AMN Healthcare Services, Inc. (AMN) Q4 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the AMN Healthcare Fourth Quarter 2018 Earnings Call. At this time, all telephone participants are in a listen-only mode, and then later, we will conduct a question-and-answer session. The instructions will be given at that time. [Operator Instructions] As a reminder, the conference is being recorded. I'll now turn the meeting over to our host Director of Investor Relations. Mr. Randy Reece. Please go ahead, sir.

Good afternoon, everybody. Welcome to the AMN Healthcare's fourth quarter and full-year 2018 earnings call. A replay of this webcast will be available until February 28 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 Web site, which can be accessed at amnhealthcare.investorroom.com. On the call today are Susan Salka, Chief Executive Officer; Brian Scott, Chief Financial Officer; Ralph Henderson, President of Professional Services and Staffing; and Dan White, President of Workforce Solutions. I will now turn the call over to Susan.

Thank you so much, Randy. Happy Valentine's Day everyone, and welcome to our earnings call. Looking back at 2018, the themes at AMN were leadership and investments in our future, some of which created disruption. Throughout the year, we further evolved our leadership position within the industry. That meant deepening our portfolio solutions with internal investments and acquisitions. In the marketplace, we competed very well, and for the year AMN won new MSPs amounting to $230 million in gross spend under management. Our ability to serve clients with a deep and diverse workforce solution has continued into 2019, and we are thrilled to announce that Tenet Healthcare selected AMN to be the MSP provider for its regions in California and Arizona. Tenet is one of the largest health systems in the United States, and was seeking a total workforce solutions partner to achieve their patient care and efficiency goals. We will serve Tenet's contingent staffing needs for nursing, allied, and interim executive. The gross spend under management for this contract is estimated at $100 million, and we are targeting a go-live at the end of April. We recently launched several other new MSP clients that signed contracts in 2018, and have more in implementation now. Our delivery teams are poised to ensure that we meet or exceed the expectations of these new clients. Throughout the year, AMN continued to recruit strong, fresh leadership talent to our team to ensure we are evolving our strategy and delivery to clients. As we previously mentioned, we were fortunate to add Kelly Rakowski and Mark Hagan to our senior leadership team, bringing decades of broad health care and technology experience. Most recently, we welcomed Dr. Cole Edmonson as our new Chief Clinical Officer, replacing Dr. Marcia Faller, who is retiring after a very successful 30 year career with AMN. I'd like to personally thank Marcia for all of her contributions and what she's done to help build this great organization, and to build AMN's reputation as the quality leader in our industry. Dr. Edmonson comes to us as a highly experienced and successful clinical, operational, and strategic leader. He brings innovative insights on how we can best help our clients to achieve their patient care, talent, and financial goals. In 2018, we launched important investments and change initiatives, particularly in our Locum Tenens and local staffing businesses. Through these necessary transformations, we also had setbacks. In Locum Tenens, the problems are visible in our lower fourth quarter revenue and first quarter outlook. Last spring, we converted our Locum Tenens business to a more scalable operating model, including new fund and backend systems. The sales force based system is powerful, but it has required several months of further configuration to make it easier to navigate. There were also issues with data migration from the three legacy systems. During this time, the necessity of maintaining good customer service slowed our sales productivity. Performance was also hindered by the fact that we got a bit behind in hiring new sales producers. We began to ramp up hiring in the third quarter, and have accelerated that into the new year. We expect to begin benefiting from these new hires productivity in the second-half of 2019. Returning Locum Tenens to growth is our top priority. Locums is an attractive market that is of high strategic importance to our clients. Now let's review our latest results and outlook. Fourth quarter consolidated revenue of $529 million grew 4% year-over-year. Gross margin was 32.6% and adjusted EBITDA was $66 million or 12.6% of revenue. Our Nurse and Allied segment posted revenue of $329 million, which grew 2% year-over-year. Revenue for our largest business, travel nurse staffing, increased 2% year-over-year. Volume growth was relatively in line with our expectations. The year-over-year headwinds of lower premium rate assignments lessened, and the average fill rate gap continued to improve. We knew that we would experience a difficult year-over-year comparison in nursing for the first quarter of 2019 due to the exceptionally high utilization of winter assignments and a very strong flu season last year. That comparison has proven to be even more difficult due to a reduction in utilization at one of our top clients. This reduction has nothing to do with AMN service deliveries, but rather specific census dynamics for this client. Excluding this impact, nurse staffing revenue is expected to be up about 5% year-over-year in the first quarter. Allied staffing continued its winning streak with revenue growing 8% year-over-year as volume was strong again in the fourth quarter. Order growth has continued to improve and bookings trend support continued mid single-digit growth or better. For the Nurse and Allied segment overall, we expect revenue to be down about 1% to 2% year-over-year in the first quarter due to the client-specific reduction I mentioned. Excluding this impact, this segment is expected to be up about 5%. In the Locum Tenens segment, fourth quarter revenue of $82 million was 24% lower year-over-year. We had expected revenue to be down about 12% to 14%. On top of the higher-than-expected attrition, and lower productivity we experienced, there were also greater-than-expected declines in the emergency medicine and hospital specialties as clients reduced demand. Ralph and Brian can provide a bit more color for this segment in the Q&A as I'm sure many of you will have questions. On the bright side, our Locum's MSP business continues to add clients, and is now 20% of segment revenue. We've seen stable client and clinician satisfaction scores indicating that we are taking care of our providers and clients despite the challenges. For the first quarter, Locum Tenens' revenue is expected to be down year-over-year similar to last quarter. Fourth quarter revenue in our other Workforce Solutions segment was $117 million, year-over-year growth was 48% including our April acquisition and up 1% organically. Our interim leadership and permanent placement businesses comprise about 50% of this segment's revenue. These business lines collectively grew 15% year-over-year with organic growth of 2% driven by permanent placement and RPO. Our mid-cycle revenue division produced $38 million of revenue in the fourth quarter. Medical coding revenue was slower than expected offsetting growth in other specialties. Other Workforce Solutions also includes our VMS Business where revenue was down year-over-year in the fourth quarter. Transfer VMS have improved as 2019 gets under way. And finally our Workforce Optimization and Predictive Analytics team at Avantas continues to make nice progress, with revenue up in the fourth quarter and growth continuing into 2019. Within our VMS and Avantas offerings, we continue to make important investments in mobile capabilities, analytics and serving additional healthcare setting. In the first quarter, total revenue for the other Workforce Solutions segment is expected to be up about 40% overall due primarily to the acquisitions we made last April. In January, we added an innovative new offering to our Workforce Solutions with the acquisition of Silversheet. Our clients have repeatedly told us that one of their biggest workforce pain point is credentialing for their permanent staff. This is the process of reviewing and verifying a clinician's education and training, work experience, licensure, board certification and malpractice history. These are compliance verifications that need to be made upon hiring, but also on an ongoing basis while the clinician worked at facility. Silversheet has created a cloud based platform that gives healthcare organization a completely digital credentialing process, which makes this process easier, faster and more reliable. We are eager to support Silversheet's fast growth and to integrate them into our solution set. We remain intent every day on earning our place as our client's strategic workforce partner. To do that, AMN must continue to add capabilities that address all aspects of healthcare labor, contingent and permanent. The people who make this future possible are the amazing AMN team members and healthcare professionals. We owe them our deepest gratitude for their talent, enthusiasm and can do attitude even in times when we ask them to do more. 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 session.

Thank you, Susan. Good afternoon to everyone. The company's fourth quarter revenue of $529 million was $5 million below the low end of our guidance range. As Susan noted earlier, this shortfall was driven mainly by lower-than-expected revenue from our Locum Tenens segment. Gross margin for the quarter was consistent with our guidance at 32.6%, up 80 basis points from last year, but 60 basis points lower than the prior quarter. Our April acquisitions were accretive to our consolidated [technical difficulty] Fourth quarter Nurse and Allied segment revenue was $329 million, an increase of 2% from the prior year and 8% higher sequentially. The sequential increase stemmed mainly from 5% higher volume, plus a 2% increase in demand. Nurse and Allied gross margin of 27.2% was down about 20 basis points from prior year and prior quarter, though consistent with our expectations. Segment EBITDA margin was 13.8%, 120 basis points lower than the prior year. Fourth quarter Locum Tenens segment of $82 million was 24% lower than prior year, and down 90% on a sequential basis, with declines driven by lower volume. Locum Tenens gross margin at 27.2% was down 210 basis points in the prior year and 120 basis points sequentially. Gross margin was negatively affected by unfavorable adjustments as a byproduct of the new system transition and an unfavorable specialty mixed shift. Locum Tenen's adjusted EBITDA margin was 8.6%, down 290 basis points year-over-year, driven by the lower gross margin and negative operating leverage on the lower revenue. Fourth quarter other Workforce Solutions segment revenue of $117 million was up 48% year-over-year, but down 2% sequentially, with growth coming mainly from the recent acquisition. Gross margin of 51.7% was lower by 140 basis points year-over-year and 70 basis points sequentially. The year-over-year variance was due mainly to acquisition of MedPartners, which has a lower gross margin than the segment average. On a consolidated basis, fourth quarter adjusted EBITDA of $66 million was up 3% year-over-year. Adjusted EBITDA margin of 12.6% was flat year-over-year and down 20 basis points sequentially. We reported net income of $36 million and diluted earnings per share of $0.74 in the fourth quarter. Adjusted earnings per share was $0.81, compared with $0.63 in the prior-year quarter. Our income tax rate in the quarter was 29% and is expected to be similar in the first quarter. Interest expense and other in the quarter was a credit of 20,000, which includes a gain of $6 million on the fair market value adjustment of minority investment. Excluding this gain, net interest expense was $5.8 million. Cash provided by operations was $59 million for the quarter. For the full-year 2018, cash flow from operations totaled $227 million, up 41% year-over-year. Day sales outstanding at quarter end was 64 days, same as last quarter, compared with 63 days in the year-ago quarter. At December 31, cash equivalents totaled $14 million. Capital expenditures in the fourth quarter were $11 million. During the quarter, we repurchased 271,000 shares of stock for $49 million. At quarter end, our total debt outstanding was $445 million and our leverage ratio was 1.7 times to 1. Now, let's turn to first quarter 2019 guidance. The company expects consolidated revenue of $520 million to $528 million. This represents top line growth of 0% to 1% year-over-year. On an organic basis, revenue is expected to be down approximately 6%, due primarily to the lower Locum Tenen's revenue. Nurse and Allied segment revenue is expected to be down 1% to 2% from the prior year, with the Allied growth offset by lower nurse staffing revenue. Gross margin is projected to be approximately 33% and SG&A expenses as a percentage of revenue are expected to be approximately 22.5%. Adjusted EBITDA margin is expected to be approximately 12%. As it relates to Silversheet, they will add less than $1 million of revenue this quarter. Silversheet is still an early-stage company just starting to gain revenue momentum. We anticipate this business will reach breakeven some time next year, and lower quarterly EPS by $0.01 to $0.02 and reduce EBITDA margin by 10 basis points throughout 2019. Other first quarter 2019 estimates include the following: interest expense of $5.8 million, depreciation expense of $5 million, amortization expense of $6.8 million, stock-based compensation expense of $5.5 million, acquisition and integration related expenses of about $2 million, and diluted share count of 47.8 million shares. The stock compensation expense is higher in 2019 in part from certain plan changes, and we expect approximately $4.5 million per quarter for the remainder of the year. Amortization expense is based on preliminary valuation of amortizable intangible assets from the Silversheet acquisition. And now, we'd like to open up the call for questions.

Thank you. [Operator Instructions] Our first question is from the line of Tobey Sommer with SunTrust. Please go ahead.

Thank you very much. I was wondering if you could start off by maybe telling us what the orders have been like in the travel nurse area, as I understand, the quarter you're guiding for has a little bit [technical difficulty] based on demand from single client. And then if you could comment on pricings, that would be great. Thanks.

Absolutely. I will have Ralph jump in a little bit more on the specifics in the order trends, which have been honestly [ph] largely favorable and positive still, if you sort of take out that single large client. Regarding pricing, I mentioned that we have actually seen continued favorable mixed trends, meaning that the gap that we -- and the headwind that we were feeling year-over-year in premium rate assignments has actually gone down, and so, we would expect that will continue to see more favorable trends going into the second quarter, but those headwinds are lessening for us and actually lessening even more than we thought in the fourth quarter even more so as we look at the first quarter. I would say it's a very sort of stable pricing environment and we will be lapping those headwinds very soon. So, Ralph maybe a little bit more color on the travel nurse order?

Sure. In the fourth quarter first they were up versus prior year. The overall mix was actually a little unfavorable with foreign third-party orders or vendor-neutral program, so our fill rates are lower. But on the positive side, facilities with orders were up, and facilities with TOA are up. As we look forward into Q1 outside of that single client, we are going to see an increase in demand and orders there, and -- but probably a little lower on the -- because all flu seasons are not super robust growth there and probably the last components we look even further forward is as we get to the implementation of Tenet and some of the other new deals, I would expect us to start having pretty significant lap over prior year in demand.

Thank you. Ralph, just a follow-up on that, does that imply that the orders for your MSP clients kind of on average is growing a little bit more slowly than those outside of your kind of direct exposure?

Yes, oddly, probably the first time we've seen that in a long time, it's a good question, but once you kind of exclude kind of one large client who's just down on a year-over-year basis and just to cover that maybe a little bit more, you know, certainly a client that which we'll continue to grow for many years, but this is just a seasonal issue for them. I think they did not see as much enrollment in their system as they had expected, and so, we're impacted by that. But otherwise I think it's pretty strong. The third-party they're up, you know, kind of it's been an interesting mix there, and we often we look at that it's not as favorable a demand for us our fill rates on those third-parties can be in mid-teens versus the 50%, 60% on our MSPs, but it's been across the Board, there's nothing really different about the way that looks other than just an increase.

Okay. If I could ask a couple of questions about Locums Tenens and then I'll get back in the queue; excuse me, you mentioned sort of satisfaction scores holding steady for customers and for practitioners, but I was just curious you can't have revenue declines very long and still get fill rates so that the revenue trends could be challenging for your push into MSP. Could you talk about that and how you're kind of navigating this? Hopefully it's temporary phenomenon in meeting the needs of those clients [indiscernible] to?

Absolutely, and you're right. With MSP clients we have not only the opportunity to make the placement, but an obligation. And our number one objective is always to get their positions filled whether it'll be through us or through an affiliate vendor, and we're very fortunate to have a strong panel of affiliate vendor partners that help us to hit those fill rate expectations of our clients. And even internally we have our best fill rates at our MSP clients. It's a priority that we make for our recruiters and account managers and [indiscernible] to be even align incentives, and other ways to make sure that everyone is focused on hitting those fill rates, which is why again they're much stronger for MSP clients than they are. You could argue that we are filling our MSP jobs at the expense even perhaps some of our other direct or third-party, but that's how we expect to build the business longer term. And I think the more we have MSP base of business, it actually builds a stronger, more predictable, more recurring revenue type of client base, and we are really pleased that I think I mentioned 20% of our Locum's revenue is now coming from MSP. So we're making good progress there, but as I said, it could be perhaps at the expense of having lower fill rates than what we think is possible that we know we have lower fill rates and with possible at our direct and third-party orders.

Okay. Last question from me and I'll get back in the queue. Could you talk about your plans to roll out new systems in sort of the nursing business…

We will not be rolling out -- yes, thank you for the question, we will not be rolling out any new system for the remainder of the year, and quite honestly until we get stability and improved performance within our Locums division. The vast majority of our technical and even sales operations resources are focused on improving the performance of the system for Locums. And then we will consider how we might, if ever bring the nursing business onto the same platform. We want to make sure we're actually getting the benefit out of the changes before we consider moving anything out. And I will say whenever we bring them onto the system it will be in a very different methodology in terms of how we implement and probably more phases as opposed to a dipping [ph]. I mentioned Mark Hagan joining us last summer as our new Chief Information Officer. He inherited this problem, if you will, and has done a great job of really getting his arms around it with his team, but we also have to make sure we've got the right resources for third-party contractors and in-house talent to be able to not only fix these issues, which they're doing a good job of, but also as we contemplate doing anything more in the future. I probably told you more than you asked, but I want you to get clear that we're not ready to embark on anything like this in the foreseeable future.

Thank you very much.

Thanks, Tobey.

Our next question is from the line of A.J. Rice with Credit Suisse. Please go ahead.

Hi, Folks. This is Caleb Harris on for A.J. Just on the topic of the larger clients, it sounds like it's related to lower enrollment in the system. So, is there some way that could bleed into future quarters as well or do we know that it's confined to Q1?

There is a certain amount of volume from this particular client that happens to spike in the first quarter, pretty much every year. We've had that history, and so -- and it falls off a more going into the second quarter, every year it's a little bit different as to whether it, the volume continues more into the second quarter or falls up more sharply in, say, the April timeframe. So, there will be, we would think some amount of reduction in the second quarter on year-over-year basis from this client, but it would likely not be as much as what we saw in the first quarter, because quite honestly, their first quarter utilization last year was exceptionally high, which makes the gap just even that much more severe for the first quarter of this year. So, the short answer I suppose is, yes, there will be some amount of shortfall we would expect going into the second quarter, but it will be at a lesser amount.

Got it. That makes sense. And then on the -- you talked about the contract expansion last quarter, and that was going to roll out to areas like Allied and Locums throughout 2019, can you talk about sort of the game plan at this point and any progress that you've made so far?

Sure. Caleb, this is Dan. I think you're talking about not tenen in this case, right…

That's right.

And for the implementation there, we're currently under way. We can see that really kind of hitting their regions if you will in the second-half of the year, where we're going sort of a rolling implementation till about May, June. And so at that point, we'll probably start to pick up the volume at that point.

Okay. And then one last one, sort of a broader topic. There's been a lot of consolidation in the industry and I know it impacts some of your clients. Obviously, you have CHI, and LifePoint, and MCare and big names like that that have been involved in deals in the recent past, and I don't know if you want to talk specifically about any clients. If not, that's fine, but just in general when those things happen, what are the dynamics around trying to continue those relationships or even expanding the relationships with the new partner of clients that are involved in deals?

Okay. This is Dan again. I'll take that one. Generally speaking, given the customer base that we have, consolidation actually benefits us. And there's really two reasons for that. The first is that very often we have a pretty good footprint in those businesses that are combining so you gave CHI, example. We have a good footprint on both sides of the common spirit house, if you will. But then even more importantly than that, we can offer to them more than just MSP services. We look at a total workforce management perspective and can throw different tools to at different challenges they may have, so if they're struggling with firm resources or interim leadership resources or MSP depending on what their goals are, we can use a different solution to solve those problems.

Okay. Thanks.

Next question is from the line of Jason Plagman with Jefferies. Please go ahead.

So, thanks for the questions. First one, on the local business you mentioned the aggressive hiring of new sales talent. Can you quantify that at all or kind of what the base has been both in Q4 and in and other words in Q1?

Yes, Jason. This is Ralph. The kind of the producer headcount in the business runs around 250 to 260, right, kind of as we entered into the Q4, we've hired about 50 people over the last few months and then we have another 25 coming in, in February and we likely hired another 25 in March. So, kind of -- you get up nearly 100 people in less than four quarters.

Okay. And so should we expect that pricing pressure on the gross margin throughout the year as those new folks ramp?

No, no, the margin probably is more on SG&A. It's an investment prior to them being a production, the first year production for a new producer might be like 150,000 in gross margin, but that second year is what we really hoping for and that's about four times of that. So that's why you made the investment but that's also why we can't commit to year-over-year improvement immediately even though we're going to hire all those people, so that it's going to take a little bit longer there. For keeping margins in place, right, we have, our technology works really well at making sure that the packages and other rates are appropriately set for each assignment.

Yes. This is Brian, we said that that's reflected in the first quarter guidance that that Locum's EBITDA margin will be compressed a bit for a period of time as we have those extra sales people and they will really start to pay for themselves in one of back half of the year. So that is already reflected in the guide that we will feel little of that, first of our bit, but we know it's absolutely critical to getting the growth back on the right trajectory.

Yes. And just follow-up on that, given the long assignment times in Locum business, how long do you think it will take to get back to your prior run rate of, you know $100 million plus of revenue a quarter, is that achievable by the end 2019 or is that more likely in 2020?

It'll take longer than 2019. I wish we could say that it will happen that quickly. To last point, I mean there is, from hiring, there's still better time before those new hires, right production as well. So as we as we think about how this year is going to play out, we've got hill to climb here. So, our goal is to start to narrow the negative gap as we go through the year, but getting back to that $100 million, it would be, it would likely take a couple of years to get there unless you see a significant increase. And if we look back and we've had years where we've had some pretty significant increases in revenue and with some of the contracts we're bringing in, there's a lot of, there's ways we can get there, but we want to be able to demonstrate more progress before it really started to chart a path to that number for you.

Okay. That makes sense. Thanks for the question.

And we'll go to Mark Marcon with R.W. Baird. Please go ahead.

Good afternoon. Couple of different questions, one just with regards to the larger Travel Nurse client can you talk a little bit more about if there was any sort of change at all in terms of their behavior with regards to usage of travelers or is it just purely a function of their senses?

This is Ralph. I'll handle that one. There are very strategic users of contingent labor. And so, there's really no change in that behavior. I think the lighter flu season and just a little bit of a sense of decreased and combined them lower utilization.

Okay. And are they giving you signals that everything is assuming that the census goes back to where it was that their utilization would go up, or has there been any sort of change in terms of their recruiting strategy for full-time nurses occurred?

Yes, that's a good follow-up question. Because they are a strategic user a certain percent of their workforce is desirable for them to be contingent labor. So for fluctuations just like this one to help them do adjust, and so, there's really no change in their strategy there. All of our healthcare systems are working harder on hiring and retaining the staff that they have. But that's not something that would have a material impact on their continual labor usage.

Okay, great. And then just going back on Locums, do you feel like how far are we away from having the systems issues completely resolved? In other words, you gave us guidance for the coming quarter, but I'm just wondering how confident are you in terms of at least the year-over-year trends stabilizing?

Yes. This is Ralph. I will handle that one as well. We are doing new releases of the software about every two weeks now. I think we're on like our 16th release or something like that. And we get a little bit of incremental improvement with each release. So it's actually a point of putting in place these systems is they're more configurable, you can change them, things aren't hardwired, so over time any of the manual workarounds could be built into the technology. Whereas with our old technology you always had to work around it it's all hardwired. So while we're getting to some level of stabilization, we have tenured producers who are actually producing that levels they were prior to the implementation of the new system so that that gives us a sense that people are getting past that. But we'll constantly I think we are making adjustments to the system that make it a better experience for our recruiters and for our candidates as well. So there -- it will be a continuous evolution, but I do think -- see, I guess maybe the question is more about parity versus three disparate systems, we're probably at parity maybe not on a line item basis but we're going to look at it in aggregate. And so it's just now that it just becomes more about the users getting used to that system. And then those enhancements that we'll continue to make them that we'll make them more productive in the system.

Okay, great. And then with regards to Tenet, congratulations on that, how much are you already doing with them and would you anticipate that that you would end up filling your typical percentage of their total contracted value?

So Mark, this is Dan. I'll take that one. So today we serve these regions for Tenet through a third-party and as a result of that our fill rates there are relatively small. So of that business, maybe $3 million something like that in total would be what we would consider sort of legacy or business that's there today. And we also believe that our fill rates into this program are going to be at least as good as others. It happens that this particular client is quite good at running MSPs and so have a very knowledgeable user, the implementations are going incredibly well right now. I don't see any reason why we couldn't get to a normal MSP fill rate for this particular client. The other benefit to this that I'll just add is that Susan mentioned in her opening remarks, we have quite a few services being driven through here, some of which are extremely profitable, you know, exact are our international nursing business. We're running in on AMN technology and so all of those things help us control the outcome much differently than perhaps another circumstance.

All good points. On the percent of the business we handle today is between 10% to 15% of their total spend today, so there's a lot of upside there.

Great. And do you think it will take like two years to ramp up to kind of full utilization?

A typical MSP is kind of roll out over kind of an 18-ish month period so you'll definitely see the full utilization sometime next year.

Okay. Great. Thanks.

Our next question is from the line of Jacob Johnson with Stephens Inc. Please go ahead.

Hey, thanks for taking my question. Maybe if we can talk about the other segment as you lap the deals last year in April. How should we think about the organic growth outlook for the other Workforce Solutions segment? It sounds like the leadership and search pieces are growing like 2% to 3%. Revenue cycle management was growing nicely. But is sounds like it slowed in the fourth quarter well, VMS was a drag, but it sounds like it's been improving, if can you just walk through the puts and takes there?

Sure. So if we look at interim leadership, you're right. It was on an organic basis relatively flat in the fourth quarter and close to that in the first quarter. We actually have really good underlying trends in the business in terms of new searches. And as we just mentioned, we're going to be adding new clients. They already do some work with Tenens, but I believe we'll be able to do more as well as some of the other new MSPs that we're bringing online. So we're feeling really good about that business than something in the mid-single digit range is probably a reasonable place to think about it getting to even though we're starting the year a bit behind that. Physician term also as it was very -- had a very nice growth in the fourth quarter, up about 7% and coming into the first quarter of less than that. They've been doing really well in winning the larger enterprise clients with large volume searches. But on the flip side they've seen softer demand in the single facility small practices. So it's sort of created a little bit of a headwind there, still growing. But there again probably something in the mid-single digits is a reasonable place for that business regardless. And then our search business if you sort of add up across all of our total perm businesses which will be Physician perm and our search businesses, we're looking at sort of mid to low single-digit organic growth there once we sort of lap these acquisitions. And then our mid-revenue cycle businesses had growth, but most of that was driven by the acquisition of MedPartners last year. Peak actually had a really fantastic 2018 and finished the year strong, but they did have one of their largest client, who decided to bring more of their coders in-house and so that's created a bit of a headwind in the first quarter for that division and business. But at the same time, they're adding many new clients, in the fact they just signed a full outsourcing deal with new client. So, we feel really good about the team there. MedPartners which is part of that mid revenue cycle, we're seeing really solid demand, really across all categories, coding, case management, documentation improvement. We have had some disruption from the integration, which you would expect, but layered on top of that, you might recall we had a leadership absence due to variety of factors and so we're probably feeling a little bit more pain from that and we are dealing with showing that up at the moment, but the market is good. I guess the main message in mid revenue cycle, the markets grow, we see plenty of opportunity and we're working to organize our two brands to really make sure that we're getting the synergies out of the opportunity there. Does that helpful?

Yes, very much so. Thank you. And then on margins, does the Locums disruption change the goal of 14% EBITDA margin run rates at all or does it just maybe push it out a little bit or not at all?

This is Brian. No, the long-term answer is no. There's no change in our view towards achieving that with the businesses that we have. To your point of the timing, we've already said will be pushed out and equally with the way we're coming with Locums, that is a drag to that, but the long-term strategy and the way we're going to get there has not changed.

Got it. And then last one from me. Susan, I think you have a new workforce Institute with Kaiser, if you'd like to know, to, what's the longer term goal of this?

Yes. Thank you for mentioning that. And this is really in alignment with our commitment to innovation in helping to create new solutions that are going to benefit, not just the Kaiser Organization but quite honestly to help your community at large and Kaiser being so innovative and progressive themselves, they themselves have an innovation institute. And so, we're going to be collaborating on workforce specific innovation ideas to help ensure that we're training the right clinicians now but also for the future as healthcare continues to change but then also looking at some things that could create more efficiency in the workforce. So, we've made a commitment to them over the next five years with our contract that we will be working alongside them. So initially, it's going to be focused on some areas of training and upskilling and in particular categories where there are the most severe shortage of nurses but that will evolve overtime and we're just really excited and appreciative of this. They will work with them. We're working with other clients too by the way on some really interesting innovative things. They are not the only ones but they're a really great example of how we can both put some skin in the game to develop some innovative new things that will benefit the overall industry.

Great. Thanks for taking the questions.

Thank you.

And we'll go next to Jeff Silber with BMO Capital Markets. Please go ahead.

Thank you so much. I just want to go back to the local business for a second. Unfortunately, I guess the segment has really been underperforming the market for some time. I realize you're going to be ramping up some of your internal hiring. Hopefully, that will help. Has the competition changed? Is there something else going on or do you really think that ramping up your internal hiring be able to solve some of the issues?

Yes. I mean it's a -- it is a super competitive marketplace. So they slowed down in the slightest. A very small percentage of MSP, it's just 20% now, but it's still relative to our other business is a small percent. So each order is a lot of competition on it. Recruiters get slowed down at all, then somebody else felt. So that's just the nature of the business and the problem why we need to get the people up to speed on this system in our staffing levels up. Some sort of other change in the industry. Well I'll give you a couple of specialties that are, have been a little slower growth. One is a virtual medicine. The shift to urgent care as created demand decreases -- significant demand decreases their hospitals. A little bit of I think primary care doctors want to take back over those. They don't. And also there's less movement in the physician management companies, so hospital the volumes are down cost close to 30% year-over-year, demand for hospitals is down 30% year-over-year. So those are the big changes. They're not competitive ones, they are actually just market changes.

Do you think that the other companies in the space are facing at least the latter issues that you mentioned as well?

Yes, if they're in those specialties. There are some that are not. And I talked to one this week that doesn't do any hospitals. And of course they're feeling pretty good about their year. But yes if they're like us and they service all specialties they would see similar trends. Now they would -- they would not have been the destruction factor. And they're probably faster right now that we are getting a candidate on the job order and so therefore we're spending a lot of time on this call talking about how we're going to get there.

Got it. And I know this is sometimes difficult to quantify, but did you quantify or can you quantify what the flu benefit was for your company last year and what the headwind you think will be this year?

Sure. For the first quarter of last year it was probably somewhere in the $10 million range, we think across travel nurse, extensions, and some additional volume along with some rapid response demand that we really across a couple of our brands. So, we normal -- if it's just a seasonal we don't really talk a lot about it, we don't see an incremental utilization or really a decline too much, last year was definitely an anomaly, with such a significant amount of flu. So that was part of the comp headwind that we've talked about, that we knew we would face, and so it's -- this year whether it being even weaker - I don't think necessarily weaken demand, but it certainly hasn't helped us in anyway.

Got it. And forgive me if I missed this, was there any labor disruption revenue in the fourth quarter -- are you expecting any in the first quarter?

A small amount in the fourth quarter and pretty similar to the year before as well.

Okay. Great. Thanks so much.

And we'll go next to Mitra Ramgopal with Sidoti & Company. Please go ahead.

Yes. Hi. Good afternoon. And thanks for taking the questions. I just wanted to follow up on the tenen MSP business, and if it's -- the arrangement is only for nursing? Or does it also include Locums Allied similar to what you might have done with Kaiser earlier?

The tenen agreement includes all forms of nursing which would be travel nursing, local peredium nursing and international nursing, and then it includes Allied as well and the interim leadership.

Okay. Great. And are you having increasing conversations with the other MSP clients as it relates to more full service arrangements?

So, it's interesting you say that, maybe I'll give you a little bit more color on our Q4 and Q1 pipeline. So, Q4 I think we mentioned in the press release that we finished their quarter at about little over $65 million in revenue. I mean in gross spend, excuse me, making it about $230 million for the year. If you look at that $230 million and break it down by about $75 million of that $230 million is brand new customers never had MSP before, about $95 million of that were competitive wins and then the rest was expansion into our existing base. And so hopefully that addresses the new and competitive. I'm thrilled that they're still continuing to be brand new opportunity out there and we're seeing that in our Q1 pipeline as well. We did mention, I'll turn it already, at the same time we've signed a couple of others. So, we've already signed over $150 million in gross spend for the quarter and we have a really robust set of deals that I'm contracting right now as well. So we feel very strongly about moving into that quarter about a third of the revenue that our growth spend that has been signed already is, we'll come 2specific back to the question about do we have places and room to grow that, that clearly is a terrific advantage as well. So I feel really strong about our ability to compete.

Okay, and that's great. And then a quick question on the Workforce Solutions side. Given the different businesses you have there. I was just wondering if right now, in terms of how you got to implement an ERP system for Locum is that something you would have to do down the road for workforce.

No, this -- Mitra, no. No, again, as we said, we have different business lines and there on in some cases different systems. So Peak and MedPartners for example are on different systems. They will be combining on to one, the net partner system but that's a system we've been working on for years, the proven works really well. So that's a very small list. The interim business is well there. They'll be migrating onto one common platform, but it's not the same one that Locums has moved on to. It's been built for the interim business and so we feel really about that migration. We had already done it for the first string and we'll be doing it for at least 50 days as well. So, we are not looking to get every single business line onto one system, in other ways that we can capture client data. We want to make sure is in the right system for the right business line. So there's no major list going on in that segment.

Great. Thanks again for taking the question.

And we have our next question from Bill Sutherland with The Benchmark Company. Please go ahead.

Thanks. I really just have one or two left here. In other Workforce Solutions if we could step back just a just a little bit and think about the growth potential of most important elements over more of a one to two year timeframe. It seems like there's been a little back and forth with almost each pace of it and can you just, maybe Susan characterize a little bit longer view for that group. Thanks.

Sure. Sure. And I think some of the growth rates are referred to, are more for 2019 and sort of where we would expect our hope to be at the end of 2019. When you think about the perm placement businesses, those have historically been more volatile markets, not just for us but for anyone who is in that business and so we're usually more conservative into just that something in the mid-single digit growth range in the sort of 5% range is probably a reasonable place to be. Now of course, we're always trying to do better, but you considering those businesses are usually running 20% to 25% EBITDA margin. That's still a really good leverage on a 5% top line growth. Interim leadership should really be more than, I would say more 5% to 10% is a good range, a lot depends up on just generally where the market is, where the economy is, but we still continue shortages across all leadership categories, and we have a great team there, we have different teams that are right now kind of focused in different areas and we're going to be trying to pull them together a bit more to get more organized and more cohesive in our go-to-market strategy, and I think that will also help create more momentum there because as you've noticed we've been a bit flat there. But we're very, very optimistic. And so, again I think something high single-digits is very reasonable there. Again higher margins then our traditional staffing businesses not necessarily 20% to 25%, but they can be high teens for sure. And then mid revenue cycle, I think similarly we should it's still very much in some cases an emerging industry, but case management and some of the other faster growing categories. I think coating in particular is probably slower growing low single-digits but because of the higher growth in case management other areas are probably looking at something more near the upper single-digits. So hopefully that's helpful for you to kind of piece that together. VMS, we think has probably similar to our MSP businesses and our staffing businesses they tend to sort of ride along with House and Nursing Allied Staffing businesses are growing and how the market is growing. So you're probably looking at a mid upper single-digit growth there and if that's were the staffing market grows.

That's helpful. Thank you. And just curious on Tenen, was that a takeaway that business?

See we're working with another provider and in fact part of the -- many of the regions are still with that other provider and they just decided they wanted to make a change due to some of the service capabilities that that we have available.

You think that it probably placed your strengths certainly in those markets. Do you think you have the opportunity for other sectors of tenen?

Well, our first focus is to exceed the expectation in the market that we just taken on and we feel very confident in those markets. As you say, we have a very prudent track record of being able to deliver and get these things ramped up quickly. So we want to be successful there first. But yes, of course, we always believe we have opportunity to add on new clients and expand our existing clients.

Understood. Thanks so much.

Thank you.

[Operator Instructions] And we'll go to Tobey Sommer with SunTrust. Your line is open.

Thank you. If I could ask you a question on the MSCP front across your lines of business, what trends are you seeing between kind of vendor neutral as well as sort of your model where you can provide the services as well both in the existing business and maybe new things coming to market. Is there a tendency for either one of those categories to weigh more frequently?

So this is Dan, I'll answer that one. The choice between those tends to be a little bit of kind of a religious discussion to be honest, but the trends for me that are probably more important to you is that the larger the system, the more likely it is that they're going to take on a program that has a very strong recruitment component to it and that's specifically because it makes it a lot more predictable candidly what the outcome is going to be. When you combine that with our ability to manage the MSP extremely well we have a vendor neutral capability in-house and so we certainly understand how to do that. The combination of those two things is very compelling especially to a large system that wants skin in the game. And so typically after the consolidation question and things like that, we see the bigger they get, more it is in our warehouse.

Right. Thanks. Just a quick numerical question for Brian, do you have a sense for the tax rate this year.

29%, I mentioned that would be the rate in the first quarter and it will likely hold to that rate for the year.

Okay. Is that a good long-term rate or are you expecting a variation moving forward that you could anticipate at this time.

I would use that as the long-term rate.

Okay. And then last question for me. Susan, you just had the quarter here and so your focus, top focus is improving internal operations at Locum Tenent business, but also consummated a small acquisition. Should we think that when we anticipate what your M&A news might be over the next few quarters that it would be kind of singularly focused on other workforce solutions at this point and not into the staffing business or this might be a function [indiscernible]?

I think, yes, on workforce solutions, we've made it clear that we're always looking for additional new solutions to help our clients, but they're few and far between which is why you have to do a lot. And even with Silversheet, while it's very innovative and very strategic it's still relatively small. When we think about other staffing acquisition, I would say Locums is not an area that we would be looking at right now because we obviously want to get our own house in order and have a strong platform to build upon. Allied might be an area we would be interest in, as you can tell, we've got a lot good growth going on with an Allied. We have a very strong team and leader overseeing that business and who quite honestly there's still lot more opportunities, it's a very fragmented part of the market. We are number one in our Allied and yet we're still a relatively small piece of the overall puzzle. And so you know that's just one category if I could I choose one, if would probably be at the top of my list within the staffing.

Prefect. Thank you very much.

Thanks, Tobey.

And our last question will be from Mark Marcon with R.W. Baird. Please go ahead.

A couple of quick detail questions, and just the corporate expenses, how should we think about those -- the unallocated on a go forward basis?

Hi. It's right around 2.5% of revenue announced…

Okay.

Yes.

Great. And then from the OWS, just in terms of just consolidated organic growth rate as we anniversary the acquisitions how should we - Susan you went through the details, but on a consolidated basis how would that come out?

Our Workforce Solutions?

Yes.

Yes, so the -- as you think about through the year?

Right.

Yes. So, as Susan mentioned, the first quarter related to with the first - with the acquisition still in there, our expat we're pretty flat in the first quarter. And we were 1% up in the fourth quarter, pretty flat in the first quarter, and we get traction on some of the things that Susan described, as we move in the back half of the year, and if we can get back in the mid-single digits. So, just -- I just track that up from where we are to that level.

Great. And then from a capital allocation perspective how should we think about that, and in particular buybacks and flexibility that you have with the balance sheet?

Yes. This is Brian again. There is I think no real change, as we talked about we are still evaluating acquisition opportunities and we've got plenty of balance sheet capacity to do that, but in the meantime as we generate free cash flow we will continue to look at both share repurchases and debt reduction, we've got still over $100 million drawing of a revolver so if we have extra cash from the balance sheet we will use that to pay down debt. So, I think, we'll continue to be opportunistic. We still have capacity -- room left on our share, repurchase authorization and you'll probably see similar activity that you've seen over the last couple of quarters.

Great. Thanks.

Thanks, Mark.

And I'll turn it back to our speakers for any closing comments.

Great. Thank you everyone for joining us today and certainly your continued interest in AMN. I do want to give one last shot out to the Silversheet team. We are very, very excited to have you joining the AMN family and certainly impressed with what you've built and created today but also kind of everyone is excited to work with you to help take them to the next level and I know our clients are also very excited as we've already begun to introduce your capabilities to some of them. So, thank you for joining AMN and we will be updating you all on our progress on our next earnings call.

Thank you. And ladies and gentlemen, this will conclude the teleconference for today. We thank you for using AT&T teleconferencing. You may now disconnect.