AMN Healthcare Services Inc (AMN) 2022 Q1 法說會逐字稿

Good afternoon and welcome to AMN Healthcare First Quarter 2022 Earnings call. My name is Brika, and I'll be today's event specialist. (Operator Instructions) Our host for today's call will be Randy Reece, Senior Director of Investor Relations. So Randy, please go ahead when you're ready.

Good afternoon everyone. Welcome to AMN Healthcare's First Quarter 2022 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com following the conclusion of this call. Details for the audio replay of the conference call are in our earnings release issued this afternoon.

Various remarks we make during this call about future expectations, projections, trends, plans, events, or circumstances constitute forward-looking statements. These statements reflect the company's current belief based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements because of various factors and cautionary statements including those identified in our most recently filed Forms 10-K and 10-Q.

Our earnings release 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 earning's release. This call contains certain Non-GAAP financial information, information regarding any reconciliations of these Non-GAAP measures or the most directly comparable GAAP measures or including in our earnings release and/or in our financial reports page at ir.amnhealthcare.com.

On the call today are Susan Salka, Chief Executive Officer; Jeff Knudson, Chief Financial Officer; Kelly Rakowski, Group President and COO of Strategic Talent Solutions; Landry Seedig, Group President and COO of Nursing and Allied Solutions; and James Taylor, Group President and COO of Physician and Leadership Solutions. I will now turn the call over to Susan.

Thank you so much, Randy, and welcome everyone. We're very grateful that you're here with us today and pleased to be able to share some good news. We are reporting strong results and a positive outlook very consistent with what we discussed on our last earnings call. Over the last 2 years, the dedicated AMN team and our healthcare professionals enabled an all-out response to the pandemic. Now, we are seeing light at the end of the tunnel.

However, the pandemic has taken a significant toll on the healthcare workforce and in particular frontline clinicians. The extreme shortages of healthcare professionals have been accelerated and exacerbated in a way that we could not have foreseen. We are now in a situation that requires new methods of how the healthcare community approaches staffing and support of our workforce.

A little over a decade ago, AMN identified the need and opportunity to bring workforce solutions into healthcare and create efficiencies for our clients, clinicians, and the industry. We and other innovative partners paved the way for technology-enabled solutions. Our MSP relationships and the diversification of our revenue mix have reduced our risk exposure to market and economic fluctuations.

All stakeholders benefited from these evolutionary leaps and with AMN as the leader in total talent solutions, our shareholders certainly experienced a significant benefit. I believe we are at the beginning of another evolutionary time in our industry. Healthcare job openings stand at an unprecedented 2.9 times the number of monthly hires. Clinicians are insisting on more flexibility and higher compensation, as well as faster, more digital, seamless experience.

Because of these factors, clients are reimagining their staffing paradigms. AMN is well-positioned to deliver what healthcare professionals and clients need and want in the coming years. Prior to the pandemic, AMN was already making significant investments in our digital platforms and tech-enabled solutions. Over the past 2 years, we have supercharged those investments and launched several new capabilities.

Our conversations with clients today include questions like how can they embrace the changing preferences of a younger workforce? How can they attract clinicians from outside their region? And how can they embrace the local professionals who want flexibility to work across multiple facilities and get experiences to advance their careers?

These all pose significant challenges for the healthcare ecosystem but also great opportunities for those organizations able and willing to collaborate and drive innovation. AMN is the only organization capable of delivering large-scale managed services programs as well as providing 3 of the top VMS platforms. Just this week, we were again named the #1 healthcare MSP provider by HRO Today. We hit a new record high in the first quarter at an annualized rate of approximately $15 billion in VMS and MSP growth spend under management.

While this run rate will come down as pricing returns to sustainable levels, we believe these relationships and the volume opportunity will largely continue into the future. Healthcare employers are increasingly requesting our comprehensive solutions to address the recruitment and staffing challenges. The power of our diversified solutions allows us to help clients with temporary, permanent, short-term, and long-term workforce challenges.

We are clearly differentiated by our unmatched portfolio of more than 20 distinct workforce solutions, working closely with clients to address their complex labor needs. Over the last few years, our clients have increased the number of AMN solutions they use. Today, AMN's top 30 clients use, on average, 8 of our solutions which represents great progress but also gives us tremendous growth potential.

Before we talk more about the future, I'd like to first recognize the outstanding achievements of the AMN team in the first quarter. Consolidated revenue for the quarter with $1.55 billion and adjusted EBITDA with $258 million both record levels. Our Nurse and Allied Solutions segment reported revenue of $1.23 billion with growth of 87% year over year. Travel nurse staffing grew by 95% year over year due to both volume and bill rate growth driven by higher compensation for clinicians.

Allied Staffing revenue increased by 64% year over year in the first quarter, including more than 40% growth in volume. Imaging, lab, respiratory and therapy were all strong. As we projected, and we are very pleased to see, the crisis demand has subsided since the peak earlier in the year.

In the Nurse and Allied segment, we are now seeing a more normalized demand level, which is still more than 80% higher than the same time period before the pandemic. This also means compensation expectations have come down and resulting bill rates have reduced. This is in line with where we thought we would be as we move through the second quarter.

Based on this, we expect our Nurse and Allied segment revenue to grow approximately 70% year over year in the second quarter. More than half of our growth is coming from increased volume of clinicians on assignments. Our Physician and Leadership Solutions segment reached a new record with first-quarter revenue of $180 million of 28% year over year.

Locum tenens had its highest quarterly revenue ever, reaching $113 million with 30% year over year growth. Core business grew 60% year over year while pandemic-related revenue was down. Interim leadership also had record revenue with mid-teens growth year over year. Physician and executive search revenue grew an impressive 46% year over year in the first quarter.

New physician searches remain strong, and the pipeline from midlevel and executive search is strong bolstered by multi-search opportunities from larger clients. In the second quarter of 2022, we expect revenue for the Physician and Leadership Solutions segment to grow approximately 20% year over year.

Our Technology and Workforce Solutions segment reached another new high with first quarter revenue of $145 million up 64% year over year. The greatest portion of revenue growth came from our VMS technology business. Language services and recruitment process outsourcing also delivered strong growth as clients are requesting more diversified solutions.

In the second quarter of 2022, we expect Technology and Workforce Solutions segment revenue to be up about 45% year over year. With most of the pandemic behind us and certainly many lessons learned and relationships strengthened, our focus is on how we make a greater impact and deliver greater value for all stakeholders in the future. The pandemic accelerated workforce and market changes that would've otherwise taken many years to unfold.

Because of the strategic actions we took during the pandemic, AMN moves forward in a better position ever before. We swiftly embraced operational changes and made technology investments that are making us faster, more agile, and empowered with real-time views of healthcare professionals and clients. We proved our business and our team can scale effectively across a wide range of market conditions. And we showed that we can manage strong growth while increasing our commitment to ambitious environmental, social, and governance goals.

Over the last year, we increased our alignment with organizations focused on diversity, equity, inclusion and resiliency of the healthcare workforce. The crisis amplified the strength of our values, and that has enabled AMN to create opportunities for talented people who seek meaningful work in a purpose-driven culture.

In fact, in an environment where most companies are experiencing higher than normal levels of attrition, in the first quarter, AMN saw lower than normal attrition. In our latest employee engagement survey, team members, ranked AMN well above industry benchmarks across all key categories. Team members specifically called out the strength of AMN's culture and the fact that their colleagues and the organization care about supporting them in pursuing their personal and professional goals.

We remain confident that the post-pandemic environment will include persistent labor shortages, increasing need for flexibility, and a growing appetite for total talent solutions. These significant market drivers give our industry a long-term growth opportunity. AMN is uniquely positioned to excel in the market with the power of our diversified portfolio. Our team, our leadership, and our culture are exceptionally strong, and we have strengthened our customer intimacy giving us great insight into what clients need from us now and in the future.

In just a few minutes, James, Kelly, and Landry will join us for the Q&A session. For now though, I will turn the call over to our colleague, Jeff, who will provide more insight into our financial results.

Thank you, Susan, and good afternoon everyone. First quarter revenue of $1.553 billion was 3% above the high end of our guidance range driven by outperformance from all 3 segments. Consolidated revenue increased 75% year over year and 14% sequentially. Excluding labor disruption revenue, consolidated revenue grew 22% sequentially.

Gross margin for the quarter was 32%, 60 basis points lower than prior year and up 10 basis points sequentially. Year over year, the margin was lower from higher clinician compensation and nurse staffing and a revenue mix shift towards our lower margin staffing businesses.

Consolidated SG&A expenses were $258 million or 16.6% of revenue compared with $161 million or 18.2% of revenue in the year-ago quarter and $239 million or 17.5% of revenue in the previous quarter. SG&A expenses increased year over year and sequentially primarily due to higher expenses for growing, rewarding, and supporting our team members.

Adjusted SG&A excluding certain non-recurring expenses and stock-based compensation expense was $239 million this quarter or 15.4% of revenue compared with $148 million or 16.8% of revenue in the year-ago quarter. The improvement in SG&A margin came from operating leverage on the revenue growth partially offset by higher growth related expenses.

On a sequential basis, adjusted SG&A was higher by $27 million due to a higher team member-related expenses. In the first quarter, Nurse and Allied revenue was $1.228 billion, 87% higher than the prior year and up 14% sequentially. Our travel nurse business grew revenue 95% over the prior year and 27% sequentially. Travelers on assignment grew 42% year over year. Demand for travel nurses hit a record high level in January. As a result, travel nurse volume grew 20% sequentially.

Allied revenue was $214 million growing 64% from the prior year and up to 16% sequentially. Allied volume was up 41% over prior year. Nurse and Allied gross margin of 26.2% was 70 basis points lower than the prior year and down 80 basis points sequentially. The crisis-driven spike in demand drove pay expectations faster than bill rates.

As a result, compensation for healthcare professionals increased as a percent of revenues by 520 basis points year over year. This increase was partially offset by improved leverage over housing, travel, and other expenses, as well as favorable workers' compensation reserve and health insurance costs.

The sequential decline in gross margin is primarily due to the high margin labor disruption revenue in the fourth quarter of 2021 that did not recur in the first quarter of 2022. Segment EBITDA margin of 15.9% was 40 basis points higher than the prior year and 50 basis points lower than prior quarter. These comparisons were affected by lower gross margin, partially offset by the SG&A leverage from higher revenue.

Physician and Leadership Solutions revenue in the first quarter was $180 million, 28% higher year over year, and up 10% sequentially. Locum tenens revenue was $113 million, 30% higher than the prior year, and up 13% sequentially. Interim leadership revenue increased 14% from the prior year and was up 2% sequentially. Search revenue increased 46% from the prior year and was up 8% sequentially.

Gross margin for this segment was 35%, 200 basis points lower than the prior year, and down 10 basis points sequentially. The year over year margin decline was primarily due to revenue mix changes and lower gross margins for locum tenens and interim leadership. Segment EBITDA margin was 11.4%, down 370 basis points from last year, and 20 basis points sequentially. The sequential and year-over-year decline in EBITDA margin was primarily due to a lower gross margin as well as a higher performance and incentive compensation accrual.

Technology and Workforce Solutions revenue was $145 million in the first quarter, growing 64% year over year, and 23% sequentially. VMS revenue of $75 million grew 136% year over year, and 43% sequentially, driven by a significant increase in gross spend under management. All other service lines in the segment achieved strong revenue growth on a year-over-year basis.

Segment gross margin was 76.7% up from the year-ago margin of 67.7% and up 470 basis point sequentially due to growth of the higher margin VMS business. Segment EBITDA margin of 54.4% was up 690 basis points year over year and 700 basis points sequentially. Consolidated first quarter adjusted EBITDA of $258 million was higher by 83% year over year and 16% sequentially.

Adjusted EBITDA margin of 16.6% was 70 basis points higher year over year and better by 30 basis points sequentially. We reported net income of $146 million and diluted earnings per share of $3.9 in the quarter. Adjusted earnings per share was $3.49 compared with $1.70 in the year-ago quarter. Days sales outstanding was 57 days in line with the prior year and 4 days higher than last quarter due to the cadence of billings through the quarter.

Operating cashflow for the quarter was very strong at $200 million, and capital expenditures were $14 million. As of March 31st, we had cash and equivalents of $113 million, long-term debt of $850 million, and a net leverage ratio of 1x to 1.

From a capital allocation perspective, the company used $228 million of cash to repurchase 2.3 million shares of our stock in the quarter. As of March 31st, 250 million remained under our stock repurchase authorization. With a strong balance sheet and ample liquidity, we remain focused on internal investments as well as our acquisition pipeline. Our priority is to add more technology-enabled solutions and select staffing assets that would improve our sustainable revenue new growth and profit margins.

Now turning to second quarter guidance. We are projecting consolidated revenue to be in a range of $1.34 billion to $1.38 billion, up 56% to 61% over prior year. Revenue guidance includes $65 million to $70 million of labor disruption revenue which amounts to approximately 7% of the year-over-year revenue growth. Second quarter gross margin is projected to be 31.5% to 32%. Reported SG&A expenses are projected to be 16.4% to 16.9% of revenue. Operating margin is expected to be 12.5% to 13% and adjusted EBITDA margin is expected to be 15.8% to 16.3%.

Other second quarter guidance details can be found in today's earnings release. Our guidance carries the message that the second quarter is playing out the way we had expected, excluding the labor disruption revenue. We continue to expect our third and fourth quarters to settle out around $1 billion of quarterly revenue at 15% adjusted EBITDA margins.

For Nurse and Allied, the average bill rate was up low double digits sequentially in the first quarter, and bill rates plateaued in March. We expect low double-digit declines for bill rates sequentially in the second quarter. Based on current placements and rate changes we have seen thus far, we expect the third quarter to have the largest sequential decline in bill rates.

Our expectation remains that we will exit the year with Nurse and Allied bill rates stabilizing at approximately 35% lower than the first quarter level. Our outlook for Nurse and Allied volumes and bill rates is based on our efforts, working with clients to determine their needs and expectations through the rest of the year.

This fourth quarter view represents average annual bill rate growth of about 8% compared with pre-pandemic levels. We believe this is reasonable considering that hospital industry wages rose 10% in 2021. And in the fourth quarter of 2021, nurse compensation in the US rose at an annualized rate of 11%. As we've set on our previous call, after our business levels out in the second half of 2022, we expect a more normalized sequential growth trend off the Q4 base.

According to CMS projections, healthcare spending is expected to grow 5% to 6% in 2023 in an environment where the workforce is not expanding fast enough to serve that need. A recent report by the conference board warns that healthcare labor shortages will not improve but worsen over the next decade. In addition to the underlying staffing need this creates, our portfolio of diversified solutions enabled us to continue to help clients and also deliver growth in the coming years. And now, we'd like to open the calls for questions.

(Operator Instructions) The first question we have from the phone lines comes from Tobey Sommer of Truist Securities.

This is Jasper Bibb on for Tobey. I was just hoping you could speak to nursing gross margins. As we started to see the market normalize a bit, do you expect to recapture some of that bill pay spread? And how long do you think it would take to reprice the book and get to a pre-COVID gross margin?

Yes. Jasper, this is Jeff. I would say with the demand that we saw in Q1, we did see some erosion, and some of those assignments will spill over into Q2. Obviously, with bill rates coming down, we are seeing improvement which we would expect to see more fully in the back half. On a consolidated basis, the improvement we are seeing in Q2 sequentially is impacted by the workers comp adjustments in Q1 as we roll over those in the second quarter. But like I said, we would expect to see more improvements as we reprice into the backup.

And then, can you just quantify the expected decline in deliveries for the third quarter, I think you mentioned? And any change to how you're thinking about nursing allied volumes over the balance of the year?

Yes. So we said we would expect low double-digit declines in the second quarter, and that we would expect the third quarter to be steeper than that. From a volume perspective, I'll let Landry give a little bit more color, but we would expect overall in the second quarter to be flattish to the first quarter and then just some normal seasonality trends into the back half.

Yes, just on travel nursing specifically there, so the first of the second quarter, we're seeing a bit of a mix change there. And I'll explain that a little bit. So just our traditional travel nursing volume, which is that, you know, kind of typical 13-week to 26-week assignment. So that's growing nicely sequentially from Q1 to Q2.

And then also, the international business is growing nicely from Q1 to Q2. The offset to that would be some lower volume in the second quarter for our crisis placement. So of course, the first quarter saw quite a bit of that, and those are not continuing into the second quarter. So whenever you combine those, that's where we get to that Q1 to Q2 we're expecting pretty flat volumes sequentially.

Yes. No, that makes sense. Last question for me, I was just hoping you could update us on your tech investments. You know, are there any kind of updated metrics around the adoption of AMN Passport that could quantify the progress you're making there?

Yes, absolutely. You know, continue to add more features and functionality which drives efficiency certainly for the clinicians using them, but then also for our team members. And we think that's certainly contributing to the productivity improvements that we're seeing across the board, both for recruiters and also for some of the support staff that now doesn't have to touch some of the transactions that used to be dealt with more manually.

And we now have 125,000 users on Passport. I think the last time we reported, it was around 100,000, so really great progress in that utilization. And we expect to continue to see certainly more going forward, but we also continue to roll it out across our different business lines as we continue to add more functionality.

Your next question comes from A.J. Rice of Crédit Suisse.

Just wondering if you could give us an update on your ability to fill the orders that you have. Are you seeing the ability to fill more orders today? Or do you still have about the same percent that are going on filled as you did a quarter or 2 ago?

A.J., it's Kelly Rakowski. Thanks for the question. You know, as, you know, demand levels have started to come down, we are seeing increases in our fill rates, but you know, we're still at demand levels that are elevated from pre-pandemic. So we're, you know, certainly striving to increase those fill rates for our clients, continue to use our strong network of supplier partners as well as we're filling those rates for the clients. Getting better, I think is the message there but still some room for improvement. And we expect us to continue to improve as demand rates start to normalize.

I think during the heat of the crunch the last few quarters, you talked about the fact that your MSP clients, obviously, have taken priority and there's been some non-MSP customers that traditionally support that you couldn't prioritize. Have you, A, been able to move to fill more of those orders or are you seeing some of those people decide now that they need to go ahead and enter into an MSP? Are you seeing activity around MSP contracting pickup?

A.J., it's Landry. I'll hit the first part of that, and then maybe Kelly will hit what we're hearing from customers about entering into a new MSP relationship. So yes, you're right. So over the pandemic, whenever demand was so high, we had shifted most of our recruitment resources and account management resources to focus on our MSP customers.

And we've changed that slightly. Demand is still elevated, so there's still plenty of support needed at our MSP customers. But, you know, to your point within the direct and third party, there's quite a bit of demand there. So we've opened those up a little bit more. We never fully closed them. We did support those clients where appropriate during the pandemic. But demand had still remained elevated, and our MSP demand is elevated. So we still need to make sure that we're focused on those most important customers.

Yes. And maybe I'll just add from what we're seeing in the market. We are seeing an increase in our pipeline particularly for our full MSP solutions. If you look back a year ago and even a quarter ago, we were seeing more of a percentage of our new opportunities, be vendor-neutral, administered through our technology, our 3 strong technology platforms.

So now, we're seeing more clients interested in a full-service MSP and our ability to add more. The capacity to do that has improved as well. So yes, we are seeing demand. We had Q1 was slightly ahead from a sales perspective, and we're seeing even a stronger Q2 ahead of us.

Okay. Maybe a last question on the M&A pipeline. I think last quarter you guys talked about potentially broadening the scope being open potentially to even staffing acquisitions again. Any update on what you're seeing out there whether there's likely to be opportunities over the near term to intermediate term?

Yes, A.J., I would say if you were to look back a year ago, the M&A pipeline is certainly more active than it was, from our perspective, you know, probably a little distorted towards the staffing assets right now than those tech-enabled solutions, but we're still seeing healthy activity there as well. And that's really what we're focusing our efforts in the near term.

We now have Tim Mulrooney of William Blair.

Just a housekeeping question first, I want to make sure I heard you correctly during the Q&A. Did you say for the Nurse and Allied segment, you expect volumes to be essentially flat sequentially from the first quarter to the second quarter?

Yes, and that is a combination of travel nurse being up our longer-term 13 to 26-week assignments international nursing being up, some areas of allied been up, and then offset by the shorter crisis assignments that are typically more kind of 4 to 6 weeks, maybe 8. And those are typically at the higher bill rate. So not surprisingly, we saw a lot of that disproportionately in the first quarter.

So as those unwind, we're seeing a decrease in that volume. But the more long-term assignments are the ones that are growing into the second quarter. We do you have a little bit of headwind with schools, which tend to fall off at the end of the second quarter as well but that's pretty minor.

Got it. So then based on your guide for the back half of the year, that billion-dollar run rate per quarter, I assume that means you'd then expect volumes to tick down somewhat more sequentially from the first half of the year into the second half of the year. Am I thinking about that correctly or is it mostly driven by bill rate?

Bill rate, Tim, is by far and away the largest driver of that decline in the revenue base in the back half of the year.

Okay. And then maybe one more, this is more of just a high-level thing, but I wanted to hear your guys' opinion on this. You know, we've noticed an uptick in money being raised for tech startups for the per diem RN market, it seems like more and more smart money's being deployed in the space. But, you know, per diem is only a small piece of your business today. I'm just curious why AMN hasn't also made a bigger push in this area, given your strong relationships with healthcare systems across the country? Is there a structural reason why you've kind of avoided getting bigger in this area of the market?

But I mentioned earlier that, you know, one of the challenges and I think opportunities that clients are discussing with us is, how do they better optimize that local labor force and talent pool, not just the clinicians that are currently working for them, but the broader maybe regional talent pool that is available? And our-- There's a few interesting things going on already, where either hospitals have created a kind of new version of a float pool where clinicians can actually float from facility to facility, it's something that we've helped clients to do in the past, even perhaps bringing in travelers that can be a part of that float pool.

The discussion is more how do we help them manage that because they aren't structurally set up, nor have the technology and the expertise to be running an operation like that. The technologies that we can bring to the table, both existing things that we have in place that could be utilized for management of a local, so-called float pool of clinicians that perhaps traveled from system to system and facility to facility, you know, that's more where we're working with them is on that technology workforce and management solution, as opposed to just providing the people.

Now, we can provide the people as well and augment what they have but their first objective is really to optimize the talent pool that already exists within a region. So we think that's probably the more strategic partnership for us. We can grow our local staffing capability, and we will do it if that's the best solution for them. But they're really seeking more of these tech-enabled solutions and our expertise. So hopefully that helps answer that.

We now have Kevin Fischbeck of Bank of America.

Actually, this is Joanna Gajuk filling in for Kevin today. I guess just a follow-up on something that I guess we were discussing last quarter. But any update I would like to hear now is, you know, you mentioned this again, right, in terms of the pool of nurses and staff in healthcare, people looking for flexibility, right? They're trying different jobs. You know, the gig economy clearly is entering into the healthcare space as well.

But at the same time, you know, we hear from different types of providers that, you know, they expect at least some of those employees who left for this, you know, so-called travel assignments because sometimes they don't really travel anywhere, they stay in the local market. But they expect these, you know, employees to come back, you know, full time. So have you seen any of this already happening, where you kind of have, you know, some of your nurses going back to permanent jobs?

So, I mean, it's hard to tell exactly where they go. I'll tell you there's a couple of metrics that we watch internally as it relates to, you know, some of our turnover, our retention metrics. So the first one would be cancellation. On the cancellation front, we're seeing cancellations by our clinicians that would've been pre-pandemic levels if not slightly below pre-pandemic levels. So, certainly not seeing any clinicians cancel at a higher rate.

And then another metric to call out is that we've watched for many years our rebook retention. So it's the retention of our clinicians as well as extensions of their current assignment. And if you took the first quarter, the first quarter was actually a full 6%-- 6 percentage points above Q1 prior year for our retention. So clinicians are staying with us at a faster rate or a higher rate than they were before.

Q1 of last year was a little bit soft, but still, Q1 of this year, if you compared it to all the historical numbers, it would've been the strongest Q1 average that we've seen. So, we're certainly not seeing that again. It's kind of hard to know where the clinicians are going whenever they're not taking an assignment from us. And then, you know, you mentioned the kind of younger demographic or gig economy.

You know, our clinicians that are working for us right now, we're seeing the biggest growth of clinicians that are under 35 years old. Actually, 50% of our overall clinicians that are working for us are under 35, but whenever we were looking at those numbers, something else stood out, which is our largest decline. Actually, the only bucket that declined is clinicians that are 61 years old or greater. Again, we don't know exactly where they went, but I think that speaks to, you know, they likely retired, they left the workforce, which aligns, you know, pretty well with some of the public reports that we've seen.

I think at the other end of that kind of metric spectrum is how many people are applying with us and coming into travel nursing or allied. And as we-- First quarter certainly was a very high point. A lot of interest in the crisis assignments, but even in April, we still have very high new applications flow. In fact, it's above prior year and well above pre-pandemic levels. I think that's indicative that there's still great interest in coming into the industry.

Thanks for this color, and thanks for sharing some of these metrics. It's one of the questions everybody's trying to figure out, whether some of these nurses going to come back. So thanks for sharing in the call.

Your next question comes from Brian Tanquilut of Jefferies.

I guess my first question, Susan, in your prepared remarks, you talked about the bill rates and the discussions you guys are having with the hospitals. Just curious what those conversations are like. Do you think that the hospitals acknowledge that we're going to exit the year at 35% lower than Q1? Is that the right number, or is there a lot of pushback there? Just curious what those conversations are like.

I'm going to ask my colleagues to join in here in a moment, but at a high level to answer the question, the conversations are don't stop filling the jobs that we have today because we still have very elevated needs and we don't see that changing anytime soon. In fact, they acknowledge that the shortages are likely going to get worse. Now, for the next year, maybe not as extreme as going out into even future years.

Jeff referenced the conference board study that was just put out that called out healthcare as the highest risk of worsening shortages across almost all categories, and that aligns to exactly what we hear from our clients. Yes, they're very concerned about getting costs down and bill rates are a part of that, but they're also very concerned about getting their current and future jobs filled, which is why there's so many conversations also around our multiple solutions, particularly I would say the longer-term solutions. Things like international nursing, which is at an all-time high in demand.

And even within our current placement businesses, our RPO business and how do they set up a more efficient, effective model and how can they come to more of a single partner who can help them strategize. We're doing a lot more planning with our clients to help understand what their needs are, not just today, but in the future. Then it translates to, okay, how can we navigate this year? Part of that navigation is understanding their staffing needs, which again is very elevated. It's not going to go down, likely to go up and how do we get the bill rates down along with that.

So with our most strategic clients, our team lays out a roadmap of where we think we're going that aligns with their demand needs. So it's going to be a little different from client to client and we lay out what we think we can accomplish from a rate reduction standpoint. So I would say it's more of a collaborative discussion because ultimately they decide where the rates are. But it's more of a collaborative discussion on where is the staffing demand going to be for them and for hospitals across the country and how does that translate into getting down to these numbers? And, you know, yes, we have put these numbers in front of them. And at this point, this is how we're trying to triangulate where that rate will come out.

Got it. And then I guess my follow up to that, you know, as we think about supply, what are you seeing as bill rates go down in terms of nurses staying in the temp world versus going back to perm and how are you driving supply growth or market share gains if that's the case, as theoretically the pool shrinks with that sort of dynamic?

Well, we don't think it's shrinking. I just mentioned that we're getting even more applications in on a year-over-year basis. And it's true on the physician front as well, which is part of what's driving the fantastic results within our locums and interim leadership. And as Landry mentioned earlier, you know, our nurses are actually staying with us. And so I don't know if you want to recap a bit of what you shared if there's any other color?

Yes, Brian. I mean our retention numbers, our reboot numbers, our extension numbers are all still high and in many cases, above even pre-pandemic numbers, which were healthy. As you can imagine, you know, some of these rates are happening mid-contract so we'd like to see it on new placements and we'd like to see it on extensions, but some of them are happening mid-contract.

The team's doing a great job of working with the nurses to bring those rates down. It's, of course, helping our clients out right now with their cost pressures that they're seeing within their health systems. And for the most part, nurses and allied professionals in those cases where we had to bring them down are very understanding. So they get it. They know that the environment today is a lot different than what it was in December or January when the hospitals were full of very sick COVID patients.

Got you. Okay. And then the last question for me, as I think about the $1 billion count run rate with a 15% margin and given the backdrop that you just gave in the CMS projections and growth rates, do you still believe that that's probably the right baseline that we grow off like at a low double-digit rate going forward? Is that the right way you're thinking about the long-term view of the company?

When we think about growing off that Q4 run rate, so obviously, we think price and volumes will stabilize in the fourth quarter of this year. As we move through the year, we also expect our internal capture rate on MSP orders to recover. And we don't believe the shortages of clinicians will change dramatically between. So I think when you couple that with the CMS data, we think that's the right way for us to frame up 2023 and where we see that playing out off of that fourth-quarter run rate.

We now have Bill Sutherland of The Benchmark Company.

I was thinking about this issue about the nurse preferences as well. It's obviously top of mind and Susan, I was curious if you guys have had a survey of some of your clinicians or if you've seen a third party that kind of ask them the reasons these would be new travelers, for instance, that they started to travel. And I guess maybe there's a certain type that started to travel because of the crisis rates but have you seen anything that rank orders what's most important to them?

So you know, as Landry mentioned, you know, we are seeing this younger demographic come in which we think is not surprising since the younger generation wants more flexibility even outside of healthcare. And so that's a trend that we expect to continue. And if you're in a permanent job, you're not necessarily getting that flexibility. In fact, you might feel even more beholden to pick up the overtime and the extra shifts and do the things for your colleagues that you work with and will be with for years to come. So we think there is this generational preference that's pulling through and will likely continue to see that grow over time.

Other reasons why people come to travel is they want to get rejuvenated. They're burned out. They're frustrated where they are. They want to continue to learn and grow and enhance their skills and their career but they are not feeling like they can do it in their current environment. And in fact, because they're understaffed in the current environment, that's just burning them out even more. And so they want to go to a place where they feel that they can deliver great care, learn, but also not quite have that burnout effect.

And there's always other, you know, personal reasons. It's not always about the money in the career. Sometimes there's just personal things that they want to change in their life. So those things haven't seemed to change a lot. I will say the generational preference aspect has probably been the more recent driver, and then those individuals that have been introduced to travel because of the pandemic that maybe thought before it wasn't something they could or should do have now seen that it's a real possibility. I can't tell you how many nurses I've talked to, who've said, "I'm never going back to a permanent job because I know that I can do what I love to do and make good money and just keep traveling."

So it's not going to be the majority, but you know, if we just move the needle a bit, you know, remember we've got a little over 1.7 million nurses working in hospitals and, you know, no one quite knows what the travel nurse number is, but it's definitely less than 5%, probably less than 4% of that population. So it doesn't take much to increase the size of our industry and the pool of clinicians, nurses in particular that want to come into the industry. If we just increased it 2% or 3%, that would be meaningful because that would, you know, increase our industry supply by maybe almost 50%.

So, you know, I would think of it in that way. I know there's a lot of focus on, you know, how many people are going back, but, you know, in the scheme of things, you know, with 1.7 million nurses working in hospitals, if just a few thousand more come to travel, it's not probably going to change the hospital dynamic that much, but it could be very positive for our industry. And I know a lot of focus is on the rates and you know, and the cost of labor, but don't forget that the greatest cause of labor by far, particularly in nursing is the permanent workforce.

And as Jeff mentioned, you know, permanent wages went up in the latest survey by 10%, you know, after being fairly anemic up until 2019. I don't think the days of 2% wage increases are going to fly anymore for nurses in particular, probably not for many healthcare professions, particularly if you believe some of the projections like the conference board put out about these worsening shortages.

So, you know, I think we are in for many years of higher than previously normal wage increases for permanent nurses. And that is by far the bigger cost factor for hospitals. You know, if you just extrapolate the numbers of that 1.7 million nurses and the average nurses making, you know, roughly 85 to 90,000 a year you know, that hits about $150 billion being spent in nurse wages.

So for every percent that they go up, it's $1.5 billion, maybe close to $2 billion, which is why it is very challenging for hospitals to increase nurse wages, even if they want to. And I really think many of them want to, but it's such a huge proportion of their budget that it's very challenging. So even if we settle in at these rates that are 35% lower than today, it's remember for a small percentage of the workforce. So even if a travel nurse at the end of the day, costs 10% to 40% more fully burdened than a permanent nurse at that point, it's only a higher premium on 4% or 5% of the workforce, not on the entire 1.7 million.

So I know that's a little more than you asked, but I just, you know, trying to help people see the forest through the trees here and understand that, you know, it's really the bigger nugget is how can we help our clients be efficient and optimize their total workforce and not just yes, we'll focus on what we can do to make travel nursing most efficient and at the right sustainable bill rate, but the bigger opportunity and need is really across the broader workforce.

Yes, I get it. That's great color, Susan. I think what we're all kind of reacting to is a couple of health systems didn't have great first quarters in terms of their margins and they put a lot of blame on the increase in the percentage of contract labor that they had in the quarter, and that they're vowing to get it back to whatever normal levels are. And then we wonder about the demand impact of that on your business. And I think what you just said reflects the fact that that's kind of an easy answer they can give right now for how they're going to fix things, but it's probably not the real answer. Right? So one other follow-up I had, just I'm curious in the first quarter, what percentage of the assignments were crisis if there's a way to define that?

We don't really provide and carve it out that way externally. So I'd be a little hesitant to provide that level of detail. Maybe we'll try to figure out how we can give, you know, a little color going forward, but I apologize. I don't think we've carved out that way in the past.

Okay. And last one. Actually, one more. In the second half, so the takeaway in Nurse and Allied is that with the rates still obviously trending down to more normal levels, the volumes you think are- apart from seasonality, volumes are fairly stable quarter over quarter for the rest of the year.

Apart from seasonality, that's correct, Bill.

We now have Andre Childress from Baird.

This is Andre Childress on for Mark Marcon. So you've been pretty successful over the past few years, you know, cross-selling, you know, adding different solutions and cross-selling it to your client base. You noted that your top 30 clients now use 8 different solutions. Could you somehow break out how that was or what that was a couple years ago and how that's trended? You know, what opportunities are you most excited for in terms of cross-selling back into the base? You know, what's your strategy there, the go-to-market strategy, and what's your targets, you know, a couple of years down the road in terms of how many solutions you think the top clients would be using?

Yes. Great question. And thank you for picking up on that. And it's certainly been a part of our strategy, not only for us as an opportunity for growth and extending our business across our top clients, but also for our clients as they seek more comprehensive strategies as we've been talking about the complexity of the challenges certainly require them to look at many different levers around not only their contingent staff utilization, how to effectively build that into their workforce plans, but also to help them from a permanent side across all of their workforce capabilities.

So you know, that increase up to 8, you know, and that's an average. Some of our clients use nearly all of our solutions, you know, on an annual basis. So, you know, what we've been seeing from a trend perspective is, you know, number one, as they look for more cost containment strategies, bringing more service lines, like our nonclinical services, like our locums, like our interim leadership, where they see those as better or more effective ways to bring them the quality staff that they needed.

And under a managed program, we've seen a real appetite and increased lately and particularly with our renewals as well in adding more of those service lines. And then beyond that, as they look for workforce optimization and planning that Susan talked about, how can they have, you know, better internal utilization of flexible programs helping them with more predictive modeling and staffing around that.

We're strategizing with them on a long-term basis around where we can innovate and help them bring those solutions to them so that they can meet those total needs. I think one of the areas we are seeing some increases are particularly around our physician services, and James, maybe you can talk a little bit about our locum's strategies around adding those to our MSPs and what we're seeing there.

Thank you, Kelly. Andre, I think Kelly is spot-on in the sense that our clients are looking for the total workforce solution and optimization, which is inside of their portfolio some of the metrics that sit behind that, we estimated this with inside of the PLS business that we've captured a third of our plan for 2022 already in the first quarter centered on really building on MSP activity. We have had 100% retention from both our locum clients and our interim client in 2021, and that's given us some tailwind as well as we think about total workforce solution.

And then also at the end of the day, we are new into the journey from a PLS standpoint, in the sense of building MSP. Our goal is to drive a percentage of where it is today and double it within the next 2 to 3 years. And I think that by doing that, it will offer both to the client and the provider, a better experience and more solutions.

Great. And just one more for me. So, you had a really strong, you know, cash flow in the quarter, you've got accounts receivables of nearly $1.3 billion which you're going to harvest over the next 12 to 24 months, you clearly bought back over $20 million of shares in the quarter and you emphasized what your capital allocation strategy is.

But, could you provide a little bit more detail about what your thought process went into the buybacks and how you would think about that going forward, obviously, understanding that the emphasis is on, you know, investing internally in organic growth, as well as potentially M&A? But you know, just some thoughts there would be great.

Yes, great. Thanks. So, first and foremost, we want to make sure that we're investing in the business from a CapEx standpoint. So, we're continually focusing on our digital offerings, looking to drive efficiencies and productivity there. We think, you know, at the $70 to $75 million annual range that that's the right level of CapEx, for the business today. And so, after we do that, we are going to look to grow the business inorganically through M&A and absent any compelling opportunities there.

We will opportunistically, you know, repurchase shares. Obviously, you know, $200 million of cash flow in the quarter is an extraordinary, you know, cash flow quarter for us. But we're also set up, you know, given our receivable profile, as you mentioned, to have an incredibly strong free cash flow year in 2022. And so, we'll be active on the M&A front, but we'll also, you know, continue to look at share repurchases in the absence of the M&A transactions.

We have no further questions at this time. So, I'd like to hand it back to Susan Salka for some closing remarks.

Wonderful. Thank you, Brika, and thank you everyone for joining us for our great discussion. And we look forward to updating you on our progress on our next earnings call.

Thank you for joining. This does conclude today's call. You may now disconnect your lines and enjoy the rest of your day.