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spk12: at least 15%. And now we'd like to open the call for questions.
spk03: As a reminder, to ask a question, you will need to press star 11 on your telephone. In the interest of time, we ask that you please lend yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Tim Mulrooney with William Blair. Your line is now open.
spk06: Susan, Jeff, Kelly, Landry, James, good afternoon.
spk08: Hello there.
spk06: So, yeah, two quick questions. So as I look at your volume numbers, you know, I see Nurse and Allied Travelers on Assignment was down, I think, only 4% sequentially from the first quarter. I think you telegraphed some expected moderation in volumes for a while now, but I'm curious how you're thinking about Nurse and Allied Volume Cadence as we move through the third and the fourth quarters of this year.
spk14: Hey, Tim. How's it going? This is Landry. Yes, so the Q2 to Q3, of course, as Jeff mentioned, we've got a revenue decline there. Primary driver there is the bill rates that are declining. And then outside of that, yes, we do have some volume declines sequentially from Q2 to Q3. Part of that, you know, typically you would see some seasonal decline. So, if you go back both during the pandemic as well as before the pandemic, we would see those seasonal declines. And we're seeing that same thing or expecting that same thing today as we look to Q3. A part of that, though, is schools. So, you know, just seasonally that volume will decline. And then another thing that we're seeing is that our clinicians, you know, are not immune to some of the burnout that's taking place in the marketplace. whether you're working perm or travel or per diem, we're experiencing some of that. So they're taking a little bit of time off. We actually have a metric that we track, and it tracks time off between assignments, and we can see that that metric has increased. So they're taking a little bit longer break, a little bit longer vacation. So you add all those things together, and that's what you get on the Q2 to Q3. And then sequentially from Q3 to Q4, we expect volumes to come back up.
spk06: Come back up. Okay. All right. That's not what we have in our model. I'll update that. Thank you, Landry. And then just one more. One of your competitors reported results yesterday saying the bill rates are, I guess, coming down a little faster than pay rates, which is squeezing their margins. Are you seeing the same thing in your travel nurse business? And if so, is that a dynamic you expect to play out for a few more quarters, or is that not necessarily something that you're seeing?
spk12: Yeah, Tim. This is Jeff. I'd say when you look at our second quarter over first quarter gross margins, that was primarily driven by revenue mix. However, within Nurse and Ally, we did see lower hours coming off of the Q1 peak, and we also had some workers' comp insurance true-ups. In the quarter, there was some favorability in Q2 over Q1 from a sequential perspective, both due to the labor disruption revenue, as well as some modest impacts from negotiated package. Moving forward into the third quarter, we said that we expect consolidated gross margins to be up roughly 100 basis points. Again, that's driven by a shift in the revenue mix with the bill rate declines. But again, there is some favorability in that negotiated package with the nurse and allied as well.
spk08: And Tim, just a little more clarity on the reduction in bill rates. And I think you're maybe referring to specifically if a bill rate is reduced in the middle of an assignment, we typically will peg the pay rate to that bill rate. So if a client provides their appropriate notice in the middle of an assignment that the rate is going to change, then we'll have that conversation with the nurse to talk about whether they want to stay at that lower rate or perhaps they can move to a different assignment and because of the the vast orders that we have across the country, oftentimes moving is a better option for them. So that's how we manage it. So we don't expect to feel gross margin compression from that specific issue that you're referring to.
spk06: That's great, Colleen. Thank you.
spk08: Thank you, Tim.
spk09: Thank you.
spk03: And our next question comes from Kevin Fishbeck with Bank of America. Your line is now open.
spk02: Great, thanks. I was wondering if you could provide a little more color on the increase during the quarter about new orders that you mentioned. It sounds like you're spiking that out as unusually strong. Can you maybe help us put some context to the magnitude of that versus what you would normally see? And it obviously was happening as COVID started to increase again. I mean, how are you thinking about how much of that is, you know, that burnout dynamic and shortage dynamic versus hospitals would be afraid of COVID creating an issue and trying to put in orders in front of that?
spk08: So, you know, great question. We'll give color on that. I'm pretty sure you're referring to nursing, but I'd like for, you know, Landry to also give some color on the allied business, and then perhaps James can talk about our physician and leadership businesses as well in the demand trend.
spk14: Hey, Kevin, it's Landry. So, I guess first off, kind of starting with the end there, you'd mentioned, you know, how much of the increase right now might be related to the COVID spike that we're seeing, and we don't correlate any of it really as it relates to the COVID spike. What we're hearing from our clients is that it is the shortages that they're dealing with. So right now, travel nurse and allied demand is currently today more than two times the amount of demand that we would have seen before the pandemic at the same time period. On the travel nursing side specifically, We did see those declines coming off those really high numbers that we saw at the very beginning of the year. And then demand declined through April. And then over the last 13 weeks, we have seen sequential increases every single week for the past 13 weeks. So right now, demand for travel nursing is actually up more than 80% since the low point that we saw at the beginning of the second quarter.
spk13: James. Thank you, Landry. To attach to what Landry said concerning the physicians and leadership, we're expecting our demand to remain high across all the majority of our physician and leadership solutions businesses, even as the COVID-related projects as the demand diminishes. Just by some perspective here, locums quarter two demand in terms of growth stays available was up 75% year over year, specifically driven by primary care, CRNA, surgery, hospital, and dentistry. In our interim business, our engagements reached 492, which is the highest ever, which was 7% higher year-over-year and 5% higher sequentially. In our search business, we continue to see strong pipeline across the practices. The leadership pipeline also was up high or single digits over a quarter over a quarter, and our position per business is up also high single digits Our fill rates are very strong in both term, our interim business, and also our search business. They are achieving high single digits and sequentially a quarter over quarter. But we do see a decrease from a fill rate standpoint in our locums business, and that's purely driven by the high demand that we have in the locums business and the constraint that we have on supply.
spk02: All right. That's all helpful. Given that, you know, it sounds like you guys expect a bigger decline in bill rates in Q3 than in Q2, even though demand has been consistently increasing throughout Q2. I think kind of giving a bigger buffer into Q3. So why are bill rates going to drop even faster in Q3 than Q2, given the rampant demand?
spk14: Thanks. Hey, Kevin. It's Landry again. there's a lag there and so and I'll maybe I just speak to a correlation between fill rates and bill rates together and you know we have been expecting that these bill rates would come down from from the peaks that we saw in the first quarter the really high bill rate months of course in the February and March timeframe and at that exactly what's been happening the trajectory as we mentioned it's not as steep as what we thought that it might mean it might have been and then you know with the bill rates coming down Of course, we've also seen the pay rates come down, and those have now come down to a point to where we're starting to see it have a negative impact on fill rates. So that's why we think that we've actually probably hit an inflection point at this point. So it takes a little bit of time for all of that to work its way through and the trends, and it's a little bit too early to call, but that's what it looks like what's happening out in the marketplace, which is leading us to make the statement and kind of updating our number for Q4 that Jeff mentioned.
spk08: Kevin, the other bit of information that might give you some insight in our confidence is that we are getting our winter orders in. They're fairly dwarfed by the large number of orders that we already have, but as we're getting those orders in, they're really as strong, if not stronger, than prior years, and the rates are largely in line and even some clients talking about higher rates. So I think that's another sign that we've probably seen that trough in rates. Now, you know, we'll be booking those people into the fourth quarter, but as we look at our bill rate trends for travelers on assignment going into the fourth quarter, they're looking stable to, in some cases, a little stronger, but at the very least, stable.
spk02: All right, great. Thank you.
spk09: Thank you. Operator? Thank you.
spk03: And our next question comes from AJ Rice with Credit Suisse. Your line is open.
spk10: Hi, everybody. number of questions I could ask. I'll focus in on when you look at where your contracts are rolling over in July, the bill rates on those. Is that about where you're assuming the whole quarter plays out? Are you still well above and have leeway for it to drop further into a quarter to get to the numbers you're putting out today?
spk12: Yeah, AJ, as we think about moving through the third quarter, we're still expecting sequential declines every month all the way through September and then a very modest decline in the bill rate into the fourth quarter to settle out at that 30% below the Q1 peak.
spk08: But to be clear, AJ, most of those people are already booked. and have either started their assignment, which is why we have good visibility, or they're soon to start their assignment.
spk10: I got you. Of course, that's true. The other thing I was going to ask you is about, you know, the perception was hospitals were getting all this COVID relief money, CARES Act, add-on payments, Medicare sequestration relief. And they were plowing that back in to get nurses to make sure they could fill, you know, meet their demand and were willing to pay very high prices. A lot of that money is rolling off now. And I know they need the nurses. But, you know, we've seen a little bit nursing homes aren't a big customer for you all. But some of the people that deal with nursing homes, which are admittedly in worse shape than hospitals, are saying that nursing homes are just, you know, they're going without, frankly, in some cases, and to the point of pushing the limit on staffing levels and all. I don't think hospitals are at that point. But I wonder, what is your conversation with them about the pain factor? We've seen some downgrades of major health systems. We've seen at least one large system announce that they've swung to a loss now. What are you hearing from your customers about not just their desire, obviously, to have nurses, but what's the pain level that they're feeling as this COVID money runs off?
spk08: Well, this is Susan. I'll start and then have Kelly jump in since she's talking with clients much more on a daily basis about these exact issues. But I'd say that there was more optimism within the healthcare community back in maybe the the March-April timeframe that they could use some of the extra money to recruit and retain clinicians and curb the attrition and the vacancies, which is why our orders declined. Some of it was just the crisis assignments falling off, and some of it was their optimism that they could put a dent in their vacancies. And it just didn't really come to fruition to the level that they had expected. And some of it is nurses not willing to come back into the employment market at all. And certainly the cost to recruit them back in, I talked about this on the last earnings call that it's a very expensive proposition for a hospital to permanently increase the compensation for their permanent staff. If you did 10% across all nurses working in hospitals, you'd be at something like $15 billion. So it's just really quite cost prohibitive when their cost pressures are really all already so great. So the conversation now is this is the new norm, and they are looking for other mid- and long-term solutions to deal with it. So I'll turn it over to Kelly and have her fill in how we're helping them do that.
spk01: Yeah, thank you, Susan. Hi, AJ. I think you had it exactly right. I think their level of optimism was met with some realities in the market of just the supply that was available to hire into full-time staff. They're still experiencing levels of attrition. due to burnout. I think as Landry mentioned earlier, I think the summer months are particularly challenging as well to hire anew. So they are continuing to attack this from all fronts. We've seen our RPO business increase due to that need for assistance and bringing in permanent staff. Our orders and placements are at an all-time high for that business and we continue to add new clients. needing that assistance with talent acquisition. They're continuing to look at how they optimize the workforce that they have, certainly becoming more efficient in their processes, as you mentioned, trying to create more capacity and take away some of that constraint. And then certainly they are still turning to a contingent workforce to help them both in the local market as well as we see that in our travel needs. I will say, AJ, the level of criticality where we're seeing the need for predictive understanding of the supply because that is informing decisions where they may have to shut down services either on a temporary or longer term basis, particularly in some of their procedural areas. So it's becoming very important that they have our assistance and others around staffing those so that they're able to continue to keep their doors
spk11: open services open to serve their communities okay thanks a lot thank you and our next question comes from brian tankola with jeffries your line is now open hey good afternoon guys and congrats on the quarter um i guess just to clarify some of the comments we made and try to tie a few things together So I think, Susan, you made a comment that the bottom is – you think that rates will bottom out. I guess just to clarify some of the comments you made and try to tie a few things together. So I think, Susan, you made a comment that the bottom is – you think that rates will bottom out higher than you had previously expected. So is that just given the demand dynamic? And then maybe just tying that to a comment that – that you guys made about how the run rate is still kind of like a billion. The run rate is still kind of like a billion dollars of revenue. So just try to figure out how to put those two comments together when it sounds like you're expecting the bottom of rates to be higher than before.
spk08: Yes, Brian. It's Susan. And I would say it's slightly higher. We had said 35% below. Now we're thinking closer to 30. And we get that visibility based on where we've seen the stability in bill rates over the last several weeks and then starting to see future placements at that rate. And most of the larger clients are discussing, can we hold at this rate or do we need to go higher? Not, do we need to go lower? I think there's with the additional orders that Landry discussed rising so much through the second quarter and still coming in today, I think there's a reality that they may need to, in some very targeted areas, even raise rates if it's curbing their ability to deliver critical services. So I guess that's why we get the confidence in where we think that we will so-called bottom out. You could argue we've sort of bottomed out now, but because of the lag Landry discussed, those assignments that were booked and maybe started a few weeks or months ago, those will play out. And some clinicians haven't even started that were booked at higher rates. And that's why there's a little bit of a slope going into the fourth quarter.
spk11: Gotcha. And then as I look at just the technology and workforce solutions segment, you know, margins were obviously very strong. Just wondering how you're thinking about the sustainability there, or is there any call-out explaining kind of like peak margins for this group?
spk12: Yeah, I think what you need to keep in mind there, as we move through the back half of the year, our VMS business, we will start to see sequential revenue declines there in the third and fourth quarter as the same bill rate dynamics that impact nurse and allied make their way through the VMS business, and that's the highest margin business that we have. within the segment, so that will start to impact not only the gross margins, but the adjusted EBITDA margins into the back half. All right.
spk09: Got it. Thanks, guys. Thank you.
spk03: Our next question comes from Ryan Griffin with BMO Capital Markets. Your line is now open.
spk05: Actually, I think it's Jeff Silver with BMO. I must have used the wrong pin. Sorry about that. I appreciate you taking my question. Susan, I think in your prepared remarks, you talked about internal hiring. I may have misheard you, but if that was true, can you talk about where that hiring, which divisions, what type of positions are you really focusing on right now?
spk08: Absolutely, Jeff, and thanks for asking. We have positions open pretty much all across the organization. You certainly have some amount of attrition, although I will say our second quarter attrition was perhaps the lowest in our company history or as long as we've tracked it to this level of accuracy. So we're really pleased with where we are in our ability to develop and retain our staff. And I think it also very much speaks to our culture and people's desire to be a part of our mission and what we're trying to accomplish. But with that said, occasionally people leave, so you're hiring for that. And then we're adding positions pretty much across all divisions and departments. You know, certainly in our technology-related divisions where we're seeing some really nice growth, we are adding. And then even in our staffing businesses, with the volume increases that Landry referred to, and we are expecting volume increases over time and in physician and leadership, we've got to have the trained recruiters and account managers and staff there to support them. So it's really, really across the company.
spk05: Okay, that's helpful. As long as we're talking about recruiting, maybe we can talk about you recruiting professionals. I know, obviously, there's been, you know, a tremendous amount of volatility on the nurse and ally side.
spk14: at a high level are you seeing new types of travelers coming in specifically from a demographic perspective in terms of younger nurses traveling that they may not have traveled beforehand yeah hey jeff it's landry so we don't we don't catch your age at time of application but we do track it at placement and we're certainly seeing a larger percentage of our overall new placements with clinicians that are under 40. So, right now, under the age of 40, it makes up about two-thirds of our new placements. Also, in the second quarter, we saw our largest increase in new placements for clinicians that were actually between the age of 21 to 25. So, that data does suggest that we're starting to see a shift towards a younger demographic. where, you know, what we've been talking about, what we see out in the market or other industries, their preferences are to work in a more kind of flexible work arrangement.
spk05: All right. That's great to hear. Thanks so much.
spk03: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Again, that is star 11 on your telephone. Our next question comes from Toby Summer with Truist.
spk15: Ask a follow-up question on the price. Thank you. I wanted to ask a follow-up question on the pricing. As you look at travel nurse pricing in terms of whatever visibility you do have at this point into the balance of the year, When you make your comments, is that including winter needs and what seasonally can be higher priced, you know, bill rates and assignments? Or are you trying to normalize for that when you're rendering a judgment and describing a bottoming? Thank you.
spk12: Yeah, I would say, Toby, we did look at where those winter need orders were coming in. And then we also looked at history and where quote-unquote normal orders were in Q4 versus winter needs. And given the visibility that the winter needs were giving us, that is why we made that commentary on the fourth quarter.
spk15: Okay. Thank you. And then I wanted to ask a question about, you know, there have been a lot of labor disruptions and or, you know, contract negotiations in recent months. And I think there's more to, you know, pretty decent amount of activity for the balance of the year. I've noticed as a result that the union agreements contemplate pretty significant wage increases for full-time staff, not just mid-single digits, but high for a number of years. When you step back and look at the labor complex as a whole, full and part-time, do you consider more rapid wage growth for unionized employees to be supportive of or disrupted to pricing for travel nurses over time.
spk08: We haven't really seen historically, Toby, those negotiations and any resulting changes in comp structure be impactful or disruptive. Now, it may be for that client, but it doesn't necessarily spill over and affect the entire nurse profession and industry. And of course, you know the numbers well, it's about 20% of nurses fall under union agreements. So maybe it's not surprising that it doesn't have an immediate or even long-term effect when those things occur. So just because you're seeing an 8% increase or even a 10% increase at a particular facility or system, I doubt that you're going to see that ripple across the entire healthcare ecosystem because it just becomes very cost prohibitive. It's a difficult equation for them to sustain. especially when they have all other cost pressures. So it's a long way of saying I don't think it's going to be disruptive. What it is is telling of how much the nurses and other clinicians are empowered to push back and demand changes that they think would be good for their profession and for patient care. And oftentimes at the top of that list is staffing ratios and whether they're regulated or not, Clinicians, particularly nurses, want to know that there's appropriate staffing. In fact, if you put compensation aside, staffing levels and flexibility are two of the top things that clinicians are seeking. And those things would be net positive for us if they're being pushed to hold to higher levels of staffing ratios.
spk09: Thank you very much.
spk08: Thanks, Toby.
spk09: Thank you. Our next question comes from Bill Sutherland with the Benchmark Company. Your line's now open.
spk04: Hey, everybody. That was very suspenseful. Hi, Bill. How are you doing? Good. Susan, I think on the supply issue, I'd like to see what you're thinking, looking out over the horizon a bit. And I know there's some program expansion going on, but how do you think it kind of trends as far as supply finally beginning to expand a bit?
spk08: There is a lot of work being done to expand education. They've prioritized nurses for visas, not giving them a special visa, but prioritize them to try to get them through immigration in some sort of normal timeframe. With that said, it's going to be years, years. And most healthcare leaders and nurse executives are thinking in the five to 10 year range before we'll see any lessening in the shortage. In fact, the common thinking and research papers that I read suggest it will get worse before it gets better because there really just is not a quick fix. It doesn't mean we shouldn't be partnering and aligning with others to do things. It starts with retaining the precious workforce that we have, which is why AMN is aligning with our clients in a variety of organizations and starting right at home with our own clinicians and providing them with support to make sure that They have the, whether it be mental health support, wellness support, rejuvenation, resiliency, so that they can stay in the workforce. Landry mentioned earlier, they need more time off in between assignments. So we need to be supportive of that. So we think we all need to do our part to try to retain the precious workforce that we have, upskill the workforce that we have. So we are working with some clients on some programs to try to get clinicians the specialty training that they need. But I'll say, Bill, all of this is not going to fix anything in the near term. They're the right things to do. They will make an impact, but it won't be a measurable impact. It's really going to take a longer term cycle.
spk04: Right. Yeah. And totally different topic, capital allocation. How would you rank your priorities? I think I know the top priority, but Jeff can address that.
spk12: Yeah, thanks, Bill. So we are still very focused on executing against our M&A pipeline and all else being equal, we would prefer to deploy our capital to a high margin, accretive business, absent anything compelling on the M&A front. We will look to repurchase shares opportunistically. I mean, we've deployed over $400 million of capital in the first half of the year, including $174 million in the second quarter to share repurchases, and we still have $326 million left on our authorization, and the balance sheet's in great shape. There's no prepayable debt. The leverage ratio is below one times, and there's ample free cash flow coming. in the back half of the year to not only support share repurchases, but also M&A. Those two things aren't mutually exclusive.
spk04: I would expect your cash flows are going to increase quite materially over the next 12 months.
spk12: Well, our conversion ratio in the second quarter was about as good as it's been in quite some time. So I think that's indicative as these revenues come down, the free cash flow generation power that this company has.
spk04: Great. Thanks, everybody.
spk03: Thank you. I would now like to turn the conference back to Susan Salka for closing remarks.
spk08: Thank you so much. We very much appreciate you all being with us today and for your interest in AMN and our mission and what we're accomplishing here. Again, a big call out to our amazing team members, our clinicians, and all of our partners. We are all in this together and, yes, making a significant impact, but we still have a lot ahead of us. And so I just want to thank everybody for their hard work.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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