AMN Healthcare Services Inc

Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. And if you should require any further assistance, please press star zero. I would now like to hand the conference over to your speaker for today, Mr. Randy Reese, Director of Investor Relations. Thank you, sir. Please go ahead.

Good afternoon, everyone. Welcome to AMN Healthcare's fourth quarter and full year 2020 earnings call. A replay of this webcast will be available at ir.amnhealthcare.com following the conclusion of this call. Details for the audio replay of the conference call are in our earnings release issued this afternoon. Various remarks we make during this call about future expectations, projections, trends, plans, events, or circumstances constitute forward-looking statements. These statements reflect the company's current 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 and cautionary statements, including those identified in our most recently filed forms 10-K and 10-Q, our earnings release, and subsequent filings of 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.aamnhealthcare.com. On the call today are Susan Stalka, Chief Executive Officer, Brian Scott, 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 Maureen Huber, President of Workforce Technology Solutions. I will now turn the call over to Susan.

Thank you so much, Randy, and welcome, everyone. We have all been affected by the events of 2020, but none more so than the people afflicted with COVID-19, their families, and caregivers. Health care providers went to astonishing lengths, putting themselves at risk to save lives. Millions of Americans fundamentally change the way they live each day, sacrificing to contain the pandemic. We must never forget those loss. But it is also essential that our efforts are focused on the future and doing all we can to help bring an end to this crisis. While our nation was rocked by the pandemic, we also faced the turmoil of racial and social injustice and political unrest. I feel great pride in the way our AMN team responded to a year of dramatic swings in demand for healthcare labor while also making great progress on our commitment to social responsibility, diversity, and equity. No matter how intense the storm, we never lost sight of all of our stakeholders. We didn't just respond to the crisis. We transformed our company with agility and innovation when our clients and healthcare professionals needed us most. A&M began 2020 by taking bold steps. acquiring Stratus Video, the leader in virtual language services for healthcare, and launching mobile and other digital capabilities that enhanced how we support our healthcare professionals. These and other investments gave us the ability to deploy new solutions, speeding our pace of innovation and collaboration and creating lasting benefits. To provide you with more insights on how Stratus Video and other technology investments have enabled us to respond, we've invited Maureen Huber to join us on this call. In addition to her role as President of Stratus, Maureen has taken on broader responsibilities as the President of AMN's Workforce Technology Solutions. We are so fortunate to have her leading these teams and creating a vision for how AMN will create greater value through novel technology-based solutions. With that introduction, I will hand the call over to my colleague, Maureen.

Thank you, Susan. The Stratus team was thrilled to join the nation's leader in healthcare total talent solutions last February. And as we celebrated our one-year anniversary last week, we've recognized the successful melding of our purpose-driven cultures, processes, and technologies. I am pleased to say that this union has exceeded our high expectations. The importance of AMNs, telehealth platforms including Stratus for language interpretation became even more essential through the last year. Our language interpretation volumes grew about 30% year-over-year in 2020. That momentum continues with first quarter volumes expected to be up at least 35% year-over-year. We help our clients deliver meaningful access to language services provided by more than 3,300 amazing medical interpreters in 208 languages. Additionally, we've integrated our language services into the AMN Televate school platform to provide interpretations for students and clinicians. We've added language services to several existing MSP clients, and we are differentiating AMN in the market to engage additional strategic clients who are seeking a more integrated, full-service total talent solutions partner. Our technology-enabled talent solutions are a critical part of AMN's long-term strategy, and you have seen how the company has been steadily investing in these capabilities. Over the last year, we have made advancements to respond to the urgent market needs We quickly deployed enhanced capabilities and reinforced our AMS team with additional technology. This allowed us to do extraordinary things beyond clinical staffing, including the planning and ramp up of field hospitals, deployment of an open talent marketplace, return to work and contact tracing solutions, and now integrating many of our technologies and services to support mass vaccine administration. We've proved our unique ability to offer a total talent solution to rapidly respond to these emerging needs at scale. We will further integrate and reimagine our technology and staffing capabilities to more efficiently and effectively deliver total talent solutions across acute, post-acute, and virtual settings. We believe these advancements will position A&M as well for the changing market needs. I look forward to sharing more with you in our Q&A session, and now I'll turn the call back over to you, Susan.

Thank you so much, Maureen. Now we'll share more about what occurred throughout the fourth quarter and the outlook as we begin 2021. Unfortunately, our country continued to experience higher and higher levels of COVID-19 infections during November and December. After peaking in January, we began to see some more positive trends. With vaccination efforts underway, we appear to be moving into the next phase of this pandemic, and there is a light at the end of the tunnel. The AMN team is working hard to continue to fill critical positions across all of our staffing businesses and adapting our services to partner with organizations to vaccinate our communities. Now, let's turn to the financial results and outlook that we announced today. In the fourth quarter, A&M produced record high consolidated revenue of $631 million and adjusted EBITDA of $89 million. The revenue increase was unusually strong as our team leaned in like never before to serve the most extraordinary level of demand we've ever seen. Our nurse and allied solution segment came in with revenue of $448 million, 6% higher year over year. The segment returned to growth ahead of schedule, led by our largest business, Travel Nurse Staffing, which put up a 23% increase. I can't emphasize enough how impressive this team's performance was, sourcing, recruiting, credentialing, placing, and onboarding more healthcare professionals in one quarter than ever before. We would have normally said that this type of growth was unrepeatable. However, we've already seen the first quarter eclipse the historic high fourth quarter delivery. We reached our highest ever number of assignment starts in January, and in February, we now have the most nurses on assignment in company history. Ally staffing revenue was 13% lower year over year in the fourth quarter, and all major Ally disciplines grew on a sequential basis. Our revenue cycle solutions business is still down year over year, though its fourth quarter grew 8% over prior quarter with better trends heading into 2021. For the first quarter, we expect nurse and allied solutions revenue to grow approximately 40% year-over-year. We project travel nurse staffing revenue to grow approximately 40% sequentially and at least 50% over prior year. Our forecast assumes allied staffing revenue will grow sequentially by about 30% and return to year-over-year growth in the low double digits. Before discussing our physician and leadership solution segment, I'd like to extend a welcome to James Taylor, who recently joined us as the segment's first group president and chief operating officer. James is an outstanding leader with an excellent record of leading service providers to the healthcare industry. We are very fortunate to have James and his wonderful family join AMN, and we look forward to having him participate on the next earnings call. Physician and Leadership Solutions logged fourth quarter revenue of $111 million, defying normal seasonality by being 2% higher than the third quarter. Within this segment, local tenants performed better than expected and resulted in sequentially flat revenue. The year-over-year revenue gap narrowed and was down 12%, showing great improvement since the low point earlier in the year. The higher than expected revenue came from the COVID-related assignments and a rebound in the core business. Interim leadership also continued to improve with revenue increasing 5% sequentially. Demand for interim leaders and placements picked up through the fourth quarter, and that momentum has increased in the first part of 2021. While physician and executive searches were hit hard during the pandemic, with revenues still down 30% year-over-year in the fourth quarter, we are starting to see stabilization. Clients are turning their attention back to hiring of new leaders and physicians, and our team is rebuilding its pipeline of placement. With these improving trends, we expect first quarter revenue for physician and leadership solutions to grow sequentially by 17% to 19% and narrow the year-over-year gap to be down about 5%. Our technology and workforce solution segment revenue of $72 million in the fourth quarter was up 192% year-over-year. The acquisitions of Stratus Video and B4 Health made another strong revenue contribution, and organic growth of our businesses in this segment was 32% above prior year, far exceeding our expectations. Our VMS business grew revenue 31% year-over-year with 19% organic growth, showing a swift rebound compared with previous quarters. This division benefited from the same trends that drove our strong nursing and allied performance. In the first quarter, we expect technology and workforce solutions revenue to be up about 100% year-over-year with over 60% organic growth. COVID-related clinician needs should hit their peak in the first quarter. However, there will be many ongoing needs related to the pandemic. such as vaccine administration, recovery of electric procedures, and other care that may have been delayed. The well-deserved, higher-than-usual compensation packages for nurses and other clinicians supporting the COVID surges should begin to subside, and this will also bring down the corresponding bill rates. It is difficult to predict exactly what the timing and trajectory of this decline will look like amidst the continuing shortage of clinicians So we believe we could experience premium rate decline starting in the second quarter. As rates in nursing and some allied specialties decline, we would expect to see continued recovery of most of our businesses, which would provide a partial offset to this headwind. While we are only providing first quarter guidance at this time, we will share that we currently expect to see year-over-year revenue growth in all quarters of 2021. The workforce shortages that were already on a worsening path before the pandemic began have now been made worse by the burdens and pressures of the last year. The importance of having a strong total talent solutions partner has never been more essential and clear for the complex and sophisticated healthcare systems of today. The A&M team feels honored and fortunate to be in such a capable position to help patients, clinicians, and healthcare organizations at such a critical time in our country today. In closing, let me emphasize that I have never been more energized and proud of the A&M team. They are working literally around the clock and their commitment to service excellence and making a positive impact is an inspiration for all. I know I speak for all of our A&M leaders when I say we feel so fortunate to be a part of this team and wish to thank each and every one of our colleagues for their contributions. In a few minutes, Kelly, Landry, and Maureen will join us for the Q&A session. But for now, I will turn the call over to Brian, who will provide more insight into our financial results.

Thank you, Susan, and good afternoon, everyone. Fourth quarter revenue of $631 million was well above our guidance range as we previewed last month. Consolidated revenue grew 14% sequentially and 8% year over year. On an organic basis, revenue grew 1% year-over-year, even with a headwind from labor disruption staffing, which was $14 million lower this year. Post-margin for the quarter was just above the high end of our guidance range at 32.9%, 70 basis points lower than prior year and down 60 basis points sequentially. Year-over-year, the margin was lower because of the higher compensation packages and nurse staffing, more than offsetting a benefit from higher average hours worked, and the acquisitions of higher margin Stratus Video and V4 Health. Sequentially, the higher pay packages were the biggest driver of the margin decline. Consolidated SG&A expenses were $155 million, or 24.6% of revenue, compared with $133 million, or 22.7% of revenue, in the year-ago quarter, and $111 million or 20.2% of revenue in the previous quarter. As noted in our earnings press release, the quarter included a $20 million increase in legal reserves related to a wage and hour claim. Adjusted SG&A excluding this legal expense, integration-related cost, and stock-based compensation expense was $119 million this quarter. or 18.8% of revenue, compared with $121 million, or 20.7% of revenue in the prior year quarter. The lower SG&A margin from the prior year reflects the reduction in total headcount and travel and convention costs, partly offset by $7 billion of SG&A expenses added from the acquisitions of Stratus Video and V for Health. On a sequential basis, adjusted SG&A was higher by $10 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 alley revenue was $448 million, 6% higher than prior year and up 17% sequentially. For our tribal nurse division, the revenue grew 23% over prior year. Although our nurse travelers and assignments were down 6% year-over-year, the average nurse bill rate rose by more than 20%, and average billable hours worked also increased to historically high levels. Allied revenue was down 13% from the prior year and grew 23% sequentially on strong placements under record high demand. Revenue cycle solutions was down by about 40% from the prior year and posted 8% sequential growth. Mercenary gross margin of 26.7% with 230 basis points lower than prior year and down 70 basis points sequentially. The year-over-year decline resulted in large part from the prior year including $14 million more in labor destruction revenue at an unusually high gross margin. In addition, the margin is lower from increased clinician pay packages during this critical time. Segment EBITDA margin of 13% with 140 basis points lower than prior year on the lower gross margin. Position and leadership solutions revenue in the fourth quarter was $111 million, 20% lower year-over-year, and up 2% sequentially. Low-competence revenue was $68 million, 12% lower than prior year, and flat sequentially. Interim leadership revenue declined almost 30% from the prior year and was up sequentially by 5% from approved demand and volume. Search revenue was down just over 30% from prior year and up 2% sequentially. Gross margin for the segment was 37.1%, 10 basis points lower than the prior year and up 40 basis points sequentially. Segment EBITDA margin was 15.2%, up 150 basis points from last year and 100 basis points sequentially. The year-over-year improvement was driven mainly by reduced SG&A. Technology and workforce solutions revenue was $72 million in the fourth quarter, growing 192% year-over-year and 21% sequentially. Organic revenue was up 32% year-over-year on growth in VMS and a boost from a contact tracing project. This also drove the sequential increase, along with 7% growth in our language interpretation business. Gross margin was 64.5%, down from the prior year margin of 92.3% as the acquisition of Stratus Video changed the revenue mix. Segment gross margin was down 160 basis points sequentially, also due to a revenue mix shift. Segment EBITDA margin of 42% was down 140 basis points year-over-year from the stratus acquisition and was 100 basis points lower sequentially. Consolidated fourth quarter adjusted EBITDA of $89 million was 18% higher year-over-year, driven by the acquisitions and cost reductions during the year. Adjusted EBITDA margin of 14.1% was 120 basis points higher year-over-year and better by 20 basis points sequentially. We reported net income of $9 million and diluted earnings per share of $0.19 in the fourth quarter. Adjusted earnings per share was $1 compared with $0.85 in the year-ago quarter. Day sales outstanding was 55 days, four days better than last quarter. Operating cash flow for the quarter was $40 million and capital expenditures were $10 million. Interest expense in the fourth quarter included $11.5 million in one-time expenses related to the bond financing transaction we discussed on the last earnings call. As of December 31st, we had cash and equivalents of $29 million. During the fourth quarter, we reduced our long-term debt by $40 million, ended the year with $872 million of long-term debt and a leverage ratio of 2.6 times to 1. Recapping some financial highlights for the full year of 2020, we reported revenue of $2.4 billion, a record level for AMN, and an 8% increase from prior year. Adjusted EBITDA for the year was $321 million, up 16% from prior year, with a margin of 13.4%, higher by 90 basis points. 2020 adjusted earnings per share was $3.43, higher than prior year by 8%. Full year cash flow from operations was $257 million, which included $48 million of deferred payroll taxes from the CARES Act. Now, turning to first quarter guidance, we are projecting consolidated revenues to be in the range of $800 to $820 million, up 33% to 36% over prior year. First quarter gross margins projected to be 31.5% to 32%, down year-over-year and sequentially, primarily from a segment in exchange. Reported SG&A expenses are projected to be 18.3% to 18.6% of revenues. Operating margins expected to be 10.3% to 10.7%, and adjusted EBITDA margins expected to be 14.3% to 14.7%. Other first quarter estimates include the following, depreciation expense of $8 million, non-cash amortization expense of $15 million, stock-based compensation expense of $6 million, interest expense of $10 million, integration and other expenses of $4 million, and an adjusted tax rate of 29%. And now we'd like to open the call for questions.

Operator, I believe we are ready for our first question.

Thank you. Your first question comes from the line of Kevin Fischbach with Bank of America.

Great. Thanks. Yeah, I appreciate the directional commentary for the year about revenue growth in every quarter. Is there any reason to think that that doesn't translate into earnings growth every quarter? Or is there something that we should be factoring in or thinking about, either the gross profit or the G&A line that could be a headwind to reporting that?

Sure. Well, you know, I'll let you go, Brian. Take it.

Yeah, thanks for the question, Kevin. Yeah, this was a very, you know, first quarter obviously is going to be a very unique quarter for us. And we don't give full-year guidance, but I'm glad you asked the question. I think it would be helpful maybe to give some additional color around sort of expectations for the year so that they should help you a little bit. We do expect revenue to decline from this Q1 high point that we've given in guidance. As Susan noted, you know, there was a significant increase in demand from the COVID hospitalizations, and that in turn led to an increase in pay rates and then correspondingly bill rates, and that certainly was a pretty significant element of the higher guidance, along with some incremental volume as well. Just from an order of magnitude, the average nurse bill rate in the first quarter of guidance is expected to be up over 20% higher just sequentially from Q4 to Q1. And that was really driven a lot by the COVID hospitalizations and the demand that came from that. Fortunately, we all know demand has come down now as hospitalizations have declined. We're still at well above normalized levels for demand, but also those highest levels. And we would expect to see, you know, bill rates fall as the demand has come down off those highest levels, bill and pay rates. So, we would begin to expect not only for the second quarter, but through the year, if things continue to improve in terms of COVID hospitalizations, there would be some moderation of the bill rate through the year. And just to give like a framing of the financial impact of that, if, for example, we assume that we lose about half of that rate increase that we had in Q1 in the second quarter That equates to about $50 million lower revenue in the second quarter, just as rates start to come down. Again, it's just half of that amount that we increased in Q1. We also expect to see some COVID-related volume declines across a few of our different business lines. You know, we would also expect at the same time that that's normalized and that we'd start to see some pickup in our core business as healthcare utilization picks up and you see an improvement in electric procedures. So when you take all this into account, we would at this point be thinking about second quarter revenue, something more in the low $700 million range, and all that would be down, you know, around 10% from the Q1 guide. That would still reflect year-over-year growth of around 15% to 20%. And then in terms of how that would flow through on the margins, as I mentioned in my remarks, the Q1 margin guide is lower than we've been trending, and a lot of that's because of the mixed change with a much higher percentage of revenue from nurse now, as well as some of these elevated clinician pay packages. As we see a little more normalization and growth in our other segments, we would expect the gross margin to work back towards around 33%. And then as they kind of translate that down to EBITDA margin, this Q1 margin guidance we've given would be obviously well above our normal level. We think that will likely be the peak baseline we can see right now. And as we work through the year, we still expect our EBITDA margins to remain above 13%, but come down from this high level that we gave in the first quarter guidance. So, you know, a lot of moving parts, a lot of unknowns at this point, but hopefully that gives you a little more color on what we're expecting for the year.

That's perfect. I guess maybe just last question. You guys sounded pretty optimistic about the supply, demand, and balance persisting or maybe even exacerbating as a result of COVID. I guess most of these publicly traded hospital companies are talking about labor costs. they were out of the improving, I guess, towards the end of the year. We'd just love to kind of hear how you guys are thinking about it, maybe which segments you think, you know, post-COVID are kind of seeing the biggest shortages and if there's anything specifically that you would point to as some segment of your business that pretty clearly in your view got worse as a result of COVID, with us being more, you know, temporary staffing.

Sure, Kevin. I'll start with that. This is Susan, and then perhaps one of my colleagues will want to add something in. Certainly all of the different clinical disciplines, and I would say even beyond clinical disciplines like healthcare leaders, have been affected in its advanced retirement for many individuals who decided they didn't want to stay in the healthcare environment throughout the COVID pandemic, but also that's perhaps changed their course going forward. So there's been a larger than usual number of retirements. And while it's hard to find real-time data on that, we're certainly hearing that very clearly from our clients. And then even with the younger workforce, many of the clinicians, and I say nurses in particular, but also many of the female physicians have had to make a decision to leave the workforce in order to juggle children at home and school at home and, again, maybe just not even wanting to take the risks of reentering direct patient care in this environment. And so it's believed that we've lost some subset of the nursing workforce permanently. And that will accelerate the shortage path that we were already on. It was already getting quite bad before the pandemic. And it's really just accelerated it considerably. So nursing is probably the area where we believe the shortages will persist at relatively difficult levels while the demand continues to be really quite strong. In other areas, you might see some of those individuals come back, but they may not come back full time. You know, physician is one example where we've been really fortunate as a country to have so many more women go into medicine. but typically the female physicians are working less hours because they're maybe juggling, again, families at home, and then now some of them have made a more permanent decision that they'll take that less than full-time schedule and take it even down further on a permanent basis. So there's expected to be some long-term impacts there, and truly it's really just across the board. So we think that those shortages that will persist, will continue to drive a relatively strong demand environment. And then again, as Brian said, you've got the elective surgeries and other delayed care procedures and whatnot that will start to come back. And we're only seeing that a little bit in some of the businesses. But, you know, as we start to see COVID cases subside, we'd expect for them to come back more frequently. Maybe I'll stop there, and I don't know, Landry, if you have anything else that you want to add in regarding the nursing shortage in particular.

Yeah, maybe I would add in that, you know, specific to nursing, we have been doing an RN survey quarterly just to look at different trends that are impacting the occupation, and our last survey that we did, we actually did it in January, so it's very recent, and found a couple of things in there that I'll mention. One is that 75% of nurses felt burnt out of the respondents that responded to the survey. And, of course, you might think, well, you know, you would expect that with everything that's been going on. But the important thing there is the trend since we have been doing the survey quarterly and to see that number increasing every quarter whenever we've asked it. Another thing that we learned is that only 66% of nurses plan to continue working as they are today within the next year. That means that 34% of the workforce are planning some sort of change in the next year, within the next 12 months, which is, again, a really high number from what we've seen when we've asked that question before. So with all that, you know, we've got to do our part to try to help the occupation out as much as possible to get through this. But what it does suggest is that we're likely to be in this high-demand environment for quite some time. That's great. Thank you.

Our next question comes from the line of AJ Rice with Credit Suisse.

Hi, everybody. Maybe a couple questions. First of all, Brian, as you're giving those numbers about what happens from first quarter to second quarter and the $50 million potential impact of revenues from having a Premium, but less premium than you had in the first quarter. Where does that leave you relative to sort of a normal state? Is there still a substantial in that second quarter assumption? Is there still a substantial amount of premium revenue that you're getting, or does that take you back to pretty much trend line?

Thanks for the question, AJ. No, that would still have us above where we sat. Maybe we could use as a starting point, you know, the fourth quarter of 19 to the first quarter of 20 kind of pre-pandemic. It would still leave us, you know, a reasonable amount above that level. So, as I mentioned, it would not be surprising if we saw some further reduction in the average rate through the back half of the year, at least in the third quarter. assuming that, you know, we see the COVID hospitalizations come down over time. So we do expect to see some further weight reductions. But with the, as Leonard mentioned, the shortages we're seeing, you know, it's going to take some time, I think, for our clients to really adapt these changes and get their teams, you know, a break as well as we get through that. So we do think it'll take a few quarters for that to unwind as we get closer to the back half of the year. We still would expect rates to be higher than they were a couple of years ago, which is the normal inflationary rates and probably some acceleration from the shortages. Where that lands exactly, we're still determining, but we expect it to still be above where we were pre-pandemic.

Okay. Another thing, obviously we're talking about burnout at a high level and so forth. One metric I guess you can track is when people come off of an assignment in your nurse and allied, are they re-upping for another assignment? Are you seeing a trend there where that percentage is going down as your own nurses or allied professionals are sort of saying, I need to break down, I need to come off of that? And the other thing we hear – from hospitals is that there is some pressure from people seeing how much they can make as a temporary nurse and giving up their permanent job to do that for at least a time. Are you seeing new applicants pick up would be the flip side to what the hospitals are dealing with. I would presumably see new applicants in that. Are you seeing much in the way of new applicants?

Yeah, A.G., I'll have Landry pick up most of that, but I will say our recruitment team has done a phenomenal job, and our rebook rates have actually improved since kind of the lower point in the middle of the year when, of course, demand dropped for a period. And so the increased demand, but also I'd say just the great work of our team and the and delivering so well during such a difficult environment has helped improve our rebook rates. So we feel really quite good and confident about those. If anything, I think it's really helped us to find ways to serve our clients and clinicians better and faster through digital capabilities and whatnot, and certainly having more assignments that attract the compensation rates and whatnot is helpful. But, Landry, let me let you add to that and then also talk about applications, which I know is a great story.

yeah aj on the uh the clinicians that are rebooking extending we're not seeing anything material there you of course always have a certain percentage of them that are on assignment that extend where they are today some of them come off and they and they take a new assignment um and then some of them to your point uh which is it's always happened which again we're not seeing anything different they'll take some time off so that's one of the benefits of traveling is in between contracts you can take two or three weeks off but Again, nothing different today than what we've seen over the years. Specific to our supply, that funnel is working really, really well right now. I'm seeing some extremely strong new applicants and some record levels that have been coming into our business and into our database. Team's done a really nice job pushing a lot of that supply through and getting them on assignment. We couldn't do as much as we've been doing without some of the digital investments that we've been making. I know we've talked about some of these before, but we've got a lot of focus around our mobile initiatives and adding bots to the process, creating a lot of automation, increasing self-service. And really just overall giving our clinicians more control so that they can move through the process and then ultimately get on the assignment faster. So speed is a big piece of it. Those investments, of course, also help our internal teams. So we become more efficient, which, of course, has allowed us to hit some of these record numbers on assignments that we're seeing in the first quarter. And then the last thing I'd mention that we've talked about before, AMN Passport, our mobile application. We continue to see great adoption with that mobile app as well as a great increase in the number of users. And we can see that, you know, the investment is really something that our clinicians want. We can see a lot of the stats of where they're spending time, how frequently they're returning to the app, how many users are going through it every single week. and overall just kind of put more control in their hands and it gives them one place to go to, whether they're searching for a job or all the way through them being on assignment until their last day. So all of that looks really good. It's helped us do what we've been able to do over the last few quarters, and we'll keep on making investments in that mobile app and those digital initiatives as we look forward.

Okay, maybe one last question. When I think about it, It's fun to talk about the areas that are doing well in the last 12 to 15 months. There's some areas that were adversely impacted by the pandemic, certain places and allies like rehab therapists. I know some in the specialties in the locums business and then things like permanent placement. Have you started to see any recovery there in demand? Anything you'd highlight there or is it still sort of early in the transition out of the pandemic to see that?

Yeah, AJ and Susan, I'll take the first couple and then have Landry comment on Allied. So regarding locums, really, really nice. recovery there. Part of it's been the work they've done to assist in some of the COVID activities with whether it be state temporary facilities or just helping our clients overall, but even the underlying core business. has seen some nice recovery. Now it's not back to pre-pandemic levels, but there are some specialties like anesthesia, behavioral health that are back above pre-pandemic levels, just in our core business, and others that are lagging a little bit more. But we're continuing to see a steady trajectory upwards. Those should continue to grow faster as the COVID cases subside and you see more elective procedures and more normal care start to return. And it's definitely the dynamic. that were witnessing. So that's a pretty good story. Now, you know, search has been the hardest hit by far. I mentioned that. So, you know, over 30% down in the fourth quarter. But in the fourth quarter, we started to see searches and some placements pick up and more dialogue with clients about those leadership and physician positions that they want to start to fill now that, you know, dust is settling a little bit in terms of how they're managing the COVID crisis, but then also expecting more patient flow back. So they're starting the first quarter off pretty strong and definitely going to close the year-over-year gap. But they will be the latter, but at least we're starting to see things move forward. And then allied has been a great story, so Andrea, I'll let you take that.

Yeah, AJ, Allied, of course, went backwards quite a bit mid-year last year. And their trajectory is probably one of the best trajectories that I've seen in our businesses. They had an outstanding fourth quarter and really across all their segments, kind of outperforming what we originally thought that they were going to do in the fourth quarter. Of course, respiratory and laboratory specialties have been performing well. Those specialties are closely tied to helping the pandemic. But we saw good performance across all the other parts of the business as well. So therapy performed better. Imaging performed better. Schools looks great for, in particular, speech-language pathologists. So looking into the first quarter, they're experiencing the largest sequential growth that they've seen in the business. And it also includes their volume of travelers on assignment getting back above prior year levels.

Okay, thanks a lot. Thanks, Megan.

Your next question comes from the line of Jeff Silver with BMO Capital Markets.

Thanks so much. I know we're in a unique time here, but given the kind of bill rate increases that we're seeing and you're continuing to see this quarter, in the past when we've seen these kind of large premium rates or bill rate increases, after the things subside, you tended to see some of your clients kind of push back on usage of temp nurses. Can we talk a little bit about that? Would things be different this time? Why or why not?

Yeah, that's not our expectation, Jeff. I think the dynamics are different here. First of all, the shortage environment and some of the factors that Landry mentioned earlier around burnout and decisions by clinicians to do something different, whether it be retire or just sort of change their work environment. And our clients know that. There's a real concern amongst the healthcare systems that we talk with, as well as nurse educators, that this could put a real dent in the availability of clinicians, you know, for quite some time. And as you well know, we don't really have the capacity in nursing schools to increase new nurse graduates because we're pretty much at full capacity already. In fact, if anything, I'd say the dialogue we're having with clients around planning for their their needs, not just now, but two, three, five years from now is increasing. And maybe it's a good time for Kelly to comment on some of the conversations we're having with the most strategic clients and, you know, how we are helping them plan, not just for the next quarter or two, because we all know we'll get through that together, but rather, you know, how we're building our strategic accounts, you know, kind of for the future. So Kelly, you want to take that?

Yeah, absolutely. Hi, Jeff. You know, and, you know, I think you made the comment about, you know, are they going to push back on utilization? I think it's a much more holistic view, as Susan mentioned. You know, they're certainly looking at the workforce in general, understanding what the impact is going to be with them in the short term and the long term. And it's not just about the workforce today. of what's changing in healthcare, looking at changes in the care delivery model, looking at changes in sites of service, the impact of telehealth in the future. So we're able to talk with them and help them with that planning. And I think in the short term, we're seeing, you know, there's an expectation of still using this complementary workforce, but also around how can we optimize what you have today? They're looking at how can they keep the level of flexibility, agility in their workforce that they didn't have at the outset that they really recognized as a limitation for them to be able to move different types of resources around to where the needs are. So we use our advanced workforce optimization solutions to help them with that. And I would also say on the perm side, helping them back, seeing very high vacancy rates, A lot of our clients are seeing above 10% in their full-time clinical staff, and they don't have the – they're not resourced appropriately to help them bring that workforce back en masse. So how can they be more agile and effective in – back filling some of those permanent roles as well. So we're really helping them, you know, end to end on all of their strategies. But, you know, we certainly see the partnership and the reliance on, you know, travel nurses, local nurses, flex nurses to continue in the future as well.

Okay, that's fair enough. And based on that, I'm just curious what your own internal hiring plans are for this year and in which areas you think you might be at it.

We are hiring significant resources right now, as you can imagine. Some of it is temporary in nature to help support some of the projects we have going on. And we've talked about the vaccine administration support work that we're doing in California. And we expect actually that there will be more opportunities and more projects going forward. But those are admittedly a little shorter term. Probably most of them will kind of occur this year. And then we've been adding across really almost all of our businesses because we are seeing growth. in pretty much all of our businesses, and so we want to make sure that we're adding resources. We have, you know, I think 10% more recruiters or more, and then we're continuing to add on top of that. So it's a time when we're adding resources in anticipation of the underlying business continuing to grow. We know the first quarter is a bit of an anomaly with the surge in COVID cases and kind of all that ensued with that. But we also see the underlying business continuing to rebound and come back, and there's no reason it shouldn't. And if anything, you know, nurse travelers on assignment, as an example, volumes should continue to grow. So we need to be continuing to add resources. Now, earlier Landry mentioned the investments that we're making in digital. And I will say a lot of the automation that we added over the last year has been very beneficial to create efficiency for us. And not only has it created cost savings and speed and more reliability, it's also fueled our desire to accelerate our investments and do more, which is why our CapEx, that you see is a bit higher than usual, and we're glad to spend that money because we're getting some really nice benefits out of it. You know, if anything, at our size and scale and in our leadership position, we need to be really advancing our digital and analytical capabilities for us, but really for the benefit of our clients, our clinicians, and even the industry. And so we're doing, you know, a lot of that, which will, you know, also help ensure that, you know, when we're hiring, it's not just a move data around. It's really more to add value.

Right. That's really helpful. Thanks so much.

Thanks, Jeff.

Your next question comes from the line of Toby Sommer with Truist Securities.

Hey, good afternoon. This is Jasper Bittman for Tobii. I wanted to ask how you would assess your performance with MSP accounts this past year, and could you update us on account retention and what the pipeline looks like there?

Thanks. I know Kelly is thrilled to tell you about that, so I'm going to hand it over to her.

Thanks, Esther. Well, first, as we reflect on this past year, very strong performance. We've been sharing, I think, with you throughout the last few quarters. As demand became so high, we really prioritized and focused on our most strategic accounts and And, of course, supporting the rest of the industry to the extent we could with other solutions as well. So, you know, we ended up, as we look at the year, we were up about 20% over prior year in both gross spend as well as direct revenue from our MSP clients. I would say, for the most part, our relationships really strengthened throughout the year. One evidence of that is we actually had a fair amount of large clients Renewals in 2020, we were able to successfully renew 20 accounts out of the 21 that were up from last year. And then coming into next year, we have much less of our revenue up for renewal, about 50% less in 2021. But we're on pace to continue those relationships. And the other, I think, really bright spot for us is in those renewals, we're also seeing level of extensions into different service lines and also longer-term contracts, you know, as our clients and us are both committed to those longer-term strategic partnerships. So we're really encouraged and really grateful for the relationship that we have with our clients throughout the year. They had to pivot and adjust with us so that we could collectively be successful in getting them the resources that they need. We have a healthy pipeline. I will say a lot of while we had actually probably our strongest sales year last year in 2020, we were close to about $500 million in growth spend that we brought under contract. You know, some of that was through expansion, but also about two-thirds of that was from new business. And we did in the back half of the year have to do a fair amount of that through technology development. you know, client-led solutions. This year now we're starting to see much more engagement around AMN-led managed services programs. We have a very healthy funnel, and I would say we're much stronger engagement now, you know, as they've started to be able to engage and think about their future needs. So I would say we're in a very strong position around our existing clients and pretty bullish on our ability to grow in this environment as well.

Thanks. And then on the admin aid front, you know, there were some deals in the news this month. As leverage comes down, would you consider adding scale in nursing or locums, or is that not as attractive to you at these valuations?

Yeah, Jasper, you know, our priorities are to continue to add. things that will help us be a better toll-town solution partner for our clients. So at the top of that list are probably tech-enabled workforce solutions that help us to create efficiency and, in some cases, enable virtual care. Stratus was a fantastic example where the team had taken a traditional kind of on-premise or maybe over-the-phone workforce solution and created solutions a video solution that really adds so much more value and a better experience for all. So those types of things will certainly be towards the top of our list. We could add on to existing tech-enabled solutions. You know, the language interpretation industry is pretty fragmented still, even though we're the leader in virtual language interpretation. There's opportunities to do other Tuckian acquisitions. Marie and the Stratus team had actually done that before they joined AMN and have a great track record there, so we'd be very confident in doing that. There are other tech capabilities that might enable us to, extend what we're doing into home health, as an example, which we think is a really important market. It's important that we support the patients and clients where care is shifting. And whether that be virtual and telehealth or home care or just helping our existing acute care clients to be more efficient in how they use the workforce, we want to do that. So, again, tech enabled at the top, I would say second would be adding on to existing areas where we believe there's a lot of growth opportunity and maybe we don't have as much scale as we would like. A nice example of that would be our schools-related business. Our school team is doing a phenomenal job right now. And there again, we have a wonderful virtual capability through our Televate platform. And yet the school's part of the industry is still pretty fragmented. And so we could increase our footprint and continue to build that business by additional acquisitions. That's just one example, but there are others throughout the company. So hopefully that's helpful.

Yeah, I appreciate the call. Thanks for taking the question.

Thanks. Our next question comes from the line of Brian Samgillett with Jefferies.

Hey, good morning. Good to have you guys. Congratulations. Obviously a strong year. I guess my first question, Susan, just to follow up on that point you made on Stratus, obviously really strong results out of those guys. Is there anything you can share with us in terms of what's driving that? I mean, are there new contract wins that you can point to? And maybe taking the opposite side of that, I mean, how much more market share do you think realistically is there for Stratus to take over with low-hanging fruit versus having to take from existing providers and competitors.

Thanks for the question, Brian, and it is all of our lucky day because we have Maureen Huber here who is the expert in not only Stratus but language interpretation, so I'm going to let her take that question.

Thank you, Susan, and that's a very generous compliment seeing as I struggle with the English language at times and I'm always honored and humbled to represent the language services team and organization. And the U.S. medical interpreting market is a $1.6 billion industry. And that comes in the form of on-site interpreting as well as over-the-phone and video interpretation. Video interpretation, only approximately half of the hospitals in the U.S. have made a video-based decision. Most rely heavily on their staff interpreters or over the phone. And over the phone, as you know, both communication, you know, 93% of communication is nonverbal. So the preferred modality, especially around patient safety and improved outcomes, is being able to be present for the provider and the patient visually. So there's a lot of opportunity there for video, especially as the onsite interpretation from patient safety as well as the safety of the interpreters and our providers. really was reduced during COVID period. And with our tech-enabled services, we actually doubled the number of call centers where we could enable the hospital system's own staff to provide services. So we're working in partnership with our current clients to explore better opportunities for filling the gap and the need that onsite interpreting, either through video or other tech-enabled services with our in-person applications. To answer your question, you know, what's the opportunity in the market share, you know, the LAP population continues to grow in the United States, and it's outpacing other areas. It's pretty significant. You know, part of that will come from the conversion of over the phone to video, and others will come from the continued on-site interpreting and removing that from a patient safety perspective.

Maureen, I know another great thing the team has really made advancement in is integrating our language interpretation services into other telehealth platforms and the ability to support acute care facilities but also into other telehealth providers. And we've really just scratched the surface in that. I think we've got 25 to 30 platforms that we've integrated in. And so there's a lot of opportunity as telehealth in general grows. If you have a telehealth encounter, you need an interpreter there. And most telehealth companies or technology providers aren't going to provide that network of 3,000-plus telehealth language interpreters. And so we are a wonderful plug-in to services that are already or going to be launched.

No, I appreciate that. And then I guess just back on the nursing side, I mean, a lot of questions today have been asked on the demand side, but I think in the past we've talked about how supply has been the bigger constraint. And I guess the fact that you guys have invested a lot in recruitment technology, but as premium pay starts to come down, how are you guys thinking about the willingness of nurses who are currently employed full-time to take breaks and take care some of these ad hoc post things with you guys or with other staffers.

Yeah, Brian, I'm sure there will be some element of the clinicians that have decided to join in the COVID fight that will go back into permanent roles. But many of them will now have their eyes opened to the travel industry. I actually just talked with a nurse like that a couple of weeks ago who said, you know, I never thought about traveling, but COVID pulled me into the industry, and now I see all the great benefits. And so I'm going to spend the next year traveling. And this is something that is typical. Once someone gets introduced to the industry, they don't usually just take one assignment. And, again, the rates might cause some to go back into other roles, but some will say, no, this is a career choice that I want to make for some period of time. And so that's a really positive thing for our industry overall. It will change. keep more of these new candidates and kind of new starts that we talked about within the industry for some period of time. And Landry, I don't know if there's anything else you want to add to that.

No, I think you covered it. I don't really have a whole lot more to add from the clinician side. If I was going to make one more point, it's that our clients also like this flexibility. of being able to bring clinicians on in a temporary capacity. So we're hearing that from them that, you know, if you went back, you know, five years ago, it was, you know, I want to try to minimize the amount of contractors or temporary labor. And right now the conversations are more about how do I have this flexible staffing model for the future.

Gotcha. And then last question for me really quickly. You know, you obviously touched on vaccinations. In what role or which clients are you touching on the vaccination side? Will this be the retail pharmacies? Will we be looking at the drive-thrus? And then what are kind of like the economics or how should we be thinking about that opportunity?

Sure. And certainly for our clients, our healthcare clients, we're supporting them. In fact, we might have had staff on premise that was previously assisting with COVID testing and And now they shifted to vaccine administration. And that will probably ramp up over time as more vaccine becomes available. But even beyond that probably obvious and traditional way of staffing with our existing clients, my team's done a phenomenal job of partnering with clients, and other organizations to build a multidisciplinary sort of program so that we can help staff mass vaccination sites. I'm going to ask Kelly to give you a little more insight on that because her team's really led the charge on that, and we've had some great success just in the last couple of months, but really we're just at the beginning, I think, of what the need is going to be. So, Kelly, you want to take that?

Yeah, just to give a little bit more color on that, and I think Susan's right. I think we've had the opportunity to help several of our clients with more clinic-like vaccine capabilities, but we've also been able to really scale up to help in what we're calling these mass vaccination sites and clinics. We're partnering currently with one client to operationalize these. And that multidisciplinary nature is really critical because the nature of these sites require both clinical and non-clinical staff, different levels of licensure to manage the different parts of the vaccine management and administration. And we were able to tap into all of our resources truly across AMN. to staff these in just a matter of weeks. And we've also been able to underlie those solutions with our technology, using our BMS technology, using our scheduling optimization technology to support that as well. So we do know that we are very capable of standing up these sites in a matter of weeks. We're kind of at the mercy, like our clients and other organizations right now, around the supply of vaccines. But we see as that supply ramps up, we're in several conversations with other health systems as well as potentially some state or governmental programs that are going to do these across the nation. So it could be very significant, you know, in the next couple of quarters, or it could be a little bit more, you know, moderate type of volume remains to be seen. But we are absolutely ready and have great success being able to do it thus far.

Awesome. Thank you, guys. Congrats again.

Thank you.

Your next question comes from the line of Mark Marcon with GARED.

Hey, good afternoon, and congrats. I was wondering if you could talk a little bit about the tech and workforce solutions. You obviously have very strong organic growth there. Wondering if you can segment that between the flow-through coming through MSP and VMS versus, you know, more of the monthly, you know, client ads. And then... And then the second question is, how do we think about tech and workforce solutions on a go-forward basis beyond the first quarter? Would you expect that to continue to increase sequentially throughout the years?

So I'll have Maureen pick that up since a lot of the discussion is around Stratus and VMS and to some degree Avantis, which all fall within her purview. And certainly we've had some great growth across really all of those businesses, but in particular Stratus and VMS. So Maureen, you want to take that and talk about where that growth is coming from, both existing clients as well as some of the new clients that we've been able to add through our MSP contracts.

I'm obviously going to take Susan as Kelly. You know, as we look at the whole segment, you know, we go back to the first part of the question, which was how much of that is driven by the, you know, the MSP and kind of COVID-related volume, the Business that really has impacted there the most is VMS. So we'll see the same kinds of trends in VMS in both volume and bill rates that we're seeing in our nurse and ally division and expect that to kind of moderate throughout the year. Although as we look at our new clients, and a new business that we brought on last year in VMS. About two-thirds of that was COVID-related, but we expect another third of that to maintain and kind of normal business, if you will. Our other business is Stratus in particular. We expect to see continued growth throughout the year. You know, Maureen mentioned a lot of the dynamics there, the ability to win new business. We continue to both bring Stratus into our AMN clients as well as have other organic growth through a more robust sales support network are enabling them with. So we're expecting to see steady increases of Stratus. And then the others, like our outsourced solutions and Avantis, which have been – Avantis has been very steady throughout the year. We'll see some moderate growth from them as more and more clients are engaging us in both our consulting and our technology solutions. And the outsource business has been a little bit lumpy. That has been buoyed by a contact tracing program. And our core RPO business was a little bit softer. But we're starting to see that pick up, as I mentioned, with the higher vacancy rates and and hospitals really needing additional resources in their talent acquisition functions to backfill those. We are engaged with a lot of our strategic customers around helping them in that regard. So probably the biggest one that is tied to kind of the volatility, if you will, around the contingent staffing is on the VMF side. All the others are pretty steady, Eddie. Okay.

And so when we factor in the VMS relative to the growth in the others, do you think that we would end up seeing sequential growth in Q2 for tech and workforce solutions and going forward? Because it does sound like things are going pretty well there.

Yeah, I'll grab that. So I think, you know, as Kelly said, you know, VMS will have, some of the same headwinds that nursing is having. As rates come down, they will, you know, experience some decline in their revenue. So, you know, you'll have a decline in VMS revenue, but it will be offset by increases in Stratus and Avantis through the year. So probably a step down in Q2. And then from there, you know, kind of a more stable trend positive growth trajectory. But we'll be feeling that headwind of the VMS decline probably in this, mostly the second quarter, but maybe going into third quarter as well. And so it'll be either, you know, kind of steady after the second quarter or maybe a little bit of growth.

Got it. And then with regards to just the bill rates for the first quarter, how much are the bill rates up in terms of the projection on nurse and allied? relative to, you know, kind of a normal environment?

This is Brian. Well, you said we're not in a normal environment, so it's a very different metric. I mentioned we kind of did a math in the fourth quarter. We said our nurse bill rate up a little over 20% in the fourth quarter, and then seeing about a 20% sequential increase into the first quarter. So we're up 40% or so on a year-over-year basis in the Q1 guide. So that is far from normal. And as we mentioned, we think that will start to come down as we get into the second quarter and the third quarter as well. We currently hope that that happens because that means that we're continuing to see progress with vaccinations and hospitalizations moving down and moving more towards a more normalized environment. And we think that will be healthy for our clients, of course, and for our industry overall as well. So this is something we knew we'd see an increase. It's obviously a bit more than we anticipated, but also have been very consistent and positive. articulating that we expect that to come down and would like to see that happen as well. And when that does, we'll still continue to expect to see the volume recovery that we've already had over the last couple of quarters as well. Ally has seen some pricing growth as well, far less than what we've had in nursing. And so there's a little bit of a tick up in the fourth and first quarter. I do expect that to also come down a bit. Some of the respiratory therapy and a couple other specialties have seen a little bit greater increase, but the order of magnitude is not nearly as significant as on nursing. Great.

And then on the vaccine administration, it doesn't sound like you're baking in a lot for that, but it could end up being significant. Is that the correct interpretation?

Yes. Yeah, exactly. It's a little early at this point. We've got several limitations in the pipeline, but until we have kind of contract signed and really understand the scope of the services and the duration, it's very difficult for us to predict anything at this point. Right.

And Brian, can you just give us a feel for CapEx for the full year, what your expectation is in cash flow and how we should think about that?

Yeah, sure. As Susan mentioned, you know, we are – We are investing right now, and we think it's really critical. You know, the fourth quarter CapEx was about $10 million. I think that's a good baseline to start with for 2021, and I think it will be at least at level through the year. And it really has been, you know, with the pandemic, there's a lot of talk about just the pull forward of digital and telemedicine. And so we have had a really good strategy around our digital mobile initiative analytics. We talked about that over the last year. We really have focused on even accelerating some of those investments as we need to really match where our clients are heading and as they're moving those ways more quickly. we as a leader in the industry need to do the same thing as well. So there are a lot of benefits for our clients, for the healthcare professionals that we put to work every day. There's efficiency as well, but we really strongly believe in these initiatives and feel like we've got the best team ever, and it was folks like Maureen and our IT team to really drive these initiatives, so we're really positive on that. So you should assume somewhere in the 40 to 45 million weeks of the year.

Great. Thank you.

Yeah.

And our final question comes from Sam Kuslam with William Blair.

Hey, everyone. Congrats on your quarter.

I just have a quick one relating to telehealth, actually, and some of the comments made on tech-enabled acquisitions. I guess I'm wondering, in the large space that virtual health is, where do you see yourself able to develop internal capabilities versus where do you think you would need to look outside for new solutions? And how are you making that decision between the two different approaches?

Yeah, great question. So, you know, I'll start with a couple of points and then have Maureen kind of add on. So, you know, first when you think about telehealth, there's more than just the tech-enabled offerings that we have to play in. So we are a staffing provider for telehealth. You know, you think about our schools business. We have over about 300 therapists that are working on our telehealth platform, about half of them are ours, half of them are therapists that are working for the schools. And we have a lot of opportunity to expand that, both for therapists but also in adding in school psychologists and other capabilities. So we can't forget about the therapists. the opportunity that we have to combine our staffing and recruitment capabilities with the telehealth platforms that we already have. And then, Maureen, I'll have you talk about the expansion opportunities for Stratus and where we go with that, as well as Televate and then maybe kind of other opportunities in some other categories that we might not necessarily extend Televate and Stratus into.

Thank you, Susan. And so as we think about the hospital at home and the initiative around Hospital Without Walls and supporting our acute care clients today, how we can leverage our existing technology and capabilities to provide tech-enabled services across that care continuum. So as we continue to support those initiatives, that takes us, you know, from the acute care setting and into the home. And as we heard Landry say earlier, many nurses are looking for some type of change in the next 12 months. And so a lot of that will be driven towards these virtual care environments and also following that care continuum. So we'll continue to support those initiatives also with our language services. We thought about the integrations and the points we've integrate with more than two dozen existing telehealth platforms. But the number of clients that we've implemented with has increased tenfold in the last 12 months. So we're continuing to see that expansion, especially from the acute care providers and the adoption of virtual care. And I think we'll continue to see those initiatives grow as they're reevaluating their virtual care strategies.

Great.

Okay. Hopefully that answers your question. And I do believe that was our last question. So we want to thank you all for joining us today on this earnings call, and we look forward to updating you on our next call.

And that does conclude today's call. Thank you for your participation. You may now disconnect.