that kind level of demand. So, although its pulled back a little bit, it is still more than double of what it was in the second and third quarter, certainly the second quarter of 2014. So, its sufficiently high to be able to continue to drive growth. If I don't read too much into it because it seems to have leveled off, but still at very, very high numbers based on historical trends. And I don’t know why its pulled back a little bit and it may bounce back again, part of it we believe when I talked to my staff, they believe that people have been spending so much money on contingent labor for the last couple of years, that they look at their numbers for 2016 and '17, while we have to slow this down a little bit. But, if the demand or the patient flows don't change, that may come back again anyway but, again it's still by historical standards pretty high.

Right. And then last, if you could -- you mentioned are getting interrupted actually, but when you were talking about low comps and directionally it's going to -- how that's going to trend, can you just get into that a little bit more Bill?

Yeah, so I will say, although we had a decline in the first quarter, we did have three of our specialty areas for the first time actually have year-over-year growth. Our advanced practices, which is our nurse practitioners and physician assistance actually grew at 37% year-over-year. We had an increase in our primary care in low single digits 3% or 4% year-over-year and a very good increase in our OB/GYN pathology, radiology, oncology sector that’s kind of consolidated at 27%. We're starting to see the growth come in in different specialty areas. We see a lot of activity. I see the change in the attitude of the employees and the excitement that they have and which we track the performance every day and we can see the future bookings when we book days every day we now have this kind of waterfall approach as to how many of those days are in May, how many of those days in June, how many in July. And we're running ahead of the normal pace of what we would expect to see, what we have seen over the last couple of years. So, yeah, I know I've been saying this for a couple of quarters because I do feel good about this. But, we will start to see improvement in this business. It feels really good right now and we'll still have decline in Q2 probably, but I do see it turning the corner sometime in the second half.

Okay. Thanks Bill. Appreciate it.

Thank you. The next question comes from Tobey Sommer of SunTrust. Your line is open.

Thanks. One question about the MSPs, like to follow up on that, how long do you think the momentum can continue as the market evolved and the big players have captured some of the available market? How might the average size or other characteristics of future MSPs differ from those that are already up and running or slated to ramp here soon?

Yes, that’s a very good question. I do think there is some momentum that will carry on because I don't see the issues in the marketplace being solved anytime soon, certainly not the shortage of candidates that we see in the marketplace. I do to agree, now that you said that, maybe you asked the question but, I do see the size of them probably coming down in the future. I would like to ascribe here four years ago, we never saw a $1 million, $2 million or $3 million program. They were all in that $4 million, $5 million, $6 million, $7 million size and now we see. We win $1 million, $1.5 million programs that never would have happened before. So, smaller healthcare entities are following the trend of the bigger ones realizing that they're just not getting the attention, they're not getting the supply and if they don't change the way they do things, they're probably going to be left behind. And so, we are seeing that if this starts to become -- the trend continues the way it is now, the average size may come down a little bit, but I don’t care with that, because it's basically opening kind of a whole new market to use that didn’t exist before.

Okay. And do you see that trend in momentum creating opportunities for you to consolidate some of your supplier network so that you can increase your fulfillment capabilities or how maybe you could answer the question by explaining your priorities for acquisitions? Thanks.

Yes, so my priorities in the past, had been local allied size school business, local allied and locum tenens in that order and it was school because we think we have an opportunity to take market share and be a bigger player there, that we think it's an underserved market, local allied because it helps gross profit margins and net margins and position because I would like to expand specialties and we see stability in our physician staffing. I've changed that now, those are the second, third and fourth priorities. Now my number one priority is a travel Nurse and Allied business and in particular travel and nursing because of all of these new wins that we have, I would like to boost my delivery capability and start to take more market share at our existing MSPs. Our market share what we call our capture has increased from 52% about six months to about 56% this quarter. I wouldn't mind getting that up to 60% or 65% plus with all the new wins we have, it is taking me longer to develop organically my delivery capabilities and I would like it to be. So yes, consolidating some of our competitors I think would be nice area. So, I would start with travel and nursing as number one, school business number two, local allied and physician staffing in that order.

Over time does the growing MSP business mix impact your DSO?

Well I've to ask Bill that. I know we educated the sales people to be very cognizant of what we do. I would guess off the top of my head that bigger customers probably have a little longer DSO than the smaller ones, but I don't know if our MSPs have abated DSOs in general?

No, not typically. I think the overall blend is pretty close. They do have a little bit of leverage when negotiating that, we'll look at the payment terms for them possibly given them terms but by and large the only issues we might see with DSO are doing the implementation if there's any technology glitches or anything like that where they aren’t making payments quickly in the beginning. But aside from that, no, I don't think there will be a big shift in our DSO. The only thing that does move is obviously we talk about net DSO which excludes our subcontractor receivables, the bigger we get, the more subcontractors we have, the larger our growth DSO will look because we'll have more receivables on just the revenue base that we capture.

Okay. And then I wondered you enumerated several long-term drivers for the business and I appreciate that, but we do continue to get questions about the importance of the Affordable Care Act and potential changes to it since that's still an ongoing kind of task if you're trying to pursue Congress. Could you just discuss what you think are the most important features of the Affordable Care Act that maybe we should pay attention any of the lot of moving pieces that come to mind that I might you to comment on, Medicaid expansion and preserving that as well as a potential cut in the number of insured people, I would love your perspective, thanks.

Yes, so I've been watching this closely and there has been an interesting and whether they get something to the house today or not, I don't think the current version will make it to the Senate so it will be interesting to see what they do. The two most important factors in my view are the Medicaid expansion and the pre-existing conditions. I think the general and really the people that came into the open enrollment especially those that did it because of individual or employer mandates, probably don't drive a lot of demand because they're healthy people. They only did it because they had to, they didn't want to pay the tax county where their employer had to do it because they didn't want to take the penalty as well. I don't think those people have made a difference. So as those get knocked out of the system because they’ve taken away the individual mandate or the employer mandate, I'm not too worried about that. Even though the existing plan is in Congress today, does leave Medicaid alone I think for two years. So, I feel pretty good about that, but even if the current bill passed and they are leaving in preexisting conditions in some form that it wouldn't have a huge impact on us overall. Two years down the road though, if there is a big change to preexisting conditions with these high-risk pools or increase in rates for the preexisting conditions and Medicaid gets pulled back, then I'll start to worry about it, but those are the two most important things that we think were the big drivers of the preexisting conditions and Medicaid expansion.

Okay. Last question for me, sorry to dovetail back to the acquisition question, but do you think you're likely to get a deal across the finish line in 2017, maybe if you can just comment on the pipeline thanks?

Yes so '16 is the first year ended that we didn't do a deal and that's probably we're somewhat picky and we wanted to do the right kind of deal, but we have seen an increase in activity out there, we have been in front of the numbers and we're very active. You know how deals are, it's hard to predict whether you're going to get one through this year or not, but I would like to get one through this year, but I won't do a deal just to do a deal. So, we'll have to see how the negotiations are going and how the valuation look and whether they are a good culture or a strategic fit for us, but we've seen some good cultural fits out there. We've seen some good strategic fits out there. We've seen some reasonable pricing. So, I would like to get one done this year if possible.

Thank you very much.

Thank you. The next question comes from Mitra Ramgopal of Sidoti. Your line is open.

Yes. Hi. Good morning. Just a couple of questions. Bill, I know you mentioned you had about 30 programs to be implemented on the MSP side and I was wondering where you are regarding your investments in getting sufficient recruiters on Board as to handle the pipeline?

Yeah, I think we're okay on investments. I don't think we need to increase our SG&A. It's just getting some of those investment up to the level of productivity that make more sense for the level of demand that we have. So, I don't think we need to make a whole lot of new investments. We have enough implementation resources today and I believe we have enough recruiters and I think if I add alone development capability -- or delivery capabilities it would be through an acquisition. So, I think we're in pretty good shape from an SG&A standpoint.

Okay. Thanks. And really the issue is really on the customer side in terms of the implementation as opposed to you not having sufficient resources.

Yeah that's exactly right.

Thanks. And just on the Nurse and Allied side, how much of the increase let's say volume purchase price?

I think we're about 50-50.

Right, 50% volume to square and about 50% price, there is a little mix in the price, so it's always hard to carve that out exactly, but those are the rough splits.

Okay. Thanks. And then finally on the locum tenens side, I know you're making some changes internally. Is that pretty much behind you and now it's just a question of looking to generate additional opportunities there?

Yes, if there is no more operational changes we're making, there is no more leadership changes we're making. I believe we're actually at a level of recruiters and sales people that we need. It really is about execution now. So that's part of the reason why I feel pretty good. Things have stabilized in that business. We've actually seen some ex-employees come back into the fold. I see completely different attitude and excitement in the team and an increased level of activity. So those are the things that we do a turnaround and you end up seeing the result somewhere down the road. And so, better attitude, more activity and a more stable environment. We'll start to see improvement in this business.

Okay. Thanks again for taking the questions.

Thank you. The next question comes from A.J. Rice of UBS. Your line is open.

Hi, this is [indiscernible] filling in for AJ. I actually missed a part of the call. So, apologies if you've already answered them, but the 19 MSP wins you had year-to-date in 2017, are those new MSP contracts where hospital or health systems are just moving to MSP of this is like you're getting market share. Can you give more color there?

So, of the 43, five of them I may not know the 19, of the 43, only five were taken from the competition, two from staffing companies and three from independent MSP operations. I don't know of the 19.

Yeah it basically would have been a similar mix, so it was three of the 19.

Three of the 19 were taken from competition. So, I do think this is taking market share from the market. It may not be taking MSP market share because we're not taking programs away from somebody else necessarily, but the fact that we're taking new customers that have never had an MSP before is taking general market share, yes, I believe that's the case.

Okay. And any update on workforce solution business like that RPO, products and where that stands today for Cross Country?

Yes, so we, we made a very small acquisition beginning December to get some RPO infrastructure in place. It is growing, but it's such a small part of our business today that we're not really calling it out yet. It's still only running $400,000 or $500,000 a quarter at this point. We would like to get it up to a $15 million, $20 million, $25 million. We have won several programs this year that we believe will boost the revenue and we do think there is a big opportunity for that, but it's still a plunging business for us just in its early growth stages. We have a couple of other one, EMR are just leveled off. We're doing under $0.5 million this quarter in EMR business. So that's not going to be a big part of our business I think going forward. We have a couple of new EMR projects that will come into play this year, but again for the whole year, if we do $3 million, that I'll probably be surprised. And we do have this outsourcing service called OWS. We do have two programs, two additional programs, but they're very small, $2 million programs and we'll have to wait and see how that goes as well, but I think it's the biggest opportunity to grow more workable solutions. We do have some predictive analytics program and some internal resource pools and a few things like that, but nothing significant at this point.

Okay. Perfect. Thanks a lot.

Thank you. The last question comes from Tobey Sommer of SunTrust. Your line is open.

Thanks. I was wondering if you could comment on your expectation for pricing going forward, particularly I guess in the nursing and allied?

Yes, we were starting to lap some of our big pricing quarters. So, I think that's why you saw that pricing, what was the pricing out this quarter?

It's varied by up to 3% and 5%. So, call that mid-single digit.

Yes, so mid-single digit price increase. I think we can get back nurse and allied to double-digit revenue growth and I think about half will come from price and half will come from volume. So, I think we can maintain that 4% or 5% price increase throughout the rest of this year and if can get 5% to 6% volume growth then we'll get to double digits. So, I think that's kind of how it will play out.

Okay. Could you comment about the sequential decline in revenue from 4Q to 1Q? I understand the slow ramping MSPs is influencing the quarter, your expectation there as well as kind of the future and your teams you guide, but the sequential change was pretty significant. I wonder if there are any other explanatory factors?

Yes, this is the reason why I don't like project business and why I haven't thought of strike business. We did a lot of project business in Q3 and Q4. I think $5 million project business in Q4 that's nonrecurring. So, you almost have to look at the sequential change by taking off $5 million of nonrecurring revenue in the fourth quarter and then I think it's pretty normal seasonal trend for us. So, I don't like lumpy business. I don't like project business and that's why we don't do a lot of it. We just do favors for customers in Q3 and Q4, I kind of wish we hadn’t. It was nice to have that little boost for a little while but it's skewed up our comps.

Okay. And then could you comment about like what you're hearing from nurses about travel nursing, is the word-of-mouth among your nurses and prospective new applicants, how would you characterize that?

It's pretty good, especially for younger nurses. They seem to -- millennials just behave differently than the rest of the population and this kind of lends itself to I want to be in control of my career. I want to move around a little bit. I want something a little bit more exciting. I don't want to stuck in that corporate culture. I don't want to be told I have to wait for third shift on the weekend and the department I don't want to work in. So, we still think there is a lot of enthusiasm for travel nursing out there and we haven't seen any falloff or any negative commentary about it. I think pretty good and so everything we hear has been very positive. We've been actually out there having meetings with not only groups of nurses around the country, but with our subcontractor agencies and as well and we're still hearing that everybody is very positive about it. They're finding that it rounds out their resume and their experience is more and gives them better opportunities.

Okay. Last question for me is on the turnover of full-time nursing, the full-time nursing workforce, could you comment about whether you've seen any evidence that retirements are contributing significantly to that kind of attrition problem at hospitals and is that something you look for to be kind of a growing factor in the market?

Yes, so I have my marketing people out looking for a number of data points that I don't have access to today. So, I don't know that. I don't have a retirement number. I would like to find out what it is, knowing that 55% of nurses are over the age of 50 tells me that there is probably going to be more retirements than our people coming into the market. So that's the other data point I am looking at is I don't have an up-to-date -- the information I have for new graduates taking the nursing exam every year is about three years old. So, I am looking for an update there. We announced last month that we have a new relationship with our college of nursing here in Florida and I think they're going to be able to give us some additional information as to what some of the trends are in the marketplace. So, I don't have information on that. My gut tells me that there are more quicks and more turnover in our customers anecdotally from the customer I've spoken to and the fact that nursing population is getting older and the economy is pretty strong, even if they're not retiring, we know that they're starting to work less and that's just those big an impact on the industry as if they retire. But I don't have real hard facts on it.

Okay. Thank you very much.

At this time speakers, there are no further questions in queue.

Okay. Great. Again, thank you everybody for joining us this morning and we'll be back to update you with our second quarter results in early August. Thank you.