AMN Healthcare Services Inc. Q4 2007 Earnings Call Transcript

| About: AMN Healthcare (AMN)

AMN Healthcare Services Inc. (AHS) Q4 2007 Earnings Call February 26, 2008 5:00 PM ET

Executives

Christopher Schwartz - Vice President of Investor Relations

Susan Nowakowski - President and Chief Executive Officer

David Dreyer - Chief Financial Officer

Analysts

Tobey Sommer - SunTrust Robinson Humphrey

Jeff Silber - BMO Capital Markets

Jim Janesky - Stifel Nicolaus

Michel Morin - Merrill Lynch

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the AMN Fourth Quarter 2007 Earnings Conference Call. At this time all lines are in a listen-only mode. Later there will be an opportunity for questions, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Christopher Schwartz, VP of Investor Relations. Please go ahead sir.

Christopher Schwartz - Vice President of Investor Relations

Good afternoon. I would like to welcome everyone to the AMN Healthcare Services conference call to discuss the Company's earnings results for the fourth quarter of 2007. For the call this afternoon, we have Susan Nowakowski, AMN's President and Chief Executive Officer, and David Dreyer, AMN's Chief Financial Officer.

A replay of this webcast is available at amnhealthcare.com/investors and will be replayed until March 11, 2007. Details for the audio replay of the conference call can be found in our earnings press release.

I would also like to mention our policy regarding forward-looking statements. As we conduct this call, various remarks that we make about future expectations, plans and prospects constitute forward-looking statements. Forward-looking statements are identified by words such as belief, anticipate, expect, intend, plan, will, may and other similar expressions. Any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.

It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31st 2006, and quarterly reports on Form 10-Q for the quarters ended March 31st of 2007, June 30, 2007, and September 30, 2007, and our current reports on Form 8-K, which have been filed with and are publicly available from the SEC.

The results reported in this call may not be indicative of results for future quarters. These statements reflect the Company's current beliefs and are based upon information currently available to us. Developments subsequent to this call may cause these statements to become outdated. The Company does not intend, however, to update the guidance provided today prior to its next earnings release.

I will now turn the call over to Susan Nowakowski, AMN Healthcare's President and Chief Executive Officer.

Susan Nowakowski - President and Chief Executive Officer

Thank you, Chris. Good afternoon everyone, and thank you for joining us today. We appreciate your interest in AMN Healthcare and in taking the time to participate in our earnings call.

We will talk today primarily about our outlook for the industry and our market positioning. But we also want to provide you with some color on the full year and fourth quarter results for 2007.

There are many things going well and opportunity for growth in all of our business segments. But as is true for most staffing companies today, we are not without some short-term challenges due to the uncertain economic conditions. This is a time when we believe our diversified service model helps AMN to expand our overall leadership position within the industry.

Revenue for 2007 was a company and an industry record of 1.16 billion, an increase of 8% over 2006. While we did produce efficiencies in operations, these were partially offset particularly during the first half of the year by direct cost pressures causing diluted earnings per share to grow at a slower rate of 3% to a $1.05. While these results are less than our original expectations and certainly less than what we think the industry will achieve in the long-term, we do believe they are consistent, if not slightly higher than the organic growth rates for the overall healthcare staffing industry.

The biggest driver of growth in 2007 came from our locum tenens staffing segment which produced 16% year-over-year growth in revenue. Nurse and allied staffing started off with strong volume and pricing growth but declined during the second half of the year due to weakening industry demand in certain large markets.

While we remained very focussed on execution within our current service offerings, we also took this opportunity to invest in the expansion of our business by launching new clinical disciplines and leveraging acquisitions that have enabled us to further diversify and tap into high growth, high margin market niches. I'll talk more on this later.

But first some detail on our individual business segments. As I mentioned, our nurse and allied staffing segments started out relatively strong during the first half of 2007, but did not produce the expected seasonal volume increases during the third and fourth quarters. This was largely due to softness in demand in some key markets such as California, Arizona and Florida. A more favorable reverse trend was in the gross margins, which were pressured for the first half of the year. But through careful management of expenses we were able to increase gross margins over 100 basis points in the third and the fourth quarters.

Another contributor to the lower nurse volumes was the impact of a bottleneck immigration environment and the affect on our international nurse staffing division O'Grady Peyton. Although O'Grady Peyton is currently less than 5% of our overall revenues, the contraction of this business did cause a slight drag on our annual and fourth quarter results. As you may know, the availability of visas has been significantly restricted for over a year now and the lobbying efforts by the hospital community and the healthcare staffing industry to get the situation fixed have been unsuccessful due to the current political environment.

Due to lack of progress on this issue we are not anticipating a legislative solution in 2008. If we get release sooner great, but in the meantime we've taken steps to restructure our operations to align our business with the lower international volume we’re forecasting. We're optimistic that this issue will be resolved in the long-term as foreign educated nurses are significant source of staffing for healthcare facilities nationwide. In fact, foreign trained nurses represent almost one out of every six nurses who passed the NCLEX exam in 2007.

Well, in aggregate, travel nurse demand has been below prior year levels, we still have more open orders than we have travelers coming off assignment each month. And there are several states where demand is higher than prior year. So this is not a national pervasive decline, but it is enough to have affected our volume growth in the short term. We are cautiously optimistic as demand trends including some of the states that I mentioned have improved over the past month and we seem to be on track to close the year-over-year gap.

To that point just since January our orders are up about 20% and the number of units with orders is also up 20%, and the number of facilities with orders is up about 8%. This has helped drive stronger placement volume which is now up about 7% year-over-year through February.

While growing travelers on assignment has been challenging, we’re pleased that average bill rates and re-negotiated pricing levels have remained in line with our expectations. And we still believe that there is opportunity for continued bill rate increases in 2008. Our current expectations are to negotiate bill rate increases in the three to five percent range.

Within our allied staffing business, the fastest growing disciplines are in rehab therapy areas such as physical and occupational therapist. However, our newer pharmacy staffing business also provides some nice opportunity for growth. The shortage of pharmacists for both retail and hospital employers is expected to severely deepen over the next decade and we believe that we're well positioned to help these employers with both temporary and permanent placement services.

While allied healthcare staffing is still a relatively small piece of our overall business it is one of the fastest growing markets within the industry and we believe that with our leadership position and the synergies with our other staffing brands, we will be able to drive double-digit growth rates over the coming years.

Turning to our locum tenens staffing business revenues grew 16% in 2007 compared to the prior year above industry expectations for this market. Day’s sales in 2007 reached a new record growing 10% over the prior year. We believe this is a strong indicator that Healthcare facility executives continue to recognize the importance of ensuring that they have sufficient resources to expand their revenues and maximize their margins.

While short-term specialty demands can certainly fluctuate, the longer-term demand for contract physicians continues to grow at a high rate relative to other staffing markets in the industry. While we do not have enough supply to fill demand, the supply of new providers is growing at a healthy pace driven in part by the demographic factors of an ageing physician population and a generational shift towards part time work among younger physicians.

The majority of our specialties experienced solid growth in days sales in 2007, with the greatest growth experienced in Primary Care, Radiology, and Surgery. Primary Care is still our largest division and has been a consistent contributor to our growth. However, during 2007, Radiology and Surgery were the fastest growing specialty divisions. The overall demand and supply trends remain strong and we are again expecting locum tenens staffing to be our fastest growing segment during 2008.

During '07, we launched a new division in the placement of dentist. While this is still a relatively small piece of business today, we are very excited about the long-term growth opportunities in this new and emerging market. Just like physicians, there is an extreme shortage of dentist to serve the needs of the Asian population. We expect to invest more in this division in 2008, and it is likely to be one of our fasting growing specialties.

Our physician perm placement segment finished 2007 with 51 million in revenue and gross margin of 61%, which was relatively flat to the prior year. We believe the lack of growth had less to do with external growth opportunities and more to do with internal changes. One indicator of demand is the growth in new searches.

During the second half of '07, our team drove a 10% increase in new searches over the prior year, setting us up very well as we move into 2008. We continue to make investments to increase the number of producing recruiters to capitalize on this growing demand.

The Merritt Hawkins brand is extremely well recognized and respected as a recruitment expert throughout the physician community, and we believe there are additional ways that we can leverage our expertise in recruitment model to help other employers who are seeking to improve their recruitment effectiveness.

We are currently exploring some new service models that we believe can expand our long-term growth opportunities in this area. AMN Healthcare's strong commitment to high quality and superior client service is an important differentiator, and we believe provides us with a competitive advantage.

Recently, we conducted a third party anonymous survey of both current and perspective clients of travel nurse staffing services. The objective was to evaluate AMN's brands relative to our competitors. We were extremely encouraged by the survey findings. Clients ranked AMN significantly more favorable than our nearest competition in a number of key areas such as nurse quality and experience, contribution towards improved patient outcomes and clinical excellence.

AMN also received the top scores in terms of our capability to fill needs quickly, customer responsiveness, reputation and trust, and competitive pricing. We are known first and foremost for the high quality professionals we place, but we are also recognized as being the most capable of helping Healthcare providers to manage the clinical labor needs. This recognition has enabled AMN to build leading physicians in the most attractive segments of our industry.

Today, we are in a strong #1 position within travel nurse staffing. We are #1 in the fast growing segment of locum tenens. We are # 1 in the very profitable segment of physician permanent placement. And following our recent acquisition of Platinum Select, we are proud to be able to now claim the top spot in the attractive travel allied healthcare segment of the industry. This addition of Platinum Select to the AMN family provides an additional channel for helping our clients obtain the scarce and valuable talents of allied professionals.

In addition to being accretive to 2008 earnings, Platinum Selects fits perfectly with our strategy of continuing to expand our service offering. The Platinum Select team has a very positive values based passion or culture and it’s led by a terrific management team. We feel fortunate to have them as part of AMN Healthcare.

As we move into 2008, we are confident that AMN has the right market strategy and the right team in place to execute. However, we must continue to innovate and remained agile in order to further expand our leadership position. And with that, I would like turn the call over to our CFO David Dreyer. David?

David Dreyer – Chief Financial Officer

Well, thank you Susan and good afternoon. Before I discuss our fourth quarter results, I would like to recap on a few of it closing details of our recent acquisition of Platinum Select Staffing. We closed the transaction on February 15th, 2008. The total potential purchase price is up to 50.3 million in cash with the initial purchase price of 32.9 million and the potential additional earn up revision of up to 17.4 million based on Platinum Select achieving established 2008 revenue and EBITDA targets. We financed the acquisition using approximately 18 million of cash on hand and 15 million borrowed from our revolving credit facility. This borrowing increased our leverage ratio to 1.7 times at the date of close from a ratio of approximately 1.6 times at year-end.

Now I would like to turn you attention to AMN's fourth quarter financial results. We’ve reported revenue of 286 million for the fourth quarter, which was slightly higher than the fourth quarter of last year and 5% lower than third quarter of '07. Diluted earnings per share was $0.26 this quarter as compared to $0.29 last quarter and Q4 last year. Yet the prior year quarter did include a $0.05 benefit due to a significant actuarial adjustment recorded to our professional liability insurance reserves.

Revenue generated by our nurse and allied health care staffing segment this quarter was a 197 million compared to 202 million last year, and 204 million last quarter. While it's typical to experience the slight sequential decline from the third to fourth quarter, this was further impacted by the softening in demand which began mid year. This also contributed to the year-over-year decline. In addition, our international nurse division volume was lower by almost 200 year-over-year which made up almost 40% of the decrease for the quater.

Revenue generated by our locum tenens staffing segment this quarter was 76 million, an increase of 12% compared to last year and a decrease of 8% from last quarter. The year-over-year increase in revenue was due to a 4% increase in days filled combined with an 8% increase in revenue per day sales. The sequential decrease in revenue was due mainly to a decrease in days filled. This shortfall in volume was primarily due to the seasonal impact of a year-end holiday combined with one less government billing day in the fourth quarter.

Revenue for our physician permanent placement segment this quarter was 13 million which is flat compared to last year and last quarter. Looking forward for this segment, a recent increase in the number of producing sales team members and new searches is expected to result in revenue growth during 2008.

Consolidated gross profit this quarter was 76 million, representing a gross margin of 26.6% which compared to 26.2% reported last year and 26.6% reported last quarter. The year-over-year increase in gross margin was due primarily to an improved pay-to-bill spread in the nurse and allied staffing segment.

On a segment basis, gross margins for the fourth quarter were 24.4% for nurse and allied, 26.1% for locum tenens, and 61.8% for physician permanent placement.

SG&A expenses this quarter were 56 million or 19.6% of revenue which compared to 18.1% last year and 18.6% last quarter. The increase in SG&A compared to last year was due mainly to a 2.9 million favorable adjustment to our insurance reserves in the fourth quarter 2006 and the restructuring charges of 700,000 taken during this fourth quarter related to downsizing our international division.

Net interest expense this quarter was 2.9 million, down from 4 million last year and 3.1 million last quarter. These decreases are due to continued payments from our cash flow to reduce our debt outstanding.

The income tax rate for the fourth quarter was 35.3% compared to 38.6% for the fourth quarter of last year with both quarters including adjustments required to finalize year-end federal and state tax provisions. The full year effective tax rate was 40% which approximate the rate that we anticipate for 2008. We had an average of 34.2 million fully diluted shares outstanding during the fourth quarter, and for the full year we had an average 34.9 million fully diluted shares outstanding.

Turning to our financial position, this quarter we generated 25 million in operating cash flow and $80 million for the full year, which in addition to cash on hand was used to reduce debt outstanding by 27 million for the year and to repurchase one million shares of stock in the third quarter. Total debt outstanding at year-end was a 147 million resulting in a leverage ratio of 1.6 times.

Day sales outstanding or DSO at the end of this quarter was 59 days compared to 63 days last year and 60 days last quarter. The decrease in this quarters DSO reflects our continuing improvements on our collection efforts.

Now, I would like to provide you with our revenue and earnings guidance for the first quarter and full year 2008. This guidance includes our expectations for Platinum Select beginning on February 15, 2008. First quarter revenue is expected to range from 290 to 293 million and diluted earnings per share is expected to range from $0.24 to $0.26 which includes the impact of one fewer billing day in our nurse and allied segment in the first quarter as compared to the fourth quarter.

Revenue for the full year 2008 is expected to grow 7 to 12% from 2007 at a range from 1.25 to 1.30 billion. Our full year estimate assumes that 2008 experiences typical business trends for healthcare staffing namely; normal seasonal growth in demand and placements heading into the second half of the year. We anticipate the revenue mix by segment will remain relatively similar to 2007. We expect earnings per share in 2008 to range from a $1.16 to $1.22, which is an annual growth rate of 11 to 16%. This estimate includes a $0.01 accretion from Platinum Select, although, we believe that it may contribute more than that during the year.

This concludes my financial overview. At this time, we'd like to open up the call to any questions you might have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions).

And our first question is from the line of Tobey Sommer with SunTrust Robinson Humphrey. Please go ahead.

Tobey Sommer

Thank you. I wanted to ask a question about – if you could just refresh us on the normal seasonality that you would experience in terms of demand on the travel nurse side, as we work our way through the year?

Susan Nowakowski

Sure Tobey. Typically, first you end the year at a relatively low point, because a lot of hospitals are dealing with budgetary concerns and trying to themselves plan for what the upcoming year is going to look like. So you typically see a fall off at the latter part of December and then start to build again in January and February and that’s very inline with the trends that we saw this year. I think we draft kind of early in January, and as I mentioned, the positive news is we have seen a very nice recovery in our orders over the last month to the tune almost a 20% increase from January to February. We then expect to see a continued building into February and March, although, traveler count itself will often fall a little bit in the second quarter just because the number of people ending at April is pretty significant. We’re actually feeling pretty positive about our second quarter and our April traveler count. So it remains to be seen whether that normal trend will happen or whether the build up in orders we see will allow us to control beyond that.

The biggest typical seasonal trend is to see the orders building in the summer for your fall placements and if you recall, that's what we didn't see last year. We would normally expect some of the key states such as California to have increased needs going in to August, September, and October. And usually second to third quarter would be your largest pickup in your placement volume and the number of travelers working.

So, we are assuming a similar trend to that this year. You can see based on our guidance that we've been cautious about the level at which that demand will pick up throughout the year. But, actually based on some of the recent news we’ve heard from some of the hospitals that we're reporting, they are looking at admission growth of anywhere from 0.5% to 2% for the year. So, I guess, its a little more confidence that we might see those normal seasonal trends resume.

Tobey Sommer

If may ask you to followup on any discernible impact related to what I guess is shaping up recently to be a pretty decently active flu season?

Susan Nowakowski

Yes I think that has been contributing to the increase in orders in fact, as we post our clients and ask them why there orders are going up. The flu season is one, but, also the number of the new units and the number of buildings that are opening are contributing to that. And we have also heard, more anecdotally is that some of the facilities felt that they may have over hired the number of new grads and have a greater proportion of new nurses on the floor than they would like. As you know, travelers typically have more experience. For us our average traveler has greater than five years of experience, and so, they are seeking to create maybe a more balanced blend of experienced and new nurses. So, I would say those three factors contributing, and then, we have heard again from some of the hospitals that have been reporting that the first quarter saw some positive trends in admission.

Tobey Sommer

And then lastly I will ask one last question and get in the queue. Any discernible differences in demand again on the nursing side geographically or by state that are noteworthy?

Susan Nowakowski

Sure, probably the most important to us are the improvements that we've seen in the West. California is one of the states that has picked up more significant rates. I would say, really throughout the whole West we have seen a nice pickup, but also we’ve seen a bit of a pickup in Arizona and Florida which is fairly positive because those are huge markets for us and as I mentioned earlier, they had been pretty slow in the latter part of the fourth quarter. So, we are real pleased with that pickup.

Tobey Sommer

Thank you, Susan.

Susan Nowakowski

Thank you.

Operator

We will go next to Jeff Silber with BMO Capital Markets. Please go ahead.

Jeff Silber

Thanks so much. I wanted to shift gears a bit and just focus on locum tenens. The growth in the quarter was, I guess, a little bit slower than what we have been projecting. And you mentioned in David in your remarks about the year-end holiday. Was that of the issue, do you expect growth to go back to, I guess, what staffing industry is looking for sort of the mid teens?

David Dreyer

Well. We finished a 16% overall for the year. So, I mean that's, I think, pretty consistent or even a little better than what the staffing industry rates are. Our expectations going forward are pretty much to continue at those rates. What you saw on the fourth quarter was a bit more seasonality than we have seen certainly in prior years. And as we've said in the opening comments, there was holiday season falling on a Tuesday had some impact as well, but we do believe that the overall growth is trending as we expected it would.

Susan Nowakowski

The other contributor Jeff is the government business. As you might recall, we tend to see a greater drop off sequentially in the fourth quarter from the government business. So as we look at the declines from third to fourth quarter, I would say they were pretty well spread across all the specialties, although, those that are more susceptible to actual closing such as, surgeries were a little bit harder hip, but that should be expected in the government business load at a slightly greater rate than the private business.

Jeff Silber

Yeah, that's helpful. And then just again, just focusing on the locum tenens business, adjusted EBITDA in the quarter was also a bit lighter than we had thought. Is it because I guess of the negative leverage of the slower growth?

David Dreyer

Yes. There is also one other smaller factor we should probably mention as well that the gross margin you will see were a little bit lower as well and we had to make a slight accounting change in this business except the permanent placement fee where its going to actually built, but the permanent conversion occurs in the following quarter. We had to differ it. It was about $0.5 million worth, and so, it had a pretty big impact on this particular quarter's gross margin so that had some effect for the fourth quarter as well.

Jeffrey Silber

Okay. Great. Thank you for letting us know that. The charge that you took, I guess the restructuring charge. Is that all on the nursing and allied side for O'Grady Peyton?

Susan Nowakowski

It is. It's all for international.

Jeffrey Silber

Yeah, just wanted to double check that's what it's for. And in terms of guidance, can you give us a little bit of color in terms of what we should expect for locum tenens and then in terms of the billing rates, potential increase on the nursing and allied side, what do you think we'll see in terms of volume in 2008 on the nursing and allied side?

Susan Nowakowski

We expect volume increases throughout the year from certainly where we are today. As you know, we ended '07 below prior year levels for our nurse business. Some of that was driven by the international decline, but some of which is the pure lower demand. We're closing that gap in the first quarter, although, volumes year-over-year for that segment are still expected to be below prior year level. So, we're expecting to build from there and it's just the magnitude of what that built will be. At the minimum, we expect to and above prior year levels certainly in revenue, but we think there's much more opportunity above that.

Jeffrey Silber

Okay. Great. And, just in terms again, just on the guidance side, can you tell us what we should be looking for in terms of depreciation, amortization, and capital spending in '08?

David Dreyer

Capital spending, we pretty much trended that 1% revenue. So, 12 to 13 million is pretty accurate. If you look at our depreciation, amortization, we're pretty much looking at the average of fourth quarter, we're going to trend that about to 2.2 depreciation per quarter, and about a million of amortization per quarter, that's certainly consistent.

Jeffrey Silber

And the million in amortization does include the impact of the Platinum acquisition?

David Dreyer

Platinum you might round it up, on a go forward basis, it is probably like a 2 million of amortization with platinum and you won't really see the effect of that until Q2.

Jeffrey Silber

Okay. Great. And then, one more and I'll jump back in. You mentioned the issues in terms of California, Arizona, and Florida, and how they've rebounded a bit occurring quarter. Can you give us some order of magnitude how large those states are as of percentage of revenues, percentage of travelers and anything you could help that would be appreciative?

Susan Nowakowski

Yeah, there are three largest states, and I think the only one that we've called out historically is California, which within the nursing business runs around 25% of our travelers work, and that's been pretty consistent, although, in the past it may be nudged up higher than that, that's about where it is now.

Jeffrey Silber

And. Would it be safe to say that the other two Florida and Arizona combined would be equal to California?

Susan Nowakowski

No, less.

Jeffrey Silber

Little less than that. Okay, great. Alright, I'll jump back in. Thanks.

Susan Nowakowski

Thanks Jeff.

Operator

And, we'll go to Jim Janesky with Stifel Nicolaus. Please go ahead.

Jim Janesky

Yes, thank you. Susan, when you look at the fact and as you have reported that traveler and allied has been a very tough segment now for, not only for 2007, but for several years now. What gives you any degree of confidence that that is going to improve as the year goes on and certainly what I'm hearing from hospital admission rates, from analysts including our own that covers hospitals is that our way could really turn out to be another tough year. So, if you could just give us an idea, and then, in your outlook for 2008, what are you counting on and I wasn't really clear what you were counting on in terms of recovery to kind of get to the range of numbers that you put out?

Susan Nowakowski

Okay. Well, first, starting with what we are doing and what we believe we can do to help drive that growth, we have several initiatives internally that we think can help us to put ourselves in a stronger competitive position and help gain market share even within this assume of flat market.

Jim Janesky

Okay.

Susan Nowakowski

I think there are things that we haven't been aggressive on in the past that we’ll see us rolling out in a more aggressive manner and we've been seeing some wins on that. So, we feel pretty optimistic that we can grow market share within the existing environment. On top of that, we're seeing positive trends in our demand today. I mentioned the pickup in demand that we're seeing really across the country, but in particular some of those very important states for us.

So, that's a sign of confidence that we're seeing in a market that is certainly moving in the positive direction, and for that matter pretty significant increases over the last 4 to 6 weeks. And then we look even more externally to what our clients are saying and what they say their needs are going to be. I mentioned some of the quotes, while you might be hearing other things, some of the things we're hearing are forecasts of admission growth anywhere from a 0.5% to 1% to 2% to 2.5%. And as we talk anecdotally with our clients, they’re talking about increase needs due to opening up more units and more facilities.

So, I think we’re hearing enough positive news out there that makes us believe that demand growth that we are seeing today will continue. With that said, it is not ceratin, we just are looking at these external factors as well as knowing internally what we are doing to help drive things.

Jim Janesky

Okay. And, can you give some idea of where in the spectrum of recovery you would need to get to in order to kind of hit the numbers that you put out, not so much in the first quarter which is almost over, but in the second, third and fourth quarters?

Susan Nowakowski

Well, we’re not going to be providing quarterly guidance or for that matter segment guidance. So I don't think we want to start to put numbers out there to try to lead towards what the growth might be in nursing versus locums versus the perm placement. Clearly, we are expecting growth from where we are today. And to matter kind of when and what pace that will occur, I would say second to third quarter as always is the most important transition for us during the year. So, I would look towards that call to be an important point for us to have a good view on what the growth is going to be in the latter half of the year.

Jim Janesky

Okay, great. With respect to the economy and the employment market, overtime a more difficult employment environment we've talked about that on many occasions, and a more difficult employment environment could lead to nurses going back to work. What have you – how is that factored into your outlook for all of your business, frankly? How have you approached that?

Susan Nowakowski

On the nursing side, I think we've already felt some impact from that with the general unemployment rate rising at the latter part of '07. And gain in January, I think it was up about 30 basis points over the prior year. And so, I think that’s part of what contributed to our lower demand. If it were to continue to rise at a more significant pace, lets say go from 4.9% to 6%. I think it could have an impact. But it stays kind of sub 5.3, 5.5, I think our demand will be fine.

Analyst

Okay, great. Thank you.

Susan Nowakowski

Thanks Jim.

Operator

Next question is from Michel Morin with Merrill Lynch. Please go ahead.

Michel Morin

Yes good afternoon everyone. Just on the quarter that just passed, the revenues came in a bit light relative to your expectations, and that doesn't happen very often. In fact, I don't think it's happened in the last couple of years. So, I was wondering what was the key thing that didn't turn out quite the way you had predicted?

David Dreyer

It was a little bit lower, in the lower end of guidance range. As our guidance range was the 286 to 288, I would say really, the seasonal factors we talked about were probably most of that. In fact, in the locum's impact there was probably a little more impact on our seasonality than we'd probably estimated on the higher end of that guidance number. But, overall, I think you can see by the margin and the end results, we believe it actually largely came in as expected.

Michel Morin

Okay. And, on the restructuring charge for international, is that pretty much as much as we’re going to see at this point? Or, if there is no resolution, should we expect that there could be some additional costs in '08?

David Dreyer

No, that was, I mean, we downsized both, mostly building, but also people in order to more or less operate at this current level. I think there's no further downside to go. I mean, clearly we’ve got the business fairly efficient. The more important thing would be to build it back up quickly when those visas become available. And that is something that we are absolutely prepared to execute, and that’s probably the more likely event.

Michel Morin

Okay. And then just finally, in terms of the change that you noticed in the West. Susan, was it really about this over hiring of less experienced nurses and wanting to rebalance, or was there anything else that plays there that might have changed the dynamic in that region?

Susan Nowakowski

No, that was just one of the factors, as I said, I think the stronger flu season, new units and buildings just hiring hospitals within California, in particular, talking about bursting at the same. So, I think that their staffing needs are pretty strong. And I also think that we had not attacked the Northwest markets as proactively as we could have in the past and our team has done a great job of building demand within the Northwest region.

Michel Morin

Great, thanks very much.

Susan Nowakowski

Alright, thanks Michel.

Operator

Again we do have a followup from Tobey Sommer with SunTrust Robinson Humphrey. Go ahead please.

Tobey Sommer

Thank you. I just wanted to dig in to the Peyton O'Grady volumes as it relate to your expectation for overall volume growth in the nurse staffing segment. Is it about 4% to 5% of revenue and you are currently modeling for that to kind of dissipate as we work our way through the year?

Susan Nowakowski

Yes, in terms of the number of travelers on assignment, we ended the year at around 400 travelers on assignment for that business and we are expecting it to kind of dwindle down to around a 100 range. It could be slightly better if we are able to get a few visas through here and there, but that's directionally magnitude where we're going.

Tobey Sommer

And you expected with that effect, be able to show some volume growth in the year or to what extent will volume growth on an overall basis be impacted by that trend?

Susan Nowakowski

Including that decline, we would expect to be able to grow volumes throughout the year. So, a significant offset to that towards the latter half of the year obviously to what we believe we can do in our domestic placement and through allied as well.

Tobey Sommer

Thanks. And just to be clear, are you currently in this environment able to still squeak pie and get a few visas just not in any magnitude that will be impactful for the business?

Susan Nowakowski

Yeah, it's a good point. They do readjust the visa dates on a monthly basis, and most recently they actually did move them forward to 2005 for some countries. So we were able to get a few visas pushed through. So, that will help us a little bit throughout the year. But you are talking 20, 30, maybe 40 visas at a time. So they are not big numbers that are going to change the trajectory of the business.

Tobey Sommer

One last question on this, if you were to get some movement, let's say at year-end or at any point in time in the next couple of quarters, how big is the queue of nurses that you have available, that are documented and gone through some licensing procedure that could start in comfortable position?

Susan Nowakowski

It’s fairly significant, several hundred and it is just a matter of when you could get them through. And quite honestly, how long some of them will hang on; you know part of the reason we need a very talented staff to remain on, even though we are not making a lot of new placements is to keep that pipeline fresh and engaged and ready to go. Once we have the floodgates open with visas available, we'll start putting them through the system and it will take anywhere from four to six months depending upon where they were in the process to get them placed. So you wouldn't see an immediate impact from it. It would really be probably a two-quarter impact before we would start to see revenues slowing.

Tobey Sommer

Thank you very much.

Susan Nowakowski

Thanks Tobey.

Operator

Thank you. And that does conclude the Q&A portion of our call. I'll turn it back to Ms. Nowakowski for closing remarks.

Susan Nowakowski

Thanks so much. I know many of you have had the pleasure of meeting our Chairman and Cofounder Steven Francis over the years. AMN is the realization of his vision to build the largest and finest healthcare staffing company in the nation. This April, upon the completion of his term as Chairman of the Board, Steve will step away from his AMN Board role to devote himself full-time to his campaign from the area of San Diego. I know I speak for all of us when I wish Steve our very best in his new venture.

And thank you everyone for joining our call today. We look forward to talking with many of you over the next few months and providing everyone with a further update on our performance during our first quarter earnings call.

Operator

And ladies and gentleman, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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