AMN Healthcare Services Inc

Ladies and gentlemen, thank you for standing by, and welcome to the AMN Healthcare second quarter 2019 earnings call. At this time, all lines are in a listen-only mode, and later we will conduct a question-and-answer session. If you would like to ask a question on today's conference, you can press star then 1 on your touch-tone phone. And as a reminder, today's call is being recorded. I would now like to turn the call over to our host, Randall Reese, Director of Investor Relations. Please go ahead.

Good afternoon, everyone. Welcome to AMN Healthcare's second quarter 2019 earnings call. A replay of this webcast will be available until August 20th at amnhealthcare.investorroom.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, plans, events, or circumstances 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 as a result of various factors, including those identified in our most recent Form 10-K and subsequent filings with the SEC. The company does not intend to update the 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 amnhealthcare.investorroom.com. On the call today are Susan Salka, Chief Executive Officer, Brian Scott, Chief Financial Officer, Kelly Rakowski, President of Leadership and Search, Ralph Henderson, President of Professional Services and Staffing, and Dan White, President of Workforce Solutions. I will now turn the call over to Susan.

Thank you so much, Randy. As we head into the second half of the year, we are very pleased to share good news with you regarding AMN's performance and the positive impact being made by our team members all across the country. Our financial results exceeded our guidance for the quarter, driven by strength in Nurse and Allied, although several of our businesses also beat expectations. And we are excited about the early contributions from our latest acquisition, Advanced Medical, who joined the AMN family in mid-June. We are seeing the union of Advanced and AMN pay off even at this early stage. The advanced team is doing a wonderful job delivering to their clients and expanding business across all of the markets they serve. Their school-based therapy solutions continue to perform very well and are poised to achieve or exceed the growth we expected for the upcoming school year. In addition, the infusion of travel nurse and allied orders from AMN MSPs coupled with their highly capable recruiters has enabled the team to help AMN serve these clients during this time of high demand. This was an ideal time for AMN to bring on the expertise of the advanced team. In addition to their performance, I've been very impressed and inspired by their enthusiasm for community service and harnessing our greater resources to make a positive impact. As we think about our market environment today, we are very optimistic. Demand across most of our businesses is strong and in several cases showing signs of increasing need for AMN's expertise. Competition for skilled clinical talent is intense and staffing demand is even higher than it was last quarter across nearly all of our divisions. Turnover and vacancies throughout healthcare remain at record levels and labor tension continues as many clinicians are frustrated by being asked to cover higher than usual workloads. Consolidation and increasing complexity in managing healthcare labor drives demand for more comprehensive workforce solutions and pushes AMN to continuously enhance our capabilities. This is most visible in our MSP-related business, where we had another quarter of double-digit revenue growth. The need for outsourced staffing and workforce optimization is stronger than we have ever seen. And with AMN's successful track record and significant delivery capabilities, we continue to win new clients as well as expand existing relationships. We have signed several new and expanded MSP contracts this year, which we expect to add nearly $200 million of annualized gross spend under management at maturity. Now let's review our latest results and outlook. Second quarter consolidated revenue of $535 million was our second highest on record. Gross margin was 33.5% and adjusted EBITDA was $67 million or 12.5% of revenue. Our nurse and allied segment posted revenue of $332 million flat year over year, which was better than guidance due to higher labor disruption revenue and $5 million from the advanced acquisition. Revenue for our largest business, Travel Nurse Staffing, grew 2% year-over-year on an organic basis. Growth was driven by volume, with average bill rates relatively flat on a year-over-year basis. Demand for Travel Nurses continued to grow since we last shared our performance in early May. Today, demand for travel nurses is more than 20% higher than prior year, and the growth is in all types of clients, including our MSP clients, direct, and third party. Adding to our confidence is the fact that we have begun to receive the seasonal winter needs for assignments starting in the fourth and first quarters. In most cases, clients are indicating their contingent staffing needs in the future, will be greater than or close to the same as last year. As we look forward to the third quarter, we are beginning to see pricing improve, with our revenue per day expected to be above prior year. This is a very good sign that the higher levels of demand are also making way for some positive movement in pricing, which allows us to increase pay rates to attract and convert candidates. Allied staffing remained exceptionally strong, even as comps got tougher in the second quarter. This team is really firing on all cylinders, and we were excited to see 9% organic revenue growth in the second quarter. The greatest increase is in the imaging, respiratory, and laboratory specialties, which is very helpful since the availability of this talent is slightly more accessible than in therapy. Client needs are very robust and we foresee solid growth continuing in this division. As we look to the third quarter for the nurse and allied segment, we expect revenue to be up 16 to 18% year over year, including a full quarter from the addition of advanced, with organic growth in the mid single digits. In the locum tenens segment, second quarter revenue was in line with our expectations at 82 million. Although still below prior year, we continue to make steady progress after our process and technology changes. Our new hiring and training programs have gone well. In fact, in recent weeks, our newer recruiters contributed 16% to placement activity, and our tenured staff is nearly reaching the productivity levels that we had a year ago. For the third quarter, locum tenants' revenue looks to be flat to slightly up sequentially, which would result in an improving year-over-year comparison. We believe that locum's revenue will hit year-over-year growth by mid to late fourth quarter. Second quarter revenue in our other workforce solution segment was $121 million, showing year-over-year growth of 3%. Our leadership and search division, which is comprised of interim leadership and permanent placement solutions, makes up about half of this segment's revenue. This group grew revenue 4% year over year and 7% sequentially. We are excited about the momentum that they have in this business and how the collective team is elevating the conversation and the strategic approach with our clients. Within our mid-revenue cycle business, The integration of our med partners in peak brands is progressing very nicely, and I'm impressed with their new go-to-market strategy and collaboration with our other businesses. Although revenue is still lower year over year, there are more favorable trends as we head into the third quarter. Other workforce solutions also includes our VMS and Avantis businesses, which had solid second quarter growth with expectations of continued growth through the remainder of the year. In the third quarter, total revenue for the other workforce solutions segment is expected to be up approximately 3% year over year with growth in most businesses. Before I turn the call over to Brian, I'd like to take a moment to thank our thousands of corporate team members and healthcare professionals who pour their hearts and their talents into helping our clients and their patients every single day. The biggest reason for AMN's success is the quality of our people and the passion they have for making a positive impact. A great example of this kind of impact that we can make with our clients and our clinicians is our upcoming medical and community mission trip to Guatemala. For the seventh consecutive year, I'll soon be joining AMN-sponsored doctors, nurses, and other team members to provide medical care, and install smoke-free stoves and water filters and support local schools in the most impoverished areas of the country. During our week together, we will be fortunate to serve over 1,000 Guatemalan patients and families. This is just one of the many ways that AMN strives to use our resources to help others and to make a difference. Now I'll turn the call over to Brian for a financial update after which Kelly, Ralph, and Dan will join us for the Q&A session.

Thanks, Susan, and good afternoon, everyone. The company's second quarter revenue of $535 million was above the high end of our guidance range. The biggest driver of the subside came from the higher than expected performance in our nurse and allied segment. Revenue was up 1% sequentially and down 4% year over year. Gross margin for the quarter was consistent with our guidance at 33.5%, up 110 basis points from last year, and 30 basis points better than the prior quarter. The year-over-year increase was a result of increased margins in the nurse and allied and other workforce solutions segments, along with a favorable segment mix shift. Second quarter nurse and allied segment revenue was $332 million, flat with the prior year and down 2% sequentially due to typical seasonality. The quarter included an $8 million labor disruption event, which was the biggest driver of our outperformance. The prior year included a $25 million labor disruption event, creating a difficult year-over-year comparison. Nurse and ally gross margin of 27.5% was 120 basis points better than the prior year, so down 40 basis points from prior quarter. The year-over-year increase was from the combination of a higher labor disruption margin this year, partly offset by higher health insurance costs. The margin was also down sequentially from the higher insurance costs. Segment EBITDA margin was 14.7%, with about a 100 basis points benefit from a favorable malpractice reserve adjustment included in SG&A. Second quarter locum tenens segment revenue of $82 million was 24% less than the prior year and up 2% on a sequential basis. Gross margin of 27.8% was consistent with prior quarter, and we expect a similar margin in the third quarter. Segment EBITDA margin of 8.7% was above our expectation due in part to a favorable actuarial adjustment, and we expect to run in the 7% to 8% margin range until we gain more operating leverage on future revenue growth. Second quarter other workforce solutions segment revenue of $121 million was up 3% year-over-year and 6% higher sequentially. Segment gross margin of 54% was higher by 190 basis points year-over-year and 150 basis points sequentially. due to a favorable shift in business mix within the segment and an improved margin from our interim leadership business. On a consolidated basis, second quarter adjusted EBITDA of $67 million was down 5% year-over-year. Adjusted EBITDA margin of 12.5% was lower by 10 basis points year-over-year, though up 10 basis points sequentially. The margin in the quarter was favorably impacted by the previously noted malpractice reserve reductions and a higher margin on the labor disruption revenue. These benefits were partly offset by legal reserve increases, higher clinician health insurance costs, and certain commission and bonus accrual tariffs. Adjusting for these items, the consolidated margin for the quarter was in line with our guidance at approximately 12%. We reported net income of $28 million and delivered earnings per share of $0.61 in the second quarter. Adjusted earnings per share was $0.77 compared with $0.83 in the year-ago quarter. Our GAAP income tax rate in the quarter was 26% and was 30% on an adjusted basis. Our tax rate is expected to be 30% in the third and fourth quarters. Cash provided for operations was $29 million for the quarter. Day sales outstanding at quarter end was 63 days, but excluding the advanced acquisition would have been 60 days. At June 30th, cash and equivalents totaled $21 million. Capital expenditures in the second quarter were $8 million. At quarter end, our total debt outstanding was $671 million, and our leverage ratio was 2.4 times to 1. Now let's turn to third quarter 2019 guidance. The company expects consolidated revenue of $560 to $566 million, up approximately 7% year over year. Excluding the impact of the advanced acquisition, consolidated revenue would be flat to up 1%. This guidance does not assume any material labor disruption events in the quarter. Gross margin is projected to be approximately 33%, with a sequential decline due mainly to having a full quarter impact of the advanced acquisition. SG&A expenses as a percentage of revenue are expected to be approximately 22.5%. Adjusted EBITDA margin is expected to be approximately 12%. Other third quarter 2019 estimates include the following. Interest expense of $7.4 million. Depreciation expense of $5.6 million. amortization expense of $9.6 million, stock-based compensation expense of $4.2 million, and acquisition, integration, and other extraordinary expenses of about $4 million. The alluded share count is expected to be 47.5 million shares. And now we'd like to open up the call for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star then 1 on your touchtone phone. And if you are using a speakerphone, please pick up the handset before pressing the numbers. Again, star 1 if you'd like to ask a question. And our first question comes from Jason Plagman. Please go ahead.

Hey, good afternoon. Thanks for the questions. So, first one, I just wanted to get some more color on... your trends with your largest client, if you've seen that level of headwind on the growth normalize a little bit or just any color you can provide on how that's impacting your Q3 outlook and then also for the winter season.

Hey, Jason, this is Ralph. I'll handle that one. And if Dan has anything to add or Susan, we'll keep covering it. We did see some improvement in the second quarter with that client. We talked about the Q1 decrease being in the neighborhood, I think, 12% to 13% year-over-year. It was slightly favorable to that in the second quarter. That client also has a lot of winter needs that decrease. They cause a sequential decrease when their volume comes down by, gosh, over $20 million from one quarter to the next when those winter needs end. And then as we look forward is probably where the better news is. We're looking at Q3 where it would have, you know, probably a less material impact than it did in Q1 and Q2. The other positive news there is that that's really kind of impacting just our travel nurse business, and the client continues to grow in other areas of the business. So we're seeing considerable growth from them in our allied, our locums business, as well as in our rapid response business.

Great. That's helpful. And then the MSP – wins in the quarter, you know, another solid quarter, but just what you're seeing as far as activity in the marketplace, health systems looking for strategic partners. Any commentary on if you've seen any change in that activity since last quarter?

Hi, Jason. This is Dan. We actually see lots of really terrific activity in the marketplace. Our wins since our last call are worth over $40 million in gross spend. And as Susan mentioned, that puts us just nearly at $200 million year to date. The geographic mix and the specialty mix of those programs are very nice and align well with the rest of our programs. We saw also an additional $40 million in contracts for our CMS business. which also shows a lot of nice activity for those kinds of programs as well. So if you also factor in the fact that we have a little over $110 million in programs that are currently in contracting in our pipeline, I feel really good about where we're going to end this year versus last year and the activity and productivity really of our sales team.

Thank you. And now to the line of Toby Sommer. Please go ahead. Is your phone on mute, sir?

Maybe we can circle back to Toby.

All right. And now to the line of AJ Rice. Please go ahead.

Hi, everybody. Just first to ask about, I know the last few quarters we've talked about some of the dynamics with the hospital customer base, maybe paying bonuses to get full-time employees and not being as willing to raise rates as needed for you to get that incremental person to fill a slot for them. It sounds like you're saying that may be changing a little bit. Are you seeing some of the premium rate situations return? I know we pretty much anniversary through all that, but where are we at in terms of getting the increases you think you need to meet the demand that you're seeing?

Hi, AJ. This is Ralph. I'll start out on that one. You're right. We are seeing clients who are increasing the percentage of time they're paying a hire-on bonus for their internal staff. We saw one study that said about 10% of requisitions have a signing bonus attached to it. The range would normally be in kind of the 3% to 7% range historically, so that probably gives you some sense of how difficult it is to hire in today's market. To your point, yeah, we are starting to, in our travel nurse business, to see some pricing increases as we get into July. It's not anything significant yet, but after, I think, about six quarters of pricing decreases, respectfully in line with the market at the time, we started to see an increase as we entered Q3. That'll help bring more supply to the marketplace. I think we've talked about this before. Seventy-five percent of that goes back to the traveler, and that will help us recruit and get our numbers up on the fulfillment side, too.

Thank you. And then my other question would be around your local tenants business. I guess in the last few quarters, there's been discussion about, you know, how the demand for certain specialties has eased, where others have picked up, and you've had to build that pipeline. And then second, there's been discussion about the technological upgrades or technology upgrades you've been doing and that that's depressed their performance a little bit. It sounds like, again, both of those are moving in a good direction. And if I heard you right, that you're even saying you think you might show year-to-year growth in the fourth quarter in that business. I want to confirm that and maybe flesh out a little more those two drivers of potential long-term growth and where you're at in some of the issues, but also maybe start to be able to say growth is in sight in the next few quarters.

This is Ralph. I'll start again on that one. You're right. Demand is beginning to improve in the business. It's probably a result of our people not being as distracted by technology and process changes and getting back to their core jobs. So that feels good to us. The specialties aren't perfect for us. They're not in the high fill rate specialties. We'd like it to be in emergency room and hospital as yet, so those are still off pretty significantly. But they are in specialties where we perform well, like surgery, IM subs, anesthesiology. And we're beginning to use the new technology and tools to beef up our capabilities in those areas, so we're seeing stronger fill rates and growth rates there. Our new recruiters, which we talked about last quarter, which was, you know, more of an SGA item in Q1, are beginning to produce. They actually make up about 16% of our production. And, you know, in time they could make up a third, 40% of our production. So they're ramping nicely. The new tool is actually easier to learn, and so they're able to, you know, get into their career faster and start producing revenue for us. There was a third part of the question.

Turning the corner.

Yeah, the fourth quarter part of it. Yeah, we continue to anticipate sequential growth in Q3, and then as well looking forward to getting back up over a prior year. In Q4, maybe towards the end of the quarter before we get there, but all signs point that that's going to begin happening. Of course, we're looking forward to more robust growth after that.

All right, thank you. And now it's the line of Sam England. Please go ahead. Is your phone on mute? Well, we'll move along to the line of Mark Marcon. Please go ahead.

Hey, good afternoon, everybody. Sounds like things are turning up. wondering if you can talk a little bit about the color in terms of the winter orders a little bit more. And also, can you remind us exactly how much strike revenue you ended up getting this quarter and how much you might anticipate in the coming quarters or what the compare was there?

Sure, Mark. I'll take that second part of the question first. As I mentioned, the We had one event that was the most material, and the quarter was about $8 million. We had a little over $10 million in total, but some of that we had anticipated that it occurred when we gave our last guidance. So really, that was the biggest part. Last year, we were a little over $25 million, the majority from one major event. So I think that kind of covers the, although it did help this quarter, it was still a down year over year as we expected. And then the winter orders.

Oh, no, winter orders, Ralph. Right now it's very early to call it, so we're just beginning to see some of the needs from some of our larger customers, particularly on the West Coast, and they're in line with what we were at at this point last year. They don't have any insight yet as to flu, so things could improve or change quite a bit from here, and we probably have about a dozen of our large winter order clients that haven't actually placed their orders yet. So a little early to call, but there is no bad news there.

Okay. It sounds like it's good. And then with regards to the orders being up roughly around 20%, can you talk about how widespread that is? And also, what are the difficulties with regards to filling the orders and potentially capturing even more robust revenue growth?

Sure, Mark. This is Susan. I'll jump in and give Ralph a little break here. But I also want Kelly to weigh in on some of the demand that they're seeing in leadership and search. But just in regards to our nurse and allied business where we can make that statement about orders being up over 20% really across the board in those businesses, it really is very geographically dispersed, which is nice because we want assignments for all kinds of potential candidates. And it also helps support our rebook rates, which continue to be very strong. And they're not all just coming from one client or one area. In fact, our facilities with orders are also up over 20% in both nurse and allied, which is another very good healthy sign for the marketplace. Now, certainly our MSP clients can be some of the highest fill rates for us, which is what they should be. We're very focused on making sure that we meet their expectations in overall fill rates and where we do have the opportunity to really make sure that we're doing our part in filling those. But even with our direct clients and third party, we see orders up significantly, which really tells us that it's not just an AMN MSP story, but rather it's really a broad market increase. So with that, Kelly, maybe I'll ask you to share a little bit more insight on the leadership business as well.

Yeah, I'd be happy to. I think on the interim management side, we're seeing very similar demands for interim leadership positions very much in accordance to what we're seeing in our clinical demand as well. And that's really across the board and highly concentrated in our clinical leadership needs. And we see that at the start of the quarter, that demand continues to increase. And on the same side, we're seeing some really nice trends in our permanent placement business across the board. All three physician perm, executive search, as well as RPO experience double-digit sequential growth in volume this past quarter, and we're continuing to see that. And I think that's reflective of the market and the needs, as well as we've brought our different search capabilities together and really getting more leverage out of our sales and client account focus across the country to a higher level of cross-selling and meeting our client needs more comprehensively. So very encouraged by those trends as well.

And Mark, just to weigh in on the clinician supply constraints are improving slightly over what we talked about last quarter. Certainly the higher demand, higher demand in MSP, flight movement and bill rates are helping. Kind of an interesting phenomenon. Our actual leads are up on a year-over-year basis, but our applications are down. So it probably gets to people fence-setting a little bit right now. They're looking at jobs, they're more active in the, you know, looking for opportunities, but they're not yet, you know, pulling the trigger on those opportunities.

All right, thank you. And again, if you'd like to ask a question, please press star then one. And now to the line of Henry Chen. Please go ahead.

Hey, everybody. Thanks for the question. I wanted to ask about, so we've been hearing some stuff about reimbursement rates coming down a bit with premium insurance carriers. Just wondering, you know, what kind of impact do you see on that, if any, and maybe if you could just comment on sort of the general kind of pricing environment, if you could.

Yeah, this is Ralph. Just a little bit on the tone in the market. I think it's probably important to note when we're in front of our clients and we're just actually getting through our quarterly reviews right now, What we're hearing is they're very, very confident in their patient volumes. There may be some lingering concerns about reimbursement changes, but it's actually quieter than it's been for the last three or four quarters. So I don't think that is, you know, troubling them right now. I think, you know, everyone's of course going to watch the politics of things, but we're not hearing that from our clients. I think the constraint on the bill rate increases is, you know, just You know, can we fill it internally first? You know, they'll actually open the order with us, but they don't move quite as quickly. And, you know, so they see what sort of, you know, flow that they have on applicants. And then, you know, there's like several steps they have to go through before they actually start increasing bill rates. And we're partway through those steps now, but we're not completely through that yet. Does that help?

Got it. Okay, yeah, no, that helps. Great. All right. Thanks so much.

Thank you again, Star 1. And now to the line of Toby Sommer. Please go ahead.

Thank you. Thanks for coming back to me. Could you comment on pricing and the interplay and maybe dynamic between what you described as sort of better bill rates on average looking forward as well as what you're seeing for winter needs and how that plays into it? Thanks.

Sure, Toby. So we mentioned that we were starting to see some improvement in pricing looking into the third quarter. And that would be our average bill rate, which is really a composition of the regular bill rate, which has increased a bit, but more so the mix in utilization of premium rate assignments. And we are seeing that mix increase a little bit as we go into the third quarter. Now it will naturally increase as we go into the fourth and the first quarter, since that's when winter assignments begin. And as we're getting an early glimpse at the rates for those winter assignments, I'd say they're on par with what we had seen last year. So we're feeling good about that. And if we continue to see a positive mix shift, that should generally be positive overall. for us in terms of being able to again have the pay rates to support strong fill rates for those assignments. Generally we've seen this over the decades and you know very well having covered this industry for so long that we have seen this dynamic play out many times where we begin to see demand increase at a fairly rapid pace which we saw in the second quarter and continuing into today and it takes a few months if not quarters before we really start to see that translate into some improved pricing. And with that improved pricing, then we can increase pay rates, and that helps to pull more supply into the industry. So I'd say we're not quite there yet, but I would expect based on historical trends that we would be getting there in the next few months. Now, of course, our team isn't waiting for that. We're doing all kinds of things to increase the number of applications, to do a better job of converting or increase that conversion rate. We're doing a lot of really exciting and interesting things on mobile and digital. And so I think we can make improvement even without more significant pricing increases. But generally, that's when you start to see the greater volume start to really impact the business.

And from your perspective, two more questions for me. How much would price have to move to kind of increase the travel nurse supply in the market and available to the company? And what does improving demand in your various perm businesses mean to you as far as, you know, a pricing cycle? How do you connect those two pieces of information?

I'll start with the general pricing question and have Kelly talk about physician. I don't think there's a perfect correlation and number on the pricing, and it's because it depends on also just the sheer volume of orders and demand that we have, which I have to say is at near historical highs. Usually, if you have significant demand, it doesn't take quite as much pricing movement. to really start to pull supply into the market. But certainly something sort of north of 3% would probably be enough to start to make some movement. Some of that, again, is already occurring with the premium rate mix shift in and of itself, because usually premium rates are closer to 10% above the regular rate. So just with a mix of more premium rate assignments, we'll see some of that movement as well. So I'm sorry there's not a perfect correlation and a perfect answer because there are just so many different inputs and dynamics that can occur.

Yeah, and I'll add, this is Kelly, from the perspective of the permanent hire, particularly in nursing, as a comparison. I mean, we're seeing our clients face the same challenges in the market. They're seeing a lot of attrition as nurses and other clinicians get recruited away. We're seeing higher levels of sign-on bonuses, and they're needing to stay competitive in their permanent roles, too. So it's And like Susan said, hard to tie the two together, but we're seeing the same dynamics play out for both permanent roles as well as contingent roles. So our team does a good job of keeping each other current with some of the latest trends in the market and supporting our clients in both regards.

Thank you. And now to the line of Mitra Ramagopal. Please go ahead.

Yes, hi. Good afternoon. Just two questions. Susan, I know you mentioned in locums you expect by mid-late fourth quarter we should start seeing some growth there. And I'm just wondering if that's more a reflection of the investments you've made in the technology and the new people you've brought on, or is there also some strength in the underlying market that's going to help that?

So we are seeing growth today, just to be clear. We had some growth going into the second quarter and the third quarter. So what you're referring to is the year-over-year growth. Yes. We expect that we'll kind of cross that threshold in the late fourth quarter. It is that our team is becoming more productive. They're doing a much better job of really maximizing what the system is capable of, and I think just getting through that learning curve. The newer producers that we've hired, the recruiters and account managers that have come on board over the last six months are becoming more productive. As we mentioned, they're making up a little over 15% of our placement activity today, and that's just going to continue to increase every day. And in the fourth quarter in particular, we should start to see them, as Ralph said, approach maybe even a third or more of our placement activity. And so some of it is just getting the momentum and the benefit of the changes that we've been making over the last year, and the fact that we really haven't had continued disruption. I think we're beyond... the technology and process disruption elements, and now it's just really fine-tuning and maximizing the potential of the system. The underlying demand is strong overall. If we look at the total aggregate demand within locums, it's actually at very high levels. We have different fill rates within different specialties, so as Ralph mentioned, we still have fairly low demand in emergency medicine and in hospitalists where we traditionally had very high fill rates. So we've got to make sure that we are finding demand in other areas where we can have equally high fill rates. But it's improving every day, and I feel like the team is on a very good path right now.

Okay. No, that's great. And then quickly on advanced medical, I know it's still very early there, but I was just curious in terms of if you're already starting to see any incremental opportunities as it relates to areas you've talked about that could be interesting, mental health and teletherapy, et cetera, or is it still too early to see anything there?

They're off to a great start. I think they actually beat our forecast for their first couple of weeks of Q2, so I'm going to shout out to the advanced team. Their school business is what their focus has been, so we haven't spent much time on integration yet or cross-selling, so they could focus on their school's business. That's considerably over prior year, in the 50-plus percentage range, which is good. We also had a school's business with our allied division. The combined entity, by the way, now is our second largest business. Allied was always third, but with the acquisition, it moved them up to our second largest business. And obviously, good margins, and we didn't talk much about the industry overall, but the demand is higher. Our ability to attract clinicians has been better than it is in the nursing or in the locums business, so lots of positives there. Besides the school businesses, they've also taken advantage of our MSP programs and begun filling orders in those programs. And so they're up about five-fold what their track record was. They were a supplier in the program before, so they kind of knew us and knew the clients. But under our program, they've actually performed considerably better, which is positive as well. So far, so good. Teletherapy, which is one of the things we're most excited about in their business. Right now, it exists as a way to supervise people working in school environments and which helps extend the reach of the clinician. And our hope is to expand that beyond therapy, which is in speech skills, into more behavioral specialties over time. And so we're just kind of beginning those conversations, but obviously it's a powerful combination of once we get into the schools to be able to expand, to help them even with the nurses, which we have a business we haven't been in, or into the doctors on the behavioral health side as well. So lots of upside there, and they're off to a great start overall.

Thank you. And now to the line of Bill Sutherland. Please go ahead. Thank you.

I'm curious on the $200 million in MSP wins to date. What's the mix that you've got there of nursing allied and locum? And then I'm curious if the fill rate is ticking up partially due to advanced.

Thanks. Sure, so I'll start with that. Bill, this is Dan. If you look at the whole group overall, about 60% of the total is nurse, 30% of the total is locums, and the rest is allied and interim exec combined. And then with regard to the fill rates, clearly those ones aren't the ones that are yet even implemented at this point. And so I think just generally, if you look at our MSPs, our fill rates overall are kind of in that sort of 55 to 65, depending on what business line you're talking about.

That's our internal capture, right? I think our affiliate vendors, which we have an amazing network, gets us into the 90s, which we think is kind of industry-leading numbers there. But also, right, we have a bunch of new business. So I know while our capture is good, and I'm thinking in particular of one large client we talked about a couple of quarters ago, I think we're already in internal captures up in the 40% to 45% range. We normally wouldn't be that high that early in that relationship. So when you bring on a new client, actually your fill rate goes down temporarily and on the entire portfolio, particularly if you have a lot of new wins like we've had recently. But we're trending at or above where we thought we'd be, and we get better and better at those new clients, so we'd expect they'll have more of a contribution further out, Q4, Q1, and beyond.

And as I mentioned, Bill, the advanced team is helping, and they're doing a very nice job of filling into our MSPs, but it is still early. They've only been with us now less than two months, and so... You know, we're looking forward to even more, you know, opportunity for them to help us fill those jobs. But they're doing a great job out of the gates.

Got it. And then if I could ask just one on mid-revenue. If you could just provide a little more perspective on that partner and PEAK, you know, coming together and when you think it'll start to lead to some revenue growth. Thanks.

Yes, so that team has really done a fantastic job of bringing those two brands and teams together to try to really get the synergies out of being more one organization, and we brought them all on the same system. That actually occurred over the last few months, and they've been operating on the new system, which was actually already existed. We just wanted to get everybody operating out of the same front office and back office system so that we could more easily see and place candidates. There was really no disruption evident, and they are off and running into the third quarter, and we're already seeing some nice trends there. Demand is up in a couple of their major businesses, him and up in case management as well. They've been doing a really great job of starting to sell into our MSP clients within AMN as well as winning other new clients. And then their placement activity in general is up in really most of their business lines coming into the third quarter. So I don't know if I can give you a date on exactly when that will translate into year-over-year growth, but I would say really on kind of all key trends, we're seeing a much better trajectory going forward.

Bill, I'll give a little more color on the – you said we'd had several quarters where we had some sequential declines. In part, as we mentioned, I think two quarters ago, Peak had a large customer that had reduced their utilization, and so that was part of the reason for that. As we are getting through as our third quarter guidance, we expect to be up a little bit sequentially, so that's we're talking about a better trend. We're still down year over year in the kind of mid-single digits. That'll likely be the trend through the back half of the year just because of that larger decline. It declined, but I think if we get to end this year with the momentum we're seeing, we'd expect to get back to growth early next year.

Thank you. And now to the line of Tim McHugh. Please go ahead.

Thanks. Just wanted to follow up on locums. I guess the pace of improvement and the productivity of the new salespeople, I guess it's improving, but it was from a low base. So relevant to your expectations, how is that progressing? And then also, How are you finding turnover amongst both the legacy salespeople and the new salespeople as they're out in the new model? Thanks.

This is Ralph. I'll start with the second one. Our turnover in the second quarter decreased significantly over what we've been experiencing the prior two to three quarters, which people were probably most frustrated. We've actually had a large number of employees come back to us and rejoin the team, which is great. Of the new recruiters, they're actually above where we anticipated they'd be at this point. We speculated, I guess, at the time that the new tool would be easier to learn than the old database and systems. That's proven true. I think we'd be happier if it were higher. I think if the demand trends changed just a little bit, that would be useful. In the meantime, they're beating our expectations, but there's still a lot of upside in those new hires.

Okay, thanks. And then on the mid-revenue cycle or mid-cycle revenue food collection, I know you're going through some process improvement. Are we still quarters away from seeing that sort of business return to positive growth, or is that something in the near term you might expect to see turn around?

Yeah, so we are seeing it turn and improve going into the third and the fourth quarter. As Brian mentioned earlier, we had a fairly large client that brought their program in-house last year. It started last year, and so that created a bit of a headwind for us, amidst some other things. But that actually was one of the bigger headwinds. We'll start to lap that at the end of this year. So in terms of year-over-year growth, I think we're talking more first quarter of 2020.

All right, thank you. And now to the line of Jason Plagman. Please go ahead.

Hey, we hadn't heard much from Brian, so I thought I'd throw him a question, just one question. Capital deployment, any thoughts on priorities with the leverage ticking up? And is there any appetite for incremental M&A in the near future, or are you focused on digesting advanced medical for the time being? That's it for me.

Thanks, Jason. Kind of all those are true in some respect. We're still looking at opportunities, and I think that hasn't really changed. At the leverage level that we're at at 2.4 times, we think that still gives us capacity to do acquisitions. In the meantime, as we throw off cash, we'll likely focus on debt reduction. We still have the opportunity to buy back shares, too, but we'll probably focus more on reducing our debt just to provide more capacity. But I don't think that the last acquisition advanced has not diminished our interest in exploring opportunities to make acquisitions. We're still very disciplined in finding the right targets in the right spaces, but it's actually been a little more active in the last few months. There's a few different opportunities that we've been able to look at and some other ones we were having dialogue with as well. So nothing's really changed in that regard. We think advanced integration, it's in a space that we're very familiar with, so we think we'll have a very successful integration as we focus more on that in the back half of the year. and that gives us room to continue to look at opportunities.

Thank you. And again, if you'd like to ask a question, please press star, then one. And now to the line of Mark Marcon. Please go ahead.

Just a quick follow-up on advanced medical. What are you assuming for the third quarter? And based on that assumption, what would that organic revenue growth be for them?

So it's about $35 million or so of revenue in the third quarter. The cost rate, I don't have the exact number with me here, but I think it would represent double-digit growth on a year-over-year basis. And a portion of that is really, if you talk about the schools business, they're seeing really strong growth in the number of new starts in the new school year. So that's a part of it, although nursing is also up quite a bit. They were kind of flat to down a little bit as they exited 2018. They're back to a nice growth rate. And then the core therapy business as well. So really all parts of the business are growing.

Great, and then on locums, just with regards to the systems, how far along are you in terms of like if 100% were optimal, how far along are you in terms of the system optimization?

Yeah, this is Ralph. It's not a big concern for us anymore. I know we talked about that for several quarters. So we have a system that is, you know, significantly better than our prior systems. We are releasing new releases. Software is just a different animal now. It used to be you put it in place and you used a version, you just kept it until a new version came out. But with the tools that we have now, we release new software upgrades about every two weeks, and we cross-train employees on those about every four weeks. So we continue to make changes as we see that will improve the business, but technology is not in place. not keeping us from growing any longer.

Great. Thanks.

Thanks, Mark.

Thank you. And now to the line of Toby Sommer. Please go ahead.

Toby, did you have a follow-up question? Maybe not.

Yes. I was hoping you could ask about or just comment about school business, sort of the addressable market and whether it's advanced. has all the scale that it needs for you to kind of attack that market, or there may be some sort of capability or geographic presence that could be rounded out either through M&A or organic means.

Yeah, Toby, this is Ralph. Brian's the one who introduced me to the school business, so he may want to weigh in on this. I was a little reluctant when we first heard about the growth rates in the business and about the size of the addressable market, but our research shows it's north of a billion. Certainly under penetrated, there's probably four or five companies that have over 50 million in revenue in that space. It's very fragmented, so there's a great upside opportunity. The addressable market could be considerably larger as schools, I think, start to understand that they have options available to them to staff. These are mandated staffing levels for them, so they get reimbursed by the government on them. Yeah, I think schools may not even know our option exists in some cases. Big school systems, of course, do. But there's certainly a very large market to go after. They're probably not quite as big, I guess, as travel nursing, but maybe at least half as big.

Yeah, this is Brian. There's no limitation in terms of their ability to go after the entire country. If you look at the growth they've had this year and some of their newer wins are in school districts that are in different geographies all over the country. So there's no limitation. I think they actually have some distinct – which we won't go into all the details in terms of how they are able to recruit talent into these opportunities and really partner more with some of the school districts to address their total needs versus buying in a fragmented way, which is historically how that industry is operated. So we see there's a lot of opportunity for them to continue to penetrate that market.

Thanks. I appreciate it.

Thank you. We have no one else in queue. Please continue.

Okay. Well, thank you, everyone, for joining us today for a robust conversation. We appreciate your time, and we look forward to updating you on our progress on our next earnings call.

All right. Thank you. And, ladies and gentlemen, that does conclude our conference for today, but today's call will be available for replay after 7.30 p.m. Eastern Time today through midnight August 20, 2019. You may access the AT&T replay system at any time by dialing 1-800 475-6701 and entering the access code of 469-775. International participants may dial 320-365-3844. And again, those numbers are 1-800-475-6701. and International 320-365-3844, with the access code being 469-775. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.