Q4 2021 AMN Healthcare Services Inc Earnings Call
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Good day, and welcome to the <unk> and health care fourth quarter 2021 earnings call. My name is breaker and I'll be today's event specialist.
You'll have the opportunity to ask a question did you say please press star followed by one on your telephone keypad I would like to hand, the call over to Luis to Rhonda waste Senior director of Investor Relations Sir Please.
Please go ahead.
Good afternoon, everyone welcome to <unk> healthcare's fourth quarter and full year 2021 earnings call.
A replay of this webcast will be available at IR <unk> healthcare Dot com.
At 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 trends.
Its events or circumstances, including our financial outlook for 2022 and beyond.
Constitute forward looking statements. These.
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 because of various factors and cautionary statements, including those identified in our most recently filed forms 10-K and 10-Q.
Our earnings release, and subsequent filings with the SEC.
The company does not intend to update guidance or any forward looking statements provided today prior to its next earnings release.
This call contains certain non-GAAP financial information.
Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at IR Dot <unk> healthcare Dot com.
On the call today are Susan <unk>, Chief Executive Officer, Jeff Knudson, Chief Financial Officer, Kelly Rakowski Group, President and CEO of strategic talent solutions.
Andrey <unk> group, President and CEO of nursing and Allied solutions and.
And James Taylor, President and CEO of physician and leadership solutions.
I will now turn the call over to Susan. Thank you so much Randy and welcome everyone. We're grateful that you joined US today for an update on A&M impact strategy and our results. Many forces came together over the past two years that challenge the health care industry to implement the Ameren team.
Is proud to be an important contributor as the leading provider of total talent solutions for health care professionals and organizations.
Throughout 2021, we scaled our solutions and technology to answer a stunning rise in labor demand across all of healthcare, our clients' need for travel nurses increased by about two and a half times from the second quarter to the fourth quarter.
Man for Allied professionals doubled over that same span.
Demand for physicians in temporary and permanent role also reached new highs.
Our teams all our efforts to serve the urgent staffing needs of our clients and our country is nothing short of remarkable.
We also enabled our hundreds of tremendous supplier partners to respond which is reflected in the seven $3 billion gross spend under management of our MSP and Vms program in 2021 for our clients. We continue to improve the ease of accessing the <unk>.
The sources as they need.
This labor market crisis is a long term problem and clients are looking for more than a short term fix.
They are redesigning their staffing models amidst severe talent shortages and the changing preferences of the workforce clinicians desire more flexibility and control over their careers, which is increasingly taking them away from the bedside.
<unk> has multiple solutions, which utilized technology and create a more diversified mix of workforce supply across the spectrum of permanent short term and long term contract talent pool.
To be the best societal and healthcare contributor possible. There are four primary pillars as essential to our success.
First and most importantly is to empower our dedicated team members to make the impact. They desire we have a strong purpose driven culture at Amgen that is steep in our commitment to our values and important social issues.
Second is to continue evolving the efficiency of our operation to differentiate and improve the experience of our clients and health care professionals think of it as nailing the basics, but better we want to delight, our customers and exceed their expectations when it matters most.
Third is to deepen relationships with clients and health care professionals by listening to analyzing and understanding their needs now and into the future.
The evolution of our integrated portfolio of total talent solutions is a great example of this while also personalizing our service to each organization.
The fourth pillar is what we referred to as winning digital over the last two years, we have significantly accelerated investments in artificial intelligence and digital staffing to increase our scalability and speed while also improving the experience of those we serve.
We have created analytic dashboards and digitized self serve capabilities to many aspects of the clinician and client journey every day Ameren is becoming more agile and digital adding more valuable capabilities.
As an example, you might recall that we mentioned in 2020 that we launched <unk> passport and we now have over 100000 clinicians using the app.
Passport gives continuous engagement with health care professionals and makes it easier for them to find the right opportunities in real time.
<unk> uses our matching algorithm that provides customized opportunities to candidates based on their evolving preferences and the dynamic job market.
Passport also includes an industry, leading credentialing wallet, which professional views to manage their documentation and easily share with us and clients. We have more features in store for the passport App and we are very excited about how it is already making a difference.
On future calls, we will continue to update you on how our investments in technology and digital are transforming the company.
Now I'd like to turn to a recap of the fourth quarter and some color on trends for the start of 2022.
In the fourth quarter of 2021 consolidated revenue was 136 billion and adjusted EBITDA was $223 million.
Our nurse and Allied solutions segment reported revenue of over $1 billion with growth balanced between volume and higher bill rates driven by rising wage expectations of clinicians.
Our largest business travel nurse staffing grew revenue by 136% driven by volume increases and higher clinician compensation earlier I mentioned, our multiple solutions that address the long term workforce needs of our clients. One Great example of this is <unk>.
Our international nurse staffing solution, which recruits clinicians and of the U S for clients to build there are longer term workforce with talent from outside the region.
These nurses on assignment with Amgen for the first two years and then the majority ego permanent at the same hospital after that they bring important skills and experience they create a great future for their families and they become an important part of the community.
Demand for international nurses is at an all time high and expected to continue growing at a strong pace.
Allied staffing revenue was 82% higher year over year in the fourth quarter led by more than 50% growth in volume, we've seen growth in pretty much all disciplines across imaging lab respiratory and therapy. The strong demand trends continue for our nurse and allied.
Solutions as we begin 2022, resulting in our projections that revenue will grow over 80% year over year in the first quarter.
This outlook assumes travel nurse staffing will grow revenue about 90% over prior year with Allied staffing revenue up about 60%.
Our physician and leadership solutions segment had fourth quarter revenue of $164 million up 47% year over year.
Locum tenants and interim leadership continued their strong performance, both with revenue growth near 50% year over year.
While pandemic related assignments contributed some the primary driver is strong demand and execution in the core business.
Physician and executive search revenue was also up about 50% year over year, we saw record high new physician searches in the quarter and we are gaining more strategic clients with multiple searches over a longer contract period.
In the first quarter of 2022, we expect revenue for physician and leadership solutions to grow approximately 18% year over year with double digit growth in all businesses.
Our technology and workforce solutions segment reached another new high with fourth quarter revenue of $117 million up 62% year over year, our Vms technology business was the biggest driver with significant growth in gross spend under management language services.
<unk> had another great growth quarter, primarily driven by volume increases from both existing and new clients.
In the first quarter of 2022 market trends continue to be strong and we expect technology and workforce solutions revenue to be up about 55% year over year as.
As you can tell from these results and our outlook the passionate and talented team at Amgen is leaning in to answer the call from clients and to get health care professionals, the flexibility and career choices. They are seeking the significant demand for clinicians. However is symptomatic of severe problems.
In the health care labor market, historically travel and local staffing were used as a short term and supplemental solution with a relatively small percentage of the workforce, preferring this career option. This has obviously changed both out of necessity to fill critical roles and deliver patient care, but also.
Because the severe shortage of labor and the expectation and the changing preferences of the workforce.
In most all professions when the availability of talent is meaningfully lower than demand pay rates rise and this is exactly what has happened in healthcare.
For a variety of reasons nursing has the greatest gap between labor supply and demand and this is why there has been significant compensation increases.
Permanent staff wages are going up considerably, particularly for new hires.
For supplemental and travel staffing increases and compensation expectations have resulted in higher bill rates.
Over the past two years, while bill rates for travel nurses have doubled compensation to traveling nurses has tripled.
This current crisis has drawn nationwide attention to the nursing shortage not all of it is constructive or accurate.
Certain industry lobbyists have criticized the health care staffing industry and are pushing for legislation that would suppress nurse wages. We think this is counterproductive and could reduce the availability of nurses it would likely discouraged nurses from entering our re entering the market when we need to be doing the exact off.
<unk> <unk>.
<unk> are making more money right now because they are taking jobs in high skill high demand and high stress patient care environments, and theyre, making other personal sacrifices.
We are listening and talking extensively with patient care organizations and we understand the challenges that they are feeling right now as they try to find solutions to the health care labor supply problems, our country need solutions that involve increasing the supply the mobility the safety and the well.
<unk> of nurses.
There is no singular fix to the labor shortage and healthcare however, our country can make incremental progress by focusing on some specific initiatives, including support for public and private investments and nursing the existing their supply can be optimized by expanding the state.
<unk> licensing compact, making it easier for hospitals to attract talent from all over the country.
Immigration reform would help bring more trained and high quality clinicians into the country.
<unk> has aligned with clients and professional organizations and we've significantly increased our investments to address clinician education workforce diversity, the resiliency of clinicians and to support clinician wellness programs. We've also created a hardship fund to support clinicians and their fans.
<unk> who suffered losses.
The teams remain focused on being a part of the solution and doing all we can to ensure that every patient has the quality compassionate care that they deserve.
No our role in health care delivery is more important than ever I want to express the deepest gratitude for all of the fantastic work down $24 seven by our colleagues clinicians clients and all others, who are doing their best to provide patient care.
In a few minutes, James Kelly and Landry will join us for the Q&A session for now, though I will turn the call over to our colleague, Jeff who will provide more insight into our financial results.
Thank you Susan and good afternoon, everyone.
Fourth quarter revenue of 136 billion was slightly above our updated guidance range, we previewed last month.
Consolidated revenue increased 116% year over year and grew 55% sequentially.
Gross margin for the quarter was just above the low end of our guidance range at 31, 9% 100 basis points lower than prior year and down 290 basis points sequentially.
Year over year, the margin was lower from higher clinician compensation and nurse staffing, partially offset by higher average hours worked and an increase in higher margin labor disruption revenue in the quarter.
Sequentially higher compensation rates to attract clinicians with a lesser increase in pricing was the biggest driver of the margin decline.
Consolidated SG&A expenses were 239 million or 17, 5% of revenue compared with $155 million or 24, 6% of revenue in the year ago quarter, and $174 million or 19, 8% of revenue in the pre.
This quarter.
SG&A expenses increased year over year and sequentially, primarily due to investments in growing and supporting our team members communities and health care professionals.
Adjusted SG&A, excluding certain nonrecurring expenses and stock based compensation expense was $213 million this quarter or 15, 6% of revenue.
Compared with $119 million or 18, 8% of revenue in the prior year quarter.
The improvement in SG&A margin from prior year reflects operating leverage from higher revenue, partially offset by expenses for team members technology and other infrastructure to support volume growth.
On a sequential basis, adjusted SG&A was higher by $44 million due to hiring to support the strong revenue growth and other related adjustments to variable compensation and benefits from the better quarter and full year results.
In the fourth quarter nurse and Allied revenue was 1.08 billion, a 142% higher than prior year and up 73% sequentially.
Fourth quarter results included $85 million in revenue from labor disruption events.
For our travel nurse business revenue grew 136% over prior year and 73% sequentially.
Travelers on assignment grew 42% year over year.
The average travel nurse Bill rates rose approximately 60% and average hours worked also increased to historically high levels.
During the fourth quarter demand for travel nurses reached new highs due to extreme shortages of clinicians.
Health care utilization and record high turnover and vacancy.
As a result travel nurse volumes grew 21% sequentially, along with a 38% increase in bill rates.
We expect volume growth to outpace pricing sequentially in the first quarter driven by continued strength in demand and excellent execution by our team.
Allied revenue was $185 million up 82% from the prior year and grew 35% sequentially on strong placements into record high demand.
Allied volume was up 54% over prior year and the average bill rate grew 21%.
First on Allied gross margin of 27% was 30 basis points better than prior year and down 230 basis points sequentially.
$85 million in labor disruption revenue at higher gross margin and a favorable swing in clinician healthcare insurance added 160 basis points from a year ago and was partially offset by 130 basis point increase in clinician compensation.
The sequential decline in gross margin is primarily attributable to higher clinician compensation and insurance costs.
Segment EBITDA margin of 16, 4% was 340 basis points higher than prior year, and 160 basis points better than prior quarter, primarily due to improved operating leverage from higher revenue growth.
Physician and leadership solutions revenue in the fourth quarter was $164 million.
47% higher year over year and up 9% sequentially.
Locum Tenens revenue was 99 million, 46% higher than prior year and up 12% sequentially.
Interim leadership revenue increased almost 50% from the prior year and was down 1% sequentially.
Search revenue increased over 50% from prior year and was up 17% sequentially.
Gross margin for this segment was 35, 1% 200 basis points lower than the prior year and up 30 basis points sequentially, primarily due to revenue mix within the segment.
Segment EBITDA margin was 11, 6% down 360 basis points from last year, and 120 basis points sequentially.
Sequential and year over year decline in EBITDA margin was primarily due to investments in our team members to support volume growth and higher professional liability insurance expense in the quarter.
Technology and workforce solutions revenue was $117 million in the fourth quarter growing 62% year over year and 17% sequentially.
Vms revenue of 52 million grew 165% year over year, and 57% sequentially driven by a significant increase in gross spend under management.
All other service lines in this segment achieved strong revenue growth on a year over year basis.
Gross margin was 72% up from the prior year margin of 64, 5% and up 260 basis points sequentially, both driven by revenue mix shift to the higher margin Vms business.
Segment EBITDA margin of 47, 4% was up 540 basis points year over year, and 20 basis points sequentially.
Higher gross margin is partially offset by an increase in SG&A expenses to support the growth.
Consolidated fourth quarter, adjusted EBITDA of $223 million was higher by 149% year over year, and 61% sequentially driven by the revenue outperformance and the associated improvement in operating leverage.
Adjusted EBITDA margin of 16, 3% was 220 basis points higher year over year and better by 50 basis points sequentially.
We reported net income of $116 million and diluted earnings per share of $2 42 in the quarter.
Adjusted earnings per share was $2 95.
Compared with $1 in the year ago quarter.
Days sales outstanding was 53 days seven days better than last quarter due to higher cash collections.
Operating cash flow for the quarter was $78 million and capital expenditures in the quarter were $15 million.
Interest expense in the fourth quarter was $9 8 million $12 $9 million lower than prior year, which included $11 5 million in onetime expenses related to our bond refinancing.
As of December 31, we had cash and equivalents of $181 million long term debt of $850 million and a net leverage ratio of one one times to one.
Recapping some financial highlights for the full year of 2021, we reported revenue of $3 98 billion, a 66% increase from prior year.
Adjusted EBITDA for the year was $635 million up 98% from prior year.
Full year adjusted EBITDA margin of 15, 9% was 250 basis points higher year over year too.
2021, adjusted EPS was $8 three.
Higher than prior year by 134%.
Full year cash flow from operations was $305 million, which included a 24 million payment of deferred payroll taxes from the cares Act.
As of February 15, 2022, the company had repurchased 726000 shares of stock valued at $71 million since our previous quarterly report.
Earlier this week our board approved an addition of $300 million to our repurchase authorization and the current amount remaining under the program is $409 million.
Now turning to first quarter guidance.
We are projecting consolidated revenue to be in a range of $1 $4 75 to $1 $5 5 billion up 66% to 71% over prior year.
First quarter gross margin is projected to be 31, 2% to 31, 7% down.
<unk> year over year, primarily from higher clinician compensation and a mix shift to lower margin businesses.
Gross margin is lower sequentially due to the labor disruption revenue in the prior quarter and higher clinician compensation, partially offset by a favorable business mix shift.
Reported SG&A expenses are projected to be $15 nine to 16, 4% of revenue.
Operating margin is expected to be 12, 9% to 13, 4% and adjusted EBITDA margin is expected to be 16% to 16, 5%.
Other first quarter estimates include the following.
Depreciation expense of $12 million noncash amortization expense of 20 million stock based compensation expense of 9 million interest expense of $10 million.
Integration and other expenses of $6 million and.
And adjusted tax rate of 27% and $47 8 million diluted shares.
While we provide guidance only for the current quarter, our expectations are that first quarter of 2022 revenue will be the highest of the year.
We expect sequential declines in nurse and allied compensation and to exit the fourth quarter with bill rates approximately 35% below the first quarter peak.
Based on these assumptions, we believe consolidated third and fourth quarter revenue will stabilize at approximately $1 billion per quarter with adjusted EBITDA margins of approximately 15%.
Going into 2023, we expect a more sustainable sequential growth trend.
And now we'd like to open the call for questions.
Thank you.
If you would like to ask a question. Please press star one on your kind of thank you Pat.
If you change your mind anytime <unk> remains a question.
Yes.
The first question, we have from the phone lines comes from.
Kevin Fischbeck with Bank of America, So Kevin I think in your line.
Yes.
Alright, great. Thank you.
Yes. Thanks.
Maybe just follow up on that last.
Comment there so it sounds like if I'm reading this right that you think that that $1 billion revenue 15% margin.
And this year is kind of at the run rate number as we enter 2023 and you should be showing some sort of growth off of that kind of $4 billion annualized numbers that the right way to interpret that.
That's fair Kevin.
And we see that stabilizing throughout the entire back half of that $1 billion run rate in both Q3 and Q4.
Okay, that's really helpful.
And I guess that number is higher than certainly.
We were thinking and I think probably this is many people were thinking.
So.
How should we how are you thinking about the.
Kind of the long term demand and what's kind of keeping that number maybe a little bit higher than some were thinking a lot of the providers.
Are looking for pretty quick and substantial drops in bill rates I know you are talking about.
A significant drop in bill rates.
Well above where they were pre pandemic. So just wanted to kind of hear how you're thinking about maybe where this marketplace is reaching equilibrium back half of this year versus say, maybe where you would have thought would have reached it couple of years ago.
Well, when we think about Q4 and being 35% off of these Q1 peak.
Really not that far off from what we had said last quarter in terms of where they would settle out pre.
Pre pandemic and we would actually see the largest or anticipate the largest sequential declines in both Q2 and Q3 with a more modest impact into Q4.
And Kevin.
Maybe just build on that is what creates a longer term view of maybe a stronger market than perhaps what others anticipated is the severity of the shortages.
On the.
High level of demand that we expect to continue while we expect demand to come down a bit in nursing and even in some of the allied categories, it's still going to be well above pre pandemic levels and that gives us opportunity to continue to grow volumes and it's not.
Nurse and Allied the physician and leadership businesses have seen extraordinarily strong demand minus pandemic related assignments and are on a really nice growth trajectory and then you layer on top of that the technology solutions that we have in place that clients are.
Are increasingly wanting to bring into more of a holistic total talent solution.
Offering and.
Quite honestly, we are in a much stronger position today than needed in terms of those total talent solutions to create mid and long term strategies for our clients and I'm sure somewhere on this call Kelly will have a chance to share more of that with you. We can get on to some other questions, but I think maybe that's something.
It wasn't fully appreciated is how critical it is to have multiple not just short term, but mid and long term strategies. Because this shortage is not going away and clients know that.
Okay. Then maybe just last question then in your guidance are you assuming that you've had kind of.
Any meaningful share gains over this time period or is this largely a reflection of the growing along with your view of where the market demand. Thanks.
Right now since there isn't good public data available on the broader market, we're assuming that in the.
The core staffing businesses, we're probably growing alongside the market. We are deliberately focused on the MSP.
<unk> of the market, which of course has been the larger growing parts of the market and so we probably have picked up some share there, although it's really difficult for us to.
Really quantify that since the numbers arent readily available and as we look forward.
Those clients that want a more holistic approach to their talent issues I think that's where in the future will be in a better position to pick up share.
Okay.
Alright, great. Thank you.
Thanks, Kevin.
Thank you Kevin we now have our next question from a J Rice of credit Suisse AG. Please.
Please go ahead when you're ready.
Yes, Thank you hi, everyone.
First I was just going to ask the second one today to mention.
Potentially a little more activity within our national nurses coming into the U S. So one of the public hospital companies mentioned it earlier today can you just tell us is that a meaningful change we're seeing is that still something.
That's down the road and how much.
But you might be able to help the current situation.
Changes.
Hey, Dave Landry.
I'll hit on that one so yeah, we've got our international business of course clients right now we're looking at just.
Just about every avenue to try to find nurses the international solutions a good one for one that typically two to three year contracts and then very high rates for those nurses actually state permit those jobs.
So it really good solution for them last year, our international business did about $100 million in revenue so relative to the competitors in that space. That's a good size, but kind of maybe look at it.
Up against the overall segment.
Not a large percentage of the business.
Through the pandemic there were a couple of things that were a challenge we had.
Okay.
Yes.
Go ahead a J.
No I'm sorry.
There hasnt been a change.
Ability of foreign nurses to access the U S or is that still something that we talked about but actually hasn't.
But.
Yes so.
Over the last year and a half there were a couple of challenges one of those would have been some travel bans that were in place and other.
Area that that hurt us for bringing in some supply temporarily were that some of the embassies were shut down.
Due to the different spikes that might have been going on around the world more recently, we've seen some more positive legislation so kind of at that state department level, we've seen the states prioritized employment visas.
To the top so that way, we can bring in international nurses as well as their families into the United States.
Probably not enough, especially with the amount of demand that we have out there our clients are asking us about international nurses just about every day.
From from a majority of our clients so things like making more visa is available.
It would be a good legislative change that would help bring it even more supply to the United States.
Okay, and then when you think about the <unk>.
Back half of the year and more thanks started.
Normalized, but obviously at a higher level of dividend.
Overall demand.
It seems like you've given up a little bit and we hear this from the other players as well on the bill pay spread to sort of help out.
Hi.
System services and so forth.
If rates come down as you anticipate do you think we'll see those bill pay spreads.
Sort of revert to a normal level is that part of your thinking on the margin in the back half of the year.
The other aspect thanks normalizing.
I assume at this level on your MSP.
Clients Youre still probably filling only a percentage of the orders are you anticipating that as things decline.
Or normalize let's put it that way.
Youll see that bill rate.
The increase or is that not part of what youre thinking about as you talk about $1 billion revenues in the third and fourth quarter.
So first on the gross margin as bill rates decline and we see fewer kind of crisis in premium rate assignments. We would expect that we will see a bit of improvement in gross margin. We want to give ourselves time and is still very competitive market.
For that to occur so whether it happens in the third and fourth quarter are more into 'twenty three is still a little bit of a TBD, but absolutely as we've given a higher proportion of that incremental bill rate to clinicians in the form of compensation, which was the purpose of it.
That might unwind a bit then we will see that bill paid spread improve a bit as well and Kelly did you want to take the other part of the question. Yes. So a J I think the way you are thinking about that is correct. So we have seen some erosion in both our overall fill rates for our MSP clients with demand as such.
<unk> high levels as well as the and then build portion of that directly. So we would expect as demand comes down overall, we can improve our overall fill rates as well as improve the percentage that ameren is able to fill as those normalize as well.
Okay, maybe just one final aspect on that I'll pass the baton on but.
When you.
You had the focus with the tight supply and demand on your MSP accounts, we've talked about that before and some of the table.
The systems that Havent gone to an MSP relationships, obviously, you can't prioritize everyone.
The perception is that there have been some competitors enter.
Smaller.
Others entering the market in meeting some of those needs a have you seen that and B J.
To the extent things ease a little bit in terms of the tightness.
Those new relationships will be sticky or will that be something.
They're likely to come back to you as you have more ability to fill place fill demand.
Well, yes, there have been entrants for sure over the last couple of Europe . In fact that spent even positive for us as many of them have become great subcontractors and supplier partners for us and some of them are also pursuing direct contracts as you've said.
Another place that they are delivering our services is through our BMS platforms recall, we have not only our staffing led MSP programs that we have also the two largest technology Vms platform shipped wise in medicine.
Which is basically an open talent marketplace.
When we aren't the primary MSP provider, we open it up to literally hundreds of staffing providers like some of those that you've just mentioned and their staffing through our platforms and that will continue for them now what we're seeing is tremendous demand for both.
Vms and staffing led MSP going forward. So for any client that maybe you didn't have some sort of program in place where if they did and they're just not happy with it we're absolutely seeing those opportunities come up. So we think actually there is more opportunity for US ahead, because we have multiple.
Solutions for those clients.
Okay, great. Thanks, a lot.
The next question comes from.
Brian .
Jeffrey Hi, Brian . Please go ahead, when you're ready.
Hey, good afternoon, guys and congrats on the quarter and the year.
I guess I'll just go back to the comments on your outlook for the rest of the year at a $1 billion of revenue I'm. Just wondering how do you gauge your visibility into pricing or pricing power and what do you think is the glide path towards the normalization of rates over the course of the year.
Well first I'd, just I would correct that language and say that we don't have pricing power, we are responsive to the market and particularly the compensation market and expectations of clinicians and that market environment is really what drives our compensation.
Which ultimately drive bill rates. So that's how we think of it and in terms of how do we get from this place. We are today to a 35% reduction that is going to be dependent upon the demand levels and the expectations of clinician.
We don't have a direct line of sight, but as we said on our call for the third quarter, and we think that something that resembles a kind of a 10% CAGR per year is a reasonable place for us to settle in so that's both about a third increase over pre.
Pandemic levels and about a third decrease from where we are now so you can look at it either way. So that's one way to triangulate.
Why is that a decent number to target and if you just look at wage inflation and healthcare for hospitals, specifically in the fourth quarter, there was 10% wage inflation year over year, probably clinicians or higher than that so let's just assume maybe that was more like 12% and that's that.
It's really not a crazy number Brian .
Look at other industries.
Of the hospitality industry with wages growing almost 20% financial processing, 20% retail, 16% and you can go on and on down the road.
10% to 15% increase.
Hospital wages is not an unrealistic number to expect so anyway, we think that that is one way to sort of triangulate, where we might be now.
We may not come down that far.
We are actually hoping that we do because that would be a sign that perhaps the demand and the shortage environment is easing a bit but it's always possible just as we thought we would not be at these levels in the first quarter that the fourth quarter could be higher.
No that makes a lot of that season, and then just a quick clarification. So if we're looking at bill rates down to 35 versus peak in Q1.
That's about 35% or so below pre COVID-19 levels is that the right way to think about that.
Above its about 35%.
33% above.
All right got it and then I guess.
My last question.
So as I think about what you just said right.
$1 billion, 15% margin run rate of 600 exiting the year 10 ish percent growth rates to mid six hundreds of EBITDA for 2023 is not unthinkable is that the right way, we should be thinking about that.
That math is that work.
We're not giving that guidance.
<unk>.
But yes, if you take 1 billion times, 50% you get 150, 600, and then youre growing off of that.
That is.
What that math would come out to.
Awesome Alright, thank you guys.
Thanks, Brian .
Yes.
Thank you, Brian we now have Jeff Silber with BMO capital. Please go ahead Jeff.
Thank you for taking my questions I appreciate it and also appreciate the framework you gave us for the rest of the year.
Let me play Devil's advocate beyond this.
I know we're in an environment that is unprecedented but if you look back over history. When we've seen spikes in demand for travel nurses once kind of that demand level subsides.
The hospitals to try to push back a bit on the amount of usage percentage of their workforce that.
Asps that comprises.
Why won't we see something similar going forward and maybe the run rate you are talking about may actually be lower.
We are instead as you use the word I think Jeff and unprecedented environment and the shortages that we've seen historically.
Don't even resemble what we're in today in terms of the sheer number of vacancies last year, we had what quits if something we peaked out at like 50% at times and the number of job openings to hire us as two seven to one.
Never seen numbers like this so it's not a matter of what perhaps they want to do it's what is possible and it's not just.
A matter of recruiting there's changing prep.
Preferences.
Sometimes they could maybe recruit individuals with some higher pay I mean that could increase wages and 20% for permanent nurses.
That's unlikely considering that nurse wages are around a quarter of a hospital's budget.
The tremendous increase in their overall cost of labor, but even if they were to try something like that what we found is that the preferences of the clinicians have made a step change certainly you have a younger population that prefers more flexibility control over their career and doesn't want to be at a employer.
For more than a year or two years, and so travel becomes very attractive, but even as we look at our applications coming in and new starts we've seen a big uptick in people in their <unk> and <unk> and that's just really didn't happen to this magnitude the form factor of the greatest percentage increase so suddenly you've got more.
More of the nursing population that has both been introduced to a flexible work environment and guess what they are preferring it.
That's not that much different than what's happening across other industries and even our company.
Our team members have been home working for the last two years, we've not gone formerly back into our offices.
And it's probably no surprise that the majority of them don't want to come back into the offices fulltime, they've gotten a taste of the flexibility and autonomy and control that they have and they want to keep that so this sort of use that analogy with nurses.
They are feeling the same.
Yes, maybe I'll add on this is landry.
Sorry.
Yes.
Yes, I was just going to give a little bit more on demand. So.
As Susan mentioned looking at it anything that happened in the past is it just a completely new leaf today from what we what we've ever seen.
I'll mention a couple of things on nurse Allied and then James I don't know if you want to mention a couple of things on what Youre seeing for physician and leadership.
Our nursing demand right now is actually if you look at the same time of the year were actually three times higher than what we would've seen before the pandemic. So extremely high demand. It's a third higher than what we were at this time last year and this time last year. If you recall, we were talking about how strong demand is so.
It continues to be widespread I've got a couple of points that I wrote down.
One of them is that across all of our high need.
Hi need specialties.
Every one of them is up year over year and up significantly up against pre pandemic with the exception of ICU.
It would be the only one that's down year over year, but it is still our second highest demand and if you looked at it compared to three years ago. It would be in that three X range like we see across some of our other specialties.
Med surge is number one we typically would see that.
Top five.
But with med surge being number one it really does show just how much of a shortage that were in youre always going to have this demand for these more specialized nurses, but med surge being number one is not something that we see all the time.
<unk> that are tied to mother baby, So you've got labor and delivery you've got postpartum.
Anything that's touching the pediatrics right now all of those are really high and then.
It's great that elective procedures have come back and surgeries have come back, but theyre not necessarily above what they were pre pandemic. If anything maybe they are at pre pandemic level and our need for alarm nurses right. Now is three to four times, what we would've seen before the pandemic. So I think a couple of those kind of explore.
What we see right now we're not in some sort of.
Major peak or kind of on the other side of OMA <unk> and we're still seeing that is really really high demand and then you look at Allied and the story of the site you've got therapy respiratory lab.
<unk> all of those specialties are what we would have we would have seen it not just a little but pretty extensively.
Compared to three years ago numbers.
James and Jeff can add in.
I'm sorry.
Jeff just on the physician leadership side from a demand perspective.
Across all of our businesses lines were at a record high from a local local this quarter for demand is really up 28% sequentially and 103% from a year over year standpoint, and that's coming from all our particular specialties, specifically within <unk>, our AP and primary care and the key thing with low.
This is our core demand is significantly above pre COVID-19 levels by winning time.
Time levels. So we expect that to remain from an interim standpoint core demand is very strong specifically in nurse leadership and if you call up the specialties as much like Landry in women's services and surgical services.
Emergency services.
Quarter, three interim orders volume did decline sequentially by a percent.
18% year over year.
Our biggest practice, there's really good owners and our search practice so for quarter four and 2021, our new searches are up 34, 5% sequentially and year over year up 109%. So the search.
<unk> continually to be strong and specific areas of nurse practitioners physician assistance cheers and C suite positions, but we just continue to see that to roll forward into 2022.
Okay anyone else, we probably gave you probably gave you more than you.
I really appreciate it.
I really appreciate the thoughtfulness. Thanks, so much.
Thanks, Jeff.
Thank you.
We now have the next question from Tobey Sommer with <unk> Securities.
Please go ahead.
Thank you.
I was wondering what your current thoughts are on.
The structural nature of the shortage versus something that may be more medium term.
In terms of have your survey work or what Youre hearing from recruiters are you able to parse out.
Retirements.
Clinicians that have moved to non clinical jobs for example, those kinds of things versus.
Clinicians that are retreating from full time work and or sort of providing less hours to their employers and therefore opening up more demand for.
For assignment work.
Well, we yes.
Yeah.
Are picking up pieces of that in surveys and some of.
The public data that is available, but it is difficult to put it into a model and quantify it. So I'll just kind of say that upfront retirement anecdotally from what we're hearing from our clients are at significantly high levels and if you can parse things out of the BLS data with quick retirements would be.
Really big part of that and those clinicians arent likely coming back the other thing and you probably have read in some of the articles that exists is that nurses are choosing to leave the bed side. They may still be using their nursing skills and wanting to contribute but they are able to go work for Amazon and.
Other organizations health telehealth companies that takes them away from the acute care or even say long term care environment. So we think thats going to be a permanent draw that those people aren't necessarily going to just jump back in to the nursing profession. So we think this is <unk>.
Been a step change and the nurse supply, which is why I've said and others have said.
Said that we've got to.
Take actions and solutions that add to the supply and class a retain and take care of the nurses. We currently have because what we don't want is that this continues and we continue to lose more and more of those nurses because the thinking from our clients is that a good number of these nurses who've departed or <unk>.
Just not coming back. So this is going to be a multi year issue.
And until we can.
Rebuild the nursing supply, which I've heard some nurse executives take could take a decade.
To get to that point because of what we've lost in knowledge and the numbers of people.
So that's why it's not a quick fix and it's not just one solution to fix it. So im sorry, I don't have a data for you necessarily around all of those things, but there.
There are so many facets to the problem and they are long term in nature.
We are eager for the data should you get your hands on it at some point.
<unk>.
And.
With the share repurchase activity and the renewed authorization.
Could you give us a sense for what youre seeing in the acquisition marketplace.
The public company stocks.
And then a little bit more volatile here and has that conveyed yet to more moderated expectations of sellers.
I think we're still very interested in <unk>.
And doing something on the M&A front and those tech enabled solutions.
I don't think our share repurchase authorization is certainly the expansion.
Mutually exclusive from that when we think about the spot the balance sheets and right now the liquidity profile that we have and the flexibility on the balance sheet to take on potentially more leverage if the right opportunity presented itself.
That we could execute on that opportunity. In addition to the share repurchase program, but right now.
There are a handful of things in the market.
We will continue to take a look at them as we move through the year.
And has there been any change in the valuation parameters compared to six nine months ago.
Hi.
It's hard to say right now with where we're at.
There is nothing.
From a valuation expectation standpoint that I think would be all that different from where we were.
Six to nine months ago, I think for some of the staffing company. What you find is exactly what you and others are trying to dissect is where is the business going to <unk>.
Land and then grow into 2023, assuming that we do.
Come down.
Through the year.
And so if theres been valuation adjustments its been around.
What does the future look like and then putting an appropriate valuation on that number.
I think unfortunately because.
There is not great information about it.
And visibility on exactly where that will land.
At least some analysts had shot pretty low on what they think that would be which is why we thought it would be helpful to give a little visibility on on our thinking and I think our thinking is kind of in line with what we've seen and heard from other expectations.
Thank you very much.
Thanks Tobey.
Thank you Jamie.
We now have the next question from Mark Massaro from Baird, Hi, Mark Hi, Nathan Your line.
Hey, good afternoon, and thanks for taking my questions.
A couple first of all.
In terms of your internal stuff.
Does that currently stand and how does that compare to this time last year.
Or are you thinking about that.
Changing as the year unfolds and as we go from these peak levels.
Down to that $1 billion base on a quarterly run rate basis before we start building back up.
Thanks for asking Mark because as you know our team.
And the culture that we have is so very vital and critical to our success we've added.
A little over 20% to our staff over the last year and through that time as you can imagine in a virtual environment added a lot of support for our team members as well in terms of training in their wellness, making sure. Our leaders are effective in this environment. So.
A lot of investment not just in adding more people and resources, but making sure that everyone feels successful and guess what we're adding a lot of people right now as well if you go to our job board, we have a lot of open positions because we're adding additional resources across the company, but I would say.
In particular within the business units, where we have this very strong demand and we continue to want more talent that can convert that demand replacement.
So very proud that as you saw we were just recently named as one of America's best employers by Forbes.
That's very reflective of our culture and I think our commitment to our team members, but also to the communities and they certainly care very much about that I will say, we are investing heavily in digital I mentioned, the passport app and that.
Really externally facing but it has a lot of internal benefits as well the digital investments that we're making create efficiency.
They help us also to remove the burdens some frustrating work that might cause burnout and cause people to want to leave.
Actually I'll say, our attrition is actually quite good.
Relative to what I'm hearing from other industry. We are about where we were pre pandemic levels and I think in this market that's a win.
Great and then.
You talked about the 15% EBITDA margin in the second half of this year.
Are you thinking about margin expansion beyond that is.
Does that seem like a reasonable run rate to scale yet as.
Maybe there's some bill rate.
Spread compression that might continue or should we should we think about that as a point where margins could even increase further.
That's one question is from a margin perspective, and then I was also wondering if you could also talk about this.
The number of applications that youre getting for clinicians and the length of assignments that Youre seeing you talked about the.
The number of people that are attracted to our flexible lifestyle from from a clinician perspective I'm wondering if you could just dimensionalize that a little bit further thank you.
Yeah on the 15% I would say, we would actually as we move to the back half of the year, we would hope to see a slight improvement in gross margins, which would partially offset some of the leverage we're going to lose on SG&A right as bill rates come down in revenue comes down into the back half and then moving forward from there.
Would have to continue to optimize our business mix.
Things normalize and how some of these technology investments that we're making to improve efficiency as those start to come to fruition Thats, where we can look to sustain that 15%.
Investments that we've been making over the last three years.
Investments to make it easier for clinicians to find us easier for them.
Apply to us a lot of Thats on mobile so you think about our web sites that we put in place or we've mentioned aimed at passport a couple of times <unk>.
One stat on it is that today.
Half of our new applicants that come in come in with no human interaction. So those are what we call internally no touch.
If you took that same stat from a year ago was like 25% of our applications that came in were no touch. So you can really see a lot of that self service and digital.
Mobile amine passport investments really helping out and it speaks to the efficiency that we've been talking about better overall experience for our clinicians.
As it relates to duration. The only time, we saw shorter assignment request would have been in that Q2, maybe Q3 2020.
Where there was a lot more unknowns are on assignment placement right now are back to that kind of normal.
<unk> 13 week or extensions or running at what you would expect and what will you would've seen our.
Called normal before the kind of rollercoaster.
Our clients would would likely take any clinician that we have so if theres a clinician right now that will come in and work two weeks or six weeks or eight weeks or even longer.
They would certainly take them, but our overall general assignment length right now a vast majority of those are on 13 week assignments.
It looks like Landry from across Locums, Greg we have.
Cross Locums, we have 56 days is the length of assignment average length of assignment for a position and it depends upon the specialty of course, but we've seen through pre Covid and then after that that hasnt changed much maybe by a day or two from an average standpoint from an interim standpoint.
On assignment did go a little bit down in this past year to 22, three days because of the COVID-19 activity related activities that we're having to add a little bit more of a shorter assignment are normal is wrong.
25 weeks.
Assignment, so we're back up to that in quarter, one or surpassing that in quarter. One of 2022 at this point.
And Mark since I know you love numbers in my remarks.
I will tell you like our application.
In short term nursing are running well ahead of last year like more than 50% ahead of last year.
That's helpful to give you the magnitude fantastic.
Yeah.
I appreciate that thank you.
Thank you Mark we now have a final question on the line from Tim Mulrooney of William Blair. Kim. Please go ahead, when you're ready.
Yes. Thanks for squeezing me in here you guys I'll keep this really quick I just wanted to build upon lenders conversation earlier about demand.
In the travel nurse business I'm curious how much of your open positions are comprised of Covid related nurse demand are in demand and how much is related to non COVID-19 are in positions like the medical surgical nurses.
Yes.
Yes, Hey, Tim.
Sure.
You really cant even look at it as COVID-19 versus non Covid I mentioned that or for example.
That really high demand three to four times, what will be the same before the pandemic and or is not a specialty that would have really been impacted.
By the pandemic.
And therapy is another Great example, our therapy right now is.
800% and these are not small numbers, so 800% from even a year ago.
Which again that would have been necessarily impacted by the pandemic. So I don't know if that helps at all.
Other thing would be maybe that.
We've had some questions around what was your demand due to their own internal staff be announced sick.
And that would be pretty quick demand right because they would they'd be out maybe for a two week period, and we didn't see that we saw with our own clinicians where they've got actually.
January was our peak, where our own travel conditions.
We went over 600 at one point that were.
Either in quarantine or out sick in any of the other previous by the highest number we would have ever seen was closer to 200.
That's included in our guidance is accounted for in our guidance for Q1, but.
Our hospitals or health systems were experienced in their conditions out sick and we were experiencing the same thing, but when you say that any demand as necessarily related to that.
I think thats helpful. I mean, I think you did kind of answer. The question you are seeing I mean, COVID-19 cases are coming down and youre seeing a massive increase in demand and positions that have nothing to do with Covid is that fair.
That's right.
Okay.
Lastly, just the Supreme Court upheld a federal mandate, requiring healthcare workers at facilities that receive Medicaid or Medicare funding to be fully vaccinated or lose that funding I think that comes at the end of February or at the end of our mid March depending upon which state but.
Do you think this could cause more RN resignations across the market in the coming weeks you guys are close to the end market. So you are probably a good person to ask and if so what do you think that would do to aim install rates and volumes.
Hi, Tim It's Kelly I'll talk a little bit about what our experiences. That's a very good question and obviously, we are dealing with us and not just at the federal level, but there is additional state regulations. There are some local regulations of our health systems have.
Their own policies related to mandate. So we have been dealing with it for a couple of months now.
First of all our teams the amount of lift that takes to kind of manage through those.
Those mandates collecting the information from our clinicians working with our suppliers with our clients around that has been a I would say a very complex effort at a large lift but we have we are very committed to helping our clients meet those mandates I will say so far.
We're pretty well through several of the large mandates we have not seen a material.
A reduction in number of clinicians who can perform because theyre not meeting mandates and our clients are telling us the same time. So it's not over yet we have several deadlines ahead of us.
We have several clients who are who are also our base who are also going to require boosters. In addition to the vaccine. So this will be an ongoing.
Surveillance, if you will and in collection and monitoring of that data and the status of our clinicians, but it has been.
It's been really immaterial at this point, so we're not expecting that to change we have seen a few clinicians who were fully vaccinated didn't get boosters, but very very small numbers. So we don't anticipate that.
Having a significant impact on our clients nor on the supply at this point.
That's great color. Thank you Kelly.
Youre welcome.
Thank you, Tim and since I still have folks I just wanted to mention I gave that stat on applications that was ours.
The fourth quarter that was well over 50% higher first quarter is also looking extremely strong, but I just wanted to correct that for the record.
Alright, I think that was our last question. So we love to thank everybody for joining us today.
This is <unk>.
A very critical time, obviously for our country for the healthcare market and for US we take it take our jobs and our role extremely seriously and I can't say enough about how proud I am of this team and all of the contributors to delivering great patient.
Care every day. So we will look forward to updating you on our next call.
Okay.
Okay.
Thank you. This does conclude today's call. Thank you again for joining you may now disconnect your lines.