Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare First Quarter 2019 Earnings Call. At this time, everyone joining by phone will be in a listen-only or muted mode. And then later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the meeting over to our host, Director of Investor Relations, Mr. Randy Reece. Please go ahead, sir.

Good afternoon, everyone. Welcome to AMN Healthcare’s first quarter 2019 earnings call. The replay of this webcast will be available until May 16 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 our financial reports page at amnhealthcare.investorroom.com. On the call today are Susan Salka, Chief Executive Officer; Brian Scott, Chief Financial Officer; Kelly Rakowski, President of Leadership and Search; Ralph Henderson, President of Professional Services and Staffing; and Dan White, President of Workforce Solutions. I’ll now turn the call over to Susan.

Thank you so much, Randy. We are grateful that you could all join us today and glad to have some positive news to share. We’re pleased to announce financial results that are above our guidance for the first quarter with all segments performing slightly better than our expectations. We’re optimistic that many of the positive feeds that you’ll hear from us today will carry forward through the remainder of the year. We are also thrilled to discuss our recent announcement regarding the execution of an agreement to acquire Advanced Medical, which is one of the top Allied therapy staffing companies in our industry. Advanced also has a strong position in the placement of nurses in some of the most critical and chronic shortage specialties our clients need. They have made particular strides in growing their capabilities in the delivery of therapy services in schools. They serve school districts across the country and have extended their delivery through the launch of a teletherapy technology platform. This acquisition will bring complementary offerings and the ability to increase the talent network to serve our collective clients. We are also very excited about the talented team at Advanced. The organization,, led by Jennifer Fuicelli, is one of the most innovative and entrepreneurial teams I’ve ever met. We share common values and the passion, drive and genuine caring for patients. This is an opportune time to bring the Advanced organization into the AMN family as we see the demand for travel therapy and nursing grow. Advanced has a team of extremely capable recruiters and account managers to ensure we are serving these clients well and exceeding their expectations. They also have built a strong client base that presents an opportunity for us to introduce AMN’s portfolio of Workforce Solutions. The acquisition will go through the…

Thank you, Susan, and good afternoon, everyone. The Company’s first quarter revenue of $532 million was $4 million above the high end of our guidance range. Although all three segments performed better than expected, the biggest upside came from our Nurse and Allied segment. Gross margin for the quarter was consistent with our guidance at 33.2%, up 110 basis points from last year and 60 basis points better than the prior quarter. Of the year-over-year increase 80 basis points resulted from a second quarter 2018 change to recognizing certain physician permanent placement expenses and SG&A that historically were in cost of revenue. And our April 2018 acquisitions were 30 basis points accretive year-over-year to our consolidated gross margin. SG&A expenses in the quarter totaled $120 million or 22.5% of revenue compared with 20% last year and 21% last quarter. The year-over-year increase in SG&A margin was primarily the result of an increase in stock compensation expense, the physician perm placement cost shift, higher integration expenses and higher legal costs. First quarter Nurse and Allied segment revenue was $337 million, essentially flat with the prior year and 2% higher sequentially. Nurse and Allied gross margin of 27.9% was down 10 basis points from the prior year, so up 70 basis points from the prior quarter. Segment EBITDA margin was 14.2%. Segment revenue and gross margin were favorable to expectations in part due to a few small but high-margin projects. First quarter Locum Tenens segment revenue of $80 million was 22% less than the prior year and down 2% on a sequential basis, both driven by lower volume. Locum Tenens gross margin of 27.7% was down 100 basis points from the prior year, though better by 50 basis points sequentially. Locum Tenens adjusted EBITDA margin was 7.1%, down 260 basis points year-over-year,…

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

Hi everybody, thanks for the questions here. First of all, just maybe expand your thoughts a little bit on the under – what’s happening in the market. The strength you’re seeing in Nursing and Allied. Is that – it sounds like you’re doing a lot with MSP. It almost sounds like there maybe has been a pickup in MSP wins. Is it deeper penetration with your existing accounts? Is it stealing chair from others? Or do you think – what do you think’s happening with the underlying tone of the market, I guess?

Hi A.J., this is Ralph. That’s a good question. Yes, MSP is certainly a large part of the story, but we are seeing growth in our – also in our other relationships, third parties as well as our direct relationships. So it’s kind of across the board. I think we are seeing an overall lift in the marketplace, but I would agree with you that there’s probably a little bit of share movement as well given our recent large MSP wins.

And in Allied – to pickup there on Allied, for example, we’ve had really strong growth across all specialties in Allied. IRL being I would say the strongest. But the surprise has been the bigger pick up in the therapy business over the last couple of quarters in terms of the demand, and as we all know, it’s a chronic shortage area. And this is why the Advanced Medical acquisition is all that more timely, so that we have the opportunity to really leverage our combined databases to help both their but also our existing clients. Many of the new MSPs that we’re winning include both Nursing and Allied, I mentioned that. So we have a lot of demand now, but actually expect that, that will even pick up over time.

Okay. Maybe two more specific questions. I know for the last year, we’ve been talking about the headwind around the premium rate anniversary. Is that – you’re pretty much done. I think you had talked about certainly first quarter, it will be a little eased and then second quarter, you’ll be pretty much done with all of that. Is that still the thinking? And how much does not factor into the numbers here?

A.J., this is Brian. I’ll answer that quickly. Yes, it’s played out kind of as we expected, and we talked about the last couple of quarters. The first quarter, average bill rate in Nursing was down about 1%, and that really was the mix change from a year-over-year basis. But as we get to the second quarter and we lap the decline we saw in the second quarter of 2018, we are looking at being pretty much flat on a year-over-year basis. And again, that’s really more mix. The underlying pricing trends, we’ve seen a modest pricing growth over the last few quarters in the core rates. But as that mix has stabilized the last few quarters, we’ll pretty much lap by Q2.

Okay. And then just the last question I have is you’ve highlighted again this large account that’s seeing – saw less volume or enrollment or whatever. Is that sort of a permanent thing that you would just say, "Let’s factor that into the year’s outlook?" Or is there some reason that, that will sort of – a couple of quarters that it might revert back to where we were?

Hi A.J., this is Ralph. I appreciate the question. It’s not a permanent thing. It’s not like a strategic shift in the clients’ behavior. It’s just – it’s the reason why our clients use us, is for that flexibility and in unanticipated changes in their volumes or if their internal recruiting performs well. All of our clients kind of make these shifts. It just so happens this shift is in one of our largest clients. We do anticipate it to continue to impact – for the next couple of quarters, but it’s not a strategic shift. They’ll continue to, I think, be a user of considerable amounts of contingent labor to shield themselves against economic downturns and other things.

Okay, all right. Thanks a lot.

Thanks, A.J.

Our next question from the line of Tobey Sommer with SunTrust. Please go ahead.

Thanks. I want to start by asking either your year-over-year growth or intended year-over-year growth maybe by the end of the year in sales-generating headcount in different lines of business. And could you also make a comment about turnover of those sales-generating folks? Because in a strong labor market, as the company’s top line trends decelerate or decline, that directly impacts those people’s earnings power. Thanks.

Thanks, Tobey. I’ll start with that, and then perhaps have Ralph and Kelly chime in. But first remember with the acquisition of Advanced, we will be immediately adding some fantastic trained sales members both on the recruitment front as well as account management. And we are very much looking forward to that because while we have great recruiters and even some capacity still within our existing sales teams, the fact that we can kind of instantly add that capability for fill rates is going to be very helpful. So you can plan on it as being up year-over-year for certain, and then we’ll continue to see how each of the respective businesses grow to determine how much more we’ll need to add. So maybe I’ll ask Ralph and Kelly if they have any more color to add to that.

On the headcount side in Travel Nurse business, we’re kind of mid-single digits up in producer headcount. Our Allied business, kind of low double digits. And then gosh, we had talked, I think, about our Locum’s business needing to get back to a certain level. We did complete that very aggressive hiring plan as usual. And so our headcount is up there as well considerably from last quarter. So on the turnover segment, which is part of your question as well, our first quarter turnover was a little higher than we had hoped in the Locum’s business. But more recently as April’s come around, it has begun to come down. And then the other businesses, our turnover was actually quite convincing it. And Kelly, do you want to talk about [indiscernible]

Yes. This is Kelly. I’ll add to that. From the Leadership and Search Portfolio, which, again, is our inter-management leadership search and physician perm and our PO business and including two acquisitions over the past year. We’ve had very steady and stable headcount, very low turnover rates, less than 5% in the first quarter, which is just tremendous when you’re going through some change. We’ve had strong both sales and recruiter engagement and certainly plan to add to our headcount, particularly on the demand side. As we look to strengthen our account management and sales of large accounts, we anticipate adding to our sales force to help better serve the market.

Thanks very much. Could you comment on the MSP pipeline and specifically MSPs of size? And I don’t exactly where the breakpoint should be on that, but maybe $30 million, $40 million and $50 million or higher in annual spend? Thanks.

Sure. Tobey, this is Dan. As we kind of shared in our prepared remarks, we have in just the pipeline today a little over $160 million in gross spend. There is eight of those. Two of those would be in the category that you just asked about, so two fairly significant ones. What’s nice about this and what’s probably a good color to add is when all of those are signed, that would be a 30% improvement over the full year of last year’s MSP wins and is already greater than 60% of last year’s count at a far greater average deal size. One of the things that I think is obvious is that the average number of service lines in those new deals is now up to 3.5 service lines from two about 18 months ago, which is a good reflection that we’re getting adoption of these sooner. The implementations of these is also 10% faster than it was last year, and so the time to revenue is improving. A lot of that is really based on very purposeful actions that we’ve made to grow not only our sales teams but also improve our processes. So I feel really, really good about this. One of the things that I think might be helpful, too, is just 13% to 15% of the pipeline now is Locum’s, which as you heard about before, is picking up nicely in that business, too, which gives me a lot of really great pride in the team, the way they’ve been acting.

Thank you. If I could just ask a couple of Travelers questions. Beyond your own revenue, I’m trying to think if you could add the MSP spend to it. How much either staffing direct to revenue or client spend in travel nurse do you now get to see?

Let me make sure I understand the question.

How much travel nurse spend do you manage your MSPs as a different way to say.

I don’t know specifically travel spend alone. We have little over $2.6 billion right now under management. Tobey, this is Dan. I’m sorry. So I would imagine...

That’s between MSP and/or VMS.

Yes, I think this is…

Yes, if you look at the market overall, more and more is coming through for MSP. Within just MSP, it’s still about $1.2 billion, which is the largest part of nursing but also includes Allied and Locums as well.

Okay. So can you comment – or whoever’s going to field it, comment a little bit more about the year-over-year growth that you quoted for travel nursing? Has that been a consistently high number in recent months, a building number? Just trying to get a sense for how that’s developed.

Yes. Tobey, are you asking about this quarter’s – the demand?

I am, thank you.

Yes. So it was really building through the first quarter and picked up more steam in March and April. And what’s nice about it is it’s a really great geographic spread as well as across specialties. And it’s not overly concentrated, I would say, in terms of the incremental pickup in any one particular area. The other positive is that we’ve seen the specialties across the board continue to grow. And med-surg, which is one of the most typical specialties that we have demand for, has grown to the number two position. And that’s always a really good sign in terms of the strength of the demand and the fact that not only are clients having challenges with specialty nurses but they’re having difficulty finding the medical-surgical nurses. So usually, that’s a sign of demand that’s going to sustain.

Terrific. Thank you for answering my questions.

Thank you, Tobey.

Our next question from Jason Plagman with Jefferies and Company. Please go ahead.

Hey, good afternoon. Just since we have Kelly on the call, I thought I’d ask about the OWS strategy and outlook to kind of reinvigorate organic growth in some of those businesses both in second half and into 2020.

Great. Thank you, Jason. This is Kelly. We’re very excited about the strategy and our ability to align what has been a really disparately run businesses with AMN all around search and leadership as well as on the physician side. So we spent last several months doing a few things. One is aligning our portfolio. We did have some overlap of offerings, which was creating some market confusion, and quite frankly, some internal confusion. So we’ve gotten that aligned, and that’s helped those businesses performance fill needs better, which is why we’ve seen some MSP, fulfillment rate increases, but more importantly, allowed us to really align and get some better lift out of our sales resources in the market. So we were calling – sometimes had three or four different sales folks calling on the same clients, and we’re resolving that and also getting more focused on segmenting the market and aligning our offerings to their needs. So the way we are supporting the larger systems differently than the way we’re supporting, for instance, more ambulatory practices and getting much more specific around that. So we definitely expect to see some organic growth from those efforts. In addition to that, we’re also looking at more consultative services that we can add to the portfolio, which will create more value for our clients and create more stickiness for us. So things like leadership development and coaching and succession planning, which allow us to be engaged with our clients in between transactions. So we expect to see some lift from that in this fiscal year, but that will also carry out into subsequent years.

Great. That’s helpful. And I wanted to ask about the pace of a couple of your contract wins that you talked about in prior quarters, the Kaiser expansion into new geographies and additional specialties and service lines, and then also the Tenens MSP win. If you can give an update on those two, that will be helpful.

So without trying to use too many people’s names here, I’m really excited to say that all of the business that we had closed in the first quarter went – has been live as of last weekend. So the business has gotten to us faster than we were expecting, and all signs are very, very positive in that regard. And then for other implementations that are underway as well, I feel really, really good about some of the expansions and also the service line additions and growth as well. We’re seeing pickup, albeit slightly early days, if you will, in both Allied and Locum’s, but we feel very good about second half of the year for that.

Our next question, from the line of Jeff Silber with BMO.

Hey, everybody. It’s Henry Chien on for Jeff. I wanted to ask about the Advanced acquisition. I was wondering if you could – I mean you touched on it a little bit, but what attracted you to that organization, if there’s any differentiating kind of features that makes them unique in the Allied and therapeutic space?

Thanks, Henry. This is Susan. I’ll start with that, and I know Ralph’s going to have a lot to say as well. As I mentioned, we’ve watched this organization grow and continue to do innovative things in the market. We’ve had the benefit of being able to work with them because they were a fantastic affiliate vendor within our MSP program. So we could also see the quality of their clinicians, the quality of their teams, how responsive they are. And so it was just a wonderful opportunity to really add in what’s complementary in what they do into our organization. And I actually believe they’ll help us continue to innovate and do some really interesting things as they’ve begun to do through a little bit of teletherapy. It’s early innings on that, by the way, but they’ve had some really nice early success. And also in the school business. We love the school business because it’s serving very important patients, our children, and it also tends to have longer-term contracts, usually for the full school year. So it has a recurring revenue element to it, and there’s generally stickiness in terms of renewal of those contracts. And they’ve had really nice success in building that business rather quickly. Our Allied team had also done a good job of building a base of business. So the ability to bring that together and to perhaps create some of the opportunities like we’ve created across the travel nursing will be really interesting. I see that market as travel nursing 20 years ago. So I think there’s a lot of opportunity for consolidation. It’s still very fragmented, innovation. And so those were some of the attractive elements. Keep in mind, they have a really great nursing team as well as Allied. So I’m going to let Ralph pick up and talk more about some of the...

The finer points.

The finer points, thank you.

Well, I’ll reiterate what Susan said. We got to know them because they were one of the top, if not, the top supplier, and they’ve won our supplier of the year award as an affiliate vendor. So we got to know them and their management team, the quality of their work through that. We were all – we’ve always been very impressed by them. I think from a capacity standpoint, the acquisition does help us expand both our nursing and our travel Allied capacity. They have a large recruitment team that – they’re doing a great job and producing, we think, under our model. There’s an upside there, and that would be beneficial. Also they had margins that were very much in line with AMN and a pricing philosophy that was in line with ours, and so that made it favorable as well. One of the things, I think, our customers like the most is that I think because of their market position, they specialize in these hard-to-find specialties in both their nursing and in their Allied businesses, and they didn’t just go after low-hanging fruit. And so our customers will benefit from their capabilities in surgeries, speech – SLP, emergency room, women and children, places where AMN does as well, but they certainly have a lot of strength there that will sit on top of AMN capabilities. I like those – the teletherapy, the platform there, I think are starting in schools today. But I think there’s an opportunity to expand that down the road as those regulations loosen up a little bit and allow for more teletherapy. So you can tell we’re kind of excited about it. I can probably go on and on, but hope that answers your question.

Yes, no, that’s great. Thank you so much.

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

Just wanted to follow-up maybe a little bit on Advanced. Can you talk about growth rate that they were seeing maybe from an overall perspective? And then within the Travel Nursing versus maybe the Allied side of that business?

Yes. Sure, Tim, this is Brian. It’s a great question because it’s – they’re on a really nice trajectory right now on their growth rate. If you look back into 2018, they had made a couple of acquisitions in the nursing space a couple of years ago. And last year, as they were integrating that, they had a little bit of a slowdown in the nursing business, but the Allied business has performed very well through that. So they were up last year, double digits in the Allied side of the business and that’s continued into 2019 as well. And that schools business we talked about, although still only kind of mid-teens mix of their overall revenue growing very quickly, it grew – it doubled last year and they’re looking at about 50% growth again this year as well. So the overall growth rates we’re seeing – and that school kind of fits into the Allied umbrella. You’re looking at double-digit growth last year, expecting the same in 2019, very consistent with the market we’re seeing as well. And the nursing business now is stabilizing and getting on track. And I think, as Ralph talked about, with the capability they have, they’ve invested a lot in their team as well and adding more resources, it’s kind of perfect timing with the demand environment that we have in giving them access to our orders, there’s a lot of opportunity for them to get that nursing business growing more quickly as well.

Okay. Great. And then, I guess, just when we think about that though, I get if the demand is up, there’s more supply. But is there any way to think about the overlap in terms of their capacity on the nursing side with your capacity from a geographic? Or I guess, specialty line? I know they’re were kind of specialized, but parts of your business are specialized as well. So I’m trying to understand, I guess, the overlap as we think about that.

One way to think it, Tim, as where there might be overlap in candidates, there always are to some degree as we compare databases. So much of it is about the recruiter relationship and capabilities. And so even though we may have the same candidate in both of our databases, their recruiter may have a stronger relationship with that individual. And so we don’t think there is, first of all, that much overlap; and second, I think that they are going to be able to pretty quickly ramp up the placement of the candidates that they have, that perhaps they haven’t always had a position for by gaining access to our MSP clients. So we really see this as being pretty much completely incremental to both our nursing and therapy business.

Okay. Great. And then last question. I’m sorry. Did you say that they were part of some of your MSP programs? I guess I’m trying to understand they were a subcontractor in the past through those...

Yes, this is Dan, Tim. They have been a supplier under our MSP programs to the extent that those MSP programs were specifically focused on Allied for the most part. And at the same time, I think Ralph mentioned briefly before they’re one of our award winners as well. So not only from a high-performance point of view, but also do business the way that we respect.

Okay, thank you.

And our next question, Jacob Johnson with Stephens Inc. Your line is open.

Thanks for taking the questions. I guess, going back to the demand environment. As you suggested, it kind of seems like this demand pickup for Nurse and Allied is kind of widespread. From the data we track, it suggests that nurse’s job openings are picking up at the health systems. Your competitor yesterday was talking about an improved demand backdrop. So I’d be interested if there’s anything anecdotal or any color you can add to what’s driving this demand? Is it increased hospital volumes? Or are we getting into the point where this aging clinician population is leading to shortages? Or is it just turnover?

Yes, this is Ralph. I’ll start and others may have something to add to that. Hospital volumes have actually been pretty good, but they are not a lot stronger. And interestingly, our demand doesn’t always fluctuate proportionately to that. But I think probably as we come from that slowdown last year, was probably some pent-up demand that wasn’t executed against, either by their internal hiring or by use of contingent labor, hence our flat volume. I do think that the quits have accelerated. From what I’m hearing from customers, they’re seeing acceleration in retirement and job changes, both of which create opportunities for us. So even though there’s like kind of a – the flu season is a lot weaker. We’re seeing higher demand that’s just kind of an unusual thing to happen. So I would guess it is probably underlying patient volumes combined with their ability to recruit internally.

And I’ll just add to that. This is Kelly. From the recruiting process outsourcing perspective where we’re managing mostly clinical hires, we’ve seen a similar level of demand as the contingent side. So our opened new requisitions were up about 10% year-over-year. So I think it is a trend that we’re seeing throughout all of their hiring needs in the hospitals.

Got it. That’s helpful. And then maybe thinking about the trajectory of the Locum segment from here. I think last quarter we talked about getting back to $100 million quarterly revenue run rate. Kind of as we sit here today, do you feel more confident in your ability to get there than we were on the last conference call? And then any commentary you want to give on maybe potential timing of that?

I think we talked about kind of this year being in kind of that $80 million to $85 million and a rebuilding year for us on a quarterly basis. We definitely do see in the future getting back to that $100 million, but we don’t have a date on that yet. But we do have, I think, that team, the technology, the processes in place to get there. That trajectory, right now, we’re just going to be a little cautious I think, about how it unfolds. We have a lot of new recruiters who are very early in their ramp. So far they are doing very well, but it takes 12 months for them to really produce anything meaningful, and so that retention of that group in getting them up to speed will probably define our future success. So good question, probably ask us every quarter how that group is doing.

Will do. And then last question, since you all mentioned teletherapy. I attended a telehealth conference last month and was kind of surprised to see some of your Locums peers there touting their telehealth abilities. I’d just be interested, is that something you’re doing currently with your Locum segment or something you’re looking into potential opportunity down the road?

We’ve been exploring teletherapy for gosh, almost four years. We’ve looked at various acquisitions with their various models. So far we’ve just been supporting customers who are doing that type of work. It’s mostly in the behavioral specialty. And they haven’t found a good entry point for us to become our provider or to have a model. But that doesn’t – I wouldn’t rule that out in the future for us.

Great. Thanks for taking the questions.

Our next question from Mitra Ramgopal with Sidoti & Company. Please go ahead.

Yes, hi, good afternoon. Just wanted to follow up on some of the Advanced Medical acquisition. I’m trying to get a sense in terms of the end market opportunities as you look at school staffing and also teletherapy in terms of how big those opportunities can be, and again the growth profile there?

Mitra, this is Brian. It’s a very large market. It’s probably equivalent to some of the other categories and it’s highly fragmented today. So that’s as Susan mentioned, just as we look at where it is today and the evolution we’ve seen in our Nurse and Allied, really bring more sophisticated solution, more consultative approaches towards staffing of those schools. So we think it’s a large market with a lot of opportunity to just grow within it, but it’s also growing as well. There’s great needs in the schools and so we are looking forward to really accelerate. Again, as I mentioned, they’re already growing 50% this year in 2019 and seeing really good acceleration there and opportunity. It’s not a demand issue. So I think combining with our school business, we see a lot of good things ahead. And again, it’s not just the market and doing this job, it’s really about how we can help those customers ensure that they have the right talent, the right time. With this – you talked about therapy. Sometimes it’s very difficult to find the right skilled labor to meet the needs in some of the rural areas. So this is a great way to address that as well. So that’s the innovation we’re talking about the Advanced. We think they can do some really good things to bring sophistication to that market.

Okay. And in addition to the revenue opportunity, I think from Ralph’s earlier comment it seems like there should be some synergies from Boda’s sales force from a recruiting standpoint. Is that fair?

Yes, there should be. We would expect them to participate at a higher level in our MSP programs. And as we talked before, we have those orders for some period of our time exclusively, so that would improve their revenue growth probably, particularly in the Travel Nurse business from where they are at today. So – and then also, I think there’s some opportunity for us to sell other services like Kelly’s lines of businesses into their customers, the interim executive and their search businesses, so there’s some cross-selling opportunities, probably both ways there. I think that’s good. The TAM question, there’s not a good source for that. So let me go back there for just a second. We have seen numbers that range from kind of $2 million to $7 billion, but a lot of the school systems haven’t – don’t have any of these type of employees. They’ve never had to hire one. And so they’re really kind of trying to address the legislation and provide that support for students. So that’s part of the reason why the market is growing so fast, but it also – I think it’s very large and it’s unlikely that the school systems are going to be able to figure the problem out on their own. So we do feel like it’s a pretty big market.

Mitra, there is – as you probably are familiar, there is a huge focus on helping to support schools in behavioral health categories, and so there’s a lot of funding going towards schools to help bring in more resources for school psychologists, which quite honestly, they’re not – we’re not really doing now. That’s a whole – another channel of opportunity. Right now, the primary areas are speech therapy, occupational therapy, a little bit of PT. But once you have a platform, there is an opportunity to then think about how do we add in other categories. So we’re excited about how we can build upon what they already have at existing clients, but maybe think about more of a platform relationship, more consultative relationship with these school districts.

Okay. No, that’s great. It seems like the acquisition, certainly still has a number of needs or things you’re looking to do. And finally, I’m just wondering, I know you still haven’t really closed on it yet, but as you look forward in terms of your overall offering now, should we expect really consolidating your existing businesses? Or there are still some areas you still would like to explore or get into?

When we think about our acquisition strategy, if that’s what you’re referring to and where we might continue to be looking for opportunities, it’s really still very focused on really three categories. One is Workforce Solutions, and Silversheet was a great example of something we did earlier this year to help our clients in this area of credentialing and compliance. So anything that helps our clients be better at recruiting, onboarding, credentialing, optimizing and maybe developing and retaining their staff are areas that we want to look at. Second would be to really create more scale in areas where we see strong demand, where perhaps we ourselves are not at scale yet. So schools was a great example of that. We have a great therapy division, but it can certainly be even bigger and even have higher fill rates, so this helps us achieve that. And then certainly the nursing pieces is always helpful when demand is growing. So we’ll continue to look at categories where we feel that we can either add important talents, innovation or in some cases, some scale to an area where we see future growth.

Okay. That’s great. Thanks, again for taking the questions.

Thanks, Mitra.

Our next question from the line of Mark Marcon with R.W. Baird. Please go ahead.

I was wondering if you could talk a little bit about – a little bit more granularly about the school placement. What types of people are being placed? And typically how long are the assignments? And who has a competitive set? How do we think about the economics in that particular area? And Ralph, when you said that $2 million to $7 billion, was that specifically as it relates to school area? Or was that including the therapy?

No. That’s the schools. You’re right, the therapy market is probably around another $2 billion to $3 billion on its own, but the schools market is as big, we think as the rest of the therapy market. The primary specialties right now are speech and other behavioral therapies. The assignment lengths are about nine months long, same as the school year. That’s probably something we – when we – that’s probably when we really close the deal, we should give you some guidance on how to look at that, because the summer months they don’t need the help. So we could probably provide that at a later date. But we think there’s opportunities beyond those specialties. We don’t really do much in school nursing right now, but these school districts also need support in that area. So there’s – and there’s other upsides to it as well.

Getting to the competitive landscape, we think that they are very fragmented and all of the players, we believe are under $100 million in revenue. So that gives us plenty of opportunity to certainly have growth ourselves, and the market is growing. But also as we might think about future opportunities, there are other acquisitions that we could tuck into this to continue to build out our footprint.

Great. And then with regards to their coverage on a national basis, how would you describe that? And how much would you look to invest to increase it?

This is Brian. They’re already national provider across their Nurse and Allied and even within the schools, they’re in multiple states today and that’s growing as well. So they’re continuing to win new school districts. They’re in a lot of the states you’d imagine, some bigger ones, but they are really looking to be a national player in this space. And their platform really allows them to serve any market very efficiently as well. The other – what we probably like about is once they get in, it’s a little more – as I said, it’s very fragmented, a lot of local kind of mom-and-pops at each of the markets, so when they come in and they can bring more sophistication and more consistency, they’re finding that the districts really want to expand that relationship with them and help put them in a more preferred relationship. So some really good tailwinds and it should create more recurring revenue for them over time. Once you’re in and you’re doing a good job, you’re more likely to have that school district – that school year, as the next school year comes up, they’re going to come back to you again if there is need. So we think it will create more consistency in our revenue model over time as well.

Great. And then just the margins on that part of the business. How is that going to impact – because it sounds like it’s going to be the fastest growing. Is that correct?

Yes, the margins are pretty similar. I think over time as their – as they have technology enablement, it probably can allow for slightly higher EBITDA margin. But the gross margins within – for the business overall are very much aligned with our Nurse and Allied segments. As I mentioned, on a consolidated basis it brings down the margins slightly. But within Nurse and Allied segment it’s very consistent with our existing one. So again, in all cases, as we grow, we can get more scale, but in the near term it will fit right in with our current margin profile.

Okay. Great. And then just with regards to – the comment with regards to demand picking up, do you see – first of all, what are the constraints to filling that demand? number one. And number two, could we start seeing a resumption with regards to the premium pricing? Or how do you think about that, just if the demand is really outstripping supply?

Yes. I think we’re going to have to see little more sustained time frame for that demand to remain at high levels before it starts to impact pricing. So I’ll just address that one first. Right now, the big issue for us is this supply-constrained environment, and so we’re – two things with the – new demand is never exactly where you want it. It’s never from the same client you served yesterday, so it always takes us a little bit of time to pivot our recruitment efforts to align to the new demand. Excluding MSPs, although I think we see it coming well where we could get in front of it. So I don’t know if there is any other way that we could characterize the demand other than we have. It is widespread. It is both MSP and non-MSP. It’s across all specialties and it’s not geographically centered any place.

And in the long term – this is Brian. It’s from a premium standard. We really would prefer if the demand is at the level of the staff for the same period, is to work with clients to really get their standard rates where we need them. And that will allow us to attract more supply in the industry as well. We don’t want to draw on a premium rates. It creates a little more volatility for both us and for the client. Ideally as we continue to have really strategic dialogues, we can make those appropriate pricing changes to allow us to be able to fill their needs more consistently as well.

Brian, on that point, how quickly do you think you could potentially do that?

Well, that’s a continuing dialogue we’re having with our clients all the time. And as I mentioned, our underlying cull rates have been increasing modestly. If it was growing a little – more quickly, then we could – we would be able to probably attract even more supply, but that’s a continuing dialogue. It’s one of the real benefits of our MSP programs, is that we have kind of daily ability to encounter and talk to our customers about the market conditions and we can more quickly adjust to that – with them as well.

Mark, I think as you know, this is something that is really discussion with the client and they make the decision ultimately on pricing. It’s a consultative discussion. We share data with them about what’s happening in certain specialties across the country, within their region. And then ultimately, they decide on what the pricing should be. So it’s difficult for us to say exactly when and how much since we’re really not controlling that.

Our next question from the line of Bill Sutherland from The Benchmark Company. Please go ahead.

Thanks. Hey everybody. Just a couple here. On Locum, do you feel like you’ve got the system functionality up at the – like at 100%, so that everyone can be productive at this point?

Yes, I appreciate the question. This dominated the last call, so I’m glad it’s not something that’s a drag on us right now. We had several system releases since the last call, all of which were enhancements to increase the recruiter productivity, the placement speed and we’re starting to see the benefits of that. I do think that we have a system that we can grow with at this point. The other issue there, remember the user adoption of it. So they have to get used to using the new system, so we’ve got three months more behind us now. We recently went through some kind of assessment process of the individual users to see where they stood. The usability and their adoption to the tools was good. And then I want to highlight here for our IT team, they delivered a new search functionality that I think may be one of the best in the industry at finding just the right candidates in the database and filtering and sorting those, so that we can turn them around the clients. And that has resulted in some very strong top of the funnel or early in the pipeline progress. So with the number of candidates were submitting is up, the number of candidates who clients are screening and interviewing is up. And so – and the last step is just the number of candidates that we get out an assignment to be up. And maybe we’ll see a little sequential increase here in Q2 and hopefully better things in the back half of the year.

Got it. Are you getting back up towards 250 producers?

We are. I think we’re at the targeted number of producers we talked about the last call. So with our account managers, the count is closer to 370, but on the recruitment side you’re pretty close there, yes.

Just a couple for Kelly, maybe. When you look at the mid-revenue cycle business, how do you think about that going forward?

Bill, this is Susan. And since that doesn’t report to Kelly, I won’t make her answer that. No. So mid-revenue cycle, we see really good demand within that business. As you recall, we have the Peak Health organization and then MedPartners which we acquired last year, and so we’ve been bringing those two businesses together. We have now a fantastic leadership team, both the founder of Peak and – we moved a leader over from our Allied business, a woman that’s been very successful there, growing the sales organization and helping build the Allied team. And so the two of them together are coleading mid-revenue cycle. We also have the benefit of other leaders that have been with both with Peak and MedPartners for quite some time that give us that consistency and strength. I mentioned that because you might recall, we did go through some leadership changes there. The unfortunate accident by the President of MedPartners when she was in a plane crash last year. The good news is she is doing fabulously, but she chose not to come back to that role. And she certainly is always there for a phone call if we need to reach out to her, but the leadership team in place now is off and running. They’ve done a terrific job of getting the back office integrated over the last year. That’s actually behind us now and working just fine, but I only mention that because it does create a little bit of disruption and that business was down in the first quarter year-over-year. And we mentioned in the second quarter, it’s still down a bit. I would chalk that up to disruption from the integration, a little bit of the leadership changes that we were making along the way, and there was one large client that made a decision to bring their coding services in-house rather than outsourcing it. And so we’re feeling the effects of some of that.

Okay. Maybe – here’s one for Kelly. When you want to expand in the consultative service area, can you just do that with an email, just a normal hiring process? Or do you think you want to try to find a boutique or something to add?

Thank you, Bill. Good question. We’re first starting with the market perspective on what services we think are most relevant for them and most aligned with our capabilities today. We do have some – I would say some talent inside the organization today that provides those services more on a one-off basis, so we want to build off of that. But we are looking to either strategic partnerships. I would say if we do an acquisition, it would likely be on a smaller side. And we might do a couple of them and roll them up in order to have some meaningful critical mass there. So it’s probably going to be a combination of growing from some strength and talent that we have today, and then rolling up a couple. But we don’t have any specific plans for that yet, and we’ll certainly keep you posted as we do our market analysis and make some decisions in that area.

All right. Thanks everybody.

Thanks, Bill.

And we have a question from the line of Alex [indiscernible] with Berenberg. Your line is open.

Hey, good afternoon. Most of my questions are answered, but I just have a quick on M&A. When you’re looking at potential acquisitions, what multiples are you seeing in the marketplace right now, especially with potential Workforce Solutions targets?

Alex, thanks. It’s Susan. As we’ve discussed in the past and you probably well know, anytime you put a technology element into an acquisition opportunity, it increases the multiple. And some of the Workforce Solutions opportunities that we’ve looked at and that are likely to come about probably do have a technology component. So those can run anywhere from 15 to 20 times EBITDA or even more. And we’re willing to look at those. There have been times when we felt there was too much work to be done to perhaps make that multiple appropriate for us. And so we backed away, but we will at the right time, I think pay a higher multiple if we think it’s absolutely the right solution and service for us. And then on the staffing front, it probably ranges between 8 to 10 times would be sort of the range, I would put out there. It depends on the margins of the business, the growth of the business, the categories that they’re in, a variety of factors. So hopefully that helps.

Yes. That’s helpful.

Alex, this is Dan. I just wanted to give you a kind of client color around that. We’ve had some really fabulous early discussions with clients about Silversheet as an example. And in each of those discussions, the client walks away saying, based on where my data is, around our time to revenue and what we think we can do here, it’s often an improvement of 50% time-to-revenue improvement or greater. So when you talk about the potential for those kinds of returns with customers that are really starving for nickels, frankly, it’s a really fabulous way for us to add some serious value.

Awesome. Thank you, I appreciate it.

Thanks, Alex.

Thank you, and I’ll turn it back to our speakers for any closing remarks.

Thank you, Lory. We really appreciate everybody joining us today, and we look forward to updating you on our progress during our next earnings call.

Thank you. And ladies and gentlemen, this will conclude our teleconference for today. As a reminder, the conference call is being made available for digitized replay. The replay begins today at 7:30 p.m. Eastern Time running until May 16 at midnight Eastern. And you can access the AT&T TeleConference replay system by dialing 1 (800) 475-6701. Enter the replay access code 466135. And international participants may dial (320) 365-3844 with that access code 466135. And that will conclude our teleconference for today. Thank you for your participation and for using AT&T Executive TeleConference services. And you may now disconnect.