AMN Healthcare Services Inc (AMN) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare second quarter 2013 earnings call. (Operator Instructions) And as a reminder, this conference is being recorded. And I'd now like to turn the conference over to our host, the Vice President of Investor Relations for AMN Healthcare, Ms. Amy Chang. Please go ahead.

Thank you Laurie. Good afternoon everyone. Welcome to AMN Healthcare's second quarter 2013 earnings call. A replay of this webcast will be available until August 15, 2013 at AMNHealthcare.investorroom.com. 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, should, would, project, may, variations of such words 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, 2012 and our other filings with the SEC, which are publicly available.

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. Developments subsequent to this call may cause these statements to become outdated.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.

This call may also contain certain non-GAAP financial information. We make available additional information regarding non-GAAP financial 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 second quarter 2013 earnings conference call. Our leadership position and differentiation in the industry continues to provide benefits for AMN and our clients. In particular, our strength in providing MSP services and other workforce solutions is enabling our clients to better meet their patient care and financial goals.

Our strong second quarter results were the outcome of the continued benefit of our workforce solutions leadership position, some mixed market conditions and solid execution by our team. All of our business segments delivered year-over-year increases in revenue and gross margin. Second quarter consolidated revenue grew by 8% and adjusted EBITDA by 17%. Gross margin increased by 90 basis points to 29.3%. Our adjusted EBITDA margin for the quarter was 8.4%, a 70 basis point improvement over prior year and a notable step toward our goal of 10%.

We continued to make progress in expanding our position as the nation's innovator in healthcare workforce solutions. Increasing AMN's mix of revenue that is coming from MSP clients is a key part of our strategy, as the higher fill rates enable us to grow faster during periods of market expansion and provides some protection during periods of demand softness. In other industries, MSP usage typically reaches 50% to 60% penetration at maturity and we anticipate runway for us to continue to grow this competitive advantage.

In the second quarter we won several new MSP contracts. We also made significant progress in implementing the new Locum's MSP contracts we mentioned last call. For the remainder of 2013, our MSP pipeline remains robust and we anticipate further penetration across all of our staffing businesses throughout the year.

Now let's review the results of our three business segments. I'll start first with our largest segment of Nurse and Allied Staffing. Second quarter revenue for this segment was up 7% year-over-year and down 4% sequentially. The largest contributor was the Travel Nurse business, where volume was up 10% year-over-year and down 5% sequentially. Part of the decline was the slightly lower EMR revenue and the normal falloff of flu and winter seasonal demand. But this year we also had the effective sequestration, lower hospital census and a generally more cautious client mindset due to budgetary concerns.

We mentioned this on our last earnings call and the same environment persisted until just recently, when demand for travel nurses began to increase again throughout July. Second quarter new nurse applications were up year-over-year which was partially aided by the early returns on the investments we have been making in Canada Sourcing Technologies.

Going into the third quarter, we expect Travel Nurse revenue to be up in the mid-single digits year-over-year and flat sequentially. Normally we would expect to be up slightly in the third quarter but since orders were down throughout most of Q2, it's unlikely the sequential impact will be overcome by the recent uptick in orders and the higher anticipated EMR business. We have begun to see a slight shift in the mindset of our clients which should continue to strengthen as their visibility into patient volumes the second half of the year improves.

Turning now to Local Staffing, second quarter revenue was up 1% compared to the prior year and down 4% sequentially. We continued to rationalize our geographic footprint and consolidated five lower performing branches into nearby locations. We now have a total of 42 Local Staffing branches to support markets with existing and potential MSP contracts. Going into the third quarter, Local Staffing revenue is expected to be down slightly both year-over-year and sequentially.

Now turning to Allied Staffing. Second quarter Allied revenue was down 4% year-over-year and 3% sequentially, driven primarily by the decline in therapy volume, offset by a slight increase in the imaging and lab specialties. To address the current market challenges in therapy, we have realigned our resources and the team is concentrating on increasing our fill rates at MSP clients as well as targeting the less impacted acute care, outpatient and home health client settings.

Going into the third quarter, Allied Staffing revenue is expected to be down in the low teens year-over-year and in the low single digits sequentially, due primarily to the continued market declines in therapy. With our increasing penetration into MSP clients, we believe that we can weather this storm better than other Allied Staffing companies and we will emerge in a stronger position as the market adjusts to reimbursement changes and eventually resumes growth.

A bright spot has been the recent turnaround in AMN's Locum Tenens' segment, where we see the changes that have been made over the past year beginning to pay off. Second quarter Locum's revenue was up 8% year-over-year and 11% sequentially. This was the largest sequential growth that we have seen since 2007. The improvement was driven mainly by growth in our hospitalists and primary care businesses as well as advanced practice specialties.

We also began generating some incremental revenue from the new Locum's MSPs that were being implemented in the first quarter. Gross margin increased by 110 basis points both year-over-year and sequentially, due primarily to the improvements in bill pay spreads. Going into the third quarter, we expect Locum's revenue to be up in the mid to high single digits year-over-year and up slightly sequentially.

Our best performing segment this quarter was Physician Permanent Placement, where second quarter revenue was up 16% year-over-year and 12% sequentially. The continued growth was driven by increases in new searches, placements and sourcing revenues. The team also achieved improvement in pricing and average recruiter productivity. The growth in searches has been broad-based across specialties and settings, with some of the strongest growth coming from family practice. Based on the new search activity in the second quarter, we anticipate third quarter Physician Perm revenue to be up in the mid-teens year-over-year and up slightly sequentially.

As many of you may know, this high performing segment is led by Mark Smith. What you may not know is today is Mark Smith's 25th anniversary with Merritt Hawkins. Congratulations Mark and we would like to thank you for your superb leadership.

Our strategy of providing innovative workforce solutions and diversified staffing services to the healthcare community continues to differentiate AMN in the marketplace. We are engaging in strategic C-level dialog beyond what we have seen previously in the industry. Healthcare providers continue to gain interest in adopting workforce solutions to address the influx of the additional 30 million insured citizens, the aging and growing population and the emerging workforce shortages.

Our clients also include other types of healthcare services organizations that are also seeking more efficient and effective ways to deliver on their growth expectations for the future. They are particularly motivated to take action and partner in new ways. Despite the softer than expected hospital admissions this year, it is still generally anticipated that volumes will expand in 2014 and beyond as the impact of ObamaCare begins to take hold.

To ensure we are best positioned to be the partner of choice for clients, we have continued to invest in three key areas. The first is the expansion of our suite of workforce solutions and our differentiation as healthcare's workforce innovator. The second is our leading edge recruitment technologies such as job distribution platforms and mobile applications to aggressively attract more candidate supply and to create a better candidate experience. And the third is the streamlining of our systems and infrastructure for greater efficiency, scalability and agility. These investments will enable us to continue delivering revenue growth and improved operating leverage in the future.

A final element and a key to our success are our passionate and dedicated team members who deliver excellence and differentiated value to our clients and our clinicians every day. It is their strong execution that sets AMN apart in the marketplace and enables the company to deliver shareholder value.

I will come back to you in our Q&A section, along with Ralph and Bob, to help answer your questions but for now I will turn the call over to Brian.

Thank you Susan. Good afternoon everyone. Second quarter revenue was $253.9 million, up 7.7% from last year and 0.7% from last quarter. Our gross margin for the quarter was 29.3%, up 90 basis points from last year and 30 basis points from last quarter. The year-over-year increase was due to margin improvements across all three of our reportable segments. Sequentially, the increase was driven by the gross margin improvement in our Locum Tenens segment, along with faster growth in our higher gross margin Physician Firm Placement segment.

SG&A in the quarter totaled $54.6 million or 21.5% of revenue compared to 21.3% in the prior year and prior quarter. The year-over-year SG&A increase was due to a $1.7 million actuarial based increase in our professional liability reserve in our Locum Tenens segment, as well as higher headcount, commissions and other expenses related to the increased revenue and our strategic initiatives.

Partially offsetting these increases was a $3 million credit to SG&A recorded in conjunction with the settlement of the Medfinders acquisition holdback. This holdback settlement was recorded through unallocated corporate overhead. The sequential SG&A increase was due to the same factors, in addition to higher bad debt expense as the prior quarter included a credit from favorable collections on previously reserved accounts.

Our second quarter Nurse and Allied segment revenue increased 7.3% from the prior year but decreased sequentially by 3.7% to $170.1 million. Volume of 5,924 average clinicians on assignment grew 5.9% year-over-year and was lower by 4.7% sequentially. Revenue per day was up 1.3% year-over-year and down 0.1% sequentially, with our year-over-year average bill rate higher by 1%.

Nurse and Allied gross margin of 27.2% was higher year-over-year by 50 basis points with improved bill pay spreads and lower health insurance costs more than offsetting higher housing costs. Gross margin was lower by 30 basis points sequentially, due to the prior quarter workers compensation reserve benefit of $1.2 million.

Second quarter Nurse and Allied operating margin of 11.8% was higher by 20 basis points year-over-year and down 90 basis points from the prior quarter. The sequential decline was due in part to prior quarter workers compensation reserve adjustment which added 70 basis points to the margin.

Second quarter Locum Tenens segment revenue of $72.7 million was up 7.6% from the prior year and 11.1% sequentially. Gross margin of 29% was 110 basis points higher from the prior year due primarily to improved bill pay spreads. It was also up sequentially by 110 basis points due to improved bill pay spreads and higher perm conversion fees.

Second quarter Locum Tenens operating margin of 6.8% was lower by 220 basis points year-over-year and down 70 basis points from the prior year. The year-over-year decline was due to the previously noted professional liability adjustments and higher employee related costs associated with the revenue growth. The sequentially decline was due to the higher professional liability costs and higher bad debt expense due to the prior quarter bad debt recovery.

Our second quarter Physician Permanent Placement revenue of $11.1 million was up year-over-year by 15.8% and sequentially by 12.1%. Gross margin improved by 280 basis points from the prior year and 10 basis points from the prior quarter from improved recruiter productivity.

Adjusted EBITDA for the quarter was $21.3 million, representing 8.4% of revenue. This compares to $18.2 million or 7.7% of revenue in the prior year quarter. Interest expense in the quarter was $3.1 million, which compares to $13.6 million last year and $2.9 million last quarter. Interest expense in the quarter included $1 million of charges associated with the re-pricing of our credit agreement in early April. The amendment reduced our interest rate and provided for other favorable changes to our credit agreement.

Our tax rate in the quarter was 38%, which included favorable adjustments related to the permanent tax difference on the Medfinders holdback settlement. We expect our tax rate for the second half and full year 2013 to be between 40% and 41%.

We reported net income of $8.4 million in the second quarter. Diluted earnings per share was $0.18 for the second quarter. Operating cash flow for the quarter was $19.2 million. Capital expenditures were $3.1 million. Days sales outstanding were 54 days compared to 56 days in the last quarter and 53 days last year.

As of June 30th our cash and equivalents totaled $10.5 million and our total debt outstanding was $154 million. Our quarter end leverage ratio as calculated per our credit agreement was 2.1 times as compared to 3.1 times last year. Subsequent to quarter end, we made an additional voluntary debt payment of $5 million.

Now let's turn to our guidance for the third quarter. We expect consolidated revenue to be between $253 million and $257 million, representing year-over-year revenue growth of 4% to 5%. Gross margin is expected to be 29% to 29.5%. SG&A expenses as a percentage of revenue are expected to be approximately 21.5%. Adjusted EBITDA margin is expected to be approximately 8%. Third quarter interest expense to be $2 million and capital expenditures are projected to be $3 million. Diluted share count is expected to be 47.8 million for the third quarter and the full year.

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

(Operator Instructions) Josh Vogel, Sidoti & Company.

I know one month doesn't make a trend here but you mentioned that dialog with clients, especially on the Travel Nurse front improved in July. I was curious, as we look into Q3 and potentially Q4, with hospitals talking about budget cuts, do you think that the Nursing and Allied business can be up Q4 versus Q3, kind of like we saw last year?

First regarding the trends that we've seen more recently. We would typically expect to see orders going up in July because now is when we begin to get in our winter seasonal needs and so the good news is those are coming in and they are happening. They are a bit different in some cases than last year in that some of the start dates are a little bit later, meaning November and December maybe versus October, but we're seeing these continue to increase. And in fact, we've had more orders at more facilities and growing over the last month. I'll have Ralph give a little more color on that in a minute.

Regarding your Q4 question though, remember that Q4 for Allied is typically seasonally down and then you have on top of that the fact that therapy right now is under tremendous pressure due to the reimbursement cuts. So I certainly wouldn't expect the Allied business to be up in the fourth quarter. That could change but it would take a pretty strong turnaround immediately.

The Nursing business would be more typically flat to up in the fourth quarter and it probably remains to be seen how much of these new orders are going to continue to grow and when the start dates will kick in to make that happen. The other factor that we have in the nursing business is our EMR implementation business, which has been exceptionally strong for us this year, really well beyond our expectations. The team there has done an extraordinarily great job.

The third quarter for us in EMR is expected to be our highest quarter of the year and the fourth quarter would be expected to be seasonally down in EMR implementation. So for that reason you might have more of an offset in the nursing business because even if you had volumes that were flat or up in the traditional travel nurse business you might have the headwinds of an EMR revenue that's dropping. So it might be a little more than you're asking but there are a lot of moving parts in there which could ultimately contribute to the segment performance.

And Ralph, I might ask you to give a little more color on the orders themselves.

We did see from Q1 to Q2, the normal seasonal pullback, the flu season ends and as well the winter volumes that occur when populations kind of migrate to the western states, kind of go back home so we start to see that spike decrease and that certainly is in our Q2 results. Right now we're about flat to prior year and we are seeing some increases just the last few weeks which have been good news. But the types of temporary reductions to manage to, lower patient volumes or budget constraints and things like that, we've been seeing those for years. They typically last one to two quarters. The clients tend to put them on the shelf after that as burnout increases over time starts to go up. But predicting the actual date that that's going to come out is very very difficult.

What percent of revenue is EMR?

We don't report the revenues or the percentage with EMR because it is still relatively small, but it is going to be up pretty considerably versus prior year, both due to certainly demand increases, more client implementations. The fact that we have such strong positions in our MSP clients we think is a nice advantage for us because typically if an MSP client is going to do an EMR implementation, we are a very likely partner for them to do the EMR implementation. So we think that's benefited us.

And then we've added resources as we saw the momentum and then the revenue opportunity going into this year. But it's not material enough to break out as a segment, so I'm sorry we're not really reporting it.

Shifting gears a little bit, definitely surprised to see the strong performance in Locum Tenens and Physician Perm and I know you've had the rollout of the Locum's MSP, but I was curious if the pickup was broad-based from a geographical perspective as well or are you just seeing pockets of strength in certain regions or hospital systems?

I'll handle that one as well. Year-over-year growth was 7.6% and our sequential increase of 11.1% was stronger than we've seen in quite some time. I think it was our strongest organic quarter since 2007. The demand was up and we use a definition of days available to fill, the number of shifts we have and it was up about 5%, maybe 6% year-over-year and it was pretty much across the board. There was some specialty driven demand, things I'll talk about those in a second.

I think important to note though is our internal performance against those demand levels improved. We seemed to have our resources in the right place. Our process improvement efforts are paying off and the team is performing very well, both at our Staff Care and our Lendi brands. In the past we talked about Lendi performing well and Staff Care not performing as well, but this quarter we saw strong performance from both groups.

The specialties that advanced were Hospitals, our Advanced Practice, which we made an investment in last year, Dentistry, Primary Care was up, but several of those were up in the double digits. Had a little bit of drag from Radiology still continuing its downward trend, but it's such a small segment now that it has less impact on the overall business.

And then our Government business was down as well just a little bit but at about the level that we had anticipated getting our Government to. At one point we were over-weighted on Government; it was close to 20% of our total revenue. Now we're running closer to that 13%.

Brian, I may have missed it in your commentary, but what goes into the unallocated corporate overhead line and what drove that down about $2.5 million sequentially and should $6 million be the quarterly run rate we should be looking for going forward?

No, it's running more in that 8.5 to 9 range and that would be what you'd look at going forward. I mentioned it earlier that we did have a credit related to the settlement of the holdback with the Medfinders acquisition. So that's where that credit got recorded. That's why the number's lower. What goes into that is primarily from our back office, overhead costs, so HR, legal, finance, those costs we don't allocate out to the different segments.

So any of our back office costs like payroll and housing and those areas we do allocate, but certain ones that are more true kind of corporate overhead, we leave in that corporate and allocated.

Are there any other potential credits out there that could hit up in the future?

Not that I know of. I was looking for them, but nothing expected as we look ahead right now.

Tobey Sommer, SunTrust.

I could start with the EBIT margins in Locums. You've already discussed some in your prepared remarks, but I don't think I jotted it down. Aside from the puts and takes that occurred within the quarter, what do you think the underlying or ongoing trend in profitability is?

We talked about the professional liability adjustment in the quarter, which was an impact of a little over 200 basis points, so if you add that back in, you're back up more in the 9% range at this point. So I think that's where we are today. Obviously our expectations are to still move that higher. We have our Nurse and Allied segment is more in the 12% range and we know that the Locums business has the opportunity through continued gross margin improvement and more SG&A leverage as we grow the top line, to get into the double digit range as well.

The professional liability adjustment, is that a relatively infrequent occurrence or was it just a bigger magnitude this quarter?

We usually have them. We do our actuarial reviews twice a year in June and December. And the amount of it was larger. So we usually have some type of adjustment and sometimes they're not material enough for us to mention. It could be just a few hundred thousand either way. This particular quarter the Nurse and Allied segment for example, was not material, but on the Locums it was a little larger magnitude.

That one particularly, we've had some negative claim trending there. We reviewed all the open claims and the actuary has all that data. So the reserve we have now, we think is appropriate. Overall, our malpractice claims in Locums they've been below the industry and even with these adjustments, we still feel like we're doing a really great job. Our risk department is excellent, partnering with sales teams to put the right doctors to work. And so even with these adjustments we're still feeling very good about our overall risk program.

Susan, on the MSP, you made a reference of more mature MSP markets maybe reaching a 50% or 60% threshold. Could you flesh that out for me and how it applies and how you're thinking it may apply to Healthcare Staffing?

Our reference there is really pointing more toward the larger commercial and global staffing companies where MSP programs have been in place for decades. And so I'll actually have Bob answer more kind of the evolution of MSP within our segments, because it is different across Nursing and Allied and Locums and we still feel we're very early on in the penetration across the overall market.

The growth on the commercial side or the non-healthcare side, as Susan said, it gets as high as 50% to 60% of most large clients but 50% to 60% of the total use some form of an MSP or VMS and they're about a decade ahead of what's happening in healthcare. But in the segments of healthcare, of course Nursing is by far the most penetrated; we still think that's still in the low 20% - 30% area. But then in the Allied sector, it's really even smaller. And then Locums is brand new. So there's still a lot of runway for the healthcare sector to even catch up with what's already happened in the rest of the temporary help market.

Okay, thanks. That's helpful. Brian, I had a numbers question for you. What was the interest expense in the quarter? The way it's presented in the press release, it's a net number.

Well, it's $3 million, and $1 million of that was related to the repricing, so if you take that out, it was at $2 million -- $2.1 million, actually. And we give guidance for the third quarter at that same -- right about the $2 million level as well.

And I wanted to ask Susan a question, kind of a little bit longer term than just the next couple of quarters -- maybe next couple of years. Are you having conversations with hospitals in which they are discussing with you the kind of aspiration to materially increase the percentage of their labor that is flexible?

I would say the most frequent conversation that we have is around how can they put in programs to get their arms around their overall workforce spending, including both temporary and permanent, and then, specifically, better manage their temporary staff, and that's where the workforce solutions like MSP and RPO and other types of solutions come into play.

Anecdotally, there have been a few comments and discussions around how they might create a more flexible workforce and have a slightly lower core staff and more flexible staffing, but that's also just driven around always trying to fix the right mix of staffing to make sure that you have access to clinicians when you need them, but don't have excess labor costs and staff when you don't.

So I think it probably has been accelerated slightly, just the minimal discussions that are occurring have been accelerated slightly by the fact that they know they're going to have to come up with more flexible cost structures, but I wouldn't say it's a trend yet. It's still pretty early on. But the focus on workforce solutions in general has definitely been increasing.

Okay. And my question is, you mentioned a new MSP win. Was that a sale that you made in the quarter, or was that an MSP relationship that started to ramp in the quarter?

This is Bob again. What Susan referred to is that in every quarter, we have consistently closed a few new MSPs, and we had another good quarter in the second quarter. We closed quite a few new MSPs. We don't usually report how many, but we do close quite a few every quarter. Then I think we're proud of a couple of them that are larger. We didn't mention anything in particular, but also she mentioned the fact that we're starting to ramp up on our Locum's MSPs for business, not only new ones we closed this quarter, but some of the ones we closed in past quarters.

Okay, so it's a reference to momentum in the newest initiative on the Locum's side.

Correct.

Okay, perfect. I'll get back in the queue. Thank you.

Jeff Silber, BMO Capital Markets.

I wanted to focus on the gross margin line a bit, and forgive me -- if you can just remind us, the professional liabilities in the Locum segment are booked as SG&A, but in the Nurse and Allied segment, is that booked on the gross margin line?

It's all in SG&A.

It's all in SG&A. Okay, great. And speaking of that, if I remember correctly, also one of your competitors a couple quarters ago mentioned that they were unable to get a waiver of some impact of ObamaCare, but you would. You did get that waiver, and it could have an adverse impact on your gross margins for next year. Can you discuss that a bit on what the impact might be?

This is Ralph. We continue to study that issue. We did get the waiver for 2013. That's the last year that the government is going to be giving waivers, so in 2014, we're going to have to make some adjustments to our plan to be compliant with the new regulations. We've talked about it before, but we expect that whatever increase we costs we have there, which isn't that material, would be offset by increases in pricing passed along to customers, so not a big event for us.

Okay, and that will occur the beginning of next year.

Yes, January 2014.

All right, great. And then just speaking about ObamaCare, the fact that the employer mandate being delayed a couple months ago until next year or until 2015 -- did that have any impact on your business, either positive or negative?

We don't think so, Jeff. I think the general consensus has been that that delay won't necessarily impact the number of newly insureds, since there is still an individual mandate. It might cause the trajectory to be slightly slower, but so far it hasn't caused most of our hospitals to talk about any lower volume expectations, and certainly analysts that cover the healthcare industry are referring to increased volumes next year. So we're not the experts in predicting what that impact is going to be, but I think the general thinking is it won't have much of an impact on what hospital volumes would have been anyway.

Okay, great. And just a quick numbers question in trying to model sequentially. It looks like you're looking for a decent uptick in SG&A expense as a percentage of revenue. Is there anything specifically going on in the quarter that we should be aware of?

No. The second quarter had a few puts and takes -- this is Brian again -- so that if you take out the settlement and the PL adjustment, then you end up somewhere that closer to the -- not too far off from what our second quarter SG&A was, which was 21.5% of revenue. The guidance we gave was 21.5%, and if you take that on, say, the midpoint of our revenue guidance, that would put you just slightly under $55 million of SG&A. So it's not moving that much, really, when you take out a couple of items that occurred in the second quarter.

All right. I appreciate the color, Brian. Thanks so much.

Vishnu Lekraj, MorningStar Equity.

A couple questions here, one -- short term, on your guidance for next quarter, what are your assumptions as far as demand or census from your clients as far as trend and how that's going about?

Well, for the third quarter, since we're already almost halfway into the third quarter, a lot of the bookings have already been made, certainly what's already transpired, but we also book most of our assignments weeks in advance, and so we have pretty good visibility on what volumes ought to be for the third quarter. And the demand that drove that was really from the second quarter and maybe a little bit of the early third quarter, so I'd say we have pretty darn good visibility on what that's going to be. It's really how it impacts into the fourth quarter and what continues to happen with census.

Right, and then your expectation there is for a little bit of an uptick, then, I guess, over the second half of this year?

Well, that's what we've been hearing from analysts, and some of the speculation is around, well, why were they down more than expected in the first quarter, and a lot of the discussion is pointed towards the growing demand for higher-deductible health plans and the fact that many patients might be putting off care and hospitalization, and once they hit their deductible, maybe there would be an uptick towards the second half of the year.

Even some of the hospitals that have reported already this quarter have referred to slightly improving the year-over-year comps, improving census in the second half of the year. I think the full year is still going to be below what original expectations were, but the second half is expected to be better than the first.

Gotcha. Looking here a little longer term, beyond 2014, maybe into 2015, some of the talk with some of the managed-care companies has been with narrow networks and some of the ACO models that are coming online. How do you view -- especially with MSP business, how do you view that affecting your demand or affecting your staffing levels moving forward?

This is Bob again. I think we view positively the changes that are going on in healthcare more broadly, so any time that clients are looking to find ways to serve patients better by consolidating either systems coming together or ACO formation, that generally speaks to high-level, strategic thinking around how they can improve their overall efficiency, and 50% of the costs of running these hospitals is labor. When we can get the attention of the C-levels to talk about how we can address the workforce, which is 50% of their costs, we think that there's a lot of traction that's actually happening that way.

Part of that is happening as a result of the kind of consulting work that we do and some of our partners do, like, oh, we have a very strong partnership with Novation, and they are working directly with their clients on identifying ways in which these new organizational structures that are servicing clients need to be more cost efficient. So it really is a great lead for us to get in and help our clients to satisfy those needs, so all of that we view as positive to our MSP program.

And frankly, just to comment on it, more than just MSP. It's the workforce solutions, it's the MSP plus the RPO and the consulting. They kind of come together as a very powerful story to tell clients.

Great. Thanks for taking my questions.

Gary Taylor, Citigroup.

A few questions. One, I guess, Brian, you were talking a little faster than my fingers, so I think I've put this together, but I just want to make sure. As you look at this quarter, the items that you, I guess, would consider perhaps non-recurring are this $3 million credit, I think $1.7 million negative insurance development both in the G&A line, and then the $1 million amendment fee down in the interest line?

Sure.

And effectively, that all kind of nets each other out at the EPS line?

Yes, that's fair.

Okay. And then I think -- I guess I was looking at the 8.4% adjusted EBITDA margins this quarter, guidance for 8%, then wondering why that was lower, but actually if you make those adjustments, it looks like you're guiding for sequentially the same EBITDA margin?

Yes, the interest wouldn't impact that, but if you were to take just those other two items out, you'd end up right around 7.9%, and so that would be -- actually, the guidance would be right around that same number, if not slightly up.

Got it. Tax rate was lower than you had guided for and thought, and I know there is this dynamic if net income goes up, kind of your effective tax rate declines, so when you think about third quarter, second half and full-year, is that 43% number in the ballpark, or could it end up being lower than that?

This is Brian. We do expect it to be lower. The guidance is more in the 40% to 41% range now, and so as we look -- and that's why our rate in the second quarter is also a little lower, is that from that 43% that we were anticipating in the first quarter, now our full-year forecast is more in that 40% to 41% range, so that's why in the second quarter the rate was 38%, to kind of true up to that projected full-year rate. So for the third and fourth quarter and the full year, it'll be somewhere in that 40% to 41% range. And you're right, it does -- we get a little bit of a range there only because the pre-tax income differences will affect that slightly.

And then I guess more specifically -- a question was asked about consolidation, but more specifically Tenet acquiring Vanguard, Community potentially acquiring HMA -- are there any obvious loss of contract risks, I guess for lack of a better term, out of those announced acquisitions?

Gary, I don't think we typically comment on specific clients and the impact of consolidations such as that, but since you asked, I will mention that we work with hospitals throughout all of those systems today, and so when these consolidations happen, sometimes they're already existing MSP clients of ours and that's great, because if they're just adding on additional facilities, then we can just tuck those in. Sometimes it does create a risk for us, so we've been fortunate and haven't had that make much of an impact in the past.

In this case, those particular clients we either work with more directly or they are utilizing vendor-neutral types of services, of which we are a subcontractor with. In fact, we're a very strong subcontractor with them. So at this point, we don't see any particular change, but you never know what might happen with those clients. They could become MSP clients of ours down the road, but for now, we don't see any particular impact.

Okay. And then last question -- are you seeing any evidence or having conversations about hospitals, thinking about '14? I mean, if you're a hospital in an expansion state that's expanding Medicaid and is going to have a healthcare change in that state, you're looking at potentially millions of people with added coverage. Most of us have followed Massachusetts and saw a pretty sharp uptick on the inpatient side as coverage rolled out there. So are any of the hospitals saying -- obviously, we haven't seen any of it yet, that's very clear, but as coverage expansion starts to roll out in '14, we may be faced with some material demand growth and we want to talk about contingency planning for how to staff that, or is it entirely too premature to be having that type of conversation?

I think the short answer is, yes, there is some mention of looking towards the future and what their volumes might be and how they might create a more efficient and flexible labor and workforce situation. That's what's driving a lot of the discussion around MSPs, certainly for Nursing and Allied, but also for Locum's. And it's not just the hospital systems themselves, but sometimes it is the services companies that work with those hospitals, such as contract management firms, who see tremendous opportunity going forward and they want to make sure they have access to staff as they see their opportunities increase.

And maybe I'll ask Bob and Ralph to jump in as well, because they're also, certainly, having direct conversations with those clients.

I think it gets back to -- today, I think they're looking at what they can do to reduce costs because of the impact of the Medicare cost cuts, so they're trying to right-size the workforce to get to the right blend of both temporary and permanent labor so that when they get to a higher volume and there is more influx of labor, that they're prepared for it, either prepared because they have a better ability to hire their own people and we help them with that or the ability to bring on additional staff when they need to. I wouldn't draw a thesis that people are going to start using more contract labor proportionately because there's growth, more so that the absolute growth will be good for both permanent and contract labor.

I mean, we're in that lull period right now, right, so they're hit by the sequestration, the decrease in prices, and they haven't seen the increases in volume yet, so they are, they're mostly focused on that, where those that are focused on that are starting to put together their game plans for how they're going to staff, and we would think we'd be a great solution for them because we're very flexible, our assignment lengths can be shorter, they can react quicker to that demand, so I think a lot of them are going to count on us for that.

Recently, we've seen increases -- I mentioned advanced practice being up. It's up double digits year-over-year. That's certainly healthcare systems and physician practices adding nurse-practitioners and physician assistants to help them manage care at a lower cost but more efficiency, so big increases there, and then case managers, which help direct the patient to the right type of care -- big increases in that segment as well. So a couple of things short term, but I think most of the big benefits really come later -- 2014, 2015.

Okay. Thanks for your thoughts.

Mark Marcon, Robert W. Baird & Company.

I apologize if this was discussed. There were a couple of conference calls at the same time this afternoon. Can you talk a little bit about the guidance with regards to Nurse and Allied, and specifically for the third quarter, how much of an impact is EMR versus just a drop off because the flu season was so strong? How should we think about that, and how should we think about the outlook beyond this quarter for those two segments?

This is Ralph. I'm sure everyone here probably wants to jump in on it. The flu season really impacts our Q1 to Q2 trend, and really it's basically we started seeing orders drop kind of mid-February, and they've declined from that high point for several months and only recently began ticking up again -- I think you probably did miss that part of the call -- kind of the last five or six weeks.

Our Q3 trend -- we have a positive EMR impact in Q3, but it's going to take us a while to lap lower demand levels in Q2, so our Short-Term Travel Nurse business is likely to be off just slightly from Q2 to Q3, and then the EMR business will hopefully make up for that. I say that with a little bit of caution because it is an enterprise-wide technology implementation. The start dates do move. Sometimes they move up, but usually they tend to move back, and sometimes the volume is a little bit different or greater than we anticipated more often.

So I think that on the Allied side, we're certainly still going to see a downward trend on demand, and our Local probably follows pretty close to Travel Nurse business.

And then how are you thinking about it -- not into next year, because I think everybody kind of expects things to pick up next year with the ACA, but how would you think about it trending towards the fourth quarter? Just what are you hearing from clients in terms of some of the MSP wins that you've gotten? Can you talk a little bit about how those are rolling out?

I think as it relates to the fourth quarter, when we sell something in the second quarter, we start to see -- kind of the implementation takes place usually in the third and beginning of the fourth, and so we're not seeing a whole lot of impact probably from the ones we sold in the second quarter. Mostly, our impact starts in those we sold in the first quarter for a fourth quarter. But we have already seen some of that impact. Locum's, I think, as we've pointed out, was impacted by one of our new wins in the Locum's MSP space, our Locum's business.

For fourth quarter, we do have some wins that we made in the second quarter that will have some impact, and that will help us offset for any drag there might be from other declines, either less CMR or just the overall space. I think that's one of the beauties of the MSP program. It's as rough and tumble as they can be, and the rest of the marketplace, you definitely feel a sense of stability around the MSP side of the business simply because it allows you to control the orders that are there, it allows you to be the -- when there is a slower demand, you're not forced to cut down your orders. You actually just fill more of your own business and give less of it to the subcontractors.

In terms of the fluctuations in patient census, has that had any impact with regards to the progress that you've been seeing with regards to nurses being willing to travel and to go back to that sort of work style?

This is Ralph. That's a really good question. In the past, you're right, during kind of recessionary times, nurses were reluctant to take travel assignments and they'd often move into permanent jobs, and actually we have seen that in the Allied segment of our business. That's why we're redirecting our sales efforts a little bit out of rehab and into acute-care and other areas where we think there's still good growth opportunity.

But so far, in Travel Nurse we haven't seen that trend. I think this is really just a budget short term, right, pay attention to the numbers for a couple of quarters strategy by the healthcare systems, and they're just trying to get themselves through to higher patient volumes.

I do want to say, because we've talked about MSP, our MSP strategy helps us a lot when this happens. So if you take a look at our booking trends in Q2, despite the volume being flat, we actually booked more than we did the same quarter last year, so our fill rates on MSP orders for Travel Nurse were up 400 basis points Q2 last year to Q2 this year and up 1,800 basis points in Allied from Q2 last year to Q2 this year. So that strategy really helps us drive better results with lower demand levels.

And on top of that, we're executing very well and keeping our SG&A low, and we expect our segment margins to hold up far better than they did when we've seen demand decreases in the past.

Right. One last question, then I'll follow up offline. Can you talk a little bit about rents, what you're seeing there?

Sure. This is Brian. Yes, in (inaudible) environment that we're hearing about, for rents has not changed. It's still a very challenging market. Vacancy rates are still at kind of historic lows, particularly in certain markets. We hear it's as low as 3%, and the projects are still -- what I'm hearing is it's more in the 4% to 5% year-over-year increases in rents.

But for us, how we perform has been much better than that. The Housing department has done a really great job of identifying properties where we can address that and keep the rents a little bit lower, so our performance has been more in the low-single-digit year-over-year increases. So still the pressure we've been feeling for the last couple of years. We expect to continue to feel that for the next year or two, until more units come online, but overall it's come in even better than we had hoped because the team has done a really good job, and also the sales team really working with nurses to negotiate the right packages. Housing is just one part of the overall compensation package we offer them, so we really try to educate them on the market and on the overall compensation.

Great. Thank you very much.

Tobey Sommer, SunTrust.

I wanted to ask you for your perspective on physician mobility and your thoughts about whether it's improving and why and what your expectation may be for that theme over the next couple quarters?

Sure. Tobey, this is Susan. I guess that should be obvious. It's a great question, because we do think it's contributed to some of the momentum that we've seen in our Physician Permanent Placement business, which obviously had great performance year-over-year and sequentially. We've been able to secure more searches. Searches are at one of the highest points we've seen in several years, and that's been a combination of increased demand in the market.

I think the question was asked earlier have we seen any regional differences, and I'd say in this business in particular, we have one of the most diverse client bases that we've seen in many years and across many types of settings and geographies, so you have to have candidates that are willing to go to those areas. And we've also been able to really see a significant increase in our candidate responses.

In fact, I just saw a metric the other day that our candidate responses were up about 12% in the first half of '13 versus the first half of '12, and so that's a really good indicator that people are willing to make a move. It also is why our placements have been at such a high point. Our recruiter productivity and placements are the highest that we've seen in many years, and that's a tribute certainly to the recruiters and the talent, but it's also an indicator that you have more physicians that are willing to make moves. So we do think it's making a difference and will be a continued driver for this business and Locum's as well.

Thank you.

Thank you, and I'll turn it back to our speakers for any closing remarks.

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

Thank you. Ladies and gentlemen, this will conclude our conference call for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.