Q2 2024 Earnings Summary
- AMN is successfully expanding its market reach by aligning its go-to-market strategy to all segments of the market, not just focusing on MSP clients. They are seeing progress with healthy increases in physicians filled in third-party and direct relationships between Q1 and Q2, supported by significant improvements in operational automation and speed to fill.
- AMN's ShiftWise Flex platform is gaining significant traction, with over 50% of client spend under management replatformed onto ShiftWise Flex. The company expects to have the majority of VMS clients completed by year-end and is building a strong pipeline, which is anticipated to contribute to revenue growth starting in the back half of 2025.
- Despite strong permanent hiring by hospitals, there remains a significant ratio of open roles (2.1:1), indicating ongoing staffing shortages. With higher patient utilization and contingent premiums returning to normal ranges of 15% to 20%, there is potential for increased demand for AMN's staffing services in the near future.
- Declining volumes and bill rates in the Nurse and Allied segment are expected to continue into Q3, with volumes projected to be down low double digits sequentially and bill rates down low single digits, signaling ongoing revenue pressure in the company's largest segment.
- The company is experiencing delays in client decision-making and lower extensions in the Locum Tenens business, leading to a modest sequential revenue decline in the recently acquired MSDR business, indicating broader challenges in demand recovery.
- A high leverage ratio of 2.6x debt-to-EBITDA, expected to increase to 3x or above by year-end, necessitates a focus on debt paydown over other uses of cash, potentially limiting the company's financial flexibility and growth investments.
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Bill Rates and Volumes Guidance
Q: Details on Q3 and Q4 bill rates and volumes?
A: In Q3, bill rates are down low single digits sequentially from Q2, and volumes are down low double digits in Nurse and Allied segments. For Q4, bill rates are expected to be flattish to slightly down, with volumes ranging from a low single-digit increase to a low single-digit decrease quarter-over-quarter. The impact of visa retrogression will reduce international business by $6–8 million sequentially from Q3, causing a 200 basis point drag on growth within the segment. -
Order Growth vs. Revenue
Q: Why doesn't 20% order growth boost revenue?
A: Although orders are up 20% since April, revenue remains stable because some orders are below market rates, leading to low fill rates and aging orders. Additionally, clients have reduced utilization, and extension rates are at the low end of normal, about 500 basis points off the average, impacting volumes. -
SG&A Expenses and Outlook
Q: Any one-time items in SG&A and future impact?
A: In Q2, there were $7 million of discrete items in SG&A, adding 100 basis points to adjusted EBITDA margin. Excluding these, adjusted EBITDA margin was 11.7%, which is 20 basis points above guidance. These items won't recur in Q3, and adjusted SG&A dollars are expected to be flat in the back half of the year. Next year, anticipate a reset on incentive compensation, impacting SG&A by $3–4 million per quarter. -
Demand Trends and Staffing Mix
Q: Are hospitals comfortable with perm-temp staff mix?
A: Clients are experiencing higher patient utilization and have engaged in strong permanent hiring with improved retention rates. Despite these efforts, open roles remain at a ratio of 2.1:1 from a hiring standpoint, leading to workforce pressures. Contingent premiums have normalized to 15–20% above permanent staff in the back half of the year. -
Gross Margin Outlook
Q: Is gross margin stabilizing from Q3 to Q4?
A: Gross margins are expected to remain stable from Q3 to Q4, around 30.8% to 31%, similar to Q2 and the midpoint of Q3 guidance. In Nurse and Allied segments, the bill-pay spread improved slightly over Q1, but gross margins were weighed down by increased housing and per diem costs. -
Debt Paydown and Leverage Targets
Q: Is paying down debt a priority? Comfortable leverage?
A: Debt paydown is a priority; AMN has paid off $115 million year-to-date, including $80 million in Q2. The company aims to reduce leverage below 2.5x EBITDA before deprioritizing debt repayment. -
Competition and Bill Rates Outlook
Q: How is competition affecting bill rates?
A: The staffing environment remains highly competitive, with industry-wide pressure over the past year. In Q3, bill rates are down low single digits, but seasonal winter orders may offset further declines. -
Internal Changes and Market Share
Q: Progress on internal changes and market share?
A: AMN expanded its go-to-market strategy beyond MSP clients, resulting in healthy increases in physician placements in third-party and direct relationships from Q1 to Q2. Brand integration is complete, and over 250,000 clinicians are on the Passport app. The company moved from a net client loss last year to expecting net neutral client positions this year, aiming for net gains in the future. -
ShiftWise Flex Progress
Q: Update on ShiftWise Flex replatforming?
A: Over 50% of client spend under management is now on ShiftWise Flex. The replatforming is expected to be mostly complete for VMS clients by year-end, with significant progress on MSP clients. Financial impact from new pipeline revenue is anticipated in the back half of 2025. -
Winter Orders Timing
Q: Is delayed timing of winter orders significant?
A: Winter orders are arriving later, similar to last year, with starts in mid- to late November. This shift doesn't necessarily signal lower volumes, and overall order duration remains comparable to pre-pandemic periods. -
Locum Trends and MSDR Acquisition
Q: Impact of MSDR acquisition and Locum trends?
A: MSDR contributed $34 million in Q2 revenue, expected to decline modestly in Q3. This is due to delays in client decision-making, lower extensions, and increased focus on Locum costs. Demand remains healthy but is down from the beginning of the year and year-over-year.