AMN Healthcare Services, Inc. ($AMN)

Okay. We're going to get started here. So we're very pleased to start out the health care services panels at the Goldman Sachs Conference. I'm [ Scott Fidel ], I'm the Healthcare Services analyst here at Goldman. We're really pleased to have our first panel for health care services from AMN Healthcare. And here from the company, we've got Brian Scott, Chief Financial Officer; and Randy Reece, VP of Investor Relations and Strategy. We're going to do a detailed fireside chat. I have plenty of questions. First of all, I want to welcome you. And thank you for coming to the conference. And Brian, I thought maybe just take it over to you and just give you a couple of minutes if you want to just introduce the company and yourselves and sort of set us up for the Q&A.

You got it. Thank you, Scott. Thanks for having us here at Goldman. So yes, AMN Healthcare has been around for 40 years now, 1 of the pioneers in health care staffing started a travel nurse company, but now today, I have the broadest set of workforce capabilities serving the health care market exclusively. We provide kind of a total talent strategy for our clients. helping them plan, predict their staffing needs and kind of optimize their total talent strategy. As you know, in health care labor is typically the most expensive part of their P&L. And so we can make a significant impact if we're doing a job well. We provide both, like you said, analytics, planning capabilities and then we can bring the full fulfillment along with that, both temporary staffing as well as permanent placement. We've served predominantly to the hospital market, but we serve really all the endpoints, whether it's acute and post-acute and that non-acute growth has been a big part of our growth strategy as well. We've been a public company since 2001. Revenue is up between $2.5 billion and $3 billion right now. And the market I'll talk about is just -- it's gone through, obviously, a pretty significant cycle with COVID. There was a significant increase in the staffing TAM for the industry up to about $70 billion. And now we're somewhere closer to a $40 billion TAM as we now cycled 3-plus years out, and we've hit this point, we will have more normalization, initially.

Where was that pre-COVID?

Pre-COVID, it was about a $30 billion.

Yes, it's a little under $30 billion.

A little under out of it. Yes. So it's still -- if you look -- if you kind of take our -- of COVID, it's it is a growing TAM, right? For all the things you think about with the aging goes population, increased utilization of health care and then just some pricing increases, but just had that large increase -- and so there's been a lot of structural changes and the way we offer the clients since then, but it's a significant market and growing as well. And we see opportunities both with our fulfillment capabilities, but now more than ever, using technologies and underpinning to both help our clients plan better, more effectively but also use technology to enable our services and now more so like many companies with AI and how we actually run our operations internally as well.

Well, that's a great setup there. And there's -- it's such a great, actually, company to start out at the conference because you guys sit really at the intersection of so many key trends in health care and have really since COVID. I know it's been quite a roller coaster ride for the company in terms of being so levered to those -- to that sort of COVID cycle that we've seen in terms of the debentures, which really brings us to, I think, a really important moment right now given that this year, there's a lot of focus on health care utilization. And after several years of having a pretty robust utilization backdrop after we had sort of the COVID, sort of drop and then we had the post-COVID, the sort of as you those so well, just that sort of recovery. But then assume that we settled into a pretty aggressive still consumption environment that felt like a little bit more post-COVID and sort of returning to some of the more traditional drivers, the traditional inputs of utilization. But feel like this year, we've maybe turned the corner a little bit in the first quarter. Clearly, there was a step back but also some seasonal factors that from my coverage of the hospitals to manage have sort of not bounced back from the second quarter. But I want to talk about it in the context of your business and sort of demand trends. So maybe if you could sort of walk us through and again, not asking you for like the most recent sort of that, but that sort of the backdrop that we're talking about across your different service lines, in terms of how you're seeing that demand environment shaping up in 2026?

Sure. Yes. And I'll talk a little bit -- I'll start with nursing because that's usually where everybody goes, but I'll give some other color on that, too. But the demand -- both demand and pricing have been relatively stable for the better part of the last year plus. So we -- if we go back to the beginning of 2025, our travel nurse and was actually like about 30% higher than the prior year. Then you came into the second quarter, at that point, bill rates were still there's still some clients that tend to keep rates low. So it's hard to fill all that demand. But then we got into the second quarter and you had the tariff announcements and then you had the tax bill, which both had a kind of a dampening impact on demand across -- they could just kind of slow down buying decisions across health care and in other industries. And so that impacted us for several months in the middle of last year. But then we had a steady improvement in demand, strong winter demand orders as well. And so actually, our first quarter travel nurse volume was actually up for the first time in over 3 years. So that, I think that's just another sign that underneath some of that just kind of external influences going on that ultimately, you said patient volumes are still higher the unique clinicians to the bedside to deliver care. So when we got back to kind of normal conversations with clients, we saw demand pick back up again and it's remained back up above prior year levels for our travel nursing business. Improving our fill rates, speed-to-fill, and those are -- that's built on several years of initiatives to improve our fulfillment capabilities, and that's flowing through. So it's certain demand levels we can more of those orders. Allied demand has been up since the beginning of last year. And those, Allied is really going to be kind of anything that's not nurse or a doctor. So the therapy disciplines, imaging, respiratory lab, and then we also serve into the K-12 schools market as well. And Allied demand has been very healthy since the start of last year. It turned -- our volume in Allied turned positive also in the first quarter and see that trajectory continuing going forward as well. The only area where we've seen a little bit of a slowdown is on the physician staffing side. As we entered the year, we've seen more stability in demand year-over-year for a decade plus in physician staffing, still see really positive trends there. But there was a little bit of a slowdown in demand, and that's impacted our volume. We may talk about that a little later as well. There are some other influences that we can go deep into. But I'd say the general backdrop, as you said, is that you still have increased patient utilization in hospitals both acute and nonacute. Although it's slowing down this year, it's still up year-over-year. And that's a healthy backdrop for us. That's not the only driver of demand for our services. It's really about supply-demand imbalances, if they have higher turnover other factors that influence the utilization of our staffing services, but certainly, a positive volume environment is a good backdrop for us as well.

All right. Okay. So that's an interesting sort of start in terms of associating positive growth, albeit maybe some moderation in terms of the backdrop. Maybe we could talk about sort of really some of the underlying dynamics that have been in focus. And to the extent that you see them, I'm sure you do, because I mean, you have such a sort of a broad and deep perspective on what's going on across payer classes and across service classes and then in terms of different types of facilities. And so 1 of the things that's clearly been sort of a key sort of focal point has been the exchanges and how that market is adjusting post the sunset of the enhanced subsidies. It was a little, sort of interesting, because in the first quarter, we still had some false positives, I guess, would be the way that I would sort of put it in terms of grace periods, we still had sort of payment effectuation period. So the market felt like it was still sort of relatively sort of unchanged or consistent. But it feels like now sort of in the second quarter, this is where our expectation is that we'd start to see some more clear size of that sort of normalization, sort of as we move towards the expected sort of 25% reduction in the exchange market. So why don't we start with that? While we talk about the exchanges, maybe talk about how much that sort of, I guess, just even interact with your business lines and what your perspective is on sort of how that market is evolving?

Yes. We pay close attention to, obviously, all those factors, whether it's the exchanges, reimbursement, any external regulatory or government influences. It doesn't directly correlate to the demand for our services in most cases. We're not hearing a lot from clients about the exchanges influencing or buying decisions for our services. I think it's there are other factors in play here when you're thinking about your staffing models, even if they're -- our clients are dealing with the reimbursement environment and how they're going to be able to make sure that they are operating profitably there's still -- the bed side. So I think for us, it's how do we ensure that we're delivering value, then that it gets back to the tools we have around workforce planning what's the right mix of permanent and contingent labor, where does flexibility actually become more cost-effective for our clients. And those types of dialogues are more important than ever if they are dealing with these. These challenges have potentially increased reimbursement issues and/or lack of reimbursement from more patients coming in that may not have coverage. And so that's where we have to drive our value more than ever. And so that has not been a direct influence. And if anything, again, if they're looking for more flexibility to ensure that they can optimize and offer it in the most cost-effective way possible, we can bring a lot of those insights. And our -- what's interesting is that coming through the cycle and the pressure that clients have put on our industry around bill rates and bringing them down post-COVID is that the premium they're paying for contract labor is at the lowest point to an all-in permanent labor like a permanent hire than it's been historically. So it's by our internal measure, it's a single digit, somewhere between 5% and 7% right now, differential. Exactly what expense market has been in terms of credit to -- yes. So that -- if you're a client, you're like, do I want to bring on more permanent staff, which is more of a fixed cost where I want to infuse a component of contract labor, and that differential is only 5% higher than the all-in cost of permitters. There's a third-party study done by KPMG that came out a couple of months ago. And by their calculation, when you look at all the components of permanent hiring, so the hiring costs, turnover costs, training, the practice, it's not just the hourly rate. Contract labor per hour is actually lower than permanent staff. And so that's where that -- if we can help our clients understand that and plan and staff appropriately, we can help them reduce their overall costs to navigate through this reimbursement environment that's changing pretty rapidly. I don't know, Randy, anything you want to add on that?

Yes. If we go back, what happened during the pandemic first thing out of the gate, health systems laid off recruiters in the spring of 2020. And then towards the end of the year, they had an overwhelming crush for hiring. They've actually -- they actually hired very aggressively from 2021 on, but it was about mid-'22 when they stepped it up to another level. Previously, the aggressive hiring didn't seem to make much of a difference because the attrition rate was so high. Working in the acute care environment during COVID was not a pleasant place to be. But there was a virtually unlimited budget for permanent hiring from about '22 through the end of '24. So last year, we saw some change in sentiment that was amplified, I think, by the administration actions. And then all of a sudden, our clients are wondering should I put this? This is essentially a fixed cost and taking on another permanent worker at this wage level at the time, nurse wage inflation was running 6%, 7% year-over-year. It was very competitive labor market for nurses. Since our clients have backed up and in any other time in history, I would think, well, they're reticent to hire, it wouldn't be good for us, but they still have me to hire they just are hesitant to hire more permanent staff. So it's a really good alternative we're providing, where they can take on the cost for as long as they need it and let it go without any layoff cost.

Great. Want to stick on demand because there's a number of things to talk about. And I mean just demand and supply, I mean -- and then maybe some of the technology. So that's probably where we're going to spend our time, I think, for the most part and that sort of whatever else we have tied for. But a couple of other things, I definitely wanted to ask you about on the demand side. And maybe we'll go right to that physician, the physician staffing as you add sort of tee that up a bit in your comment. And in particular, for us and what we focus on a lot are -- there have been the trends in hospital-based physician specialists. And a very sort of tightened balance between supply and demand that's put a lot of expense pressure on the hospitals that we cover. And it's been really interesting over the last couple of years, how it feels like and would love your observations on this, you guys probably an amazing perspective. But like that we've cycled through almost every specialty sort of having their shot at goal, right? And so they're getting that sort of big boost, but the continuing to have these significant increases. And even in some of our recent interactions with the hospitals and some of the visits that we've had recently. They continue to call out these pressures remain significant. So from your perspective, maybe talk us through maybe against that sort of construct around like, have we been largely sort of cycling through all the specialties. But how, I guess, sort of structural, would you say this is at this point? And how do you develop strategies to potentially address and provide some relief into the system and help to solve this key challenge?

Yes. So thank you. With physician staffing, we provide both permanent placement solution. So our -- we have the largest physician perm placement business in the industry. And then on temporary side, you look them tens that and we staff across all those specialty subspecialties in primary care, et cetera. That industry on the staffing side was much more consistent over the last decade plus. It didn't have the big spike and come down, but you saw it in Nursing and Allied. It's just been a steady grower as you have this aging physician population and just these persistent shortages across specialties, and so that's always been a good backdrop for the industry overall and expectations are that going to continue. I think the rate of growth flowing down in part because rates have gone up, again, clients are more focused on it. And so -- but the underlying trends, I think, are favorable. And you're also seeing behavior changes with more physicians looking at locums as a part of their career journey, whereas historically, it was -- it kind of skewed towards end-of-career physicians that maybe wanted to extend their career work part time, not have to deal with the administrative burden or if they were coming out of selling a practice. They just wanted to provide patient care. Now you see a lot of early career physicians as well doing locums. So I think the underlying backdrop there's commonalities to what you've seen in even Nurse and Allied staffing. We have you have physicians across there entire career different points wanting to provide the service. What we've also seen from the buyer side, though, is a greater focus now on what they're really spending. Historically, in hospitals, a lot of the buying decisions were made at the unit level, different groups remain at loan purchases, you're now seeing more of that being centralized like we've already had for years in Nursing and Allied. And so we've actually been trying to support that. And clients, there's a lot of spend here we can -- let's help you get your arms around it and control and optimize it more effectively. And so that trend, I think, will play into our workforce solutions strategy, our MSP programs are vendor neutral, and the technology we've built to be able to support better visibility and utilization of spend. And really, we think we're at the apex of being able thought partner of our clients. We are -- if you look at the 2 largest players in the temporary physician space, they're typically going to be top of market on bill rates. And they're making a higher margin. And so what we've tried to sell to clients is if you can -- let's get your spend more in control. And if we actually can provide more of the staffing for you, we don't have to lower our rates to do that. We can immediately save them money because they're moving from the most expensive option to something more cost effective. And then we can layer in our perm placement services as well. And again, let's find right mix between if you have persistent shortages you're using locums for, let's help fill those jobs, and we'll help you recruit more permanent physician technology and permanent solution, that's going to help our clients drive more cost savings there as well. But those underlying trends you started with are here and they're going to get worse, especially at the specialty level. And so anything you can do to create more options for physicians to extend their careers, move around with their needed to fill the largest voids, that's going to be really important to make sure that patient care has been delivered as well.

And maybe just to stay on this, can you give us a snapshot in terms of, I guess, sort of two parts. One, where are you seeing right now the most particular tightness in terms of specialties. And then when you think about what you said in terms of these trends are only going to get worse, similarly, where do you think, as you look out to specialties, where you think those structural constraints are going to be the most observable?

Definitely, number one, with the bullets, mental health.

For sure.

100% agreed here.

The employment in the U.S. has grown an astonishing rate since 2019 and hasn't flagged a bit, that is a couple of levels above everything else. In our latest just review specialties. Rest of them were fairly bunched up. There's -- I think that Brian was talking about how we help clients understand how much they're actually spending. If you go across the industry, where health systems account for nurse practitioners, physician assistants, CRNAs, varies greatly. Sometimes they're in the direct cost of sales. Sometimes they're in professional services. A lot of clients don't treat them the way they treat the rest of the physicians. But that is the fastest growing area of spend has been for the past 10 years. So that is -- those are areas they're lower bill rate. The labor supply hasn't been extremely difficult because the population of those specialists has been growing 8% to 10% a year. They're just slowly being cycled off of the nurse pile and upskilled. That's a completely different set issues from the traditional specialties, which all are very hard to recruit and people don't move very quickly. The lifestyle element and the ability to use elder physicians in a flexible way still keeps those specialties viable.

Yes. And it sounds like the last couple of quarters, at least linear radiology seems to be in the at that sort of that tip of the spear...

Yes, we can see that in Allied to where our imaging adjacent demand is very strong.

Yes. I want to follow up, though, on the mental health point because this is something that we've been very focused on, and as sort of 1 of our sort of mega themes that when we have launched coverage on managed care and hospitals in October. Now we've been initiating coverage on a number of sort of provider stocks, including, for example, some of the outpatient like [ Lifestands ] for example. And 1 of the themes that we had sort of focused on was around our view that we're still in the early -- very early innings of a long-term mix shift from inpatient to outpatient and not outpatient sort of everything bought on mental health sort of similar growth, 20 years ago, right, when we had it in sort of acute care. And certainly, it seems that sort of the market trends are seem to be supporting that with Universal Health announcing their acquisition of Talkspace. And -- but you guys probably have an incredible vantage point around that in terms of because the data is really tough. This is an area where like we have so much data on so much of health care. But when you get into behavioral to mental health, particularly in that massive outpatient sort of multi sort of compartmentalized categories. The data is very sort of scattered. So maybe talk about that, are you guys really seeing that trend playing out in terms of that -- are you -- in terms of that mix shift playing out from the patients to outpatient at this point and maybe where you're seeing across sort of outpatient or digital. I mean, obviously, we had sort of the massive spike, right? And but it felt like of all of the different sort of virtual categories that behavior was the 1 that sort of stuck at the highest sort of go forward, which makes sense, too, but of all the other sort of dynamics. I know there's a lot in there, but...

I agree there. You mean you still see a decent amount of demand for virtual mental there. And part of it is for convenience, it's also just getting access to the right providers in different markets can be very challenging, especially get into rural markets. And so we certainly serve some of those like -- some of the virtual care providers as well as the acute side. We serve both acute, post-acute, 1 of our large contract wins more recently was with a state system that is providing mental health services. So a lot of psychiatry and other related services. And that's just, I think, an indication of the high level of demand. It's an area of focus for us to grow as well, particularly in the non-acute as we've. On the Nursing side, we've been sort of kind of more anchored into the acute care. But when you talk about both Allied and Physician Services, we really serve a multitude of markets, the traditional acute, but a lot of it is nonacute settings, whether it's -- you said it could be outpatient behavioral health centers, virtual physician practices, et cetera. And so as you follow that trend and you want to provide that point of care, like I said, we can break and bring the staffing and where it's needed most, and we definitely agree this is an area that we'll continue to grow.

It would be helpful if we could get some standardization of licensing. That's 1 of the things the providers have to juggle in this state and who can I bring in my pool of virtual counselors or whoever that is eligible. And that's probably -- it's definitely 1 of the main difficulties in staffing those engagements.

Yes, the regulatory structures are just not a mature, right?

Some of them are institutionalized by the groups as well because they want to -- I mean, shortages are also good. So there's in terms of negotiating pace. Finding the balance of that's going to serve patients the best way possible. But -- that's always going to be a push pull as well.

Yes. All right. One more demand, and then we'll move to the supply. But we have to -- this is what we have to address, which is the Medicaid dynamics and sort of both on a look back and then what's ahead, right? So I look back, clearly, we've been in this compression page because of redeterminations, and which sort of, I think a lot of the thinking in the industry was that, that was going to sort of wrap up last year and Medicaid market would probably stabilize. But from our vantage point, the market. Overall Medicaid has continued to compress somewhat even into '26. And then looking forward, clearly, we've got some major regulatory aspects from the Big, and Beautiful Bill that are going to be significant. And we're getting the proposed regulations now, which are significant with Medicaid state-directed payments and then also with the work requirements. And I'm sure that as you think about lining up sort of your capacity and your resources sort of analyzing these end markets is an important aspect of it. And so maybe bring us into your thinking on this.

Yes. And it goes back to the conversation just to be clear to with AMN, we don't have any direct reimbursement risk. We're billing our clients for providing our services. So there's some of the difficult challenges. And so again, our job is to be that thought partner to help them do that cost effectively. We are -- a lot of our largest clients their large health systems, and they are, in many cases, more in the urban areas and they extend into suburban and rural areas. But there are, in most cases, profitable and growing as well. They're likely to be rolling out more as some of these reimbursement challenges impact smaller hospitals, community hospitals, more rural. And so they're going to be looking for these larger partners to help them drive more cost efficiency as well. So we can partner with the larger systems to help navigate through this reimbursement environment, because it's going to kind of limit access to care, if not done accurately. And then the other thing we're looking at is how do we serve both acute and post-acute because some of the care, is going to have to move outside of hospitals because it's a lower cost setting. And so if there's lower reimbursement, they have to find a way to deliver this care in a more cost-effective way. And so that's a big focus for us. Again, as I mentioned, our Allied business is already serving a much more diverse client base, both acute, but also stand-alone imaging centers, stand-alone physical therapy. There's a lot of different ways that we can serve clients with those services, and we're doing the same with nursing looking at other endpoints where there's been more utilization and it's partly to navigate through reimbursement changes. And so that's where we look at it is -- there's a increase utilization of health care over time. What are those points of care are going to be and then how do we partner with the right claim so that we can kind of make sure we're there to help them in the most cost-effective way possible. But again, thus far, our clients talk about these challenges directly. But at the end of the day, they're also asking us to, well, how can we make sure we bring our workforce in the most cost-effective way to offset any reimbursement changes that are occurring.

The hospital industry has been gating census ever since the pandemic trying to get their effective capacity to align with their labor capacity. So they've been squeezing off some demand for the past couple of years, probably not much -- is going to look like. They're concerned about what payer mix has been to look like. So that's the #1 priority is control over costs.

Yes.

And we happen to be sitting here a pretty advantageous position in terms of our relative cost to permanent hiring. A couple of other elements that you as a hospital analyst should be aware of. Hospital industry rapidly manage down average hours worked over the past 2 years to a low level since 2003. Just an abrupt change. If you look at the chart, it looks like this and then poof. And it's as about as much out of that as they can, minimizing over time.

And is that broad nurses in particular or just across all class?

Clinical -- you can look at the data from a clinical perspective when you look at it...

And that's both on the permanent side as well as on the contract labor.

So that's 2003, you say?

That lever is maxed out. Wage inflation right now is running at a very slow level, 2% to 3%. If they want to push hiring a little harder, there could be some resistance in terms of price. Start to push more of a war for talent, which is just going to increase their wages overall, which then permeates to their entire wage base. So -- and that's across all staff points. That's where weakens again, as they've slowed down hiring and started to see war decelerate if they start to try to push the permanent hiring again, you're likely to create increased wage inflation, which then is going to be a larger cost of that.

And they're even sitting at a long-time extreme in terms of supervisor to supervised ratios as well. So in a lot of these waves, they've squeezed a bit as in squeeze and they need another avenue of flexibility.

And maybe we can pinpoint into nurse supply. And maybe put it again in sort of the construct of of sort of maybe precoded and sort of then let's just sort of -- let's not even sort of go towards COVID. But the structural sort of log towards secular trend there -- first of all, I guess, where are we now relative to, I guess, that pre-COVID trend line that we were talking about? And maybe what are some of the sort of the key -- can you sort of upside and downside sort of risk factors around nursing supply.

Yes, I think the supply environment is constructive for us. And at COVID, it is important because you had a lot of nurses that came into the industry because the pay rates were up so high. It would have normally not have come in to the industry. I think we've kind of cycled through in a long enough now where all those clinicians kind of go back to permanent jobs. And those that are looking for this lifestyle of this industry is part of their career...

What would you say sort of maybe what was the percentage that they were representing us?

It's hard to say exactly what percentage, but I do know that we went from about 40,000 travel nurses to over 150,000 travel nurses within a couple of years.

And now we're at?

And now it's more like a little under 60%.

Okay. So it's still a larger market overall. But I think the it's really about finding that right pricing point that allows us to offer the right pay packages. And there was actually an article in the journal about 1.5 weeks ago about Travel Nursing it's quite a good read, because all of it really focuses on all the things we always highlighted is the reason. It's not just pay. It's the ability to build your skills, live in different markets kind of maybe test the place before you go into a permanent hire. We're kind of back a lot of those buying decisions, but we need to have just a market clearing pay rate. And so that's where kind of where clients or getting bill rates to the point that allow us to fill those jobs. When we have bill rates that are appropriate, we feel jobs very quickly.

Well, I could have easily gone a double session, but I don't know if we have the room. So I want to thank you guys so much for joining us. And I hope that the conference goes really well for you.

Thanks, Scott. Thanks for having us.

Thanks a lot.