Q4 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the A.M. and health care fourth quarter and full year 2019 earnings call. At this time all participants are in a listen only mode. And later you will have an opportunity to ask questions instructions will be given at that time, you should require says.
Since during the call you May Press Star and then zero. That's a reminder, this conference is being recorded I would now like to turn the conference over to our host Randy Reece. Please go ahead.
Good afternoon, everyone.
Welcome to them and health Care's fourth quarter and full year 2019 earnings call.
A replay of this webcast will be available at <unk> am in health care Dot Investor room Dot com following the conclusion of this call.
Details for the audio replay of the conference call also.
In our earnings release issued this afternoon.
Various remarks, we made during this call about future expectations projections planned events or circumstances constitute 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 as indicated by these forward looking statement as a result in 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 this next earnings release.
This call contain certain non-GAAP financial information.
Information regarding and reconciliations of these non-GAAP measures.
Most directly comparable GAAP measures are included in our earnings release and on our financial reports page at <unk> am in health care Dot Investor room Dot com.
On the call today are seasoned socket Chief Executive Officer.
Scott Chief Financial Officer.
Kelly Murkowski president of leadership in search.
Ralph Henderson President of professional services and staffing.
And then white president of workforce solutions.
Ill now turn the call over to Susan Thanks, So much Randy and welcome everyone to our fourth quarter and full year 2019 earnings call. It team at Amgen is very excited to be entering this new decade in such a strong position and in a promising market we.
Continue to see the effects of an unprecedented demographic change, resulting in increased demand for healthcare services and significant workforce shortages.
We help healthcare organizations successfully navigate this high demand era with our total talent solutions at the same time, the Amgen commitment to social responsibility and good governance aligns with our clients and other stakeholders initiative and enables us to make.
A greater positive impact in our communities.
Our team has worked hard to become the most trusted innovative expert in total talent solutions working together with healthcare organizations and professionals, we are always ready when our clients and their patients need us most.
Our strategy progressed in 2019 with the June acquisition of advanced medical and innovative provider of therapy and nurse staffing to those healthcare facilities and school.
This acquisition provided an important capabilities and capacity to address the growing labor needs of our clients across multiple setting.
Eight months into the integration things are going very smoothly and we continue to be impressed with the talent that has joined the ammon family.
Allied staffing was a standout performer in 2019, reaching 323 million, an annual revenue, 29% higher than the previous year.
Other high performing but smaller businesses, including international nurse staffing rapid response labor disruption and our predictive analytics and scheduling business.
Our other workforce solutions segment revenue reached a record a 477 million in 2019, reflecting a immense focus on increasing our strategic workforce solution capabilities.
Within this segment, we consolidated our interim leadership and permanent placement businesses into an integrated leadership solutions Division. This move strengthened our go to market strategy and bolstered support of our key brands.
In January of Twentytwenty, We announced this signing an agreement to acquire strata video the leader in providing remote video healthcare interpretation services. We are pleased to share that earlier. This week, we received regulatory approval for this acquisition and we expect to close to me.
Borrow.
Qualified health care interpretation, which is mandated by federal and state regulations in the service that many healthcare organizations do not have the resources to provide for themselves. This acquisition helps further ammons ability to deliver quality compassionate patient care and to increase.
Fission see it also aligns with our commitment to quality and inclusion by supporting greater access to care for limited English perficient patients death, and hard of hearing individuals' along with their families.
In our market leadership position, we feel a responsibility to develop more ways to help our clients deal with the intensifying challenges of labor supply and complex healthcare demands.
Some of our new capabilities and solutions will come from internal development. For example, we are working with health care professionals to develop mobile applications designed to create a personalized experience. Our team is also providing ways for clinicians to seamlessly interact with us.
Across multiple channels around the clock.
For clients, we are enhancing their access to Richard data and insights and we are leveraging our investments in Vms credentialing scheduling and predictive analytics to create a more integrated platform.
Further broaden our workforce technology solutions, we recently acquired before health technology innovator with an integrated float pool management solution and Vms for health care facilities.
These are just a few examples of how am and strategy guides, our decision and execution over the next year. We certainly have a lot of work to do to translate these investments into the expected benefits for our clients candidates patients team members and our shareholders.
Fortunately, we have an incredibly talented and committed team and we feel extremely confident in our ability to meet our high expectations.
Now, let's take a few moments to look in the rear view mirror and discuss our strong results for the fourth quarter. We reached another record high in revenue at 587 million gross margin was 33.6% and adjusted EBITDA was 75 million or.
12.9% of revenue.
Our nurse and Allied segment posted revenue of 389 million, 18% higher year over year with 6% organic growth.
Segment revenue beat expectations on exceptional results in our labor disruption and rapid response nursing businesses.
Our largest business travel nurse staffing grew revenue 9% year over year.
Demand remained very strong in the fourth quarter and the strength has carried into 2020.
Lately hours and bill rates are also improving but not quite enough to accelerate accelerate new supply into the industry.
Allied reported 45% revenue growth in the fourth quarter, including our acquisition of advanced organic growth for the quarter was 7%.
As we previously noted and expected demand in Allied staffing was tempered by a slowdown among our skilled nursing clients due to reimbursement changes.
This has been offset by growth in other specialties, particularly speech therapy imaging respiratory and lab professional.
In the first quarter, we expect nurse and allied revenue to be up 14% to 16% year over year with a combination of organic growth and the benefit of our advanced acquisition.
In the Locum Tenens segment fourth quarter revenue was 78 million volume was roughly in line with our expectations, but revenue was impacted by a higher mix of lower rate specialties and a negative sales adjustment.
Recently booking trends have been favorable and we believe locums revenue will be flat to up slightly year over year in the first quarter.
Our other workforce solutions segment recorded fourth quarter revenue of $120 million up 2% year over year.
Our leadership solutions Division makes up more than half of this segment's revenue and had a very solid quarter of performance growing revenue at 7% year over year.
Our technology workforce solutions, which include our vendor management systems and workforce optimization performed well again and grew double digits year over year in the fourth quarter.
The one business that was down year over year in this segment is revenue cycle solutions.
This was due primarily to disruption created by some organizational changes we made throughout 2019.
As we begin the new year, we expect gains in most of the businesses within this segment and are projecting the other workforce solutions segment revenue to be up 2% to 3% year over year on inorganic basis.
With the addition of before health and Stratasys. The other workforce solutions revenue is expected to be up 15% to 16% year over year in the first quarter.
Overall, we are very pleased with our latest results and the outlook for 2020. As importantly, we are proud of the impact and commitment to amgen's purpose shared by our extraordinary team members every day I am and fired by the talents in passion exhibited by my colleagues through both our.
Work with clients and health care professionals and in our communities I can never say enough just how grateful we are all they do.
In a few minutes Kelly, Ralph and Dan will join US for the question and answer session on future calls, we're going to mix things up a bit and will include one or two different leaders to discuss particular aspects of our business. For example, we expect to have one of the Stratus leaders join us on our next earnings call. We hope this will provide our invest.
Testers and analysts with a broader and deeper view into the business now I will turn the call over to Brian who will provide more insight into our financial results.
Thank you Susan and good afternoon, everyone fourth quarter revenue of 587 million was above the high end of our guidance range. The outperformance came from our nurse and Allied segment with about 10 million more than expected revenue from labor disruption activity in the quarter.
Reported revenue grew 3% sequentially and 11% year over year.
On an organic basis revenue was up 3% both sequentially and year over year.
Gross margin for the quarter was 33.6% up 100 basis points from last year, and 10 basis points from last quarter.
The higher year over year margin resulted from an increase in the high margin labor disruption revenue in the nurse and Allied segment, along with a favorable business mix shift within our other workforce solutions segment.
Fourth quarter nurse and Allied segment revenue was 389 million, 18% higher than prior year end up 7% sequentially.
On an organic basis segment revenue was up 6% over prior year driven by the increase in labor disruption revenue this quarter.
Our rapid response and international businesses grew double digits over the prior year.
The average travelers bill rate was up from the prior year by about 3%, reflecting an increase in rapid response assignments and some improvement in contracted bill rates.
Nurse and Allied gross margin of 20.6% was 140 basis points better than prior year end up 70 basis points from prior quarter due mainly to the higher margin labor disruption and rapid response revenue.
With this higher gross margin segment EBITDA margin of 14.3% was a 50 basis points higher than prior year end up 120 basis points sequentially.
Fourth quarter Locum Tenens segment revenue of 78 million was 5% less than the prior year and down 7% on a sequential basis.
As Susan noted the quarter included unfavorable sales adjustments of about $1 million.
Gross margin of 26.5% was 70 basis points lower than the prior year and 100 basis basis points down sequentially.
This decline was a result of these higher than normal sales adjustments in the quarter, which had about 80 basis points impact on the margin.
Segment, EBITDA margin was 7.9% with a lower gross margin offset by a 900000 dollar favorable malpractice reserve adjustment recorded an issue today.
Other workforce solution segment revenue was 120 million in the fourth quarter up 2% year over year and down 1% sequentially.
Seven gross margin of 54.3% increased 260 basis points year over year, due mainly to a favorable business mix shift.
Consolidated EPS unit expenses were 133 million or 22.7% of revenue compared with 111 million or 21% of revenue in the same quarter last year.
The year over year increase includes about $7 million of M&A from the advancements overshoot acquisitions.
5 million from an adjustment to the advanced Earnout reserves at 8 million higher employee related expenses to drive our growth strategy.
Fourth quarter, adjusted EBITDA of 75 million was 14% higher year over year.
Adjusted EBITDA margin of 12.9% was 30 basis points higher than higher year over year end up 70 basis points sequentially.
EBITDA margin the quarter was above our guidance in large part from the higher than expected labor disruption revenue.
We reported net income of 27 million and diluted earnings per share of 58 cents in the fourth quarter.
Adjusted earnings per share was 85 cents compared with 81 cents in the year ago quarter.
Our GAAP income tax rate in the quarter was 28% and was 30% on an adjusted basis, our tax rate is expected to be 30% in the first quarter.
Cash provided by operations was 79 million for the quarter and 225 million for the full year.
Day sales outstanding at quarter end was 55 days, a nine day improvement from the same quarter last year.
At December 30, Onest, our cash and equivalents totaled $83 million.
Capital expenditures in the fourth quarter were $10 million.
At quarter end, our total debt outstanding with 625 million and our leverage ratio was two times to one.
As Susan mentioned, we are expected to close the Stratus video acquisition Tomorrow for a purchase price of 475 million.
We intend to fund the purchase using a new five year 250 million dollar term loan a 175 million draw our revolving credit facility and 50 million from cash on hand.
The interest rate on both the term loan and revolver are calculated using a library plus the spread based on our leverage ratio and we'll be at approximately 3.5% assuming a pro forma leverage ratio of 3.3 times to one at closing.
Now, let's turn to first quarter guidance.
The company expects consolidated revenue of 598 to 605 million.
Up 12% to 14% year over year.
This includes 15 million of revenue from Stratus video from the data acquisition.
On an organic basis consolidated revenue will be up 2% to 3%.
Gross margin is projected to be 33.3% to 33.5%.
As you know expenses as a percentage of revenue are expected to be 23.1% to 23.3%.
Adjusted EBITDA margins is expected to be 12.3% to 12.5%.
Included in Yesterdays stock based compensation expense of 5.3 million and acquisition integration and other extreme expenses of about $8 million.
Other first quarter 2020 estimates include the following.
Interest expense of 9.8 million.
Depreciation expense of $7.5 million.
And amortization expense of $12.1 million.
Diluted share count is expected to be 47.6 million shares.
Couple of other items to note. We're just starting the intangible valuation analysis for Stratus. So the quarterly amortization expense is subject to change. In addition, the depreciation amortization and interest expense amounts only reflect the impact of having status in our results for half the quarter.
And now we'd like to open up the call for questions.
Ladies and gentlemen.
If you wish to ask a question over the phone you May press, one and then zero on your phone if you're using a speakerphone. Please pick up handset before pressing the numbers and once again, if you have a question press one and then zero at this time.
Our first question comes from the line of Tobey Sommer from Suntrust. Please go ahead.
One moment please.
So please go ahead.
Thanks, I was wondering if you could comment on what you think is required to start to drive bill rate sufficiently higher such that draws new supply into the nurse staffing market.
Okay.
Hey, Tobey this is Rob Thank you for the question.
We did see some improvement in the quarter I think we called that out of about 3% and we are our Q1 guidance actually has a strengthening just a little bit.
We're not back to 2017 levels. So I would guess that's probably another two or three points from where we're at.
At the end of first quarter, so would be very helpful in turn to getting that supply to.
Come back into travel nursing as well as our allies in our locums businesses to where pricing has been pretty tepid over the past three years.
So if you have the bill rate strengthening a bit in the guidance since it's been almost all the revenue growth just from price.
No it's not.
I think it's Brian might not exact mix I think some of its from price some of its from volume, but we also have some headwinds in the.
We're talking about the Allied business for example.
Skilled nursing facilities businesses off quite a bit in the first quarter, and then I'll being offset by increases in other areas of the business.
This is Brian that on the on the traditional travel nurse business. You know we were still working through some of the head of you've talked about and in 2019, but that that gap is narrowing significantly. So there's a little more price in the first quarter, but we're still seeing growth in our international business, we talked about the rapid response and now we're seeing the traditional travel nurse improve a month.
By month as well.
Okay.
I wanted to ask a question on the locum Tenens space could you just kind of talk about the competitive positioning of the business in the market.
What you see the industry growth rate and then im interested in.
Vms in the local space there've been some strategic moves in the industry and I'm curious on your perspective, there too.
This is Rob I'll take the first shot.
Anyone else has anything to.
That's great.
On the market growth rate.
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It has slowed we generally said it was probably into three to five range over the past several years.
Because of some pretty significant decreases in emergency medicine, and hospitalist, it's probably closer to flat to up slightly.
And almost all growth, probably they're driven by bill rate.
The.
M.S. marketplace has begun to change I think now all of the top providers have some sort of anchor in the Vms World as previously I think.
When we launched Locums MSP six years ago now we were probably one of two players in that marketplace. Now there are more more in the market.
And there was a third part to that question, which.
I want to make sure just our positioning in the market.
We are you we've gone through our kind of a difficult period of getting to kind of a one from look as opposed to three separate businesses have technology in place allows us to execute.
Better than we were able to three separate businesses and and so I think we're starting to see some return to growth. If you take out those two specialty for example in the fourth quarter.
Took a hospital emergency medicine, our growth would have been 9% across the other specialties.
The year.
And Toby just a little bit more insight on our strategy as it relates to positioning us of Locums, we very deliberately have been working with our MSP partners. Both those MSP partners that my only use locums, but even more so those that want more of a whole house total tax.
Solution provider, who can provide not just locums, but nursing and allied and from as well as contingent in in some cases, you know they want us to bring in Nonclinical partners and so weve very deliberately been focused on those kinds of system more system type clients.
That might use multiple solutions and services it might be an MSP and might be a vms, which we can also support through our medaphis platform and so yeah, I think you're seeing more of the competitive landscape change. So that others that are sort of mid to larger size also are seen that they need to have.
Those kinds of capabilities, because it's what the clients want any the analytics they need to get their arms around what they're spending in some cases they want a single provider single partner that can provide all of those solutions. So I'm not at all surprised to see some some of the competitors that have been resistance.
Two workforce solutions and Dms now start to change their positioning of that.
Okay last question for me Susan could you comment about one where we are in Europe.
Kind of position in being poised.
To update us on long term financial goals and targets for the firm.
Sure, it's really interesting time, Toby as we reflect back even over the last decade, just for a moment when we were coming into 2010, I think 2009, our revenue was around 750 million.
Here, we are today more than three times that size. We've also increased our market cap of course significantly probably more like 10 times over that period and that's been done through this evolution of workforce solutions in starting with MSP, but then adding in Vms and.
All of the other businesses that we've added into the organization in order to serve our clients better but also as you can imagine to create a better financial profile and you've been there every step of the way along with us. So I don't need to go through it all with you, but I bring that up because I see 2020 as another major step in Amen.
Evolution as we position ourselves to be that total talent solution partner for clients quite honestly, we've already surpassed our previously stated goal of hitting an enterprise value of 4 billion. We had hoped to get thereby more like 2022 and here we are.
Today, So I think that's a really good sign that we can lay out goals and achieve them one of those goals. As you recall was also around margins and EBITDA margins in particular, we certainly have made some good progress in some of our businesses, but because of the lack of growth that we expected in some of our staffing.
Businesses and with local taking a bit of a stepped back a that held us back in achieving it I do think that the demand environment that we have today and the progress that we're seeing in bill rates could provide for that kind of an environment to achieve those types of margins and certainly acquisitions.
Like Stratus video go a long way and giving us a bigger step towards that will add about 80 basis points to our EBITDA margins on an annualized basis, just with that acquisition. So we're still very focused on those goals and we are prepared to set out a date for that quite yet.
Yet, but hopefully it gives you an idea of kind of where I think we are and the opportunity that still lies ahead of us.
Thank you.
Toby.
Next question comes from the line of A. J Rice from Credit Suisse. Please go ahead.
[noise] you guys. This is kayla Harris on for AJ.
Just wanted to touch on demand a little bit more I think last quarter, you said that.
The fourth quarter is expected to be a little bit weaker than usual with winter assignments coming later in the season.
Comments on an add on what you're seeing on your orders for the first quarter and then anything around the fluid thats, causing any increase in orders.
Hi tale of this is Rob thanks for the question.
We have seen positive demand trends across all of our businesses will start higher level, our nursing or allied and locum business civil seen an increase in demand overall, our Q4 demand.
Was above prior year and I think on our last call we talked about that in the neighborhood of 20% above prior year, but you're right our winter needs.
Particularly those from one of our larger customers got pushed to start a little bit later in January and so we have seen those needs and we have done a good job of meeting those requirements for those those winter needs customers. So Q1 demand remains about the same as Q4 in terms of year over year.
Acceleration to demand on the flu season, we haven't seen very much activity is very small amount of activity related to the flu although the incidences.
Of flu occurring or higher.
Whether or not that since somebody into one of the environments that we staff.
Doesn't seem to be having an impact a very very small impact and that doesnt mean that it won't come.
Yeah, maybe tomorrow something changes.
And we've been surprised before by that but at this point kind of know flew in our guidance and and no incremental flow expected NK Love. This was Kelly rakowski I'll just chime in a little bit on what we're seeing on the leadership and Perm side as well on the physician Perm, we saw a significant increase in demand sequentially I'm over the last couple of quick.
After that significantly over last year, and we continue to see that particularly as larger systems have demand for primary care behavioral health and medical specialties and we're seeing their.
Behavior change as Susan mentioned more to a total talent partner and a strategic partnership where were working side by side with them on our interim leadership a highest level of.
Assigned interim leader there last quarter, although we did see a little bit of softness in demand. We think that is tied to some of the nursing trends that Ralph just mentioned as well, but we're starting to see that come back now as we start the year.
Okay great.
I wanted to touch on the before health acquisition, you mentioned was that out how sizable is that sort of financial impact and I know you mentioned that had some sort of Vms solution, where they are a key competitor in that area and what was sort of the strategic and or financial rationale there.
Sure Caleb Susan I'll I'll take that so the revenue that they'll be bringing into the quarter is a little over a million dollars a quarter. They are growing very nicely I'd have a very innovative team and technology that focus in a few different areas. One is the flow.
Pool management solution that I mentioned, they've really done a fantastic job of building a tool that helps clients create efficiency and the weighted they manage their internal flow pools, which as you can imagine for any individual hospital, but even more for large system is a very complex and bird.
And some part of their staffing equation, but more than just a tool to manage that they have integrated into other workforce systems, including other via method so that the system itself.
Through setting up a particular rules can do a great job of ensuring that jobs art filled by the internal staff floating it's quickly relayed to staffing partners. So they've I have some fantastic clients. We've been certainly asked for this type of solution from other Amgen clients.
We have other things in the works, but this will accelerate our ability to really go to market with a solution that is has a widespread need and will again create a lot of efficiency and optimization of the limited staff Thats out. There. In addition, they also have a fantastic vms tool that can be used.
Five facilities, who want to manage their.
There there staffing vendors in house or it can be actually utilizing is utilized by other MSP providers have some fantastic MSP clients within the industry. So we think it's a great team a great technology and and they're already working very well with the Amazon team overall.
Okay, and then just one more source I wanted to toby's question on the locum side.
More in the in the nurse to travel nurse, specifically and travel and Allied nurse and Allied more broadly what do you view is done market growth rate at this point.
Sort of the 2% to 4% that you guys were talking about and travel or is it something different than that.
Well I would look at it first more I'll start with nursing and I'll ask course, Ralph to to chime in here, if I leave something out but.
Think of travel nursing is all encompassing of very short term assignments, maybe six to eight weeks plus the more traditional assignments of 13 weeks and our international assignments can which can span 18 to 24 months because they're all contracted.
Multi week or multi month.
Finally, and they're serving in some cases, a similar need in terms of short term content in SAP, but also there often filling in for permanent staff in the case of international I'd say there. The vast majority of them are converting to permanent staff. So I would look at those more in totality as opposed to just eat in.
Individual segment and if you do that you can get to some really nice growth rates in fact international and rapid response, we're growing double digits last year.
Collectively if you combine that with the travel business. The traditional 13 week travel business. It brings it down into the single digits, but hopefully that gives you a little bit of a glimpse now that 13 week traditional travel business.
Has plenty of demand to be growing double digits demand is not the challenge there as we've been discussing the last several quarters supply is really been a constraint. So we continue to see bill rates rise as we have if we continue to see some incremental supply come into the market, we ought to be able to get that truck.
National 13 week business up into the mid even high single digits and quite honestly it could go higher than that if the supply will begin to roll.
Allied is a little bit more of it makes bad because of the various disciplines.
Therapy business is very strong although in skilled nursing, we've had that headwind.
As a reimbursement changes, but imaging respiratory and lab has been where the biggest growth has been in fact, it's really quite.
Lazing to look at how that particular business has grown over the last decade, so Ralph anything else.
Covered most of it that the diversity of the Allied business actually been a positive because the skilled nursing be down and then the Susan mentioned the imaging respiratory lab specialty and the schools also growing at a fast rate I think our schools businesses of about 50% year over year.
Okay. That's helpful. Thanks, a lot.
Cana.
Next question comes from the line of Jason Plagman from Jefferies.
Please go ahead.
Hey, good afternoon.
So going back to travel nursing.
I believe last quarter, you mentioned that the premium you were seeing some pickup in the premium rate business and you obviously called out the rapid response, but.
Any comment on what percentage.
Of of your total mix the premium assignments represented in Q4 and kind of what that trajectory is heading looking like heading into 2020.
Hey, Jason this is Brian.
But as we mentioned as it has picked up again I think what we're.
Shifting away from just talking about that exact percentages if thats the only determinant of our clients utilize our services, we're finding more often there they're pulling on different clinicians when they need MFS. They may have a traditional order in at the becomes a more urgent need they may slip to more of a rapid response, but really having that spectrum of opportunities for as has mentioned all the way from okay.
Six day week, all the way to tier assignment with a national business really allows us to meet the new decline at that time. So that percentage has gone up we're not going to kind of give exact number every quarter, we're not back to the level as we were a couple of years ago, but we're definitely off of the bottom. We saw in 2018 has been steadily rising through the back half of last year not to.
Rising with demand going up so quickly and not seeing that underlying pricing growth Dave more of our clients have had to.
Go back and forth between traditional and and more of the rapid response are critical staffing rates. So is it likely will go up a little bit more in the first quarter, but hopefully that's also the.
Good foundation for conversations with clients about the opportunity to increase those standard rates to bring more permanent supply back into the industry to fill more jobs as well.
Great Thats helpful and then.
You know any comment on demand from your large client.
Is that should we expect that to continue to be a headwind in Q1 or is that slide that are out what how does that progressing from what you're seeing from the order flows and assignments in Q1.
Yes, good news on that one and while it did impact Q4 about the same as it had prior quarters last year in Q1.
We expect that it will be on par with prior year.
Okay great.
And then switching gears, a little bit I wanted to ask.
The hotel segment.
You are expecting 2% to 3% organic growth in Q1.
Any items that could accelerate that closer to mid single digits, 4% to 5% as you progress through 2020, I know you'll start to lap some maybe easier comps in Rev cycle, but how should we be framing.
Sure Directory in 2020 for that segment.
So Jason as Brian I'll, just kick it off net Kelly give some color as well I think for the next couple of quarters, it's more likely to look pretty similar to the guidance. We gave for Q1, we are stable now with the revenue cycle business, but stable at a lower level. The teams done a really nice job of replacing some of the turnover. This on really starting to bounce.
None, but it'll still be a negative comp for the next two to three quarters I think so that that part is kind of a baseline starting point as we go into Q2 in Q3, the opportunities are probably more leadership solutions, let Kelly give some color on that yet and Jason I'd say, we are seeing good steady volume. There's a couple of places where we could see.
Acceleration our piano as we continue to strengthen our BPO capabilities and more closely tie our ARPO solutions to our MSP clients as they move to more of that totaled talent solution on those are the kinds of relationships that can bring in revenue faster also our price.
Active analytics, where we've had several new signings on each of the last couple of quarters in both consulting as well as our smart square scheduling technology solutions in a very strong pipeline. There. So we can scale up very quickly particular on the technology side. So there are some areas, where we could see some acceleration.
Got it and last one for me just update on MSP.
Contract that activity in Q4, and what's pipeline.
Oh Thats looking for for 2020, if we should be thinking you can you can match kind of your last Q2 years ago open record years, How's that looking for 2020.
Thanks, Jason This is Dan I'll take that one so as you mentioned a 29 to you ended up being our vast MSP sales year ever with about a 20% year over year improvement.
We also have just any color on 11% year over year improvement and the gross spend over management, which reflects contracts not only sign but when they go live and how they grow.
Now a little bit over 2.6 billion.
In total.
Another nice trend that we're seeing is that we're getting contracts that are renewing.
Five or more years more than really ever before also.
One of the things you asked me about US you know house Q1 going we've we've started off very well we have a number of clients contracts that have already been signed we have $70 million and contracting today all of that stuff gives me great confidence.
2020, we'll we'll continue to be a strong year for us I think maybe even more important on just the based contracts, though is our ability to cross sell are if you look at our top 40 accounts.
The number of out of service lines in 2019 grew by a little over 35%, which gives me great confidence that we can take things like strategists or before how or some of these older additions to the portfolio and bring them into our class more quickly.
Great. Thanks.
And as a reminder, ladies and gentlemen, if you do have a question on the call today Press, one and then zero on your phone.
And we do have a question from the line of Mark Mark cone from Baird. Please go ahead.
Good afternoon, everybody I'm, just wondering with labor disruption, which was the total revenue renewal was $10 million more than you were expecting total and both for the quarter in the year.
Yes. It was it was closer to $15 million for the quarter, which is some of that we already built into our guidance with some shirley.
Our third quarter call for the full year. It was a little over 30 million pretty similar amount in both 2019 in 2018 at that kind of low low thirtys. So to record years by the way. So I don't want to assume that's going to have actually is we're sitting here kind of halfway through the first quarter. We really don't have any any note any revenue at this.
Point, and it's not certain whether we'll have any at all for the remainder of the quarter, which speaks to the reason why we don't always called it out too much because its or we call. It out specifically because it's it can be pretty.
Variable quarter to quarter.
There will be more activity to this year, but Q1 is in pretty quiet so far.
Okay and.
How would you think about or how should we think about like the number of providers on assignments sequentially just in terms of.
Go sequential flow and what we ended up seeing the fourth quarter.
So on a normal seems like from Q3 to Q4, you mean, yeah.
Yeah as a we gave the guidance we talked about the fourth quarter for travel nursing, particularly being a little bit softer we normally see some of that being tied to the timing of the winter starts. So it it came in generally in line with our expectation.
But below what we normally see from Q3 to two Q4 now is we are as we are looking into the first quarter I'm considering the amount of strike revenue either having in Q4 to see our guidance excluding stratus.
You know looking pretty flat, that's actually really nice performance and reflective of the growth we've seen sequentially in the underlying volume of the business, both that's really true and and nursing as well as and even in Locums, where.
The typical seasonality would be kind of maybe down a little bit from Q4 to Q1 rationally expecting to be up a little bit based on that guidance. So seeing good trends as we're going into the first quarter.
Okay, Great and then can we take a look at the EBITDA guidance terms of 12.3 to 12.5, but you've got half a quarter benefit discounts which is higher.
How should we think about that.
In terms of the.
Puts and takes our from a year over year perspective adjusting for for strategy.
The good I'd say, it's just that Stratasys, Susan mentioned to adds about on a full quarter basis closer to 80 basis points.
So with that had kind of centrally with an expectation of closing tomorrow. You are picking up about 40 basis points of EBITDA margin in the first quarter. So that would put you back down to about 12%, which is similar to the guidance. We gave for Q4. So the kind of underlying organic business performance is still operating in that 12% range and then you add in strategy.
Into Q1, and so as you think about the second quarter, we would just add again, obviously, a full quarter end back from strategy.
Great and that is good as we went through the year, obviously, we'd expect to to see improvement in the in the margin. We would if we see the growth continue we would start to pick up more operating leverage as move into the third fourth quarter, but I think thats such a good decent line of sight for Q1 in Q2.
Orders are really high demand is really high what's stopping some of their healthcare systems from raising the going rate to a level, where you can actually get more supply I mean, I'm sure that they've heard from you and others how tight it is.
When when they are that breakthrough.
Well, we are seen progress as we've said we saw some nice underlying increases in the fourth quarter in that 3% range.
Improved even more than that going into the first quarter and I'd say as you exit the first quarter is accelerating but I think you find them being appropriately cautious about how much they need to increase those rates to get the supply now when they use more and more rapid response.
And that's usually a sign that the underlying regular bill rate need to increase so that perhaps they can fill those jobs with more traditional lower cost travelers rather than having that urgent need at that higher bill rate with rapid response. So I see we we are actually making now.
Progress there just seems very thoughtful about how that progresses.
Okay.
I mean, how much of a Scott would it take like work.
6% chain, 7% I mean, when im sure Youve looked good us to city, you've got all sorts of data. We have we have mark but as you would expect there's always multiple inputs in very aware that feed into that analysis I would be hesitant.
To call a particular number in say things are going to break loose if we hit that number but certainly if we start to get above 5% that would be a very good sign I'd say, even at the levels. We're seeing now we we are more optimistic about supply improving and rebook rates, which remain very.
Strong and so I think we're getting close.
Great and then I remember, having a conversation many years ago with you wouldn't Ralph with regards to cool and grew four is.
We are really interesting.
I will.
It seems intuitive to me and how many of your clients are currently using them and what their position relative.
Okay kind of solution because it.
It's really.
That's clearly a trend yeah I agree I love this business and the technology and again the team. There is just so innovative so thank you for recognizing that.
We actually don't have as much overlap as you would think because they are a newer business and they have some really fantastic.
Prestigious impressive clients that also happen to be our clients in other ways, but the fact that we can have some referenceable accounts that they bring to the table I think gives us that much more capability, but also credibility to be able to go to our other large strategic clients.
And so what is possible. So that we think there's a lot of opportunity here with our existing clients and classy there has not been much innovation in this space beyond what before health has done there are certainly legacy schedule lean technology companies that have some.
Capabilities, but not to the extent that before it health has created in terms of it being cloud based mobile enabled integrated with other systems, that's really where that sort of the secret sauce comes in is that it doesn't just stand alone in a silo, it's very well integrate.
Added with the hospital systems that also with our other staffing providers.
Great and then revenue cycle, it sounds like things have stabilized and.
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You know we're we're.
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Decent shape going yeah, Thats, I guess, I think headset, a great way to put it as soon as stable position. There are certainly bright spots within the business, but then there are others such as the CD API and podium parts of the business, where we felt a little bit more of a contraction again, we think it's.
More of did a factor of disruption and the changes that we've made over the last year, which we feel we're very much needed in order to set the stage for the business to grow and a healthy way moving forward. We also brought together two brands peak and Med partners and when you do that theres always a bit of.
Disruption. So we feel that we are through that and poised to begin to grow as we go into sort of the middle part of the year is probably a reasonable timeframe.
And then can you just talk about the case of de levering and good cash flow.
From operations that you're envisioning over the next year to two and.
Mike My my assumption is you.
Okay, you definitely would do an equity raised.
Hey down any of the deck, but just wanted to.
Absolutely confirming that sure no. This is Brian we don't intend to at this point, we've got to have a very.
Solid.
That structure with a blend of both long term unsecured debt and now mixed in with the credit facility that will be drawing on tomorrow for the acquisition you get as I mentioned that.
Five year term loan reset in the revolver also for a new five year basis, and we've got plenty of room within our covenants, so with a with a pro forma leverage expected to be 3.3 times at closing will be able to.
All that that will be prepayable. So we'll take our cash flow and immediately start paying down if you look at our full year operating cash flow and.
2019 of 221 million, so I want to free cash flow basis, you're up just a little under 200 million. So it gives you a sense of the kind of cash flow will be expected to generate this year on a quarterly basis into between kind of 40, and 60 million and so we'll be able to use that too.
De lever as well so as I mentioned, even when we had the call we announced the transaction we would expect to be below three times leverage by the end of this year, so with a really good about our position on the balance sheet.
Terrific. Thank you.
Next we have a question from the line of Tim Mulrooney from William Blair. Please.
Please go ahead.
Good afternoon, Thanks for taking my questions.
All right.
I wanted to ask marks question a different way on stratus.
What's baked into the first quarter guide from Stratus on the bottom line. If you did have you just kind of take the numbers you gave us from last year I'd assume 9 million, maybe about 9 million for.
A full quarter, so given it's about half a quarter does about 5 million seem right.
It's pretty close is probably more in the four and a half range. So is that I mentioned, it's it's running at about a 28% EBITDA margin. So if you take the 15 million it.
The 20 percentage give you pretty good sense was expectation for the quarter.
Perfect. Thank you and.
The other workforce solutions gross margin was up.
260 basis points I think you said the due to favorable mix shifts maybe it's just because I'm newer to the story, but I'm not sure what's exactly.
What's driving that so what are those mix shifts specifically and how do you see that carrying through the next several quarters.
Sure.
Within RWS, yet so part of it is the revenue cycle business being down it it has a lower gross margin than the other business line. So just pure but purely by that business being down relative to some other ones that has a favorable impact on the on the gross and EBITDA margin and on top of that we saw a nice growth in our leaders.
Search business, we've got particularly strength in the physician Perm business, which has a higher margin slightly higher margin than than average as well as in our the technology businesses Vms.
Avantas were both up nicely year over year, and those carry a higher than average margin for the segment as well.
Got it is the expectation I mean, it would be pretty similar then as you roll into the first quarter cutover pretty similar expectation now it will there will be influenced that going forward with stratus.
As we as you think about the the higher the higher margin profile of that business as well.
So is there a point what's this this dynamic excluding stratose. This dynamic laps itself did this start to happen several quarters ago or would you expect basically that carry through 2019.
Our 2020 excuse me [laughter].
So.
Again, we would expect to see the revenue cycle business start to improve as we move to the year, but we'd also we'll see growth across the other businesses, though is unlikely the margin profile will change significantly I mentioned strategy you. My that's actually the gross margin on that business is closer to 45%, so actually a little bit lower all with EBITDA margins are higher as well so those will.
That will have an influence.
Little bit of it's of a downdraft in the segment going forward, but I don't think you're going to see a big change from where we are other than that strategy being added in for a full quarter.
Okay. Okay. Thank you and one more for me.
Okay.
Brian.
Given the acquisitions of advanced medical and now Stratus video.
Can you give us an update on the capital allocation strategy for 2020 should we expect a pause in M&A, while you Digest these acquisitions with cash applied towards deleveraging the balance sheet or how should we think about it overall.
Sure.
Sure I'll, maybe I'll start with that I'm sorry, the short answer is yes, there won't be a complete pause we still certainly have capacity and should be looking at things.
Things that could be tuck in opportunities or strategic additions to our workforce solutions, perhaps it their technology solutions.
Particular, but we'll be very focused on what just paying down debt, but also making sure that we are.
Aligning our resources to the successful integration of.
Advance, which has gone very very well, but we still have some things to finish there and then of course strata I will say with Stratus theres not as much integration as there might be if it were a staffing organization because they have very different systems and platforms.
So there's not as much to integrate on the front office and certainly there might be a few back office things, but even then if they are heavily interwoven with their front and back office, we may not be integrating as much. There. So it's probably quite say a lighter lift from an integration standpoint.
Okay. Thank you Susan.
[noise] and our next question comes from line of Henry Chen from BMO.
Please go ahead.
Hey, good afternoon everybody.
Hey.
So moving parts I just wanted to make sure I understand some of that.
The trends so I guess first the.
From the organic.
Standpoint, the growth in EBITDA <unk>.
Well the sort of the change there just to understand like that.
The core profitability as of the business excluding acquisitions.
In the in the fourth quarter.
Yes in the fourth quarter yeah.
I don't really break out the the EBITDA I mean, the margin profile of I mean advanced would've been the most kind of notable impact.
To the quarter and they run a just a slightly higher EBITDA margin in the core business. So it would be pretty similar underlying margin, we talk about 12% EBITDA margin axis. The impact we saw from the strike. So again that was a bigger influence in the fourth quarter, but if you. If you will the impact of that of the strikes in the it on the margin it's.
It's usually not notably different whether you know kind of an organic or on a reported basis. In Q4 again, we talked about the impact with now. This recent acquisition of Stratus that we'll have a more meaningful impact going forward.
Okay for its not a big influence either way.
Okay, all right that makes sense.
And then.
Like the underlying volume trends I understand that.
Yes travel volumes doing quite well and allied is having some.
Some impact from reimbursement changes just sort of that.
The step down inorganic growth from we're not step down I should say, but just some of the slowing from the.
Single digit range to the 2% to 3% range.
Is there anything else going on just to be aware of and and I guess.
To be keeping out for any other potential payment.
Changes throughout this year.
No I don't I don't think there's anything else that you're missing there was pdgm introduced at the beginning of the year way knew about it last year, but that was a reimbursement change that's affecting the home health industry. We don't of course billed directly and receive reimbursement that our CFO.
Lines do and so it can affect how they utilize in this case therapy resources and so that hit in the first quarter again, we were anticipating it. So we began to redirect many of our resources to other disciplines or other settings and have been fairly successful with that and in fact.
There's been so far a bit of an offset where some of the home health providers have increased their utilization of nurses and so I think we still want to kind of wait to see how much of an impact that will be it's actually a fairly small part of our overall business, which is why we don't really call it out but that would be another moving.
Pardon there, that's still probably needs to play out a little bit.
Okay got it alright. Thank you thanks guys.
Hi, everyone.
And there are no further questions on the phone queue at this time.
Okay wonderful, while we really appreciate everybody joining us today. Thank you for your patience at the beginning of the call as we work through some technical difficulties that really glad you could join us and we wish you all a wonderful Valentine's day Tomorrow I know, we'll all be celebrating with our loved ones, but that also now.
Now includes the stratus team that will be joining the Ammon family. We're very excited about that so everyone have a great evening. Thank you.
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