AMN Healthcare Services - Earnings Call - Q2 2021

Transcript

Speaker 0

Good day and thank you for standing by. Welcome to AMN Healthcare Second Quarter twenty twenty one Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Randy Reiss, Director of Investor Relations. Please go ahead.

Speaker 1

Good afternoon, everyone. Welcome to AMM Healthcare's Second Quarter twenty twenty one Earnings Call. A replay of this webcast will be available at ir.ammhealthcare.com following the conclusion of this call. Details to the audio replay of the conference call are in our earnings release issued this afternoon. Various remarks we make during this call about future expectations, projections, trends, plans, events or circumstances constitute forward looking statements.

These statements reflect the company's current beliefs based upon information currently available to it. Our actual results may differ materially from those indicated by these forward looking statements as a result of various factors and cautionary statements, including those identified in our most recently filed Forms 10 ks 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.amnhealthcare.com.

On the call today are Susan Stalka, Chief Executive Officer Brian Scott, Chief Financial Officer Kelly Rakowski, Group President and COO of Strategic Talent Solutions Landry Seedig, group president and COO of Nursing and Allied Solutions James Taylor, group president and COO of Physician and Leadership Solutions. Also joining for the first time is Chris Schwartz, AMN Controller, who will serve as our Interim Principal Financial Officer due to the impending departure of our friend and colleague, Brian Scott, from AMN. I will now turn the call over to Susan.

Speaker 2

Thank you so much, Randy, and welcome, everyone, to our earnings call. As always, it's a pleasure and honor to be with this team and with all of you today. The AMN team continues to make a greater impact in health care, and this last quarter was another testament to our relentless commitment to patients nationwide. More than three thirty million Americans depend on 8,000,000 professionals who provide health care in this country. AMN and our industry have always been an important part of the health care ecosystem.

The pandemic has created short term and permanent workforce shift that increase our opportunity and the need to help change the paradigm of staffing for

Speaker 3

the future.

Speaker 2

Creating, supporting and empowering a quality and agile workforce requires a multifaceted approach, particularly in the face of persistent workforce challenges. Health care organizations are increasing their hiring efforts as regular patient care volume is getting back to normal. However, they continue to struggle with a high volume of quick and long term vacancies. On top of this, the pandemic is resurging. Our colleagues at AMN have stepped up in a way true to our values to help our clients deliver great patient care.

Demand for contingent labor increased throughout the second quarter, and that trend has accelerated through today. Most of our staffing businesses are experiencing record high levels of demand across all geographies and almost all specialties. Our team has addressed the growing client need by expanding our technology solution footprint and placing tens of thousands of healthcare professionals where needed most. We are simultaneously investing heavily in our people and infrastructure to ensure that we're able to empower the future of care with our growing and new solutions. Our positive impact enabled us to exceed financial expectations in the second quarter.

Consolidated revenue was $857,000,000 41% higher than prior year with outperformance and growth year over year from all segments. Our largest segment, Nurse and Allied Solutions, reported revenue of $624,000,000 up 41% year over year. We hit another record high for average travelers on assignment. Including supplier partners through our MSP and VMS platforms, our programs placed over 70,000 nurse and allied clinicians during the quarter. Travel nurse staffing grew above our expectations at 37% year over year.

This increase was driven primarily by volume growth. After a weak decline in demand earlier in the year, orders began climbing again in April and now are at record levels. Total orders in nursing doubled in July compared with the second quarter level. Our Allied Staffing team hit another record with 113,000,000 second quarter revenue, up 44% year over year. Our Imaging, Respiratory and Lab revenue led our Allied growth again, rising 76% year over year.

Also important was the continued comeback of therapy, which had been slower in 2020. New therapy orders in the second quarter were more than 50% higher than the first quarter level. Overall, Ally demand has seen consistent growth over the last three quarters. And today, the demand is at record high levels. Across Nursing and Ally, the labor market is experiencing extreme supply constraints, high demand and intense competition for talent.

Clients are fighting problems not only with permanent hiring, but also with retention. We're hearing about vacancy rates at very high levels all across the board, all across the country. Most of the demand is not related to COVID patients, but rather leaves of absence, clinician fatigue, normal patient volumes rising and operating room backlog. Our clients are telling us that this is unlikely to change anytime soon. In anticipation of these trends continuing, we have increased investment in each phase of the recruiting, placement and onboarding process.

We continue to hire additional recruiters and invest in our digital platform. These are leading to hire new applicants, although not enough to satisfy the extraordinary demand. For the third quarter of twenty twenty one, we expect Nurse and Allied Solutions segment revenue to be approximately 45% higher year over year. Physician and Leadership Solutions segment revenue for the second quarter was $139,000,000 28% higher year over year, which was better than our guidance of 20% growth. LocumTenens revenue was $78,000,000 up 26% over prior year.

Overall, Locum's demand has recovered nicely with many specialties exceeding the pre pandemic levels. Our highest demand specialties include anesthesiology, advanced practitioners, internal medicine, primary care and psychiatry. Interim leadership revenue grew 30% year over year as the business delivered a third consecutive quarter of strong sequential volume growth. Core demand for interim leaders is growing and has recovered to pre pandemic levels. Physician and Executive Search revenue rose by 33% over the year ago quarter, and permanent placement demand continues to strengthen.

For the third quarter, we expect Physician and Leadership Solutions revenue to be 25% to 27 higher year over year. Second quarter revenue for the Technology and Workforce Solutions segment grew 70% year over year. Language Services excelled again with revenue of $46,000,000 61% higher than the year ago period. This is due to strong demand as health care utilization has returned to normal levels, but also due to new expanded clients and the appeal of our video platform that enables virtual on demand service. Second quarter revenue for our VMS business was $31,000,000 growing an incredible 76% year over year.

The primary driver here is the continued high demand across all clinician needs and the several new customers added over the last year. In the third quarter, we expect revenue for the Technology and Workforce Solutions segment to be up 44% to 48% compared with the prior year. Over the past decade, we invested significantly in the evolution of AMN to become the leading, largest and most diversified total talent solutions partner that we are today. Healthcare organizations continue to turn to AMN as a strategic partner, finding ways to increase the efficiency of the workforce and improve access to care. As an outcome, we have seen strong growth in our outsourced and technology solutions, including remote language services, telehealth, workforce and scheduling optimization and recruitment process outsourcing.

In addition, our managed services programs continue to grow. We are adding new clients and existing clients are engaging us for additional solutions. I am very proud of the AMN team and the recognition they are receiving for their outstanding efforts. For example, AMN recently earned HRO today's highest ranking for customer satisfaction in Healthcare MSP. We have nearly $5,000,000,000 gross spend under management through our MSP and VMS platforms, by far the leader in Healthcare.

Also, Avantis currently has the highest overall class score for nurse and staff scheduling. Our RPO solution was recently recognized as a star performer by Everest Group. These honors are just a few examples of how the AMN team is making a difference for health care professionals and clients. We work in a great industry with lots of amazing partners and people, which makes these accolades that much more meaningful. We are particularly proud of the positive impact we are having on health equity and access.

We are honored to have been awarded the Eastern Region of the FEMA Vaccine Administration Program for underserved communities. We mobilized clinicians who administered nearly 100,000 vaccines, many delivered by mobile units to limited access areas. Our telehealth and remote language services are enabling care in alternative and rural settings. In their first quarter with AMN, Cinzi delivered 60,000 telehealth visits. Our Televate platform for schools supports remote access to critical therapeutic services for students and supporting over 130,000 sessions throughout the pandemic.

Over the last year, we have increased investments across our operations to be the best partner possible for our clients and our candidates. The most important investment we can make is always within our own teams. Of course, we've added many wonderful new colleagues to the AMN family over the last year. We have also increased our investment in our team members to ensure that we're supporting them and helping them to achieve their personal and professional goals. We've increased our benefits.

We've increased our wellness and mental health support. We've increased our actions in line with our commitment to diversity, equality, equity, inclusion and other critical social issues. We've seen tremendous participation in our employee resource groups and now have eight thriving ERGs to support our increasingly diverse team. We've increased our charitable activities and community impact, which is a very important part of the AMN culture and team member engagement. The benefit of all of this can be measured in our strong retention levels.

But most importantly, we see the strong engagement of our team show up every day in the caring, courageous and committed support that they give our clients, our clinicians and to one another. Now and then, one of our great colleagues does decide to depart and pursue a new personal or professional goal outside of AMN. You're all aware, I believe that Brian Scott made that decision recently. Brian has been an amazing friend and colleague to me and many of us over the past seventeen years, including the last ten years plus as our CFO. Since that's more than twice the average tenure of a typical public company CFO, I think that says a lot about Brian's talents, but also his commitment to his colleagues and to our purpose.

I've learned a great deal from you, Brian, over the years, and I will forever be grateful as I know we all will be for all you've done to evolve AMN. One of the greatest legacies that Brian leaves for us is the strength of his team, the team that he's created and developed. All of the leaders across our finance, accounting, tax audit, customer service teams are exceptionally strong, which is why we did not feel the need to name an interim CFO CFO when we are conducting the search for Brian's replacement. We are super fortunate that Chris Schwartz is seamlessly stepping into the role as interim Principal Financial Officer, which is, of course, a natural extension for him as Controller since he's already responsible for most of the elements of financial SEC reporting and the interface with our auditors amongst many other things. Chris has been a colleague with AMN since 2005 and has done a phenomenal job in a variety of financial leadership and investor relations roles.

And he too has been instrumental in our evolution. He also happens to be a great role model for our culture and our values. So I thank you and all of our leaders, Chris, for everything you do, including through this transition. In a few minutes, Kelly, Landry, James and Chris will join us for the Q and A session. But for now, I will turn the call over to Brian, who will give us more insights.

Speaker 4

Well, thank you, Susan, for those very kind words. Yes, definitely a bittersweet day. And before I jump into numbers, I, want to just take a moment to acknowledge all of my amazing colleagues. During my seventeen plus years at AMN, I have been inspired every day by your passion, your drive, your dedication to serving our customers, our communities, and each other. You are truly the best of the best, both professionally and personally.

And while I'm so proud of what we've accomplished, I'm just as excited about the future of this organization and all that you will continue to do to advance our really important mission and strategy. I'd also like to personally thank Susan for her mentorship and friendship throughout these years and also the AMEN board for their continued guidance and support. So with that, we'll turn back to the results. Second quarter revenue of $857,000,000 was 3% above the upper end of our guidance with outperformance across all three segments. Second quarter consolidated revenue grew 41% year over year.

Sequentially, revenue was down 3% due to an expected reduction in COVID related projects and lower travel nurse bill rates. As Susan mentioned earlier, we are very proud to partner with FEMA to vaccinate underserved communities. The ultimate financial impact on the project was minimal in the second quarter. And as of now, we do not expect any revenue from this contract in the third quarter, any mature revenue. Gross margin for the quarter was 32.7%, which was 20 basis points higher than prior year and up 10 basis points sequentially.

The improvements in the margin were driven primarily by a revenue mix shift toward our higher margin segments. Consolidated SG and A expenses were $157,000,000 or 18.3% of revenue compared with $137,000,000 or 22.5% of revenue in the year ago quarter and $161,000,000 or 18.2% of revenue in the previous quarter. Year over year, even with a significant investment in employee expenses and marketing costs to support our growth, we achieved strong operating leverage on the increased revenue. On a sequential basis, SG and A expenses declined due in part to lower stock based compensation and a favorable professional liability reserve adjustments, more than offsetting growth in employee headcount and related expenses. In the second quarter, Nurse and Allied revenue was $624,000,000 41% higher than the prior year and down 5% sequentially.

For Travel Nurse, our largest business, revenue grew 37% over prior year, with average travelers and assignment up 22%, the average bill rate up 14% and slightly higher average hours worked. As expected, the average bill rate declined sequentially from the first quarter peak levels that were fueled by COVID related needs. However, the sequential decline of about 9% was less than anticipated as demand increased through the second quarter. We are expecting third rate bill rates to be down again sequentially in the high single digits, but remain at elevated levels throughout the balance of the year. Allied revenue was $113,000,000 up 44% from the prior year and up 4% sequentially.

Allied volume was up nearly 40% over prior year with the average go rate higher by 4%. Nurse and Allied gross margin of 26.6% was 40 basis points lower than prior year and down 30 basis points sequentially. The segment gross margin was lower year over year primarily from increases in clinician pay packages to fill more positions. Segment EBITDA margin of 14.4% was 60 basis points higher than prior year on improved operating leverage. Physician and Leadership Solutions revenue in the second quarter was €139,000,000 which was 28% higher year over year and down 1% sequentially.

Gross margin for this segment was 36.6%, 20 basis points higher than the prior year and down 40 basis points sequentially. The year over year improvement was due to a favorable mix shift toward the Interim Leadership and Search businesses. The sequential reduction in gross margin was due primarily to a mix shift toward lower margin specialties and local tenants, along with a reduction in COVID related projects. Segment EBITDA margin was 15.7%, up 160 basis points from last year and up 60 basis points sequentially. The year over year improvement was driven primarily by operating leverage on the strong revenue growth.

Technology and Workforce Solutions segment revenue was €94,000,000 in the second quarter, growing 70% year over year and 6% sequentially, with strong growth across all service lines in the segment. Segment gross margin was 67.7%, down 100 basis points year over year and flat sequentially. The year over year change was due to a revenue mix shift within the segment. Segment EBITDA margin of 45.4% was up five ninety basis points year over year and was two ten basis points Consolidated second quarter adjusted EBITDA of $134,000,000 was 66% higher year over year, driven by revenue growth and improved operating leverage.

Adjusted EBITDA margin of 15.6% was two forty basis points higher year over year and lower by 30 basis points sequentially. We reported net income of $67,000,000 and diluted earnings per share of $1.39 in the second quarter. Adjusted earnings per share was $1.64 compared with $0.83 in the

Speaker 5

year ago

Speaker 4

quarter. Day sales outstanding improved to fifty days, seven days lower than last quarter as strong cash collections caught up with the large increases in revenue and accounts receivable that occurred in the first quarter. Operating cash flow for the quarter was $171,000,000 and $211,000,000 year to date. Capital expenditures in the quarter were $11,000,000 As of June 30, we had cash and equivalents of 139,000,000 long term debt of $850,000,000 and a leverage ratio of 1.7x to one. Now turning to third quarter guidance.

We are projecting consolidated revenue to be in the range of $770,000,000 to $790,000,000 forty percent to 43 higher than the prior year. This includes approximately $20,000,000 of revenue related to labor disruption activities. Third quarter gross margin is projected to be 33.4% to 33.9%. Reported SG and A expenses are projected to be 19.8 to 20.2% of revenue. Operating margin is expected to be 10% to 10.5%, and adjusted EBITDA margin is expected to be 14.2% to 14.7%.

Other Our third quarter estimates include the following: depreciation expense of $10,000,000 noncash amortization expense of $16,000,000 stock based compensation expense of $3,500,000 interest expense of 10,000,000 integration and other expenses of 3,000,000, and an adjusted tax rate of 28%. And now we'd like to open up the call for questions.

Speaker 0

And your first question comes from the line of Mark Macron from Baird.

Speaker 6

Hey, congratulations everybody. And Brian, congratulations to you. It's been great working with you over the years. I've got several questions related to Nurse and Ally. Obviously, demand is extremely strong on in both Nurse and Allied.

I'm wondering, you mentioned where you're thinking about pricing being for the upcoming quarter. I'm wondering if you can expand a little bit on that with regards to travel nursing just in terms of the pricing expectations for the coming quarter, but also as you're thinking about the year unfolding because clearly, the shortages don't seem to be abating. And then how are you thinking about that with regards to Allied as well?

Speaker 7

Hey, Marcus Landry. So the maybe it might be helpful to kind of talk about the trend that we've seen even starting in January. Our bill rates actually paid at the end of the first quarter. And then since that point, they've been steadily decreasing. They really have not been declining quite as steep as what we'd originally thought.

From what we can tell, though, especially where the demand is today, and we can see, of course, the rate on all of our new orders. We would expect that it would probably take a turn again, and we start to see increases in our average bill rate as we exit the third quarter. So we're seeing increases across almost all the specialties in nursing, even the orders that aren't tied to specialties that are there to take care of COVID patients. It's, you know, really, probably the extremely high demand that's driving up the rate. There is a lag because there's a lot of instances where you might see rates that are impacting orders, which then, of course, would impact future placements.

But it looks like we should, you know, start to see our average bill rates increase two to three months whenever you would see some of the peak demand that we're experiencing right now. So still a little bit too early to tell, but that's how we're currently thinking about it.

Speaker 6

Landry, how much are you thinking that those bill rates could actually go up on a year over year basis once that starts occurring?

Speaker 7

Yeah, it's still really hard to tell, Mark, just because we are, you know, still booking in. Even today, we're still looking a little bit into, the third quarter. And you know, we can see the orders and but, you know, there's some other things there such as mix that. To make it a little bit difficult right now to fully predicted. You know, originally, we thought that they likely declined even throughout the entire year.

And, you know, this was where we're seeing the demand right now. We think that it will take a turn right at the end of the third quarter, and then potentially come up, you know, as we exit the year.

Speaker 6

That's great. And then can you just talk a little bit about what you're seeing in terms of fill rates? And and also just, you know, given the dynamics that are occurring, at various units, what you're seeing in terms of follow assignments. And and lastly, related to that, I imagine your fill rates are better than the vendor neutral MSPs that are out there. To what extent are you actually seeing an increasing level of of interest in terms of using you as as as the MSP given your your superior ability in terms of filling positions?

Speaker 7

Yeah. Mark, I'll I'll hit on a couple of those, and then maybe I'll turn it over to to Kelly to talk about customers

Speaker 5

as

Speaker 7

it relates to utilizing our BMS vendor neutral program versus our MSP product. On the the fill rate side, you know, we did see fill rates across the industry at the beginning of this year that were lower than what it had historically been, and that's, of course, because of the really high demand that we saw at the peak of the pandemic. And then it got to the point back to where it was was respectful. It was at levels that we had experienced before the pandemic, and that would have been kind of the March time frame. And then right now, what the entire industry is experiencing just over the past couple of months on fill rates is that they have declined a little bit.

What you expect with the excessive demand that we have out there right now across the entire industry. Within our own MSP programs as well as our vendor neutral programs, we do rely heavily on our supplier partners. So they've been able to help quite a bit with those fill rates to help support our clients, which we're very appreciative of those partners. As it relates to retention, of our of our own health care professionals, of course, we've seen that kind of go up and down throughout the past year as well. It's kind of like Q two Q three time frames of last year.

We did see some declines in our retention rates in skills such as like OR whenever, like the procedures were paused. And then it did return to some of the levels that we would experience historically. Q two of this year actually did go down again on our retention, but that was more of a skill mismatch. So you had some of these COVID vaccine projects that were in place. We're replacing pharmacy techs, for example.

And for the most part, COVID vaccine projects have gone away, and so there's nowhere to put those clinicians. Of course, really one month into the third quarter, but the retention rate of clinicians, across both nurse and allied are back to where they were pre pandemic.

Speaker 2

Might be a good opportunity for Kelly to chime in regarding our MMP programs. And you you asked Mark about the preference of clients to have a staffing led MSP versus VMS. Of course, we're really fortunate that we can offer both, which was extremely valuable during the last year. And as you heard me mention, we added many new clients in our technology VMS platform, and that certainly has helped make an impact there, helped drive that revenue for that division. But we're finding more and more clients are wanting to have that staffing led offering.

So maybe, Kelly, you could chat a little bit about that. Yes.

Speaker 3

A couple of comments on that. Thank you, Susan. And Mark, we certainly see stronger performance from a sales perspective with our AMN led program. So we have seen a strong part of our overall performance in Technology Workforce Solutions this quarter was due to the strength of BMS. We've seen higher demand sustain as well.

We have a little less influence despite really strong partnerships with our suppliers. Our ability to partner with our clients in our MSP program, strategize with them around utilization, around bill rates, around marketing strategies certainly benefits those MSP programs, and they see that in higher fill rates as well as other value that they receive from that. We are seeing in the market from a new program perspective, many clients who were without workforce solution partners throughout the pandemic really turning now towards reassessing their strategies and engaging us in conversations. And that's evidenced the new business we brought on the last quarter and a very strong pipeline going forward to the end of the year. So we're very bullish and continue to prioritize our current managed services programs, but looking to, with our expansion, take on more and be able

Speaker 4

to provide more support to the industry.

Speaker 6

That sounds really promising. Congratulations.

Speaker 3

Thank you.

Speaker 0

Next question comes from the line of Tobey Sommer from Truist Securities.

Speaker 1

Thank you. I was wondering if you could describe what you're hearing from clients and seeing to the extent you have visibility into the full time labor supply and the shortness, the extent to which there are short to medium term issues such as, hopefully, you know, hopefully, I'm describing that actually, the burnout, the the need to take vacations, do other things, a full time staff that may remain in the labor force versus structural things like the retirements and early and or catch up from last year where we may have seen delays, I imagine? Yes.

Speaker 2

Very important question, Tobey. This is Susan. And as you can imagine, those conversations are happening pretty much daily. Earlier today, Landry and I were on a call with one of our largest clients about their outlook, and it's very similar to what we hear from other large systems and large clients in that they don't see this ending anytime soon. They believe that there's been a shift in the workforce that will have impact for many years to come, whether it be it's a combination of all of those things that you've just described.

It's retirement, people choosing to do other things, their existing staff being burned out, fatigued, wanting to get to good staffing levels from a quality of care standpoint, but it becomes a little bit of a vicious circle, right, where if you're understaffed, people are being burned out and they quit, it just makes the scenario that much more difficult. And so because of that, we're talking with them about certainly urgent immediate actions and collaborative things we can do to get them the staff they need immediately. But then also, what can we do midterm and longer term. And some of the solutions that we have to offer are things like RPO. And in fact, our RPO business had a phenomenal second quarter and has a great pipeline going forward because so many clients are wanting assistance and new ways, new best practices to recruit their permanent staff.

We're talking with clients about new grad programs where we can provide and we've done this before with some of our large clients, where we provide new grads in a preceptor program and those individuals can ultimately go permanent. Our international business, O'Grady Payton, that team has done a phenomenal job of serving clients. Remember, international nurses come over on green cards and are on assignment with us for generally two years before they go permanent, and they are seen as a core staffing solution as opposed to a temporary solution. So when we're having these conversations with clients, we're fortunate that we have the ability to discuss multiple solutions for them that address that from short term, midterm and long term need that they have. And I'll just add one more thing.

There's also a need for flow pool management and how do they optimize the availability of nurses that they may have locally and use technology, which is why things like our before health technology become very valuable.

Speaker 1

Right. Thank you. Have you heard any legislative or industry wide measures to any any sort of changes to improve supply that that could impact the market over any sort of medium term? Because doing something to encourage students is many years away from impacting supply.

Speaker 2

Right. There are I'll start with there's nothing material or significant. There certainly are things being discussed, and there's advancement, albeit slow, on things like the nursing licensure compact, which now has 38 states that are members of that compact. The advanced practice compact is really just getting started with only North Dakota involved. The physical therapy compact has 21 membership.

All of those things help the mobility of clinicians crossing state lines and enabling to deliver care faster. We have the TREAT Act that's been introduced at a national level, would help a bit in the times of, national health care crisis, which we're in, to be able to get clinicians, moved around and utilizing their licensure across state lines as well. But none of that is going to materially change the supply of clinicians in the next year.

Speaker 1

Okay. Last question for me. Could you comment on your internal efforts to streamline recruiting and implement technology and, you know, onboard people in a as automated a fashion as possible, credentialing, etcetera. And then maybe juxtapose that with what's going on in in the market as you see it, if there if there is a juxtaposition to be had. Because there's a lot of times, crises spur innovation, acceptance of frameworks and processes that maybe in normal times wouldn't be embraced.

Speaker 2

Absolutely. The last year has certainly advanced innovation both within AMN and across the industry. And I think adoption as well, in many cases, maybe the tool or technology was there, but there was a hesitancy, whether it be with candidates or clients to utilize it. So we've definitely seen faster adoption of digital capabilities. One great example is our AIMN Taskport app, which enables clinicians to search for jobs and look for their next great assignment, certainly gives us the ability to personalize the experience for them and push out personalized opportunities that are going to be of the greatest interest to them, but it also enables them to get their credentials uploaded and accelerate the process of getting onboarded.

We've seen great adoption of AMN Passport. And every practically are rolling out new features and functionality. We're not the only ones doing these things within the industry, but we do believe that we are ahead of the majority of our industry. We should be as the leader in the industry. But we are learning new things every day that we can do differently.

Landry, did I miss anything there you want to add?

Speaker 7

No, that was right. I mean, we're you mentioned adoption. We're ahead of beating our expectations of, you know, the clinicians wanting that technology, wanting to be able to do things And take more control over the process and within their career, but it you you still have to have the talent. So we're making investments there in our in our talent, not only our existing team members, doing a lot to attract new talent to the organization. We've made investments recently, actually this entire year, in our account management team.

We've also made investments in our recruitment team. In the second quarter, we increased our number of producers percentage double digits, and it's even higher today. So we continue to make those investments. And then, Toby, you probably remember the Advanced Medical acquisition that we did, and all of those team members are now in our systems and within our processes, and their productivity per person is more than double what it was before the acquisition. So that team team is doing an excellent job.

Speaker 1

I appreciate that. If I can do a little follow-up, you know, we love quantification in this business. To the extent the the passport has improved or or or kind of, improved the credentialing time, could you give us an example of what that might look like today versus under a more human intervention process?

Speaker 2

You know, why don't you let us work on that, Toby? Yes. We have those metrics internally, but but why don't you let us come back to you with something that we think would be meaningful externally Mhmm. For you?

Speaker 3

Because we have, of course,

Speaker 4

tons of assets that

Speaker 2

we we'll take that as an action item.

Speaker 4

Thanks, Adi.

Speaker 0

Next question comes from the line of A. J. Rice with Credit Suisse.

Speaker 8

Hi, everybody. Couple of questions. First of all, you mentioned, the strength you saw this quarter in the interim leadership and permanent placement and also in the Allied side, the rebound and therapy demand. I guess I'm trying to understand some of those areas, and maybe there's some others I'm not thinking of, didn't fare as well the in the height of the pandemic and now seem to be coming back. You think they're back to normal, or do you think there's still further room for them to to rebound as we see, see the, next the coming months unfold?

Speaker 5

How you doing, AJ?

Speaker 1

This is James. Just I'll in, I'll start with the search business. So our search business was the hardest hit business, through the pandemic, and it is the the stores recovering, coming back to pre pandemic demand levels. But I will say the good news is that, we have had four quarters of sequential growth in our search business, and our search business continues to see strong pipeline significantly or specifically within side of our mid level management and within side of academia. I will say, we have forecasted and we're saying that that from getting back to pre pandemic is h one of twenty twenty two, which was is going to be faster than what our guidance was of h two of twenty twenty two.

So the search business is coming back a little bit slower, but we are seeing some pickup on demand there. From an interim standpoint, we feel very confident, very good about where the interim business is. Our interim business has had a second quarter finishing above 7 percent of its pre COVID levels and three consecutive quarters of record orders volume contributing to really eight consecutive months of improving interim on assignment. Our demand has returned back to pre pandemic levels, and that's been driven by our core direct and also our MSP clients. So we feel very good about where we are from a demand standpoint and the revenues to be able to troll from that.

Speaker 7

Hey, Jake. It's Landry. I'll hit on a couple of things as it relates to Allied. Well, that business has become very large for us. They are number one in their space, and that team has just done a fantastic job of executing up against the demand that they have.

They actually did not see that same dip in demand like we saw in travel nursing in that April timeframe. Their demand just has continued, an upward trajectory. And today they are at record levels and those record levels are just about across every single specialty that they support. So I know we talked about. Probably five quarters ago of therapy being down due to some reimbursement changes that demanded back in the team is executing well against that.

Imaging demand is at the highest level that I've seen it same as laboratory And then respiratory is up significantly from prior year, but probably more flat from the peak of the pandemic as you would expect.

Speaker 8

Okay. Thanks a lot. I wonder on your bill rate comments. That was I think, aggregate bill rates. Is there any way to parse out what what you're seeing?

Obviously, you got the COVID premium rates, and the percentage of those assignments is probably coming down, it sounds like. And then you've got just sort of your traditional assignments. Given the tightness of the supply, what is happening on pricing for those non COVID assignments? And I don't know if you have a statistic you'd share as to how many of your assignments in the recent quarter were COVID related versus the last few quarters. Is it, is it materially changing?

Speaker 4

Hey, Dave. This is Brian. I'll I'll start off and then let you man some color. I I think to start with, I don't we don't really try to separate COVID versus non COVID. The reality is in this environment, our clients need our help really across the board.

And the rates, as we mentioned, were at the peak level in the first quarter. And, of course, you can attribute some of that to the, you know, the highest hospitalizations in COVID and the significant demand it drove and inside the highest levels. As we came off of that that peak level in March, you know, we had anticipated that we would see rates come down. And that has happened, but not as much as we expected because they're now all the dynamics that Susan talked to in our opening remarks, it it's it's somewhat COVID related, of course, but this burnout we're seeing in the in the very high vacancy rates on staff in conjunction with with an increased utilization of health care. It's created this dynamic again.

It's kind of a byproduct of the pandemic. That's driven really by record levels of demand across all geographies and all specialties. And so that's that's what's driving rates up overall. It's not really COVID specific at this point. It's just a lot of competition for scarce talent.

So again, it comes down because there was a kind of a one point in time where the rates were very high. You're seeing now maybe not the highest levels of bill rates that we had in the first quarter, but now we have more orders at a higher bill rate in totality. And so as we're booking into those, it's keeping the overall rates at very elevated levels. So we mentioned being down a little under 10% sequentially in Q2, down again in the third quarter. But those rates are still significantly above where they were in the early part of twenty twenty.

At this point with demand where it is, it's just harder for see that coming down. In fact, if anything, as Landry mentioned, might become up a little bit in the fourth quarter just because there's just so much need across country.

Speaker 8

Okay. That's great. Now I wanna, add my best wishes to you, Brian, as well. Maybe just the last question. Lead generation and new applicants trying travel assignments and so forth for the first time.

We talked a little bit about what you're seeing when people come off the on assignment. But are you how how how's the applicant pool? Is that expanding or people more open to considering, taking home on assignment like this?

Speaker 7

Hey, Dave. Landry. Yes. Although our supply metrics look really good. You know, of course, we're tracking a lot of tracking a lot of different ways.

In particular, though, our new applicant numbers are really strong last year was our highest year on record, and this year we're pacing ahead of prior year. So I think that's a really good, stat and a good thing to see that, nice supply that's coming into the business and then conversion rates look good. Also I think a lot of that has probably contributed to some of the improvements that we've made in the process And, you know, payment passport that we've mentioned to that allows people an easier experience still to make it through all the way to on assignment.

Speaker 8

Okay. Great. Thanks so much.

Speaker 4

Thanks, Ajay.

Speaker 0

Your next question comes from the line of Kevin Fischbach from Bank of America.

Speaker 5

Great, thanks. Just wanted to, dig into the guidance, I guess, if I doing it right. It looks like, you know, your revenue guidance is sequentially to be down. You know, and it looks like, obviously, the biggest part of that is the Nurse and Allied. But the physician and the workforce also looks like they're going be down sequentially, which was a little bit less clear to me as to why that would be the case.

Maybe you can just go into what would be driving that outlook for each business.

Speaker 4

Sure. I'll provide some color to kick off on that. So I think on Nurse and Allied, bill rates would be the number one recently. We talked about that as they come down again, even though they're elevated levels. They're off that peak a week.

It really was at the March point. And so even as they kind of hit their lowest point in July and are slightly up in August, September. But even as you kind of average out the quarter, it's down sequentially. Nurse volume is down just slightly as well at this point, and that's it's really driven by some of the vaccine projects that we had in the second quarter. We did pick up some revenue from those projects that you can imagine have, for the most part, ended at this point.

And so you're kind of stripping some of that out. You'd actually see volume up just slightly on a sequential basis third quarter. But that's the reality is you'll still be down because of that change. On the Allied side, you've got a little bit of a decline mainly from the schools business. As you get into the summer months, you obviously lower number of therapists on assignment during the summer.

But outside of that, the core business outside of schools is still growing as well. Position and leadership, it's relatively similar on a sequential basis. The math you do might be slightly down depending on where you put in that range. Some of the interim revenue was again project related, so down slightly there, even though again the underlying business performance trends are really positive as we look to the back half of the year. And then on the Technology Workforce Solutions, the same driver for nursing with rates does have an impact on BMS.

So again, you've got good trends there. But with the rate average rate down kind of across the industry, that has a direct impact on the top line revenue. So those are the biggest ones. Would say, in Technology and Workforce Solutions, we also had a contact tracing project we mentioned last year, and that also ended in the second quarter. So we've got to cover comp sequentially as

Speaker 1

you go into the third quarter.

Speaker 5

Okay. Great. That's helpful. And then I guess just maybe going back to some other questions about, you know, supply, and whether there's any kind of risk to that coming back. I guess when you talk to the providers, some of them, seeing very acute staffing issues, but everyone's talking about, labor pressure to some degree.

But the companies who seem, you know, more comfortable with with the labor outlook, you know, seem to point to, hey. In September, unemployment benefits, you know, go away. Kids go back to school, and so nurses, don't have to stay home to take care of them. COVID coming down, so fewer, you know, quarantine days. And it seems like they think that these are relatively meaningful tailwinds from a supply perspective.

It sounds like that's not what you're hearing on average days. Why aren't those, potentially risks to the back half?

Speaker 2

Yes. We aren't hearing that from our clients at all. In fact, like you said, quite the opposite. We're hearing they expect it to continue to certainly for the remainder of the year and even really going into next year and beyond that there's been some sort of structural shift. The unemployment benefits aren't as likely to affect our supply and placement of clinicians.

I mean, there could be some element of the schools of nurses that maybe have stayed home. But I think all nurses are being highly incented to be at work today. So if they want to be at work, there's a reason for them to be there, and they've got the financial incentive to do so. So we're just not hearing that from our clients that they expect there to be some sort of relief around the corner.

Speaker 5

Okay. And then, last question. I guess you talked about, you know, utilization. You know, I should say, bill rates starting to kind of flatten and then maybe start to tick up. How should we think about gross margins during this kind of period?

I know oftentimes your bill rates and pay rates have lagged versus each other. Is there anything that we should be keeping in mind, you know, as we think about that that trajectory over the next several quarters?

Speaker 4

The only thing I'd mentioned for the the q three guidance, you saw that the guidance we gave was, you know, around 100 basis points, up sequentially. And a part of that is because of that track related revenue that we mentioned. Just the way that dynamics work in that there's measures of some upfront revenue we get in preparation for an event, and that has a favorable margin influence on it. So outside of that, I'd say there's a pretty pretty, you know, stable margin trend, as we go into the the and fourth quarter, and the team doing a really effective job even as they're navigating a very challenging time with these shifting rates and and, you know, paid packages, keeping really nice stability across the board. So I think the bigger influence is really gonna be driven more by a mix shift between the businesses and but but at a business unit level, we should expect to see stability.

Speaker 5

Alright. Great. Thanks.

Speaker 0

Your next question comes from the line of Brian Tukwueck with Jefferies.

Speaker 9

Hey. Good afternoon, guys. And, Brian, congrats on the move and and good luck as well. I guess my first question here, just looking at the strength in in the technology and workforce solutions business, how should I think about, you know, the different drivers of that? I mean, is it cross selling?

Is it new business? Is it selling into existing relationships? And then I guess the follow-up to that would just be your thoughts on the margin opportunity for that business given the continued strength that we're seeing from that?

Speaker 2

So I'll start and Kelly may want to add in here. Some of the drivers have been a bit different for the various business that are included in there. So for Language Services, it's been increased volumes from existing clients as they continue to expand their utilization, seeing the benefit from using the service, and they expanded into more areas of their facility or other facilities. They have some really nice new client wins over the last year. And so getting those launched and starting to see some volumes from those, although I have to say, there was a little bit of a delay in some

Speaker 0

of those launches just because of

Speaker 2

the pandemic. So more of that benefit will really come into the future. We are cross selling into our existing MSPs, but the majority of what you saw in their growth did not come from that because we've been pretty preoccupied with other things in dealing with the overall growth. So we probably haven't made quite as much progress as we would have normally expected in getting them cross sold. Brian mentioned VMS.

A lot of the drivers there are the additional clients that we added over the last year, a lot of really great wins as clients were seeking solutions, vendor neutral or really any solution that would help them to better access their talent. And then of course, the bill rate increase did improve or did help them a bit, although volumes are also very, very strong across VMS. RPO, I mentioned, has had some really great success. The margins in that segment do get impacted a bit by the growth of those various businesses, right? Some of the stronger, higher margins such as in BMS has certainly been additive to the gross margin.

As we might see bill rates come down across the travel nurse and allied industry, that will affect the growth of the VMS business. It will still be super positive, but it won't maybe be as big of a mix as other parts of the segment grow. So Kelly, what else do want to add?

Speaker 3

Yes. The only thing I would add great job, Susan Brian, is that another thing to think about that will fuel growth is a lot of the more complex solutions we've delivered this year for things like mass vaccination sites. We've really used multiple technology solutions and integrated those to deliver a full comprehensive solution. So bringing together the SmartSquare scheduling, utilizing our BMS, integrating that with our language services platform. And we continue to see clients looking for that.

Cinzi, the Cinzi platform is a telehealth platform as we start to talk with clients, very receptive market to how do we bring full solutions that bring both the staffing and labor component on platform that can be delivered virtually. So that will fuel growth that I think goes beyond just cross selling, but really integrated solutions.

Speaker 2

I have to give a call out to the Cimzi team that just joined us because they've been such a wonderful addition. And we had a fabulous win of a new MSP in the home health space, and they were a very instrumental part of helping us win that client and improve our commitment and capabilities within the non acute category. I think it's our Cinzi colleagues.

Speaker 9

That's awesome. I guess my second question, just on the capital deployment side. Free cash flow is really strong, dollars 160,000,000 this quarter. I mean, if you're generating this much cash, how are you thinking about redeploying that? And where should we be thinking you'd allocate that?

Speaker 2

Well, first, we're, of course, investing internally. We talked about that, and I think you're seeing the benefits of those investments, whether it be in digital or in our own infrastructure and certainly in our people. So number one, we've cited that. When we think about additional opportunities to add in other capabilities, strategic services, again, we just mentioned, Cinzi was a great example of how we continue to add in technology capabilities. And in that case, helps us to really address a growing part of the market that we want to make sure that we got a presence in, in the subacute and home health space.

So we'll always be looking at what does the client want and need, how do we build stronger relationships. So the technology workforce solutions are absolutely a priority for us. It could be in addition to something that we're already doing in that space, something that helps us to consolidate within a fragmented part of the market or it could be something new, a net new capability like Cimzi brought to us. Also consolidation opportunities, I'd say, particularly in our Nurse and Allied space, Locum has great growth as does interim leadership. But when we look at these longer term trends of shortages in really all the clinical disciplines, it probably raises our interest more than it was two years ago in terms of consolidation opportunities that might be out there in our staffing services.

That's always been on the table, but I'm just kind of recognizing that since we've seen this shift in the shortage and very high demand, we want to make sure that we are as capable as possible to deliver to our clients.

Speaker 1

Awesome. Thank you, guys.

Speaker 4

Thanks, Toni.

Speaker 0

Your next question comes from the line of Tim Tim Mulrooney from William Blair.

Speaker 10

Hey, guys. This is, Sam on for Tim. Hope you're all doing well. Got a few questions here. I I think you previously thought bill rates would settle maybe 10 to 15% higher relative to the pre pandemic levels by the end of this year.

But it's it's sounding like that's not the case anymore. Can you can you update us on the timing when you now expect this to occur and if you think they might settle higher or lower than that 10 to 15% during a more more normalized environment?

Speaker 4

Yeah. Difficult to say. But, honestly, at this point, you know, the the magnitude of the demand that we're seeing is is definitely more than we even expected. We we knew on the heels of the of the pandemic as things improve, there would be more vacancies, and and that has definitely played out. But even in more severe way than we anticipated, that that led to, these higher and more elevated rates.

So we do expect them to come down. But at this point, if you take the kind of metrics we've given, it would still point to a rate in the fourth quarter, you know, 20% plus above where it was pre pandemic. And quite honestly, don't know, we're not really in a position at this point, to say when that would go down further. If demand stays where it is, it's hard to imagine the scenario would change, materially. And so that's that's really something we want to see how to play down in in the 2022.

Speaker 10

No. It's super fair and and and so good. Good color there. Maybe switching gears to to more of a delta variant here, but, you know, it it seems with COVID cases on the rise, you've you've had contingency conversations with clients, should this pandemic continue worsening. I guess there's really two questions I want to ask around that.

First, how are you thinking about Delta as it relates to your ER nurse demand? And and maybe second, do you do you think this might negatively affect demand for OR nurses or hospital utilization rates continue to move higher even despite the recent rising cases?

Speaker 2

You know, one of the things that happened over the last year, and I think through all the lessons learned in the pandemic is health care organizations figured out how they could continue to deliver normal patient care and keep their procedures moving. And, you know, even things such as isolating COVID patients outside of the normal facility patient flow. And what we're hearing from them is they are committed to keeping the doors open and keeping the patients coming in to be seen. And if anything, because of the pent up demand, there's a greater urgency to make sure that they have their ORs open. So it's absolutely still a huge deal.

Right now, the gating factor is staffed. If they're having to close down an OR, it's because they don't have nurses or scrub techs to come in and assist. So we think that it's not likely gonna affect the normal sort of patients, demand or the demand that kind of drives more utilization of clinicians, if that's what you're asking.

Speaker 10

Yeah. Yeah. No. That's that's, good to hear. I appreciate that.

I I think I'll leave it at that then. But, Brian, I I know I speak for Tim as well. Best of best of luck in this next, endeavor here. Appreciate it.

Speaker 0

And your next question comes from and your last question comes from the line of Mitra Ramgopal from Sidoti.

Speaker 9

Yes. Hi, good afternoon. Thanks for taking the questions. I just had a quick one. Based on the need to acquire talent and address staffing needs, was just wondering if you had an update and as it relates to the Ransat partnership and how has that worked out for you?

And if you might need to make or continue to do more partnerships like that?

Speaker 3

Hi, Mitra. It's Kelly. Yes, the Randstad partnership has gone very well. We continue to collaborate together with existing clients, bringing together their full complement of contingent needs and integrating our programs so we can support them in comprehensive way. We, of course, continue to increase our investment with many suppliers in our MSP programs.

And so at the moment, we don't see any kind of real gaps in certain labor pools. But with Ron's thought, we're also looking at other ways that we can influence and provide capabilities to our clients that go beyond even just staffing, looking at some of our data and insights and analytics and other capabilities that we both bring to the table, different best practices that we can bring to our health care clients that they might have in other industries or globally. So we're going to continue to invest and focus on that jointly.

Speaker 9

Okay. That's great. Thanks again. And Brian, best wishes and good luck in your new endeavor.

Speaker 4

Thanks Mitra.

Speaker 0

And there are no further questions at this time.

Speaker 2

Great. Well, thank you, everyone, for joining us today. As always, we are proud and honored to serve our country, but also to collaborate alongside our clients and our clinicians and with this really amazingly passionate and talented team that we're all a part of. We see them lean in and bring their heart and their soul and their talents every single day. So we just wanna say thank you to all of our incredible colleagues across the country.

Speaker 0

This concludes today's conference call. Thank you for participating. You may now disconnect.