Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the E. M. In healthcare third quarter 2019 earnings call. At this time, everyone. Joining by phone is in a listen only or muted mode. And then later, we will conduct a question and answer session instructions will be given at that time.
If you should require assistance during the call you Me Press Star then zero on your phone Keypad. As reminder, the conference is being recorded and I'll now turn the meeting over to our host director of Investor Relations and strategy Mr. Randy Reece. Please go ahead Sir.
Good afternoon, everyone.
Welcome to them and Healthcares third quarter 2019 earnings call.
A replay of this webcast will be available until November 14th.
M. in health care Dot Nestor room Dot com following the conclusion of this call.
Details for the audio replay of the conference call or in our earnings release issued this afternoon.
Various remarks, we make during this call about future expectations projections planned events or circumstances.
So to forward looking statement.
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 at various factors, including those identified in our most recent Form 10-K and subsequent filings with the FCC.
The company does not intend to update the guidance or any forward looking statements provided today.
Prior to its next earnings release.
This call contain 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 Indoor No financial reports age I am in health care Dot Investor Road Dot com.
On the call today are Susan Salka, Chief Executive Officer, Brian Scott Chief Financial Officer.
Murkowski President of leadership in search Ralph Henderson, President of professional services and staffing.
And then why president of workforce solutions.
Well now turn the call over to Susan. Thank you so much Randy happy Halloween, everyone and welcome to our third quarter 2019 earnings call.
We are killed one from the close of what has been a very remarkable decade frame in health care and the industry in general over this thing and we have recovered from a major downturn followed by the time of significant growth.
The unprecedented aging population and a strong economy are creating new pressures on health care, while increasing demand for clinicians and simultaneously constraining the labor supply.
But without a doubt the most important change in our industry. During the last decade has banned the adoption of workforce solutions and talent management tool.
Hi, I'm incredibly proud of how the and then team rose to the occasion and elevated and then could be on health care as largest and most innovative talent solutions partner.
10 years ago, we had just a handful of managed services clients representing less than 2% of our revenue.
This year, we have a 1 billion or nearly half of our revenue generated through managed services clients and the momentum continues with 2019 already a record year for new contract.
We're certain that the future will bring healthcare transformation far beyond anything that we've already experience.
We know health care organizations and clinicians are innovating beyond the traditional models by using new technologies and care delivery setting.
No the healthcare sector races could change the silver tsunami of the aging critical population increases the difficulty of balancing labor supply would be increasing care demand.
The opportunity to help health care providers innovate around Cowen strategies and care delivery offers great promise for the future of and then this challenge is every A.M. and remember, we anticipate create and redefine how we add value for our clients and clinicians as.
The leader in total talent management in health care.
We don't see any end in sight for this strong demand environment. We're in if anything it is likely to intensify as clinical labor shortages increase which should bode well for our long term growth opportunities.
And then produced very good financial results for the third quarter with growth in most service line.
Growth in our staffing businesses was moderated by a very tight labor market.
As you would expect we're intently focused on deploying new recruitment strategies and ramping up our recruiters to increase our fulfillment to meet this growing demand.
Now, let's turn to our current results for the third quarter of 2019.
I'm proud to report we reached a new record high in revenue at 568 million.
Gross margin was a strong 33.5% and adjusted EBITDA was 69 million or 12.2% of revenue.
Our nurse and Allied segment delivered revenue of 363 million, which is 18% higher year over year, including 6% organic growth.
Segment revenue was higher than expected from strength in our international and rapid response nursing businesses and a solid contribution from our recent acquisition of advanced medical.
Our largest business travel nurse staffing grew 10% year over year with 4% organic growth.
Growth came from a combination of higher volume hours worked and bill rate.
Demand for travel nurses has remained strong for many months currently more than 20% above prior year and at the highest level we've seen since 2016.
Bill rates have risen, but at modest levels, considering the extraordinary demand.
Our experience has been that is this high demand environment continues clients will respond with more attractive compensation packages. In fact, the increase we've seen in higher Bill rate rapid response assignment is a very encouraging sign.
I like staffing with strong again into third quarter picking up to 11% organic revenue growth.
Our new team members from advanced also contributed 23 million to Allied revenue in the quarter advanced is poised for robust growth in its schools business with clinicians working in school setting up more than 50% year over year.
Overall demand in Allied is up year over year. However, the growth outlook in the next couple of quarters is somewhat tempered by lower staffing needs from our skilled nursing clients due to the reason implementation of the patient driven payment model.
In the fourth quarter, we expect nurse and Allied segment revenue to be up 11% to 13% year over year with organic results flat to up low single digits.
In the locum Tenens segment third quarter revenue with slightly ahead of expectations at 84 million.
Isn't it has stabilized after disruption from processing technology changes made last year overall demand is strong and the productivity of recruiters continues to improve which should enable us to deliver growth in the next year.
In the fourth quarter, we expect locum tenens revenue to follow normal seasonality being down 3% to 4% sequentially.
Our other workforce solutions segment recorded third quarter revenue of 121 million for year over year growth of 1%.
The leadership and search division, which makes up more than half of this segment's revenue had a strong quarter delivering growth.
Percent year over year.
Each of the service lines in this division, which include interim leadership physician Perm placement executive search and RPL all produced year over year growth in revenue.
Revenue cycle solutions revenue was down about 10% year over year, but we do expect a relative performance to be slightly better in the fourth quarter.
Our technology workforce solutions, which include our vendor management systems and workforce optimization performed well and grew more than 10% year over year in the third quarter.
For the fourth quarter total revenue for the other workforce solutions segment is expected to be up 4% to 5% year over year.
We are proud to be in a market leadership position as we enter this new decade, and we look forward to innovating with our clients as their total talent management partner. Likewise, we continue to create innovative recruitment method. It can help our clinicians to achieve their career aspirations.
I am grateful for the incredible talent of all of our team members engaged in a men's evolution.
Foundation of our business is the quality and commitment of our people the strength of our culture and our teams desire to make a positive impact enable thousands of talented and committed health care professionals to care for patients.
As a good example of this we have several team members who are currently in northern California, helping our clients in clinicians as they deal with a wildfires every day, we strive to making impact through our work and in our communities in any way possible.
Now I will turn the call over to Brian for a financial update after which Kelly, Ralph and Dan will join us for the Gionee session.
Thank you Susan and good afternoon, everyone third quarter revenue of 568 million was a body above the high end of our guidance range.
Biggest driver there's upside came from our higher than expected performance in our nurse and Allied segment.
Reported revenue was up 6% sequentially and 8% year over year.
On organic basis revenue was flat sequentially and up 1% over prior year.
Gross margin for the quarter was above our guidance at 33.5%.
Well 30 basis points from last year and in line with the prior quarter.
The year over year increase was the result of higher margins in the nurse and Allied and other workforce solutions segments, along with a favorable business mix shift within those segments.
Third quarter nurse and Allied segment revenue was 363 million, 18% higher than prior year end up 9% sequentially and included 37 million from the advanced acquisition.
On organic basis segment revenue was up 6% driven by double digit growth in our Allied international and rapid response business lines.
Nurse and Allied gross margin of 27.9% was 50 basis points better than prior year end up 40 basis points from prior quarter.
Segment EBITDA margin was 13.1%.
Third quarter Locum Tenens segment revenue of 84 million was 17% less than prior year end up 3% on a sequential basis.
Gross margin of 27.5% was 30 basis points lower than the prior quarter.
Segment EBITDA margin of 7.3% was in line whether expectations at this level of revenue.
Other workforce solutions segment revenue was 121 million in the third quarter.
1% year over year and flat sequentially.
Segment gross margin of 54.3% increased 190 basis points year over year, and 30 basis points sequentially due to a favorable shift in business mix within the segment.
That's you know expenses were 133 million or 23.5% of revenue compared with 121 million or 23% of revenue in the same quarter last year.
The increase includes about 7 million a best you name from the advance in silver she'd companies.
8 million from Earnout valuation adjustments and other integration related costs.
And higher employee related costs, partially offset by lower legal reserves.
Our consolidated basis third quarter, adjusted EBITDA of 69 million was 3% higher year over year.
Adjusted EBITDA margin of 12.2% was lower by 60 basis points year over year, and 30 basis points sequentially.
Reported net income of 24 million and diluted earnings per share a 49 cents in the third quarter.
Adjusted earnings per share was 81 cents compared with 84 cents in New York they'll corridor.
Our GAAP income tax rate in the quarter was 26% and was 30% on an adjusted basis, our tax rate is expected to be 29% to 30% in the fourth quarter.
Cash provided by operations was 81 million for the quarter day sales outstanding at quarter end was 57 days, a seven day improvement from the same quarter last year.
At September Thirtyth cash equivalents totaled 41 million.
Capital expenditures in the third quarter were 9 million.
At quarter end, our total debt outstanding was 620 million in our leverage ratio with 2.2 times to one.
October 1st we issued 300 million, a 4.6% to 5% senior notes due in 2027 and use the proceeds to repay our revolving debt and term loan which totaled 295 million.
Locking in this long term unsecured debt at historically low rates puts amos balance sheet in a position of strength.
Today. The company has a total of 625 million a debt, none of which matures until 2024 and unused revolver borrowing capacity of 383 million.
Now, let's turn to fourth quarter 2019 guidance.
The company expects consolidated revenue of 573 to 579 million up approximately 8% to 9% year over year.
Excluding the impact to the bats acquisition consolidated revenue would be flat to up 1%.
This guidance does not assume any material labor disruption events in the quarter.
Gross margin is projected to be approximately 33.5%.
Yes, you know expenses as a percentage of revenue are expected to be approximately 22.5%.
Adjusted EBITDA margin is expected to be approximately 12%.
Other fourth quarter 2019 estimates include the falling.
Interest expense of 8.5 million.
Depreciation expense of 6 million.
Amortization expense of 11 million.
Stock based compensation expense of 3.5 million.
And acquisition integration and other shorten expenses of about 2 million.
Diluted share count is expected to be 47.6 million shares.
Now, we'd like to open the call for questions.
Ladies and gentlemen, if he would like to ask a question Press Star then one on your Touchtone phone, you'll hear a tone, indicating you've been placed into Q you can remove yourself from the Q at any time by pressing the pound key if you were using a speakerphone. Please pick up the handset before pressing the numbers once again.
For questions Press Star then one on your phone keypad also it's been requested that you limit yourself to one question and one follow up question for any additional questions you will need to queue up again.
And our first question from the line of Jeff Silber BMO capital markets. Please go ahead.
Thank you so much forgive me I joined you a bit late I don't look you had an opportunity to talk about the order flow going into the winter season, I mean, if we can get some comments on that I'd appreciate it. Thanks.
We talked about orders being and continuing to be very strong and growing been above prior year more than 20% and we didn't talk about specific on sort of the flow of those orders going into the winter season, So Ralph maybe like that a little color on that thanks, Susan <unk>. Thanks, My question to Jeff.
The winter orders are coming in above prior year about 15% higher there isn't kind of one interesting trend that we're seeing is a little bit later start dates. So the impact on Q4 is a little less than it would have been in the prior year, but the higher demand is obviously a good sign.
Is there any indication I know it's still early.
Flu season, this year I don't know if theres any early read.
This is Rob I'll give their shot yeah. There early finds its pretty quiet right now very early in.
A cycle, we took a look at it actually today and it might be up.
A little bit over prior year, you know prior periods, but it's really not not meaningful yet and I don't know very few clients are talking or expecting that I think a big pop in there and the flu season this year.
If I could just sneak one more in which the numbers question, Brian on the refinancing what do you expect in terms of interest savings going forward.
So yes interest savings at this point of after interest expense will be slightly higher but that trade off of being able to lock in longer term unsecured debt. We thought was with a good trade off to make so as I've mentioned, our interest expense going forward to be between $8 million in the majority of which is which is fixed within that those two tranches of the unsecured.
Debt.
Okay, great I'll jump back into queue. Thanks.
Our next question from the line of Tobey Sommer with Suntrust. Please go ahead.
Oh. Thanks. This is Josh surveys on for a Toby just the guidance question I'm seeing 50 bips of improvement sequentially for both gross and operating margin, but EBITDA remained unchanged.
I was hoping you could speak to what items might be restrain EBITDA margins a bit.
Josh and are you referring to that the Q4 guide.
Relative to Q3 to the gross margin EBITDA margin are pretty consistent and the fourth quarter guidance.
Yeah, I was just speaking to be a the difference between gross and operating in that you've done for threeq versus a Q4, yeah. So so Q3 had some additional costs and better nest DNA, some which are go away I mentioned in her prepared remarks, we got some true ups on the earn out which cases a positive because advance is performing very well so.
We increased the the Earnout reserve.
But outside of that from a conversion of sub GP to EBITDA margin is really a pretty pretty consistent performance expectation between the third in the fourth quarter.
Okay perfect. Thank you.
Our next question from the line of AJ Rice with Credit Suisse. Please go ahead.
Hi, everybody a first of all maybe jumping off from that last question.
When you think about 2020 I know you don't give formal year ahead guidance, but puts and takes obviously, there's things happening in the margin in each of the business lines, but there's also mix shift going on that's affecting your margin is there any early commentary about how we should think about.
Margin trends and potential for next year and what's your sort of thinking you could accomplish.
Sure. So this is Brian Yeah. He said, we don't we won't give formal guidance for 2020, but I think that they the fourth quarter Guy we gave as it is a good launching point as we head into 2020, where are you know we're seeing some obvious isn't good trends on the order side as we as we look to that so next year the margin expansion will be in part depend.
At upon the amount of revenue growth that we see next year with certain expected operating leverage from that but the gross margin that we're exiting the year I think is a good starting point for 2020 and I didn't get all at a really be about getting leverage on the revenue.
The next year.
You do the only thing Okay, and then that a little bit is if we are able to see even through greater volume growth in our travel nurse business. Because it is very strong demand that we have and the tight supply if we're able to start to convert more of that demand in.
Nice men, you might see our mix shift a little bit which would be very positive overall, because that's going to give us more topline growth, but it could have a a slightly downward pressure on the gross margin.
Right. Okay. That's a that's helpful. In my other for a follow up I guess would be onto your comments about what's happening in the skilled nursing and we've heard that from some of the rehab providers that.
The impact of this new reimbursement is obviously to push more people to group in its freeing up some.
Physical therapists I wondered how big is that business for you in allied.
And did you see some of that in the third quarter I know the reimbursement was effective October one I believe so is that really starting in fourth quarter or was there some of that even in third quarter.
Hiatus, Ralph will take that you're right that the new Medicare patient driven model payment did roll out in October it makes up about 7% of the total nurse and Allied segment revenues, which includes the advanced numbers in there it declined slightly I'm in the third quarter, but we are predicting.
More impact in the fourth quarter decline.
You know kind of Twentyish percent, but is this is a small part of our business.
We had anticipated that and we shifted resources to work in other specialties like our schools business, which is up I think Susan mentioned.
80% year over year and other parts of the business and there's lots of ways. We can offset that the other thing I'd say I think.
How about that changes with is probably the fourth or fifth reimbursement change I think I've seen in therapy over the last 12 years and those customers tend to find ways you know overtime to work through these these reimbursement changes.
And begin to pick up their utilization again after a few quarters. So I couldn't say exactly when they'll get through this one but I would anticipate that still to be a good market for us in the future.
Okay. That's helpful perspective, Thanks, a lot.
And we'll go next to Mark Marcon with Baird. Please go ahead.
Hi, good afternoon.
You could talk a little bit more about.
You know what you're seeing in terms of the Oh, the tightness in the labor market and.
How it's impacting the fill rates and how what sort of you know steps you could take in order to increase withdrawal rates. So that's the first question related to that and then also I'm wondering how it's impacting your email to the demand for you or people in terms of recruiters account managers.
And compensation levels that you have to provide in order to keep a good ones on board.
Thanks, Mark I'll start with that and then maybe have my colleagues jump in to help add in some additional commentary. So first regarding the general health care Labor market. I know you follow the BLS data right, along with us and see that the number of job quits and openings continues to be at relatively.
Historical highs, we're still at roughly a two to one ratio for two jobs open for every job being filled that anecdotally lines up to what we hear from our clients, where they are hiring feverish lane, but they're also losing people in their words faster than they can bring them in and that's why I think.
We're also continuing to see an extremely strong demand environment, because they're just not able to keep up with the vacancies that they have and all have thought Ralph and Dan perhaps add in little bit more color there, but regarding our corporate team, it's absolutely a tight labor market all around for all employers and all kinds.
Position.
One of the reason however, why I talk a lot about our culture mattering, because the culture that we have within the organization is very much focused on helping our team members can be successful to build a career within the organization not just to do a job, but rather to really help pursue their personal and professional.
Oh, it's our stated purpose within the organization and so we try to make sure that we're offering more than a competitive compensation package, but rather a culture and a holistic environment, where people can be successful and be a part of something bigger than themselves be part of a company that really makes decisions based on our value.
Susan has a greater purpose of making a positive impact. These aren't just weren't I use on an earnings call. Their words that we use every day within the organization and that attract and retain some really phenomenal talent our jobs aren't easy and we know that and there's challenges and get in the way every day.
So if we provide a strong healthy nurturing culture for people, we find that they want to stay and build their careers with Oh, so with that Ralph and maybe ask you to weigh in a little bit more on on what we're hearing from client surety and then the question in mind that with what's happening with bill rates in high demand market as you probably.
We would anticipate fill rates are coming down our team does actually a very good job, though shifting the resources to those most strategic relationships, which is our MSP, which continue to grow and I think as we've talked the last couple of quarters that lot of success. There a ramp it's still building on several of those.
In the shortage driven market right now that candidates over really choosy and so.
They look for opportunities that meet their career.
Gold it fit their skills that has the right <unk> geographic location all of those sorts of things and then once the all of those boxes are checking they compare that to their core staff job and right now there when they make that comparison to of course, that's job, they're seeing rising wages, there, but they're seeing flat wages and bill rates with us and so that's causing this equal.
Sebree, I'm or an imbalance between supply and demand right now no, but we're working with our clients very closely to help them understand that I'm in the past I think like in 2016, we've seen the clients move that rate very quickly whenever there demand needs were not being met we expect that to happen hopefully you're in the next quarter. So.
And seeing some early signs of movement on on pricing that would then allow us to get back to high fill rates again.
That's great how much of a of an increase would it.
Ralph.
<unk>.
Not an economist [laughter], but.
You know last time, it took a movement and is still in the single digits more mid single digits. Okay great.
And then Susan I certainly appreciate your comments in terms of a culture being a differentiator, helping you to attract folks I'm just wondering I'm just in terms of being able to.
We needed to grow that business is that.
Is it a tight labor market from that perspective.
No, we're not feeling constrained by our ability to recruit great talent.
One of the benefits I think we also have in being a company with a national geographic footprint. We have of course clients and clinicians working I in all 50 states, but we also have corporate team members working all over the country and so we have the opportunity to recruit talent in may.
Many different labor market, and we're getting better and better at being able to have team members working in different geographies and having remote he member. So I think that helped us a lot and having the flexibility to meet the talent, where it is versus expecting it to come to us.
That's great and lastly was there any rapid response revenue in the quarter.
Yes, we mentioned that are in our nurse in business in the nurse and Allied segment that a couple of the star performers, a where our international business, where we're bringing or is it into the U.S. on long term contract. But then also rapid response, which are those shorter duration higher bill rate Contra.
They also had a very strong quarter.
Mark This is Dan I, just want to away in a little bit more than we'd these two things together. So you were asking you about what do we do what are the clients do with fill rates being challenged.
The first thing we do as go to them with other solutions. We have many that we can provide here on the international nursing.
Example, is a really good ones. So if fill rates are low and it's hard to get somebody in a shorter term assignment. They look to grab a different category of labor and solve this problem longer term. So it's actually a really good example, uptime both of those two things together.
Great. Thank you.
Our next question from the line of Jason Plagman with Jefferies. Please go ahead.
Hey, good afternoon, just wanted to touch on the comments on the Allied business in the changes in the skilled nursing segment. So do you think you do you have the opportunity to to redirect some of those candidates into other settings take kind a you know a to offset that headwind. So it's the only a short term in.
Impact or do you think that's something that all kind of persist for you know 234 quarters.
Yeah. That's a it's a good question I guess some of the good news about this is the skilled nursing setting is what actually one of the lowest pain environments and the resources in those settings. We think we'll we'll be interested in acute care jobs, which are which are higher paying it'll take a little bit of time to get through that transition from one one setting to another.
But that's that's what our planning has been around this change for the past several quarters and.
I would guess that virtually all of them will eventually go back to work at another assignment.
In a different setting it up this matter how long that takes.
Okay. That's a that's helpful and in their own Ws segment. The you know the revenue you mentioned mentioned revenue cycle, you know a little bit challenged.
For the outlook in Q4, when should we expect that to get back to stability or even growth does that D is that a realistic for 2020 or what what's kind of the prognosis. There yes, Jason It is I I think a into the first half of 2020 would be our target the exact timing is a bit difficult to predict but.
I've seen some really nice bright spots within the business. If you recall, there's a variety of solutions that they offer coding case management CVI and so some of those businesses are actually showing some nice trends and yet some others. We're having some challenges. So you know we think a kind of early mid next year will be.
We'll be in a better stabilized and you know kind of positioned for growth and then since you ask about other workforce solutions I might just piggy back on that and as Kelly to share a little bit about what's happening in leadership in search because we've got some really good trends and as you saw some really nice performance there yeah. Thank you Susan.
Yeah, we had done a nice quarter and expect that I'd say continue and a couple of things that we're seeing from a leadership in search perspective, you know one is the demand remains strong as well so the shortages extend I'm certainly the leadership positions and as our clients are.
Challenge to higher permanent physicians nurses and leaders as well, we're seeing I'm, an up tick in that business as well, but I think a lot of our success has come from the strategy and integration that we've been working on internally.
A year ago, we had nine different brands I'm working in this space, we're down to now I'm a clear for service line and their working together, we're combining our databases, we are getting more traction in the market because we're having more efficient use of our sales resources. So we're getting greater coverage, which is on covering a lot <unk>.
It is for us and I'll also helping with some of our more regional businesses like builds to P. the gain advantage from being a part of them and so we're really starting to see that turn around and we saw that executive search business. For example, really grow in this past quarter as we're very excited about now the ability to build off of that strong platform.
And extend the services into advisory and strategic services that are our clients are really asking us to help them from an optimization standpoint.
Great and when one last quick one from me was Brian was there any meaningful labor disruption revenue in the quarter.
No it was it under under 5 million.
Pretty much in line when we had put in there are in our guidance.
And that is similar I as I mentioned the in it for the fourth quarter guide don't have any material amount expected as well just as a reminder to when you look at our performance in Q3 sequentially Q2 did have a little over 10 million of 'em strike related activity, but that's a third quarter was was modest as was the prior year another quarter.
Okay. Thanks, that's it for me.
And we'll go next to Bill Sutherland with the Benchmark company. Please go ahead.
Thanks, They came.
I was curious about this education business and the momentum there and you could just.
Speak to kind of how sustainable that that looks like or the.
Yes, as you go into 2020.
Yeah. This is Ralph the discourse business was one of them more attractive reasons why.
We wanted to get into advanced and part of our overall strategy has been as a company has been to go into new setting, where we see growth opportunities wherever health care goes we want to be there and so as you've seen in the past with our introduction home health and some other things. We've done we continue to do that I think not just by the line of business, but also setting honestly.
Adding basis.
Advanced medical by the way it got to call out there quarter. They had a great quarter and they were big contributors. Our Q3 success on a pro forma basis, they were up about 15% year over year, and we expect them to come in there or stronger in the in the fourth quarter driven by both their performance in our Msps, but also the schools business.
The schools business are very fragmented market.
<unk> estimates are around $2 billion, we've seen bigger ones than that and the largest players. There's a couple that are kind of in the 100 million dollar range.
We're probably in the top three to five three to five players right now, but we would anticipate even going up further up that was very quickly.
Team has performed very well so that assignment length is very long, which is also favorable it makes a little more predictable because it's nine month assignment and so you get a little bit helps us out when we're usually a little bit softer in the summer. It does get soft, though so that we'll have to I think everybody used to that cadence.
That is that happens, but overall, we're winning new contracts. There we are moving some of the recruiters off the skilled nursing business into the school setting so that we take advantage of that even even more.
So when you think about the growth that group or else.
You kind of get set up.
At the beginning of the school year in the sense and I mean, not completely but the parameters. So you kind of.
I have this.
That's a trend line.
And then you see where you stand with new wins and so forth next to you know next year for the next school here.
Yes.
Although we do continue to fill some jobs throughout the year. There's some schools that I think we'll have a regular leave or something like that so we still will fill some jobs, but yeah, you're right. It's pretty much. It is get baked out you know in advance of the school year build when Midas many lives.
It used they use once there once we have that contract in place and we have.
Therapists working at the school the majority of them end up using us for multiple years. So the nice thing is even if it's not only the that long in nine month assignment. The large majority end up having need each year. So we can continue to build on those relationships and add more.
As we look forward.
And then just remind us kind of the scale that business currently for you guys.
So there so the run rate you again, it's because of the school year, it's a little bit it's hard to use a calendar year with the runway run out from the fourth either we look at the fourth quarter forward. It's no one important revenue now it'll again at all.
You know to its highest at these yeah for the Q Q4 in Q1, and then you get that a little bit lower but you know we're in the 40 to 50 on an annualized basis right now [laughter]. Okay. Thanks, sorry about that thank you.
Okay.
And we'll go next to Mitra Ramgopal with Sidoti and company. Please go ahead.
Yes, hi, good afternoon. Thanks for taking the questions I'm just wanted to get a sense in terms of thier MSP pipeline as you look out that 2020 and I'm also any potential in terms of the overall fill rate improving I think it's running right now blended around 55% to 65% than.
Your thoughts on maybe getting that up even higher as you look out.
Over next 12 months.
Thanks Metro. This is Dan I think I'll start with that and see if anyone else wants to add some color. So.
Susan mentioned in her opening remarks were nearing the end of the year at this point and have really good visibility into our full year MSP sale and I'm really happy to say that 2019 will be our best MSP sales, you're ever which is absolutely the right way to put an exclamation point on a decade for sure.
On the nice part about that is the contracts represent diverse settings are excellent no geographic and specialty mix. It provides a lot of opportunity for our health care professionals, so sort of balancing a lot of things there.
And then for a little bit of color. The these deals for this year averaged about three and a half service lines overall, and that's really helped increase our average deal size quite well.
Year over year. So you know that's a really nice trend as well our pipeline is strong we're still seeing interest from first time buyers, which for me is always a good indicator Oh, you know overall market opportunity.
Probably also a good thing that just give some color around you know today, we manage.
2.6 billion and contingent labor spend for our our managed service clients the ramp remaining to be implemented and materialized from a these wins as is over $250 million that will.
Probably you know realize over the next 18 to 24 months.
And again and again, it's kind of a reminder, our managed service programs rain ranged from just simply providing some technology that allows.
Companies to manage their contingent labor on their own.
All the way to fully outsourced programs that you know, we manage and drive the business outcomes on behalf of our clients. That's one of the reasons why I wanted to add color back tomorrow around how we use different pieces of the puzzle so really solve the workforce optimization.
You know equation, that's one of the reasons why we keep using this total talent sort of category and and phrase so for us. It's not just about fill rate on you know short term needs. It's also about looking at how they build their flux falls how do they.
They manage a inner international.
Just tense and so on so is it's really a broader equation them I think you're you're referring to will also bring in our arpino team, who has had a great year as well I haven't talked a lot about them, but they've had a really nice uplift and added new clients and that's because our clients need help in their permanent.
Hiring and we see that and we can come in and when they're having challenges with both department, even as we're having challenges finding the contingent labor for them, we can bring <unk> recruitment processing outsourcing team and to help them make sure that they are getting the maximum benefit out of their perm hiring.
So Ralph just went on maybe one more comment on fill rate yeah on the absolute fill rate, which includes us in our subcontractors where in that in the high Ninetys mid to high Ninetys most almost clients.
And then what you're referring to is more kind of our what we call internal capture which is the share of the revenue that we we get and it's running that more towards the high end of the range that you gave right now with the exception of a handful well several new clients that we won in the last year, which are still early in the ramp so the first year we.
We bring on a new client it we might captured 30% to 35% of that and so some of the larger deals lately are right right at that level in there and trending upward.
But we would anticipate that even with the supply challenges in our fill rates are msps will hold up it's it's the traditional clients it probably well how it will.
Be more difficult.
In getting their job so.
Okay. That's great and then just a quick question on the.
Recruitment side I know, obviously, you expanded recruitment team with the advanced acquisition and I've just wondering as you.
Look out in terms of the business you expect to bring on if you feel comfortable in terms of having.
The team in place now did you can start leveraging that.
Yeah. This wrap all all I'll talk about the nurse and Allied and but I think Ellie Mae when I talk about resources, she's adding as well, but in our you're right. We've added about 20% to 25% incremental capacity.
With the advanced team or in our recruiter productivity is.
No where near all time highs it might even be it the 80% threshold. So there's lots of upside there we have lots of new recruiters over that the hiring we've done over the last two years in a in all of those businesses.
And we continue to hire so we're.
Opportunistic and we try to time those things out when we can we think we can find good talent, but so overall, yet we haven't slowed down our our investments at all in our recruiting team Kelly, Yeah, and I would I would add to that very similar trends and leadership in search I think our integration has allowed us to both get higher productivity as well as to move people to where influx.
The where the demand is and so we're having a greater opportunity to shift our resources that way I will say back to Susan's comments around our culture and our ability to attract we've also seen this past year, a significant increase in retention and that has allowed us to both increase productivity and some slow down some of our hiring demand, but we are asked.
Really seeing people very interested in joining our mission and so where we were able to keep up pays with with the demand.
Okay, No that's great. Thanks, again for taking the questions.
Thanks Mitch.
And our next question from the line of Alex Moroshka.
With Berenberg capital markets. Your line is open.
Hey, good afternoon, thanks for taking the questions how much higher do you think you can get that 50% number for Msps and do you think future expansion, there would primarily come from new or existing clients.
So the and the number will rise based on our ability to continue to penetrate our existing clients says I think both Dan and Ralph alluded to we certainly have several clients that we brought on over the last year in and more of that Weve signed but we'll be launching until the first part of 20 Twond.
He that will give us more runway to build that billion dollars sort of 50% of our revenue that you alluded to but overtime. We would expect that we will win additional appliances as Dan said, we see a lot of appetite out in the marketing is you see more of these systems merging and.
[noise], increasing their own level of complexity and sophistication, they more and more want to turn to an organization that mirrors that and not just for contingent staffing, but someone who can really be a holistic total talent partner for them. We're hearing that much more frequently today and I think it's showing up in the RFP.
And in the conversations that we're having with them and so we believe that bode first time buyers, but also clients that might have had a more technology only or sort of an early stage program in place will likely want and need to have something more holistic and with multiple solutions to.
To help capital there their workforce challenges. So we think that's gonna be something that will help give us more opportunity with more when we also believe that we have a lot more runway an opportunity to have more of our service lines in solution being delivered through our existing client and that doesn't.
I have as much to do with the ramping a new launches it does doing a better job of understanding their strategic priorities. There are challenges and how we can actually better integrating connect our own teams in our own businesses. So that we can be offering them a more cohesive seamless set of solutions that's why.
They want they don't want to have to go to 10 different organizations can provide the different solutions that we can bring to the table. So the easier we can make it for them to work with one organization that well integrated and and connected internally as well as externally. We think that gives us a lot of runway to incur.
<unk> the number of service lines that are more strategic clients are using.
So if you like Alex This is Dan I'll, just give you color around data. A example, so if you think about our top 40 managed service clients, which now they're they're going to represent the majority of that revenue that you're looking.
One third of 'em use five.
Offerings at least and I could see that you know becoming.
Half of those clients using six or more over the next couple of years, there's that much room for us to grow without even adding new ones.
That's great color. Thanks, a lot and then on a separate no you mentioned the California fires during your prepared remarks in terms of natural disasters. What have you historically seen in terms of demand uptick in the affected areas and then which parts of the business what should the greatest uptick in utilization.
Yes, so our first priority as you can imagine is supporting our clinicians and not even dark lesions all clinicians that are in the midst of that crisis as well as our clients and that's what we're doing and our teams are there on the ground, helping them, but then of course, we're making sure that if they have additional staffing needs that we are quick.
Really responding to that and in some cases, a you know they may have nurses and we may have nurses that get disrupted while they're there and so what do we do to support them in that situation, we've not seen a high number of new needs to come through a for clinicians in those tariffs.
Stories, it's possible that could happen as things settled but for right now that there's been a few additional needs, but not a lot like why there's been a few disruptions, but I would say at this point the to appear to be somewhat balancing each other out.
Okay, great. Thanks, a lot.
Thanks, Alex.
Thank you as a reminder, if you do have additional questions. You May Press Star then one on your telephone keypad well go to Jasper bid with Suntrust. Your line is open.
[noise], Thanks, it's actually Tobey Sommer for Jasper.
[laughter] could you describe <unk> or maybe.
This go around compares to where we've seen kind of resurgent demand, but not the corresponding price reaction by customers in the market.
Going to compare and contrast between what you used to.
Thanks figure out whether this is.
A normal duration or taking longer.
Sure Toby and sounds like you've got some great trick or treaters there in the background glad that they can join us.
Good to out with them.
[laughter] you can get their loot here shortly.
We I haven't I'm not sure we've ever had what I would call a normal cycle and you you've been there with us through most of the cycles that we seen in terms of upticks and declines in demand.
It's taking a little longer this time for us to see the corresponding supply come back into the market I think there's two reasons for it I'll. One is that we saw very high a higher bill rates premium rates being used as demand rose the last time in that sort.
2016 timeframe and then we saw premium rates come down and because of that pay rates came down.
And last assignments being offered at those higher pay rates with bonuses and that pay rates came down in travel nursing on and on an average basis.
The actual rates of nurses went up in permanent positions, depending upon which survey you read it might be sort of 6% to 8% over a three year period, and so I think nurses are looking at that going well I've I've seen rising wages in the permanent environment, but not necessarily rising wages yet in.
Travel position, so I until we start to see that opportunity for higher compensation packages I think our supply will be a bit constrain now there's lots of other things that we can do and arguing to work with clients can make sure. They're assignments are as attractive as possible things like standardizing credentials <unk>.
He's your were interviewing quickly and we are seeing some movement within pricing that can then translate threed compensation, but until we start to see a little more movement I think that growth will be a little bit limited how long, it's really hard to say I mean, I'd say, it's been maybe two or three months longer than I would've expected at this.
Point, but we are starting to see some early signs both in bill rates changing conversations with clients about what their ongoing needs are gonna be and then as we mentioned the the rise in rapid response assignments.
Hopefully that's helpful.
It is thank you very much.
Okay sorry.
We have no additional questions at this time so please continue.
Well. Thank you again, everyone for joining us, especially on Halloween, We hope you have a great and safe evening, and we look forward to updating you on our progress next quarter.
Thank you ladies and gentlemen, this concludes our teleconference for today. Thank you for your participation and for using ATM T. conferencing you may now disconnect.