AMN Healthcare Services, Inc. (AMN) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thanks for standing by, and welcome to the AMN Healthcare First Quarter 2015 Earnings Conference. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions]. And as a reminder, today's teleconference is being recorded. Now at this time, I'll turn the conference call to our host, Vice President of Investor Relations, Ms. Amy Chang. Please go ahead.

Thank you, Johny. Good afternoon, everyone. Welcome to AMN Healthcare’s first quarter 2015 earnings call. A replay of this webcast will be available until May 21, 2015, at www.amnhealthcare.investorroom.com. Details for the audio replay of the conference call can be found in our earnings press release. Regarding our policy on forward-looking statements various remarks and characterizations we make during this call about future expectations, projections, plans, prospects, events or circumstances constitute forward-looking statements. Forward-looking statements are identified by words such as believe, anticipate, expect, and intend, plan, will, should, would, project, may, variations of such words and other similar expressions. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our Annual Report on Form 10-K for the year-ended December 31, 2014, and our other filings with the SEC, which are publicly available. The results reported in this call may not be indicative of results for future quarters. These statements reflect the company’s current beliefs and are based upon information currently available to it. Developments subsequent to this call may cause these statements to become outdated. The company does not intend however, to update the guidance provided today prior to its next earnings release. This call may also contain certain non-GAAP financial information. We make available additional information regarding non-GAAP financial measures in earnings release and on the company’s website. On the call today are Susan Salka, our President and Chief Executive Officer; as well as Brian Scott, our Chief Financial Officer. Ralph Henderson, our President of Healthcare Staffing and Dan White, our President of Workforce Solutions will be joining us during the Q&A session. I will now turn the call over to Susan.

Thank you so much, Amy. Good afternoon, everyone. And welcome to AMN Healthcare's first quarter 2015 earnings conference call. I am extremely pleased with the performance of AMN team particularly during the time when our clients are struggling to predict and keep up with patient volume and are seeking more strategic solution to address their workforce challenges. Driven by the strong market dynamics and execution of our team, AMN delivered higher than expected revenue and profitability during the first quarter. Consolidated revenue grew 36% and adjusted EBITDA grew 58% year-over-year. Excluding the impact of our recent acquisitions, first quarter revenue grew 22% and adjusted EBITDA grew 39% year-over-year. Consolidated adjusted EBITDA margin was 10.2%, an increase of 140 basis points over prior year. The EBITDA improvement was driven by both the operating leverage achieved due to rapid revenue growth and an improved overall gross margin. The greater than expected revenue performance was due to a robust market across all businesses and stronger performance across all staffing divisions including our newly acquired company. In addition, our RPO and VMS businesses delivered higher than expected growth. In contrast to last year when top line growth slowed during the first quarter, this year we saw an acceleration of revenue. We are near historically high demand level across all businesses. And the macro drivers appear unlikely to change in the near term. The US economy continues to show stability particularly from an employment standpoint. Hospitals and ambulatory care providers are experiencing increased volumes due to the aging population and millions of newly insured patients. The clinician shortages are becoming more severe particularly as more of them reach retirement age. With the returns to a supply constrained market place, AMN is very focused on increasing our recruitment capability. The addition of Onward Healthcare and Locum Leader has bolstered our recruitment capacity and candidates supply amidst the rising demand. We've already seen successful internal order sharing and placement across the company. We are also seen the benefit from the expansion of our recruitment as well as the investment we've been making in our digital marketing capability. During this trend where demand for healthcare professional is outpacing supply, AMN's workforce solution are well positioned to help find cost effectively address their temporary and permanent recruitment challenges. For example, in MSP contracts clients can exclusively outsource their supplemental staffing to AMN in order to gain efficiency, accountability and higher fill rate. For clients who want a do-it-yourself approach, AMN offers two vendor new true VMS technologies chip wide and Medefis through these online VMS platform clients can access a wide network of staffing suppliers who manage and fill their supplemental staffing need. In total, AMN has annual gross spend under management of over $1 billion running through VMS and MSP contracts. It's clear that these workforce solutions are increasingly enabling find to effectively manage and deploy their contingent labor. In addition to demand for contingent workforce solution, we are experiencing significantly greater interest in our RPO offering where clients outsource the recruitment of their permanent placement needs. We anticipate this trend to continue driven by the dynamics of increased demand for healthcare services, higher clinician turnover and the improved economy. As healthcare provider continue to consolidate and form integrated network, it is become more important for them to optimize their entire workforce particularly since clinical labor make staff at least half of a hospital's budget. Through Avantas, AMN provide workforce consulting solutions to optimize our client's labor planning through analytics, predict a modeling and scheduling technology to achieve their patient care and cost reduction goal. Now let's review the first quarter result and outlook for each of our three business segments. In our largest segment of Nurse and Allied Staffing, first quarter revenue rose 40% year-over-year and 20% sequentially. On an organic basis the year-over-year revenue growth was 24% for this segment. A significant contributor of this performance was the travel nurse business which experienced a first quarter revenue increase year-over-year of 38%, driven largely by organic growth of 28%. The remainder came from the recent acquisition of Onward Healthcare which is also performing exceptionally well. Order levels continued to be more than doubled compared to prior year. For the second quarter, we expect travel nurse revenue to be up over 35% year-over-year and 25% on an organic basis. In our Allied Staffing business, first quarter revenue grew 56% year-over-year with organic growth up 25%. The remainder came from the acquisition of Onward which is also performing extremely well in allied. Demand is up significantly in year-over-year across therapy, imaging and lab specialties with therapy order levels more than doubled compared to prior year. We continue to make great progress with MNT penetration in this business with MNT now representing approximately 30% of our allied revenue. For the second quarter we expect Allied Staffing to be up over 50% year-over-year and 20% excluding the impact of the Onward acquisition. Our ShiftWise, Medefis, Avantas and RPO businesses which are also included in this segment are experiencing very strong year-over-year revenue and profitability growth. This performance enables us to continue investing in these businesses to ensure we are delivering greater value to our client and our staffing suppliers. Overall, for the Nurse and Allied Staffing segment we expect second quarter revenue to be up approximately 40% year-over-year and 20% on an organic basis. Now turning to Locum Tenens. First quarter revenue was up 30% year-over-year driven by 19% organic growth. The remainder came from the acquisition of Locum Leader which is also performing well. The year-over-year growth was broad base across most specialties with the hospitals internal medicine primary care and primary care and advanced practice specialties making up the largest portion. Locum's NSP continues to gain momentum comprising about 15% of Locum's revenue with several additional opportunities in the pipeline. For the second quarter we anticipate Locum revenues will be up approximately 25% year-over-year and 15% on an organic basis. In our Physician Permanent Placement segment, first quarter revenue was 11% year-over-year and down 1% sequentially. The strong year-over-year growth was driven mainly by increased search and placement volume. The slight sequential decrease was due to the fourth quarter having more high value executive search placement and project activity. Performance remains strong going into the second quarter and revenue is expected to be up approximately 10% year-over-year. As healthcare continues to undergo dramatic transformation, the appetite to adopt strategic outsource servicing is growing. Our portfolio of innovative workforce solution is a core down of AMN's strategy. Each of these solutions, MSP, VMS, RPO and workforce consult team address significant current and future paying point for healthcare organization. More than ever our clients are using multiple workforce solution and staffing services, increasing the strategic value we contrite. While we are pleased with where we are positioned today, we will continue our evolution and we will be opportunistically looking at acquisitions in the areas of new workforce solution and emerging healthcare role. The strong performance we are reporting today is only made possible due to talent and passion of our team members and leaders. I would like to thank all of my AMN colleagues for their outstanding execution and exceptional commitment in serving our client and healthcare professional every single day. I'll come back to you in our Q&A session along with Ralph and Dan. But for now I'll turn the call over to Brian.

Thank you, Susan. Good afternoon, everyone. The company's first quarter reported revenue of $327.5 million was up 36% from last year and 17.1% from last quarter. This result exceeded our guidance by approximately 5%. Our gross margin for the quarter was 31%, up 30 basis points from last year and 70 basis points from last quarter. The improvement was due in large part to increase in our mix of our higher margin workforce solution, particularly RPO and the recently acquired Medefis, VMS and Avantas businesses. SG&A expenses in the quarter totaled $71.6 million or 21.8% of revenue, compared to $54.7 million in the same quarter last year. And $61.7 million in the prior quarter. The year-over-year increase in SG&A was due primarily to the addition of $7 million of SG&A from the recent acquisitions and higher variable expenses to support our growth. The sequential increase in SG&A was due primarily to the acquisitions as well as the prior quarter including a $1.8 million favorable professional liability adjustment reported in Locum Tenens segment. SG&A expenses in the quarter also included approximately $1.1 million of acquisition and integration cost which compares to about $400,000 last quarter. SG&A in the second quarter is expected to rise due to the impact of hiring additional sales and service team members to support the revenue growth. Our first quarter Nurse and Allied segment revenue increased 40% from the prior year and 19.6% sequentially to $229 million. Volume of 7,223 average clinicians on assignment was higher by 28.2% year-over-year. Of this volume increase about 12% was organic growth, with remainder coming from the Onward acquisition. The average bill rate for the segment was higher by approximately 7% over last year. Nurse and Allied gross margin of 29.8% was higher year-over-year by 80 basis points and sequentially by 120 basis points. Most of this improvement was due to the previously noted increase in the mix of our higher margin workforce solution as well as the current quarter's $600,000 favorable workers' compensation actuarial adjustment. For our traditional travel nurse and allied staffing businesses in the segment, gross margin was relatively stable. First quarter Nurse and Allied segment operating margin of 13.9% was 170 basis points higher year-over-year and 140 basis points higher than prior quarter. The improvement resulted from a combination of both gross margin expansion and accrued operating leverage. First quarter Locum Tenens segment revenue of $86.7 million was up 29.6% from prior year and 13.8% sequentially. The year-over-year growth was driven by an approximately 7% increase in the average bill rate and 21.3% increase in the number of days filled during the quarter. The day fill volume growth came from 12% organic growth with the balance from the acquisition of Locum Leader. Locum Tenens gross margin of 29.4% was lower year-over-year by 50 basis points but higher sequentially by 60 basis points with the sequential increase driven by improved bill-to-pay spreads. First quarter Locum Tenens segment operating margin of 10.5% was higher by 20 basis points year-over-year but lower by 20 basis points in a prior quarter. The year-over-year improvement was a result of operating leverage. The sequential decline was a result of the prior quarter including a $1.8 million favorable professional liability adjustment which more than offset the gross margin and operating leverage improvement. Our first quarter Physician Permanent Placement segment revenue of $11.8 million was up 11.5% year-over-year and down 1.2% sequentially. Gross margin of 65.7% was higher by 270 basis points in the prior year and lower by 40 basis points in the prior quarter. The increased gross margin compared to prior year is primarily result of higher recruitment productivity. Physician Permanent Placement first quarter operating margin of 27.8% was higher by 760 basis points year-over-year and by 480 basis points from the prior quarter. Interest expense in the first quarter was $1.8 million, which compares to $1.8 million last year and $1.3 million last quarter. The sequential increase resulted from the higher debt balance as a result of the recent acquisition. In early April, we executed a three year interest rate swap to reduce our exposure to excess rate fluctuation. The swap fixes the variable rate on $100 million of our debt at just under 1%. Our tax rate in the first quarter was 46.9% which was higher than our projected rate of 44% due to an adjustment to our tax reserves in the quarter. Our projected tax rate for the second quarter is 44%. We reported net income of $12.2 million and diluted earnings per share of $0.25 for the first quarter. Excluding acquisitions and integration expenses as well as intangible assets amortization expenses of $2.9 million, adjusted earnings per share was $0.30. This compares to an adjusted earnings per share $0.18 in the prior year quarter. This is the first quarter that we had excluded intangible asset amortization expense and calculating adjusting earnings per share and we will continue with this reporting measure going forward. Cash provided by operations was $8.7million for the quarter. Day sales outstanding were 61 days compared to 61 days last quarter and 56 days last year. Excluding the impact of the acquisitions, DSO would have been 60 days in a quarter. Capital expenditures for the first quarter were $6.4 million which include approximately $500,000 related to migrating the acquired companies on to our infrastructure and systems. As of March 31st, our cash and equivalents totaled $11.6 million and our total debt outstanding was $238 million. The quarter and levered ratio is calculated for our credit agreement was 2.2x to 1 as compared to 2.0x in the prior year. Now let's turn to second quarter 2015 guidance. The company expects consolidated revenue of $335 million to $340 million. Gross margin is expected to be 30.5% to 31%. SG&A expenses as a percentage of revenue are expected to be 22% to 22.5%. Included in SG&A is approximately $1 million of acquisition and integration expense. Adjusted EBITDA margin is expected to be approximately 9.5%. Other asset will include intangible asset amortization of $2.9 million, depreciation expense of $2.5 million, interest expense of $2 million and stock compensation expense of $2.1 million. The moving share count is projected to be 48.9 million shares for the second quarter. And with that we like to open the call for questions.

[Operator Instructions] Our first question will come from A.J. Rice with UBS. Please go ahead.

Hi, this Brandon Fazio for A.J. I just wondered if you just give an update on what you are seeing at hospital level in terms of vacancy rate and nurse turnover and the sort of the progression of that over the course of last couple of quarters would be helpful.

So Brendan thanks for the question. The most recent public date that's out there is provided by the BLS is the 12th state and I think it is February, the last report they show job openings are up 25% year-over-year within healthcare and the number of quits of about 19%. And I wouldn't be surprised if it is gone up since then based what were anecdotally hearing from our clients and what's driving demand for not only the temporary staffing services but also the demand for our recruitment process outsourcing services. We've seen tremendous increase in the appetite for assistance in permanent placement. So I have to say that, that's got to be a big driver as those clients think about how they are going to address those permanent recruitment challenges not just in a short term but on a longer term basis.

And just one follow-up. On the MSP side, can you remind us where you at on the nurse side in terms of penetration? I know you gave it for your couple of other segments and then what are you seeing from contract activity there in terms of any sizable contracts maybe coming online in going forward?

Sure, Brendan. So our penetration within the travel nurse business is around 45%-46%. It can fluctuate a little bit. And it is actually come down just a tad but that's not because the MSP business it is decline, it is been more because of the incredible growth we've seen in the traditional market, the non-MSP business where we have customers maybe having these travelers for many years that are coming back into the market. I think we mentioned last call that our orders from traditional clients has gone up dramatically. The number of hospitals that have orders is doubled over prior year, the number of units they have orders are doubled over prior year so that's really driving I think a broader more diversify demand. And I'll let Dan take you on our MSP win activity as well as what's in the pipeline.

Thanks, Susan. And Brendan thanks for the question. This is Dan. Before answer your specific question about new deal, I just want to make sure everybody hears our number one priority with our MSP and other workforce solution for that matter are existing accounts. Trying to help them, get through this tough circumstance, helping them with even cross selling, bringing in RPO win they might needed. So that's our first and highest priority. So we are getting new add on deals but I am not counting in the figures I am giving you now. We have solid performance from our MSP sales team winning five new MSP deals. One happened to be a synergy win with Avantas; we are really excited about that. As I said it is a solid mix of discipline, Locum's allied nursing all included, Q2 feels also just as good or may be even better than Q1 on what we have in contracting now. I can see on the near term two large, one medium, three small somewhere in that neighborhood. Again the majority of all of those and pipeline are multi discipline as well. So again solid performance feeling really good about our MSP sales group.

Thank you. Our next question in queue comes from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Susan, you've done some acquisitions recently and the business appears to be kind of really clicking along with the market. Are there things that you can do strategically to leapfrog kind of put more even more space between yourself and the competition? And how do you think about that?

So as Dan mentioned we are very focused on finding ways to help our current and soon to be client in multiple ways. We have more and more clients that are use these multiple workforce solution and multiple staffing service lines from us. And I think that is a differentiator for AMN. No other organization has quite the breadth and depth of capability to help this healthcare organization across both their contingent and permanent staffing needs across multiple disciplines. So we need to make sure we look at that as our first and best opportunity to continue to find ways to help them. Secondly, as to continue to look at additional new workforce solutions or staffing services where we may have gaps today or may have an opportunity to assist our clients in more holistic way. And I don't necessarily want to get into naming those and that's for competitive reasons but we do believe there are those kinds of opportunities out there and we will continue to pursue them.

Okay. In the Locum's business. How does the adoption rate improved versus a year or a couple of years ago? I think I heard you say 15% of sales and is there continue room for bill rate and bill pay spread expansion there?

Yes. I'll start with that and ask Ralph to jump in. But absolutely we see continued adoption in existing and a key clients that are very pleased with the services and they are certainly seen a value and continue to expand our services into other areas. As Dan mentioned one of our largest wins in the first quarter for MSP was with Locum's client and if we look at our pipeline going forward, we expect to continue winning more Locum's related MSP. So I would say the momentum has increased that penetration rate we would expect to absolutely go up as we continue through the year. And as you saw in our numbers, it's not affecting our bill rates in the Locum segment. In fact, we see increases in the areas even where we have greater penetration within MSP. So Ralph you want comments more on that.

Yes, definitely. I wanted to add a little bit around MSP. The Locum's business has accomplished quite a bit of turnaround and it seems, the type of growth they are seeing this quarter I think is most substantial that they have had since we acquired the company I guess almost eight or nine years ago now. It is a direct result of us getting more involved in the Locum space and MSP. As Susan mentioned at 15% it is probably just the tip of the iceberg about what it could be. It takes a little bit longer to develop in this business because the credential, on boarding and privileging processes can run 90 days to even double that in some facility. So we are steadily heading there and I think very pleased with the progress. As Dan mentioned one of our big win this quarter was in Locum. So we are adding to the customers and even existing customers can change or expand their programs to regions end markets they were going on previously. And so no telling where the end of it is, I guess it for it 45%-46% in nursing. You could expect that Locum's could get there as well. On the pricing side, I think it is a great question. I said it couple of times in the call before. And we've done a great job. We continue to move pricing up this quarter. We move pricing of the Locum by about seven percentage point. And we've improved our spreads just a little bit and I think there is further opportunity there to get this business into the 32%, maybe even 33% gross margin from or remain at 30%.

Okay. My last question is how do you think about sales generating headcount and adding to in this kind of market? And what sort of growth that do you have year-over-year at this point?

Yes. On the last call only we talk about recruiters. I think I'll broad it and talk about recruiters and account managers as well, they are the people to service the client as Dan was talking about so our -- currently we are up about 30% year-over-year in our total producer horsepower I guess would be, good way to describe it we have over 1,000 who are in those active roles. And we are as Brian mentioned on the expense side, we are going to make some additional investment in Q2, increase our headcount probably by about another 10% there. We are finding that the talent and we are getting them on board getting at the speed at a faster pace and I think even we anticipated. So it helps we have good strong demand market, they have a tailwind, they worked for a great brand name. We have a great recruitment and sourcing organization that provide them with just right candidate at the right time. So that helps them get off the ground a lot faster. So we are confident that, that's been working well and so we are going to continue to make those investment.

Thank you. The next question in queue will come from Jeff Selder with BMO. Please go ahead

Hey, good evening. Thanks, it is Henry Chen calling in for Jeff. Hi, I just wanted -- I just was hoping if you could comment on and maybe what drove the upside versus your prior guidance in the quarter? Whether that was just orders above expectations or prices and then how much of that is say incorporated in your second quarter guidance?

So, Henry, I think it wasn't any one thing. The good news we saw greater than expected performance across all of our businesses. Nursing, allied, physician and perm placement. And I think it is combination of the market itself being extremely robust and accelerating through the quarter which was a bit of surprise to us especially considering last year, remember it actually decelerated a bit. And on top of that really the caliber and quality of our winning team. We have incredible leaders and team members even now we've added more to that recently. We also have the benefit of a lot of experienced in 10 years individuals who know what it take to perform well in this kind of market. And so I think they were able to convert that market opportunity very quickly. We also were able to be the beneficiary of a lot of cross selling opportunities as we've been able to build strong relationships particularly within our MSP client, we definitely gotten more traction on our ability to cross sell multiple service line and multiple workforce solution. So a couple of the upside pieces came from additions of these services or say RPO, they came a little bit later in the quarter and came a bit faster than we expected. And again great news, they are continuing as we move forward. It wasn't one necessarily a one time project. And they can one of the RPO deals we did which is a multiyear, multi million project.

Got it. Thanks for the color. And you talked about sales count, what are your thoughts on recruiter headcount for the rest of the year?

We are going to continue watch the orders very carefully. I think we probably in Q2 and I already talked about adding about 10% there. We have to integrate and get our new Onward company on to our technology platform which is -- will be a huge benefit to us and will make those recruiters more productive. So we may slowdown a little bit there for a while. And then so will assess Q3 at a later date but I would suspect that we saw the same demand trends, still opportunities that we have in all of our business that we probably make similar investments in Q2.

Thank you very much. Our next question in queue that will come from Tim McHugh with William Blair. Please go ahead.

Hi, good afternoon. It is Steven Shalnem [ph] for Tim. First you had a really strong margin last year in the first quarter but looks like you are assuming only a very moderate year-over-year increase in the second quarter. And you mentioned that you plan on ramping hiring but is there anything else to point for why we shouldn't expect kind of bigger margin lift in the second quarter?

So this is Brian. And we talked about this. If you look at the guidance for the second quarter we have the gross margin range just slightly down from the first quarter. But we do have the SG&A going up little bit as well. We talked about the investment we made quiet honestly the first quarter we saw that acceleration of revenue and we are still kind of catching up internally to catch all that additional volume. And so we are -- not only we investing in growth forward as Ralph mentioned but also making sure we have the right support resources to really deliver great service to our client. So there is a little bit of that in the second quarter, yes it will go back up a little bit in Q2. We think it is really critical to make sure we are delivering really high service as well. If you look year-over-year the second quarter of last did have an actuarial benefit and professional liability so our gross on our EBITDA margin actually are spending more than it would indicate. We were more in the mid eight last year to exclude that but actually we don't have any estimate on adjustment in the second quarter. So we are seeing really nice leverage year-over-year may not show so much just versus the reported result.

Okay. That's helpful. And then on the Locum Tenens MSP side. You talked about the strong growth and the strong pipeline but I was just curious there has been any change in the way your competitors or partners have been responding to MSP adoption. We've been seeing less push back from them or just any color there.

Hi, Steven. This is Dan. I wouldn’t say we are seeing any changes in particular. So we have obviously a few participants in a market place who don't believe in MSP. And there are a decent number like us that do believe in it. And so for those that believe in it and for those customers in particular that believe in it we are seeing a great deal of success. So I wouldn't really necessarily talk about it has been different than last quarter and I don't expect it to change much in the next quarter or certainly taking advantage of those people who want to be adopters now.

Thank you. Our next question in queue that will come from Randy Reece with Avondale Partners. Please go ahead.

Good afternoon. You have assembled quite a portfolio of solutions now. And have the vision of helping clients achieve more labor force flexibility. And I am wondering how long is going to take for you to take what you have assembled and forge something of an integrated solution?

That's terrific question, Randy. And I don't know that we have concrete answer to give you when we would have a complete end-to-end solution for those clients that want that because there are technology interfaces that would be required to connect all of those dots. So what we can do and are doing today is bring that portfolio of solutions forward to our clients both when we are talking with them about our complete capability but also -- and it does matter to them because while they might not need all of that services today, they are looking forward as well. And they want to work with the partner and they can help not just today but they can help them in more sophisticated ways two, three, five years from now because they know their workforce challenges are only going to be more difficult. And because we do at least have these different solutions under one umbrella or roof if you will, we can coordinate them. So they may not be quite as seamers as we would like them eventually to be, but they are well coordinated internally so from the client standpoint they can see us as one organization delivering these services. Dan, since you got experience out there with the clients' everyday what is you hearing?

I think, excuse me, this is Dan, Randy. I think a great example of the coordination discussion that Susan just have with you is the synergy win I talked about earlier. So with Avantas being inside the customer understanding what their needs are, predicting what those need should be it was easy for them to say you need some help with contingent labor and we got a great program here with MSP that could really help fulfill that. So this notion of coordinating is probably a lot more powerful than you might think about it. It doesn't have to be innovated technology for us to make a huge impact on a customer.

You have seen any clients trying to make say a harder choice between investing more internally in their own recruiting capability and outsourcing more in the various way you can do that including RPO.

Randy, this is Dan again. I see that everyday with every customer I talked to. They have a debate about do I add resources to my core staff or do I go with the proven partner who has that capability to flex up and flex down this wonderful market environment where I am right now is not going last forever. And so we know that and they know more importantly, they know that this ability to flex up and down particularly in RPO is something that they need to take advantage of. So they are always going to keep a core, a small core staff but they are very likely to leverage it from like ours to go through these big spikes.

Thank you. Our next question in queue that will come from Mitra Ramgopal. Please go ahead.

Yes, hi, good afternoon. Just a few questions. First I was wondering coming back to the Onward acquisition. I know you only had one quarter but how would you characterize it in terms of your expectations and as it relate to the synergy, is it more 2016 benefits for you or would it be even earlier this year?

That's an easy answer, Mitra. Thank you for asking us. One word, fantastic. The Onward, Locum Leaders, Medefis and Avantas team have really done a fantastic job of embracing the AMN organization and performing exceptionally well, beyond I think their expectations and beyond our expectations. Now I have to say they were already performing very well. When we look at their results from last year, they were as good if not in a couple cases a little bit better than AMN's results. So they were already entering as a high performance team. But when they embraced the AMN opportunity it helps them to grow even more. So I actually Ralph to add any other color since most of those organization report us through him.

Yes. I think from a both the top line and a bottom line perspective it's better than we anticipated, probably even better than the model for the bankers gave us which is pretty unusual. So they have really done a great job. We really like their leadership teams, they participated -- they have been very hand on I guess in our integration activities, I think if you are looking for some success stories, we had anticipated to start to see some revenue synergies in a second half or late, possibly even in the fourth quarter but we are already about double the number of travelers that were cross sold into our MSP program than we anticipated be in a year end. So we are way ahead of schedule line on that part of it. And I guess like we just have -- we find out more and more about the talent on that team everyday and very, very pleased with how that's going. Locum Leader is also exceeded our expectations both the top line and bottom line. And we are starting to see the benefits of having another Locum's brand as well and fulfilling our MSP requirement.

Medefis had an outstanding first quarter and certainly a record high as you would expect it, they are growing so fast and it really outperformed anyone's expectations both in top line but also in bottom line. And so we were very proud of them. Avantas which is part of the workforce solution team and as Dan mentioned is performing very well but as importantly they are helping us make high level connections across the business. And that's extremely valuable to us.

I really appreciate the color. Sounds like a great fit and I was just wondering in terms of more types of these opportunities that are out there. It is pretty much one of those that you are pretty lucky to gather several more to you can probably capitalize on.

I do think we were fortunate but as we look forward and we think about additional components to add on to the AMN organization, I think I mentioned early they are most likely be focused in the areas of workforce solution. And areas that we don't already have capabilities. And then secondly in new staffing capabilities within healthcare where we may not currently be providing services. And particularly within our MSP client, there are often areas of staffing that they are asking us to provide but we just don't have the capability to do internally. And so we end up outsourcing those or subcontracting them to affiliate vendors, would obviously be better for us and our shareholders if we can keep that internally as direct revenue. So we will be looking at areas where we can kind of fill in some of those gaps.

Okay, thank. Is it fair to say the strength you are seeing in the business is pretty much across the board as it relates to the specialties but also to geographies or do you take pockets that you are trying to focus on?

On the specialty side and nursing business, it is the usual suspect, climatory, ICU, but we've seen an increase in med surge orders, they are up more than double year-over-year. On the physician side is in line with love with MSP wins, hospital, ER surgery, lot of that internal medicines specialties as well. So we are seeing that geographically sums out [ph] similar to our business which California, Texas, New York, Washington, all been some of the biggest pockets of growth. So it matches well to our database. And Susan mentioned we are seeing some orders from clients that are in states we hadn't done business before. And interestingly we have been able to fill those jobs, is the strength of our recruitment database and we kind of kept those people active during kind of those slower time. So had a lot of success in new states as well.

Thanks. And finally I know Susan in the past you've talked about result of the healthcare reform, new positions being created and I was just wondering if you are increasingly seeing that become evident for you?

Yes. We are. We continue to see increased demand in some of what we will call future role. Even though they are actually exist today, the things that are going to be more important going forward. So areas like case management, nurse navigators, Telehealth capability, their skills by our professionals within our Locum businesses we certainly seen an increase in the demand for Telehealth physician, even though it is small today relative to five years ago when it was non existent, it is absolutely growing. So we would expect to continue to see those kinds of trends which are why we are also focused on the kinds of clinician we are recruiting and making sure that they have the right skill set for the future. We also as you know launch the center which is focused on working with our clients to develop unique training program to help them create that future workforce whether it be for the temporary workforce or for permanent position.

Thank you. Our next question will come from Mark Marcon with R W Baird. Please go ahead.

Good afternoon. With regards to the integration of the new acquisition. When do you think that would probably be completed?

It will be largely complete by the end of second quarter early third quarter as Ralph mentioned we will be going through an integration of their teams on to our front office platform. There is a little bit of that going on and sharing of orders which is why we are getting some early revenue synergies but the more comprehensive integration into our systems will occur mid year. We've done this many times so we take it seriously every time but we have a lot of experience in bringing those teams on to our technologies and we actually have a whole integration team that goes out there and work with them and trains them through the process to minimize any sort of disruption. So really by the end of the third quarter we would consider our self pretty fully integrated with the organization.

Great. And then can you give us an update with regards to the technology initiatives? That you have that are across the organization. When you would anticipate those would be completed?

This is Brian. As I mentioned on the last call we had implemented our sales force platform for Merritt Hawkins, our physician perm business and it is gone really well. No, no seeing disruption there and they have accessed a lot of great capabilities now that they haven't in the past. We are -- as we mentioned before this kind of multiyear investment strategy and so we will continue through this year with the development for our next business line and then we will really majority of the work will happen also in 2016 as well. So we expect that every all of our business lines on a common front office platform and back office platform by later in 2016. So overall things are going well, they are progressing as we expect. We are very diligent how we do this. These are -- they are great opportunity to deliver greater value and service to our clients. We think they can really create differentiations for us. We also -- they also changes in the business that we operate and so we are also very thoughtful about how we purchase as well.

Great. And then with regards to physician perm, I mean last few quarters margins have been really good. How should we think about the margins in that particular business from a longer term perspective?

I would think about them being relatively steady in the current core business that we have. They have improved a bit and that's been partially driven by our increased penetration into executive search and other market channel where we haven't been as deep before and so as we increase the mix of that portion of the business you might see a little bit of improvement in the margins going forward. But it would be more of steady progression as we continue to build our teams and exposure in those areas.

And maybe the final word, we were little, we were about close to the 27 in the first quarter that is again, they are also hiring by now to -- there is a lot of demand so they want to make sure they are appropriately staff so our stock margins have been in the low 20s and feels like we got the step change or probably more in the mid 20s on a go forward basis. And I think it is a combination of the -- as Susan mentioned the market opportunities and some of the new markets they are going after. I think also if you look at the operations as well and even the new capabilities from sale force. We think there is an ability to have our higher level of productivity for the team just while which shows improved profitability.

And then with regards to the clinician side just in terms of recruiting. What are you seeing in terms of the number of clinicians that are willing to work as travelers? Now that the environment gotten us tight.

Yes. Mark, this is Ralph. I will try to give you little color on that. We had a lot of success obviously with the growth numbers we've had so our recruitment is definitely keeping up with the demand level. And it come to us three different ways right. We have people who are on assignments today and rebook of those individuals who are very high. It is last recruiters which you are probably interest in, it is the people who used to be in the industry and come back and they have grown considerably, but the third bucket which is people who are brand new to traveler is the group that is growing the most. And generally runs about little less than third of our placement. So are new to the industry, so beyond their first assignment with us ever right in the last month or so you are talking over a half of them, are new to the industry. So that's probably a good sign that people figure out safe to get back in the longer and we certainly are changing our marketing tactics to take advantage of all three of those buckets but that bucket too particularly important to us.

What are the characteristics of those brand new ones? Are they younger, older, experienced, and less experienced?

Yes. They are probably what you would expect, people who are relatively new to nursing they finally got wander to your experience right and wanted to see what else is out there in the world, is probably the kind of the primary persona but you also are getting people who are in their twilight years, kids out of college and coming back into travel, may have traveled 30 years ago in their career, so there is a kind of retiree, we are seeing more of those as well. But even the people in the middle are because of the opportunities are available right now there every specialty, every shift, and every state at slightly higher pay range there it is bringing people back to the market there as well.

Thank you. We do a follow up in queue from Tobey Sommer with SunTrust. Please go ahead.

Thank you. I had to juggle couple of call so I might have missed something. I hope I don't repeat the question. Your long-term adjusted EBITDA margin goal seems like it is not only within striking distance what we kind hear. Are you taking a look at maybe coming out with the new one or how should we think about the long-term profitability at this point?

Well, we as we discussed in our guidance we do expect to come back to what is probably for this moment more normalized EBITDA margin of 9.5% as we catch up with our hire. But as we go through the year and go forward absolutely we expect to continue to get leverage up the revenue growth but also from the increased mix of workforce solutions things like VMS and RPO and Avantas which have a higher EBITDA margin and that absolutely contributes to our bottom line. I would say we would want to be at that 10% EBITDA margin for a few quarters before we reset a new target. But we will get there and we look forward to the day when we can give you a new target. It is not as though we feel that a series, it is just the next milestone for us to hit and when we do get there we will be providing you with a new target.

That's fair. The volume of Nurse and Allied travelers and I am trying to think of maybe saying it on a core basis before the recent acquisitions. How much below the old high of volume are we at this point? If you have that kind of rough percentage terms.

Yes. I would say we are just travel nursing because that's the best comparison when we were at approximately 8,300 travelers working in early 2000 call it predominantly nursing. And on an organic, travel nurse basis we are probably at something around 60% of that. So we have in our mind a lot of us, right now just we added to that with the Onward acquisition. And of course we have our allied business which is significantly bigger than it was then. And of course local staffing, so if you actually look at our STE equivalent it is getting close to that 8,000 range. But if you really only going to compare apples-to-apples in the travel nurse business, we have quite a bit of room to grow.

And Brian I just wanted to ask you a numbers question because I think you mentioned a couple of adjustments to gross margins. I was wondering if you could net those out and tell me what their impact might have been for things that aren't so easy to predict in the quarter.

Sure. This is Brian. So the first quarter gross margin, the only adjustments that I called that in the nurse and allied segment was the workers comp adjustments which is about $600,000. So that has about a 30 basis point impact of that segment about 20 basis point to the consolidated results. Outside of that there really wasn't anything material. I think we've seen it is not going year-over-year, we've seen there is price wise step up and that was we talked about the fact that with the growth in the workforce solution the addition of Medefis and Avantas which have higher margins as well. That's moved just up into this range of more at 31, a little bit lower than in the second quarter guidance but you kind of jumped again into this new territory and gross margin but that's really the only thing notable in the first quarter.

And you said, does that when tax effect even down at the bottom line is got a penny, half a penny?

Yes, closer to a half a penny.

Thank you. At this there are no additional questions in queue. Please continue.

Well, again I'd like to thank our team members for their great effort and performance because of our clients -- because of our team members really our clients are winning. Our clinicians are winning and our shareholders are being rewarded. We appreciate you joining us today and for your continued support of AMN and we look forward to updating you on our progress next quarter.

Thank you very much. Ladies and gentleman that does conclude your conference call for today. We do thank you for your participation and for using AT&T executive teleconference. You may now disconnect.