AMN Healthcare Services Inc (AMN) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare first-quarter 2016 earnings conference call. At this time, everyone will be in a listen-only mode. Later, we will have a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, the conference is being recorded.

I will now turn the meeting over to our host, David Erdman, Director of Investor Relations. Please go ahead.

Thank you and good afternoon everyone. Welcome to AMN Healthcare's first-quarter 2016 earnings call. A replay of this webcast will be available until May 19, 2016 at AMNHealthcare.investorroom.com following the conclusion of this call. 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's current beliefs based on 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 10-K and subsequent filings with the SEC. The Company does not intend to update the 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 most directly comparable GAAP measures are included in our earnings release and on the Company's website.

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

Thank you so much David. Good afternoon everyone and welcome to AMN Healthcare's quarterly earnings conference call.

During the first quarter, the strong market environment continued and the AMN team delivered with exceptionally strong performance. Our results were a continuation of strong organic growth, and increasing revenues from our recent acquisitions.

Consolidated revenue of $468 million grew 43% over prior year, and 16% sequentially. Year-over-year organic growth was 28%, predominantly driven by volume increases with the remainder from acquisitions.

Consolidated adjusted EBITDA was $59 million, up 76% over the same quarter last year. This reflected a margin of 12.5%, which was 230 basis points higher than the same quarter last year.

Recruitment and workforce optimization is an increasingly critical issue for healthcare organizations today, and AMN is well-positioned to help our clients address these challenges with the broadest and deepest suite of solutions in the industry.

In addition to the strong growth of our traditional staffing businesses, we have also seen significant expansion of our other workforce solutions, which has helped to increase our margins over the past year.

The appetite for our MSP solution continues to be strong. In fact, year-to-date, we have signed several new MSP contracts and expanded existing relationships. The number of MSP opportunities where we have been verbally awarded and are now in the contracting stage is also robust.

With positive trends in sites for the future, we believe we are on track to achieve our stated goal of an adjusted EBITDA margin of 14% by 2020. But for now, let's bring it back to 2016 and review the first-quarter results and outlook for each of our business segments.

In our largest segment of Nurse and Allied Solutions, first-quarter revenue totaled $298 million and rose 37% year-over-year, and 13% sequentially. Approximately 30% of the year-over-year increase was from organic growth. The remainder came primarily from the January acquisition of Healthsource Global, which assists clients with rapid response staffing and labor disruptions. All of the businesses in this segment performed very well. The greatest upside surprises for the quarter came from the Travel Nursing division and in Healthsource Global, which had higher-than-expected revenues from two large projects.

The benefits of our leadership position in providing MSP services also continues with almost 50% of revenue from this segment flowing through MSP clients.

Our largest division within this segment, Travel Nurse Staffing, increased revenue 37% year-over-year, and 12% sequentially. The exceptional performance was driven by our team's strong execution in a robust demand environment with the majority of growth coming from volume increases.

The upside in revenue came from higher than expected seasonal positions throughout the quarter, which generally come with higher bill rates and bonuses. The typical seasonal decline heading into the second quarter will be a bit more than usual for Travel Nursing due to the exceptional first quarter.

As we begin Q2, demand and placement trends remain very strong. In fact, the last four weeks represented the highest placement activity we have seen all year, setting us up nicely as we head towards the second half of 2016.

Our Allied Staffing business achieved record high revenue in the first quarter, growing 20% year-over-year. Demand is above prior-year levels, providing ample opportunity for continued strong placement trends.

For the second quarter, the Nurse and Allied Solutions segment is expected to be up 20% to 22% year-over-year. As I mentioned earlier, the sequential decline is due to the typical seasonality in the Travel Nurse and Local Staffing businesses, as well as fewer expected projects.

Locum Tenens hit another record high and exceeded our expectations with first-quarter revenue of $103 million, up 19% year-over-year, and 4% on a sequential basis. The year-over-year revenue improvement was driven by growth in most specialties, led by internal medicine, hospitalists, surgery and emergency medicine. The sequential revenue increase was also driven by broad-based growth. Our MSP clients remain a focus for this team, and now represent approximately 20% of this segment's revenue.

The demand trends continue to be strong within Locum and we expect second-quarter revenue to be up 12% to 14% year-over-year. The sequential increase from the first quarter is a typical seasonal rise.

Our third segment is now called Other Workforce Solutions, and is comprised of our newer interim and permanent leadership businesses, our physician permanent placement business, and it includes vendor management systems, recruitment process outsourcing, and workforce optimization. For these combined businesses, first-quarter revenue was $68 million. The significant year-over-year increase was driven by 43% organic growth, and our acquisitions of B.E. Smith and The First String, top providers of interim leadership and executive search services. All of our businesses in this segment experienced very strong year-over-year growth.

For example, Physician Permanent Placement delivered a record quarter with revenues up 32% year-over-year, driven primarily by higher searches and placements. Our VMS teams also delivered outstanding growth with revenue increasing more than 60% over the first quarter of 2015.

Avantas, which provides workforce optimization services, continues to expand and add new clients, delivering a revenue increase of more than 50% year-over-year. Recruitment process outsourcing produced strong year-over-year growth, but declined from Q4 due to a contract completion and some variability in client hiring. We continue to sign new RPO contracts and we have a good pipeline for the future.

Overall, for Q2, we anticipate year-over-year growth in revenues across all Workforce Solutions divisions. We continue to look at acquisition opportunities in the areas of new workforce solutions so that we will be unable to provide more value-added services to our clients.

The integration of our recent acquisitions is progressing very well and we are beginning to realize the benefits of our teams coming together. The collaboration and cross-selling activity has exceeded our expectations at this stage.

In addition to our integration efforts, we continue to make investments in our core processes and systems in order to deliver greater efficiency and superior service as we grow. In an important step towards this, last month, we successfully deployed our new end-to-end front and back office systems in the Local Staffing division. This has been a significant undertaking and will set the stage for our ability to bring all of our staffing businesses onto a common platform. I'd like to thank and congratulate the AMN team members who have been working so diligently to make this vision a reality.

Our strategy of providing the most innovative workforce solutions and the highest quality clinicians and leaders requires that we have the most talented and committed team in the industry. Every single day, I am in awe of our team and the passion that they have to ensure that we deliver on our promises. Their efforts and the culture of our Company is our greatest differentiator on a daily basis.

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

Thank you Susan, and David. Welcome to the AMN team, and good afternoon everyone.

The Company's first-quarter reported revenue of $468 million was 4% above the high end of our guidance with contributions from all three business segments. Our gross margin in the quarter was 32.5%, up 150 basis points from last year, and down 20 basis points sequentially. The year-over-year improvement was due to a 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 $97.8 million, or 20.9% of revenue. SG&A expenses were up sequentially by almost $8 million due primarily to the additional SG&A from the B.E. Smith and Healthsource Global acquisitions.

Our first-quarter Nurse and Allied segment revenue increased 37% from the prior year and 13% sequentially to $297.7 million. Volume of 8,474 average healthcare professionals and assignments was higher by 17% year-over-year. The remainder of the year-over-year increase was driven primarily by bill rate increases, the addition of Healthsource Global, and one additional day.

Nurse and Allied gross margin of 26.6% was consistent with prior year and lower sequentially by 50 basis points. Gross margin in the quarter was a bit below expectations due to an increase in health insurance and other direct costs.

As it relates to the health insurance, we experienced an increase in the percentage of clinicians enrolling in coverage as well as an increase in the average claims per enrollee, including a higher than typical number of large claims. We have and will continue to make adjustments to account for these cost increases and expect our margin in this segment improved in the second half of the year.

First-quarter Locum Tenens segment revenue of $102.7 million was up 19% from the prior year and 4% sequentially. The year-over-year growth was driven by a 10% increase in the average bill rates and a 7% increase in the number of days filled during the quarter.

Locum Tenens gross margin of 31% was higher year-over-year by 160 basis points and lower sequentially by 20 basis points with the year-over-year increase driven by approved bill pay spreads.

Our first-quarter Other Workforce Solutions segment revenue of $67.5 million was up 183% year-over-year and 68% sequentially. The year-over-year organic growth rate was 43%. Gross margin of 60.3% was lower than the prior year and prior quarter and this lower margin was due mainly to the first-quarter addition of B.E. Smith.

Our first-quarter consolidated adjusted EBITDA $58.7 million was up 76% year-over-year and 25% sequentially. The EBITDA margin of 12.5% represented an improvement of 230 basis points over the prior year, which was once again driven by growth in our higher margin Workforce Solutions, gross margin improvement in our Locum Tenens business and favorable operating leverage.

We reported net income of $25.9 million and diluted earnings per share of $0.53 for the first quarter. Adjusted earnings per share was $0.60, which compares to $0.30 in the prior-year quarter.

Cash provided by operations was $35 million for the quarter. The strong cash flow was driven by continued growth and profitability, along with a reduction in our days sales outstanding, which was 59 days compared to 64 days last quarter and 61 days last year.

As I noted on our prior call, during 2015, we transitioned many of our MSP clients from our legacy VMS to ShiftWise, which led to a slowdown in payments as our clients adjusted to the process changes. Our backoffice and sales teams have done a fantastic job navigating support and transition with our clients, which is now being reflected in the CSO improvement.

Capital expenditures for the first quarter were $6.6 million.

As of March 31, our cash and equivalents totaled $23.2 million and our total debt outstanding was $377 million. Our quarter-end leverage ratio as calculated for our credit agreement was 1.9 times to 1.

Now let's turn to second-quarter 2016 guidance. The Company expects consolidated revenue of $450 million to $456 million. This approximately 30% year-over-year increase includes organic growth of 20%. Gross margin is projected to be approximately 32.5%. SG&A expenses as a percentage of revenue are expected to be approximately 21.5%, and adjusted EBITDA margin is expected to be approximately 11.5%. This lower sequential EBITDA margin is due to reduced operating leverage on a lower revenue in the Nurse and Allied segment.

Other second-quarter estimates include a tax rate of 41%, stock-based compensation expense of $2.7 million, depreciation expense of $3.1 million, interest expense of $2.9 million, acquisition and integration expenses of about $1 million, and diluted share count of 49.3 million shares.

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

(Operator Instructions). Tobey Sommer, SunTrust.

Thank you very much. I had a question for you about your internal sales generating staff. How much is it up year-over-year, and what are your plans going forward? And maybe if you could comment about the opportunity for productivity improvement among the staff right now? Thank you.

Thanks Tobey. I'll let Ralph handle that, but I have to say first I've just been incredibly impressed with how well the teams have done in improving the productivity across the board. And that includes all divisions. It includes tenured sales producers but also the newer team members that we brought on board. As you know, we really started to ramp up our hiring last year and we've certainly seen the benefit from that. So, I'll have Ralph give you a little bit more color on that.

Thank you Susan. Tobey, the Nurse and Allied producer count, which includes both recruiters and account managers, was up about 20% year-over-year. I know we've had some quarters where we were up like 30% to 35%, but we are starting to see the benefits of those new recruiters and their productivity come up, so we don't have to add as rapidly as we did last year.

And then also in our Locums business, we are up about 6% right now on a year-over-year basis for the quarter, similar trends there, individual productivity up.

To answer your question about capacity within the existing workforce, we filled probably in the neighborhood of 15% to 20% below our max productivity per producer, and so there's quite a bit of upside. When those new recruiters and new account managers get up to full speed, I think we could really drive some incremental revenue.

Thank you. I just wondered if you could give us an update on VMS and MSP volume that you have kind of under spend as opposed to the direct staffing and filling exposure that you have in the income statement. Because with the addition of those businesses and the growth that you've had, you have a broader glimpse in the market and I just want to size that up again. Thanks.

I'm really glad you asked that question, because the teams here, again, have really done an outstanding job. I talked about the growth in VMS being more than 60% year-over-year. Our VMS businesses now collectively have about $1 billion under management that is flowing through their systems and our MSP programs have about the same. So, in the first quarter, our run rate is about $2 billion of gross billings that run through our programs, whether it be vendor neutral VMS, or our MSP program. And that's grown nicely certainly over the last year.

I'll have Dan maybe give you just a little bit more color on the growth in MSP specifically.

Thanks Susan. So we had a lot of reasons to celebrate in the first quarter. We had new wins in the MSP space of over $50 million in growth spend, so that would be on top of the numbers that Susan just referred to. And our pipeline for Q2 looks equally as good. So we are really excited about the growth in that area.

Thank you. My last question and I'll get back into queue, relates to kind of uses of cash in the balance sheet at this point. With 1.9 times and strong guidance in margins, you will be generating robust amounts of cash. Are you still in the hunt for acquisitions, and are there targets that can move the needle in the businesses that you are looking at now?

So, yes, we are still looking for opportunistic acquisitions that can help us continue to add on additional capabilities in our Workforce Solutions. There are really three categories that we continue to look at. The first is Workforce Solutions. Second would be additional categories where we have gaps and could help our clients more. The leadership businesses that we acquired over the last several months, including B.E. Smith, Millican, and The First String are great examples of that, because we certainly saw tremendous demand from our clients, and we wanted to be able to help them in those areas but we just didn't have that capability internally. So, we looked externally and very fortunate to have those teams join us. But there are other areas where we would like to add on additional categories, and we are still looking at those.

And then the third would be consolidation opportunities. This is probably fewer and far between, but if there were opportunities to add on additional capabilities to help fill these MSP contracts that we are winning, and we could keep more of that $2 billion of direct revenue in-house, that's something that we would certainly look at.

Beyond that, as you can tell, we are making significant investments internally in our processes and systems and in our people to make sure that we can continue to be more efficient and improve our service levels as we grow. And then of course there's paying down debt.

Thank you. Could I sneak in one more? The EBITDA margin guidance for 2Q of approximately 11.5% is down 100 BPS sequentially. I noticed historically the pattern would be to be up slightly sequentially. Any particular factors there, or a dose of conservatism? Thank you.

This is Brian. As I mentioned in the prepared remarks, it's predominantly just that seasonality in the second quarter and the Nurse and Allied business being down. It's actually -- the guidance we gave for gross margin is consistent with the first quarter. And the SG&A on a relative basis actually pretty consistent with expectation in Q2 versus Q1 in total dollars, but with that lower revenue, it's just we get a little bit of negative operating leverage.

As it relates to prior years, I think there's -- every year is a little bit different. Last year we had such strong growth. As we talked about even during the first half of last year, we were still trying to catch up on some of our hiring because the growth was so fast and that may have been more of a driver of that margin. Additionally, in the second quarter of last year, we had a pretty large actuarial benefit. And so that was also -- I think that was almost a 100 basis point impact on the second quarter of 2015.

The other thing, Tobey, is remember the first quarter was a very nice upside surprise for us. I don't know that I would consider a 12.5% EBITDA margin in the first quarter a normal margin. We had some really nice upside in revenues in our Nurse and Allied division particularly, but all of our businesses outperformed, and so it just shows you how quickly that can drop to the bottom line.

Absolutely. Thanks for your help.

Jeff Silber, BMO Capital Markets.

Good afternoon. It's Henry Chien calling for Jeff. I just had a question on the Nurse and Allied segment. I understand that there are some seasonal factors looking into 2Q, but I was wondering if you could add some more color on what you're seeing in terms of the growth rates ticking down a bit. And related to that, I guess what drove the upside and why the slowing for 2Q? I guess that's another question.

This is Ralph. I'll handle that one. First, in Q1, we did have quite a bit of project business. So it was about $10 million more than we normally would have experienced in a normal quarter, if there is such a thing as a normal quarter. So that's part of it.

The seasonal decline, though, on top of that, it's just been buried I think for the last several years as a result of kind of the winter needs that occur in our largest states, which is kind of on the West Coast, primarily in California. They use more nurses during that period of time, and then they pull back their utilization. We even have some clients that can drop 100 to 200 FTEs on assignment during that time period. I think it's just been muted. You haven't been able to see it because of either other MSP wins or other things. So that's the primary driver there. Those are also done at higher bill rates than normal, so kind of it's a double-whammy, if there is such a thing. But we performed really well on that in the first quarter, which is something to celebrate, because that -- filling more of those orders at high bill rates really did help improve our Q1. It's just not something that's available to us in Q2.

Got it, okay. That's helpful. And just in terms of the adjustments to EPS, I was wondering if you could give us any guidance just to help us model out the difference between GAAP adjusted EPS for the year for the different quarters?

This is Brian again. So the amortization of $4.3 million in the first quarter was -- is representative of what you'll see through the remainder of the year. And then the other main adjustment we've had has been for earnings per share has been the acquisition and integration costs. So, we did a little over $1 million in the first quarter, I said about $1 million for the second quarter, and then I expect that to tail off maybe more in the $500,000 range in Q3 and Q4.

And the tax rate they are using for the adjustment?

41% is good to use for all the other quarters.

Okay. Got it. Thanks a lot.

A.J. Rice, UBS.

This is Brendan in for A.J. I just want to expand a little bit more on the MSP. It sounds like one of your competitors as well talked about an uptick in new wins as well. Is this just safe to say there's just a lot more MSP opportunities out there this time, this time this year versus last year? And also is the competition for that heating up a little bit more, or is it about the kind of same as it's historically been? And then also the $50 million you referenced on the new wins, I'm assuming that's just spend, right? That's not incremental revenue? That's just spend on that MSP client? Thank you.

I'll take those maybe in reverse order and then I'll have Dan jump in a bit. So yes, the $50 million is gross billings. The direct revenue that we would hope to be able to bring in-house would be around $30 million, and that's a pretty typical sort of equation as we bring in new MSP contracts. It might vary a little bit depending upon whether they are Nurse and Allied or Locum. The majority of the first-quarter wins were nursing. As we go into the second quarter, the ones Dan alluded to, there's a combination of Nurse and Allied but also Locum.

And then the question around the demand for more Workforce Solutions, MSP in particular, I believe that part of the reason we've seen a pick up is that the consolidation that you're seeing within the industry is driving a higher level of sophistication and a need for those organizations to really get their arms around their spending and to make sure that they've got a strong partner to be able to help them understand what, when and how they are spending their dollars on contingent staffing. So that makes VMS but also MSP a very obvious solution for them. But they also want to make sure that they have access to staff. If you look forward and they know the shortages are only going to get more severe and more challenging and they are dealing with very high attrition right now, they need to make sure they have a sophisticated approach to dealing with that. And so a lot of the contracts that we are looking at are actually very large contracts, and they're facilities or systems I should say that haven't necessarily used MSP programs in the past.

I think I'll have Dan try to add a little bit more color to what we are seeing in terms of competition in the market.

Thanks Susan. Brendan, there was I think a third part to your question around incremental revenue. Most of the $30 million that Susan referenced will be incremental to AMN. These were clients that we traditionally had not done a lot of business in geographies that we had not typically done a lot of business. So really proud of that effort.

In terms of the clients themselves, we are seeing, as Susan said, a lot of folks really looking at trying to get their arms around spend overall. I've seen even more (technical difficulty) nonclinical requests in this area around MSP.

And I think I would be remiss if I didn't mention also we've had six different expansions from our existing base of clients that are not included in the five new wins I just referred to. So, we really are kind of hitting on all cylinders right now.

Okay. And then just looking at your organic growth rates here first quarter, I think it was high 20%, 28%, second quarter guiding to 20%. These are against pretty tough comps. Second half, I know you don't give guidance for back of the year the comps continue to get tougher but you guys are still growing very well. Just your general thoughts, if you will, on what you would expect to see as you look at the back half of the year versus the first half?

We feel are positive about the second half. I mentioned that our placement trends have been exceptionally strong over the last month in particular, the highest in Nursing, for example, that we've seen throughout the year. Orders are at very high level across all of the businesses. And so that really lines us up well for going into the third quarter, because a lot of the placements we are making now are individuals that won't actually even begin their assignments until June or even July.

And so if we look at the set up that we have going into the second half, we feel very strong.

You're right. The comps will get more challenging and we've been very clear that we don't expect that we will be at 28% organic growth rates for the remainder of the year. They will come down as the comps become more difficult. But I think the growth rates that we have will be very strong and will be better than the market. And a lot of that is driven because of the strength that we have in our MSP clients in particular.

Great. Thanks.

Randy Reece, Avondale Partners.

Good afternoon. I have a question. We have new fun with your new segment disclosures. And then when we plop B.E. Smith down in there on top of it, trying to set expectations for gross margin for the other Workforce Solutions segment seems like a challenge to me. The historical numbers don't seem to be relevant, because they were significantly higher. I'm just wondering. Embedded in your gross margin guidance for the second quarter, do you have assumptions for the segments?

This is Brian. I guess I'd say that generally the margins in the second quarter are not significantly different than the first quarter. We acquired B.E. Smith right at the beginning of the first quarter, so it's an apples-to-apples comparison going from Q1 to Q2. So there could be a little bit of impact consolidated from mix, but within the segments themselves, I would say they're going to be relatively stable quarter-to-quarter.

As you get into the back half of the year, as I mentioned, Nurse and Allied, we are targeting a little bit of an improvement, so that would help consolidate in the back half. But that 60% in the first quarter, you're right, it will change some based on the growth rates of the different businesses within there, but I wouldn't anticipate in the near term you're going to see wide variation there.

Okay. Last year, there was a big sequential improvement in gross margin in Nurse and Allied in the restated numbers. And this year, more like flat. Does the blow-off of some of that project related business provide a headwind to gross margin on a sequential basis?

This is Brian again. In the second quarter, a little bit. But again, we also have other initiatives to improve our margin as well. So if it is a headwind, it's a pretty small one overall. And that's why the guidance we gave for Q2 is a consistent gross margin.

Then I'm not going to ask this any more than this quarter, but this would be helpful in helping interpret what is going on, and in the future, I will model out your new segments. But what was the Physician Permanent Placement revenue this quarter?

This is Brian again. It was about $15 million.

All right. Very good. Thank you.

Tim McHugh, William Blair.

Thanks. One question I guess just -- and I apologize if I missed this, but you made a comment about seeing particularly strong orders in the last month. I guess can you give qualitative comments, anything you are seeing or hearing differently that I guess -- just I guess explains that?

We typically see the order levels drop off a little bit towards the end of a calendar year, and at the beginning of the new year, as I think many healthcare organizations are trying to understand what the year, the future year, is going to bring, and they get their budgets level-set. And so we started to see orders -- we saw that happen, as usual, and then we started to see orders pick up again in February, in March, in April, and it just continued to gain momentum. I think that our ability to have more of those orders in MSP clients also helps us, because our fill rates are much higher within our MSP clients.

But I'm also going to ask Ralph to jump in and see if he can add any more color on where the orders are coming from and any changes that we are seeing.

One of the things that isn't reflected in just open orders is kind of the pace of new orders opening. So we also, we feel good about the second half of the year because the new order opening rates are higher. They're about 20% above prior year. So they open and close faster, which is interesting. Probably the industry is becoming more efficient and us as well, filling the orders in fewer days. The actual orders in the last two months are up double digits over prior year. So, I think there's three or four kind of trends in there. The last, which Susan mentioned, was the percentage of MSP is up on a year-over-year basis as well. As you know, we target and sell the MSP orders first. They are our highest margin overall, so that's helpful.

Probably the last -- we haven't talked about this in a long time. Med-surg is the second highest specialty, and that's one of the signs that our industry is healthy. Med-surg nurses are one of the most pleasant specialties. So when we see med-surg starting to show up in the top two to three specialties we have orders for, that's a good sign for future growth.

Just a couple of other tidbits maybe just because I think you might find them interesting -- it really is geographically widespread. If I think about the top five states where orders have increased, it really does canvas the entire country and all coastlines.

And then the number of facilities with orders is up double digits. And that's important because it gives us more diversity and assignments to offer so that it's not all concentrated. We certainly do have our bigger states, but if you have more facilities and more units with orders, you're more likely to have opportunities for placement.

Okay, great. That's very helpful. And just I guess more of a high level question, but I think one of the concerns on the stock is just statements various most of the public hospitals have made about I guess trying to find ways over time to reduce their reliance, I guess particularly relative to recent levels on contingent staffing. What are you seeing and hearing from them? Obviously, I know you explained the order flow, which remains strong. But are you seeing any signs of that? And I guess how are -- if you could just elaborate on that, I guess, the conversations and interactions you have with people who I guess state that as kind of a I guess strategy or agenda item for them?

I think what you're describing is exactly the reason why we are seeing an increased appetite for Workforce Solutions programs, things like MSP and RPO and our Avantas team, which provides workforce optimization services and technology. They are wanting to partner with someone who can help them take a fresh approach and a more analytical approach to the way that they think about their contingent staff but also making sure that they are optimizing their permanent staff, and having the right person in the right place and they are not paying overtime, they don't need to pay, etc. And so I do think those comments are driving the momentum that we are seeing in our new MSP wins, and our other workforce solutions.

But Dan, can you think of anything else that we should add?

Susan, I think -- and Tim, thanks again for the question. I think the first thing they are looking for, whether it's through a VMS that they manage themselves, or an MSP that we manage for them, is visibility into the problem, so that then they can look at what they can do about that problem, whether it's rates or looking at permanent staff, core staff, taking the analytics and trying to figure out where those shifts need to be physically located. All of that data and analytics and insight is something that they want first.

And then we are really quite fortunate, frankly, to have B.E. Smith here, because if you think about the leadership and changed management that's required by some of these programs, they are perfectly suited to come in and add a great deal of expertise and consultative advice, and maybe even run the program for them while somebody else is really doing something else to attack the same problem.

That's helpful. Thank you.

(Operator Instructions). Mitra Ramgopal, Sidoti.

I just wanted to get a sense. You mentioned hospitals trying to cut costs, but clearly a number of the solutions you are offering them remain very attractive. How does that sort of play into any pushback you might be getting as it relates to, say, bill rates, or are you not getting any there?

Our clients are always wanting to make sure they have the right bill rates, and that doesn't always mean being the cheapest, because they want to make sure the bill rate reflects a pay rate that will enable them to get the nurse or physician or Allied professional when they need them. And so what we do is educate them on what's happening in the market. That could be locally or regionally, but it also is across the country. They are effectively competing against other facilities in other states for those med-surg or ICU nurse. So we are able to bring a lot of data and analytics to show them what is happening in the market, and ultimately, honestly, they choose. Where do I want to be placed within the market? And we let them know what we think that will result in terms of placement capabilities. So, it's much more of a consultative discussion as opposed to just give me the cheapest rate you can, because that's usually not going to solve the challenges that they have.

Ralph, can you think of anything else that we should add to that?

The last few years have been really good for bill rate increases. But prior to that, we didn't see a whole lot of movement, so there's a little bit of catch up that's going on. I think we talked about on our last call that we would expect this to start to modify at some point, and settle in at about the same increase as physician wages or nurse wages. So that's like in the 3% to 5% range on a normal basis.

I think probably the only other thing would be that when we are pitching the MSP process, we go in and we take a look at their existing vendors. They might have 100 different companies they are working with at 100 different bill rates. So they can implement a program and bring half of those down to the market rate and save a lot of money. And that's the benefit of the MSP program, is that it doesn't go to the highest rate or the lowest rate; it goes to the right rate for the marketplace. And so those that were I guess for lack of a better word overcharging is where they get their savings from.

Thanks. That's very helpful. And Brian, quickly, if you could just remind me how much you have available on your facility right now following the B.E. Smith acquisition?

We've got about $100 million available on the revolver.

Okay. Thanks again.

Incremental volume available.

Mark Marcon, R.W. Baird.

Congratulations on a terrific quarter and great period here over the last seven, eight quarters. Can you talk a little bit about, just drilling down in terms of Nurse and Allied, the types of placements, the specific types of skills that you are filling? Because there is some chatter out there about maybe there isn't as much of a shortage. Obviously, or your results belie that. But perhaps you can provide even greater depth with regards to the specific areas that you are seeing a lot of demand for.

This is Ralph. I'll start with the Allied business, and just talking about specialties, obviously physical therapy, speech, physical therapy assistants and occupational therapy, they are among the top five to 10 fastest-growing jobs in the country, and that is our sweet spot. We are very good at filling those types of opportunities. So there doesn't seem to be any threat to those that would slow down, I guess, that growth.

On the nursing side, ICU nurses, med-surg I talked about, telly, ER and OR, and the last three are kind of important because those also drive hospital volumes. So you've got to fill the ER and the OR room, you can fill beds, and those are also very, very good signs. Med-surg moving up means that you must have more patients than beds because the med-surg nurses are the primary caregivers in that environment. So those are good.

The exec physicians as well, I know you said Nurse and Allied, but I can't go without talking about B.E. Smith and The First String. Those are a lot of nurse leadership positions in various departments across the organization. And so kind of my gut feel is that a lot of retirement is going on. Maybe more than anyone who thinks the shortage is not -- doesn't exist would probably understand. As you've seen in the past, there's some shifting into part-time that's also driving demand.

And I think Susan covered this pretty well, but the demand is widespread. It's not a client. It's not a state. It's really kind of across the board. And it's not always tied to volumes. Other things are happening out there. So some of the system volumes, we see their numbers come out and will be a little bit surprised. They either had a higher number of retirements, so there utilization is up despite their volumes being down. Volumes are helpful to determine the direction we are headed, but they are not the only thing that drives our volume.

Another thing to just remind ourselves of is that the attrition rate for nurses, it's really across the board for physicians and Allied as well, are at historical highs. And I know you're very familiar with the JOLTS data and the number of job openings and job hires, which if you look at just the averages for January and February of this year, is at a 2 to 1 ratio. So for every job filled, there are two jobs that were open. This is the widest gap that we've ever seen as long as they have been tracking these statistics, and it's been going up very steadily since the recession. And so this -- if you don't think there is a shortage, first of all, all you need to do is probably talk with our clients, because they are very frustrated about the fact that they can't fill their permanent jobs and that they can't, for that matter, keep the clinicians that they have in those jobs. And so we don't see those trends changing significantly. You could have a slight narrowing of that gap, but quite honestly, that would be fine because, last year, as an example, that ratio that's currently 2 to 1 was anywhere between 1.5 to 1.8 to 1. And we grew fabulously. And so we think that that's another significant driver, and it's only probably going to become more challenging as you have more clinicians that are retiring or pulling back or moving from acute care into nonacute care.

Great. I appreciate the additional clarity and fully appreciate the full validity of the answer. Can you talk a little bit about some of the regional differences that you are seeing, and areas of opportunity for you in terms of expanding even more?

This is Ralph. I'll start with the travel nursing business. We're certainly stronger in California than anywhere else. Texas, New York, Florida, Washington are all very good states for us and those are actually kind of where a large percentage of our MSP revenues are, no surprise I'm sure. So those are good states for us from a population growth, from their stance on healthcare. Maybe with a couple of exceptions in there, they are pretty strong components of ACA. So the probably opportunity for us in the Midwest is not our -- where we see a lot of business. And it's been almost an industry trend that the per diem was the most frequently used solution in the Midwest, and it's starting to shift towards utilization of travelers there.

The recent MSPs we won, actually two of them are in the Midwest, two of the larger systems there. So I think that will help us there. And we have a lot of supply the comes in the door that wants to work in the Midwest. So it's not going to be expensive for us to fill those jobs. I'm

trying to think of other gaps. Gosh, we could use more psychiatrists. There's never enough of them. The internal medicine subspecialties are growing fast. Hospitals are growing fast. ER is growing fast on the physician side. We are very, very good at those regionally differences there. I don't think there is anything that's driving faster or slower growth there, but I'm sure there are opportunities out there. They are just not standing out.

Great. I appreciate the answers. Congrats again.

(Operator Instructions).

Okay. It looks like we have all of our questions answered. So, we would really like to thank everybody for joining us today, and certainly of your continued support of AMN. We would also like to wish all of the moms and their families a very happy Mother's Day on Sunday. We hope you have a wonderful celebration, and we look forward to updating you on our progress next quarter.

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