Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare Third Quarter 2017 Earnings Call. At this time, all lines are in a listen-only mode. Later there will an opportunity for your questions and instructions will be given at time. [Operator Instructions] As a reminder, the conference is being recorded. I’ll now turn the conference over to, Randy Reece, Director, Investor Relations, Please go ahead, sir.

Good afternoon, everyone. Welcome to AMN Healthcare’s third quarter 2017 earnings call. A replay of this webcast will be available until November 16th at amnhealthcare.investorroom.com, following the conclusion of this call. Details for the audio replay of the conference call are in our earnings release issued this afternoon. Various remarks we make during this call about future expectations, projections, plans, events or circumstances, constitute forward-looking statements. These statements reflect the company’s current beliefs, based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements, as a result of various factors, including those identified in our most recent Form 10-K and subsequent filings with the SEC. The company does not intend to update the guidance or any forward-looking statements provided today, prior to its next earnings release. This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on the financial reports page of the company’s website which can be accessed at amnhealthcare.investorroom.com. 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, Randy. We are thrilled to have you join the AMN family and to help us continue to evolve our strategy down and our dialogue with investors and the analyst community. As we nearly end of what has certainly than an eventful year AMN healthcare recorded a solid performance in the third quarter and most importantly delivered significant value to our clients. Our revenue of $494 million with 5% higher year-over-year led by strength in Travel Nurse, Allied, and our MSP and VMS offerings. The quarter also included a return to year-over-year revenue growth for our Locum Tenens segment. Our adjusted EBITDA was $62 million and represented a margin of 12.5%. The overall environment for our business remains positive and the macro trends enabled growth across all of our segments. We continue to evolve our business model to improve the company’s sustainable growth rate and our profit margin. Even while improving our operating leverage, we are investing back into the business to future growth. These factors are keeping us on track to achieve our goal of a 14% adjusted EBITDA margin by 2020. Looking forward our fourth quarter guidance reflects typical seasonal performance across all three segments. This should enable AMN to deliver year-over-year revenue growth that is similar to or somewhat better than what we achieved in the third quarter excluding our labor disruption business. As mentioned earlier, the overall operating environment remains positive. During the quarter, we won new MSP clients with an estimated $75 million in growth spend under management, which brings our year-to-date wins to over $210 million. Our VMS technology businesses launched new capabilities and continue to expand and add new clients. Now let’s review third quarter performance and trends for our business. Our Nurse and Allied segment posted revenue of $303…

Thank you so much Susan, good afternoon everyone. The company’s third quarter reported revenue $494.4 million was just about the midpoint of our guidance range. There was no meaningful labor disruption revenue in this quarter. We estimate less than $2 million of revenue was lost in the quarter due to disruption associated with the Hurricanes. Gross margin for the quarter was 32.3% down 40 basis points from last year and 60 basis points from last quarter. The year-over-year gross margin decline was due mainly to lower bill-to-pay spreads and Locum Tenens and a lower margin in the Other Workforce Solutions segment. The sequential gross margin decline was driven primarily by lower margin in the Other Workforce Solutions and our Nurse and Allied segments. SG&A expenses in the quarter totalled $100.6 million, or 20.3% of revenue, as compared to 21.2% last year and 19.7% last quarter. The improved SG&A margin from the prior year was primarily result of operating leverage. Sequentially, the prior quarter include a $4 million favorable professional liability actuarial adjustment, the majority of which impacted the Nurse and Allied segment. Excluding this adjustment SG&A was relatively consistent on a sequential basis. Third quarter Nurse and Allied segment revenue was $302.9 million, an increase of 6% from the prior year and 1% sequentially. Volume was higher by 4% year-over-year, while the average bill rate increased 2%. Nurse and Allied gross margin of 27.3% was 60 basis points higher compared to prior year and down 50 basis points sequentially. Third quarter Locum Tenens segment revenue of $111.4 million was 3% higher than both the prior year and on a sequential basis. On a year-over-year basis, the average bill rate increased by 6% and the number of days filled was lower by 1%. Locum Tenens gross margin of 30.1% was down…

Thank you. [Operator Instructions] And our first question will come from Mark Marcon with Robert W. Baird. Go ahead, please.

Hi, good afternoon. Thanks for taking my question. In the prepared remarks, you mentioned a little bit about the orders and you also talked about Nurse and Allied in terms of the guidance being up 3%, up 6% ex-labor disruption. Can you just give a little bit more color in terms of what you’re seeing from a demand perspective? Where you expect to see the growth come from? And are there any sorts of trends that you’re to noting with regards to overall demand trends?

Hey, Mark. This is Ralph. I’ll handle that. I’ll start out with just Travel Nurse demand. We haven’t seen it improve, I think on the last call we talked about start at second quarter, it seem very soft. And begin to improve right as we got to the call, it trends have actually gotten better since then. And the mix of the business is pretty favorable. We’re seeing growth across kind of both MSP and non-MSP business. A little bit stronger from our MSP clients in Q3. So we still – like it’s a good market from a demand standpoint.

Just a couple other metrics and nuggets that we look at our – and in addition to that number of new orders we’re getting in, which is a really good reflection of the current and future demand, which have been increasing and very and much stronger even on a year-over-year basis. We look at things like the number of facilities that have orders, which has gone up. And so that’s been a positive trend as well and then even been – see more recent over the last couple of months. And the team has had some really great trends in placements over the last sort of four to eight weeks I would say. And so, lot of good signs that not only the demanded strong, but our ability to obviously show that demand is also strong.

I mean given those comments do you feel like trend should accelerate in the next quarter as the quarter unfold and as we go into next year or how should we think about a longer term growth rate strike revenue. And then speaking of the labor disruption, anything going on in Marquette, Michigan? How should we think about that situation?

We don’t normally call at any of our clients, but we do have a little bit of strike revenue next quarter. That we’re expecting, but it’s not coming home. I start incremental sequentially and it is baked into our…

It’s a typical amount and it’s very small. So I don’t want to overflow it. For example, as we look at the third quarter we have a little under $3 million at strike and EMR revenue and it would be similar in the fourth quarter based on what we know today. So don’t want you expect something that’s going to slight tick up.

Yes. I guess – just a little comment on your longer term. Our first quarter is typically very strong for us. We do a lot of win needs for our clients. And our fill rates in that area are up. So we feel pretty good about first quarter as well. But I want to go any further than that at this time.

I just amended in terms of like year-over-year is the month unfold for – obviously orders are pretty good leading indicator. So I was just wondering if – we should if the orders are picking up now then may be the revenue grows as the quarter progresses on a year-over-year basis?

Hi Mark, this is Brian. I mean that – I think that’s a little bit reflected in the guidance and the commentary gave that we as the orders have improved in the third quarter or starts for the Nursing particularly in the fourth quarter are a little bit better year-over-year than in the third quarter. So I think it’s a little early to call out anything for 2018, but it’s a good early sign.

In addition to the underlying trend in our current clients, which I would say we’re more bullish on that today than we were even 60 weeks ago, its been progressively getting better. But on top of that remember we have several new MSPs that either recently went online or will be coming online over the next three months, and some of those are somewhat sizable. And so we have a lot of new incremental demand that will help us drive growth rate even more. Now what that number will be, I think it’s a little premature and early to call that out, but knowing what we have coming online it certainly makes us more bullish about the future.

Great. Thank you.

Thanks, Mark.

Thank you. Our next question is from Jeff Silber with BMO. Please go ahead.

Hi, good evening guys, it’s Henry Chen calling for Jeff.

Hi, Henry.

Hey, guys. Just wanted to follow up on the demand trends. The sequential improvement whether improvement from the first half to this quarter from a demand perspective, is that just the environment for hospitals improving or just sort of like a natural pickup in order rates or any kind of, just trying to understand what’s driving the pick up recently?

Yes, Henry, this is Ralph. I’ll start on that. What we’ve seen is an improvement where we are right in the last quarter. It is a little bit bad than we had anticipated probably in second quarter. So we feel good about that. There are always is a pickup in demand with those winter needs. But this was, I guess, a little bit stronger than anticipated this time around and combine I think with our higher fill rates this year and than in prior years. That’s probably you hear something a little bit one favorable about those demand as well as our execution on it. Additionally, we are – in MSP and the new wins are offsetting those clients that are declining, not every client is increasing. It’s not that kind of an environment yet. So the new wins help us get us into some new markets. They’re very well distributed across the country, and they are implementing at a pretty rapid rate right now. So that help that makes us still pretty good as well and gives a little confident. But there are – a handful of clients where volumes are coming down as well, just luckily not too many of our large ones.

Henry, I think the other thing that you might be getting to is the macro environment for hospitals is kind of a mixed bag right now. You have some that are talking about declines in, some that are flat and we of course those are the public hospitals, and we have the majority of hospitals that, of course, are included those numbers. And we know that those are also a mix back. Although I will say that many of the non-profit in the academic facilities are telling enough that they are growing and kind of bursting at the scenes. But what they are all dealing with across the board is the challenge of the shortages. And the fact that you’ve got still very high openings and I mean if you continue to go back to the BLS data in August, the number of job openings in healthcare was up 14% year-over-year the ratio between openings and hires is still at about 1.9%. So there’s been no relief in this area of vacancy. And on top of that, you’ve got retirement continuing to effect. It’s been a pretty steady pressure on the workforce. Again, kind of going back to the BLS, they tracked something called other separations, which are primarily retirements, and that’s – is that 56% over prior year. But if you kind of normalize it, it is more like a steady state 10% year-over-year growing. And that’s not likely to let off. We have a survey coming out in the next couple of weeks and our end survey that as variety of questions around the anticipated retirements of nurses. And right now, 73% in this survey, which I don’t want to, I guess, give away all the headlines, but relevant to this conversation, 73% of baby boomers say they plan to retire in the next three years or less. And that is up pretty significantly from the last time we did the survey two years ago. So I do think and what we heard from our clients and our strategy some it is they are feeling the pressure of retirements and vacancies.

Got it, okay. That will be interesting to see. And just shifting over to gross margins. Some of the pressure that you are seeing from wage rates, is that also on the nursing side as well and should we expect some of these pressures to continue or to pass into early 2018?

Henry, this is Brian. Maybe there is a couple of different segments we can talk about. So within Nursing and Allied, I wouldn’t say we are feeling significant wage rate pressure. We’re in a good place of margin and down a little bit from the second to the third quarter. But we anticipated that, actually mentioned that on the last call with relatively low health insurance claims in the second quarter that came a little bit in the third quarter. So this 27.3% gross margin is actually not where we expected it to be. The Locum Tenens segment, you have seen the margin come down year-over-year by out 100 basis. And we are filling with bit more battle, just want to add some color, but with teams working on that, but they have been aggressively trying to grow volumes, and I think we’ve seen a little bit of that margin compression. But I think there were some things that we’re doing as well to address that as we look into next year.

On Locum’s, demand was down there for a while, and I do think that puts a little bit pressure on us to grow volumes. And so the team will negotiate a little bit more to get job filled as quickly and get some revenue as fast as they can. We are very diligent and our teams are very good about managing margin at the transaction level, though. So it’s a slight drop there. It’s not anything that makes me nervous. I do still feel like the long-term margin that business is 32 is possible. And this is probably just a little bit of cyclical change for us.

Okay, thanks so much.

Thank you.

Thank you. And we will go next to Tobey Sommer from SunTrust. Go ahead please.

Thank you. This is the one last question about capital deployment. You brought back a little bit of stock in the quarter, but leverage is below the historical average and the margins are strong, so the cash flow is strong. Do you have any changes to what you might do kind of in the absolutes of acquisitions to maybe direct more of your free cash towards share repurchase?

Well, we still have about $130 million left on our existing share repurchase program. And so that gives us a lot of capacity to still opportunistically deploy that capital, and you would expect that we are evaluating that, particularly, when our stock and the market has been generally volatile and it creates opportunities for us. So we’ve gotten quite a bit of room there. And yet we’re still looking at acquisition opportunities pretty aggressively. There is actually a fair amount of activity out in the market. We’re being very disciplined about what we go after and making sure that it is not only the right valuation, but even more importantly, strategically the right places that we want to grow our business to not only be a better partner, but also to achieve our profitability goals. So we’re trying to make sure we have the capacity that we need there, but with $130 million sitting there authorized, we’re not shy to use it either.

Okay. Could you describe the time to fill orders and I don’t know how to express typically maybe urgency on the part of customers in the Travel Nurse business. Any change in the time it take you submit somebody and then get amount on that.

This is Ralph. I’ll take that, Toby. The timely start-offs are there, which is kind of interesting ahead shorten. So being people started about three days faster. And some of that is some technology changes we’ve made, we got customers who are now using the kind of a voice energy system, which was a lot quicker and gets them out on assignment faster. That means we get a revenue a little bit quicker. But back to original question, which is our submittals and then their turnaround time on our submittals. When we have those types of tools in place, they don’t drag their feet. So we’re not seen as much kind of foot dragging there. It’s probably a little bit slower than it was a year-and-a-half ago with the peak of the market. But in most cases, customers feedback in 48 hours or less best customers are in the 24 hours or same day, sometimes even a couple of hours. So, we’re better movement there. A little bit different in the, just jump it in that but in our executive business where they had moved a little bit slower there, particularly in the retained search business. I think that’s also in the physician’s search business. So it is just taking a little more time there, but the Nurse business is actually operating pretty well.

Is that three days faster time to start? Is that year-over-year or is that a multi-year period?

That’s the year-over-year increment.

Okay. Give me Locum’s business. You’ve talked about narrower bill payed spreads and covering some gross margin pressure. Was that broad or in select specialties it somehow had an effect on the whole segment?

It’s actually a little bit of both I’d like to say that. But those some specialties where our spread is improving about four, five of them and get about five where we had a little bit of compression. So I guess, there is a lot of different reasons why it happens, right, the types of specialties and little mix things like that, it’s not a big concern of ours.

Yes. This is Brian. But it’s not just one or two specialties and it was feeling – maybe pick one of that to be are more broad than anything specific, but again, not something that we don’t think we can address in turn as well. The demand is strong. So that gives us the opportunity to make sure that we are making replacements into the right clients with good margins as well.

Brian, I was asking a number of questions, if I could. Are there any factors to consider for 1Q, as we look to model either days in the quarter, seasonality, something you would like us to keep in mind as we evaluate our models for next year?

Yes. If you think about seasonality, we talked in the prepared remarks around the margin being – gross margin being down a little bit sequentially. We normally would see that recover. There is –in Nursing and Allied, a fewer hours work and little bit of margin compression and then the Locum Tenens and Other Workforce Solutions segment typically decline in revenue. So that mix works against us. You kind see the opposite in the first quarter, where you still see some growth in Nursing and Allied, but usually see better growth in the other two segments. So that helps us as well, and then margin will pick back up again in the Nurse and Allied. So I think, you expect to see better recovery in the first quarter to something closer what we had in the third quarter on the gross margin and a lot of that will flow-through as well.

Our average bill rate for Nursing also tends to go up in the first quarter, because we have more of these winter placements, which tend to be at higher rates and for the placements where we made thus for we are seeing the trend repeat itself.

If I could ask one last question. Regarding your fill rates at MSP’s, where do they fall now versus historic ranges of wherever the higher fill rate has been for you versus the low?

Yes. We’ve talked to the past. We’re filling about two thirds MSP orders internally, so as that internal captured thinking our great affiliate vendor network is still in the rest of them. And the – up slightly from where it was last quarter, it’s actually up quite a bit from last year, but it’s not near any historical high. So there is still a lots of outside left.

Okay. Thanks.

Thanks Tobey.

Thank you. [Operator Instructions] And we’ll go next to Tim McHugh with William Blair. Go ahead please.

Hi it’s actually Stephen Sheldon for Tim. Thanks for taking my questions. I guess, just first, I appreciate the comments about orders and the supply environment, but I was just wondering if you seen any change in the hospital systems, ability to recruit full-time candidates? Some of the publicly trading systems have talked positively about hiring more full-time healthcare professionals and cutting the use to tend. So, I guess – are you seeing any impact from that across any of your business lines?

Steven, I think part of what we saw earlier this year was an impact from some hospitals hiring new, which is something they resisted doing for several years, because it’s really quite challenging for them to take experienced nurses off the floor to be a preceptor and get these new grads up to speed, it can take months, if not a year to get a new grad to where they need to be. And so while there are always hiring new grads to make it a major part of their staffing up, creates its own challenges. But we were hearing earlier this year that they decided that something that they just had to do. And I do think that, that affected our order levels. What played out there is that they realized that doesn’t fill all of their gaps. In the meantime, the turnovers remained very high. So to have the appropriate experience level that they need on the floor to deliver the quality patient care and quite honestly keep their risk level down, they need to have a certain number of nurses that actually have that experience under their belt. So I think that’s something that is not new. It’s actually something that I would say happened may be towards the end of 2016, early 2017, and now we’re sort of feeling the effects of that playing out and maybe not accomplishing everything that they needed to do. But I’m going to actually pass it to Dan and ask Dan, since he is out in front of clients everyday practically if he is doing other things.

I’m hearing the same things that Susan just referred to. But we are hearing from clients, especially when we speak to them about RPO, that they are recruiting staff is way overburdened with requisitions, typically two to three times what a normal recruiter would be able to handle, which means they just can’t keep up with the demand. That actually causes our clients to use more contingent labor. And so it’s one of the things that candidly makes our clients by our MSPs programs from us that we have a lot more wisdom insights into what the real problems are that they are trying to solve. As a result of that, have a number of different solutions that we can combine together to meet both the cost objectives, of their quality objectives and the timeliness objectives that they are all trying to manage. I often refer to that as this human capital equation there is a lot of puts and takes to it. And it can be fairly complicated if you’re going to try and partner that stuff away, but AMN you don’t have to do that.

Okay, that’s very helpful. I guess, Dan, just in the Locum Tenens business, the slight improvement you saw there. I guess, is that reflective, would you attribute that more to the demand environment or is a slight acceleration, kind of the early byproduct of some of the changes you’ve made in the business?

Yes. In the demand environment that did improve, but just a little bit. So it’s more of execution. And even more recently, really last five or six weeks our bookings trends have improved quite a bit. So we have a lot going on there. We’re getting ready to infill some new technology. We had a leadership change, where we’re making some organizational changes and go along with that technology change. And even through all of that, the team was able to deliver better than we expected results for the quarter.

Great. Thanks.

Thank you. We will go next to Brooks O'Neil with Lake Street Capital Markets. Go ahead, please.

Thank you, good afternoon. I was hoping one of you could give us a little color on your MSP pipeline?

That sounds like a great question for Dan to answer for us. Thank you for asking.

Sudden for somebody ask that question. What I want to do is just make sure that you understand first that to get back upon a comment I made a second ago. They are buying from us because we’re solving a bigger set of problems. And what that does for us is it helps our wins the larger than they have been in the past. So for example, last year our average was around $10 million per signing, and now it’s up to about $14 million. So of the $75 million that we referenced in the opening remarks, one of the deals is Locum’s, the rest are Nurse and Allied. Of those deals, they are all in acute care settings with a very nice geographic diversity. So we feel really good about that. That would bring us to a total of over $210 million of new wins for the year versus $185 million for the full year last year, which is also a really good sign for setting us up for a great 2018. Of that $210 million, 86% of it is Nurse and Allied, 4% is Locum’s and 10% is nonclinical. The pipeline that I’ll talk about in a minute is really much more focused and better improvement on Locum. So I’ll talk about that in a minute. If you think about the four-year sort of wins, about 55% of them are customers new to MSP, and 45% of them are competitive wins. About half of the competitive wins come from vendor-neutral programs, which is a really nice new trend for us. And as I said, before these wins for us are important, but on top of that, it leaves room for additional services to be added, so I also thought I would throw in a fact that we had seven new add-on services as well highlighting some of the great cross-selling that our team has been doing. In terms of the pipeline, again, very robust. We have over $300 million in our pipeline at 50% or higher. Really strong number of contracts being worked on today, as I said three are Locum’s, the rest are Nurse and Allied, two of the deals that are in contracting our are worth $10 million each. So again feel super about the pipeline.

It’s great, if there happens to be another questions, you are keyed up for me to ask.

Thanks Brooks.

So the second question I had was, my sense in listening do you talk about the business over last couple of quarters is that, there is always this trade-off between robust demand and your ability to fill internally the requirements on some of the MSP programs. And I was hoping you might, maybe Ralph might talk about, how you see the current environment or the outlook for, say, Q1 in terms of that dynamic, that trade off that I was just alluding to?

I’ll talk about our supply trend just a little bit. Our supply is up slightly year-over-year, but I think the bigger story right now on improving our fill rate has been about lapsed supply. People who used to work for us and they are coming back has become a much larger percentage of the total. And so that’s been a very positive thing. Of the new supply, our conversion rates are increasing across all three of our businesses, which is a plus. So we’re hitting out of the park a little bit on our fill rates, prominently, because our ability to manage supply have understand our database better than other people. We have a really good portfolio of customers where candidates want to go to work and so that will combination works in our favor. I know I feel pretty good about Q1, I think probably already said that may be more than I should go, but we have done a good job on those winter needs and I want to make sure we pull out our team for doing that.

Perfect. So then the last question. And I know I heard Susan talk about the 14% adjusted EBITDA goal over the next couple of years. It looked to me there is a little softness in the margin outlook for Q4. I just want to make sure you guys still feel pretty good about your longer-term opportunity to expand the margins of the business?

Yes, we absolutely do, Brooks.

Great. Thank you very much for your time.

Thank you.

And our next question will come from Mitra Ramgopal with Sidoti. Please go ahead.

Hi, good afternoon. Just a couple of questions. First regarding the positive volume trends you’re seeing. I was wondering, if you are noticing a difference between the MSP hospitals versus the non-MSP?

Yes, the demand improvement through the quarter was stronger in MSP than it was in the traditional clients in the non-MSPs. And a lot of the systems, of course, we do business with larger systems, and they are more strategic users of flex labor. So the smaller hospitals use it probably, but they didn’t recruit or they forgot to recruit, and there are panic. But the larger systems are looking to have a more flexible workforce and so they tend to use more, they feel that also the ones who demand is up the most.

Okay, thanks. And then just coming back to the MSP pipeline. Given some uncertainty out there around ACA, are you seeing potential clients sort of taking a more cautious approach before committing to MSP’s or pretty much business as usual for you?

Mitra, I would actually say absolutely the opposite. If they are focused on cost savings, MSP is a fantastic way for them to do that. And when you combine that with the number of solutions that we have as market leader to add on and address those same cost concerns, it makes us an even better choice for MSP provider as well. So if anything, the pipeline that I was sharing with you before continues to grow rather than contract.

Okay, that’s it from me. Thanks again.0

Thanks, Mitra.

And we have no one else in queue. Please go ahead with any closing remarks.

Wonderful. Well, we very much appreciate everybody joining us today on the call, and we look forward to updating you on our progress next quarter.