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Good day, and thank you for standing by. Welcome to the AMN Healthcare Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Randall Reese, Senior Director, Investor Relations and Strategy. Please go ahead.

Good afternoon, everyone. Welcome to AMN Healthcare's third quarter 2024 earnings call. A replay of this webcast will be available at ir.amnhealthcare.com. at the conclusion of this call. 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 because of various factors and cautionary statements, including those identified in our most recently filed Forms 10-K 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.ammhealthcare.com. On the call with me today are Cary Grace, President and Chief Executive Officer; and Jeff Knudson, Chief Financial Officer. I will now turn the call over to Cary.

Thank you, Randy, and welcome to today's call. AMN Healthcare continues to build an attractive long-term story, while we simultaneously deal with a challenging post-new market for our industry. Financial results for the third quarter of 2024 were above expectations. Revenue of $688 million was above the upper end of our guidance range and adjusted EBITDA of $74 million was above the consensus of sell-side analyst estimates. Excluding some beneficial discrete items, our revenue was in line with guidance. We continue to see signs of a stabilizing market with increasing demand for travel nurse staffing and healthy demand in most other staffing markets. We have also seen relatively stable bill rates for clinicians placed across our nurse, allied and locums businesses and new order bill rates among our top clients are evenly divided between raising and lowering rates. That some clients are raising rates is a significant change from the past six quarters. Nurse and allied travelers on assignment have been stable since July. Demand for travel nurse staffing in recent weeks was 60% above the low point in April, though still about 35% below the 2019 order level. Any areas of improvement in market dynamics have had little effect on near-term performance. But we expect them to be recently visible as we go through 2025. While competition to fill these orders has compressed industry gross margins this year, an increasing number of orders are priced below levels anyone will fill. Unfilled orders for nurse and allied and vendor-neutral programs increased from about 9% last quarter to 14% currently. Suppliers are increasingly not filling orders priced at levels that don't make economic sense. And clinicians expect to pay in line with broader wage and housing inflation. Our estimates indicate that travel nurse bill rates in the fourth quarter of 2024 have reached the low end of the 15% to 20% premium they maintained over the cost of permanent nurses prior to 2020, which could help explain the increase in unfilled orders in the industry. As conditions for healthcare labor continue to normalize, we expect margin pressure to subside as it did in past cycles. In some cases, the cost of alternatives to contingent staffing are already more expensive. Reaching this point is likely an important milestone for our industry's return to an improved operating environment. Across our businesses, AMN is responding aggressively to the current state of our industry. We are committed to being the most capable partner for helping clients develop and reach their workforce goals. Our progress on internal fill rates across nurse and allied has been positive, though affected by the same market dynamics that have resulted in an increase in unfilled orders. While we are ensuring that our pricing is competitive, we are doing so while delivering outstanding value and quality to our clients and healthcare professionals. We continued to build powerful solutions around our outstanding technology. Since I joined AMN eight quarters ago, the team has moved us from a lagging technology position to an empowered position where our clients and prospects have access to leading tools and technology to help them manage their healthcare workforce. In the past few months, we moved to net positive on the MSP win-loss score forward for 2024 elevated by our improved competitive stance. Our recent client summit in Dallas resulted in a great reception for our new integrated technology suite we call WorkWise. WorkWise integrates workforce planning and reporting, predictive scheduling, vendor management solutions and candidate engagements. Our client demos last month resulted in consistently positive feedback. And we are energized about our market positioning. Throughout this year, we have seen increasing demand for total talent solutions. And our average number of solutions used by our top clients has risen to approximately 10. Because of our broad solution set, we are uniquely positioned to help clients build a sustainable workforce strategy. Now, let's turn back and review our third quarter results by business segments. Nurse and Allied Solutions reported $399 million in revenue in the third quarter, 4% better than consensus due primarily to several beneficial factors that increased revenue by approximately 2%. Core performance was as expected with about 1% upside in volume, offset by bill rate in hours slightly below forecast. Segment operating margin of 8.8% was positively impacted by approximately 180 basis points from the favorable items. Physician and Leadership Solutions revenue for the quarter was $181 million, in line with consensus. Locum tenants revenue of $142 million was up 26% year-over-year, including the MSCR acquisition and down 3% organically. Volume for our organic locums business was modestly better than we had projected. Interim leadership in search continued to have lower demand. Segment operating margin of 10% was lower than we had expected due to gross margin pressure primarily from mix. Technology and Workforce Solutions recorded third quarter revenue of $108 million, in line with consensus. Language Services, which had revenue of $75 million, up 13% year-over-year saw several client disruptions caused by the Crowdstrike event and hurricanes in the third quarter that our teams help them manage through. We continue to see strong client interest in our language services solutions. VMS revenue was $25 million in the third quarter, in line with our expectations. Now, I'll turn the call over to Jeff for more details about our results.

Thank you, Cary, and good afternoon, everyone. Third quarter consolidated revenue was $688 million, above the high-end of guidance. Revenue was down 19% from the third quarter of 2023 and down 7% sequentially, primarily due to lower volume in nurse and allied, interim and search businesses. Consolidated gross margin for the third quarter was 31%. Year-over-year, gross margin decreased 290 basis points, driven by lower-margin across all three segments, partly offset by a favorable revenue mix shift. Sequentially, gross margin was flat. Consolidated SG&A expenses were $150 million or 21.8% of revenue compared with $163 million or 19.1% of revenue in the prior year period, and $149 million or 20.1% of revenue in the previous quarter. The decrease in SG&A expenses year-over-year was primarily due to lower employee and professional service expenses. Sequentially, SG&A expenses were flat. Adjusted SG&A, which excludes acquisition, integration and other costs, legal settlement accrual changes and stock-based compensation expense was $141 million in the third quarter or 20.5% of revenue compared with $157 million or 18.4% of revenue in the prior year period and $137 million or 18.5% of revenue in the previous quarter. Third quarter nurse and allied revenue was $399 million, down 30% from the prior year period and 10% from the previous quarter, primarily driven by lower volume and rates in travel nurse and lower volume in allied. Average bill rate was down 8% year-over-year and 2% sequentially. Year-over-year volume decreased 24% and average hours worked were flat. Sequentially, volume was down 11%, while average hours worked were flat. Travel nurse revenue in the third quarter was $244 million, a decrease of 37% from the prior year period and 12% from the prior quarter. Allied revenue in the quarter was $141 million, down 16% year-over-year and 7% sequentially. Nurse and allied gross margin in the third quarter was 25%, a decrease of 250 basis points year-over-year, primarily due to deleveraging of housing and travel expenses. Sequentially, gross margin increased 120 basis points, mainly due to beneficial discrete items. Segment operating margin of 8.8% decreased 570 basis points year-over-year, mainly due to lower gross margin and deleveraging of SG&A expenses. Sequentially, segment operating margin decreased 160 basis points, driven primarily by prior quarter favorable insurance actuarial adjustments and continued deleveraging on lower revenue. Moving to the Physician Leadership Solutions segment. Third quarter revenue of $181 million increased 13% year-over-year with the growth coming from the MSDR acquisition. Sequentially, revenue was down 3%, driven primarily by lower volume in the search business. Locum tenants revenue in the quarter was $142 million, up 26% year-over-year, driven by the MSDR acquisition. Sequentially, revenue was flat. Interim leadership revenue of $29 million decreased 7% from the prior year period and 5% sequentially. Search revenue of $10 million was down 38% year-over-year and 23% sequentially. Gross margin for the Physician Leadership Solutions segment was 28.3%, down 510 basis points year-over-year and 220 basis points sequentially. The decrease in gross margin is primarily attributable to a lower bill-pay spread in locum tenants and a revenue mix-shift. Segment operating margin was 10%, which decreased 350 basis points year-over-year, primarily due to lower gross margin, partially offset by SG&A leverage from higher revenue. Sequentially, operating margin decreased 160 basis points due to lower gross margin. Technology and Workforce Solutions revenue for the third quarter was $108 million, down 11% year-over-year as the revenue growth in language services was more than offset by the decrease in the VMS business. Sequentially, revenue was down 4%, primarily attributable to the VMS business. Language services revenue for the quarter was $75 million, an increase of 13% year-over-year and flat sequentially. VMS revenue for the quarter was $25 million, a decrease of 34% year-over-year and 9% sequentially. Segment gross margin was 57.9%, down from 65% in the prior year period, primarily due to a revenue mix-shift away from the VMS and Outsourced Solutions businesses. Sequentially, gross margin declined 230 basis points, mainly due to lower margin in language services and a revenue mix shift. Segment operating margin in the third quarter was 39%, a decrease of 310 basis points from the prior year period, driven primarily by lower gross margin, partially offset by expense management. Sequentially, lower gross margin led to segment operating margin decreasing 310 basis points. Third quarter consolidated adjusted EBITDA was $74 million, a decrease of 45% year-over-year and 21% sequentially. Adjusted EBITDA margin for the quarter was 10.7%, down from 15.7% in the prior year period, primarily due to lower gross margin and deleveraging on lower revenue. Sequentially, adjusted EBITDA margin was down 200 basis points driven by the favorable actuarial adjustments for professional liability insurance in the prior quarter and the deleverage on lower revenue. Third quarter net income was $7 million, down 87% year-over-year and 57% sequentially. Third quarter GAAP-diluted earnings per share was $0.18. Adjusted earnings per share for the quarter was $0.61 compared with $1.97 in the prior year period and $0.98 in the prior quarter. Days sales outstanding for the quarter was 60, three days lower than the prior quarter and one day lower than a year ago. Since the start of 2024, we have reduced our DSO by 10 days. Operating cash flow for the third quarter was $67 million and capital expenditures were $19 million. As of September 30, we had cash and equivalents of $31 million, long-term debt of $1.1 billion, including a $285 million draw on our revolving line of credit and a net leverage ratio of 2.8 times to 1. During the quarter, we paid off $60 million of revolver debt bringing the year-to-date paydown to $175 million. We proactively increased the maximum leverage covenant on our revolving line of credit from 4 times to 4.5 times through the end of 2025. We remain focused on paying down debt and returning to our target leverage ratio of 2 times to 2.5 times. For the fourth quarter, we project consolidated revenue to be in a range of $685 million to $705 million, down 14% to 16% from the prior year period. Gross margin is projected to be between 29.3% and 29.8%. Reported SG&A expenses are projected to be 21.5% to 22% of revenue. Operating margin is expected to be 1.8% to 2.5% and adjusted EBITDA margin is expected to be 9.2% to 9.7%. Average diluted shares outstanding are projected to be approximately $38.4 million. Additional fourth quarter guidance details can be found in today's earnings release. Now, I will hand the call back to Cary to further discuss fourth quarter guidance.

Thank you, Jeff. As Jeff finishes his final earnings call, AMN, I want to thank him for everything he has done for the Company in his three years as CFO. Jeff embodies AMN's strong core values and has been a steady hand through a wide range of market conditions. I personally appreciated his partnership as I joined AMN and I can say with certainty that he will be missed and we wish him much success in his new endeavor. Our fourth quarter outlook includes headwinds and tailwinds that are characteristic of current market conditions. The low end of our revenue guidance range for the fourth quarter is 1% higher than the consensus estimate. This revenue outlook includes $45 million in revenue we don't expect to recur in Q1, driven by labor disruptions. For the fourth quarter, our outlook for nurse and allied solutions revenue is 4% higher than the prior quarter. The other two segments have a revenue outlook about 5% below consensus estimates. For physician and leadership solutions, we're calling for revenue to be 4% lower sequentially in Q4, in line with normal seasonality. In Technology and Workforce Solutions, we expect the revenue trend for language services to remain seasonally flat in Q4 while VMS should trend sequentially lower in volume in hours, in line with the staffing market. At the midpoint of our adjusted EBITDA margin guidance of 9.2% to 9.7%, there is an approximately 125 basis point benefit due to the nurse and allied revenue that we do not expect to recur in Q1, including a benefit of 60 basis points to consolidated gross margins. While the market remains competitive after nearly two years of downward pressure, we see broader evidence of normalization in the staffing market, which could help us as we go through 2025. Our number of travelers on assignment declined through the first seven months of the year. In September, traveler count was slightly higher than July, and this stabilization has continued in the fourth quarter. Some clients are starting to raise bill rates in certain hard-to-fill specialties as well as in areas where they need to increase capacity to meet strong patient demand. These are reasons for optimism. And we expect labor scarcity to reemerge as one of our industry's driving forces next year. Now, operator, please open the call for questions.

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Trevor Romeo with William Blair. Please go ahead.

Hey. Good afternoon. Thanks so much for taking the questions. First of all, Jeff, great working with you the past couple of years. Best of luck going forward. I wanted to, I guess, maybe first just circle back on the margin outlook, maybe based on some of those comments at the end from Cary. I think we've heard a lot about gross margin pressure across the industry. It sounds like the guidance also include some one-time benefit you called out, maybe excluding that, maybe it's in the 8s for EBITDA margin, if that kind of makes sense? Just thinking ahead, if we don't see much improvement in gross margins, can you kind of talk about some of the puts and takes for SG&A going-forward, maybe for one, just how you plan to balance recruited capacity and such? Ultimately, I guess, trying to get at whether you think sort of that maybe 8%, 9% is the new normal or just any thoughts on that would be really helpful.

Yes. Trevor, thanks for the question. So if we think -- and I'll start with what would drive gross margin improvement. And so if we look at what has impacted our gross margin at different points throughout the year, it's really been a combination of mix as well as pressure around bill pay spread. And so if you would go back and look at what could positively impact it for us because we have a very broad diverse set of solutions, seeing some recovery in some of those higher-margin solutions within each of our segments. So that would look like VMS in our TWX solution, search and interim in PLS. And then we also have a large high-margin international nurse business that has been affected this year and into next year by visa retrogression. We expect that headwind to taper off in the second quarter of 2025. So the first thing that would help us from a gross margin standpoint would be the favorable mix of our businesses going the other way as we start to see growth. We see very competitive conditions across all of our businesses. And so if you start to see some improvement in bill pay spread, that would also help. And then the third lever when you go down from an EBITDA margin standpoint is, we would expect as you start to see some of that improvement and you've seen us do this throughout the past two years is for us to look at ways where we can start getting some offsets to, I'd say, kind of natural labor cost headwinds, number one. And then as we get some of this higher-margin business growth getting some leveraging of our SG&A.

Okay. Thanks, Cary. That's helpful. And then maybe hitting on that broader solutions point. On language services, I just wanted to ask on that as that continues to, I guess, kind of become a larger part of the company from a revenue, but it seems like especially an EBITDA perspective. I was just wondering if you could share any updated metrics there, maybe your growth outlook for say the medium-term, including how much cross-selling runway you have left? And then also what kind of margins that business is running at nowadays?

Yes. So we love the language services business. We continue to see very healthy client demand in that space. It is a high-margin business for AMN, within the TWS segment, it is a lower-margin business. If you look at Q3, our quarterly revenue growth was affected by a delayed ramp of a single large new client that we've talked about through the course of this year, partially due to hurricanes. We expect the ramp-up of the client to resume in Q1. So you should expect as we go into next year to see a ramp-up of growth in that business.

But generally double-digits is still kind of what you're thinking for near-term?

Double-digits and 40-plus percent gross margins.

Got it. Okay. And then just maybe one really quick other one would be, I think you mentioned, Carrie, the discrete items benefiting Q2 revenue or Q3 revenue by 2% for nurse and allied. Could you just expand on what those were?

Yes, I'll turn it over to Randy and you can give some details.

They were primarily sales allowance and SLA true-ups in the Nurse and Allied segment in the third quarter. The consolidated gross margin excluding the discrete items would have been 30%. So it benefited by about 100 basis points.

Got it. Okay. That's all I had. Thanks so much.

Thank you.

Our next question comes from Mark Marco with Robert W. Baird. Please go ahead.

Hey, good afternoon, and thanks for taking my questions. Jeff, best of luck in future endeavors. It's been a pleasure working with you over the last three years. I really appreciate all the help. Can we talk a little bit about where you -- really appreciate the guidance for the fourth quarter. If we just take a look at travel nursing, without that $45 million benefit for the -- for some of the labor disruption work, where would the fourth quarter guide be for -- just for travel nursing?

Well, all of the revenue that is in that $45 million, which -- most of which is the labor disruption. There are a couple of other items. It's -- it would be you take all the $45 million out of travel nurse or out of nurse and allied.

Right. I got that, Randy. I just meant if we just look at just the pure travel nursing, what would the year-over-year decline be? Or said another way, what percentage of nurse and allied would you expect to be travel nursing?

Yes. Let's take that offline.

Hey, Mark, if you -- if I go back to the guidance that we gave for nurse and allied last quarter, we had said, we can see some scenarios where we would expect to be slightly down to flat to slightly up. If you take away the strike guidance that we gave you. And so relative to that -- to the guidance we gave before, our outlook for core NAS Q3 to Q4 is flat to down low-single digits. So it is in line with what we had talked about last quarter.

Okay. Great. That's really helpful. I appreciate that. And can you talk a little bit more about just what you're seeing, both in terms of, you know, the orders that you feel are relevant and fillable, and pricing, and also supply? And thinking about beyond the fourth quarter as we start thinking out towards the first quarter, because in a certain sense, it seems like things are basing out and we're starting to hit a bottom, but there's a couple of elements that make you wonder a little bit about that. And so I'm just trying to get a better sense for how you're thinking about that when you parse through all of the elements and specifically with regards to travel nursing.

Yes. So if you take some of the comments that I made generally about some of these signs that we're seeing broadly around stabilization, whether that's in bill rate stability, the demand, getting back to very well in actually the low-end range of contingent premium spend to permanent cost. The things, Mark, that you would still want to see are we still see clients underneath that in different places. And so we have some clients who to get orders filled will increase bill rates. We have some that are still trying to decrease them. And we see clients in different places on utilization as well. So while we've certainly seen progress, we want to see continued progress on that front. We have seen I mentioned in my opening comments, an uptick in unfilled orders, which I think is significant given that it is a incredibly competitive environment. On balance, we probably have overcapacity in the travel nurse industry right now. You're starting to see some of that rationalize out. But you still see a very competitive environment and unfilled orders increasing. So I think you'd want to see some of those orders getting cleared by getting better matching expectations between the clients and the clinicians.

Great. And then what's your expectation on the VMS side? Because that would also be an indicator with regards to -- what we're seeing with regards to general order levels because you're obviously filling your orders first? And then on the MSP side, how -- what are the trends there just broadly speaking?

Yes. And so what I would say on the VMS side is that does track the broader market. VMS was down in the third quarter; we expect it to be down in the fourth quarter. And I would say we're seeing plus or minus some similar patterns across the industry. Again, you have clients in different places. So underneath any of the trends, we would have some MSP clients that may be increasing this quarter and we have some that would be decreasing. If that's the industry trend, the other piece that we are seeing is we have been very focused on growing our portfolio. So we have moved in MSPs to a net win position year-to-date this year versus a net loss position last year.

Mark, we also mentioned in the prepared remarks that within our vendor-neutral and VMS business, there had been an increase during the quarter in unfilled orders, which is an indication of how many orders might be mispriced versus the market. In addition in our VMS business, we are hopeful and see a path to resuming sequential growth in revenue sometime next year.

Okay, great. And then one last one. We take a look at the deleveraging that you're experiencing in terms of the SG&A and the margin profile there. Does that -- is that partially because you're maintaining some capacity with the thought that, hey, we're getting some stabilization? And do you feel like you've got excess capacity at this point in terms of recruiters, account managers, et cetera. And if so, how should we think about the incremental margins when things eventually turn?

So you should think about our capacity on two fronts. One, we would expect to get some productivity off of our current producer base as market conditions improve. So we do think that there is capacity, particularly as we complete some of the automation projects that we've been focused on over the past couple of quarters. We also have embedded capacity within our internal -- our international nurse business. And so we have been very intentionally during this temporary period of visa retrogression to keep all of our candidates inline and ready to go. So as the retro aggression dates improve, we can immediately get our candidates placed in the clients that have requested them. So there's capacity from that front Mark that we would expect you to start seeing in 2025.

Mark, when...

Thank you.

If we were to add $100 million back of international nurse revenue, we believe it would improve our consolidated adjusted EBITDA margin by 100 basis points. That's one of the best levers that we will have in terms of improving operating leverage. And we would expect to resume growth in 2026.

That's very helpful. Thank you.

Thank you.

Our next question comes from A.J. Rice with UBS. Please go ahead.

Hi, everybody. A couple of ones and then I might just ask you about '25, make sure I get the run-rate we're exiting the year at. But specifically, you're saying you picked out your net wins on MSP, but we're also talking about increased competition on the bill-pay spread and other places. Is there anything about MSP economics that's become more competitive? Is the competitive landscape reflecting itself a competition for MSPs as well?

Yes. The competitive landscape is, you know, intense across the entire -- across all service models, A.J. And a number of features of MSPs, particularly, you know, just some -- how much lead-time you had changed during COVID. And so I wouldn't say that there's anything unique about MSPs relative to the overall market, the entire market is competitive.

Okay. And on the Locums business, I think you mentioned the specialty mix dynamics was having some impact on margin. Can you comment on what types of placements you're making? Where the strength of in placements is right now in Locums and maybe elaborate a little more on that, if I got it right that, that's a margin pressure?

So there's two things about it in the locums space. One is you're seeing the same bill-pay pressure that you're seeing everywhere else as the primary factor. And so it's -- the pay expectations in locums is even more acute than you would even see in parts of nurse and allied just because of the shortage of physicians and the demand for them because they're so closely tied to revenue. So it really has been more of a bill-pay spread. Underneath that, we still see some strong demand in cRNA, which does tend to have lower margins than some of the other specialties. But besides that, I think the big headline is the same pressure that we're seeing in other parts of our business.

Okay. Last question for me would relate to the comments you made and obviously doing math on the fly always gets me in trouble. But you're saying, I think, if you take out the strike revenue for the fourth quarter and have a run rate, then you apply like an 8% EBITDA margin to that, that would sort of suggest on an annualized basis, you're jumping-off at a $200 million EBITDA run rate. And now I know Randy just said that if you could get the international back, that would be 100 basis points, which would make a difference. But is that the jumping-off point? And then are their obvious places to look for improved performance off of that exit year run rate from '24 to '25?

When you go to modeling 2025, I suggest that you do normalized Q4, but it's a little bit different than the way you present it. The midpoint of revenue guidance excluding the revenue that we don't expect to recur would be $650 million. The midpoint of the adjusted EBITDA margin guidance would be about 8.3%. So you're several million higher on the quarterly run-rate of EBITDA there.

And then, A.J., the other things that we took out, because it's hard to predict is strike. And so we have the largest labor disruption pipeline since I've been here. There's a number of CBAs that are up next year. It's hard to predict, but it is a very strong pipeline. We just don't put that in there.

Right.

And then you would start to see modest growth coming off the fourth quarter, particularly in businesses like PLS and language services that are seasonally low in the fourth quarter.

Yes, we normalized Q1 in a conservative way, just taking out all of the labor disruption revenue, but we expect to have material labor disruption revenue next year.

I got you. All right. Thanks. That's some helpful starting points.

Thank you. Our next question comes from Tobey Sommer with Truist. Please go ahead.

Thank you. I wanted to ask something about orders. What's the change in the volume of orders that are coming in around the prevailing bill rate of travelers you have on assignment today? I just want to make sure that we're trafficking in sort of data and we're not -- that's more indicative of demand that could reasonably be filled instead of also including outlier rates that are too low to be profitably filled. Maybe you've already kind of scrubbed the data and you're conveying it that way. I just don't know.

If we look at -- I guess until you sometimes go out and see if you can get a clinician to be interested in that role, there is a piece of them that I think -- there's a group of them, Tobey, that are just unfillable as they come in. There's a group of them that's probably in some middle ground and then there's a group that is fillable. I don't have a specific number of the incremental number of orders coming in that we would put in those categories because part of the dynamic that's affecting it is if you look at underlying pay expectations, they're very dynamic. And so annualized RM pay is in the high-single-digits. And so what they would have expected in the first quarter of this year, that's also dynamic. But what we've seen overall and how we look at I'd say the orders that we think are -- we see nobody fill that number has increased quarter-over-quarter.

We did note, Tobey, that in our vendor-neutral and VMS business, we saw 14% of orders unfilled in Q3. That's probably representative of the proportion of orders that are kind of an extreme on the pricing.

So when you convey the percentage change in orders and compare them to prior periods or pre-pandemic, are you adjusting and filtering out orders that are sort of at a nonsensical price for the market conditions?

No.

Okay. What's a fair conversion of kind of assumption from EBITDA to free cash? And how do you see CapEx because we just had some pretty heavy-lifting for CapEx and with declining margins, I'm just trying to refine what the free cash profile looks like at the Company?

We would normally just assume 65% conversion of adjusted EBITDA to operating cash flow and then you would have CapEx. We expect our CapEx number to be lower in the fourth-quarter, just reducing it in line with revenue. But we have -- we completed a lot of projects this year. That's the higher CapEx that we've had.

Hey, and Toby, just to give details on some of the projects we completed. So we've talked a lot about ShiftWise Flex and the work that we've done there. We are -- we should be virtually complete the re-platforming of our VMS clients by the end of this year and we will be the majority completed with our MSP clients on ShiftWise Flex and we'll finish that up in Q1. The same thing for our applicant tracking system and getting that completed this year. So there's some significant projects that we had in place that will be done. So between that completion and where we are from a kind of overall revenue standpoint, we will be down in CapEx next year.

You may have noticed our operating cash flow as a percentage of adjusted EBITDA has been quite good this year-to-date. And we did have a three-day improvement in DSO in the third quarter. Our operating cash flow this quarter included an outflow for legal settlement. So it would have been a really boom quarter without that.

Thank you. If I may sneak one more in. Under the last -- I guess, last year and a half or so, you kind of reengaged from a sales perspective with the market and customers that you kind of were calling on. You unified a bunch of brands; what sort of traction are you seeing related to that? And is it sort of fully in the business as of the third quarter or do you still think that you're in the ramping stage of that reengagement process with non-core customers from three or four years ago?

I think we are still in the ramping phase and not the least of which is because of typical sales cycle. Depending on what it is on language services, that sales cycle is not as long. If you're talking about an MSP, it can be a year to a year-plus. And so the signs that we have around the reengagement of all the work that we've been doing, not just with clients and prospects, but just aligning ourselves more broadly across the market is from a sales pipeline standpoint, we've seen quarter-over-quarter growth. The biggest growth factor in that has been growth in vendor-neutral prospects. So when we launched ShiftWise Flex really the beginning of the year, we have been very successful in building a pipeline around those capabilities. We've also seen progression through the pipeline of those opportunities. So those are the -- that's one of the leading indicators we would look at. We're in a net win position year-to-date for MSPs, which is an improvement from what we saw last year. And then the final piece and I know we mentioned this is in our comments is if we look at our top clients, we improved the average number of solutions that we have with them. So it's -- we want to get our solutions in pipelines and then we want to be able to expand with that client into more solution sets.

Thank you very much.

Thank you.

Our next question comes from Joanna Gajuk with Bank of America. Please go ahead.

Hi, thanks so much for taking the question here. So maybe first a follow-up, maybe I missed it, but when it comes to the demand trends, I know you compared it to 2019, but did you talk about, I guess, year-to-date or sequentially where are you seeing the demand? And I guess as it relates also to seasonal orders, any commentary there?

Yes. So if we look at demand in different businesses, so while travel nurse demand has increased since the beginning of the second quarter. And we saw -- and we've seen that continue into the fourth quarter and part of the third quarter demand was seasonal orders, Joanna. And while that demand has been welcome since April, you are still tracking about 35% below what you would have seen in pre-COVID. We're seeing healthy demand in allied and at levels above what you saw in 2019. We're seeing lower demand in locums than last year, still healthy and above 2019.

Okay. That's helpful. And I guess another follow-up on the discussion around the gross margins. So you're saying that the rates are stable, but there's still this pressure on compensation. So how do you expect this to play out into next year? I understand there could be some mix benefits if this international business comes back and such, but kind of just on maybe just the nurse piece, how you expect the gross margin? Because also you talked about competition there. So is there any indication of any change in competition as in like easing that pressure?

When you go back and look at cycles in the part of the cycle that we're in, you will sometimes see an overcorrection that will work its way out and you'll see some margin improvement as you come out of that. And so we would expect that to happen. That will take a bit of time for that to work through. So we started to see part of it is an overcapacity of suppliers coming out of COVID, we've started to see that. We saw a supplier retrench from the Travel Nurse business in the third quarter. So I think you're starting to see a bit of that rationalization. So that would be, I'd say, the demand piece of it. If you look at from a mix standpoint, we would expect our biggest mix challenge in nurse has been the international nurse and visa retrogression. We would expect that to taper off in the second quarter of 2025. And then we would expect to see as we exit 2025 at the end, some growth that we'd really see accelerate in 2026. And that will have a -- as that business both tapers off and then as we get back into a growth mode for that business that will have a positive impact on gross margin and EBITDA margin, both for nurse and allied and for our consolidated results.

Right. Understand. And if I may squeeze a last one on the -- when you were just talking about competition and some people leaving the market or not offering that particular service. Do you expect maybe assets to be picked up as in like consolidation, is that something that you would be interested in?

I think if you just look at the shape of the industry and some of the fragmentation, along with clients wanting more tech-enabled solutions. I think those two things will drive consolidation in the industry. For us, we always look at opportunities that are going to either give us some unique capabilities that we don't have or would give us an ability to scale something where we see significant opportunities.

Great. Thank you so much for the color.

Thank you.

Our next question comes from Brian Tanquilut with Jefferies. My apologies. Please go ahead.

Yes, good afternoon. Maybe just a question on -- Cary, on seasonal placements, just to follow up on Joanna's question. I don't think we've touched on kind of like commentary, qualitative commentary in terms of expectations for Q1. How should we be thinking about that progression from Q4 to Q1 given what you're seeing with seasonal orders heading into this quarter and into next?

We don't have as much transparency at this point into Q1, but what you would typically see if we look at winter orders as an example, we saw this last year and we saw this play through again this year. We had start date last year that went into Q1 and we have that same phenomenon now. So that will be a help for us. So we would expect that to be helpful from a Q1 standpoint overall. We typically after Q1 would see some drop-off of winter orders, but that really happens more Q2 versus Q1.

So maybe I'll follow-up on that, right? So tying back to A.J. question from earlier. I mean, if we look at your implied guidance for Q4 and then adjust for that seasonal factor of Q4 and Q1, we're landing at roughly a $200 million run rate. So just curious what would be the missing pieces to get to a number that grows that significantly from that sort of run-rate?

While we don't give guidance, what we try to do is give you a core taking everything out, including labor disruption, which we typically have some in. It's just hard to predict. I think A.J. went to a low-end range of guidance on EBITDA margin would be kind of thing one that you would look through. And then if you go back and look at what we would expect in different businesses, you would typically in PLS and language services, particularly with some of the commentary that I gave about language services and the client deployment, you would see growth off of seasonal Q4 lows. And we don't typically -- in nurse and allied, you would see more of the traveler decline in the second quarter, not in the first quarter.

Okay. Got it, thank you.

Thank you. Our next question comes from Constantine Davides with Citizens JMP Securities. Please go ahead.

Hi. One follow-up on the international business. Did you provide a run rate on how that business performed in the third quarter? And Cary, just updated thoughts on when you say it tapers out second quarter '25 if you could just give a little bit more color there on where you think that bottoms?

Yes. So if you look at the international business and we take what it looks like pre-visa retrogression, that was a $225 million business. We expect in Q4 for it to be $180 million and then we would expect another year-over-year impact of $60 million in 2025. That's a year-over-year comparison. If we look at the cadence of that in 2025, you would expect it to have a meaningful tapering in Q2. And then we would get to growth as we end 2025.

We're looking at we're looking at the gross margin headwind from international tapering from being about 70 basis points in Q4 to about 40 basis points in Q1. And then minuscule after that.

Thanks. And then, Cary, just following up on this notion or -- that you alluded to just top clients having an average of 10 solutions. Can you just talk about how you may be broadly define a discrete solution, how that penetration has changed in the past year or two and I guess where are the best opportunities to further penetrate those clients entering 2025?

So we look at solutions where we'll go and say, our major solution categories under our three business lines. So you would have travel nurse in there, you'd have international, you'd have labor disruption, we would have per diem, you go down the list then for PLS and for our technology workforce solutions. And that number has gone from call it about nine to now 10 solutions. The things that we have seen over the past couple of quarters, there's been a renewed interest in revenue cycle management. I think as systems have focused on really maintaining and growing their revenue base. We've seen an interest in our locums program getting managed more centrally out of teams that may have helped manage nurse and allied programs. We actually have -- are building a strong Locums pipeline in vendor-neutral. We're seeing that same trend there. And we just launched locums capabilities in ShiftWise Flex this past quarter. So we think we're well-positioned to be able to serve a number of our MSP clients who don't have locum with us in a different way than we were even two quarters ago. We see an interest in workforce advisory and planning and scheduling.

And are those businesses, those clients that sort of have that -- those nine or 10 solutions, are you seeing that they're just inherently more sticky than the rest of your book?

They're inherently more sticky and it gives us more ways to engage with different parts of the organization. So between HR, finance, procurement, technology, those solutions at different points in time will pull different leadership. And so it gives us an opportunity to not just be more sticky, but to have broader relationships across the system.

Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Please go ahead.

Thank you. So much. I know it's late. I'll just ask one. And this may be a stupid question, so forgive me. You've talked a few times about, I guess, the imbalance between what the providers are willing to pay, what the clinicians are willing to accept. Is there anything you or anybody else in the industry can proactively do to narrow that gap or is it just something we have to wait for the market to kind of work itself out?

The thing that is being done, there's a lot of market data and transparency, including data that we have and that we've included on our ShiftWise Flex platform. Jeff, if you think about how fast some of this normalized, you've had two things that have both been fairly dynamic. One is, when you look at our starting point of where bill rates were at the end of COVID, they neutralized, they went down pretty quickly. At the same time, clinician expectations don't change as fast. And between their expectations not changing fast and underlying wage increases that are happening across healthcare workforce, that's the dynamic piece that it really does need to work its way out. And we're seeing that happen where we see clients increasing bill rates, it's in either incredibly needed positions, specialties that are hard to fill. And so you're starting to see some of that behavior that you would expect from a kind of normalized market happening, but there's still a lot more that has to happen.

All right. Appreciate the color.

Thank you. Our next question comes from Bill Sutherland with The Benchmark Company. Please go ahead.

Hey, everybody, and best wishes, Jeff. I'll keep it brief too. I'll maybe ask two. Following up on Jeff's question about the hospital kind of mindset here as we head into the winter flu season and patient census assuming kind of a normal season, do you -- is there a sense that they've got more flexibility that they can work with in-house and they're pretty happy with their retention and hiring? Or is there a sense that this is maybe the thing that switches and given -- particularly given where the premiums are right now for travelers and others?

I think it depends on the client. We are -- there's been a significant amount of permanent hiring really across the board. And that needed to happen, you needed -- they needed to rebuild their permanent base. So for some clients, they may be looking and saying, hey, I still had a little bit of capacity. We're seeing some clients where they really need the contingent workforce to come in, and that's where we're seeing bill rates increase to be able to attract that talent. You typically in December, especially over the holidays, that's not as attractive sometimes for folks to take those assignments. But we would expect that just with the underlying pressure of increased patient demand. And this normal contingent premium spread that we're at right now, we're actually at the lower end of historical averages. It now really is becoming the affordable option to get some excess clinician capacity for these systems.

Got you. And last one, SG&A, the assumptions or kind of where you're seeing it this quarter, did that require any more headcount actions or do you plan any? Further actions? As you head into the new year?

It didn't include any headcount actions. We had taken some reductions in the beginning of -- actually, we did during the beginning of the third quarter -- the very beginning of third quarter. So we did that that you'll see play through and we really are looking at it as demands in different businesses we see them, we want to make sure that we are positioned to take advantage of them. And at the same time, we always look at ways for us to be prudent in managing our expenses.

Okay. Thanks, Cary. Appreciate it.

Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Cary Grace for closing remarks.

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