AMN Healthcare Services, Inc. (AMN) Q1 2017 Earnings Report, Transcript and Summary

Welcome to the AMN Healthcare First Quarter 2017 Earnings Call. [Operator Instructions]. As a reminder, the conference is being recorded. I will now turn the meeting over to Neil Thomas, Senior Director of Investor Relations. Please go ahead.

Thank you. Good afternoon everyone. Welcome to AMN Healthcare's first quarter 2017 earnings call. A replay of this web cast will be available until May 18 at amnhealthcare.investorroom.com, following the conclusion of this call. Details for the audio replay of the conference call can be found in our earnings press release issued this afternoon. Various remarks we make during this call about future expectations, projections, plans, events or circumstances, constitute forward-looking statements. These statements reflect the company's current beliefs, based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements, as a result of various factors, including those identified in our most recent Form 10-K and subsequent filings with the SEC. The company does not intend to update the guidance or any forward-looking statements provided today, prior to its next earnings release. This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on the company's web site. On the call today are Susan Salka, President and Chief Executive Officer; Brian Scott, Chief Financial Officer; Ralph Henderson, President of Professional Services and Staffing; and Dan White, President of Strategic Workforce Solutions. I will now turn the call over to Susan.

Thank you so much Neil. Good afternoon everyone and welcome to our quarterly earnings conference call. AMN Healthcare set another record for both revenue and profitability performance in the first quarter. Our revenue of $495 million was 6% higher year-over-year and up sequentially, driven by strength in our Travel Nurse and Allied division and our other workforce solutions segment. Our adjusted EBITDA of $63 million was 8% higher than prior year and represented a margin of 12.8%. AMN's strategy to further diversify and add new workforce solutions, which have higher growth rates and higher margin, are also contributing to this performance. We remain on track, with our goal to achieve a 14% adjusted EBITDA margin by 2020. The macro drivers of a strong economy and aging U.S. population and an aging clinical workforce, combined with continued high attrition, creates challenges for healthcare providers. Our workforce solutions are aimed at enabling access to the right talent, when and where they are needed. But also to control costs and optimize their spending on labor. These types of services and technology offerings are becoming an increasingly part of the equation to deliver cost effective quality patient care. To this point, our managed services program, vendor management systems, and workforce optimization offering has added several new clients year-to-date, and they have robust pipelines for the future. Most of these wins have been in the acute care setting. But we are also starting to add more clients in ambulatory surgery, skilled nursing, rehab facilities and other types of clinics. We are also making excellent progress on our strategy to serve clients through multiple staffing and workforce solutions. Now let's take a look at performance and trends in our major businesses. Our Nurse and Allied segment posted record revenue of $314 million, higher by 5% year-over-year. Excluding the significant labor disruption revenues and the impact of leap year in 2016, this segment grew 11% year-over-year. First quarter revenue for our largest business, Travel Nurse staffing, hit an all time high and increased 9% year-over-year. This is all organic growth, driven primarily by volume increases and reflects another quarter of exceptional delivery by our sales, service and clinical teams. We remain focused on serving the needs of our clients, with a prioritization on our MSP partnership. As a result, over 60% of the revenue for this business was from MSP related placements. Our strong bill rates have enabled us to grow volume and revenue, which is important since we have not yet experienced the typical rise in demand we would expect this time of the year. This is in contrast to macroeconomic factors, which remain very positive. During the quarter and currently, our fill rates are rapidly increasing, offsetting the lower demand. As we mentioned before, our MSP direct fill rates rise during periods of slower demand, shielding us to some extent from these events. We've seen similar temporary softness in demand before, like in early 2014. These situations typically last three to six months until short term tactics, such as mandatory overtime and hiring bonuses [indiscernible]. We also expect an increase in orders in the third quarter, with the implementation of our recent MSP win. The interest in travelling from new nursing candidates remains very strong. In particular, the number of referrals from existing travelers is up double digits. In addition to this fact that these are our highest converting new applicants, this is also a great sign that our existing nurses are very pleased with their experience at an AMN assignment. In the first quarter, the Allied staffing division achieved another record revenue, growing 14% year-over-year. With a favorable demand environment, increasing volume has been the primary driver of growth in this business. Pricing increases of 3% also contributed. The focus on our MSP clients has been a key driver of the revenue growth, with approximately 40% of this division's revenue now coming from MSP contracts, versus 30%, just a year ago. Looking ahead to the second quarter, the Nurse and Allied segment is expected to be up 8% to 9% year-over-year, excluding our labor disruption business, which had two large projects in the second quarter of 2016. On an as-reported basis, including labor disruption, the increase is projected to be approximately 2%. In the Locum tenens segment, first quarter revenue of $103 million is essentially flat year-over-year, with price increases offsetting volume declines. Demand for locums remains strong and many of our specialties experienced year-over-year growth. However, a couple of our larger specialties, such as hospitalists and internal medicine sub-specialties, experienced declines. Considering these factors, second quarter revenue for locum tenens is expected to be flat year-over-year. We believe our Locums division has great potential and should be able to double in size over time. To enable this kind of evolution, we have recently made a leadership change. Effective last week, we promoted Jeff Decker to the position of President of the Locum Tenens segment. Jeff is a seasoned healthcare staffing executive who has been with AMN since the acquisition of Medfinders in 2010. Under his leadership, the Allied division has grown from $80 million to over $230 million in revenue, consistently delivering industry leading growth rates. We are confident that Jeff and the team will make the right decisions to enable the faster growth that Locums business can achieve. We expect to name a new President for the Allied division during the second quarter. First quarter revenue in the Other Workforce Solutions segment was $79 million, which is 17% higher year-over-year. As a reminder, this segment includes our interim leadership and placement businesses, physician per placement, RPO, workforce optimization, VMS solutions and the medical coding business. Our leadership business revenue in the first quarter was up 13% year-over-year. We are experiencing both volume and pricing growth, as well as benefiting from cross-selling opportunities into our MSP clients. We are anticipating continued growth of 10% to 15% for this division in 2017. First quarter revenue from the VMS business was up 24% year-over-year, as we continue to add new clients and expand existing relationship. We have 1.1 billion of vendor neutral spend flowing through this technology platform today. Medefis and ShiftWise continue to make investments in their current and future technology platform. Later this year, they will be launching new capabilities, that will enable AMN to more broadly serve the healthcare community and their supplier network. Our VMS businesses are positioned for another year of strong growth. Avantas, our workforce optimization offering, continues to expand into new clients and settings and grew first quarter revenue by nearly 17% year-over-year. They are on track for another double digit growth year. The physician permanent placement business first quarter revenue was down 7% year-over-year, primarily due to fewer new searches. We believe the underlying market demand provides plenty of opportunity for growth in this business and the team continues to add prestigious clients and expand into new areas of healthcare delivery. We are seeing improvement in search trends and expect this business to be sequentially up in Q2, but still down in the low single digits from the prior year. Peak Health Solutions, which joined the organization last June is performing well, and a bit above our expectations, as the market continues to improve. The team is continuing to expand our capabilities beyond medical coding, and have seen positive signs in our ability to further diversify and scale the business. Overall, second quarter revenue for the Other Workforce Solutions segment is expected to be up approximately 15% year-over-year. Now I know, at the top of mind for everyone today are the potential changes to the Affordable Care Act. Investors ask me very frequently, what changes might impact our business? One of the biggest changes being discussed, relates to the funding and expansion of Medicaid. When we analyzed our trends over at the last three years, we found very little difference in demand growth between expansion and non-expansion states. In fact, more recently, demand has grown faster in the non-expansion states. We believe the current proposed changes to Medicaid will have minimal or no impact to our business. If the individual mandate is repealed, we believe it is likelier that that healthy population would reduce or eliminate their coverage. This would translate into a moderate impact to hospital census. When we think about AMN's growth over the last three years, we believe the majority of this growth has come from our ability to deliver to our clients, the success of our strategy and the benefits of further diversifying our business. From a macro view, the biggest tailwinds have been the stronger economy and the shortage of clinicians. We have actually seen some recent positive movement at a state regulatory level, which could provide some benefits to us in the future. There are 19 states who have adopted new rules to enable physicians to more quickly become licensed to deliver patient care across state lines. As of today, eight of those states have actually implemented the new regulation. This is referred to as the Interstate Medical Licensure Compact. And a similar initiative is underway for the physical therapy profession. This kind of Interstate Licensure Compact has been in place for nurses in 25 states for more than a decade, and has been very beneficial to our ability to attract talent, and fill our client's jobs quickly. We are in a transformational time for healthcare, and this creates opportunity for AMN, by remaining focused on our client's needs, we can continue to grow our existing businesses and find new opportunities to become a better and more holistic workforce partner. Our talented and highly engaged team is a critical component of our success. Every day, they make AMN's mission a reality. I'd like to extend a huge thank you to all of our colleagues, for their important contributions. Now, I will turn the call over to Brian for a financial update, after which Ralph and Dan will join us for the Q&A section of the call.

Thanks Susan. Good afternoon everyone. The company's first quarter reported revenue of $495.2 million was just above the high end of our guidance range, due mainly to better than expected performance in our Nurse and Allied segment. There was no meaningful labor disruption revenue this quarter as compared to almost $12 million in both the prior year quarter and the prior quarter. Excluding any labor disruption revenue and the leap year impact, consolidated first quarter revenue was up 10% year-over-year and 4% sequentially. Gross margin for the quarter was 32.7%, up 20 basis points from both last year and last quarter. SG&A expenses in the quarter totaled $102.1 million or 20.6% of revenue as compared to 20.9% last year and 20.7% last quarter. First quarter Nurse and Allied segment revenue was $313.5 million, an increase of 5% from the prior year and 2% sequentially. Excluding any labor disruption and leap year impact, revenue was higher by 11% over prior year and 6% sequentially. Volume was higher by 7% year-over-year, while the average bill rate increased 3%. Nurse and Allied gross margin of 27.7% was 110 basis points higher compared to prior year and 40 basis points higher sequentially, due in large part to lower insurance costs. First quarter Locum Tenens segment revenue of $102.8 million was flat from the prior year, but down 1% on a sequential basis. On a year-over-year basis, the average bill rate increased by 4% and the number of days filled was lower by 5%. Locum Tenens gross margin of 30.7% was down 30 basis points from the prior year and 10 basis points from prior quarter. The year-over-year decrease was due mainly to a lower bill-to-pay spread. First quarter Other Workforce Solutions segment of $78.8 million was up 17% year-over-year and 4% sequentially. Gross margin of 55% was lower by 530 basis points year-over-year and 70 basis points sequentially. The year-over-year variance was due in large part of addition of Peak Health Solutions in June 2016, lower leadership margins and revenue mix changes within the segment. First quarter consolidated adjusted EBITDA of $63.2 million was up 8% year-over-year and 4% sequentially. The adjusted EBITDA margin of 12.8% represented an improvement of 30 basis points over both the prior year and prior quarter. We reported net income of $32 million and diluted earnings per share of $0.65 for the quarter. Adjusted earnings per share were $0.63 compared to $0.60 in the prior year quarter. Cash provided by operations was $52 million for the quarter, which compares to $35 million in the prior year quarter. Days sales outstanding at quarter end was 61 days compared to 64 days last quarter and 59 days last year. As of March 31, cash and equivalents totaled $38 million. Capital expenditures for the first quarter were $5 million. At quarter end, our total debt outstanding was $368 million and our leverage ratio was 1.6 times to one. Effective in the first quarter, AMN adopted a new accounting standard, relating to a settlement of stock based compensation. As a result, we recorded an income tax benefit of $4.3 million in the quarter, which was excluded from our calculation of adjusted earnings per share. Now let's turn to second quarter 2017 guidance. The company expects consolidated revenue of $486 million to $492 million. This guidance assumes no material labor disruption revenue in the quarter. Excluding any labor disruption revenue, this reflects a year-over-year growth rate of 7% to 8%. The sequential decline comes from a seasonal decline in Travel Nursing, partially offset by growth in all the other divisions. Gross margin is projected to be approximately 32.5%. SG&A expenses as a percentage of revenue, are expected to be approximately 20.5%. Adjusted EBITDA margin is expected to be approximately 12.5%. Other second quarter estimates also assume the following, income tax rate of 41%, interest expense of $5 million, and diluted share count of 49.7 million shares. That concludes our prepared remarks and now we'd like to open up the call for questions.

[Operator Instructions]. And our first question is from the line of A.J. Rice with UBS. Please go ahead.

Thanks. Hi everybody. Maybe first to just ask about the comments that Susan made about seasonally, a little softer trend in Q1 to Q2 in orders. But also, you said you are having better fill rates on your MSPs, and they are sort of offsetting each other. Can you just expand a little bit on both those comments, what you are actually seeing out there, how much better in order of magnitude your fill rates are in the MSPs?

Sure. And I will have Ralph pick that up. First off, I just want to mentioned that the seasonal volume decline in travelers on assignment from the first to second quarter with the nurses, is a typical decline. We have a lot of, what we would call winter placements that we make and those individuals generally come off assignment in March and April. The timing was a little bit different this year, which caused them to come up a little bit earlier and having a little bit more of an impact in our sequential volume declines within nursing. And I will have Ralph pick up the demand trends, and give a little bit more color on that.

Thanks A.J. This is Ralph. Our demand in the second quarter, at the beginning of the quarter, is down even a little bit more than it was down in the first quarter. And the number of open doors we have in the last couple of weeks that have been open, actually have started to improve just slightly. But the real and important point here I think is where our fill rates are. Fill rates are up 500 plus basis points, primarily driven by our MSP wins and our MSP clients, and that has of course resulted in the guidance you saw today for our second quarter, which is favorable as well. But our fill rates among our traditional clients and other third party clients were -- supply in those programs continue to be strong as well. So really had -- no more color to add, it's always kind of interesting to understand why these things happen. We did do a proprietary survey a couple of weeks ago, and we got feedback from our clients about what was causing the order or demand to be a little bit lower than traditionally -- the top three reasons they cited were that they were making new hires, things like new grads, adding to their perm staff, or their 'fulls' [ph]. Then also a little bit of [indiscernible], just over concerned about the increase in the amount usage of contract earnings. And then, to some extent, there was just a mix of other issues, like concern about lower -- potential lower patient volumes or fewer capital projects and things like that. So nothing consistent across the board. As a matter of fact, when you take a look at our largest MSP client, you have about -- close to half of them have increased their orders in that same period of time, and they got half to increase their orders. So hopefully that gives some [ph] color.

And as we ask the question of the -- more of the executive level within our clients, they describe the environment as actually being, in terms of their needs. Similar, if not in some cases, a higher need, higher utilization, because of their census being so strong. And their projection, sort of an informal projection for the future, was their need for contingent staffing would be the same or greater, going forward.

Okay. And then on the Locums business, you mentioned some strength in some specialties. But the hospitalists, the internists in particular are seeing some weakness in demand there. Is there any story that you have been able to discern by that? Is that -- I can't remember, whether those have been areas where they haven't been strong for a while, or is that something new? And then, I guess with the management change there, any particular initiatives that you guys expect to pursue, or just do everything a little better is the hope? Any thoughts?

A.J., this is Ralph. I will add the specialties and then a little bit of flavor on what we are doing going forward, to get the growth stimulated again. The hospitalist has been a segment where for about two or three quarters, we have seen a decline in demand, primarily driven by the physician management companies. We have seen less transition from in-house to outsourced work in that area, or vice-versa. We were seeing quite a bit of work in the prior years, where they would reverse that trend of going from the outsourcing back to an in-house model, and we benefitted from that trend, and that was really kind of the primary issue on the hospital. On the other internal medicine, specialties, one of our highest bill rate specialties was down. We think that's a combination of factors. Some of them are related to execution, staffing levels, getting our new hires up and running quickly. So certainly, opportunity there to improve. But we didn't expect a lot of change in the hospitalist market. We are hoping. We actually did add a new MSP in that space about three quarters ago. It's beginning to grow very quickly. But hopefully, we will see some movement there, that would add to the hospitalist market. But across the board, there are -- there is huge opportunity here. We aren't seeing demand back up year-over-year. It was about flat in Q1, but more recently, it was up again, and there is opportunity on fill rate, to drive higher fill rates across that business. It's about 10%, or a 1000 basis points literally above it's all time high. There is lots of demand out there that we probably haven't been able to tap into. We did add sales leadership recently there as well. And so [indiscernible] to kind of create a shift from -- we had several years of -- in a clean-up, getting profitable and turning the business to a more positive direction, and now it's just under -- to put in place a leader, who is more focused on growth.

Okay, all right. Thanks a lot.

Thank you, A.J.

And we will go next to Tobey Sommer with SunTrust. Please go ahead.

Thank you. I wanted to ask you a question about your plans for internal salesforce hiring? Maybe, how much your headcount is up year-over-year and what kind of capacity or utilization you think you have out of those people at this point? Thank you.

Sure Tobey, thanks for the question. And I will take it from a high level. We absolutely are hiring, but have many open positions, and in this tight labor market, it's challenging many times to find that right talent, both with the skill and to fit the culture. But our talent acquisition team is doing a great job. So if you know of anybody looking for a great job, please pass them our way, because we are looking to add to the team. It's a little bit different from business to business. Within Locums as an example, we will be hiring there, but in some cases, that's just to do with some of the attrition. Probably won't be going up as much, in terms of absolute headcount. Where as in Nursing, we will be hiring up both for the minimal attrition, but also to continue to build up the team there. We have more hiring actually going on in some of our Other Workforce Solutions area, with all of the MSPs that we are winning with the growth in our EMS businesses, Avantas, we have talked about, they are also doing some significant hiring. So it's pretty much across the board.

On the Other Workforce Solutions segment, could you refresh me on the annual expectation for that segment to grow, and when do we lap some of the tough compares, large RPO projects that wound down in 2016?

Well in totality, we would expect the Other Workforce Solutions segment to grow faster than our contingent staffing segment of Nurse and Allied and Locums, which you see that it is. These are smaller businesses, but lower penetration rates today. So they should have higher growth rates, and I think you are seeing that, and we would expect to continue to get that benefit going forward. We haven't called out a specific growth rate and it does depend somewhat on which of those businesses within that segment are growing at a faster clip. With regards to RPO, we are seeing positive trends there and would expect to lap that year-over-year comps towards the end of Q3. So by Q4, we would actually be up on a year-over-year basis within that business line.

Hey Tobey, this is Brian. If you look at the guidance we gave for the second quarter, that 15%, if you'd look organically, because the Peak acquisition occurred in June, you would be still looking at high single digits, and that's with that negative comp on RPO. So as you move into the third quarter and we get to that positive RPO, you can surmise them that [indiscernible] based on the trends right now, you'd be into a double digit territory.

Okay. Thanks, that's helpful. And from a broad perspective, you talked about orders ebbing, flowing a little bit recently. From a -- since we can't see the numbers in your judgment, are the short term oscillations impactful on your growth or are you able to grow more or less, at these levels of demand -- to the state you could try to frame that, I think I just kind of said it awkwardly, but I'd appreciate your help?

Yeah so, I think you know, you can look first to the second quarter, as a good example, and the sort of order softness or oscillation as you described that was occurring in the first quarter, and yet, in the second quarter, while we were sequentially down, which is typical, we are up on a year-over-year basis. And so, we would expect that we should be able to continue with that, depending upon where the order growth actually occurs. Certainly, if we get more order growth within our MSP clients, which is what we would expect, because we are adding in additional MSP clients through the recent wins that we had, then we ought to be able to continue to grow. If we weren't adding new MSPs, yeah, to be honest, it might be more challenging to grow through that. But right now, orders are still -- just to put it in perspective, orders are still about double of where they were in 2014. So it's still above our traveler accounts. So we still think that we have got room to grow into those, plus with the addition of new clients coming on.

Well, I'd add one more thing; this is Ralph. Just the number of travelers we have on assignment, extended can also impact our numbers pretty dramatically. So orders are only kind of one component. But existing individuals, who get extended beyond their -- first 13 week assignments. Even often beyond their 26 weeks, will also make a difference in our results as well.

That makes sense. Two questions from me remaining, one, could you just comment on your expectation for pricing? And could you also let us know, if you think that -- are you seeing the evidence that retirements of nurses is influencing the customers? I have been looking for evidence in data, and been struggling to find it on my own. Thank you.

So first, regarding the pricing question, we are seeing sort of that 2% to 4% range that we have been talking about kind of coming down to, what we think, represents something more in the area of nurse wage growth, and that's very much what we are seeing. We expect to see that going forward. Regarding retirement, it is absolutely top of mind for our clients. It's funny you would ask, because we just had some conversations in the last week with some of our larger enterprise clients and talking about their retirements and they are laser focused on the number of nurses that they expect to be retiring. They got it down to the percentage of those nurses that can retire now, and are retiring now, and those that will retire in the next five years. And so, as we continue to see that nursing workforce age, we think it will continue to be a bigger pain point. It's not just as our clients are telling us. Now it has been hard to really get numbers that support what percentage of the attrition is actually attributable to those retirements, but we have to believe it's a meaningful enough number or they wouldn't be bringing it up. What we often point to as a more macro guide, is of course the JOLTS data, and if you look back to the February JOLTS data, the number of healthcare job openings hit a -- I think it was all time high, certainly year-over-year, it was up 21% year-over-year and remember, this is not just nurses, it's all healthcare job openings. But the number of hires was essentially flat to prior year, and so we continue to see that ratio of job openings to new hires be at a very high level, at 2.1 job opening to every one person hired. And so we think that has to incorporate some element of these nurses that are retiring or pulling back their hours. And certainly, anecdotally, we hear on the frontlines, a lot of frustration over the high level of attrition that's occurring.

Thank you very much.

Thanks Tobey.

And we will go next to Brooks O'Neil with Lake Street Capital Partners. Please go ahead.

Good afternoon. I think in your press release, you commented about the position of your balance sheet, and your beliefs that there were still some very attractive areas for investment. I am curious if you would elaborate on some of the areas you find most interesting?

Hello Brooks. Thanks for the question. And as you may recall, we actually added an additional executive to our team last year, Matt Zubiller to help make sure that we are being laser focused and very disciplined in the way that we think about how we add on new capabilities through acquisition. And so, for us, the top priority is to continuing to add an additional workforce solution. Many of those may have a technology component to them, because if we are helping our clients to be more efficient and collect data, so that they can better analyze, how when and where they are using their talent. Then that's probably going to be pretty technology intensive. So that would be -- that area, and that's a pretty broad area, it would be at the top of the prioritization list. Second would be, new categories that would help us to staff different kinds of roles with our clients that we may not be doing today. So think of the leadership businesses that we added in the last couple of years, that was a pain point. Still is, for many of our clients, because they have vacancies that they can't fill and for that matter, an aging leadership workforce. Coding, was another example. So we are not yet ready to announce what our new category might be, but those would give you good examples of the types of things we might look at, within healthcare. And then third would be consolidation opportunities within our existing staffing lines, and within that area, Locums would probably be at the top of the list for us, because we have significant demand and it's a very -- it's supply challenged market. And so we think we could add some additional firepower and capabilities, if we could possibly add in an additional division and brand to the portfolio.

That's great. That's very helpful. I am curious, I am assuming there is still quite a lot of tailwind behind the MSP business, but could you comment just a little bit on what you are seeing there, and sort of what you expect, looking out maybe over the balance of the year, maybe even into 2018?

Absolutely. I know Dan has been sitting here anxious to share a lot of that good news. So Dan, I will let you take it away.

Hi Brooks, its Dan. Before I get into the detail, I just wouldn't -- if you will forgive me for a second, I would like to give a shout out to our MSP team overall. Just this week, AMN was named the top clinical MSP provider in HRO Today's Baker's Best Customer Satisfaction Survey. That's a really big honor for us, and it places us alongside or within the top five global MSP providers as well, which is truly an accomplishment and great recognition of the work that our team does every day for our clients. In terms of some specifics around MSPs in the quarter, we won deals that were worth $60 million and additional growth spend. Each of those -- all of those are net new MSP users, not taken away from another provider; which is, again, a good sign of the market. One of those was Locums specific, one was Allied specific and the rest were Nurse and Allied combined. On top of those new MSP wins, we also had a terrific cross-selling quarter, adding six new additional service lines into our base, and just to give you a little bit more color on that, today, of our top 25 MSP clients, they each have -- or 75% of them, excuse me, have five service lines, and a year ago, only 45% of that same number had the same five. In terms of Q2 pipeline, again, we feel quite blessed to have a strong list of clients who are in contracting with us today. That list is valued over $100 million in gross spend. All but three of those clients are multi-disciplined, and those three are Locums only.

Great. That was very helpful. Last question for me, and maybe back to Susan I guess; you talked about the outlook for changes to the Affordable Care Act. You specifically called out the Medicaid impact. The other area that I see talked about quite a bit, in terms of potential changes, is related to people with preexisting conditions. And I am just curious that you'd be willing to share any thoughts you have about how those changes might affect your business?

Well, in that case, it really comes down to the details of what is eventually passed. So I really kind of hate to speculate in, so right now, I think there is discussion regarding maintaining preexisting conditions, as long as you maintain continuous coverage. And so, there would be no impact, if the bill continues as it is currently being proposed. Now if they took that away completely, it's really hard for us, quite honestly to determine how much utilization comes from those specific preexisting conditions. And so, I don't know that I have a clear answer for you.

All right. That's fair. Thank you very much.

Great. Thanks so much Brooks.

And we go next to Tim McHugh with William Blair. Please go ahead.

Thanks. Just wanted to follow-up the comments about the new order flow, I guess, coming into this year. Can you size it, relative to, I guess your expectations? I recognize it's still up a lot, versus a couple of years ago. But just I guess, trying to understand how much -- how different it is, than what we might have expected, three or six months ago?

Well, it's a tough one to characterize, because every year has been a bit different to be honest. And I go back to 2014, as a good example, where we saw some softness at the beginning of the year, and ironically in 2014, the order started to rise towards the end of May, which was kind of uncharacteristic and they rose at a much faster pace, than we would have expected. Whereas in the last couple of years, they started to rise more naturally towards the end of kind of February and into March. Just I guess to sort of put it in some sort of context, we are talking about a rise of like 10%. We are not talking about orders double during that period of time. So hopefully that gives you some sort of guard rails, as to how big the number is.

And what you are saying is, they have kind of stayed flat, they haven't risen? Or is it versus that normal 10% increase? Is that the right --?

Yeah, they have actually gone down a little bit, depending upon the week. As Ralph mentioned, as actually we have gotten more new orders in. There would be total orders, which you actually have to dissect between what kinds of demand is it? Is it MSP, is it direct, or is it through a third party, because our fill rates were substantially different through each of those. And then we have to also look at the number of newer orders that are coming in, because those are the fresher opportunities that enables to book out more into the future.

Okay. And I guess, as we think about recognizing in the short term for periods of disruption like this, you can just increase your fill rates. I guess -- how long could you continue to do that here realistically, in terms of pushing up that fill rate, before you'd start to be more concerned, I guess, about the level of new orders coming in the door?

I will talk about the fill rates. We are still over 1000 basis points below all time highs on our fill rates, and there is certainly more upside about doing the fill rates. So you know, there is room to run there. And that order mix, as Susan mentioned, is important. So that's one part of the reason I don't like talking specifically about order percentages, is the mix is critical, but it's extremely difficult to predict, what percentage is MSP, what percentage comes to third parties, and things like that. So we have seen some favorable trends in the orders. I will give one for example, med-surg is the number one specialty and typically, med-surg orders kind of disappear when the market is really bad. But right now, it's our number one specialty. So there is -- for every negative, there is positive in those trends, and I think, the upside on fill rates is probably the most positive we have going forward, in addition to all the macroeconomic things. And then, the things the clients are telling us this that, they can't run like this much longer, or they have needs, but just haven't been approved by management yet. These are the things we hear every day, that make us feel like -- as Susan said, we might see that same kind of pop we saw in 2014.

All right. That's helpful. Thank you.

Thanks Tim.

We have a question from Mitra Ramgopal with Sidoti and Company. Please go ahead.

Yes hi, good afternoon. Just a couple of questions; first, I wanted to follow-up on the MSP business and I was wondering if you are seeing any change in terms of the average size of the programs you are bringing on? Or in census, are you seeing even smaller hospitals coming on stream now?

Mitra, this is Dan. I think I will try and take that one. I actually am seeing just the reverse of that. If you did some analysis on all of the wins we had last year, our average deal size was probably in the $9 million range, and this year, it's more than 50% higher than that, on average. So now, I am not seeing overabundance of smaller ones. That being said though, I am talking specifically about our staffing led MSPs, and I would venture to guess that a good chunk of the smaller ones are being captured by our VMS brothers and sisters.

Yes. As we mentioned, our VMS businesses, ShiftWise and Medefis have both had a fantastic beginning to the year in adding in new clients. And there are some very large clients in there as well. I mentioned that we have had some outpatients and skilled nursing facilities, but also some acute care wins, and they range from $1 million accounts in terms of gross spend under management to $20 million gross spend under management. So they seem to be running a broader spectrum, in terms of what's available.

Thanks, very helpful. And Susan, I believe you had mentioned earlier, one of the things you are seeing is increased demand in terms of ambulatory or outpatient centers, I guess, relative to acute care. And I am just wondering, if you have to do anything a little different, maybe target that opportunity?

Yes. And we have been targeting those areas. Over the last couple of years, we just haven't seen a lot of traction, particularly in our workforce solutions. And when I made that comment, I was specifically referring to new managed services program, new vendor neutral VMS wins, and then our Avantas offering as well. And they have the same kinds of vendor management related issues, as well as workforce planning and scheduling issues. And so we are definitely seeing more interest and appetite. We will likely need to add more sales resources, in order to properly segment our approach to those markets, as we see more potential.

Okay. Thanks again for taking the questions.

Thanks Mitra.

We have a question from Bill Sutherland with the Benchmark Company. Please go ahead.

Yeah, thanks. Just a couple at this point. Did you mention BE Smith, of the Interim Executive Business?

Yeah I mentioned that our interim businesses were up nicely in the first quarter, and we have, remember two, interim leadership businesses, BE Smith and The First String. So I will let Ralph talk about some of those trends.

Just a little color there. The combined businesses are up on the interim side, in excess of 10%. I think Susan called that the long term growth rate of 10% to 15%. We also are seeing favorable trends on pricing there, and demand. It's above prior year on interims, it's a little bit slower on executive retain search business. But that's a very-very small percentage of the total business. The transitions and the integration of the two companies has gone great. We have picked up some super executives that we are very excited about. They have a long term impact on AMN overall. And to [indiscernible] back to MSP, we actually are starting to book into MSPs, and we are getting them added to contract. About 6% of their volume right now runs through MSP program, which is above what we expected to be at this time.

Okay, great. And just a housekeeping question, you mentioned the organic growth number for Nurse and Allied and OWS for the quarter?

This is Brian. So the Nurse and Allied, it's all organic at this point. So we acquired HealthSource Global at the beginning of 2016. So if you look at within the workforce solutions, organic growth rate was 6% in the first quarter, and then, for the overall company, it's about a 2% impact. So instead of that 10% we mentioned, excluding the -- strike the leap year, it would be more than 8%.

And just going back to Nurse and Allied, if you exclude the labor disruption revenue, and just kind of look at the core business, as we think about it, and you exclude the impact of leap year, that segment was up 11% year-over-year, so if you want to think about that, as kind of the organic-ish rate.

Yeah, that's helpful. Thanks everybody. Appreciate it.

Thank you.

And we will go to Mark Marcon with Robert W. Baird. Please go ahead.

Good afternoon. Wondering if you could talk a little bit about, what you ended up seeing with regards to some of the seasonal travelers coming off assignment a little bit earlier? What drove that, do you think?

Mark, this is Ralph. I will handle that. Hope you are doing well? I think we talked about this a couple of times in the past. We have a little over 1,000 seasonal RNs every year that work for winter needs, on the West Coast primarily. And then we spend basically, the second half of the first quarter, rebooking them into new assignments and moving them around. And generally speaking, we will have -- we can move up to 300 of them, we can't get rebooked somewhere else. This year, we actually did very well against that, with probably less than 20% of them, we couldn't get on to a new assignment immediately going in the second quarter. It's not too late, and we will get them all -- we will get them placed sooner or later. But it does have that impact of that seasonal drop this year, as you can see in our suggested guidance for Q2.

Was there a reason why, in terms of just the -- why they were coming off a little bit earlier?

I think it's -- I don't think they are coming off a lot earlier. There is probably just some small variations there. The number that are coming off is actually fewer, but the timing might be slightly different. Sometimes the clients -- if their core hiring isn't keeping up, we will keep them the next two or three weeks, within the assignment, and things like that happen, it's not as linear as I'd like it to be, but that's the -- that kind of the small difference is there.

We have one large client in particular, that is a large consumer of these, sort of winter seasonal travelers. And last year, they were quite a bit behind in their firm hiring. And so, they needed to extend more of their seasonal travelers, than what might be typical. So I think Ralph is right. The actual assignment date was probably just a couple weeks earlier. But what happened is, they had extended them even beyond that, because they had more challenges with their perm hiring.

I see, great. And then with regards to Locums gross margin, how should we think about that in terms of what it -- how it should look going out?

We talked about it -- we still feel like there is upside there to 31%, maybe 32% on our Locums gross margin over the long term. Given the little mix changes, different specialties and things like that can cause it to soften just a little bit. And we are actually -- I am pretty proud of the teams, despite their challenges on volume, they did a great job of managing margins the last couple of quarters. That's great for the long term. We see the same thing across other businesses, our Nurse and Allied margins were very strong in the quarter. We had a little help from lower insurance costs this quarter. But our team is super disciplined about making sure that we manage margins quarter-after-quarter. I think we are probably the most consistent performer in our space.

That's great. And then just, with regards to the availability of clinicians, can you talk just a little bit more about some of the efforts that you have made with regards to improving supply. What would it take to get that 1000 basis points in terms of the sale rate moving up?

That's a great question. We do have one of the best digital sourcing teams in the industry, and I am very-very proud of the work that they have done so far, and we have touched about this on the calls in the past, tremendous improvement in matching supply to demand on a real time basis. So the things that we are doing now are optimizing. So you might, actually if you are watching like web traffic, you might notice that our traffic is just a little bit below last year. But some of that is intentional activities on our part, to make sure that we are targeting people who are ready to change jobs right now. And so we have developed internally, some algorithms, which would allow us to score a candidate. How embedded they are in their current job, how serious they are about changing jobs. All of that allows our recruiters to be more productive. They are calling the most active best match to a job candidates first. And so, we don't need to drive a tremendous amount of supply, in order to grow conversion ratios across all of our businesses, which is the percentage of people who come into the web site, and then become an employee eventually. So we monitor that very closely. And well we sourced it out, it don't work and we found some interesting things that we thought were working in the past and find out later that they aren't. But one of the things, I think Susan mentioned this in the script was our referral business, was almost double in our nursing, what it was in prior year, and which is -- we think is a good sign, we have the right orders, that people are attracted to work for AMN, which is great. But also, the person referring them in are something who went on an assignment with us and had a great experience, otherwise they wouldn't be telling their friends to come work here. So I don't want to give away some of the future secrets. There is about four or five other things out there that we are testing right now, that help us identify candidates earlier than we do today, and maybe not even thinking about this, in terms of jobs driving candidates. But think about this in terms of managing an entire work -- potential workforce, as if they were yours -- before they become yours and giving them right when they are ready to make a change in assignment, whether that be a long term or short term or a permanent position.

That's great. And Ralph, do you think that the fill rates can improve by 1000 basis points in the next few years?

Yeah. We have done it before.

Great. Thank you.

Thanks Mark.

Thank you. [Operator Instructions]. We have a follow-up question from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Susan, I think you mentioned that your VMS offerings maybe broadening their scope with some new functionality this year. Could you elaborate on that, or is it something you want to wait for us to see when it gets announced?

You know, I think I will wait on a specific, but I will give you some generality, so that you get an idea of what we are talking about. Right now, the VMS technology platforms that we have, are primarily focused on Nurse Staffing, both for DM and travel staffing. They can also accommodate Allied and a little bit of non-clinical. But the reality is, they were built, first and foremost for Nurse Staffing. There is a huge opportunity within the Allied space, that we think that we can go after, likewise within Locums. We know there is appetite for Locums MSP, but there are also VMS systems emerging out in the marketplace. We use ShiftWise to some extent for Locums today. But there again, it really needed to be retooled and redesigned to offer in a more credible and mass way. And then there are areas, outside of the clinical staffing realm, such as the IT staffing, statement of work, really anything that's non-clinical, and then you have permanent placement. There is a client right now, very much wanting us to be able to create a platform for all of their contingent hiring vendors that they are working with. And there is a variety of opportunities for us, concerning that we go after the biggest and most important opportunities for us. I am just not going to let the cat out of the bag quite yet, as to what that one is.

Okay. Thank you. We will stay tuned. Appreciate it.

Thanks Tobey.

And I will turn the meeting back to Susan Salka for any closing remarks.

Great, wonderful. Thank you again so much for joining us today. We look forward to updating you on our next earnings call.