AMN Healthcare Services Inc (AMN) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2006 AMN Healthcare Services Conference Call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to your host, Mr. Christopher Schwartz. Please go ahead.

Good morning. I would like to welcome everyone to the AMN Healthcare Services Conference Call to discuss the Company's earnings results for the second quarter of 2006. For the call this morning, we have Susan Nowakowski, AMN's President and Chief Executive Officer and David Dreyer, AMN's Chief Financial Officer. A replay of this webcast is available at amnhealthcare.com/investors and will be replayed until August 22, 2006. Details for the audio replay of the conference call can be found in our earnings press release.

I would also like to mention our policy regarding forward-looking statements. As we conduct this call, various remarks that we make about future expectations, plans and prospects constitute forward-looking statements. Forward-looking statements are identified by words such as "believe," "anticipate," "expect," "intend," "plan,", "will," "may," and other similar expressions. Any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those identified in our Annual Report on Form 10-K for the year ended December 31, 2005, our quarterly reports on Form 10-Q 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 Developments subsequent to this call may cause these statements to become outdated.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.

Thanks, Chris. Good morning everyone and thank you for joining us today to discuss AMN's second quarter results. We appreciate your interest in AMN Healthcare and in taking the time to participate in our earnings call today.

We were very pleased with the solid performance of all of our business lines during the second quarter. Our physician staffing business continued to grow double digits year-over-year and our nurse and allied staffing business continued to grow in the high single digits. We are even more encouraged there by the increase in supply of our new nurse candidates during the second quarter and what this means to our volume growth potential during the remainder of the year.

AMN posted revenues of $261 million and diluted earnings per share of $0.21 for the second quarter. This represented an increase in revenue of 3% over the prior quarter reflecting growth across all of the Company's business lines. Revenue growth of 63% compared to last year was due primarily to our acquisition of the MHA Group last November, but also included organic growth in the nurse and allied healthcare staffing business.

The demand for all of our business lines remains robust even amidst a relatively soft hospital admissions environment. We believe the strength in demand continues to be driven by a tight labor market across all clinical disciplines and by the hospitals' increasing need for specialized physicians, nurses and allied healthcare professionals. Healthcare facility executives also continue to recognize the importance of ensuring that they have sufficient physician resources to drive and expand their own revenues and margins. This is evident in the strong growth of our physician staffing businesses - for example in our Merritt Hawkins Permanent Placement Services - which grew 22% over the same quarter last year.

In our largest business segment of nurse and allied healthcare staffing, revenues grew by 13% over the same quarter last year. This was primarily due to increases in our average bill rates which have been accumulating over the last four quarters but was also due to the addition of the Med Travelers allied brand and the RN Demand nursing brand that we acquired last November. The sequential 2% increase over the second quarter was noteworthy since it is not unusual for volume to decline in the second quarter due to typical seasonal trends. While Travel Nurse volumes have been relatively flat, we are expecting this trend to change and to begin to see noticeable increases in traveler accounts starting in the third quarter.

A primary driver of this expected volume growth is the increase that we've seen in our new nurse applicant volume. During the second quarter our high-need, new nurse applicants were above prior year levels by greater than 10%. This is the largest increase in this metric in over two years. We think this is a good sign of more overall interest by nurses joining the industry and we also believe this is a positive result of some of the marketing and recruitment related initiatives that we began at the beginning of the year.

While [it's not] a contributor to this overall segment, I have to mention that our allied staffing team at Med Travelers and our quick response brand team at Nurse Choice are doing an outstanding job of growing those businesses. Both teams delivered excellent service to our clients and record results to the Company during the second quarter; and they are on track to continue their momentum. We believe that these businesses represent solid growth opportunities within the overall nurse and allied segment of our Company.

Now turning to our physician staffing businesses - our locum tenans staffing business which is managed under the Staff Care Brand, continues to perform at very strong levels with revenue of $67 million for the second quarter. This was an increase of 18% over their prior year level and a sequential increase of 4% over the first quarter. The increase over the prior year was a combination of volume and rate increases while the sequential increase was mainly due to an increase in the revenue per day filled. Our physician permanent placement business managed under the Merritt Hawkins brand also continued to achieve strong results in the second quarter with revenue of approximately $13 million. This represented an increase of 22% over prior year and a sequential increase of 6% compared to last quarter. The team produced a record 230 permanent placements during the quarter and initiated over 580 new search engagements which will benefit future quarters as candidates are placed with clients. We believe that our Staff Care and Merritt Hawkins teams continue to out perform the industry and expand market share.

Our integration efforts are progressing very well. Our teams continue to focus on cross-selling and partnering opportunities with our clients and consolidation and building a stronger infrastructure for our allied healthcare brand. The teams are working together exceptionally well and we are already seeing the benefit of cross-pollination of management and sharing some best practices across our business lines.

So in conclusion, we believe that market trends are favorable across all of our business lines. We continue to benefit from the strength and demand for our healthcare providers and we are beginning to see supply increases which should translate into volume improvements in the second half of the year.

At this time I'll turn the call over to David Dreyer who will recap our second quarter results and provide you with an update on third quarter and full year guidance.

Well thank you, Susan. We reported revenue of $261 million for the second quarter, a 3% increase compared to the $254 million reported in the first quarter and 62% increase compared to the $161 million reported in the second quarter of last year. Diluted earnings per share in the second quarter of this year was $0.21 which decreased from the prior quarter mostly due to a $0.03 benefit realized in the first quarter from a worker's compensation insurance reserve reduction as well as increased SG&A expenses this quarter. Second quarter diluted earnings per share also reflected a $0.04 charge for stock compensation expense related to FAS 123R and compared to a $0.02 similar charge last quarter. Additionally, second quarter diluted earnings per share included a $0.02 tax benefit for an adjustment to our deferred income taxes as a result of recent changes in state income taxes.

Revenue from our nurse and allied healthcare staffing segment was $181 million in the second quarter representing a $4 million or 2% increase from the prior quarter. This growth reflected a 2% increase in revenue per traveler per day and one additional billing day. The $21 million or 13% increase from the same quarter last year reflected the inclusion of MHAs nursing and allied revenue along with a 10% increase in revenue generated per traveler per day due primarily to increases in our average billing rates.

Moving on to our physician staffing businesses, we modified our segment reporting beginning in the second quarter so that we now report our physician results under two segments rather than one. These new segments are the locum tenans staffing segment and the physician permanent placement services segment. Revenue from our locum tenans' staffing segment of $67 million for the second quarter grew 4% over the prior quarter due to a favorable billing rate mix of physician specialties especially within the surgery and radiology specialties. Days filled for the quarter of 49,534 was comparable with the first quarter days filled of 49,251. Revenue from our physician permanent placement staffing segment of $13 million for the second quarter grew 6% or 750,000 from the first quarter. Revenue growth in this segment has been impressive given 22% growth over the same quarter last year and last quarter's segment revenue growth of 7% over the fourth quarter. The strong revenue growth in this segment reflects growing demand for physicians and Merritt Hawkins' ability to drive increases in the average revenue per contract as a result.

Consolidated gross profit for the second quarter of this year was $70 million representing a gross margin of 26.8% as compared to 26.9% last quarter and 23.1% in the second quarter of last year. The 2.4% increase in the second quarter gross profit compared with the prior quarter was due largely to growth in the Company's physician staffing segments. The 88% increase in reported gross profit compared to the same quarter last year was due primarily to the Company's acquisition of MHA. Gross margins by segment for the second quarter of this year were 24.5% for nurse and allied healthcare, 26.7% for locum tenans and 61.2% for physician permanent placement.

SG&A expenses for the second quarter were $52 million including stock compensation expense of $1.8 million; this compared to $48 million for the first quarter and $27 million for the second quarter of last year. The increase in SG&A compared to the first quarter of this year was due mainly to focused spending on recruiting and marketing initiatives aimed at expanding both nurse supply and placements along with increased spending to support continued growth and investment in the physician staffing businesses. The increase in SG&A expenses as compared to the same quarter last year was mainly due to the addition of MHA. As a percentage of revenue, SG&A expenses excluding stock compensation expense were 19.4% for the second quarter compared to 18.3% for the prior quarter and 16.6% for the same quarter last year. We estimate that full year SG&A expenses excluding stock compensation expense as a percentage of revenue will average approximately 19%.

Net interest expense for the second quarter was $4.3 million compared to $4.1 million last quarter and $1.7 million for the same quarter of last year. The increase in net interest expense from last quarter was mainly due to additional interest expense from increased debt used to fund the repurchase of approximately 1.9 million shares of our common stock on May 15th. The increase in net interest expense compared to the same quarter last year was attributable to interest expense from additional debt used to fund the acquisition of MHA. The effective tax rate for the second quarter was 32.7% due to the deferred income tax adjustment; however, we estimate that the full year, effective tax rate will be approximately 40%.

Turning to our financial position, we generated $24 million in operating cash flow in the second quarter of this year and we had $210 million of debt outstanding at the end of the quarter. We used our cash flow during the quarter along with cash on hand and $30 million of new debt borrowings to fund the $38 million common stock repurchase in May and to pay down debt of almost $26 million during the quarter. Our Day Sales Outstanding, or "DSO," at June 30 was 55 days which was unchanged from last quarter.

Now, I'm pleased to provide you with updated revenue and earnings guidance for the third quarter and the full year 2006. Third quarter revenue is expected to range from $275 to $278 million and diluted earnings per share is expected to range from $0.21 to $0.23 which includes an estimated charge of $0.03 per stock compensation expense.

Based on strong year-to-date results and our improved visibility into the second half of the year, we are increasing our full year revenue and diluted earnings per share guidance with revenue expected to range from $1.06 to $1.07 billion and diluted earnings per share expected to range from $0.86 to $0.89 which includes an estimated charge of $0.12 for stock compensation expense; excluding the $0.12 stock compensation expense, our guidance for the full year ranges from $0.98 to $1.01.

This concludes our prepared remarks. We would now like to open the call up for your questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Tobey Sommer from SunTrust Robinson. Please go ahead.

Good morning. It's actually Mike Vincent for Tobey this morning. A couple of quick questions -- when you talk about volume growth for your nurses, was I correct in understanding that organic growth in the travel nurse business was essentially flat in the quarter?

In terms of volume growth that's absolutely correct. The volume growth has been pretty much flat sequentially and also really year-over-year as well on a pro forma basis.

Okay. And then could you discuss kind of the geographic trends maybe you are seeing in the business? Or are you seeing kind of certain areas of the country performing a little bit stronger on the nursing side?

Mike, there hasn't been a significant change in any particular region. I have seen a little bit more softness in the Southeast and that's been driven, I think, by some lower census levels down in that area which I think you even heard some of the public companies discussing. But I think because of our low customer concentration and geographic dispersion, we probably don't feel any geographic changes as much as maybe some of the other companies.

And I know it's a small part of your business but your Nurse Choice brand, can you kind of talk about some of the trends you are seeing there and kind of what you see for that business going forward?

I'd love to. That team has done an exceptional job. As you know we launched that about a year ago in response to our client's needs for nurses who can start very quickly - generally within a two week time-frame - and that team has done a terrific job of serving our clients and building that business and has really exceeded our expectations so far during this first year.

In terms of trends, we just continue to see strong demand growth in that area; continue to see supply coming in. It is a very small piece of our business being a newer brand for us; but we think it certainly has great growth potential going forward. And the demand, like I said, from our clients continues to remain very strong; and, as you know, that brand - because we are getting nurses to start very quickly - charges a premium to the client and clients still need the nurses to start very quickly and are willing to continue to pay the higher premiums to get them there.

Would you be willing to give us the sense, just kind of what the volume looks like or how large that business segment has gotten to be?

No. We've not broken out our individual brands. And I think I've said several times it's very small; so we're not talking about it impacting our results per se. But it has been a successful launch for us and the team continues to build a nice new niche in that segment of our business.

And just one last question if I could. Do you have a sense of what you're expecting share count from the third quarter?

Sure. Absolutely. Third quarter we're estimating our average fully diluted shares to be about 33.9 million and for the full year 2006 the average is about 34.3.

Thank you very much.

And your next question comes from the line of Jim Janesky from Ryan Beck & Company. Please go ahead.

Yes. Good morning. Within your, specifically, your nurse travel segment, can you give us an idea first what gives you a comfort level looking out over the next -- that the next six months is going to be better from a volume perspective - not from a pricing perspective which seems to continue to come in pretty strong - but what gives you comfort from a volume perspective that things are improving?

For example, have hospitals changed any of their spending or purchasing - if I could say habits - or is there something that you are specifically doing that you think you might be taking market share?

Sure, Jim. On the demand side there haven't been material changes. It continues to be a strong demand environment; but it really hasn't changed significantly over the last six months. What has changed for us is that we are getting a higher level of supply - new candidates supplying with our brands and we started to see that happening kind of late in the first quarter, early in the second quarter and that has helped to drive greater placement volumes.

So what gives us confidence going into third and fourth quarter? First of all, we're sitting here halfway through the third quarter so we know what our volume is certainly through August and since we're generally placing people about a month in advance we have a large portion of our September travelers already booked to start assignments or they are already on assignments. So we generally have had good visibility on our volume for the current quarter.

What gives us further confidence is our placement volume in the second quarter was up on a year-over-year basis - mid-single-digits - which was the highest year-over-year increase we've seen in a couple of years. And it was up sequentially from the first quarter as well. So we definitely are seeing our ability to convert that new supply into volume for the future. Additionally, our team has done a great job of converting existing supply - current travelers who are already in our active database that maybe haven't been traveling with us for awhile - so the new supply and the conversion of our existing supply have contributed to placement volume.

Really all of our metrics across the board - our re-book rate is up year-over-year, recruiter productivity is up year-over-year and sequentially; recruiter staffing is very solid for us right now. We currently have the highest number of recruiters in production that we've had in two years. And, again, the most important driver is the new supply that we have coming in which we think is a positive sign for the market but also we believe is a reflection of the initiatives that we put in place at the beginning of the year.

Okay. Shifting over to the SG&A side and the investments that you've made not only in the physician temp and perm business but also in marketing and recruiting, what time frame do you expect those to wind down and we could start seeing some leverage from those investments?

Well, we were pretty clear originally in the guidance that the three initiatives we talked about - which was marketing related, recruiting related and also the international; international is clearly longer-term, that's going to be well out into 2007 - with the marketing and the recruiting initiatives, we really expected to get some volume traction in the second half of the year. So is it contributing to some of the growth for third quarter and fourth quarter? Absolutely; but it's also going to help us in 2007 as well. So we're seeing some results; but, again, we expect those results to continue into '07, as well.

But you do expect to continue to have SG&A - or to continue to make investments through 2006. What my question is --

Yes.

-- when would you expect to stop making those? It's going to at least go through 2006? Is that correct?

That is correct. And maybe another word to phrase it is we're really expecting revenue growth and gross margin growth as a result of these investments and then what you would see, then, is our percentage of revenue in terms of SG&A spending would presumably come back down. Our pro forma base line in '05 was 18.5% so the 19% we're guiding this year is higher. Assuming that we do have revenue growth in '07, then yes, you would expect it to maybe come back more in line to somewhere in the 18% category.

Okay. Thanks. And then finally is there anything unusual about either the physician, temp or perm business on a seasonal basis in the third and fourth quarter?

No significant seasonality in those businesses, particularly in the perm placement business. The fourth quarter in the locum's business can be somewhat affected by the holidays and the number of billing days that you have because some of your clients close down during some of the more significant holidays. But it's not as much of a seasonal fluctuation as we see, say, in the nursing business.

Okay. Thank you.

Thank you.

And your next question comes from the line of Billy Dearman from Atlas Capital. Please go ahead.

Hi guys. First question I had, I wanted to get - one question - on the SG&A side, what was the total SG&A spend?

The total SG&A spending in terms of the absolute dollars is $50.6 million in Q2 and then there's a $1.8 million of stock comp expense and so then we're reporting that as $52.4 million. There's an accounting rule that in essence asks us to now include the stock comp.

Right.

However, when we talk about percentage of revenue which is really, as you know, how we've been guiding and measuring our SG&A spending, we prefer to do that without the stock comp and that's why I quoted the 19.4% this quarter and the run rate of 19% - that is without the stock comp.

Okay; 50.6 and 1.8. And then the other question I had was with regard to second half guidance from an earnings standpoint. The tax rate that you are using for EPS in third quarter and fourth quarter, since you said that it's going to be 40% for the year, am I to assume that third quarter and fourth quarter will be higher than 40% to get the overall trend up to 40?

Not really. We're guiding -- I think more my message was, you know, third quarter/fourth quarter that 40% rate is our more normalized effective rates. You are right that given that the second quarter effective tax rate came down quite a bit that you're going to expect the full year rate to be lower than 40% but my message was more to guide the second half of the year - you should be using an effective rate of like 40%.

Okay. Thank you very much.

Your next question comes from the line of Michel Morin from Merrill Lynch. Please go ahead.

Yes, good morning. Hello, can you hear me?

Hi, Michel. Yes.

Yes. Hi. Could you provide us with the operating margins by segment?

Sure. We have basically -- usually talk about EBITDA margins. Let me just quickly get to there. The EBITDA margins in the second quarter broken down by -- sorry. The total combined EBITDA -- I'm sorry. I'm getting the wrong information here.

The second quarter combined EBITDA margins for the quarter was 7.4%. The nursing was about 6.2%, the physician combined is 9.7%. We haven't really been breaking it down in terms of the locum's or the perm placement. We're not really in a managing - in terms of SG&A - at that segment level. But the 6.2% on the nursing, approximately 10% on the physician side, came up with a combined EBITDA margin of 7.4% for the quarter.

Okay. Thank you. And then the nursing and allied revenue growth of 12.9% - I don't know if I missed this in the prepared remarks but - what percentage of that or how much of that was organic? In other words, what was the impact of the acquisition?

On the revenue growth in terms of our acquisition, it's fairly small. I guess if you wanted to look at the traveler account numbers we've basically been acknowledging that the contribution by RN Demand and Med Travelers is under 300 travelers basically for the quarter. So basically I think if you break down the growth this quarter on a year-to-year basis, probably roughly half; 50% of the new businesses added on and our own growth at AMN.

Okay. Great. And then just a follow-up on the previous question on the taxes, could you remind us what you're expecting in terms of cash taxes this year?

The cash tax is going to be maybe not exactly zero but pretty close to zero dollars. Again, we had a large NOL as a result of several things - from the acquisition of MHA due to the NOL from them, basically their restricted shares vesting from change of control; so we're expecting it to be pretty close to zero this year, Michel. Again, the book rate we're guiding 40% for the second half of the year so that's probably going to put you at a book rate somewhere around 38, 38½% for the full year.

Great. Thanks very much.

Your next question comes from the line of Gene Mannheimer from Caris & Company. Please go ahead.

Thank you. Good morning. Nice quarter. Susan, you mentioned your recruiting efforts certainly paid off in the quarter here looking forward. Could you talk a little bit about the composition of that nurse pool, i.e., coming out of school, international, seasoned bed-side experience? What's the make-up of the supply?

Well, we're talking primarily about domestic supply when we talk about that greater than 10% growth over the prior year. And there's not that a significant change in the demographic in terms of years of experience or the specialty areas. We're certainly more focused on the higher specialty areas where we have the greatest demand in trying to match our marketing dollars to where we have the greatest demand from our clients. So we've seen a slight increase in our specialized nurse recruitment; but that's been more because of our focus on trying to bring in the right supply to match the demand of our clients.

Okay. Thank you.

And your next question comes from the line of Avram Fisher from BMO Capital Markets. Please go ahead.

Thanks for taking the call. What is allied health as a percent of total revenues?

We don't break it out. We include it in the nurse and allied segment because it's really not material enough to call out as a separate segment. So we really don't give that out as it's not material.

Okay. And last quarter you gave operating profit by segment. Can you provide that for this quarter as well? Thank you.

Well, again, in terms of EBITDA - is what we normally talk about - the EBITDA percentages I just quoted a second ago which was basically we did 7.4% on a combined basis; 6.2% for the nursing and allied; 9.7% on the physician. That was based on the quarter EBITDA of 11.1 million on the nursing and allied and 8.3% on the physician business.

Okay. Thank you.

And your next question comes from the line of Neil Collins from Investors Capital. Please go ahead.

Hi guys. Thanks for taking my call. Most of my questions were answered. I did have a question. I don't completely understand the deferred on the balance sheet - the deferred income taxes. Did you say that's all a result of net operating losses from your acquisition?

This is a pretty long explanation so maybe we ought to do it off-line but very quickly, especially when you look at the 10K, you would see some very notable changes in the deferred taxes and, yes, that was largely driven by these NOLs related to the stock compensation expense from the restricted shares at MHA vesting; and there's intangibles. So when you look at the change, basically, at fourth quarter that was very notable.

I think the bigger news now is like what happened this quarter; this second quarter really had to do with our deferred's related to the state of Texas. Texas did change into law in May that basically there's that new method of calculating corporate taxes beginning in 2007. It's going to be based on a gross profit instead of a taxable income and it's a lower rate - a 1% rate - versus the 4½% rate used on taxable income. That then required us to go back and revisit all of our deferred taxes as to whether they would still qualify in this new method of calculation. And also because of the change of rate we had to revalue. So that's where that adjustment came from this quarter.

Okay. So as somebody had mentioned, the income tax expense you figure in a zero cash expense for the year?

On a cash basis, close to zero. Again, we're managing it with the benefit of the NOL from the beginning of the year so we're expected to be pretty close to that.

So this income tax expense on the income statement is not reflected in the cash flow?

The expense on the -- it's not necessarily in terms of the -- the cash tax is obviously going to be different than what's on the book rate. So that's a differential; so you're seeing that obviously in our balance sheet. I've said close to zero. There's going to be some cash taxes paid on some of the state taxes; so it's not going to be exactly zero. But it's going to be pretty small. I'll estimate maybe $1 million to $2 million at the most. But it is a difference, a definite difference, relative to our cash taxes and our book taxes.

Okay. The other question I had was on the other current liabilities. They obviously kicked up a lot, I'm sure, as a result of the acquisition. What are in those other current liabilities? I presume - are there reserves in the other current liabilities?

Basically, in the other current portion basically you're going to see things like our professional liability reserve, that's our nurse professional liability and malpractice reserves. Don't forget at year-end we also had a large amount of reserves related to the earn-outs from MHA. Now, here in the second -- that was settled in the first quarter. We also have a hold-back reserve which basically is related to the acquisition that won't get settled until the first quarter/second quarter of 2007. So that's largely making up the balances of the other liabilities.

Okay. Do you expect to reverse any of those reserves?

Well, as I just mentioned the hold-back liability will get reversed March/April of '07.

Right. I'm sorry. Let me rephrase that. Do you expect to reverse any of those reserves in the next two quarters of this fiscal year?

No. Not significantly. No.

Okay. Thanks.

And your next question comes from the line of Bruce Ackerman from Sandhill Equity Research. Please go ahead.

Good morning. Susan, I just had a clarification I was going to ask of you. You mentioned earlier the phrase - new high-need nurse applicants - when you were discussing the increased RN supply. Do you, in any of your brands, hire new graduates?

We recruit new graduates to begin talking with our recruiters but they generally cannot begin to work with us until they have at least 8 to 12 months of experience within the hospital. And actually our average new applicant generally has far more than that. But that's important because as you look at the number of new nurses that are coming out of schools over the next couple of years, you're going to have a significant increase of those nurses that have 1 to 5 years of experience and that is our largest recruitment demographic. So we're very optimistic about what that will mean to our future supply.

Okay. Thanks.

And your next question comes from the line of Jeff Silber from BMO Capital Markets. Please go ahead.

Thanks. I apologize. I got on late so if this question's been answered already just ignore me. In terms of your guidance for the current quarter, did you give any expected sequential trends by business line and also any type of margin guidance that makes up your EPS guidance?

We really didn't other than, I think, Susan indicated that we were seeing some expected traveler count increases in the third quarter, but we didn't get specific as to quantifying that; so the revenue growth which is basically 5% to 7% sequentially over Q2 - that 274 to 278 - we didn't break down an earnings per share of $0.21 to $0.23 over the $0.21 this quarter.

Would it make sense to see a bit stronger growth sequentially in the perm business? I know one of your competitors typically sees a lot of seasonality in the third quarter.

Susan already had the question but we really don't see the seasonality in our perm business. It's actually -- we've shown in the last couple quarters it's been growing fairly consistently. But, no, we're not expecting seasonality in the perm placement business the second half of the year - Q3 or Q4.

Okay. Appreciate the comment. Thanks.

[OPERATOR INSTRUCTIONS] You have a question from the line of Tom Zeifang from [Inaudible] Capital. Please go ahead.

Good morning. You made a comment about placements in Q2 being up mid-single-digits, highest in the last few years. Can you expand on that?

As I said, there's all of our - well, most all of our metrics have been positive and up on a year-over-year and most on a sequential basis as well. And I think that placement volume growth has been driven by continued strong demand, by increase in supply that we began to see early in the second quarter and by increases really and sort of all of our key drivers - recruiter productivity, having the right number of recruiters on the floor, strong rebook rate, stronger conversion of our existing supply - and so that makes us very confident and optimistic about potential volume growth in the third quarter and even going into the fourth quarter.

Just out of curiosity what's the conversion rate in the second quarter versus last year?

Those aren't metrics that we provide externally. They all tend to roll up into placement volume which ultimately rolls up into traveler count which is something that we provide when we report our results. But we generally don't give specific metrics on any of those areas.

Okay. Thank you.

And your next question comes from the line of Tobey Sommer from SunTrust Robinson. Please go ahead. Tobey Sommer, your line is open.

Hello? Can you hear me?

Yes.

Okay. Sorry about that. I had a question regarding your, kind of, optimism and third quarter traveler count. It seems like you are seeing that that trend is starting to pick up. Just wondering what, kind of, bill rates and more importantly what pay rates have done. I was just wondering if maybe there has been some price increases for the nurses as well that may be driving them more to do business with you?

If you look at our bill to pay spread it's been pretty stable, pretty consistent throughout the year. So, yes, we certainly are passing on some of the bill rate increases to our nurses and we think that's the right thing to do in order to incent supply and that's why you've seen our gross margins remain relatively stable because we're keeping that spread pretty consistent.

In terms of pricing trends, we continue to see strong increases in our renegotiated rates; in fact, if we look at the second quarter and the number of contracts that we renegotiated and what percentage increase those were renegotiated at, it was the highest that we've seen in the last four quarters. So pricing growth continues to remain strong and robust and, if anything, picked up a little bit more momentum in the second quarter. We think that does give us a good tool to use to continue to pay the nurses more and incent them. But that's not necessarily going to translate into a greater bill to pay spread.

Thank you very much.

And at this time there are no further questions.

Okay. Well, I'd like to thank you for joining us today and certainly for your continued support of AMN. We believe that the results that we discussed today reflect favorable market trends across all of our business lines as well as excellent performance by the entire AMN team.

Moving forward, we believe that we will continue to benefit by being diversified in the most attractive segments of the healthcare staffing industry today. We look forward to updating you on our progress on our next earnings call.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.