AMN Healthcare Services, Inc. (AMN) Earnings Call Transcript & Summary

All right. Welcome. Welcome. So glad to see all the die-hards here continuing a long day. I think you'll be rewarded by spending a little time learning about AMN. AMN Healthcare, recognized as largest U.S. health care staffing firm, providing health care workforce solutions and staffing services to health care facilities across the country. The company has over 100 managed services -- or managing services program clients utilizing Nurse and Allied solutions, Other Workforce Solutions and Locum Tenens. AMN is expected to generate over $2 billion of revenue in 2019. Presenting today, President and CEO, Susan Salka; also the Chief Financial Officer, Brian Scott; and Head of Investor Relations, Randy Reese. And Susan, I'll turn it over to you.

Thanks so much, Gary. Thank you. Thank you, everybody, for coming today to our presentation. It's an honor to be here. I've known Gary since we went public in 2001. And my, have we come a long way as an organization. And I've come a long way because I'm in the big girls' room today. I feel quite honored to be here. For those of you newer to the AMN story, I want to share a little bit of insight on who we are and perhaps a little bit about our culture and our evolution and then, of course, probably most importantly to you, where we're going and what drives our industry. AMN Healthcare is the largest health care staffing and workforce solutions company in the country, and that means that we help provide the right clinicians and health care professionals when and where they are needed most. We'll dive into those businesses more in just a few moments. But when we were here 15 years ago as a new public company, we were talking only about travel nursing because that was our primary business. Today, we are, by far, the most diversified business within Healthcare Staffing, but also as importantly, have branched out to provide Workforce Solutions for our clients to make sure that we can help them be as efficient and as effective as possible to manage their workforce, contingent and permanent. We also are investing in technology as we always should be. But I have to admit, we've ramped up that investment quite a bit over the last couple of years as we've seen the opportunity to invest in digital, mobile technology, data, analytics, things that can help not only us run a more effective business, but certainly, help our clients to better understand their own workforce challenges and their opportunities. We have a very scalable operation, and that's important as we believe we've got great growth opportunity ahead of us. And I've certainly learned a lot through my 30 years with AMN, and that is we have to be ready for the next wave of growth. We have to have the right infrastructure, the right technology. We need to work collaboratively with our clients. And at the core and the foundation of everything, we have to have the right people internally as well as those clinicians that we place externally. And then finally, we have a very strong financial profile. We'll talk about that towards the end. Some great characteristics of our business where we produce very strong cash flow that we can put to good use for our shareholders. So our mission at AMN starts with ensuring that we are focused on our clients, our health care professionals and our internal team members. If we get that right, it means that we can also reward our shareholders. So first, we want to make sure we're helping our clients to have the most effective high-quality workforce that they need to deliver great patient care to their communities and their populations. And as you can imagine, that's very challenging, and that's changing. So the types of services we offer across the client spectrum has to evolve along with our clients. We need to make sure we are also taking care of our health care professionals, our nurses, our physicians, our allied professionals, health care leaders, revenue cycle professionals. They are the ones that have the direct access and impact on patients. And so by providing a great experience for them, we not only do a better job of recruiting and retaining, but we just overall make the kind of impact that we want to make across health care. And of course, it all starts at home by making sure we provide the right environment for our own team members, not only recruiting great talent, which is changing as we need to make sure we think about the talent that we need for future, but also developing and retaining great talent within the AMN organization. I've got the benefit of having long tenure with AMN, but we have a lot of leaders. Brian has been with us for 16 years now. We have many other leaders that have been with the organization for some time. But we also have the benefit of adding any new phenomenal leaders to the AMN organization. And that's really helped us bring fresh perspective, approaches outside of our health care staffing world and really bringing best practices to the industry and our business. AMN is a recognized leader not only within our industry from our size and scale and capability but also for the responsibility that we take as the leader within our industry. We've been recognized repeatedly by industry organizations but also for our best practices in corporate governance, compliance and certainly in areas of diversity, equality and inclusion. I'm very, very proud of our corporate social responsibility work. And I'm actually excited that that's been a part of the AMN culture and organization for many decades, but now it's getting more attention externally. Certainly, our team members care about it, our Board of Directors care, our clients care, and I know now that shareholders care more and more about what their companies are doing in the way of ESG and diversity and inclusion. So thank you for that spotlight. And please know that AMN is doing our part to do the best we can for our organization, but also wherever possible, impact those around us, including our communities. So I talked about the evolution of AMN a bit, and this is just a really good simple snapshot of where we have come in the last decade. As we emerged out of the recession, one of the things that we recognized is that we needed to continue to diversify the organization. First of all, in response to our clients and the fact that they wanted us to be more than just a great health care staffing company, they also wanted us to be a great workforce partner for them and really helping them to tackle their broader workforce challenges. And so we embarked on a journey to become that leader and innovator in Workforce Solutions over the last 10 years. It started with the offering of managed services programs. But since then, we've added on many other capabilities that have really enabled us to further diversify not only what we do for our clients but also the financial profile of the organization. So 2008, we had about 4% of our revenue in these forms of Workforce Solutions. But today, it's nearly 2/3 of our overall revenue. This matters a lot for our clients because we can be a better strategic partner. But it also matters for our shareholders because these Workforce Solutions tend to have more resiliency in economic downturns, more recurring revenue, better margins. And holistically, they give us an opportunity to just be a better partner for our clients and our clinicians. This strategy has served us and our shareholders well over the last decade. If you just look over the last 5 years, revenue growing 17%, about half of that was organic and the other acquisitions that we've made to continue to evolve our strategy and our offerings. And obviously, we've been able to leverage that into even greater EBITDA growth over the years, including improving our margin but also just being able to drop more to the bottom line. As we look forward, we are focused still on organic growth first as a driver of our business, but also we are always looking for opportunities to continue to add in additional Workforce Solutions and staffing capabilities and always with that eye of how we can also strengthen the financial profile of the organization. I mentioned the investments that we're making throughout the organization. And first and foremost, it's on creating a better experience for our clients and for our clinicians. The war on talent is tight in health care, in particular. We have one of the worst shortages that we have ever seen in our country for nurses, physicians, allied professionals and guess what, it's going to get just that much more difficult over the next 5 to 10 years. So we need to make sure that we're creating the best experience possible for our clinicians in every way that we interact with them. And one of them is through that digital experience. So we have a variety of initiatives going on to create better candidate engagement, both for new candidates as well as our existing 10,000 clinicians that might be working on any given day. And we're also investing in analytics and digital capabilities for our clients because they want more insights. We have enormous data that we are able to collect through all of the placements that we make, the staffing patterns that we see, the turnover rates. And the more we can use that dataset to share back with our clients as well as, of course, make our own operations more effective and differentiated, the more valuable of a partner that we will be. We are on this continuous journey to become that total talent management partner for our clients. So you think about our evolution, it started in staffing. It moved into -- we have these various Workforce Solutions we offer, and now we want to integrate those Workforce Solutions and staffing capabilities so that we create a much more seamless experience for our clinicians as well as for our clients. They may not need everything from us at any given time, but we want to make it easy for them. And we want to create an experience that's unique to AMN so that when they work through any one of AMN's businesses, they feel that special differentiated experience because of who we are. So looking at our industry a bit. We are in an industry that's growing, a lot of things fueling our industry at a macro level. Certainly, the economy is a tailwind for us. But on top of that, we have shortages that we'll get into across all clinical disciplines. The economy, in particular, though, creates an interesting dynamic within health care. You have this inverse relationship between low unemployment and high attrition and vacancies. So when we're in an environment today when general unemployment is so low, we have very high attrition and vacancies within health care organizations. That fuels more demand for our industry. Our clients always need some form of flexible staffing. But on top of that, right now, we have the tailwinds of a strong economy with these very high turnover rates. There doesn't appear to be an end in sight for that in the near future. In fact, if anything, we have extremely high demand across all of our businesses today. So we're expecting good tailwinds, good continued growth as we go into 2020 and the new decade. In addition to the traditional staffing industry that's $17 billion, we've also expanded into these Other Workforce Solutions, which increases our total addressable market, an additional $5 billion. And so this has given us other opportunities to go down different channels and different client settings so that we can continue to grow and not be as dependent upon the traditional health care staffing market. As much as we appreciate and enjoy that market and lead that market today, we know that we need to be providing capabilities that will lead us in other directions. And this is a positive thing in terms of providing more growth opportunities for us as well. So today, in the market, I mentioned we're the leader. It's a very fragmented market, actually. In fact, as the leader, we are only about 11.5% of that overall health care staffing market, which is remarkable. And as you can see, the competitive landscape falls down relatively quickly. If we break out that competitive landscape, AMN's objective is to be #1 or #2 in most of our core key businesses and for those businesses, in particular, that our clients need most. So as you can see, we have accomplished that across most all of our primary categories. Locum Tenens, in particular, is one where we're trying to make more headway. We've actually had a little disruption in our Locums business over the last couple of years due to some changes we've made. So we intend to rebuild that and certainly would hope to reclaim that #2, if not, eventually, that #1 position. But as you can see, AMN offers the broadest, And what you can't see beyond here, is the deepest set of Workforce Solutions for clients. So when we are competing for a business, one of the things that differentiates AMN is our ability to provide scale and fill positions and those openings that our clients have but also to bring capabilities to really help our clients manage their total workforce with these other solutions that I've mentioned, whether it be RPO or VMS, Revenue Cycle. Last year, we acquired a fabulous, innovative credentialing cloud-based solution, which helps our clients to do a more efficient, accurate and faster job of credentialing their physicians. So these are the kinds of tools and technologies that can really help us be a more holistic partner for our clients. And as I say, it's served us well over the last decade as we've been able to set ourselves apart from the competition. They're getting better, but we know we have to get better, and we certainly have to look for these additional capabilities. So getting back to the shortage that I mentioned, we are expecting certainly health care spending to rise over the coming decade. That's no news flash. But amidst that comes greater need for health care professionals. And that's coming right at a time when the general population is aging. I'm sure you've seen these statistics. If you're over 65, you use 3x as much health care services. If you're over 75, it's 4x more. We have 10,000 people in America turning 65 each and every day. And I don't think most people know this, but by 2030, a little after 2030, we'll have more people over the age of 65 than under 18. The scary part for me is I'm going to be one of them. So we all have to make sure that we're being cognizant of the fact that we have this tremendous wave of demand for health care services coming online right at a time when the clinical population is also aging. About half of nurses are 50 or older, and that's going to continue to rise as time goes on. In fact, we'll hit a point in about 2025 when we will likely have more people retiring from the nursing profession than are actually coming in. What actually complicates this is the newer nurses coming into profession, and this is true really for almost all disciplines, don't want to work as many hours as their older counterparts. So you have not only a flatness and ultimate reduction in the supply of FTEs, but the productivity of those individuals is also potentially declining over time. This is an equation that's going to get increasingly challenging, and the shortages by 2030 are expected to be the worst we've ever seen in the country. As those of you from outside the U.S. know, this is not unique to America. This is a problem that we're seeing all across the world. This kind of shortage makes it challenging for our clients, and they know that they need to work with a national workforce partner such as AMN to ensure that they get the quality staff that they need but also that they have the tools and the solutions to better manage and optimize their staff. So I've talked about a variety of our businesses. I'll just put them into 3 kind of niche categories for you. We have our largest businesses of staffing and recruitment, travel nursing, I have mentioned a couple of times where we also place allied professionals, which would be speech therapists, PTs, OTs, imaging, respiratory, lab, Locum Tenens, which are temporary physicians. We have Revenue Cycle Solutions. If we need people quickly to go in and do an EMR implementation, we can help our clients with that. We have also added these Workforce Solutions. I've mentioned MSP, VMS, recruitment process outsourcing, scheduling. And then we have our leadership and search solutions, which are helping our clients with their leadership roles both on an interim basis and in perm placement. We were hearing from our clients 5 to 10 years ago that they were having challenges not having enough leaders and not having enough skilled talent to really transform their own organizations. We were also seeing through our own MSPs that we were placing a lot of these leaders that other organizations were providing. So that led us to acquire 3 interim leadership firms. And now we are the largest provider of interim leaders within the health care industry. So this is just a good example of where we listen to our clients and then respond by adding in capabilities that will help them solve their issues but obviously, help us be a better partner. Our managed services platform is a great way for us to really be a closer strategic partner for our clients. These are programs where we can be a single point of contact with them, have a single contract. We can help create efficiencies, reduce cost. We fill the jobs that they need filled, either on our own or by using an affiliate vendor, a subcontract network. Our job is to make sure we get their needs met, whether we fill it or whether we work with a partner to fill it. But it puts us in a really great position to help our clients think more holistically about their staffing needs and not wait until the last minute. We've often been able to save them 5%, 10%, 15% off of their contingent staffing. But in the midst of that, we've been able to also find ways to help them with other services. So this is a real win-win for every party involved in the equation and certainly has helped transform our industry. You look at the emergence of MSP within the health care staffing industry. AMN has led the way, and it's been transformative to our business and certainly that stronger relationship but also just economically. Today, we manage about $1.3 billion in gross spend under management for staffing-led MSPs, and we also own the 2 largest vendor management systems that manage $1.3 billion. So about $2.5 billion of that $17 billion of the market flows through AMN to ensure that the jobs are getting filled. Over time, we've been able to increase our internal capture or direct fill of that today, $1.3 billion of gross spend under management. As we compete in the market, we are focused on all clients we can serve. But as you can imagine, we've segmented our clients into focusing on the larger systems in particular, who have the greatest needs and have the greatest complexity and opportunity if they put a program like this in place. So looking at our book of business today, this is how we report our different segments. Again, about 2/3 of the business and our revenue is from Nurse and Allied Staffing. Now about 60% of this flows through managed services types of clients, Locum Tenens is 15% of our revenue. This is the placement of temporary physicians. And our Other Workforce Solutions, which was virtually nonexistent about a decade ago, today is 22% of our overall revenue. This includes that interim leadership business I mentioned. We're also the largest provider of permanent physician search and placement. We have an executive search business, revenue cycle management, a scheduling and predictive analytics business and then the credentialing solutions business that I mentioned earlier. So we're always looking for ways that we can add into that suite of solutions to continue to build out our capabilities for our clients, but again, kind of change that financial profile of the organization. So I've talked a bit about revenue already. We'll touch on gross profit and margins. As you can see, we have pretty stable gross margins through the business. We've improved them over time, primarily from those Other Workforce Solutions, which tend to carry a higher gross margin as well as EBITDA margin. That's contributed to our improvement in EBITDA margin as you've seen through the years. You see just a slight dip in EBITDA margin from '18 to our LTM '19. That came from that disruption I mentioned in our Locum Tenens business, which we are in the midst of rebuilding through 2020. And then a very strong free cash flow. It's a real hallmark of our business that we kick off a lot of free cash flow. And so as we think about how we spend that free cash flow, we certainly have CapEx needs. I mentioned the investments that we're making in digital and in our infrastructure. We also certainly take on debt as we need to, to make sure that we have the appropriate cap structure. Today, still plenty of room for us to be acquisitive if we find the right opportunity. And then as we think about that cash flow, if you look over the last 5 years, just to show you how we've utilized the nearly $600 million of cash flow we've generated in the last 5 years, about $780 million (sic) [ $760 million ] has gone towards acquisitions, a little over $100 million in stock purchases and then some borrowings to round this out. So this gives you an idea of how we think about using our cap structure to continue to drive the strategy of the organization but also make the appropriate internal investments and be opportunistic with our own stock as appropriate. So that's what we have for our presentation today. My colleagues and I will be in the breakout room to answer any questions. I want to thank our existing shareholders for continuing to support AMN. And for those of you who are newer to the story, we look forward to meeting you. We always welcome follow-up phone calls as well as meetings where you might want to come to one of our offices. I'm based in Dallas. Brian and Randy are in our San Diego office. We'd love to talk more about the business but also show you our culture, give you a sense of who we are and how it all works. So look forward to seeing you soon.