AMN Healthcare Services Inc (AMN) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare full-year and Q4 2015 earnings call. (Operator Instructions). As a reminder, today's teleconference is being recorded. At this time I will turn the conference over to your host, CFO, Mr. Brian Scott. Please go ahead, sir.

Good afternoon, everyone. Welcome to AMN Healthcare's fourth-quarter 2015 earnings call. A replay of this webcast will be available until March 3, 2016 at AMNHealthcare.investorroom.com. Details for the audio replay of the conference call can be found in our earnings press release.

Various remarks and characterizations we make during this call about future expectations, projections, plans events or circumstances constitute forward-looking statements. These statements reflect the Company' current beliefs based upon information currently available to it.

Our actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including those identified in our most recent Form 10-K and subsequent filings with the SEC. The Company does not intend to update guidance or any forward-looking statements provided today prior to its next earnings release.

This call contains non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the directly comparable GAAP measures are included in our earnings release and on the Company's website.

On the call with me today is Susan Salka, our President and Chief Executive Officer; Ralph Henderson, our President of Professional Services & Staffing; and Dan White, our President of Strategic Workforce Solutions. I will now turn the call over to Susan.

Thank you so much, Brian. Good afternoon, everyone, and welcome to AMN Healthcare's quarterly earnings conference call. 2015 was a remarkable year for AMN Healthcare.

We made significant strides in our long-term strategy of delivering the most innovative workforce solutions and staffing services to the healthcare community. And by staying passionately focused on the needs of our clients and clinicians, our team delivered industry leading revenue and earnings growth.

Our full-year revenue of $1.46 billion was a record high and 41% over prior year, with 26% organic growth and the remainder coming from acquisitions. Our adjusted EBITDA was $165 million, up 81% over prior year, and reflecting a margin of 11.3%. As a result we were also able to achieve our long-term profitability goal of an adjusted EBITDA margin of 10% one year earlier than expected.

Throughout the year we successfully integrated and began harvesting benefits from acquisitions closed in January 2015. In the second half of the year we also expanded and strengthened our offerings by adding interim and permanent placement services for executive, physician and other leadership positions.

These new offerings, along with our core staffing expertise and other workforce solutions, are shaping AMN into a more comprehensive partner for our clients. Our ability to bring innovative and integrated solutions to the market is resonating at a time when healthcare providers are in the early stages of what is expected to be the worst clinician shortage this country has ever experienced.

Our fourth-quarter revenue of $403 million represents an increase of 44% over the prior year and 5% sequentially. The strong year-over-year revenue increase was across all business segments with 27% coming from organic growth. Fourth-quarter adjusted EBITDA grew 85% over prior year reflecting a margin of 11.6%, an increase of 260 basis points.

Now let's review the fourth-quarter results and outlook for each of our business segments. In our largest segment of Nurse and Allied Staffing, fourth-quarter revenue rose 51% year-over-year and 8% sequentially. More than half of the year-over-year increase was from organic revenue growth as we continue to bring new supply into the travel market and increase our fill rates in a robust demand environment.

Even with this growth in supply we still have more demand than we can fill due to the overall shortage of clinicians. In the fourth quarter travel nurse staffing revenue increased 39% year-over-year. As we moved into the first quarter favorable new order and placement trends are continuing, candidate applicants are increasing and rebook rates are rising.

The most recent BLS jobs report revealed a continuing high number of healthcare job quits and openings, suggesting that employers are still having difficulty retaining staff and filling vacancies.

All of these internal and external factors are translating into expectations that our travel nurse staffing revenue will be up more than 30% year-over-year for the first quarter. This growth rate is almost completely organic as we completed the acquisition of Onward in early January 2015.

In our Allied Staffing business fourth-quarter revenue grew 53% year-over-year. The demand environment continues to be very strong across all specialties and we are experiencing growth in our new candidate supply and placement.

A great sign of our ongoing success in helping clients through multiple service lines is the fact that Allied revenues through MSP contracts have doubled in the last year and now represents 31% of this division's revenues.

As we begin 2016 the solid trends are continuing and our team is executing exceptionally well. For the first quarter we expect Allied Staffing revenue to be up approximately 20% year-over-year. Like travel nursing, this is nearly all organic growth.

Our VMS recruitment process outsourcing and workforce optimization businesses continue to experience positive trends and collectively grew faster than our other divisions in the quarter.

Very significant growth gives us confidence to continue investing in other workforce solutions to open up new markets and allow us to deliver greater value to our clients and healthcare professionals.

Locum Tenens fourth-quarter revenue of $99 million is 30% higher year-over-year and seasonally down 2% on a sequential basis. Due to the exceptional strength in demand and our team's solid execution, this sequential decline is less than typical. We continue to increase our business through MSP contracts which it now represent approximately 17% of this segment's revenue.

Demand and execution trends remain very strong as we enter 2016 and the first quarter Locum's revenue is expected to be up approximately 15% year-over-year.

In our Physician Permanent Placement segment, fourth-quarter revenue of $14.7 million was higher than expected and represented growth of 23% year-over-year. The strong performance was driven primarily by record high search and placement levels with particular success in partnering with large integrated delivery systems.

Our October 2015 acquisition of MillicanSolutions, which is a physician leadership search firm, contributed just over $500,000 of revenue during the quarter. Due to the continued momentum in search and placement volumes revenue is expected to be up approximately 25% year-over-year in the first quarter.

Over the last year AMN continued to further solidify and expand our leadership position as the innovator in healthcare workforce solutions. At the beginning of 2015 we added the Avantas and Medefis service offerings. In the second half of the year we brought The First String and MillicanSolutions into the AMN family. And most recently, in January of 2016, we added B.E. Smith and Healthsource Global into our portfolio of offerings.

B.E. Smith is the largest provider of healthcare leaders and executives on interim assignments and through retained search services. The recruitment expertise and national talent pool of healthcare leaders provided by B.E. Smith brings immediate strategic value to AMN's portfolio of solutions.

Client reaction to our recent announcement has been very positive, particularly as healthcare organizations are faced with the need for key executive and leadership talent to drive transformation. B.E. Smith will add approximately $25 million in revenue to the first quarter and it operates at an EBITDA margin of approximately 15%. Brian will talk with you later about where this business will be reported in our segments going forward.

In January we also welcomed the Healthsource Global team into the AMN family. Their services will enable us to more effectively assist our clients during times of urgent short-term staffing needs and labor disruptions, which has become an increasing challenge particularly for our larger MSP clients. During the first quarter this new business will add approximately $3 million in revenue and is expected to operate at an ongoing EBITDA margin of 15%.

As mentioned on our last call, in light of achieving our previously stated adjusted EBITDA margin target of 10%, we have updated our long-term model and set a new profitability target.

We believe through improvements in gross margin, continued expansion of our workforce solution, operating leverage and SG&A efficiency initiatives we can achieve an adjusted EBITDA margin of 14% by 2020. This assumes that market conditions and macro drivers of our industry remain similar to our current environment, enabling our team to continue executing at this level.

Our strategy of the evolving AMN as the most innovative, trusted and influential force in providing workforce solutions enables our clients to achieve their goals while also delivering strong results for our shareholders.

This is all possible thanks to the hard work and dedication of AMN's team members, which, in my opinion, are the most talented and certainly the most passionate in the industry. Their drive to provide the highest level of service possible to our clients and clinicians impresses me every single day. I want to take this opportunity to recognize them and thank them for all of their hard work which makes AMN the great Company that it is.

I will come back to you again in our Q&A session along with Ralph and Dan, but for now I will turn the call over to Brian.

Thank you, Susan. The Company's fourth-quarter reported revenue of $402.6 million was 3% above the high end of our guidance with contributions from all three business segments.

Our gross margin for the quarter was 32.7%, up 240 basis points from last year and down 20 basis points from last quarter. The year-over-year improvement was due to continued increase in the mix of our higher-margin workforce solutions and an improved gross margin in our Locum Tenens segment.

SG&A expenses in the quarter totaled $90.2 million or 22.4% of revenue. SG&A expenses were up sequentially by approximately $7 million due primarily to an increase in employees to support our higher volume levels. We also added sales and recruitment resources to drive anticipated volume increases in 2016.

The quarter included a $1.7 million favorable professional liability reserve adjustment in our Locum Tenens segment. This was equally offset by a $1.7 million higher stock-based compensation expense from an adjustment related to performance equity awards.

SG&A expenses in the quarter included approximately $1.5 million of acquisition and integration related costs which compares to about $700,000 last quarter.

Our fourth-quarter Nurse and Allied segment revenue increased 50.6% from the prior year and 8.4% sequentially to $288.6 million. Volume of 8,091 average healthcare professionals on assignment was higher by 34% year-over-year. The average bill rate for the segment was higher by approximately 8% over last year.

Nurse and Allied gross margin of 31.6% was higher year-over-year by 300 basis points. Most of this year-over-year improvement was due to an increase in the mix of our higher-margin workforce solutions.

Fourth-quarter Locum Tenens segment revenue of $99.3 million was up 30.3% from the prior year and down 2% sequentially. The year-over-year growth was driven by an 8% increase in the average bill rate and a 16% increase in the number of days filled during the quarter. Locum Tenens gross margin of 31.2% was higher year-over-year by 240 basis points and higher sequentially by 50 basis points driven primarily by improved bill pay spreads.

Our fourth-quarter Physician Perm Placement segment revenue of $14.7 million was up 23.5% year-over-year and down 80 basis points sequentially. Gross margin of 65.9% was lower by 20 basis points from the prior year and higher by 50 basis points from the prior quarter.

Our fourth-quarter consolidated adjusted EBITDA of $46.9 million was up 85% year-over-year. The EBITDA margin of 11.6% represented an improvement of 260 basis points over the prior year, which was driven by the combination of continued growth in our higher margin workforce solutions, gross margin improvement in our Locum Tenens business and favorable operating leverage.

We reported net income of $20.2 million and diluted earnings per share of $0.41 for the fourth quarter. Excluding acquisition and integration expenses and intangible asset amortization, adjusted earnings per share was $0.47. This compares to an adjusted earnings per share of $0.23 in the prior year quarter.

Cash provided by operations was $57 million for the year. Days sales outstanding were 64 days compared to 60 days last quarter and 61 days last year. Capital expenditures for the fourth quarter were $5.9 million and for the full year were $27 million.

As of December 31 our cash and equivalents totaled $9.6 million and our total debt outstanding was $219 million. Our quarter end leverage ratio as calculated for our credit agreement was 1.4 times to 1.

In conjunction with our acquisition of B.E. Smith on January 4, 2016, we amended our credit facilities to increase our revolver capacity by $50 million and added a $75 million five-year term loan. At the closing of the acquisition our pro forma leverage ratio was 2.2 times to 1.

Now let's turn to first-quarter 2016 guidance. The Company expects consolidated revenue of $444 million to $450 million. This 36% year-over-year growth rate includes organic revenue growth of approximately 25%.

Gross margin is expected to be approximately 33%, up sequentially due mainly to the addition of B.E. Smith. SG&A expenses as a percentage of revenue are expected to be 22%. Adjusted EBITDA margin is expected to be approximately 11.5%.

Our first-quarter 2016 guidance also includes the following estimates: stock-based compensation expense of $2.8 million; depreciation expense of $2.5 million; intangible amortization expense of $4.4 million; interest expense of $3.2 million; an income tax rate of 42%; acquisition and integration expenses of about $1 million; and diluted share count of 49.2 million shares.

Finally, with the recent acquisitions we have made the decision to change our reportable segments [from] public reporting effective Q1 2016. Going forward our three reportable segments will be Nurse and Allied Solutions, Locum Tenens Solutions and Other Workforce Solutions.

The Nurse and Allied Solutions segment will include our Nurse, Allied and local staffing divisions. Our Locum Tenens Solutions segment will include our Locum services. And our Other Workforce Solutions segment will include our new leadership solutions businesses, Physician Search, RPO, VMS, Consulting and Education divisions.

To give you some perspective on the breakdown of these segments, approximately 65% of our fourth-quarter revenue would have been attributed to the Nurse and Allied Solutions segment, 25% would have been Locum Tenens, and the remaining 10% would be in the Other Workforce Solutions segment.

The recent acquisition of B.E. Smith will be included in the Other Workforce Solutions segment and Healthsource Global will be included in the Nurse and Allied Solutions segment. And with that we would like to open up the call for questions.

(Operator Instructions). A.J. Rice, UBS.

Maybe first just expanding a little bit on the MSP commentary. Do you have that figure for the percent of revenues in nursing that was MSP related? I know you gave it for Allied and Locum.

We didn't give it. It is close to 50% and that has been running pretty steady. It is not surprising we have seen it increase over the last three years, but we are probably reaching that point.

Although I have to say, the pipeline of new MSP contracts is exceptionally strong and we signed some really great deals at the end of last year and have already got several teed up for the beginning of this year. So we think we are possibly seeing another surge of new MSPs coming into the market.

Okay. And the increase in penetration you are seeing in both the Allied and the Locum business, is that cross-selling to MSPs in the nursing or is that more outright new clients that are signing up for those service lines?

It is really both, A.J. And I'm going to have Dan dive into that a little bit more because the team has really dramatically improved our cross-selling capabilities in being able to bring multiple services to our clients. So, Dan, would you mind going into that a little bit more?

Sure, Susan. Hi, A.J., it is Dan. A couple of points just to give you some color around our strategic account. So if you just look at our top 20 accounts, 25% of them now utilize at least five or more of our offerings, 60% of them use more than four. So it is a really good indicator that that cross-selling is being very effective.

Two of those, in fact two of the top 10 are now Locum specific, to answer sort of a question you had before. And then on the new sales side, almost every single one for the last really two quarters and going into this quarter, all have included at least Nursing and Allied and some Locums as well.

Okay. Then maybe to switch gears, and I may have missed this, Brian, but can you comment within the business lines a little bit on bill pay spread? What is happening on pricing across the segments and some of your key inputs both to the clinician and to the housing cost, any update -- thoughts on those?

Sure, this is Brian. I will start and I will probably have Ralph add some color as well. So within the actual staffing parts of our business and in Nursing and Allied, the margins overall have been stable, as we've talked about the last several quarters.

Most of the gross margin expansion has been more through the strong growth we have seen in some of our Other Workforce Solutions services. In Locums specifically we mentioned the fact that bill pay spreads have improved both sequentially and year-over-year as well.

And on the other direct costs, I will have Ralph talk about the pricing environment. Our housing costs have been up, which is not surprising. It continues to be a very tight market, so we've been following a bit along with the market overall kind of the 5% range in our housing costs.

But we use our bill rate increases to kind of -- we look at the entire compensation package, not just one line item, and make sure that we are maintaining our overall margin. So, maybe, Ralph, a little bit on the pricing side.

Yes, I will start on the -- this is Ralph -- I will start on the Nurse and Allied side. As Brian mentioned in his prepared comments, about 8% up on a year-over-year basis for the fourth quarter. About half of that comes from the winter needs phenomenon -- we've talked about this -- I think once a year at least where we have clients primarily in California who just see spikes in volumes that are seasonal in nature.

They use quite a bit more travel nursing during those periods than they do any other time. And we do a lot of staffing. And those needs can start anywhere from October, sometimes they will push them back, don't even start until December, but they will run until March or April on a typical basis.

And those types of assignments are done at a premium price. Sometimes we refer to that as rapid response nursing. And kind of out of that 8% you kind of have to look at it as probably half is in the core underlying business, so 4% kind of a standard markup. And then the other half of it comes from a mix shift to that premium price winter needs phenomenon.

On the Locums side we also saw an 8% increase, I want to make sure I call that out. And all of that has really just been getting ourselves back to market rate. We felt about three years ago like we had fallen a little bit behind the market.

And I think the team there has done an excellent job of getting us very close to market rates now. And I know our margins I think are within a few basis points of what our long-term target for margin was in Locum.

Okay, that is great. Well, I will let somebody else ask a question. But thanks a lot.

Jeff Silber, BMO Capital.

Wanted to get a little bit more color on how you expect to get to your long-term EBITDA margin goal of 14% over the next four or five years or so?

Sure, Jeff so it is largely going to be the same four components that have gotten us to this point of exceeding the 10%. Although a couple of them will play a stronger role as we go were forward. So it is still going to be the increased mix of the higher margin Workforce Solutions that we have been talking about.

Some of these businesses like recruitment process outsourcing, VMS, our workforce optimization and maybe others that we might add on that generally operate at 20% plus in EBITDA margins. As they have grown at a faster pace, then we also see that impact our bottom line.

And I have to call out our Physician Perm Placement business, which has just knocked it out of the park this last year and finished very strong in the fourth quarter and they obviously have very strong margins as well. We expect that to continue going forward. So that is one component.

Second is continued improvement in our gross margins which is largely continued improvement in the Locum Tenens gross margins. And the last two, which are actually the bigger contributors, are operating leverage. As we can improve our top-line we can certainly gain more leverage as we have certain fixed costs that we don't have to replicate.

And then SG&A efficiencies that we expect to gain out of technology and process improvement initiatives that we have underway. We have mentioned this the last couple of years. A multi-year multimillion dollar program that we have to really upgrade our front office and back office solutions, have a more standardized platform across our staffing businesses.

And we actually had our first launches of that last year starting with our Perm Placement division. And I think some of the results you're seeing with them are an outcrop of those benefits starting to actually mature.

So, going forward we would expect in the next two to three years to see more benefits come through from the staffing businesses and particularly in the back office area as we can gain more efficiency.

In terms of the ramp up to go from the 11.3% you just reported for last year to get to 14% in 2020. How quickly can we get there? Is it kind of a straight line? Is it more back end loaded, front end loaded?

It is not back or front end loaded. It is a fairly straight line; obviously a lot depends on the revenue growth itself that gives us that opportunity. We mentioned the year 2020; it is possible to get there sooner if we can ramp up the revenue sooner.

We feel pretty confident in the ability to capture those SG&A efficiencies and our ability to continue to improve our margins and grow our Workforce Solutions. So probably the one less known variable out there are the external factors that can affect our ability to grow that top line faster.

Of course, that makes sense. And then, Brian, just a question for you. You gave some additional color on your guidance beyond what was in the press release. In terms of those items, are those kind of the rates we should be using for the rest of the year, D&A, tax rates, stock-based comp, etc.?

Sure, I will give you a little more color on that (multiple speakers). So for depreciation, as Susan alluded to, as we are implementing some of these new technologies the depreciation would expect to rise through the year. So I would think about it being more like $3 million in the fourth quarter, so kind of a build from that $2.5 million through to that $3 million.

The amortization would be at that $4.4 million every quarter. The interest expense I said Q1 one at $3.2 million, that would -- you would expect it to come down by $100,000, to $200,000 each quarter during the year.

Share count 49.2 million in Q1, we expect it to exit the year at 49.6 million. So again, just kind of a build up to that 49.6 million in the fourth quarter. And the stock-based comp, I mentioned $2.8 million, that would be pretty steady through the year at $2.8 million.

And tax rate, I am sorry. Even as well?

Yes, 42% is a good number to use.

Okay, great. And then one more and I will let somebody else jump in. In terms of CapEx guidance for this year?

Pretty similar to 2015. We continue on the investments we are making. And as Susan mentioned, it is a multi-year program. So there is about a similar range -- just like 2015, about $25 million of kind of core CapEx tied to those programs.

We have expanded some of our facilities; there has been some cost associated with that, and about $2 million of integration-related CapEx that we saw this year. Now with the most recent acquisitions we will have a similar amount of integration CapEx in 2016. So kind of a repeat of 2015 at the end of the day.

All right, fantastic. Thanks again.

Tobey Sommer, SunTrust.

I wanted to ask a question about the bill rate expectations for this year. Could you give us a little color on how you think they may unfold -- understanding you don't have -- you don't know exactly what October or November look like? Thanks.

This is Ralph. We did have a lot of momentum I guess in the last few quarters on bill rate. We don't really see any trend changing the year over year, at some point we start lapping more difficult periods. So I would guess it probably will settle in somewhere around the annual increase in nurse wages which runs from 3.5% to 5.5% on an annual basis. So that is probably for the nursing business.

I think there is more upside in Allied. That bill rate has been suppressed for quite some time due to the reimbursement rates being pushed down by several different rulings over the past couple of years. I think that that rate is going to have to move in the near future in order to meet the demands of customers.

We've seen a big increase in Allied demand, but not -- it is not impacting pay rates yet so it is not attracting enough supply. So that is usually the early sign that the rates are about to go up. And I think Locum's bill rates will probably increase in probably that same range as that nurse -- long-term nurse rate as well.

Thank you. A question on the MSP front and Workforce Solutions kind of broadly. Are you seeing any competitive reaction from other players in the healthcare staffing industry that maybe weren't as eager to embrace the concept? Any changes in behavior that you have noticed?

This is Dan, Tobey. I don't see dramatic changes at all from the competition, but what I would say is when we lead and when we are successful it attracts a lot of attention from our customers. And our customers and prospects end up talking about it more and as a result of that they end up having to react more.

So, I know I have heard of others trying to get into RPO for example. I would just remind you that this is a business that we have been in for eight years now, it happens to be growing exceptionally well.

But I think a lot of that has to do with the fact that we invested in and matured that business. And it is not something you can just sort of get into and figure it out. So hopefully that helps give you some color around that.

It does, thank you. Susan, on the -- you mentioned the quits and the difficulties that hospitals are having managing their full-time staff, particularly nurses. Do you have a sense for how much of that is driven by full-time nurses that are just kind of taking a temporary hiatus versus older nurses that may be exiting the workforce on a more permanent basis?

Yes, I don't know that we have an exact number we could put towards it. But as we look to some of the data points out there, as you said, the December information just came out from the BLS with job openings up 22% year over year and quits up 14% in healthcare.

And when we hear from our clients that is very consistent with why they are reaching out to us, not only for travel but it is also a driver for the RPO business. They have seen really dramatic increases in the order levels and interest levels from clients.

So, my sense is that the clients don't think that that is going away because they are really trying to do better planning for the long-term, not just in the next few months. But these contracts are often multi-year contracts where they know they are going to have to address both their permanent hiring and their short-term hiring.

Also we just did a survey in November; it was a survey of 9,000 RNs which asked about viewpoints on retirement and education and emerging roles. And in the area of retirement it's really quite startling to see the number of nurses, older nurses.

Now that category is 54 and older; now that I am 51 I am not thinking that is so old. But nevertheless, in that category of nurses that are 54 and older, almost two-thirds of them said that they were thinking about retiring.

And of that two-thirds about 60% said they were thinking of retiring in the next three years. But about 30% said they were thinking of retiring in the next year. And about 20% of those nurses who said they weren't going to retire said they were going to go to part-time.

So, I think what you are seeing is the beginning of sort of the silver tsunami, as they call it, within healthcare where you have many of these clinicians, particularly nurses, that are reaching that age when they want to leave that most rigorous patient environment in the hospital and move on to something else.

And that is what our clients tell us as well. As we talk with them about their staffing challenges they are very concerned about this aging clinical population.

Thank you. And my last question and I will get back in the queue is -- I would presume that adding to the Workforce Solutions via acquisition, as well as the organic growth, may be something that we could look for in coming years. Are there substantial properties out there to look at or are these all kind of relatively small opportunities? Thanks.

Sure, I think the majority of them would be on the what you would think of as smaller size. Of course now at our size even something at $100 million in revenue is relatively smaller in terms of the impact.

But a lot of them are smaller companies that have maybe been around only for 5 to 10 years. And that is good opportunity for us because they are really in emerging areas that are just gaining adoption and penetration into the marketplace.

So while we are not going to go in at the very earliest stages, which might be the riskiest and we want to have the management team to help drive them, we can come in at a point where there is still a lot of growth ahead.

There are maybe a few larger organizations out there, but the vast majority I think are sort of $100 million or less in terms of revenue.

Great. If I could just sneak in one numbers question. The sales and recruiting staffs for the sales generating staff, what would the change be year over year in the fourth quarter or around now? Thanks.

This is Ralph. That producer count is about a 50% year-over-year increase in our Nursing business, 65% in Allied and 15% in Locums. And that does include the impact of the acquisitions.

I might add just on the RPO side that producers there are up 500%.

Okey-doke. Thank you very much.

Tim McHugh, William Blair.

I guess first just there has been a number of hospitals that have talked about this staffing shortage as an issue. And you have heard some of the public companies talk about how they have ramped up the efforts to hire more full-time workers, how they are trying to invest in their training solutions. I guess in general besides turning to you guys they are trying to find some other longer-term solutions.

I guess, can you talk about what you are seeing there. And I guess, they still absolutely are turning to you a lot. But I guess, how do you think about that dynamic as we think about demand going across this year in terms of changes hospitals are trying to make to deal with the shortage?

This is Dan, I will start and then if someone else wants to add color that is great. In talking to customers and prospects I am hearing exactly what you are talking about, lots of focus on what Susan just said. We need to take the newer millennial kind of employee and develop them to their full skill set.

We are looking at and have introduced some solutions in that area around training, development, pre (inaudible), etc. And then on the full-time staff, I think that is one of the reasons why we are having such dramatic increases in our RPO interest, that is up -- literally tripled year over year.

And I think a lot of that is just looking at contingent labor and saying, hey, this demand is not going to slow down. It is time for me to also look at my full-time staff. And so, yes, we are seeing all the same things you are seeing.

And, Tim, I will just add that in addition to the staff clinician positions that need additional training for both current and emerging roles, we are hearing a demand and desire to partner with us for leadership training, which was one of the very attractive pieces of some of our newer acquisitions like The First String and B.E. Smith and even Millican that provide forms of training.

The First String as an example has a C&O Academy which helps to train up and coming nurse leaders who want to move into higher level executive roles within the ranks. And that is going to be needed as a lot of these retiring clinicians are in leadership roles today.

So, it is a pretty significant gap that our clients have and we can be there to help them make sure they can transition the younger staff into those leadership roles over time.

Okay and I guess what I was trying to a little bit allude to, I mean it is -- I think one of the investor concerns is that eventually they will make changes that they don't need to turn to you as much.

Are you sensing -- I guess you described a lot of the changes as positive for you in some ways I guess. But do you look at anything hospitals are doing to respond to the current environment that suggests it will eat into demand in the next year or two here?

I can't say anything dramatically different. And they are and should be focusing on how they can recruit and retain their permanent staff, but they have always done that. I think they're getting better at it.

But again, they are going to need to because the shortages of clinicians with a large group of demographics retiring and not enough supply coming in to meet the demand increases are going to mean that there will be shortages.

And so, we think it speaks more to the increased needs that they will have for things like workforce optimization, help with those permanent recruitment efforts. As good as they can be, facilities and systems tend to be best at recruiting locally and we can take that to a national stage.

We are the largest recruiter and placement firm across the entire country. And so, we can tap into networks and resources and technologies and recruitment expertise that no individual system or hospital can. So, I think they will stay focused on it, but will they stall for the shortage? No, they won't.

And I guess, because you talked about you were successful in increasing the supply, but there is still a gap between supply and demand as you look at your order book and your level of supply that you attract.

I am curious, I guess. As you weigh those two things, I mean is the gap nearing between supply and demand or is it still expanding even as you increase the supply?

I think if you just look at the pure labor statistics data you will see that the number of job openings and hires are getting further and further apart. So that idea that hospital systems are becoming more efficient certainly isn't happening yet.

I am sure they are spending more money and they are beefing up their internal recruitment departments or they are hiring us to do RPO to make them more effective quicker. But the gap continues to widen.

I think we are seeing jobs of almost 1 million posted in healthcare every month. And only filling somewhere in the neighborhood of 500,00 to 600,000 of those. So there it's just staying pretty broad right now. I guess at some point you would see some improvement in it. I wouldn't call that anytime soon.

And if you are asking specifically about our demand versus supply and placement, yes, that gap has narrowed over time because we have been able to bring in more supply, thank goodness. And our team has done a superb job of increasing our fill rates and -- which is very important because our clients need these clinicians.

And so it has enabled us to do a better job and be a better partner for them. So I wouldn't see that narrowing as being a negative thing, it's actually been quite positive and we still have plenty of room to grow within the order base that we have.

When we look at our orders coming in, we look at the new orders that are being posted on a weekly basis, those have remained very strong and up over your year in a pretty meaningful way. So we feel good about the demand environment that we are in and that it gives us plenty of room to continue to grow.

Now we are not going to continue to grow at 25% organically. I hope I am wrong and we do. But within the order base that we have really across all of our businesses including nursing, we think we have plenty of room to continue to grow at rates that should continue to please our shareholders.

Great, thank you.

Mitra Ramgopal, Sidoti.

As you look at acquisitions, clearly you've been very busy the past year and a half. And is there anything in your product and service portfolio you feel you need to have that clients are looking for? Or is it more a case now of just doing some nice tuck-ins and expanding upon what you already have?

I think it is expansion opportunity. But also there could be some consolidation opportunities. We will be opportunistic about it, make sure that we are disciplined, as we always are, regarding valuation.

Our first priority is to look at additional workforce solutions along the spectrum of helping our clients to recruit, onboard, maybe credential and then train and optimize their workforce. And there is a lot of things along that spectrum as you can imagine. They mostly have some sort of technology component to them.

And so, we are going to be very picky about which ones that we go after. But we don't feel we have to do anything, but we feel there are opportunities to add things on that can be very beneficial to our clients and synergistic with our existing businesses.

There also potentially some additional staffing categories that would help us to fill gaps that we have. The leadership acquisitions that we did over the last six months are a great example of that.

While we were beginning to do a few placements in interim leadership positions, we felt that the demand was so significant that we needed to be the strongest. In fact, now, we are the leader in providing those services. So there could be some additional areas that would be newer but still very adjacent to what we are providing into this same client base.

And then the third priority would be consolidation opportunities. And probably the area that I would be most interested there would be Locums because of the growth that we are seeing in MSP opportunities in particular, but just demand in general in knowing that we could keep more of those fill rate opportunities in house if we had more supply. So we will continue to look for those opportunities along the way.

Thanks. And quickly on the supply side, I know immigration right now is a sensitive subject. But in terms of potential foreign nurses and physicians, etc., helping to meet the demand needs, is that a possibility? Are you seeing any of that happening?

We continue to put in these the submissions for years after I think even the visa process slowed down quite a bit. So, we actually have a pretty steady pipeline and our -- that business is -- O'Grady Peyton is our travel -- our nursing business, it does long-term international nurses. I think it has doubled over the prior year.

The team there is doing a great job. And if we could get more visas we could even grow it faster. There is not much activity on the physician side in terms of international. But always something we will keep an eye on.

Okay, thanks for taking the questions.

Randy Reece, Avondale Partners.

I have a question about -- more about comping over a year like 2015 from an operational execution perspective, the difficulty of managing client expectations. When the labor market tightens like it has and the orders -- fill times stretch out and difficulty finding people.

No matter what the staffing company gets blamed to some extent for the pricing increase, gets blamed for the change in the time to fill, blamed for all the measurables that the customer experiences. And I wanted you to discuss how you manage client expectations after a year like 2015 was?

So, Randy, this is Dan. First of all, you are absolutely right. And I would be remiss if I didn't just give a little shout out to our strategic accounts teams. They do a fabulous job of talking our clients through the challenges that we are both facing.

One of the really significant benefits of our scale at this point is just the data that we have. So we have so much aggregate information that we almost can give them insights that they just don't have any more.

So where, for example, if you are a California client, where, for example, are you most likely to get your travelers from? And how do we go about sourcing and recruiting and attracting those people? So we get into a lot of really deep discussions after sort of the noise that you started with subsides a little bit.

Any time that you are in a situation like they are in today where they are dealing with challenges that many times they have never even seen before they are looking for us to be consultative. They are looking for us to come in and give them more insights to how to go about doing this.

And again, I think some of our acquisitions have helped us there. If you look at B.E. Smith or Avantas, all of them have consulting aspects to their portfolio. And so, each of those insights also can contribute to answering some of those questions.

And another question on a recent hot topic. If you do happen to have a large client that might reduce their demand in any particular location, suppose they are actively trying to manage down their use of contractors. How long does it take you to adjust? Do you experience any kind of ripple in your weekly business or is there enough demand elsewhere to make up for that in short order?

It is really the latter, Randy. There is so much more demand than we can fill. That is unfortunate as it is that they may cancel an order or cancel a clinician that maybe they planned to have on-site or maybe is even already on site.

We can vary rapidly get that clinician redeployed to another client who will be thrilled to have that clinician come onboard and fill an open slot that we didn't maybe think that we were going to be able to fill.

It is probably fastest in the nursing and Allied space because you have less licensure or it can be a little easier to get the licensure dealt with, where on the physician side it can be more challenging to move people across state lines.

But because of the diversity and so many orders that we have in so many states, that hasn't proved to be a problem. When we have had a particular client in a particular region that might have a drop in their demand, we can pretty quickly get that person moved over and you can see that in our results.

I know questions were raised in the second half of last year about a couple of clients that had reported lower staffing needs or wanting to make some changes in their contract staffing and that occurred for a couple of clients. But we were able to quickly move and transition those clinicians over to another client.

But this is -- it is a great point, Randy, because it is also a reason why when orders would drop say in a recessionary time -- we still get asked this because of some of the noise out there regarding the economy. Well what if the economy did soften a little? And what if orders did drop?

We have so many more orders than we can fill that orders could drop and we would still have an opportunity I think to grow our volumes and our business because we are not filling all of the demand that we have as it is.

In fact, our clients would probably be happier overall because it would mean that our fill rates with grow. And so the MSP strategy is really an excellent strategy if you are in a growth environment. But it is also a great mitigator if you should see the economy soften a bit and see demand fall off.

Thank you very much.

(Operator Instructions). Mark Marcon, R.W. Baird.

Good afternoon and congrats on a great year. In terms of just going back to the 14% EBITDA margin expansion, how much of that do you think would be coming from gross margin expansion roughly?

This is Brian. It would be somewhere around 50 basis points is probably a midpoint number to use. It could be higher or lower just depending on the market environment that we are in and how severe the shortages are and what that turns into in terms of expansion.

But as Susan alluded to, kind of the leverage opportunities are the bigger part of it. And so, that -- the gross margin piece is somewhere around that 50 basis point plus or minus.

Okay, great. And then with regards to the bill rate increases that have been going through in the quarter, are you seeing any sort of like pushback from any of the clients where they are saying can you hold it down or tougher negotiations or anything along those lines?

Hey, Mark, this is Ralph, I will take what that one. It is part of our job is to help them keep their costs low. So, and that is actually where the conversation starts is what is the right [rate] to attract the right supply. And so, we get into a very detailed conversation about managing that, right down to the quarter per hour kind of thing.

So we do work with them very, very closely to keep that in a reasonable range. We have to -- with often have to remind them some of them haven't increases in two or three years, they've fallen behind and we move those ones along as quickly as we can.

So, but even if you look at kind of our current orders posting, I bet kind of half of them are at a rate that makes it almost impossible to sell that order. But we still post those orders and ABs are looking at them and if they are not seeing the file flow they need then they basically -- they react based on that, right.

So, there are some that still probably haven't moved up their prices even despite kind of current environments. And they are still great clients, they are just probably getting a very small percentage of the orders filled right now.

And with regards to the your own staff, how do you feel like you are from where you are sitting from a capacity perspective? Obviously demand has been rolling deep. How much more do you think you need to end up increasing the staff over this coming year? How should we think about that?

As you know, Mark, and we discussed, we have added a lot of staff over the last year. In fact, as our K comes out you will see we ended the year at about 2,500 corporate staff. And some of that came from acquisition, but actually more came from adding on additional sales and support team members in order to make sure we are delivering on these higher volume numbers.

So because we have such a large number of newer team members as part is the AMN family, that actually gives us capacity, opportunity and productivity improvement particularly in the sales areas where the ramp up time can be six months to even, quite honestly, a year before they are really hitting their stride in terms of productivity.

And so, we feel we still have a lot of capacity to add volume within the staff that we have. With that said, we are continuing to add into the first quarter based on the demand trends and the volumes that we see.

We won't be adding proportionately as much this year, but we will be adding more staff and it will likely be first and foremost in the sales areas and then support functions to support the growing volumes.

Great. And then with regards to B.E. Smith, you gave us kind of an assumption for the first quarter. What rate of growth would that end up being? What are they seeing?

The first-quarter growth rate, their 2015 -- this is Brian. Their 2015 growth rates overall were not distinctly different than what we saw at AMN. So they were north of 20% on a full-year basis in 2015 over 2014. So they're seeing still a very good environment.

And as they've added more resources over the last year as well that's given them capacity to grow. So they're facing a very similar environment that we're seeing on our other business lines which allows them to grow.

So, as Susan [pointed out earlier], it may not -- probably won't see 20% plus again in 2016 coming off such a great, great year, but still see plenty of opportunity to grow through the year.

Great. And then last one, just in terms of your supply of clinicians that are coming in. What are you seeing in terms of -- can you give us a little bit more color with regards to the rebook rates which sound like they are up? Like how does that compare? And then what are you seeing in terms of newer traveling clinicians that have not done it before?

This is Ralph, I will handle that one as well. We have one of the best sourcing organizations in the entire country. I mean I would put them up against any of the Silicon Valley firms that think they are really good at it, by the way.

So, that team is executing very well, we're at double-digits across all of our different disciplines in terms of new applicant supply. And I think the market has warmed up to coming back to travel. There might have been some nervousness I guess from the last pullback at some point.

But certainly it is costing us less actually to attract people than it has in the past. And they are converting at a faster rate and we're actually filling jobs faster because of that particularly over the last three or four months.

Kind of the our long-term ability to do that I guess was kind of the second part of that. I don't think -- I think the conditions are very, very good for us to continue to increase supply and keep up with at least the levels we've able to get in the past couple of years.

You know, Mark, an interesting data point that I saw recently as the team was sharing some of their results is that we are getting more younger nurses coming into traveling. Remember they generally have to have a year or two of experience before they can join the travel ranks, but we have proportionately more 25- to 30-year-olds joining.

These are the career builders that want to go out and work hard but also see the country and have fun and build their resume at the same time. And that is a really good sign for us because new travelers tend to take multiple assignments and younger travelers and particular tend to take more assignments. And so, we think that is a really good sign for the industry and certainly good for our supply pool.

You asked about -- and I didn't talk about rebook rates, I want to come back to that. I knew there was a second part to that question. The rebook rates have improved by about 500 basis points since the beginning of the year.

Last time I talked about -- all of the new travelers are a good sign, right, that our recruiters are very good at their jobs, they are attracting the right talent and people are coming back into the industry. Those numbers remain very, very strong.

The rebooks have actually strengthened even more in the last few quarters. And that is -- they got on the right assignment, their assignment went well, we got them out there in a smooth fashion and so they are rebooking at a much higher rate.

And that, again, helps us become more efficient. We don't have to do as much paperwork, right, they are a lot easier to get out on assignment, they know what they are dealing with, they are in our payroll systems, all of that.

500 basis points relative -- what was the number before?

I don't think we gave the number before because we generally don't give specific rebook rates. But it is -- rough and tumble about two-thirds of our people coming off of an assignment rebook for another assignment. That gives you a general idea.

Yes, great, thank you.

Thank you very much. At this time there are no additional questions and the queue. Please continue.

Hey, terrific. Well, we really appreciate everybody joining us on the call today. And we appreciate your continued support of AMN. We look forward to updating you on our progress next quarter.

Thank you very much. And, ladies and gentlemen, this conference will be available for replay after 7:30 PM Eastern Time today running through March 3 at midnight. You may access the AT&T executive playback service at any time by dialing 800-475-6701, entering the access code of 384127. International participants may dial 320-365-3844. (Operator Instructions).

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.