AMN Healthcare Services Inc (AMN) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare Fourth Quarter and Full Year 2011 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions being given at that time. (Operator Instructions.) As a reminder, this call is being recorded.

I would now like to turn the conference over to your host, Vice President of Investor Relations, Amy Chang. Please go ahead.

Good afternoon everyone. Welcome to AMN Healthcare's Fourth Quarter 2011 Earnings Call. A replay of this webcast will be available until March 29, 2012 at amnhealthcare.com/investors. Details for the audio replay of the conference call can be found in our earnings press release.

Regarding our policy on forward-looking statements, various remarks and characterizations we make during this call about future expectations, projections, plans, prospects, events, or circumstances constitute forward-looking statements. Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, may, and other similar expressions.

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, 2011, and other periodic reports, which have been filed with and are publically 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 it. Development subsequent to this call may cause these statements to become outdated.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.

This call may also contain certain non-GAAP financial information. From time to time we make available additional information regarding non-GAAP financial measures including pro forma measures in the earnings release and on the Company's website.

On the call today are Susan Salka, our President and Chief Executive Officer, as well as Brian Scott, our Chief Financial Officer. Joining us during the Q&A session will be Ralph Henderson, our President of Healthcare Staffing, and Bob Livonius, our President of Strategic Workforce Solutions.

I will now turn the call over to Susan.

Thank you so much, Amy. Good afternoon everyone and welcome to AMN Healthcare's 2011 Full-Year and Fourth Quarter Earnings Conference Call.

2011 was a year of continued market recovery, solid execution, and further innovation in the workforce solutions that we provide to our clients. For the full year we grew consolidated revenues by 11% and adjusted EBITDA by 40% on a pro forma basis. Adjusted EBITDA margin for the year was 7.2%, which was a 150 basis point improvement over 2010.

Our growth in operating leverage was driven by several key factors. First, the Travel Nurse division experienced full year pro forma revenue growth of 32% and adjusted EBITDA growth of 71%. This impressive growth reflects the strength of our MSP client relationships, our recruitment strategies, and the ability to leverage our infrastructure. Of course, none of this is possible without maintaining a very keen focus on the quality of our healthcare professionals that we source and select for our clients.

A second factor was the revenue synergies we enjoyed from our combination with Medfinders, which enabled our team to significantly improve fill rates. Our more powerful integrated sales team led the industry in MSP growth, winning over 20 new MSP clients in 2011 with an estimated $80 million in annualized gross spend under management.

A third factor was the successful integration of the Nurse and Allied brands into one platform. This contributed to the improvement in operating margins in this segment of 220 basis points on a pro forma basis. In addition to solid execution, we have further evolved our suite of workforce solutions to provide greater value to our healthcare clients.

The pace of change has accelerated in healthcare, and hospital executives are increasingly seeking more sophisticated solutions and partners. The hunger for new and innovative solutions is stronger than we have ever seen. The rapid growth of MSP clients is the best example of this trend. We helped these clients to gain more control, visibility, and consistency in the utilization of their clinical labor while also improving quality and compliance.

Penetration of MSP is strongest in nurse staffing but has also been growing in the allied healthcare business over the past year. During the fourth quarter, approximately one-third of our Nurse and Allied revenues were generated by MSP clients. This is a significant increase since 2009 when MSP revenues represented only 6% of our Nurse and Allied revenues.

Based on insights from clients and what most believe to be a natural progression within the industry, we believe that there will be a similar shift towards MSP arrangements in the Locum Tenens market. All signs point to continued growth in MSP penetration, and as the most experienced provider in this space, AMN is well positioned to capitalize on this trend.

Over the past year we have also made further advancements in our workforce solutions through the growth of our RPO business and other workforce-related consulting services. In addition, we also continue to grow our EMR Staffing business. These consultative workforce solutions doubled in size in 2011, and they differentiate us with our clients.

Over the past two years great progress has been made in shifting the procession of our services from what was once a necessary evil to being seen today as an effective way to manage workforce expenses. These higher margin businesses also help us to make progress towards our goal of returning to a 10% adjusted EBITDA margin in the next three to five years.

Now, let's turn to our current results. We are pleased to report consolidated fourth quarter revenues of $222 million, which was down 3% sequentially and up 8% year-over-year. This was at the upper end of our guidance of $219 million to $223 million. These results exclude our Home Healthcare segment, which were considered discontinued operations.

Fourth quarter Nurse and Allied revenues were $148 million, which were flat sequentially and up 16% year-over-year. This growth was driven mainly by the Travel Nurse business where revenues were flat sequentially and up 26% year-over-year. While we hit our peak volumes for Travel Nursing in November, we typically see a softening over the holidays due to the fewer travelers on assignment and fewer hours being worked.

For the first quarter of 2012, Travel Nurse volume is expected to be up over 5% sequentially and in the mid-teens over prior year. The continued growth has been driven by the addition of more MSP clients, increased supply of candidates, improved fill rates, and strong rebook rates.

While volume is up in the first quarter, our current open orders are down slightly year-over-year, which we attribute to a weaker flu season and our improved fill rates. Over the past few weeks we have seen an improvement in new orders and with the number of facilities that have orders open.

The leverage and efficiency inherent in our MSP delivery model has also contributed to our improvement in margins for this business. As an example, the Travel Nurse division fourth quarter operating margin improved by 400 basis points year-over-year at the same time we continue to grow our MSP client base.

Fourth quarter Travel Nurse average bill rates were up 2% year-over-year. We expect this trend of modest bill rate improvement to continue throughout 2012. In fact, we are expecting the first quarter bill rates to move up closer to 3% year-over-year. However, we will pass along an appropriate amount of this increase as compensation so that we can ensure that we attract the best healthcare professionals for our clients.

We also anticipate continued upward pressure on temporary housing costs. So you should not expect gross margin expansion from these bill rate increases.

Fourth quarter revenues for local staffing were $24 million, which was up 1% sequentially and 2% year-over-year. Going into the first quarter we expect revenues from local staffing to be down sequentially due to the seasonal flu clinic business that we experienced in the fourth quarter and the lack of any meaningful flu-driven census so far in 2012.

Year-over-year revenue growth in local staffing may be stagnant for a few quarters as we recently underwent a strategic rationalization of our geographic footprint and we eliminated eight underperforming offices. These offices were primarily in rural areas and generally had low profitability and less future potential to serve or grow our MSP clients.

Closing these offices will enable us to reallocate resources and better serve existing and future MSP clients in the larger metropolitan areas. As an example, we are in the process of opening a local office in New York City to serve a very large MSP client that we implemented in the fourth quarter and to serve other clients in the area.

Fourth quarter Allied revenue was $30 million, which was down 3% sequentially and up 2% year-over-year. The sequential decline was due to normal seasonality as clients operate at reduced service levels during the holidays. Going into the first quarter we expect a modest sequential improvement driven by volume growth in our Therapy business. Although there are certainly some headwinds in reimbursement rates for our skilled nursing clients, we continue to experience strong demand for therapists overall and we're focused on growing our therapy supply.

We have also experienced recent improvement in our margins, our fill rates, and our rebook rates. Today approximately two-thirds of our Allied business is in the therapy disciplines, and the remainder is in imaging, respiratory, and lab techs.

In our Locum Tenens segment, fourth quarter revenues were $65 million, down 10% sequentially and 7% year-over-year. Although most of the sequential decline was due to normal seasonality, there was also the continued market-driven impact of volume decreases in radiology, surgery, and anesthesia. Our Government division, which supplies all specialties, also experienced greater softness due to funding delays and budget constraints. Going into the first quarter, overall Locum's revenues are expected to be relatively flat.

This week Sean Ebner joined AMN as the new President of our Locum Tenens division. We are very excited to have Sean join the AMN family. He has a proven track record of success in the staffing industry, and his extensive sales leadership, operations, and business development experience make him ideally suited to lead our Locum Tenens business. Most recently Sean led a very successful division within Technisource, a subsidiary of Randstad. We look forward to the positive impact that Sean will have in growing our top line revenues and our profitability within Locums.

Sean will report directly to Ralph Henderson, whose responsibilities were expanded to cover all of our temporary staffing businesses. This reporting structure will help to better capture the cross-selling opportunities that exist across our service lines. Over the years Ralph has demonstrated a proven track record of industry-leading revenue and profitability growth, and we are very pleased to expand his role to President of Healthcare Staffing.

In Physician Permanent Placement, fourth quarter revenues were $9 million, up 2% sequentially and flat year-over-year. The Physician search market continues to be steady and may be revealing some signs of growth ahead. We are expecting first quarter searches to be up sequentially and year-over-year. We also continue to focus on maintaining marketer and recruitment bench strength to ensure we are able to achieve high fill rates on our active searches.

We have been able to continue to also monetize our thought leadership expertise through projects and surveys that leverage our extensive relationships and database of clinicians. A good example of this is a follow-on survey where we are engaged in a partnership with the Physicians Foundation to complete one of the largest physician surveys ever conducted in the US.

On January 30th we completed the sale of our Home Healthcare business, and we used the proceeds to pay down our debt. This divestiture enables our leadership team to focus 100% of our attention on our workforce solutions staffing and recruitment businesses.

As hospital executives seek to transform their business models, they are more open then ever to implementing innovative solutions to manage their clinical workforce. Our leading position in workforce solutions has more clearly differentiated AMN and the added value that we bring to the client.

Beyond our success in the MSP space, another confirmation of our reputation as a leader in workforce innovation is our recent recognition as Supplier of the Year by Novation. They are the largest group purchasing organization in the country. This prestigious award was based on our high level of strategic partnership and compliance with their quality standards. This is an example of our differentiated approach to partnering with healthcare organizations.

This type of national recognition and the positive results we are reporting today are made possible by our committed and highly-engaged team members and the healthy culture that they create. As a true people business, we are proud to have the most talented, experienced, and passionate team in the industry. I would like to thank everyone for their unique contributions that enable us to serve our clients, our healthcare professionals, and our shareholders.

What we are seeing today is the powerful combination of having a highly engaged and capable team coupled with a strategy that puts our clients needs and goals at the forefront of everything we do. I will come back to you in our Q&A session, along with Ralph and Bob, to help answer your questions, but for now I will turn the call over to our CFO, Brian Scott.

Thanks, Susan. Good afternoon everyone. As previously mentioned, with the recent sale of our Home Healthcare business, the operating results for this segment have been classified separately as discontinued operations for all periods reported.

Fourth quarter revenue from continuing operations was $222.1 million, up 8% from last year and down 3% from last quarter. For the full-year 2011, we reported revenue of $887.5 million, a 32% increase from 2010.

Our gross margin for the quarter was 28.3%, up 80 basis points from last year and up 50 basis points from the last quarter. The increase from both periods was from improved gross margins in the Nurse and Allied segment. Full-year 2011 gross margin of 28.1% included favorable worker's compensation adjustment and the realization of deferred revenue from the adoption of a new accounting standard in our Physician Permanent Placement segment. Excluding these items, gross margin improved from the prior year by 10 basis points, but more importantly ended the year at its highest point.

SG&A in the quarter totaled $49 million, which included approximately $300,000 of cost associated with the integration of Medfinders. Excluding acquisition and integrations expenses, SG&A as a percentage of revenue of 21.9% decreased from the prior year by 170 basis points and increased 40 basis points sequentially. The significantly improved leverage from the prior year resulted from achieving the targeted integration synergies from the acquisition. Also, the impact from operational changes implemented over the last several years as well as the prior year having an unusually high bad debt expense.

Our Nurse and Allied segment revenue increased sequentially by 0.3% to $148.1 million. Volume grew 0.3% sequentially to 5,317 healthcare professionals, and revenue per day was essentially flat on slightly higher bill rates offset by the typical seasonal decline in hours worked. Nurse and Allied gross margin increased year-over-year by 130 basis points and sequentially by 80 basis points to 27.4% due in part to improved bill pay spreads more than offsetting an increase in housing costs.

Fourth quarter Nurse and Allied operating income was $18.1 million or 12.2% of revenue as compared to $15.2 million or 10.3% of revenue in the prior quarter. This is the highest operating margin for this segment since 2008. The sequential increase in operating margin was due to the higher gross margin along with lower fourth quarter professional liability costs. The third quarter also included about $600,000 of cost associated with closing our UK office.

The operating margin improved by 380 basis points year-over-year due in large part to cost synergies from integrating the Medfinders Travel Nurse and Allied businesses and improved operating leverage, as well as the higher gross margin. For the full-year 2011, Nurse and Allied revenue was $570.7 million, up 54% from the prior year. Segment operating income of $62.8 million or 11% of revenue compares to the prior income of $35.3 million or 9.5% of revenue.

Our Locum Tenens segment revenue decreased 10% from the prior quarter reflecting a 7% decrease in days filled and a 3.5% decrease in revenue per day filled. Gross margin of 25.5% was up by 10 basis points from the prior year but down sequentially by 50 basis points due in part to lower perm placement conversion revenue. Locums operating income of $3.9 million or 6.1% of revenues compares to $6.3 million or 8.7% in the prior quarter with the decrease related mainly to the lower revenue. For the full year, Locum Tenens segment revenue was $277.9 million with segment operating income of $21.7 million. This compares to prior year revenue of $264.7 million and operating income of $22 million.

Within our Physician Permanent Placement segment, revenue increased sequentially by 2% due in part to an increase in placements made. On a year-over-year basis, revenue was relatively flat. The impact from adoption of a new revenue recognition standard in 2011 is essentially complete with a benefit of less than 100,000 in the fourth quarter.

Physician Permanent Placement operating income for the fourth quarter was $2.2 million or 23.1% of revenue. For the full year, Physician Permanent Placement revenue was $38.9 million as compared to $34 million in the prior year with the increase impacted by the revenue recognition change. Segment operating income of $10.6 million compares to the prior year operating income of $8 million.

On a GAAP basis we reported fourth quarter pre-tax income of $4.4 million and full-year pre-tax income of $13.9 million. This excludes the Home Healthcare operating results and associated goodwill and non-cash intangible asset impairments of $7.7 million and $31.2 million for the quarter and full year respectively.

Excluding the integration and credit agreement amendment costs, our adjusted full-year effective tax rate from continuing operations was 58%. However, due primarily to the continued utilization of certain tax benefits from the Medfinders acquisition, our net cash taxes paid in 2011 was less than $500,000. During the next five years we still anticipate being able to utilize over $20 million of cash tax benefits from the Medfinders acquisition.

Diluted earnings per share from continuing operations was $0.04 for the fourth quarter and $0.11 for the full-year 2011. Excluding the Medfinders integration expenses and credit facility amendment cost, adjusted earnings per share was $0.04 in the fourth quarter and was $0.16 for the year.

Operating cash flow for the quarter was $6.5 million and for the full year was $19.3 million. Capital expenditures for the fourth quarter were $1.1 million and for the full year were $4.6 million. Day sales outstanding excluding the retained Home Healthcare accounts receivable were 57 days compared to 55 days in the last quarter and 53 days last year. The yearend increase was partly related to an anticipated temporary impact from consolidating Medfinders collections into our shared services model. During 2012 we expect this transition to be both operationally more efficient and to ultimately reduce DSO.

As Susan noted, on January 30th we completed the sale of our Home Healthcare business and received cash proceeds of $9.65 million and retained the majority of the working capital. As of December 31st our cash and equivalents totaled $4 million and our total debt outstanding under our credit agreement net of discount was $205 million. Subsequent to yearend we made a $5 million voluntary payment on our long-term debt and paid off the $3 million balance on our revolver.

Now let's turn to our guidance for the first quarter. Consolidated revenues are expected to be between $224 million and $228 million, which represents a 1% to 3% sequential increase. This sequential increase is driven by continued growth in the Nurse and Allied staffing segment with flat revenues in the Locum Tenens segment. Gross margin is anticipated to be between 27.5% and 28%. SG&A expenses are expected to be approximately 22% of revenue. And adjusted EBITDA margin is expected to be approximately 6.5%.

I would also like to provide some other financial estimates for 2012. We anticipate full-year 2012 depreciation and amortization expense of approximately $15.5 million. Interest expense for the full-year is expected to be around $20.5 million, which includes $3.5 million of non-cash amortization of deferred financing costs and original issue discount.

Based on current full-year forecasts, our effective income tax rate should be approximately 50% with a cash tax rate closer to 25% taking into account the utilization of the previously noted tax benefits. Share count should be in the 46 million to 46.5 million range.

And finally, capital expenditures are expected to be between $6 million and $8 million, an increase from last year but still below historic levels and less than 1% of revenue. This increase will be primarily targeted at several innovative investments in marketing, mobile, and social media technologies in order to drive improved recruitment, conversion, and retention of healthcare professionals as well as back office system enhancements to drive longer-term operational efficiency.

And with that, we'd like to open up the call for questions.

(Operator Instructions.) Our first question comes from the line of A.J. Rice with Susquehanna Financial. Please go ahead.

Hi, A.J.

Hi everybody. Maybe just a couple of different questions if I could get a couple of technical ones first. How much working capital -- how much of the net investment tied up in Home Health you're hoping to collect on, just curious? How of that is on the balance sheet at this point?

As we said at the -- on the press release on the sale, the target working capital when we originally negotiated the deal was about $4 million. At the closing it ended up a little bit higher than that, and we expect to be able to realize all that over the next six months.

Okay. So that's basically receivables there that you're --

The bulk of that is AR and then just normal accrued compensation and other liability, so as I said, you'd normally expect to see most of that unwind over the next six months.

Okay. And then second, I (technical difficulty) about a worker's comp and deferred revenue recognition. Was that in this quarter or was that in last -- last year's quarter? I'm sorry I missed -- must not have heard the comment.

Sure. You kind of cut out a little bit there, but I think I heard that you're asking about the revenue recognition and the worker's comp?

Yes.

The worker's comp adjustments were in the first and third quarter. There weren't any in the fourth quarter at all.

Okay.

And then on the deferred revenue, the majority of that was in the first two quarters of the year with much smaller impact in the --

Right.

Quarter.

Okay. And then on the Locum Tenens business, it sounds like the volume adjustments your saying is -- or the year-to-year volume trend or sequential volume trend is -- replacement trend is mostly due to hospital volumes. I just want to confirm if that's what you think. And then therefore, I guess if possible, volumes stabilize, you'd see that flatten out. Is that the main driver of what you're seeing?

And then on the year-to-year price -- the pricing change to 3%, is that really a mix or is there, on an apples to apples basis, some pressure on price?

Sure, A.J. Well, on the first part of the question in volume, yes, certainly if we see census continue to stabilize or even grow, that would be positive. But our softness has been more in the kind of radiology, anesthesia, surgery related areas so they -- it does have to be more specific to elective and general surgeries, I think, for us to see some improvement in a couple of those specialties.

If you look at the last year as an example, primary care actually grew quite nicely in 2011, was up double digits. But we unfortunately saw double digit declines in surgery, radiology, and anesthesia, which offset that.

Regarding the 3% revenue per day filled is a combination of both true bill rate declines in those areas I just mentioned, particularly radiology where they've felt the hardest impact of reimbursement changes that have been made over the last five years and just continue to feel pricing pressure in that business. But also there was a reduction in the on-call hours and the overtime hours, and specifically in those specialties as well as those providers look to find ways to cut their costs overall. They're hiring fewer locums in those areas and they're wanting to pay them less, and when they do hire them they don't want to pay them overtime and they don't want to put them on-call.

Okay. All right. That's helpful. Just my last question. On the nurse staffing where you're seeing some strength, how much -- I mean obviously you're having some success with the MSP benefit. How much is sort of -- maybe can you delineate between that and the underlying market tone? Are you grabbing share through the MSP additions or is it -- and how does that compare versus what we're seeing overall in the market place.

Sure. We're definitely seeing improvement in market share through winning MSP contracts as we look back to the 20 contracts that we won throughout 2011 as an example. Some very key ones and large ones did come from other competitors. And even those that didn't where they were more traditional competitive accounts, where there was no previous MSP, we're picking up share there because typically in a non-MSP client our fill rates are about half of what we would expect when we actually are the MSP provider.

And so we pick up share really in either situation when we win in MSP. But we're also seeing improvement in the traditional business. We do measure our orders and our traveler count based on both MSP and what we consider sort of the traditional competitive accounts.

So Ralph, you want to add anything?

Yes. The growth in the MSP is about -- 60% of the growth comes from the MSP portion of the business. About 40% comes from the traditional clients, which implies that there's good demand in kind of both segments.

Okay. That's helpful. That's good. All right. Thanks a lot.

Thanks, A.J.

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

Thank you so much. Forgive me, I may have missed some of the comments, but your gross margin in the Nurse and Allied segment were fairly high. I'm assuming that's the reason that your overall gross margins were ahead of guidance. Is that something that you think you can sustain into the first quarter and the rest of the year? Obviously I know there's some payroll reset, but disregarding that.

The margin in the fourth quarter was probably the main driver of us being above -- above our guidance range. And we did have -- it was a little better than we really expected as well. So as Susan mentioned earlier, we are getting bill rate increases, but we also are planning to pass along the majority of that to both drive more supply as well as to offset the housing cost increases.

So I would expect that our margins would remain where they are or they could come down slightly as we look into 2012. We had just some good outcomes in the fourth quarter that lifted it a little more than we would expect.

Some of these other workforce consulting and solutions businesses also helped to improve the margins, which is why we're very interested in continuing to expand them along with the value they bring to our clients. They help us to move our gross margins and EBITDA margins along. And so while they weren't huge things such as our RPO business growing, our EMR staffing business continuing to do very well, and then some of the smaller workforce consulting projects that we've done, and we had a nice one in the fourth quarter, help us to incrementally move that needle upwards on again both gross and EBITDA margins.

Okay. Great. That's helpful. In terms of your end markets, there's been a lot of talk about potential consolidation or even further consolidation of your -- of the hospital providers. I know Moody's had a report on that that's got a lot of airplay the past day or so. If this consolidation continues, what do you think the impact would be on your business?

This is Bob. Thanks, Jeff. Yes, I think it's actually positive for us. We've been very successful in terms of incorporating large hospital systems under our MSP program, and we find that during these consolidations they're looking for kind of consolidation of vendors, and oftentimes we get pulled into that in a very positive way.

We also are happy with many of our clients who are actually expanding themselves. So they're out acquiring other hospitals, and that's been a real benefit to us in a few instances as well. So we think that's actually a positive for us in the way in which we've designed our model.

All right. Great. Brian, you had given some annual guidance for D&A, interest share count, and CapEx. Can we get rough estimates for the first quarter as well?

Sure. I think for D&A, you take the full year, that amount that I've given and probably spread that pretty evenly over the year.

Okay.

On interest expense, the fourth quarter interest expense was $5.4 million I think. So you can -- it's going to probably go down a couple hundred thousand a quarter and kind of just build it from there.

Okay.

And --

Share count.

Share count will be pretty similar to the fourth quarter.

All right. Great. And then one more numbers question. In terms of stock-based comp, what should we expect for both the quarter and the year?

Stock comp for the entire year?

Stock comp for the quarter and the entire year if possible.

Yes, it's going to be again about -- it'll be about $6.5 million for the year more or less, and I would just -- I would probably just spread that evenly as well.

All right. Fantastic. I'll jump back in the queue. Thanks so much.

And our next question comes from the line of Frank Atkins with SunTrust. Please go ahead.

Thanks so much. Going back to the MSP side, can you talk a little bit about the pricing environment there? Any changes? Anything you see?

This is Bob again. We actually have started to see a continued improvement in pricing opportunities within the MSP market, and part of that comes from being one of the largest providers, or by far the largest provider. We have a lot of data that we could educate the client on what the trends are that are going on in the market place. So as a part of an MSP sale, we can have a very strategic discussion with our clients about what's going on in the market and what rates will be necessary to meet the demand and the fill rate that you're looking for.

We find clients are less -- not that they're not concerned about price, but it's the third thing they worry about. The first thing is quality and fill rates in one of those two orders, and then third tends to be price. Statistically we've looked at the last ten or so and we've actually not seen any price decreases from where we were. We've actually increased prices from where we were in several cases.

Okay. Great. And if you could talk about the tax rate, any guidance you could give for either 1Q or the year?

Well I said for 2012 the effective tax rate we're projecting about 50% based on our current full-year forecast and that should be -- it should be the same through all the quarters.

Okay. Great. And then in terms of the Physician Perm, it was a pretty nice performance there. Can you talk a little bit about kind of areas of strength you're seeing?

Sure. And in the fourth quarter the strength came from placements. Our ability to fill the placements that we had gotten in the third quarter in particular with kind of a nice kind of little uptick in searches. And then going into the first quarter we're seeing our searches go up again sequentially and year-over-year.

Now, as we start to build that you do get a small deferred revenue impact, but just from a forward-looking standpoint, we see that as a very positive sign of gaining some momentum back in the business.

It's also reflective, Frank, of us being able to build up our marketing staff, the individuals who are out in the field actually talking with our clients and potential clients and building those relationships, and we've seen more successes at some of the larger teaching facilities. So starting to see more pockets of opportunity open up and we have more of the sales staff to actually be out there educating and selling.

Okay. Great. And then as you look forward, do you see any more strategic rationalization of offices as you mentioned in your prepared remarks?

We kind of constantly evaluate the profitability of all of our offices. That overall initiative includes taking a look at markets we should be in that we're not in today that are kind of MSP centers so to speak. So we look at both the performance of the office and closing offices as well as opening offices. I think it's a couple-year journey for us to probably get our footprint exactly like we want it to be.

Okay. And finally, to the extent it's possible, could you give us any color on some of the, I guess, social media and marketing efforts that you're looking into?

You would not want us to reveal all of our competitive strategies, Frank, would you? But we are very excited about it. And we consider this to be an evolution in work that we're really began in the industry almost a decade ago, but as you know, the rate of change in technology and on the internet and also utilization of mobile phones to access information and communicate with your travelers is increasing tremendously.

And so I would categorize them into roughly four areas. One is in improving the communications that we have with our clinicians through things other than just a phone call and email. So utilization of their mobile devices, et cetera. Improving their experience on our website so that it's more personalized and interactive and instant. And then also improving the actual mobile applications.

We have two mobile applications out in the market today. We should have many more than that. It will soon be that more than half of the job searches start on a mobile phone. And we're already approaching that, and we think you're going to pass that probably in the next year. So it's very critical that we're at the forefront of those technologies.

So hopefully that gives you a little flavor.

Great. Thank you very much.

And our next question comes from the line of Gary Taylor with Citigroup. Please go ahead.

Hi. Good afternoon. I just had a few questions. You'd mentioned a couple items including obviously closing or exiting home health, and I thought you had mentioned closing not just a locums office but the UK office, et cetera. So when you look at the fourth quarter, were there some costs in there that really made this better than a four cent quarter and you've just kind of absorbed those?

Well first, to clarify, we didn't close any locums offices. They were local offices.

Oh, okay.

Kind of the smaller local staffing offices.

In the Nurse Staffing segment?

Correct. Correct.

Okay.

The expense on that was pretty low. And the UK office, actually that closure was in the third quarter, so we had -- the SG&A related to that was in the third quarter. We had no impact in the fourth quarter.

Okay. And then anything on the [med mal] side? Any adjustments there, or where those pretty normal?

We had a small net actuarial adjustment in the fourth quarter, and I had mentioned on the last call in the third quarter we actually had increased malpractice expense, related particularly to one -- to one claim that's now been resolved. I'd say overall for 2011 our malpractice experience was in line with what we expected.

And the 4Q adjustment just was a material?

It was. It was just a few hundred thousand. It was pretty small.

Okay. And then sequentially I guess the EBITDA guidance is for about a million lower sequentially taking just your revenue guidance in the margin, and that's just typical payroll tax adjustment, that's all that's happening there?

No, actually we do our payroll tax in little bits. We don't get -- let impact on the payroll tax hit in the first quarter. We spread it more through the year. So I think more of that is we expect the margin to be down some in the first quarter, so that's probably the biggest driver. And I think we're just -- we're trying to be a little bit --

Conservative.

In how we -- as we're looking at the quarter. So SG&A overall is pretty consistent as a percentage of revenue. So if you just have the margin come down a little bit, that's really where that biggest driver is.

And the two margin pieces are what you mentioned. It's housing cost and then just passing some of the rate on?

Yes. I think that's -- that's fair.

Okay. And the last thing. Can you just kind of remind us of full-year seasonality? I guess it's been too many years since we kind of understood what full-year seasonality looks like, but I guess given that we're still in recovery mode, is your expectation generally unless something -- we hit another bump in the road somehow that revenue ought to just sequentially grow from here, or is there an expectation that there's some -- some of that old quarterly seasonality that will be reflected?

I think it's fair to expect that -- you said, it's partly because of the recovery that we would expect to see growth through the quarters. Again, we were down a little bit in the fourth quarter, so I think seasonally that's kind of the biggest down quarter primarily from locums.

Historically the second quarter can be a little bit softer than the first quarter, but like I said we're partly seeing still good volume growth overall. So with that, I think historically seasonally second quarter a little bit softer, stronger in the third quarter, and then some weakness, particularly in locums, in the fourth quarter.

Okay. Great, thank you.

Thanks, Gary.

Thank you, and our next question is from Mark Marcon with Robert W. Baird. Please go ahead.

Good afternoon. How much of the -- of the MSP revenue that you gained from those 20 contracts have been fully reflected in the fourth quarter?

Boy, Mark. I don't know that we -- I know we haven't shared that publically in the past, so I'd be hesitant to maybe start doing it now. But I will say that a couple of our largest within that 20 were implemented kind of late in the third quarter and within the fourth quarter.

And even when you implement one, let's say one of our largest was implement on October 1st. You have a run out of prior providers, and in that case the prior MSP provider, that still has travelers there that are booked through maybe December, maybe through the full year. And we're just getting the new orders and the new placements.

So I would say in that example, we won't hit our full stride with that type of a client until even the second quarter of this year. So it can take kind of six to nine months until you feel the full impact.

Great. And then what's the pipeline look like for additional contracts?

We had a really steady pipeline. We think we've got the most robust sales organization in the industry by -- significantly larger than other of our competitors. So we've really got a very large pipeline.

It typically is in the hundreds of clients, and then we narrow that down to those with odds of 50% or higher, and that number has stayed pretty steady as we've brought things in and out of the pipeline, but on average closing, or over the year closing 20 accounts is something we would expect that is not an unreasonable expectation to do again next year. We think there's plenty of opportunity out there.

Great.

You know what I like about our pipeline now, Mark, versus even just a year ago is the diversity of clients and the types of services and the multiple services that they want to include in the MSP. One, two, three years ago when you talked with a client about an MSP it was only about nursing or maybe about allied. Now our discussions are much more inclusive of all of our service lines, including RPO and other types of consulting type services.

And so I think that's a great sign that, as I said earlier, clients have a real hunger for more of these types of innovative solutions that can help them not just with their temporary staff but with their broader permanent workforce issues as well.

That's fantastic. And can you talk a little bit about the demand trends on the Nurse and Allied? As the quarter unfolded do -- you had a competitor earlier this week that talked about it being a little bit uneven as the quarter went along and a little bit of a pull back in terms of demand activity. And on this call you'd mentioned that the order volumes slowed down.

I'm just wondering what are you seeing out there, Susan, in terms of any sort of impact with regards to reimbursement rates or budgetary pressures on the client side?

Sure. We always see a pull back at the end of the year and concerns over budgets or running out of budgets, and so I would characterize this last year as pretty normal in that way. And then you see it kind of drop off, even from January from February. It's pretty normal to have a drop in our open orders.

This year that drop has been a little more than typical, and we think it's driven by the lack of flu season in most areas and the impact still of the recession in some of your sunbelt states like Arizona and Florida where orders are down pretty considerably on a year-over-year basis.

So we think that as we look forward we would expect March orders to go up, which they are. In fact orders have been rising nicely over the last three to four weeks, and so we feel like we're back into a normal trend. But what helps us I think maybe compared to maybe others in the industry is the fact that our execution and our fill rates are so strong right now that we've been able to overcome slightly lower orders and still have very strong bookings.

Ralph, you want to add some color to that?

Yes, I guess I'd just add a statistic to that. Our Travel Nurse bookings quarter-to-date are up about 18% to 20%. We're up in Allied like 3% to 5%. So kind of despite lower order counts. We're just not as dependent on the overall demand in the market in order to continue to grow our business as we used to be, Mark.

Obviously -- and those statistics by the way were year-over-year. But obviously, more demand is going to be more important and needed to continue to grow the business, but we're able to maybe weather through fluctuations in demand a little bit better because of our stronger client relationships, more MSPs, and stronger overall fill rates.

Great. And then can you -- was there any worker disruption benefit in the fourth quarter?

You know we've had a little bit every quarter. It's not such a significant amount that we call it out specifically. It's not a big part of our business. It's more when we have an important client, usually an MSP client, that has a situation and they want us to come in and help. So yes, I think we had some in the fourth quarter and we'll probably have some in the first quarter, and --

But nothing unusual?

Nothing unusual. Likewise, EMRs. We have been doing EMR implementations for the last five to ten years. And it has certainly picked up for us as it has for others over the last couple of years. And we have EMR implementations every quarter. I think this quarter we have over ten facilities where we're trying to help them.

But it's a fairly lumpy business because it's project oriented. You could have ten one quarter and two the next. We obviously are focused on growing it, but I wouldn't base my growth strategy for the future strictly on project-oriented work. I would want to see that the underlying overall business is actually growing as well, which we feel good about.

And then you mentioned that the gross margin will come down on the Nurse and Allied side because you're going to pass along some of the bill rate increase to the nurses in order to improve the fill rates and keep the trend going in terms of nurses flowing into the -- into that mode of work.

Can -- are you going to raise the bill rates or the pay rates by more than 3% or roughly in line?

Roughly in line is the goal. That's why I said don't expect any margin expansion, but I also wouldn't expect any margin degradation from compensation changes. Now from quarter to quarter you might have very slight fluctuations, but it's certainly not part of our strategy to lower margins by increasing pay rates. We would expect to basically keep them in line as you look to the -- over the long term.

And remember the other part of it is we are still feeling some pressure on our housing costs as well, so that's another piece that's being absorbed by some of those bill rate increases.

And then with -- so last year -- when you're saying don't expect margin degradation but don't expect much of a degradation or much of an increase, is that relative to the full year gross margin, because it was kind of lumpy as the year unfolded with regards to Nurse and Allied?

You know sometimes the lumpiness comes from -- when we implement a new MSP account we're going to be a little bit more aggressive, housing costs are not yet settled or finalized, and so I think some of the lumpiness you may have seen -- when we bring on these really large accounts, and we had one in Q4, we just -- we have to be a little more aggressive at our recruiting and our compensation packages during the first few months of those deals. So that causes some of that lumpiness.

We're a little over 28% in the fourth quarter, and from our guidance we guided a little bit below 28%. I think in that range is kind of where we think we're going to settle for a while.

Okay.

And as Susan mentioned, there'll be kind of ups and downs in each quarter based on various factors, but overall I think in that range is where we're expecting to be.

In the first quarter, as an example, you have one less day for housing in February, so we've got to cover those costs and absorb that. So it has a slight impact.

Great. And then lastly on Locum Tenens and then I'll follow up offline. On Locum Tenens, how are you -- how are you thinking about the prognosis for that business to start turning around? From a demand perspective.

Sure. We continue to see some encouraging signs in emergency room, which had great growth and almost doubled in 2011. Now it's very small for us, but it shows that the opportunity is still out there in many of these specialties. And primary care, as I mentioned, grew almost 13% in 2011. And we think that those will be two of the frontrunners in growth going forward.

I do think that there'll be some volatility in some of these other areas that are more dependent upon census and surgeries, such as anesthesia, surgery, and even radiology where things have not quite settled down there. So you do have to look at it specialty by specialty, and that's unfortunately kind of also how you have to run the business, but at the same time as we step back and look at the aggregate business, we expect growth going forward into 2012. Seeing early signs that that is going to be the course that we're on.

Great. Thank you.

Thank you.

Thank you. And our next question comes from the line of Josh Vogel. Please go ahead.

Thank you. Hey everybody.

Hey, Josh.

I may have missed it, but could you quantify the total synergies you saw from Medfinders in 2011?

You know, we did not give the final number. If you recall, early on we said our target was 10 million in synergies, eight attributed to cost savings synergies and two attributed to incremental EBITDA from revenue synergies, and that was an expectation to hit that run rate by the fourth quarter of 2011. We actually hit that run rate in the third quarter. So you can anticipate that we exceed the 10 million and we probably on a run rate basis will even continue to see some continued improvement as we go forward.

Okay. And this one may be more for Brian, but as you see additional operating leverage from synergies tied to Medfinders, should we expect SG&A as a percent of revenue to trend down sequentially each quarter throughout the year? What would -- is it possible that you could start approximating the level of SG&A you saw prior to the recession, which was like closer to like I think 19% and 20%?

I think over the long term that is certainly within our target. I don't -- not in -- not necessarily in 2012. It'll take time to get there. And we can do a good job of effectively managing our expenses, so really our ability to get there will be more driven on kind of the magnitude of our revenue growth.

For 2012 I think it's realistic to expect -- we gave guidance that the first quarter SG&A would be pretty flat as a percentage of revenue with the fourth quarter, but I think it's a fair expectation that as we move through the year you'd see some sequential improvement there.

Again, it'll be -- it's not going to be big steps down, but you would see stepping down through the year.

Okay.

And, Josh, maybe to help you, as we look forward and talk about our target of returning to 10% adjusted EBITDA margins, that would absolutely include an SG&A run rate at somewhere in the 19% to even potentially 18% range, and we'd be based off of a revenue of $1.3 billion to $1.5 billion. So that kind of gives you a context of what it would take to actually achieve those margins.

Now there are a lot of factors and variables. It depends on which businesses are growing the fastest, what their profitability level is. We are anticipating to continue to grow these fee-based workforce solutions services, which have a much higher gross margin and EBITDA margin. So the more successful we are in getting those off the ground and increasing the penetration earlier, the faster we'll get there.

Okay. That's very helpful. Thank you. And just one more. Now that you got out of the home healthcare business, I was just curious about acquisition pipeline. Are there any specific specialties you're looking to gain exposure to?

Not right now, Josh. We are very focused on continuing to execute well in the business that we have. There's a lot of opportunity out there with these workforce solutions, MSP, RPO, and new things that we continue to offer and introduce to our clients. And as you can tell, we've got our hands pretty full in executing well with the great fill rates we have, and so we just intend to kind of stay on course and stay focused on our strategy.

Okay. Great. And I'm sorry, just to confirm from an earlier question, you said that it should take about six to nine months to be -- for an MSP new contract to be fully ramped?

Yes.

Okay. Great. Thank you very much.

Thanks, Josh.

And I have no further questions. Please continue.

Great. Well thank you so much everyone for joining us today. We really do appreciate your continued support of AMN Healthcare, and we look forward to updating you on our progress next quarter.

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