AMN Healthcare Services Inc (AMN) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare third-quarter 2014 earnings conference call. (Operator Instructions). Also as a reminder, today's teleconference is being recorded. And at this time I will turn the conference call over to your host, Vice President of Investor Relations, Ms. Amy Chang. Please go ahead.

Thank you, Tony. Good afternoon, everyone. Welcome to AMN Healthcare's third-quarter 2014 earnings call. A replay of this webcast will be available until November 13, 2014 at amnhealthcare.investorroom.com. Details for the audio display of the conference call can be found in our earnings press release.

Regarding our policy on forward-looking statements, various remarks and characterizations that 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, 2013 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. (Technical difficulty) subsequent to this call may cause these statements to become outdated.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. Ralph Henderson, our President of Healthcare Staffing, will be joining us during the Q&A session. I will now turn the call over to Susan.

Thanks so much, Amy. Good afternoon and walk into AMN Healthcare's third-quarter 2014 earnings conference call. As we progress through the year market trends continue to strengthen and the team's solid execution in the third quarter delivered year-over-year and sequential revenue increases across all business segments.

Our case of MSP contract wins and service line expansion also accelerated, further fueling our positive outlook going into 2015. We have added more sales and operational resources to ensure that we continue delivering a best-in-class client and clinician experience, and that we're able to convert the higher demand into placements.

We also continue to make progress on our strategic investments which will further differentiate AMN in the marketplace and drive long-term growth, improved efficiency and continued margin expansions.

Now let's review the third-quarter results for our three business segments. Starting first with our largest segment of Nurse and Allied Staffing. Third-quarter revenue rose 2% year over year and 5% sequentially. Demand trends have improved significantly throughout the past two quarters which also had the effect of encouraging more candidates to join or rejoin the travel industry. As a result volume and bill rates are increasing.

In our travel Nurse business, which makes up nearly two-thirds of this segment, third-quarter revenue was up 2% year over year and 5% sequentially. Excluding EMR staffing, our travel nurse business increased 13% year over year and 7% sequentially. Demand for travel nurses has generally been running about double the level from prior year.

We believe the significant order growth was due to a combination of hospitals experiencing some census improvement, increased Nurse turnover and improved financial performance. This demand growth is broad-based across all geographies and types of clients and includes increased orders at more facilities and more units. Going into the fourth quarter we expect travel nurse revenues to be up approximately 15% year over year and over 5% sequentially.

Now turning to Allied Staffing where trends are also improving. Third-quarter Allied revenue was up 2% year over year and 6% sequentially. The improvement was driven by increases across the therapy, imaging and lab specialties. Allied orders continue to be up significantly above prior year levels.

Fourth-quarter Allied Staffing revenue is expected to be up in the mid-single-digits year over year and flat on a sequential basis. Local staffing third-quarter revenues were down both year over year and sequentially. We also expect fourth-quarter revenues for local staffing to be down but flat on a sequential basis.

While a small business for us, we continue to believe that an appropriately sized footprint in local staffing is important to support our current and future MSP clients. Our goal is to improve with the top-line and profitability in the current locations where we operate.

Overall for Nurse and Allied Staffing we have moved into a supply constrained environment. While applicants are up in the double-digits and have contributed to stronger bookings, applicant growth overall is not at the level of the extremely strong demand growth. Going into the fourth quarter we expect Nurse and Allied Staffing revenue to increase at least 10% year over year and approximately 5% sequentially.

Our Locum Tenens team delivered revenue growth in the third quarter of 5% year over year and 6% sequentially. The biggest drivers of the year-over-year and sequential increases came from growth in the emergency medicine and surgery specialties. We continue to win new MSPs and are expanding our existing MSP clients.

In the third quarter 12% of Locums revenues came from MSP clients, which is more than double from this time last year. Going into the fourth quarter we expect Locum Tenens revenue to be flat year over year and down sequentially approximately 6%, which is in line with typical holiday seasonality.

Now let's turn to Physician Permanent Placement, which is our highest margin segment. Third-quarter revenue was up 5% year over year and up 7% sequentially. The year-over-year growth was driven by higher search and placement volume. Our Merritt Hawkins retained search team and Kendall & Davis contingency business have both continued to perform well and are winning new clients across a variety of settings.

Our new search activity and placements are both trending positively. Going into the fourth quarter we expect Physician Perm revenue to be up year over year in the mid-single-digits and down sequentially in the mid-single-digits due to normal seasonality.

With market trends and improving our strategy to differentiate AMN as healthcare's innovator in workforce solutions will enable us to capture even more of the opportunity. Our MSP pipeline remains robust and we are winning new contracts and expanding existing clients across multiple staffing segments.

Our ShiftWise vendor neutral VMS business is also benefiting from the increase in demand and the addition of new clients. In fact, third quarter was their strongest for the year in adding new clients.

Our recruitment process outsourcing business also grew well this quarter through new and expanded client relationships with revenues running roughly 50% above prior year.

Finally, we continue to look at acquisition opportunity in the areas of new workforce solutions, new healthcare professional categories and opportunities to bolster our supply of candidates to help us meet the increasing needs of our clients.

This transformational time in healthcare creates immense opportunities and the need for innovation. As a thought leader in healthcare workforce trends and best practices, AMN continues to partner with clients in new ways.

One example of this is our recent launch of the Center for Professional Advancement. This first of its kind center represents a comprehensive effort to train and educate a new generation of professionals for jobs created by the ongoing healthcare transformation.

Another example is our National Healthcare Workforce Summit to be held in Washington DC next week. This gathering of over 150 participants is a unique forum for healthcare leaders to meet and discuss emerging trends and innovations that will address the workforce challenges of the future.

In this dynamic environment our high-performance team is focused on our need to excel in three areas: execution, improvement and innovation. AMN's success is achieved every single day through the strong engagement, talent and commitment of our team members across the country.

I'd like to extend a huge thank you to each of these individuals for their contributions which make it possible for AMN to provide our clients, healthcare professionals and their patients with the highest quality of service possible.

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

Thank you, Susan. Good afternoon, everyone. The Company's third-quarter revenue of $264.6 million was up 2.9% from last year and 5.4% from last quarter. This result exceeded our guidance of $254 million to $258 million driven by stronger than expected performance in the Nurse and Allied and Locum Tenens segment.

Our gross margin for the quarter was 30.4%, up 100 basis points from last year and down 40 basis points from last quarter. The year-over-year increase was due to the gross margin improvement in Nurse and Allied and Physician Permanent Placement segments. The sequential decrease was due primarily to a $700,000 unfavorable Worker's Compensation actuarial adjustment recorded in the third quarter.

SG&A expenses in the quarter totaled $60.3 million or 22.8% of revenue compared to $55.6 million in both the same quarter last year and the prior quarter. The year-over-year increase in SG&A was due primarily to the addition of the ShiftWise business, higher expenses associated with our information technology initiative, entire variable expenses to support our current demand growth and future growth initiatives.

The sequential increase in SG&A expenses was due primarily to a $1.6 million favorable professional liability actuarial adjustment recorded in the second quarter along with increased commissions and bonus expenses associated with the higher revenue and other expenses to support future growth.

Our third-quarter Nurse and Allied segment revenue increased 2% from the prior year and 5.1% sequentially to $174.3 million. Volume of 5,632 average clinicians on assignment was lower by 2.4% year over year reflecting the lower EMR in local staffing volumes offsetting the growth in the traditional travel nursing.

The average bill rate for the segment was higher by 1.2% over last year driven primarily by an almost 3% average rate increase in travel nursing. Nurse and Allied gross margin of 28.7% was higher year over year by 130 basis points but lower sequentially by 40 basis points.

Most of the year-over-year improvement was due to the inclusion of the higher-margin ShiftWise business with the balance resulting from higher bill pay spreads partially offset by higher housing and insurance costs. The lower sequential gross margin was due to the $700,000 unfavorable Worker's Compensation adjustment.

Third-quarter Nurse and Allied segment operating margin of 12.2% was higher by 30 basis points year over year but lower by 110 basis points in the prior quarter. The sequential decrease was due mainly to the net effect of the actuarial adjustments recorded in the past two quarters.

Third-quarter Locum Tenens segment revenue of $78.8 million was up 4.7% from prior year and 6.1% sequentially. Compared to prior year an average bill rate increase of 6.1% was partially offset by a 2% decrease in the number of days filled during the quarter. Locum Tenens gross margin of 29% was lower year-over-year by 30 basis points and sequentially by 80 basis points due mainly to lower [bill to page] spreads.

Third-quarter Locum Tenens segment operating margin of 10.3% was higher by 30 basis points year over year but lower by 20 basis points from the prior quarter.

Our third-quarter Physician Permanent Placement segment revenue of $11.5 million was up 5.4% year over year and up 7.2% sequentially. Gross margin of 64.9% was higher by 230 basis points in the prior year and 140 basis points in the prior quarter on lower direct expenses as a percentage of revenue.

Physician Perm Placement third-quarter operating margin of 24% was higher by 370 basis points year over year and higher by 360 basis points in the prior quarter. Interest expense in the third quarter was $1.4 million which compares to $1.8 million last year and $4.6 million last quarter. As a reminder, prior quarter interest expense included a non-cash $3.1 million charge associated with replacing the previous credit facility.

Our tax rate in the quarter was 41%, lower than our guidance of 44% due to the impact of recognizing certain discrete items in the quarter. The fourth quarter tax rate is expected to be 44%.

We reported net income of $8.5 million in the third quarter and diluted earnings per share was $0.18 for the third quarter. Cash provided by operations for the quarter was $15.5 million. Days sales outstanding were 57 days compared to 55 days in the last quarter and 52 days last year.

Capital expenditures for the second quarter were $4.4 million. As of September 30, our cash and equivalents totaled $9.7 million and our total debt outstanding was $146.3 million. Leverage ratio as calculated per our credit agreement was 1.7 times to 1 compared to 1.9 times in the prior year.

Now let's turn to our fourth-quarter 2014 guidance. The Company expects consolidated fourth-quarter revenue of $265 million to $269 million. Gross margin is expected to be seasonally lower at approximately 30%. SG&A expenses as a percentage of revenue are expected to be approximately 22.5%. And adjusted EBITDA margin is expected to be ranged between 8% and 8.5%. And with that we'd like to open up the call for questions.

(Operator Instructions). Tobey Sommer, SunTrust.

I wanted to see if you could talk about bill rates and pricing. I guess I'm asking specifically about nursing, but to the extent you want to comment broadly that is fine. Your comments about a supply constrained environment kind of made me want to explore what that could look like going forward. Thank you.

Sure. Why don't we have Ralph take that?

Sure. Hey, Tobey, this is Ralph. Our bill rates on nursing for the quarter were up about 3% and we certainly are seeing some positive trends looking forward on bill rates overall. It is a supply constrained environment, so some of that translates down into our pay rates and we are happy to give up a little pay to re-attract supply to come back into travel nursing, but overall still managing margins very well.

And that is kind of a short-lived thing. Usually our bill rates will catch back up. So there is a little bit of a lag between one to two quarters and then our bill rates get our margins back to kind of normalized levels. Our Locums business has also experienced very good trends on pricing, they're up to about 6% year over year. That team has done an excellent job of getting back to market rates.

I think we talked almost a year ago now that we thought they were below market rates and they've done an excellent job there. They -- similar issue there, as demand has picked up the physicians and clinicians were trying to attract them back into those types of opportunities and the pay has gone up just a little bit there as well.

And then on the Allied side, the demand only has recently increased, so we are not seeing as good of price increases there, about 0.5% there. But I expect that that -- if that demand remains at kind of current levels which is about double where we at order wise last year, then we would also see more positive fill rate trends like we've seen in nursing.

One of the things a lot of clients are triggering is what's called crisis rates given the high demand levels. And crisis rates are typically about 15% higher than current bill rates. And almost all of our large accounts have a crisis rate built into the contract. So when demand spikes as it is right now it triggers those crisis rates. And we've just begun to start filling orders at those higher levels and most of those will flow into the next couple of quarters as well.

And maybe just one other quick piece of color to add is that we actually see that our MSP clients are the first to increase rates in this environment and we've started to really see that occur going back to the second quarter and into the third quarter.

And that is not surprising because we have of course a very close ongoing relationship with them and are in there talking at least every quarter about what is happening in the marketplace regarding supply and demand and bill rates. And these are very sophisticated buyers so they want to be priced appropriately to make sure that they get their orders filled.

It's a little bit harder with the traditional competitive accounts where we are not having those meetings on a quarterly basis. And since we've seen so much increase in orders, both at MSP accounts but also traditional competitive accounts, it is a little slower to get the rate increases at those traditional competitive accounts. We are seeing them happen and they are coming but they are not quite as quick as the more sophisticated MSP clients.

Thank you very much. In terms of the crisis rates, are those being applied to specific kind of nichey specialties? Just trying to get a sense of order of magnitude.

Yes, I mean -- yes, generally that is how they work. But for labor and delivery and things like that, that is kind of what we have seen in the past three years more recently we are starting to see them apply their crisis rates to specialties that are not considered to be as difficult, things like telemetry.

I have some pediatric MedSurg nurses even where we have those types of crisis rates. So, it is not quite across the board yet and, you're right, some specialties may never need them. But nursing used more broadly now than since I have been at AMN.

Okay, thank you. Just wanted to ask a follow-up question on ShiftWise. What are you seeing in terms of your growth there? You talked about new client adds.

Right.

Can you -- I don't know if you are willing to, but could you quantify kind of a growth rate for ShiftWise?

You know, I don't think we're going to talk about specific numbers on new contracts other than I mentioned the third quarter was their best quarter. They certainly were signing up new clients in the first and second quarter as well. But third quarter really started to see some momentum, which is the same as our MSP clients. So I'm not surprised at that.

And then their kind of base vendor neutral VMS business is expected to grow more than 10% on a year-over-year basis from a gross spend under management standpoint. So they are also seeing the benefit of the uplift in the overall demand at those vendor neutral clients.

On top of that they are also implementing ShiftWise in more MSP channel partners, including ourselves as we adopt them as our technology at our existing and new MSP clients. There is some pick up there, but they're also signing up other new MSP channel partners to build that piece of their business.

Thank you very much. I will get back in the queue.

Jeff Silber, BMO Capital Markets.

A couple times in the prepared remarks you talked about your EMR business. Can you just remind us roughly how large that is and when you think this will become less of a headwind for you?

This is Ralph. It really was a difficult quarter for our EMR business. We did less than $1 million in revenue in EMR in Q3. Last year the same quarter we did about $11 million. So you get a sense of the magnitude of how much that hurt us on a year-over-year basis, particularly when you look at the travel nurse volumes which were up 13% over that same period.

Kind of looking forward, as you probably heard from the healthcare IT company, the private care --there's still a [component] that's out there. There are some second-generation upgrades and things like that. So we have a pipeline of opportunity, predicting what quarter they're going to hit in has kind of been more and more difficult and there are just fewer projects. So I mean I wouldn't probably predict more than a couple million dollars in a good quarter for your EMR going forward.

Okay, that is helpful. And just moving on to the impact of the ACA, I know there are some changes coming effective January 1. How is the Company positioned to potentially benefit from those?

Well we are -- we had already been prepared and in compliance with the vast majority of the regulations that were expected to go into effect in 2014. And really the only area of our business where there is a small change required is in local staffing where we have a small group of clinicians who might work with us enough on a consistent basis to meet the 30 hour requirements and be eligible for insurance. Correct me if I am wrong, Ralph, I think it is like about 100 people over a year?

Yes.

So the impact is relatively small for us.

Okay, that is good to hear. And Brian, I didn't want to forget about you. I have got a couple numbers questions. Unallocated SG&A was about $10.4 million in the quarter, that looked a little bit high. Was there anything specific going on in the quarter?

Yes, it was up a little bit from last quarter and last year. Part of it was if we look sequentially with the acceleration of the business there were some true ups on some of the bonuses that go into the corporate departments as well. And then just seasonally we have some projects in the fourth quarter like our IT SOX work is done and that is outsourced and then some tax projects as well.

So it was up as a percentage of revenue kind of 3.9% range. But as we go into the fourth quarter, we do expect it to go back down more in that 3.3% to 3.4% of revenue, which is where it has been trending at for the last year.

Okay, great, that is helpful. And then what should we expect for interest expense in the quarter?

For the fourth quarter about $1.3 million.

$1.3 million, all right, great, I will jump back in the queue. Thanks so much.

Gary Taylor, Citi.

I just wanted to go back to the G&A a little bit. So I was very pleased to see the revenue ahead of the model and was hoping for a little more G&A leverage. And I know that over the next several years as you matriculate your way towards your 10% EBITDA margin target you anticipate 50 basis points or so of G&A leverage from these levels.

So, Brian, maybe just kind of go through the things you called out in the release. ShiftWise I understand is a year over year, G&A pick up shouldn't be that much sequentially I wouldn't think. But just you talked about the bonuses, but you also mentioned IT. And I just wanted to understand a little better expenses for meeting current demand and future growth and does that mean recruiters? What does that mean exactly?

This is Brian. I will start and maybe hand it off to Ralph to give some color as well on the hiring side. The IT, it's really -- the majority of that was really baked in already into this year.

So some of the -- as we have gotten into some transitions we're working through these projects on our front and back office systems, we are moving to more commercially available systems some of which are SaaS based. So you're kind of moving from what historically would have been internally developed capitalized cost to SaaS solutions which run through SG&A. So salesforce.com is one example of that.

So the majority of that we've made those investments and they are reflected in the 2014 year, but that is a part of the increase from the third quarter of the prior year. And as I mentioned, in the third quarter there were a few things that are just seasonal, some of the projects we worked on, the tax project we worked on that led to the lower tax rate, some IT SOX work as well.

And then so really sequentially the other big increase, again, from the second to third quarter we did have that actuarial adjustment in the second quarter so really we were at about $58 million -- a little under $58 million in the second quarter (multiple speakers).

The majority of that increase is really employee based, a little bit for merit increases, there is one extra payroll day in the third quarter. But the hiring is probably the more important part of that because that is really (inaudible) reflecting our growth in the business as well as what we are -- the demand growth and I will let Ralph maybe cover some of that too.

Yes we also when demand spikes like this we see some increase in our over time, temp usage and those items, but what probably is most interesting is what we have done in the area of hiring producers.

So over the last 10 of the -- in late Q3 we were mostly hiring for our Locums organization, early Q4 we were mostly hiring for travel nurse organization. We have added more headcount, or more producer count than I think at any time since I joined the Company, so about in the last seven years.

It takes about four to six months for those individuals to get up to production levels so they start paying for themselves. So there is a little bit of margin compression for a short period of time while that occurs. At 18 months we start to become -- get into the top producer category and they really start spinning off EBITDA at a better rate than they were early on.

So the percentage of those new producers versus experienced producers is different than it has been for quite a while, again because of the increased demand.

Our training and support systems I think are great and they will get those people up to speed very quickly. I think they are in the best in the industry. And so, I don't think -- I don't have any fears about us getting them back up to those levels, we have done a good job on managing that.

Additionally, we have to take good care of the individuals that we put out on assignment, so we have expanded our kind of support services team. And this is an amazing group of people who work in our back office doing payroll and housing and all those things that create a positive clinician or physician experience.

So those increases as well usually flow a little bit more with the revenue increases. But you have to make some of those investments prior to seeing the decreased volumes.

That is helpful, thanks. So Brian when we look at your fourth-quarter adjusted EBITDA margin guidance, it kind of brackets what you did this quarter. But you did say you expect the corporate overhead or that corporate G&A to drop a bit sequentially as a percent of revenue. Did I get that right?

That is correct. Again, as we see that revenue guidance up a little bit we do expect to see some of the leverage. Some of those costs that were in the third quarter that would not continue into the fourth quarter. And on the point earlier around even the unallocated coming down as a percentage of revenue, we'll see some leverage on the SG&A side.

And the reason why that bracket is still to an amount similar to the third quarter though is there is a little bit of seasonal pressure there too on the gross margin side as you see fewer hours worked during the holidays, but you've got certain fixed cost like housing. We typically see some of that margin pressure just in the fourth quarter and then you can work your way out of it in the first quarter.

Okay. And then one last question. Susan, I missed the first two minutes, they inadvertently put me on the wrong conference call and as I came on you were just talking about growth in the order book. So I don't know if I missed -- did you quantify what the order book looks like year over year?

Just in terms of the magnitude that orders in travel nursing are -- have been running roughly double the levels of prior year. And that has really been true since kind of July/August. But the good news is the momentum has really continued. And in fact we have the highest order count that we've had since early 2007. And actually it might be helpful, Ralph, if you gave us a little more color on those orders and what they look like.

Yes, I will even -- I'll take it a little bit further. The current -- so in the quarter you're right, double -- double prior year. At this point we're about 40% ahead of where we were at the end of -- at Q3 on our Q3 average. Which puts us at the highest order level we have been at since March of 2007.

To give you some idea of -- if these volumes persisted what would happen to our business. At these order levels at that time we were at about 6,100 travelers. So we love to see these kind of order counts carry out and remain at where they are at (inaudible) at two quarters at least.

The other color I provided, Gary, is just that it is not concentrated in a few accounts or in certain geographies, it is very widespread across the country. Many types of client settings and sizes of clients and the number of facilities that we have orders at is significantly at the number of units where we have orders, which is a very healthy sign, is more than double where we were a year ago. And that just creates that much more opportunity to find the best match for each traveler that wants to go to work with us.

Okay, yes, that is right where I came on. Thank you.

A.J. Rice, UBS.

A couple questions if I could ask. I guess I think, Susan, you made the comment, maybe it was someone else, but that the strong demand is starting to draw some nurses back into the market they either haven't been -- particularly travel I guess you mentioned, market before or have been out for a while.

Is there any attempt or a way that you can track either new applicants or people that haven't been out for a while that are coming back that you can give us a sense of -- I mean is that just a trickle at this point? Are you starting to see applications pick up? Because it seemed like to me in a demand constrained environment that is sort of the key to really see the dramatic acceleration in revenues, if I'm not missing something.

Yes, this is Ralph, I'll handle that one too. And I'll talk about travel nurse because that is where we're seeing the greatest demand. We measure our recruiting efforts there based on candidates which we refer to as high need applicants. So those are basically candidates that match kind of our top -- the top 20 specialty clients are looking for. So today that seems like ICU, Kelly, ER, OR, MedSurg are kind of all in our top (inaudible) there.

And then we basically target all of our marketing and match that. In the third quarter we averaged about 45% more high need applications than we did in the prior year. And some of that is driven by high order counts, right. So as demand begins to go up, [word of mouth alone], candidate nurses and others who went perm probably during the recession, [gets out] until we start to see an increase in the number of people who apply.

Our database of course is significantly larger than that. We have about 65,000 people who have worked for us over the last several years that we're constantly in contact and in a lead database which is really big but it probably doesn't help you give a number there. But it is enormous.

And then kind of one in eight people who come in as an applicant go to work for us. So we are seeing some positive trends there, I mean we could always use more? And I think as the bill rates have begun to edge up it is starting to lever people back out of those permanent positions.

Another way to look at it, A.J., is the number of or the mix of travelers on assignment that either have never worked for us or haven't worked for us for more than a year. And as you would expect, that number has gone up considerably since the beginning of the year.

It really has to if we're going to grow, because our recruiters and our support team does a superb job of keeping our existing travelers happy. And so our rebook rates are very, very strong right now for our existing travelers. So in order to grow and even replace those few that don't renew with us we have to be getting new and those better kind of lapsed travelers rejoining us.

Okay, all right. And in your mind, you mentioned as the bill rate steps up that tends to draw people back. Is there thresholds or any way you can sort of talk about whether you think you are close to hitting points that will draw sort of an accelerated pace of new applicants? Or is it sort of just steady pick up in new applicants I guess?

I would say it is definitely at an accelerated pace. We were I think running about 30% above prior year the past couple of quarters, now running 45% above prior year. So I think we are kind of starting to hit that tipping point. It is different by specialty but we are starting to see that.

We can give you some sense of the magnitude. We get about 3,500 of those applicants per quarter, so we are bringing in 14,000 to 15,000 new applicants a year. So it is a big number already. Now it is about getting our recruiters trained and putting the right types of positions in front of those candidates, screening and assessing them and kind of getting them on assignment as quickly as we can.

Okay. I know generally you are at about this point or maybe even you were into it a little bit. Typically we see particularly on the travel side some seasonal demand. Is that -- how would you characterize that? Is that sort of a normal seasonal demand that you expect for December/January, winter month type activity? Or is it in any way more or less than what you traditionally see in those markets?

I think we generally characterize it as normal relative to the rest of the market. One way to look at it is our flu clinic business. And that is up a little bit. But it quite honestly isn't -- the overall size of the business doesn't move the needle that much.

And so, just generally we see those clients that use more seasonal travelers up, but it is up everywhere. So it is hard to really determine whether that is a seasonal issue or if it is just a general national shortage and demand growing.

Right, right, exactly. And then I think in your comments about trajectory of demand going into fourth quarter, local staffing, it sounded like there is a little bit of urgency between what you are seeing in local staffing and travel. I may not have heard that right, but if I did any comments on why local wouldn't be quite as strong as what you are seeing on the travel? I would think that might get tight pretty quick.

A couple things on local staffing. One is that the business has struggled a little bit the past several years as clients have kind of a large in-house pool and they use those resources to fill short-term assignments as opposed to giving local or per diem staffing, which is really all we do in our local branches is kind of dispatched on a short-term basis staff.

Whenever the demand for travel goes up a lot of people working local assignments actually move to travel assignments which creates a supply constraint for the local business as well. So that is why it kind of tends to hurt our revenues as well for one of our businesses. It is unfortunately a little bit bad for the other, of course the margins are so much better in travel nursing than they are in local staffing it is a positive overall for us.

Sure. Okay, maybe one last question for Brian. The working capital staff up, the 50 to 57 year-to-year and the 55 to 57 year to date, is that just mix or is there anything else that is worth mentioning?

There is not a lot worth mentioning. It has really the acceleration of the revenues through the quarter has probably driven that. The 52 last year was a very good DSO, we saw some really strong collections at the end of the quarter that drove that. So we have been -- the last several quarters been running more in that 55 range.

As I look at the -- at our overall AR though, it's -- we are not having any real credit issues. The current portion is really solid. So overall the balance looks really good. It's been more just a function of the revenue growth.

Okay, all right. Thanks a lot.

Tim McHugh, William Blair & Company.

I guess first -- sorry to make you guys repeat it, but I think, Ralph, I missed what you said about October versus the -- kind of the order volume in the quarter being double.

Sure. So, yes, as Susan mentioned I think in the comments were -- in the quarter for Q3 were up double where we were at last year. And then thus far in October we are up another 40%.

Versus the level you were at in Q3 -- (multiple speakers) sequential, okay, that is what I thought.

It is still up about double year-over-year, maybe a little bit better. It just depends on the week, it tends to hover around a 100% increase.

Okay. And I guess as we think about that environment, obviously it is tough to fill that type of order volume. You've been talking about supply constrained environment. What is the risk right now that your clients don't I guess fully grasp the environment and there is blowback in terms of the MSP arrangements and the growth of that?

It doesn't sound like it has had an issue because you continue to see good growth there. But I guess how are you -- how much of a risk is that right now that they blame it on you guys getting a first look at jobs or something like that and not delivering in an environment like this?

As I mentioned earlier, our MSP clients, and not surprising, are kind of the most sophisticated buyers of contingent staffing. And so, they understand the supply/demand dynamics very well. And we provide a lot of information to them so that they understand the market environment from a rate standpoint. And they understand that their rate will dictate the attractiveness of their assignment.

And so, they tend to be the early movers and have been in making sure that their rates adjust to the market and that they are positioned well. And that helps to ensure then that we are able to continue to attract that supply.

We have been doing very well on an overall fill rates, in fact we have just renewed most of our large MSPs during the last six to nine months and they are very pleased with our services overall. It is important that we stay close with them so that they understand how quickly the market changes.

And that is where things like Ralph described, sort of the crisis emergency rates come into play, because there could be some really critical areas where they need to put in some short-term higher rates to ensure that they get those needs met quickly.

Because of the relationship and trust that we've built up with them, they understand that we are only bringing them that and we can support it with data because that is the nature of the market. So we find those conversations are actually very productive and easier to have than with say a competitive personal account where maybe they aren't quite as sophisticated and we aren't having the ongoing conversations.

Now also having the largest affiliate vendor network is very beneficial for us. It's something we have worked very hard at making sure that we have a strong group of subcontractors, affiliate vendors that are also receiving those orders and have the opportunity. And those affiliate vendors have been benefiting quite a bit from those relationships and contracts over the past years.

And so, we find that they are still very engaged in making sure that they maintain their good position in those contracts with us because they see the value in them.

So while it might be sort of harder for everybody to meet the increased demand -- and let's face it, as a market we can't immediately meet the increased demand until we get more supply -- we actually see that those MSP clients who everyone knows are the bigger buyers, and will probably be the more sustained bigger buyers, still get the attention they need. I know long answer, sorry. But it is an important question.

Yes. No, that is helpful. And I guess in that context, as we think about the expense growth, I guess not just Q4 but as we go into next year, you had talked about aggressively ramping up basically your recruiting sales force. Where are you at now relative to that demand? I know directionally you need more, but how much more? How significant of kind an investment do you need to make going forward here?

We would hope to have a more normal hiring pattern in line with the growth. We just had the surge a little bit over the last couple of quarters because of the spike in demand. But normally we can operate in line with our revenue growth and not to make these investments so far in advance.

We had our largest group of new travel nurse recruiters starting training in early September. I would like to have that problem again quite honestly in January or February because it would be such a great sign that demand is continuing to rise at an even faster pace. So we have no problem adding those resources when we see the demand is there, it is sustained and we need to add the resources to ensure that we are meeting our clients' needs. High-class problem.

Right. One last one, just Locums being flat year-over-year in your kind of guidance. I think there was a project in the year ago period and maybe that is why. But your commentary was fairly positive relative to a kind of flat year-over-year guidance. Just trying to reconcile (multiple speakers).

Yes, we feel great about this business and the trend on days sold and days available are up. They're kind of single digits, we have to get the orders filled. We still have a lot of work to do there, but that team is working diligently to get that done.

The year-over-year issue in Q4 is really two very large projects that we did in Q4 of last year. Actually there is a little bit of impact even in our Q3 results from both of those projects as well that are both longer -- the projects ended either at the end of Q4 or beginning of Q1.

Okay, thank you.

Randy Reece, Avondale Partners.

First of all, I was wondering if you could give me an idea of what gross margins look like -- gross margin comparisons in like for like business. And how much -- if you just take out the effects of any kind of mix shift what gross margin comparisons look like.

This is Brian. Do you want it on the -- I think as a year over year, sequentially or both?

Let's talk year over year.

Sure. So (inaudible) basis the gross margin for Nurse last year was 27.4% this year it is 28.7%.

Right, let's just say just drilling down below the broad segment basis on a little more granular level. I know there are differences within those segments and I'm just wondering if you could get beyond whatever kind of mix shift effects there are within the segments themselves.

This is Brian. I guess we don't typically do that. I would say as a general sense there is not any major shifts within say the Nurse and Allied segment. The only one from a year over year is really the addition of ShiftWise, which represents kind of the biggest piece of the year-over-year increase. Outside of that there have been some changes, but I would not say any of them are big enough either to be notable as well.

Okay. And just in a separate direction, I would like to discuss a little more about how swings in demand affect your operations, your ability to plan expenses. There have been -- over the last four quarters there have been such significant swings. Does it affect how willing you are to commit expenses in anticipation for growth? Were you quick or slow to reinvest to turn the spending back on after the lull that you saw in the winter?

I think, Randy, we have been typically pretty quick to ramp up and ramp down when necessary. It is something we have gotten better at over the years, certainly having been through both of those trends many, many times. And I would say that we were very quick to react this time. Even though I talked about tiring a lot of recruiters and sales staff at the end of the third quarter, we were already hiring in sort of the June/July time frame as we started to see orders pick up.

And so, I think our team is very good at recognizing the trends and then very quickly mobilizing and going into action. It's why, as Ralph mentioned, our temporary expenses were up. Because even if we can't hire the permanent employees fast enough we will very quickly add temporary resources to ensure that we are able to convert the higher demand and certainly take care of the volume that we're placing through good service.

During the third quarter you announced, and you mentioned it in your prepared remarks, the Center for Professional Advancement. And could you describe how that is going to affect your relationship with customers and how that is going to fit into your strategy overall?

Sure, I would love to. And this really comes out of dialogue that we've been having with our major customers over the last I would say 18 months or so where they are becoming increasingly concerned about the shortage of all healthcare professionals but also in particular some of the newer types of healthcare professionals that really didn't exist three to five years ago. And even if they did, the way they will be utilized going forward will be very different.

So areas like a case managers, case and care navigators, even the fact that all kinds of clinicians need to be better trained in current technology and how to do team-based patient care delivery. And they want our help in creating training and education programs so that they are not doing it one off for each hospital or each system.

And so the Center was really born out of that need from our clients to add additional value and partner with them in a more strategic way so that we can be additive to that supply challenge going forward. And so, we will be working with clients to identify what are those most critical categories.

How can we create training programs in partnership with them where maybe we are providing part of the training online and through other forms and they are providing some of the on-site preceptor sort of learning and action and together we are helping create that supply. Obviously there is a revenue component to that for us as well. But it is also a longer-term investment in the supply for our clients in the future.

And my last question involves the popular phenomenon in of hospital chains managing their own flex pools. How much difficulty do you hear from clients in their own management of internal flex pools and how does that affect your business?

This is Ralph, I will handle that. In-house pools were fairly easy to staff during the recession and so many hospitals were able to go to their pools and I've heard numbers in the hundreds at some of the bigger systems in terms of numbers of employees they have in those pools.

Some of those systems are some of the ones with the largest numbers of orders with us right now. So I get a sense that the pools were insufficient to meet kind of current demand levels and that I think their pools are being depleted, we are seeing more job turn over, more quits, people coming back to the travel industry and things like that I think are starting to impact them. We've even had a couple of requests from clients lately to manage their pools, which we can do with one of the ShiftWise technologies.

So I get a sense that it is not going as well for them as it had been, as you would expect when a market changes as quickly on them. So it does hurt our per diem business, the daily part of per diem. But the per diem business is beginning to take a look at being there more for longer-term assignments, working on skills that are maybe less impacted by the short-term nature of those per diem shifts. I hope that helps.

Thank you.

Mark Marcon, R.W. Baird.

With regards to the MSP contracts that you have been bidding on, can you give us a little more flavor with regards to what sort of win rates you are seeing? And also the ones that you have just implemented, how they are scaling up?

Sure, love to. So as I mentioned on our last call and I think I kind of reiterated today, we saw a nice pick up in the momentum of new MSP wins kind of late second quarter and then throughout the third quarter. In fact, we won more new MSPs in the third quarter than we won during the whole first half of 2014.

And a few characteristics of those which have really been encouraging is that the majority of them -- well more than half of them are utilizing multiple AMN service lines, meaning Nursing and Allied or Locums and Nursing. In fact, typically if they are only using one it would be more of a Locums client that is really just in the physician business.

But we are seeing a much better adoption of multiple service lines going into the initial MSP as well as add ons and extensions in our existing MSP so in addition to the new wins we had, we had several what we would call expansions where we have a MSP that is adding additional facilities. As well as add on service lines where maybe we already had an existing nursing contract but we have added in Allied or we have added in Locums and we have had a lot of momentum in that area.

If I look at the distribution of gross billings of those contracts that we won and this is more looking forward to what their ultimate potential is at maturity, about 40% to 45% of those gross billings would come from Locums, about a third from nurse travel, local is about 15%, Allied is about 10%.

And those numbers will change, this is a forecast based on what we believe is the beginning of the implementation. But it just gives you a little bit of flavor that we are absolutely signing more Locums contracts as a percentage which is we think a very positive thing. As I mentioned, our penetration of Locums revenue coming from MSP clients hit 12% in the third quarter. We believe that will continue to rise.

That's great. And can you talk about renewals? Like what are you -- what sort of renewal rate are you running at in terms of the MSP?

We have been -- we've had really good success in renewing our major MSPs. And I mentioned that we renewed most of our top five or six I think in the last six months. So that is very positive for us.

And there is -- occasionally there will be one where it is up for rebid and for whatever reason they make a decision to go with another vendor. It is pretty rare but it does happen occasionally. We are renewing the vast majority of our MSPs when they come up. And sometimes they take them out for rebid just to test the market and sometimes they don't.

Great, thank you for the color.

Tobey Sommer.

Thank you. Just some quick numbers questions if I could. Do you have an expectation for the tax rate in the fourth quarter?

Yes. 44%.

44%, thanks. And what percentage is the recruiter headcount up currently? Or you can express it in some other way if you would like.

It is up about 10% from the same point last quarter.

Oh, sequentially then, okay, thank you. And what is the percent of sales from local and travel nursing?

We don't give an exact percentage. We've generally said that the travel nursing division is about two-thirds of our Nurse and Allied segment. Obviously local has gotten smaller over time, Allied's number two in that category. So -- and as a percentage of profitability local is a very small percentage of that segment.

Understood. And then during an answer to a previous question I think mentioned traveler account in 2007. I may have misheard that you said 6,100 travelers. Is the old high 7,100 or somewhere in there?

Well, that was the -- I mean you are going back years before that. Actually our all-time high was around 8,400 --

Okay.

--back in 2001. But I think Ralph was making the correlation that at the last time we had orders at this level the traveler count at that time and sort of looking forward for the next six months was around 6,100. So it just sort of gives you an idea of what is possible.

Now we are certainly not forecasting a traveler count at 6,100 in any near-term. But in terms of about sort of demand potential and what that can do for the business it is pretty enormous.

Just two last questions for me. One, could you comment on if your customer -- your hospital clients are expecting the increase in census to continue? And then any kind of comment you could give about Ebola and what it means for your business if anything right now. Thank you.

First on the Ebola comment. We certainly have had a lot of dialogue with our clients and have put into action resources for both our clients and in particular our clinicians to make sure that they feel prepared and comfortable to have the resources to be safe and well trained in this environment.

So we have a lot of things on our website and working with our clients to make sure that we are providing those resources as needed. And some clients are asking for some initial screening to change a little bit and we have already put that in place over the last month.

In terms of the demand increase, it actually hasn't been as great as you would think. We went back and tried to point to specific orders where maybe you had a hospital in a particular area where their existing nurses wouldn't come to work or there were concerns in the local area. And as we sort of added up those what we would call Ebola-related orders it was less than 40.

And so we don't think that there is an overall impact. I do think that because of the concerns it causes people to be just a little bit more cautious. And so ERs are very full right now, as they probably would be with the flu season beginning anyway. Maybe it is a little higher than usual because individuals are wanting to get in them quickly to be assessed.

And your expect -- what you are hearing from clients about census headed into next year?

Yes. So, if you looked at our orders and demand trends right now, they would indicate that they are expecting continued increases because the orders just keep flowing in with more momentum. And some of those orders are for individuals starting in December and January and a few even past that. So that is a really positive sign.

When it comes to the first quarter I do think that we have to be realistic particularly considering what happened this year with the first quarter. First of all you have to remember that there are two fewer calendar which results in two fewer billing days which hit particularly Nurse and Allied, but also Locums a bit. And that creates -- even at a flat volume you get a 2% headwind.

And also you have to remember over the holidays even travel nurses like to go home and see their families. And so, you tend to get a drop off at the end of the fourth quarter and the beginning of the first quarter. So flattish volumes going into the first quarter is not an unusual thing at all. And of course in 2014 we actually saw census drop a little bit due to the insurance resets, higher deductible plans in particular.

So it is real -- it is kind of unclear whether that impact will repeat itself. We are certainly paying attention to it, it could be up, it could be down a little bit. We think it is prudent to not completely ignore the trends that we experienced earlier this year.

And so, while if you looked at our order bank you would get very optimistic about growth in the first quarter, we think we would need to reflect back on this year and expect some form of impact from those insurance resets.

That makes a lot of sense, slightly a little bit of a sequential headwind to revenue in the first quarter. Thank you very much.

Plus you've got the two fewer billing days which creates a headwind even without that.

Absolutely. Thank you very much.

Thank you. At this time there is no additional questions in queue, so I will turn the conference call back to our host for any closing comments.

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

Thank you very much. And, ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T's executive teleconference. You may now disconnect.