AMN Healthcare Services, Inc. ($AMN)

Right. I want to thank everyone for joining us. It's my pleasure to be hosting this discussion with AMN Healthcare. With us today, we have Cary Grace, who's the President and CEO; and Brian Scott, who's the CFO of the company. I don't know if you have any prepared remarks or just jump right into Q&A.

Jump right in.

All right. Let's do it. So...

I know that we're the last slot between you and flights home or going out to dinner.

Yes. So all right. Let's do it. So I guess when we think about -- there's been huge ups and downs in this industry over the last -- with COVID and post-COVID. So where do you think we are now from an overall demand perspective across the key business lines?

Yes. So for perspective, and I'll give you a couple of numbers. I think we'll paint the picture of the generational cycle that we just went through in the pandemic in the industry. Going into the pandemic, our target TAM, total TAM available was about $24 billion. In a little bit over 2 years, it went up to $70 billion. On the other side of the pandemic, it really got to about $34 billion, $35 billion. We've seen some growth from there. So if you go back and look at from the original point to now, it's a great growth market. If you look at from the height of the pandemic, when you just had a huge surge in demand, we had a reset that we've been going through over the past couple of years. We've really seen a lot of stabilization in demand. So the things that we look for in stabilization are things like overall utilization of contract spend, bill rates. And so we've seen stabilization in those metrics in the case of bill rates for a couple of quarters now. What we're seeing largely in our businesses, there's a little bit of variation in it. But in the business that was most impacted by the surge in the pandemic, which was our Travel Nurse business, we actually saw a very good start to the year. Some of that was some stabilization of demand. It was down a little bit, but certainly stabilizing relative to what we've seen. But for AMN, we have been executing extremely well on the demand that's out there and significant improvements in our fill rates. So for us, we got off to a good start in our businesses. We started to see businesses for the first time since the pandemic return to year-over-year growth. So we had several of them return to year-over-year growth in the first quarter. And we would expect more to return to growth as we leave this year and into 2027.

Yes. So I guess when you think about the bill rates and the -- I think you said the contract spend, can you give us some data points on that? So like are we back to 2019 levels? Or where do you think stabilization -- stabilization happening at a higher level than that? How do you think about that?

Yes. Well, bill rates are higher than they were in 2019. But another way to measure is, what do you -- you look at the bill rate levels, and you would expect some normal increases on an annual basis. What we haven't seen is it keep up as we reset down, it's come down more than you'd expect considering the rising wages. So if you look at perm wages have gone up probably 25% over the last 5 years. But if you were to go back to our 2019 bill rates, we're probably up more in the mid-teens. So that's where I think you've seen still a competitive environment some compression on margins. And so we've seen a lot of push from clients to try to get rates back down, which was very appropriate coming off the pandemic. But I think it's probably come down more than it should. And so we've been in this point of stability in bill rates for the better part of the last year. And I think on the demand side, as Cary said, we're executing well in the demand that exists. If you -- when we start to see bill rates improve, I think that will be more indicative of a greater urgency from clients to bring in more contract labor. And I think as we progress further with the slowdown in permanent hiring that's gone on, their desire to not continue to perpetuate high wage increases on permanent staff because that's very costly long term. I think that's when you start to see them relook at contract labor at the levels, particularly at the levels -- the bill rate levels right now as being a very smart alternative because it's -- you're paying little to no incremental cost for that and you buy a lot more flexibility and you actually help manage your overall cost of labor.

And the other part that I'd say is for those of you who aren't as familiar with who we are and what we do, we have very intentionally built a platform, both in terms of solutions, ranging from traditional staffing in every type of clinical role to enabling technology across every type of clinical role. We also support nonclinical. And we do it -- we support permanent staffing, kind of what we call core staffing as well as contract. And so we have a really unique view when we go in and partner with clients because we're not trying to optimize for one element of their workforce. We come in and we get a really good sense with them about what they're looking at and rebuilding their workforce. And so Kevin, to your point, when you think about where we are in stabilization, when we talk to clients, many of them are at or in some cases, below their contract utilization rate that they were at pre-COVID. Now there's a wide variance of where any individual client is going to be. But there is a really big, very well-placed push coming out of COVID to rebuild your permanent. We benefited from that in our RPO business. And what we're seeing now, we're even starting to see some executives come back and say, it's actually more cost effective for me to have a more flexible completion strategy on my workforce, particularly with some of the uncertainty around what's going to happen in terms of utilization and I want to retain some of that flexibility because it's really not costing me very much to do that, if anything at all.

Yes. And I think when we often hear from the provider side of things, they talk about contract staffing as like a bad thing. Like how do you overcome that perception that like you could be a partner versus being like a temporary extra cost or something?

Yes. Well, I'll tell you a story because it happened this morning. So I was on with a very big prospect -- and one of the execs had come from one of our current clients. And so we were talking about here's how we partner. We have this -- we are incredibly unique because we support the totality of total talent solutions. We have case studies about it. We can talk about how we help you across the continuum. And oh, by the way, we're the largest health care leadership and search firm. So when we say the continuum, we mean across the board. And so as we were talking about this, this exec chimed in and say, I just want to tell you firsthand experience, this is what they did for me. And they were a true partner. We were at the table. We had goals. We talked about how we were going to do that together. And so that is what -- and what I always want is not for me to be saying it or our people to be saying it, but for our clients to be saying it. Now are we completely there? There was a pretty big emotional overhang for the clients coming out of the pandemic because you saw just really, really significant spikes in bill rates. And everyone was working so fast. People didn't really understand that it was predominantly going to the clinicians. And of course, it was. That's what it took to get people to travel and to put their health at risk. And so we monitor like how the health is doing overall. I think a lot of that emotional overhang has dissipated. They're still a bit of residual. We actually just did had AI go through and do a search at the latest American Hospital Association set of meetings that they had. And it was the first time in 3 years that you didn't see contract spend come up as one of the key terms. But I will say now the conversations go back to contract spend is not the lever to solve your workforce challenges going forward. Just mathematically, it's not. And so now you're back to the real work of, okay, what are the things that we're going to do to create a cost-effective, sustainable, high-quality workforce. And it's not going to be one thing that you have to do. There's not a silver bullet. It's going to be multiple things. And the beauty of what we've built is that we have the multiple things. And so we have a very unique ability. We go in on the physician side and don't just say we're going to help you with locum to maximize your revenue. We go in and say, we're going to help you get to the right staffing, and we have one of the largest perm Phys businesses, and we have one of the largest Locums businesses, and we're going to come in and help you get to the right place. We have technology that can predict with over 95% accuracy what you're going to need. So you're not overstaffed. We have language access services, so you don't have to have clinicians on every shift that have multiple language capabilities. You can do it for a small fraction of the cost bringing in our technology. So we're really finding ways that are going to help our clients be able to bend that cost curve.

So you mentioned a little earlier that of your business showed year-over-year growth for the first time in Q1. And you said on the call that you expect basically all of the business to be back kind of year-over-year growth by the end of 2027. So can you talk a little bit about -- what's there now? What still has to come? And what gives you confidence that the things that aren't there now will have turned by 2027?

Okay. I'm going to go by memory and do this in partnership with my wonderful partner to my left here. So in Q1, I'll do a couple of things about Q1. Obviously, strike supporting labor disruption is one of our 20 businesses and solutions is incredibly important to clients who have it. We supported 5 strikes in the first quarter. We did an unprecedented level in the industry and for us, a strike support. So I'd say kind of thing one, all my comments are normalizing for not having that historic level of strike. Our nurse business got back to year-over-year growth really driven by international. We had -- our Travel Nurse business is relatively flat. So we're kind of teetering towards getting to that growth level. Our Allied business is back to year-over-year growth. Our schools business has been growing throughout this, and we expect that to continue into the year. Our search business went back to year-over-year growth for the year. So those are the ones that we've already seen go to growth. We would expect as we leave the year, you had -- did I miss any?

You do wonderful.

So you add the ones that are going to -- when they're going to go.

Yes. So as we get further this year, as Cary said, the nurse -- the travel nurse business, international was up 11% year-over-year. So we're back to growth after a couple of years of decline with Visa retroressions. The traditional Travel Nurse business, we're like we're kind of right on the cusp. The guide we gave for Q2 would imply flat to maybe up a little bit in the second quarter. It's so close right now in the back half of the year will either be plus or minus a small amount, but the team is working hard to get there. So I'd say, if anything, we laid out our plan at the beginning of the year, we thought it might not happen in '26 it'd probably be in early '27. So I'd say in that one, we're at or better than we expected to be. And again, I just reemphasize on the allied part. It's our traditional kind of medical Allied, the PT/OT, imaging respiratory. In fact, in the first quarter, all of our -- like the different categories within that were up for the first time in quite some time because respiratory has been on a multiyear decline kind of coming off COVID as well. So really good performance there, and we think that will continue as well. Our -- where we're a little bit off would be the interim business, which is stable, but we had a little bit momentum to start the year, and it slowed down a little bit, but there -- we've got very deliberate actions to get that to growth. It will probably be in the beginning of '27 as well. The other one, Locums had a slower start to the year. we expect it to be back to growth in the back half of '26. It's going to be more like a first half of '27. And then our VMS and Language Services businesses, they'll both be also in the early part of like first half of '27. I wouldn't say that there's any big surprises for us there. We've got, again, good -- we're more in a stable environment there. And if you look even our expectations through the rest of this year would be pretty flat revenue. And so as we kind of comp some of the easier metrics as you go into the first part of '27, it won't take much to get them back to positive growth. So as we laid out our longer-term algorithm of getting kind of mid-single-digit top line growth and being able to convert that into double-digit EBITDA growth, that's really more we look at that as being a back half of '27, as we start that -- start to get on that because that's when we'll have all of our business, we believe, into a sustainable positive year-over-year growth trajectory.

And so we think about what the company is going to look like, EBITDA margins like pre-COVID were kind of in that low double digit, maybe 12-ish percent range, then went up to 16% and then in the single digits. Where do you think that the EBITDA margins kind of normalize for you if we think about 3, 5 years from now?

So there's work to do. We -- again, if you take what we just talked about, the longer-term algorithm, it will obviously start to move our EBIT margins up. There are some structural changes in just the margin profile of our traditional Staffing businesses just because there's been more competition coming in and some of the pricing headwinds that we talked about earlier. We do think over time, though, we will see some gross margin improvement in both our traditional Staffing businesses and even more strategic growth in higher-margin services. we think we can get much better operating leverage on revenue growth. And that's really a function of already this really strong base that we've built of SG&A. We can leverage our existing SG&A to higher revenue. And then longer term, as we make investments in operations, utilization of AI, we can take more costs out over time. And so I think we haven't really set a marker of an EBITDA margin target long term. I think that's when we get to a more sustained level of growth, that's when we set that out there, but we absolutely can chart a course back to that improving starting in '27 and continue to move up longer term as well.

And I think the thing that you saw in the first quarter because we had this really big demand spike coming from the strikes that we supported, is you saw the ability of the leverage off of our core platform. And so the numbers that Brian just talked about, and I'd say particularly the thesis around our EBITDA growth being double what our revenue growth is, you really start to see the power of that leverage in the first quarter.

Yes. So I guess when we think about the margin opportunity, is it more than on the G&A side? Or is it more on the gross margin side when you think about hope where you.

I would say we focus on the things we have more control over first, and that's -- I think that's how we operate. So at this point, I'd say it's more on the G&A and operating leverage. We absolutely will focus on how do we optimize our gross margins across all of our businesses. But there are -- we don't have that full line of sight into how, for example, the staffing gross margins will pick up over time. Hours worked is one we've talked about, that's still running at historically low levels. Again, it's really hard to predict how much that will go back to where it was in the pre-COVID. If it did, that would be margin accretive. International is margin accretive as well, but margin. Yes. But we're not predicting that our Nurse and Allied Staffing business are going to go back to where they were in 2019. I think that would be a bit overoptimistic in this environment. But we would expect to see some gross margin improvement, but we -- more of it will come from operating leverage.

Talk a little bit about the competitive environment because obviously, it has been more difficult in the last couple of years, but it sounds like you've been winning share again in the first quarter at least. So like how is that going right now?

Yes. So a couple of things. When you go back to that $70 billion TAM that I talked about during COVID, it attracted a lot of folks into the space. And so whether it was companies that have been focused on physician, they got into nurse. So you really did see a really significant number of competitors either kind of broaden their aspirations in the market or come into the market. We've started to see some consolidation. It's still a relatively fragmented market just across really every solution that we play in. So we've started to see some acceleration of consolidation. There was a deal announced last week that had a kind of strategic consolidation piece of that announcement. We've started to see some midsized players consolidate. We've seen some of the players who got into the market during this -- during the pandemic time period really kind of reestablish their focus and maybe some of their core capabilities. We've seen 2 or 3 examples of that. And so we expect there to be continued both competition and consolidation simultaneously. We did -- we talked about this a bit last year. When SIA put out market share data last year for the year before, we had maintained or grown market share in the vast majority of our businesses for the first time since pre-COVID. And so we look at how we drive that market share growth 3 ways. How do we win net new clients? How do we do more with the clients that we have? So we serve over 2,000 health care organizations. We have 20 solutions. Our goal is ultimately to have 20 solutions with all those organizations. And then how do we fill more of the demand that's available. And so we made progress on all 3 of those fronts, and we will continue to drive. We still have significant opportunity to grow in all 3 of those growth levers.

So maybe that's a good way to pivot into the MSP model that you guys have. So how is that working? Obviously, there's been puts and takes about being part of an MSP during COVID and pre-COVID. So how is that going? What's the demand for that model now versus VMS or other alternatives?

Yes. So MSPs for those who don't know the space because we like to put a lot of jargon around it. It's effectively a supplier-led managed program. And the benefits that you have of that type of program is you have SLAs, and you have a group of partners who are very dedicated to supporting you in a world of what we think is going to be continued constraints on supply of clinicians. And so that is one popular model in the marketplace. That had historically been the primary service model that we supported. We did a lot of work 3 years ago to really strengthen our capabilities across the entirety of the market. That included -- we had a very nice direct business, but it included a lot of work on our vendor-neutral, both platform and processes. We did a total revamp of our tech platform and our vendor-neutral. We've replatformed all of our clients in 2024 and '25. We've had very good response to that. And so we will -- we continue to see opportunities not just to grow our MSP model coming out of this reset in the market and where you're starting to see in pockets more demand for these clinicians. We do think that more will go to MSPs because they want the SLAs around it. That's great. We're phenomenal at supporting that. We are phenomenal at supporting vendor-neutral. If you want a little bit more of a competitive marketplace for it. And if you want direct, we'll do that as well. So we still see -- if we look at our pipeline, just under half of our pipeline is MSP. So we're still seeing interest in that. And we also see continued strong interest in vendor-neutral as well.

I think one of the big differences for us now is on those vendor neutrals, we can -- we -- historically, even if there was our program, we didn't fill many of the orders. It was very, very low single-digit percentage of them. So we were missing out on all that demand. And again, we were we had a lot of MSP demand and we were winning new contracts. So it was -- it didn't really show through as much. But now in this environment, that's created an opportunity for us as part of how we're growing volume in what is a pretty stable environment, not a lot of programs moving in any direction. But as we improve our speed to fill, we're able to capture more of that demand in our vendor-neutral programs as well as in others as well. So that's allowing us to take market share kind of everything neutral. We do think over time, as we win more accounts, not only does it drive incremental demand opportunity for us, but it is a platform then to really be able to cross-sell a lot more of our services. When you have a kind of deeper relationship, it usually then it opens the door for us to bring in whether it's our Locum services or interim perm services. So we look at that as another benefit of having MSP. We think it delivers significant value to our clients, but it also -- it creates a deeper relationship with them.

And one of the things that Kevin alluded to in MSPs is because we have built our chassis around a very high-touch model pre-COVID, when COVID happened and you had this demand surge, we didn't have all the automation to be able to fill as fast. We did a lot of work, as Brian just talked about and I talked about earlier. If we look back to the demand that we had really helped by the spike that we saw in the labor disruption activity on an hours adjusted basis, we were just a couple of percentage points off of the demand in COVID -- high point of COVID, and our fill rates were materially better. And so we had always been talking about we have a better chassis, we can automate, we have higher ability to fill in some of these surges, and we did.

So if you were doing low single digit and the vendor-neutral, what are you doing now?

We're doing high single digit in Nurse, and we're doing mid-teens in Allied.

And then when you talk about the cross-selling opportunity, what services make the most sense or where resonate the most when you -- I guess I'm assuming you're leading kind of with a nurse relationship and cross-selling to other things, but...

Typically, in our MSP relationships where we -- because of the SLAs, we tend to have a lot of contact and conversations and partnering with them. You almost always have Nurse. The very next big follow-on would be Allied. We're increasingly getting more Locums. It's been a strategic focus for us. Those tend to be 3 of the bigger areas. We had seen historically growth in our Language services program really without doing a lot of cross-sell into our current clients. That has been a focus for us, particularly over the past year, and we're seeing some traction in that. So the biggest areas that you would typically see would be Nurse, Allied, Locums, Language services. We love to have the interim -- love to have all the businesses. We really like to have the Interim leadership because it helps us maintain relationships across the organization as we place those leaders in because we can go in and ensure that they have great leadership and great building of their bench. And at the same time, we can come in after replace the leaders and then help them execute their strategies.

And can you talk a little bit about the Language services business that was under pressure last year. It seemed like Q1 was maybe a little bit of a turning point there. So what are you seeing there?

Yes. It was -- last year was -- there was some industry shifts with one of the major competitors aggressively reducing price to take share. And I think it caught the industry a little bit off guard, including ourselves. And so the back half of the year, we typically would not only grow minutes with existing clients, but we would also have growth in utilization from new client wins. And that really stalled out as we were kind of adapting to this competitive threat. They were large enough where it was making an impact, not just on us, but really every other competitor in the market. And so we've made a variety of structural changes in how we operate. And part of how they were able to bring the pricing down is they're not delivering the same quality of service, right? We typically focus really on having all of our clients have service level agreements where there's a very quick speed to a connection. There's technology that comes as well. And so there are certain clients that still want all of that, but there's also a buyer subset, particularly when procurement is involved, where they were willing to take -- they want a lower price, even if that meant a trade-off of having no -- little or no SLAs. And again, that then implies a longer connection time. So we've -- for those clients, we now have a service offering that kind of mirrors what that competitor has, which allows us for that buyer to be able to match that and deliver that service. So as we've done that and even adapted or adjusted some of the pricing for existing clients down, you've seen the impact on our pricing our revenue being down year-over-year. But now we've got this -- we do have the service offering in market. We went -- in the first quarter, we had about $6 million of new contract wins. That's more than -- significantly more than we had all in the back half of last year. So as those start to get implemented over the next couple of quarters, that's going to be upside revenue opportunity as well. So it is still a very competitive environment, but we've now -- we've got a plan in place that we've started the first phase of execution on and seeing really good results. Our gross margins actually picked up a bit in the first quarter, and we think we're in a really good competitive position. And we still have more work to do in the coming quarters as we look at our cost structure, the blend of our onshore and offshore interpreters. And as we adjust that, we can actually continue to bring down our cost of sales to mirror some of the pressure we've seen on the pricing side. And again, it helps us then be competitive in winning new business, and we have a really healthy pipeline as we look to the back half of the year as well.

And one of the things that's capturing everyone's attention is AI. So can you talk a little bit about how you guys view AI? It seems like you're one of those names that has some opportunities, has potential threats. Like how do you balance those 2? And where do you see the biggest opportunity for you?

Yes. Let me answer it broadly, and then I'm going to piggyback on to because we get this question a bit in our Language services business as well. We look at AI as being incredibly important to operationalizing our future strategy, and I put it in kind of 3 categories. One is we sell client-facing technology. And so we are very focused on how do we embed AI into that technology, whether it's around candidate matching, predictive analytics, even just core customer support within our vendor management system. It's very important for us to have our client-facing platforms have AI embedded in it. We also look at how do we use AI to enable faster and better production of our team. This has many, many, many applications. But the one that we rolled out most recently was our AI recruiter. We rolled it out in the middle of supporting these very large labor disruption events. And so think of it in a labor disruption event, it's accelerated everything of what we do. We have 4 days to recruit, in this case, thousands and thousands of nurses. And we use AI recruiter to get through typically what would have been a top of the funnel taken 3 days in literally hours. And then we were able to leverage our people to then do the completion strategy at the end. And so we were able to support this type of spike in demand at the highest level of fill rates that we've ever been able to do before. And it was a lot of things. The automation I talked about, but from a recruiting standpoint, the use of our AI recruiter was incredibly important. And then we're using AI to enable our technology and ops. And so probably one of the first places that we saw really, really big improvements with AI was in development. And so we can now use in our tech development team, we are using AI extensively and the amount that we can develop at a fraction of the cost that even we could do 18 months ago is pretty astounding. We're using it in the operations team. This is Brian's kind of COO role around credentialing and other of our core operations. So we think it's incredibly important. In our Language services business that Brian talked about earlier, the place that we play in Language services has a regulatory moat around it. And so you are required for reimbursement to have a human interpreter. And so that is where we play today. We think that there is an opportunity because we have these relationships to support the entirety of the patient experience who needs access to interpretation capabilities. And that is something that we are in process of starting to look at and build around how would we support that. And we would do that in an AI-enabled way outside of that moat that is regulated by having a human.

I think that's all we have time for. So thank you very much.

Thank you for having us.

Thank you.