AMN Healthcare Services Inc (AMN) 2021 Q4 法說會逐字稿

Good day, and welcome to the AMN Healthcare Fourth Quarter 2021 Earnings Call. My name is Brika, and I'll be today's event specialist. (Operator Instructions) I would like to hand the call over to Randle Reece, Senior Director of Investor Relations. Sir, Randle, please go ahead.

Good afternoon, everyone. Welcome to AMN Healthcare's Fourth Quarter and Full Year 2021 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, including our financial outlook for 2022 and beyond, constitute forward-looking statements. These statements reflect the company's current beliefs 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 earnings release.

This call contains certain 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 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 grateful that you joined us today for an update on AMN's impact, strategy and our results.

Many forces came together over the past 2 years that challenged the health care industry to its limits. The AMN team is proud to be an important contributor as the leading provider of total talent solutions for health care professionals and organizations.

Throughout 2021, we scaled our solutions and technology to answer a stunning rise in labor demand across all of health care. Our clients' need for travel nurses increased by about 2.5x from the second quarter, to the fourth quarter. Demand for allied professionals doubled over that same span. Demand for physicians in temporary and permanent roles also reached new highs. Our teams' all-out efforts to serve the urgent staffing needs of our clients and our country is nothing short of remarkable.

We also enabled our hundreds of tremendous supplier partners to respond, which is reflected in the $7.3 billion gross spend under management of our MSP and VMS programs in 2021.

For clients, we continue to improve the ease of accessing the resources that they need. This labor market crisis is a long-term problem, and clients are looking for more than a short-term fix. They are redesigning their staffing models amidst severe talent shortages and the changing preferences of the workforce. Clinicians desire more flexibility and control over their careers, which is increasingly taking them away from the bedside.

AMN has multiple solutions, which utilize technology and create a more diversified mix of workforce supply across the spectrum of permanent, short-term and long-term contract talent pool.

To be the best societal and health care contributor possible, there are 4 primary pillars essential to our success. First, and most importantly, is to empower our dedicated team members to make the impact they desire. We have a strong purpose-driven culture at AMN that is deep in our commitment to our values and important social issues.

Second is to continue evolving the efficiency of our operation to differentiate and improve the experience of our clients and health care professionals. Think of it as nailing the basics, but better. We want to delight our customers and exceed their expectations when it matters most.

Third is to deepen relationships with clients and health care professionals by listening, analyzing and understanding their needs now and into the future. The evolution of our integrated portfolio of total talent solutions is a great example of this, while also personalizing our service to each organization.

The fourth pillar is what we refer to as winning digital. Over the last 2 years, we have significantly accelerated investments in artificial intelligence and digital staffing to increase our scalability and speed, while also improving the experience of those we serve. We have created analytic dashboards and digitized self-serve capabilities to many aspects of the clinician and client journey. Every day, AMN is becoming more agile and digital, adding more valuable capabilities.

As an example, you might recall that we mentioned in 2020 that we launched AMN Passport, and we now have over 100,000 clinicians using the app. Passport gives continuous engagement with health care professionals and makes it easier for them to find the right opportunities in real time. Passport uses a matching algorithm that provides customized opportunities to candidates based on their evolving preferences and the dynamic job market.

Passport also includes an industry-leading credentialing wallet, which professionals use to manage their documentation and easily share with us and clients. We have more features in store for the Passport app, and we are very excited about how it is already making a difference. On future calls, we will continue to update you on how our investments in technology and digital are transforming the company.

Now I would like to turn to a recap of the fourth quarter and some color on trends for the start of 2022. In the fourth quarter of 2021, consolidated revenue was $1.36 billion and adjusted EBITDA was $223 million. Our Nurse and Allied Solutions segment reported revenue of over $1 billion, with growth balanced between volume and higher bill rates driven by rising wage expectations of clinicians. Our largest business, Travel Nurse Staffing, grew revenue by 136% driven by volume increases and higher clinician compensation.

Earlier, I mentioned our multiple solutions that address the long-term workforce needs of our clients. One great example of this is our international nurse staffing solution, which recruits clinicians into the U.S. for clients to build their longer-term workforce with talent from outside the region. These nurses are on assignment with AMN for the first 2 years, and then the majority go permanent at the same hospital after that. They bring important skills and experience, they create a great future for their families, and they become an important part of the community. Demand for international nurses is at an all-time high and expected to continue growing at a strong pace.

Allied Staffing revenue was 82% higher year-over-year in the fourth quarter, led by more than 50% growth in volume. We've seen growth in pretty much all disciplines across imaging, lab, respiratory and therapy. The strong demand trends continue for Nurse and Allied Solutions as we begin 2022, resulting in our projection that revenue will grow over 80% year-over-year in the first quarter. This outlook assumes Travel Nurse Staffing will grow revenue about 90% over prior year, with Allied Staffing revenue up about 60%.

Our Physician and Leadership Solutions segment had fourth quarter revenue of $164 million, up 47% year-over-year. Locum Tenens and interim leadership continued their strong performance, both with revenue growth near 50% year-over-year. While pandemic-related assignments contributed some, the primary driver is strong demand and execution in the core business.

Physician and Executive Search revenue was also up about 50% year-over-year. We saw record high new physician searches in the quarter, and we are gaining more strategic clients with multiple searches over a longer contract period. In the first quarter of 2022, we expect revenue for Physician and Leadership Solutions to grow approximately 18% year-over-year, with double-digit growth in all businesses.

Our Technology and Workforce Solutions segment reached another new high with fourth quarter revenue of $117 million, up 62% year-over-year. Our VMS technology business was the biggest driver, with significant growth in gross spend under management. Language Services had another great growth quarter primarily driven by volume increases from both existing and new clients. In the first quarter of 2022, market trends continue to be strong, and we expect Technology and Workforce Solutions revenue to be up about 55% year-over-year.

As you can tell from these results and our outlook, the passionate and talented team at AMN is leaning in to answer the call from clients and to give health care professionals the flexibility and career choices they are seeking. The significant demand for clinicians, however, is symptomatic of severe problems in the health care labor market.

Historically, travel and local staffing were used as a short-term and supplemental solution, with a relatively small percentage of the workforce preferring this career option. This has obviously changed, both out of necessity to fill critical roles and deliver patient care, but also because of the severe shortage of labor and the expectation and the changing preferences of the workforce.

In most all professions, when the availability of talent is meaningfully lower than demand, pay rates rise. And this is exactly what has happened in health care. For a variety of reasons, nursing has the greatest gap between labor supply and demand, and this is why there have been significant compensation increases. Permanent staff wages are going up considerably, particularly for new hires. For supplemental and travel staffing, increases in compensation expectations have resulted in higher bill rates.

Over the past 2 years, while bill rates for travel nurses have doubled, compensation to travel nurses has tripled. This current crisis has drawn nationwide attention to the nursing shortage. Not all of it is constructive or accurate. Certain industry lobbyists have criticized the health care staffing industry and are pushing for legislation that would suppress nurse wages. We think this is counterproductive and could reduce the availability of nurses. It would likely discourage nurses from entering or reentering the market when we need to be doing the exact opposite.

Nurses are making more money right now because they're taking jobs in high-skilled, high-demand and high-stressed patient care environments, and they're making other personal sacrifices. We are listening and talking extensively with patient care organizations, and we understand the challenges that they're feeling right now as they try to find solutions to the health care labor supply problem. Our country needs solutions that involve increasing the supply, the mobility, the safety and the well-being of nurses. There is no singular fix to the labor shortage in health care.

However, our country can make incremental progress by focusing on some specific initiatives, including support for public and private investments in nursing. The existing nurse supply can be optimized by expanding the state nurse licensing compact, making it easier for hospitals to attract talent from all over the country. Immigration reform would help bring more trained and high-quality clinicians into the country.

AMN has aligned with clients and professional organizations, and we've significantly increased our investments to address clinician education, workforce diversity, the resiliency of clinicians and to support clinician wellness programs. We have also created a hardship fund to support clinicians and their families who suffered losses. The AMN teams remain focused on being a part of the solution and doing all we can to ensure that every patient has the quality compassionate care that they deserve. We know our role in health care delivery is more important than ever.

I want to express the deepest gratitude for all of the fantastic work done 24/7 by our colleagues, clinicians, clients and all others who are doing their best to provide patient care.

In 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. Fourth quarter revenue of $1.36 billion was slightly above our updated guidance range we previewed last month. Consolidated revenue increased 116% year-over-year and grew 55% sequentially.

Gross margin for the quarter was just above the low end of our guidance range at 31.9%, 100 basis points lower than prior year and down 290 basis points sequentially. Year-over-year, the margin was lower from higher clinician compensation in nurse staffing, partially offset by higher average hours worked and an increase in higher-margin labor disruption revenue in the quarter. Sequentially, higher compensation rates to attract clinicians with a lesser increase in pricing was the biggest driver of the margin decline.

Consolidated SG&A expenses were $239 million or 17.5% of revenue compared with $155 million or 24.6% of revenue in the year ago quarter and $174 million or 19.8% of revenue in the previous quarter. SG&A expenses increased year-over-year and sequentially primarily due to investments in growing and supporting our team members, communities and health care professionals.

Adjusted SG&A, excluding certain nonrecurring expenses and stock-based compensation expense, was $213 million this quarter or 15.6% of revenue compared with $119 million or 18.8% of revenue in the prior year quarter. The improvement in SG&A margin from prior year reflects operating leverage from higher revenue, partially offset by expenses for team members, technology and other infrastructure to support volume growth.

On a sequential basis, adjusted SG&A was higher by $44 million due to hiring to support the strong revenue growth and other related adjustments to variable compensation and benefits from the better quarter and full year results.

In the fourth quarter, Nurse and Allied revenue was $1.08 billion, 142% higher than prior year and up 73% sequentially. Fourth quarter results included $85 million in revenue from labor disruption events. For our Travel Nurse business, revenue grew 136% over prior year and 73% sequentially. Travel Nurse on assignment grew 42% year-over-year. The average Travel Nurse bill rate rose approximately 60%, and average hours worked also increased to historically high levels.

During the fourth quarter, demand for Travel Nurses reached new highs due to extreme shortages of clinicians, higher health care utilization and record high turnover and vacancies. As a result, Travel Nurse volume grew 21% sequentially, along with a 38% increase in bill rates. We expect volume growth to outpace pricing sequentially in the first quarter driven by continued strength in demand and excellent execution by our team.

Allied revenue was $185 million, up 82% from the prior year and grew 35% sequentially on strong placements into record high demand. Allied volume was up 54% over prior year, and the average bill rate grew 21%.

Nurse and Allied gross margin of 27% was 30 basis points better than prior year and down 230 basis points sequentially. $85 million in labor disruption revenue at higher gross margin and a favorable swing in clinician health care insurance added 160 basis points from a year ago and was partially offset by a 130 basis point increase in clinician compensation. The sequential decline in gross margin is primarily attributable to higher clinician compensation and insurance costs.

Segment EBITDA margin of 16.4% was 340 basis points higher than prior year and 160 basis points better than prior quarter primarily due to improved operating leverage from higher revenue growth.

Physician and Leadership Solutions revenue in the fourth quarter was $164 million, 47% higher year-over-year and up 9% sequentially. Locum Tenens revenue was $99 million, 46% higher than prior year and up 12% sequentially. Interim leadership revenue increased almost 50% from the prior year and was down 1% sequentially.

Search revenue increased over 50% from prior year and was up 17% sequentially. Gross margin for this segment was 35.1%, 200 basis points lower than the prior year and up 30 basis points sequentially primarily due to revenue mix within the segment.

Segment EBITDA margin was 11.6%, down 360 basis points from last year and 120 basis points sequentially. The sequential and year-over-year decline in EBITDA margin was primarily due to investments in our team members to support volume growth and higher professional liability insurance expense in the quarter.

Technology and Workforce Solutions revenue was $117 million in the fourth quarter, growing 62% year-over-year and 17% sequentially. VMS revenue of $52 million grew 165% year-over-year and 57% sequentially driven by a significant increase in gross spend under management. All other service lines in this segment achieved strong revenue growth on a year-over-year basis.

Gross margin was 72%, up from the prior year margin of 64.5% and up 260 basis points sequentially, both driven by revenue mix shift to the higher-margin VMS business. Segment EBITDA margin of 47.4% was up 540 basis points year-over-year and 20 basis points sequentially. Higher gross margin is partially offset by an increase in SG&A expenses to support the growth.

Consolidated fourth quarter adjusted EBITDA of $223 million was higher by 149% year-over-year and 61% sequentially driven by the revenue outperformance and associated improvement in operating leverage. Adjusted EBITDA margin of 16.3% was 220 basis points higher year-over-year and better by 50 basis points sequentially. We reported net income of $116 million and diluted earnings per share of $2.42 in the quarter. Adjusted earnings per share was $2.95 compared with $1 in the year ago quarter.

Days sales outstanding was 53 days, 7 days better than last quarter due to higher cash collections. Operating cash flow for the quarter was $78 million, and capital expenditures in the quarter were $15 million.

Interest expense in the fourth quarter was $9.8 million, $12.9 million lower than prior year, which included $11.5 million in onetime expenses related to a bond refinancing. As of December 31, we had cash and equivalents of $181 million, long-term debt of $850 million and a net leverage ratio of 1.1x to 1.

Recapping some financial highlights for the full year of 2021. We reported revenue of $3.98 billion, a 66% increase from prior year. Adjusted EBITDA for the year was $635 million, up 98% from prior year. Full year adjusted EBITDA margin of 15.9% was 250 basis points higher year-over-year. 2021 adjusted EPS was $8.03, higher than prior year by 134%. Full year cash flow from operations was $305 million, which included a $24 million payment of deferred payroll taxes from the CARES Act.

As of February 15, 2022, the company had repurchased 726,000 shares of stock valued at $71 million since our previous quarterly report. Earlier this week, our Board approved an addition of $300 million to our repurchase authorization, and the current amount remaining under the program is $409 million.

Now turning to first quarter guidance. We are projecting consolidated revenue to be in a range of $1.475 billion to $1.515 billion, up 66% to 71% over prior year. First quarter gross margin is projected to be 31.2% to 31.7%, down year-over-year primarily from higher clinician compensation and a mix shift to lower-margin businesses. Gross margin is lower sequentially due to the labor disruption revenue in the prior quarter and higher clinician compensation, partially offset by a favorable business mix shift.

Reported SG&A expenses are projected to be 15.9% to 16.4% of revenue. Operating margin is expected to be 12.9% to 13.4%. And adjusted EBITDA margin is expected to be 16% to 16.5%.

Other first quarter estimates include the following: depreciation expense of $12 million, noncash amortization expense of $20 million, stock-based compensation expense of $9 million, interest expense of $10 million, integration and other expenses of $6 million, an adjusted tax rate of 27% and 47.8 million diluted shares.

While we provide guidance only for the current quarter, our expectations are that first quarter 2022 revenue will be the highest of the year. We expect sequential declines in Nurse and Allied compensation and to exit the fourth quarter with bill rates approximately 35% below the first quarter peak. Based on these assumptions, we believe consolidated third and fourth quarter revenue will stabilize at approximately $1 billion per quarter, with adjusted EBITDA margins of approximately 15%. Going into 2023, we expect a more sustainable sequential growth trend.

And now, we would like to open the call for questions.

(Operator Instructions) The first question we have from the phone lines comes from Kevin Fischbeck of Bank of America.

So I just wanted to maybe just follow up on that last comment there. So it sounds like, if I'm reading this right, that you think that, that $1 billion revenue, 15% margin, where you end this year is the kind of the run rate number as we enter 2023, and you should be showing some sort of growth off of that kind of $4 billion annualized number. Is that the right way to interpret that?

That's fair, Kevin. And we see that stabilizing throughout the entire back half of that $1 billion run rate in both Q3 and Q4.

Okay. That's really helpful. And I guess, that number is higher than certainly we were thinking, and I think probably just many people were thinking. So how should we -- how are you thinking about the kind of the long-term demand, and what's kind of keeping that number maybe a little bit higher than some were thinking?

I think a lot of the providers are looking for pretty quick and substantial drops in bill rates. I know you're talking about a pretty significant drop in bill rates, but the bill rates are still well above where they were pre-pandemic. So I just love to kind of hear how you're thinking about maybe where this marketplace is reaching equilibrium in the back half of this year versus, say, maybe where you would have thought it would have reached it a couple of years ago.

Well, when we think about Q4 and being 35% off of these Q1 peaks, it's really not that far off from what we had said last quarter in terms of where they would settle out pre-pandemic. And we would actually see the largest or anticipate the largest sequential declines in both Q2 and Q3 with a more modest impact into Q4.

And Kevin, to maybe just build on that, what creates a longer-term view of maybe a stronger market than perhaps what others anticipated is the severity of the shortages and a high level of demand that we expect to continue. While we expect demand to come down a bit in Nursing and even in some of the Allied categories, it's still going to be well above pre-pandemic levels, and that gives us opportunity to continue to grow volumes.

And it's not just Nurse and Allied, the Physician and Leadership businesses have seen extraordinarily strong demand minus pandemic-related assignments and are on a really nice growth trajectory. And then you layer on top of that the technology solutions that we have in place, that clients are increasingly wanting to bring into more of a holistic total talent solution offering. And quite honestly, we're in a much stronger position today and needed in terms of those total talent solutions to create mid- and long-term strategies for our clients.

And I'm sure somewhere on this call, Kelly will have a chance to share more of that with you. We can get on to some other questions. But I think maybe that's something that wasn't fully appreciated. It's how critical it is to have multiple, not just short-term, but mid- and long-term strategies because this shortage is not going away and clients know that.

Okay. Then maybe just last question then. Do you -- in your guidance, are you assuming that you've had kind of any meaningful share gains over this time period? Or is this largely a reflection of you growing along with your view of where the market demand is?

Well, right now, since there isn't good public data available on the broader market, we're assuming that in the core staffing businesses, we're probably growing alongside the market. We have deliberately focused on the MSP segment of the market, which, of course, has been the larger growing part of the market. And so we probably have picked up some share there, although it's really difficult for us to really quantify that since the numbers aren't readily available.

And as we look forward, those clients that want a more holistic approach to their talent issues, I think, that's where, in the future, we'll be in a better position to pick up share.

We now have our next question from A.J. Rice of Credit Suisse.

First, I was just going to ask because you're the second one today to mention potentially a little more activity with international nurses coming into the U.S., so one of the public hospital companies mentioned it earlier today. Can you just tell us, is that a meaningful change we're seeing? Is that still something that's down the road? And how much might that be able to help the current situation if it changes?

Hey, A.J. It's Landry. So I'll hit on that one. So yes, we've got our international business. Of course, clients right now are looking at just about every avenue to try to find nurses. The international solution is a good one for them. It's typically 2- to 3-year contracts and then very high rates where those nurses actually stay permanent in those jobs. So a really good solution for them.

Last year, our international business did about $100 million in revenue. So relative to the competitors in that space, it's a good size, but kind of when you look at it up against the overall segment, not a large percentage of the business. Through the pandemic, there were a couple of things that were a challenge. We had...

Okay. So there hasn't been a change...

Go ahead, A.J.

No. I'm sorry. There hasn't been a change in ability of foreign nurses to access the U.S.? Or is that still something that's being talked about but actually hasn't happened?

Yes. So over the last 1.5 years, there where a couple of challenges. One of those would have been some travel bans that were in place. Another area that hurt us from bringing in some supply temporarily were that some of the embassies were shut down due to the different spikes that might have been going on around the world. More recently, we've seen some more positive legislation. So kind of at that state department level, we've seen the states prioritize employment visas to the top. So that way, we can bring in international nurses as well as their families into the United States.

It's probably not enough, especially with the amount of demand that we have out there. Our clients are asking us about international nurses just about every day from a majority of our clients. Sort of things like making more visas available would be a good legislative change that would help bring in even more supply to the United States.

Okay. And then when you think about the back half of the year and more of those things started to normalize, but obviously, at a higher level of overall demand, it seems like you've given up a little bit. And we hear this from the other players as well on the bill pay spread to sort of help out the health system customers and so forth. If rates come down as you anticipate, do you think we'll see those bill pay spreads sort of revert to a normal level? Is that part of your thinking on the margin in the back half of the year?

And I guess, the other aspect of things normalizing, I would assume at this level on your MSP clients, you're still probably filling only a percentage of the orders. Are you anticipating that as things decline or normalize, so let's put it that way, that you'll see that bill rate increase? Or is that not part of what you're thinking about as you talk about $1 billion revenues in the third and fourth quarter?

So first, on the gross margin, as bill rates decline and we see fewer kind of crisis and premium rate assignments, we would expect that we will see a bit of improvement in gross margin. We want to give ourselves time and a still very competitive market for that to occur. So whether it happens in the third and fourth quarter or more into '23, it's still a little bit of a TBD.

But absolutely, as we've given a higher proportion of that incremental bill rate to clinicians in the form of compensation, which was the purpose of it, as that might unwind a bit, then we'll see that bill pay spread improve a bit as well. And Kelly, did you want to take the other part of the question?

Yes. So A.J., I think the way you are thinking about that is correct. So we have seen some erosion in both our overall fill rates for MSP clients with demand at such significantly high levels as well as the AMN fill portion of that directly. So we would expect as demand comes down overall, we can improve our overall fill rates as well as improve the percentage that AMN is able to fill as those normalize as well.

Okay. Maybe just one final aspect on that, and I'll pass the baton on. But when you -- if you -- you had to focus with the tight supply and demand on your MSP accounts. We've talked about that before. And some of the people that -- the systems that haven't gone to an MSP relationship, obviously, you can't prioritize everyone.

And as the perception is that there have been some competitors enter -- smaller competitors entering the market and meeting some of those needs, a, have you seen that? And b, to the extent things ease a little bit in terms of the tightness, do you think those new relationships will be sticky? Or will that be something that are likely to come back to you as you have more ability to fill place, fill demand?

Well, yes, there have been new entrants for sure over the last couple of years. And in fact, that's been even positive for us as many of them have become great subcontractors and supplier partners for us. And some of them are also pursuing direct contracts, as you've said.

Another place that they are delivering their services is through our VMS platforms. Recall, we have not only our staffing-led MSP programs, but we have also the 2 largest technology VMS platforms, ShiftWise and Medefis, which is basically an open talent marketplace. When we aren't the primary MSP provider, we open it up to literally hundreds of staffing providers, like some of those that you've just mentioned, and they're staffing through our platforms. And that will continue for them.

Now what we're seeing is tremendous demand for both VMS and staffing-led MSP going forward. So for any client that maybe didn't have some sort of program in place or if they did and they're just not happy with it, we're absolutely seeing those opportunities come up. So we think, actually, there's more opportunity for us ahead because we have multiple solutions for those clients.

The next question comes from Brian Tanquilut of Jefferies.

And congrats on the quarter and the year. I guess I'll just go back to the comments on your outlook for the rest of the year, right, $1 billion of revenue. Just wondering, how do you gauge your visibility into pricing or pricing power. And what do you think is the glide path towards the normalization of rates over the course of the year?

Well, first, I would just -- I would correct that language and say that we don't have pricing power. We are responsive to the markets and particularly the compensation market and expectations of clinicians. And that market environment is really what drives compensation, which ultimately drives bill rates. So that's how we think of it.

And in terms of how do we get from this place we are today to a 35% reduction, that is going to be dependent upon the demand levels and the expectations of clinicians. We don't have a direct line of sight. But as we've said on our call for the third quarter, we think that something that resembles a kind of 10% CAGR per year is a reasonable place for us to settle in. So that's both about 1/3 increase over pre-pandemic levels and about 1/3 decrease from where we are now. So you can look at it either way.

So that's one way to triangulate like why is that a decent number to target. I mean if you just look at wage inflation in health care, for hospitals specifically in the fourth quarter, there was 10% wage inflation year-over-year. Now probably, clinicians were higher than that. So let's just assume maybe that was more like 12%. And that's not -- it's really not a crazy number, Brian. You look at other industries, you have the hospitality industry, with wages growing almost 20%; financial processing, 20%; retail, 16%. I need to go on and on down the road, and a 10% to 15% increase in hospital wages is not an unrealistic number to expect.

So anyway, we think that, that is one way to sort of triangulate where we might be. Now we may not come down that far. We are actually hoping that we do because that would be a sign that perhaps the demand and the shortage environment is easing a bit, but it's always possible just as we thought we would not be at these levels in the first quarter, that the fourth quarter could be higher, too.

No. That makes a lot of sense, Susan. And then just a point of clarification. So if we are looking at rate -- bill rates down 35% versus peak in Q1, that's about 35% or so below pre-COVID levels. Is that the right way to think about that?

Above. It's about 33% above. Yes.

35% above pre-COVID levels. All right. Got it. And then, I guess, my last question. So as I think about what you just said, right, I mean, $1 billion, 15% margin, so a run rate of $600 million exiting the year, 10-ish percent growth rate, so mid-$600 million of EBITDA for 2023 is not unthinkable? Is that the right way we should be thinking about that?

That math is -- works. We're not giving that guidance for '23. But yes, if you take $1 billion times 15%, you get $150 million, times 600, and then you're growing off of that. That is what that math would come out to.

We now have Jeff Silber of BMO Capital.

And I also appreciate the framework you gave us for the rest of the year. Let me play devil's advocate beyond this. I know we're in an environment that's unprecedented. But if you look back over history, when we've seen spikes in demand for Travel Nurses, once kind of that demand level subsides, the hospitals try to push back a bit on the amount of usage and percentage of the workforce that this aspect comprises. Why won't we see something similar going forward and maybe the run rate you're talking about may actually be lower?

We are in, as you used the word, I think, Jeff, an unprecedented environment, and the shortages that we've seen historically don't even resemble what we're in today in terms of the sheer number of vacancies. Last year, we had, what, quits of something, we peaked out at like 50% at times and the number of job openings to hire is at 2.7:1. We have never seen numbers like this.

So it's not a matter of what perhaps they want to do. It's what is possible. And it's not just a matter of recruiting, there's changing preferences. And sometimes, they could maybe recruit individuals with some higher pay. I mean they could increase wages 20% for permanent nurses. I think that's unlikely considering that nurse wages are around 1/4 of a hospital's budget, would be a tremendous increase in their overall cost of labor.

But even if they were to try something like that, what we found is that the preferences of the clinicians have made a step change. Certainly, you have a younger population that prefers more flexibility, control over their career and doesn't want to be at an employer for more than a year or 2 years. And so travel becomes very attractive.

But even as we look at our applications coming in and new starts, we've seen a big uptick in people in their 30s and 40s. And that just really didn't happen to this magnitude before. In fact, they're the greatest percentage increase. So suddenly, you've got more of the nursing population that's both been introduced to a flexible work environment and guess what, they're preferring it. And that's not that much different than what's happening across other industries and even our company.

Our team members have been homeworking for the last 2 years. We've not gone formally back into our offices. And it's probably no surprise that the majority of them don't want to come back into the office as full time. They've gotten a taste of the flexibility and autonomy and control that they have and they want to keep that. So just sort of use that analogy with nurses, they're feeling the same.

Yes. Maybe, Jeff, I'll add on. This is Landry. Yes, I was just going to give a little bit more on demand. So as Susan mentioned, looking at anything that happened in the past, this is just a completely new leaf today from what we've ever seen. And so I'll mention a couple of things on Nurse and Allied, and then, James, I don't know if you want to mention a couple of things on what you're seeing for Physician and Leadership.

So our nursing demand right now is, actually, if you look at it like the same time of the year, we're actually 3x higher than what we would have seen before the pandemic. So extremely high demand. It's 1/3 higher than what we were at this time last year. And this time last year, if you recall, we were talking about how strong demand is.

So it continues to be widespread. I've got a couple of points that I wrote down. One of them is that across all of our high-need specialties, every one of them is up year-over-year and up significantly, up against pre-pandemic, with the exception of ICU. So ICU would be the only one that's down year-over-year, but it's still our second highest demand. And if you looked at it compared to 3 years ago, it would be in that 3x range like we see across some of our other specialties.

I think med-surg is #1. We typically would see that in the top 5. But with med-surg being #1, it really does show just how much of a shortage that we're in. You're always going to have this demand for these more specialized nurses. But med-surg being #1 is not something that we see all the time.

Specialties that are tied to mother and babies, so you've got labor and delivery, you've got postpartum, anything that's touching pediatrics right now, all of those are really high. And then it's great that elective procedures have come back and surgeries have come back, but they're not necessarily above what they were pre-pandemic. If anything, maybe they're at pre-pandemic level. And our need for OR nurses right now is 3 to 4x what we would have seen before the pandemic.

So I think a couple of those kind of explain what we see right now. We're not in some sort of major peak. We're kind of on the other side of Omicron, and we're still seeing this really, really high demand. And then you look at Allied, and the story is the same. You've got therapy, respiratory, lab, radiology, all those specialties are up from what we would have seen and not just a little, but pretty excessively if you compare it to 3 years ago numbers. James?

And Jeff, I can add in a little bit of what we're doing on the -- Jeff, just on the Physician and Leadership side, from a demand perspective, across all of our business lines, we are at a record high from a Locums quarter 4 demand, is really up 28% sequentially, and 103% from a year-over-year standpoint. And that's coming from all our particular specialties, specifically within CNRA, our AP and primary care.

The key thing with Locums is our core demand is significantly above pre-COVID levels by 1.5x levels. So -- and we expect that to remain. From an interim standpoint, core demand is very strong, specifically in Nurse leadership. And if you call out the specialties, is much like Landry, in women's services, is in surgical services and emergency services. And quarter 3 interim orders volume did decline sequentially by 1%, but at 18% year-over-year.

And our biggest practice that really has grown is in our Search practice. So for quarter 4 in 2021, our new searches are up 34.5% sequentially and year-over-year, up 109%. So the Search is continually to be strong in specific areas of nurse practitioners, physician assistants, chairs and C-suite positions. And we just continue to see that to roll forward into 2022.

Okay. Anyone else?

We probably gave you more than you need.

I really appreciate it. No, I really appreciate the thoughtfulness.

We now have the next question from Tobey Sommer of Truist Securities.

I was wondering what your current thoughts are on the structural nature of the shortage versus something that may be more medium-term in terms of has your survey worked or what you're hearing from recruiters. Are you able to parse out retirement clinicians that have moved to nonclinical jobs, for example, those kinds of things versus clinicians that are retreating from full-time work and/or sort of providing less hours to their employers and therefore opening up more demand for assignment work?

Well, we are picking up pieces of that in surveys and some of the public data that is available, but it is difficult to put it into a model and quantify it. So I'll just kind of say that upfront. Retirements, anecdotally, from what we're hearing from our clients, are at significantly high levels. And if you can parse things out of BLS data with quits, retirements would be a really big part of that. And those clinicians aren't likely coming back.

The other thing, and you probably have read it in some of the articles that exist, is that nurses are choosing to leave the bedside. They may still be using their nursing skills and wanting to contribute, but they're able to go work for Amazon and other organizations, telehealth companies, that take them away from the acute care or even, say, long-term care environment. So we think that's going to be a permanent draw that those people aren't necessarily going to just jump back in to the nursing profession.

So we think this has been a step change in the nurse supply, which is why I've said and others have said that we've got to take actions and solutions that add to the supply and plans to retain and take care of the nurses we currently have because what we don't want is that this continues, and we continue to lose more and more of those nurses because the thinking from our clients is that a good number of these nurses who have departed are just not coming back. So this is going to be a multiyear issue.

And until we can think -- rebuild the nursing supply, which I've heard some nurse executives say could take a decade to get to that point because of what we've lost in knowledge and the numbers of people. So that's why it's not a quick fix, and it's not just one solution to fix it.

So I'm sorry, I don't have like data for you necessarily around all of those things, but it's -- there's so many facets to the problem, and they are long term in nature.

Well, we're eager for the data should you get your hands on it at some point. And with the share repurchase activity and the renewed authorization, could you give us a sense for what you're seeing in the acquisition marketplace? The public company stocks have been a little bit more volatile here, and has that conveyed yet to more moderated expectations of sellers?

Yes. I think, Tobey, we're still very interested in and doing something on the M&A front and those tech-enabled solutions. But -- and I don't think our share repurchase authorization is certainly the expansion. It's not mutually exclusive from that when we think about the spot the balance sheet's in right now, the liquidity profile that we have and the flexibility on the balance sheet to take on potentially more leverage if the right opportunity presented itself, that we could execute on that opportunity, in addition to the share repurchase program.

But right now, there are a handful of things in the market, and we'll continue to take a look at them as we move through the year.

And has there been any change in the valuation parameters compared to 6, 9 months ago?

It is hard to say right now, I mean, with where we're at -- I mean there's nothing from a valuation expectation standpoint that I think would be all that different from where we were 6 or 9 months ago.

I think for some of the staffing companies, what you find is exactly what you and others are trying to dissect, is where is the business going to land and then grow into 2023, assuming that we do come down through the year. And so if there's been valuation adjustments, it's been around what does the future look like and then putting an appropriate valuation on that number.

I think, unfortunately, because there's not great information about -- and visibility on exactly where that will land, at least some analysts have shot pretty low on what they think that would be, which is why we thought it would be helpful to give a little visibility on our thinking. And I think our thinking is kind of in line with what we've seen and heard from other expectations.

We now have the next question from Mark Marcon from Baird.

A couple. First of all, in terms of your internal staff, where does that currently stand and how does that compare to this time last year? And how are you thinking about that changing as the year unfolds and as we go from these peak levels, down to that $1 billion base on a quarterly run rate basis before we start building back up?

Thanks for asking, Mark, because, as you know, our team and the culture that we have is so very vital and critical to our success. We've added a little over 20% to our staff over the last year. And through that time, as you can imagine, in a virtual environment, added a lot of support for our team members as well in terms of training and their wellness and making sure our leaders are effective in this environment. So a lot of investment, not just in adding more people and resources, but making sure that everyone feels successful.

And guess what? We're adding a lot of people right now as well. If you go to our job board, we have a lot of open positions because we're adding additional resources across the company, but I would say, in particular, within the business units where we have this very strong demand. And we continue to want more talent that can convert that demand into placement.

So very proud that, as you saw, we were just recently named as one of America's Best Employers by Forbes. That's very reflective of our culture and I think our commitment to our team members, but also to the communities. And they certainly care very much about that.

I will say we are investing heavily in digital. I mentioned the Passport app, and that's really externally facing, but it has a lot of internal benefits as well. The digital investments that we're making create efficiency. They help us also to remove the burdensome, frustrating work that might cause burnout and cause people to want to leave. Actually, I'll say, our attrition is actually quite good relative to what I'm hearing from other industries. We are about where we were pre-pandemic levels. And I think, in this market, that's a win.

That is great. And then you talked about the 15% EBITDA margin in the second half of this year. How are you thinking about margin expansion beyond that? Is that -- does that seem like a reasonable run rate to stay at as maybe there's some bill rate spread compression that might continue? Or should we think about that as a point where margins could even increase further? And that's one question just from a margin perspective.

And then I was also wondering if you could also talk about just the number of applications that you're getting for clinicians and the length of assignments that you're seeing. You talked about the number of people that are attracted to a flexible lifestyle from a clinician perspective. I'm wondering if you could just dimensionalize that a little bit further.

Yes. On the 15%, I would say we would actually, as we move through the back half of the year, we would hope to see a slight improvement in gross margins, which would partially offset some of the leverage we're going to lose on SG&A, right, as bill rates come down and revenue comes down into the back half. And then moving forward, from there, we would have to continue to optimize our business mix as things normalize and have some of these technology investments that we're making to improve efficiency. As those start to come to fruition, that's where we could look to sustain that 15% EBITDA margin over longer periods of time, quarter in and quarter out.

And then, hey, this is Landry. I'll jump in on supply and length of assignment, and then, James, maybe you've got a couple of comments on it as well. So within the Nurse and Allied segment, our new applicants in 2021 actually beat 2020. And 2020 was a record year for us. I would say a lot of that was due to the investments that we've been making over the last 3 years, investments to make it easier for clinicians to find us, easier for them to apply to us.

A lot of that's on mobile. So you think about our websites that we put in place or we've mentioned AMN Passport a couple of times. One stat on it is that, today, half of our new applicants that come in, come in with no human interaction. So those are what we call internally no-touch.

And if you took that same stat from a year ago, it was like 25% of our applications that came in were no-touch. So you can really see a lot of that self-service and digital mobile, AMN Passport investments really helping out, and it speaks to the efficiency that we've been talking about, a better overall experience with our clinicians.

As it relates to duration, the only time we saw shorter assignment requests would have been in that Q2, maybe Q3 2020, where there was a lot more unknowns.

Our on assignment placements right now are back to that kind of normal 13-week. Our extensions are running at what you would expect and what we would have seen or called normal before the kind of roller coaster. Our clients would likely take any clinician that we have. So if there's a clinician right now that will come in and work 2 weeks or 6 weeks or 8 weeks or even longer, they would certainly take them. But our overall general assignment links right now, a vast majority of those are on 13-week assignments.

And much like Landry, from across Locums, we have 56 days is the length of assignment, average length of assignment for a physician, and it depends upon the specialty, of course. But we've seen, through pre-COVID and then after, that, that hasn't changed much, maybe by a day or 2 from an average standpoint.

From an interim standpoint, our on-assignment did go a little bit down in this past year to 22.3 days. Because of the COVID activity -- -related activities that we were having, they had a little bit more of a shorter assignment. Our normal is around 25 weeks of assignment. So we're back up to that in quarter 1 or surpassing that in quarter 1 of 2022 at this point.

And Mark, since I know you love numbers so much, I'll tell you like our applications in short-term nursing are running well ahead of last year, like more than 50% ahead of last year. That's helpful to give you the magnitude.

We now have a final question on the line from Tim Mulrooney of William Blair.

I'll keep this really quick. I just want to build upon Landry's conversation earlier about demand. In the Travel Nurse business, curious how much of your open positions are comprised of COVID-related nurse demand, RN demand? And how much is related to non-COVID RN positions, like the medical-surgical nurses?

Yes. Yes, hey, Tim. So I mean, you really can't even look at it as COVID versus non-COVID. I mentioned the OR, for example, that really high demand, 3x to 4x what we would have seen before the pandemic, and OR is not a specialty that would have really been impacted by the pandemic. And therapy is another great example. Our therapy right now is up 800%. These are not small numbers, so 800% from even a year ago, which, again, that wouldn't have been necessarily impacted by the pandemic. So I don't know if that helps at all.

Another thing would be maybe that we've had some questions around, well, was your demand due to their own internal staff being out sick, and that would be pretty quick demand, right? Because they would be out maybe for a 2-week period, and we didn't see that. We saw it with our own clinicians, where they got sick. Actually, January was our peak, where our own travel clinicians, we actually went over 600 at one point that were either in quarantine or out sick. When in any of the other previous spikes, the highest number we would have ever seen was closer to 200.

So that's included in our guidance. That's accounted for in our guidance for Q1. But our hospitals or health systems were experiencing their clinicians out sick, and we were experiencing the same thing. But I wouldn't say that any demand is necessarily related to that.

I think that's helpful. I mean I think you did kind of answer the question. You're seeing -- I mean, COVID cases are coming down, and you're seeing a massive increase in demand in positions that have nothing to do with COVID. Is that fair?

That's right.

Okay. Lastly, just the Supreme Court upheld a federal mandate requiring health care workers at facilities that receive Medicaid or Medicare funding to be fully vaccinated or lose that funding. I think that comes at the end of February or the end of -- or mid-March, depending upon which state. But I mean, do you think this could cause more RN resignations across the market in the coming weeks? You guys are close to the end market, so you're probably a good person to ask. And if so, what do you think that would do to AMN's bill rates and volumes?

Hi, Tim. It's Kelly. I'll talk a little bit about what our experience has been. It's a very good question. And obviously, we're dealing with this, and not just at the federal level, but there's additional state regulations, there are some local regulations, some of our health systems have their own policies related to mandates.

So we have been dealing with it for a couple of months now. And first of all, our team, the amount of lift it takes to kind of manage through those mandates, collecting the information from our clinicians, working with our suppliers, with our clients around that, has been, I would say, a very complex effort and a large lift. But we have -- we are very committed to helping our clients meet those mandates.

I will say, so far, we're pretty well-through several of the large mandates. We have not seen a material reduction in number of clinicians who can perform because they're not meeting mandates. And our clients are telling us the same, Tim. So it's not over yet. We have several deadlines ahead of us. We have several clients who are also, who work in states, who are also going to require boosters, in addition to the vaccine. So this will be an ongoing surveillance, if you will, in collection and monitoring of that data and the status of our clinicians.

But it has been -- it's been really immaterial at this point. So we're not expecting that to change. We have seen a few clinicians who were fully vaccinated who didn't get boosters, but very, very small numbers. So we don't anticipate that having a significant impact on our clients nor on the supply at this point.

Thank you, Tim. And since I still have folks, I just wanted to mention, I gave that stat on applications. I was -- it was actually fourth quarter that was well over 50% higher. First quarter is also looking extremely strong, but I just wanted to correct that for the record.

All right. I think that was our last question. So we would love to thank everybody for joining us today. And this is a very critical time, obviously, for our country, for the health care market and for us. We take it -- take our jobs and our role extremely seriously, and I can't say enough about how proud I am of this team and all of the contributors to delivering great patient care every day. So we will look forward to updating you on our next call.

Thank you. This does conclude today's call. Thank you all again for joining. You may now disconnect your lines.