Amy C. Chang – Vice President–Investor Relations Susan R. Salka – President, Chief Executive Officer & Director Brian M. Scott – Chief Financial Officer, Chief Accounting Officer & Treasurer Ralph S. Henderson – President-Healthcare Staffing.

Tobey Sommer – SunTrust Robinson Humphrey Jeff M. Silber – BMO Capital Markets Gary P. Taylor – Citigroup Global Markets Inc. A.J. Rice – UBS Securities LLC Tim J. McHugh – William Blair & Co. LLC Randy G. Reece – Avondale Partners LLC Mark S. Marcon – Robert W. Baird & Co., Inc. .

Ladies and gentlemen, thank you for standing by, and welcome to the AMN Healthcare Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

(Operator Instructions) And also as a reminder, today’s teleconference is being recorded. And at this time, I will turn the conference call over to our host, Vice President of Investor Relations, Ms. Amy Chang. Please go ahead..

Thank you, Tony. Good afternoon, everyone. Welcome to AMN Healthcare’s third quarter 2014 earnings call. A replay of this webcast will be available until November 13, 2014, at amnhealthcare.investorroom.com. Details for the audio replay of the conference call can be found in our earnings press release.

Regarding our policy on forward-looking statements, various remarks and characterizations we make during this call about future expectations, projections, plans, prospects, events or circumstances constitute forward-looking statements.

Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, should, would, project, may, variations of such words and other similar expressions.

It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2013, and our other filings with the SEC, which are publicly available.

The results reported in this call may not be indicative of results for future quarters. These statements reflect the company’s current beliefs and are based upon information currently available to it. Developments subsequent to this call may cause these statements to become outdated.

The company does not intend, however, to update the guidance provided today prior to its next earnings release. This call may also contain certain non-GAAP financial information. We make available additional information regarding non-GAAP financial measures in the earnings release and on the company’s website.

On the call today are Susan Salka, our President and Chief Executive Officer; as well as Brian Scott, our Chief Financial Officer. Ralph Henderson, our President of Healthcare Staffing will be joining us during the Q&A session. I will now turn the call over to Susan..

Thank you so much, Amy. Good afternoon and welcome to AMN Healthcare’s third quarter 2014 earnings conference call. As we progress through the year, market trends continue to strengthen and the teams’ solid execution in the third quarter delivered year-over-year and sequential revenue increases across all business segments.

Our pace of MSP contract wins and service line expansion also accelerated, further fueling our positive outlook going into 2015. We’ve added more sales and operational resources to ensure that we continue delivering a best-in-class client and clinician experience and that we’re able to convert the higher demand in replacements.

We also continue to make progress on our strategic investments, which will further differentiate AMN in the marketplace and drive long-term growth, improve efficiency and continued margin expansions. Now, let’s review the third quarter results for our three business segments.

Starting first with our largest segment of Nurse and Allied Staffing, third quarter revenue rose 2% year-over-year and 5% sequentially. Demand trends have improved significantly throughout the past two quarters, which also had the effect of encouraging more candidates to join or rejoin the travel industry.

As a result, volume and bill rates are increasing. In our travel nurse business, which makes up nearly two-thirds of this segment, third quarter revenue was up 2% year-over-year and 5% sequentially. Excluding EMR staffing, our travel nurse business increased 13% year-over-year and 7% sequentially.

Demand for travel nurses has generally been running about double the level from prior year. We believe the significant order growth was due to a combination of hospitals experiencing some census improvement, increased nurse turnover and improved financial performance.

This demand growth is broad-based across all geographies and types of clients, and includes increased orders at more facilities and more units. Going into the fourth quarter, we expect travel nurse revenues to be up approximately 15% year-over-year and over 5% sequentially. Now, turning to Allied Staffing, where trends are also improving.

Third quarter Allied revenue was up 2% year-over-year and 6% sequentially. The improvement was driven by increases across the therapy, imaging, and lab specialties. Allied orders continued to be up significantly above prior year levels.

Fourth quarter Allied Staffing revenue is expected to be up in the mid single-digits year-over-year and flat on a sequential basis. Local staffing third quarter revenues were down both year-over-year and sequentially. We also expect fourth quarter revenues for local staffing to be down, but flat on a sequential basis.

While a small business for us, we continue to believe that an appropriately-sized footprint in local staffing is important to support our current and future MSP clients. Our goal is to improve both the top-line and profitability in the current locations where we operate.

Overall, for Nurse and Allied Staffing, we have moved into a supply-constrained environment. While applicants are up in the double-digits and have contributed to stronger bookings, applicant growth overall is not at the level of the extremely strong demand growth.

Going into the fourth quarter, we expect Nurse and Allied Staffing revenues to increase at least 10% year-over-year and approximately 5% sequentially. Our Locum Tenens team delivered revenue growth in the third quarter of 5% year-over-year and 6% sequentially.

The biggest drivers of the year-over-year and sequential increases came from growth in the emergency medicine and surgery specialties. We continue to win new MSPs and are expanding our existing MSP clients. In the third quarter, 12% of Locum’s revenues came from MSP clients, which has more than doubled from this time last year.

Going into the fourth quarter, we expect Locum Tenens revenues to be flat year-over-year and down sequentially, approximately 6%, which is in line with typical holiday seasonality. Now let’s turn to Physician Permanent Placement, which is our highest-margin segment. Third quarter revenue was up 5% year-over-year and up 7% sequentially.

The year-over-year growth was driven by higher search and placement volume. Our Merritt Hawkins retained search team and Kendall & Davis contingency business have both continued to perform well and are winning new clients across a variety of settings. Our new search activity and placements are both trending positively.

Going into the fourth quarter, we expect Physician Perm revenue to be up year-over-year in the mid-single digits and down sequentially in the mid single-digits due to normal seasonality.

With market trends improving, our strategy to differentiate AMN as healthcare’s innovator in workforce solutions will enable us to capture even more of the opportunities. Our MSP pipeline remains robust and we are winning new contracts and expanding existing clients across multiple staffing segments.

Our ShiftWise vendor-neutral VMS business is also benefiting from the increase in demand and the addition of new clients. In fact, third quarter was their strongest for the year in adding new clients.

Our recruitment process outsourcing business also grew well this quarter through new and expanded client relationships, with revenues running roughly 50% above prior year.

Finally, we continue to look at acquisition opportunities in the areas of new workforce solutions, new healthcare professional categories, and opportunities to bolster our supply of candidates to help us meet the increasing needs of our clients. This transformational time in healthcare creates immense opportunities and the need for innovation.

As a thought leader in healthcare workforce trends and best practices, AMN continues to partner with clients in new ways. One example of this is our recent launch of the Center for Professional Advancement.

This first-of-its-kind center represents a comprehensive effort to train and educate a new generation of professionals for jobs created by the ongoing healthcare transformation. Another example is our national Healthcare Workforce Summit to be held in Washington D.C. next week.

This gathering of over 150 participants is a unique forum for healthcare leaders to meet and discuss emerging trends and innovations that will address the workforce challenges of the future. In this dynamic environment, our high performance team is focused on our need to excel in three areas; execution, improvement, and innovation.

AMN’s success is achieved every single day through the strong engagement, talent and commitment of our team members across the country.

I’d like to extend a huge thank you to each of these individuals for their contribution, which make it possible for AMN to provide our clients, healthcare professionals, and their patients with the highest quality of service possible. I will come back to you in our Q&A session along with Ralph to help answer your questions.

But for now, I will turn the call over to Brian..

Thank you, Susan. Good afternoon, everyone. The company’s third quarter revenue of $264.6 million was up 2.9% from last year and 5.4% from last quarter. This result exceeded our guidance of $254 million to $258 million, driven by stronger-than-expected performance in the Nurse and Allied and Locum Tenens segments.

Our gross margin for the quarter was 30.4%, up 100 basis points from last year and down 40 basis points from last quarter. The year-over-year increase was due to the gross margin improvement in the Nurse and Allied and Physician Permanent Placement segments.

The sequential decrease was due primarily to a $700,000 unfavorable workers’ compensation actuarial adjustment reported in the third quarter. SG&A expenses in the quarter totaled $60.3 million or 22.8% of revenue, compared to $55.6 million in both the same quarter last year and the prior quarter.

The year-over-year increase in SG&A was due primarily to the addition of the ShiftWise business, higher expenses associated with our information technology initiatives, and higher variable expenses to support our current demand growth and future growth initiatives.

The sequential increase in SG&A expenses was due primarily to a $1.6 million favorable professional liability actuarial adjustment recorded in the second quarter along with increased commissions and bonus expenses associated with the higher revenue and other expenses to support future growth.

Our third quarter Nurse and Allied segment revenue increased 2% from the prior year and 5.1% sequentially to $174.3 million. Volume of 5,632 average clinicians on assignment was lower by 2.4% year-over-year, reflecting the lower EMR and local staffing volumes offsetting the growth in the traditional travel nursing.

The average bill rate for the segment was higher by 1.2% over last year, driven primarily by an almost 3% average rate increase in travel nursing. Nurse and Allied gross margin of 28.7% was higher year-over-year by 130 basis points and lower sequentially by 40 basis points.

Most of the year-over-year improvement was due to the inclusion of the higher-margin ShiftWise business with the balance resulting from higher bill pay spreads partially offset by higher housing and insurance costs. The lower sequential gross margin was due to the $700,000 unfavorable workers’ compensation adjustment.

Third quarter Nurse and Allied segment operating margin of 12.2% was higher by 30 basis points year-over-year, but lower by 110 basis points from the prior quarter. The sequential decrease was due mainly to the net effect of the actuarial adjustments recorded in the past two quarters.

Third quarter Locum Tenens segment revenue of $78.8 million was up 4.7% from prior year and 6.1% sequentially. Compared to prior year, an average bill rate increase of 6.1% was partially offset by a 2% decrease in the number of days filled during the quarter.

Locum Tenens gross margin of 29% was lower year-over-year by 30 basis points and sequentially by 80 basis points, due mainly to lower bill-to-pay spreads. Third quarter Locum Tenens segment operating margin of 10.3% was higher by 30 basis points year-over-year and lower by 20 basis points from the prior quarter.

Our third quarter Physician Permanent Placement segment revenue of $11.5 million was up 5.4% year-over-year and up 7.2% sequentially. Gross margin of 64.9% was higher by 230 basis points from the prior year and 140 basis points from the prior quarter on lower direct expenses as a percentage of revenue.

Physician Perm Placement third quarter operating margin of 24% was higher by 370 basis points year-over-year and higher by 360 basis points from the prior quarter. Interest expense in the third quarter was $1.4 million, which compares to $1.8 million last year and $4.6 million last quarter.

As a reminder, our prior quarter interest expense included a non-cash $3.1 million charge, associated with the replacing of previous credit facilities. Our tax rate in the quarter was 41%, lower than our guidance of 44% due to the impact of recognizing certain discrete items in the quarter. The fourth quarter tax rate is expected to be 44%.

We reported net income of $8.5 million in the third quarter and diluted earnings per share was $0.18 for the third quarter. Cash provided by operations for the quarter was $15.5 million. Days sales outstanding were 57 days, compared to 55 days in the last quarter, and 52 days last year.

Capital expenditures for the second (sic) [third] quarter were $4.4 million. As of September 30, our cash and equivalents totaled $9.7 million and our total debt outstanding was $146.3 million. Leverage ratio as calculated per our credit agreement was 1.7 times to 1 times, compared to 1.9 times in the prior year.

Now, let’s turn to the fourth quarter 2014 guidance. The company expects consolidated fourth quarter revenue of $265 million to $269 million. Gross margin is expected to be seasonally lower at approximately 30%. SG&A expenses as a percentage of revenue are expected to be approximately 22.5%.

And adjusted EBITDA margin is expected to be ranged between 8% and 8.5%. And with that, we’d like to open up the call for questions..

Thank you very much. (Operator Instructions) At this time, our first question will come from Tobey Sommer with SunTrust. Please go ahead..

Thank you. Good afternoon..

Hi, Tobey..

Hi..

I wanted to see you if you could talk about bill rates and pricing. I guess I’m asking specifically about Nursing, but to the extent you want to comment broadly that’s fine as – your comments about a supply-constrained environment, kind of maybe want to explore what that could look like going forward. Thank you..

Sure.

Why don’t we have Ralph take that?.

Sure. Hey, Tobey, this is Ralph. Our bill rates on nursing for the quarter were up about 3%, and we certainly are seeing some positive trends looking forward on bill rates overall.

It is a supply-constrained environment, so some of that translates down into our pay rates, and we’re having to give up a little pay to re-attract supply that comes back into travel nursing, but overall still managing margins very well. And that’s kind of a short-lived thing. Usually our bill rates will catch back up.

So, there is a little bit of a lag between the one to two quarters and then our bill rates – our margin is back to kind of normalized levels. Our Locums business has also experienced very good trends on pricing. They are up about 6% year-over-year. Our team has done an excellent job of getting back to market rates.

I think we touched – almost a year ago now that we thought they were below market rate and done an excellent job there. Similar issue there. The demand has picked up. The physicians and clinicians were trying to attract them back into those type of opportunities and the pay has gone up just a little bit there as well.

And then on the Allied side, the demand only has recently increased. So we’re not seeing as good a price increases there – about 0.5% there. But I expected that – if that demand remains at the kind of current levels, which is at double where we were at order wise last year, and we also see more positive bill rate trends like we’ve seen in Nursing.

One of the things a lot of clients right now are attributing what’s called crisis rates, given the high demand levels, and crisis rates are typically about 15% higher than current bill rates. And almost all of our large accounts have a crisis rate built into the contract. So when demand spikes, as it is right now, they trigger those crisis rates.

And we’ve just begun to start filling orders at those higher levels and most of those will flow into next couple of quarters as well..

Maybe just one other quick piece of color to add is that we actually see that our MSP clients are the first to increase rates in this environment. And we’ve started to really see that occur going back to the second quarter and into the third quarter.

And that’s not surprising because we have, of course, a very close ongoing relationship with them, and they are talking at least every quarter about what’s happening in the marketplace regarding supply and demand and bill rates and these are very sophisticated buyers.

So they want to be priced appropriately to make sure that they get their orders filled.

It’s a little bit harder with the traditional competitive accounts where we’re not having those meetings on a quarterly basis, and since we’ve seen so much increase in orders both at MSP accounts, but also traditional competitive accounts, it’s a little slower to get the rate increases at those traditional competitive accounts.

We’re seeing them happen, and they’re coming, but they’re not quite as quick as the more sophisticated MSP clients..

Thank you very much. In terms of the crisis rates, are those being applied to specific kind of niche specialties? Just trying to get a sense for order of magnitude..

Yeah. I mean, yeah, generally that’s how they work. For labor and delivery and things like that that’s kind of what we’ve seen in the, like the past three years. More recently, we’re starting to see them apply their crisis rates to specialties that are not considered to be as difficult, things like telemetry.

I have some pediatric med-surg nurses even where we have those types of crisis rate. So it’s not quite across the board yet. And you’re right some specialties may never need them. But we are seeing a used more broadly now than since I’ve been at AMN..

Okay. Thank you. And just wanted to ask a follow up question on ShiftWise. What are you seeing in terms of your growth there? You talked about new client adds..

Right..

I don’t know if you’re willing to but could you quantify kind of a growth rate for ShiftWise?.

I don’t think we’re going to talk about specific numbers on new contracts other than I mentioned that third quarter was their best quarter. They certainly were signing up new clients in the first and second quarter as well, but third quarter, really start to see some momentum, which is the same as our MSP clients. So I’m not surprised at that.

And then their kind of base vendor-neutral VMS business – is expected to grow more than 10% on a year-over-year basis from a growth spend under management standpoint. So they are also seeing the benefit of the uplift in the overall demand at those vendor-neutral clients.

On top of that, they are also implementing ShiftWise in more MSP channel partners, including ourselves as we adopt them as our technology at our existing and new MSP clients. There is some pickup there, but they are also signing up other new MSP channel partners to build that piece of their business..

Thank you very much. I’ll get back in the queue..

Great. Thanks, Tobey..

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

Thanks so much. A couple times in the prepared remarks, you talked about your EMR business.

Can you just remind us roughly how large that is, and when you think this will become less of a headwind for you?.

Hi this is Ralph. It really was a difficult quarter for our EMR business, and we did less than $1 million in revenue in EMR, in Q3. Last year the same quarter we did about $11 million.

So you get a sense of the magnitude of how much that has hurt us on a year-over-year basis, particularly when you look at the travel nurse volumes which were up 13% over that same period.

Kind of looking forward – as you’ve probably heard from the healthcare IT companies, the projects are, there’s still a few projects out there, there’s some second-generation upgrades and things like that. So we have a pipeline of opportunities.

Predicting what quarter they’re going to hit in, it’s kind of been more and more difficult and there are just fewer projects. So I mean I wouldn’t probably predict more than a couple million dollars in a good quarter for EMR going forward..

Okay. And that’s helpful. And just moving on to the impact of the ACA, I know there is some changes coming effective January 1.

How is the company positioned to potentially benefit from those?.

We had already been prepared and in compliance with the vast majority of the regulations that were expected to go into effect in 2014. And really the only area of our business where there is a small change required is in local staffing.

Where we have a small group of clinicians who might work with us enough on a consistent basis, to meet the 30-hour requirements and be eligible for insurance. Correct me if I’m wrong, Ralph I think it’s like about 100 people over a year. So the impact is relatively small for us..

Okay. That’s good to hear. And Brian, I didn’t want to forget about you. I’ve got a couple numbers questions..

Sure..

Unallocated SG&A was about $10.4 million in the quarter. That looked a little bit high.

Was there anything specific going on in the quarter?.

Yeah. It was up a little bit from the last quarter and last year. Part of it was, if we look sequentially, with the acceleration of the business, there were some true-ups on some of the bonuses. They go into the corporate departments as well.

And then there are just seasonally, we have some projects in the fourth quarter, like our IT, SOX work is done and that’s outsourced. And then some tax projects as well. So, was up as a percentage of revenue, in kind of 3.9% range, but as we go into the fourth quarter.

We do expect it to go back down more in that 3.3% to 3.4% of revenue, which is where it’s been trending at for the last year..

Okay, great. That’s helpful.

And then what should we expect for interest expense in the quarter?.

For the fourth quarter, about $1.3 million..

$1.3 million. All right great. I’ll jump back in the queue. Thanks so much..

Thank you, Jeff..

Thank you. The next question will come from Gary Taylor with Citi. Please go ahead..

Hi, good afternoon, guys..

Hi, Gary..

Hey, how are you? I just wanted to go back to the G&A a little bit. So I was very pleased to see the revenue ahead of the model and was hoping for a little more G&A leverage.

And I know that over the next several years, as you matriculate your way towards your 10% EBITDA margin target, you anticipate 50 basis points or so of G&A leverage from these levels. So, Brian, maybe just kind of go through the things you called out in the release.

You know, ShiftWise, I understand is a year-over-year.G&A pick-up; shouldn’t be that much sequential, I wouldn’t think.

But just, you talked about the bonuses, but you also mentioned IT and I just want to understand a little better expenses for meeting current demand and future growth and does that mean recruiters? What does that mean exactly?.

This is Brian. I’ll start it and maybe hand it off to Ralph to get some color as well on the hiring side. The IT, it’s really, majority of that was really baked in already into this year.

So some of the – as we’ve gone through some transitions or we’re working through these projects on our front and back-office systems, we’re moving to more commercially available systems, some of which are SAAS-based, so you’re kind of moving from what historically would have been internally developed, capitalized-cost-to-SaaS solutions which run through SG&A.

So Salesforce.com is one example of that. So the majority of that we’ve, you know made those investments and they are reflected from the – in the 2014 year. But that’s part of the increase from the third quarter of the prior year.

And as I mentioned, in the third quarter there were a few things that are just seasonal, like some of the projects we worked on was a tax project, we worked on it, has led to the lower tax rate. Some IT SOX work as well. That’s and then, so really sequentially the other biggest increase was again, from the second to third quarter.

We did have that actuarial adjustment in the second quarter. So really we’re about $58 million, little under $58 million in the second quarter. The majority of that increase is really about – is really employee based, a little bit for merit increases. There’s one extra payroll day in the third quarter.

But the hiring is probably the more important part of that, because that’s really reflecting our growth in the business as well as what we’re – the demand growth and I’ll let Ralph maybe cover some of that too..

Yeah, we also, when demand spikes like this, we do some increases in our overtime, temp usage and those items. But what probably is most interesting is what we’ve done in the area of hiring producers. So over the, kind of in late Q3 when we were mostly hiring for our Locum’s organization, in early Q4 we’re mostly hiring for travel nurse organization.

We’ve added more head count or more producer count than I think at any time since I joined the company, so about in the last seven years. It takes about four months to six months for those individuals to get up to kind of production levels where they start paying for themselves.

So there is a little bit of margin compression for a short period for time while that occurs. At 18 months, we start to become get into the top-producer category and they really start spinning off EBITDA at a better rate than they do when they are early on.

So the percentage of those new producers versus experienced producers is dependent than it has been for quite a while, again because of the increased demand. Our training and support systems I think are great and able to get those people up to speed very quickly. I think they are the best in the industry.

And so, I don’t think – I don’t have any fears about us getting them back up to those levels. We’ve done a good job on managing that. Additionally, we have to take good care of the individuals that we put out on our assignments. So we have expanded our, kind of our support services team.

And this is an amazing group of people who work in our back office doing payroll and housing and all those things that create a positive clinician or physician experience. So, those increases as well usually flow a little bit more with the revenue increases. We have to make some of those investments prior to seeing the increased volume..

That’s helpful. Thanks. So, Brian, when we look at your fourth quarter adjusted EBITDA margin guidance, it kind of brackets what you did this quarter. But you did say you expect the corporate overhead or that corporate G&A to drop a bit sequentially as a percent of revenue.

Did I hear that correct?.

That is correct. Again, as we shoot our revenue, you know guides up a little bit, we do expect to see some of the leverage. And some of those costs that were in the third quarter that would not continue into the fourth quarter, that point earlier around even the unallocated coming down as a percentage of revenue.

We’ll see some leverage on the SG&A side. And the reason why that bracket’s still showing amount similar to the third quarter though is, there is a little bit of seasonal pressure there too on gross margin side. As you see, fewer hours worked during the holidays.

We have certain fixed costs like housing aid and we typically see some of that margin pressure just in the fourth quarter and (indiscernible) we had a bit in the first quarter..

Okay. And then my last question. Susan, I missed the first two minutes today. Inadvertently put me on the wrong conference call, and as I came on, you were just talking about growth in the order books. I don’t know if I missed.

Did you quantify what the order book looks like year-over-year?.

We just in terms of the magnitude that orders and travel nursing are have been running roughly double the levels of prior year. And that’s really been true since kind of July-August. But the good news is the momentum has really continued, and in fact we have the highest order count that we’ve had since early 2007.

And actually it might be helpful, Ralph, if you gave this a little more color on those orders and what they look like..

Yeah. I’ll even take it a little bit further. The current and so in the quarter, you’re right, double prior year. At this point we’re about 40% ahead of where we were at the end of Q3 on our Q3 average. And we’ve put this at the highest order level we’ve been at since March of 2007.

To give you some idea of – if these volumes persisted, what would happen to our business at these order levels at that time we were about 6,100 travelers. So we’d love to see these kind of order counts to carry out and remain at where they are at for a few quarters at least..

Yeah the other color I provided Gary is just that, it’s not concentrated in a few accounts or in certain geographies.

It is very widespread across the country; many types of client settings and sizes of clients, and the number of facilities that we have ordered at is significantly at the number of units where we have orders, which is a very healthy sign is more than double, where we were a year ago.

And that just creates that much more opportunity to find the best match for each traveler that wants to go work with us..

Okay. I guess that’s right where I came on. Thank you..

Perfect. Thanks..

Thank you. Our next question in queue will come from A.J. Rice with UBS. Please go ahead..

Hi, everybody..

Hi..

A couple questions if I could ask. I guess, I think, Susan you made the comment maybe was someone else, but – that the strong demand starting to draw some nurses back into the market, say either having been in the particularly travel, I guess, you mentioned, market before, or have been out for a while.

Is there any attempt or a way that you track either new applicants or people that haven’t been out for a while that are coming back? If you can give us a sense of, I mean, is that just a trickle at this point? Are you starting to see applications pick-up? Because it seemed like to me, in a demand-constrained environment, that’s sort of the key to really see the dramatic acceleration in revenues, if I’m not missing something?.

Yeah, this is Ralph. I’ll handle that one too. I’ll talk about travel nurse; that’s where we’re seeing the greatest demand. We measure – our recruiting efforts today based on candidates which we will referred to it, high-need applicants. So those are basically candidates that match kind of our top – the top-20 specialty clients are looking for.

So, today that seems like ICU, Tele, ER, OR, med-surge are kind of on our top handful there. And then we basically target all of our market in the NASDAQ. In the third quarter, we averaged about 45% more high-need applications than we did in the prior year.

And then some of that’s driven by the high order counts, right? So as demand begins to go up, word about the candidate, nurses and others who went perm probably during the recession and it gets out until we start to see an increase in the number of people who apply. I think our database is of course significantly larger than that.

We have about 65,000 people who have worked for us over the last several years that we’re constantly in contact, and then a lead database which is really big but it probably doesn’t help to give a number there, but it’s enormous. And then kind of one in eight people who come in as an applicant, you know sort of work for us.

So we’re seeing some positive trends there. I mean, we could always use more, and I think as the bill rates have begun to edge up, it is starting to lever people back out of those permanent positions..

And another way to look at it A.J. is, the number of, or the mix of travelers on assignment that either have never worked for us or haven’t worked for us for more than a year. And as you would expect that number has gone up considerably since the beginning of the year.

You know it really has to if we are going to grow, because our recruiters and our support team does a superb job of keeping our existing travelers happy and so our rebook rates are very, very strong right now for existing travelers.

So in order to grow and even replace those few that don’t renew with us, we have to be getting new and those that are kind of last travelers rejoining us..

Okay. All right. And in your mind, you mentioned that as bill rate steps up that tends to draw people back.

Is there thresholds or any way you can sort of talk about whether you think you’re close to hitting points without a draw of sort of an accelerated pace of new applicants, or is it sort of just steady pickup in new applicants, I guess?.

No, I would say it is definitely at an accelerated pace. We were I think running about 30% above prior year in the past couple of quarters. We’re now running 45% above prior year. So I think, we’re kind of starting to hit that tipping point. It’s different by specialty, but we are starting to see that. We could give you some sense of the magnitude.

We get about 3,500 of those applicants per quarter. So we’re bringing in 14,000 to 15,000 new applicants a year. So it’s a big number already. Now it’s about getting our recruiters trained and putting the right types of position in front of those candidates, screening and assessing them and kind of getting them on assignment as quickly as we can..

Okay. I know generally you’re at about at this point and maybe even you ran into a little bit, typically see, particularly in the travel side some seasonal demand.

Is that, how would you characterize that? Is that sort of the normal seasonal demand that you expect for December, January, you know, a month-type activity or is it in any way more or less than what you traditionally see in those markets?.

I think we’d generally characterize that as normal relative to the rest of the market. One way to look at it is our flu clinic business, and that is up a little bit, but it, quite honestly the overall size of the business doesn’t move the needle that much.

And so, just generally we see those clients that use more seasonal travelers up, but it’s up everywhere. So it’s hard to really determine whether that’s a seasonal issue or if it is just the general national shortage and demand growing..

Right, right, exactly. And then, I think in your comments about trajectory of demand going into fourth quarter, local staffing itself, there is a little bit of divergence between what you’re seeing in local staffing and travel.

I may not have heard that right, but if I did, any comments on why local would be quite as strong as we’re seeing on travel? I would think that might get tight pretty quick..

A couple things on local staffing.

One is that the business has struggled a little bit for like, kind of the past several years, as clients have kind of a large in-house pool and they use those resources to fill short-term assignments as opposed to using local or per diem staffing, which is really all we do in our local branches is kind of a dispatched on a short-term basis staff.

Whenever the demand for travel goes up, a lot of people who are working in local assignments actually move to travel assignments, which creates a supply constraint for the local business as well. So that’s why it kind of tends to hurt our revenues as well. So it’s one of our businesses that’s unfortunately a little bit bad for the other.

Of course the margins are so much better in travel nursing than they are in local staffing. It’s a positive overall for us..

Sure. Okay, and maybe one last question for Brian.

The working capital step-up, around $52 million to $57 million year-to-year and the $55 million to $57 million year-to-date, is that just mix or is there anything else that’s worth mentioning?.

There’s not a lot worth mentioning; it’s really been the acceleration of the revenues for the quarter. It’s probably driven that, but the $52 million last year was a very good DSO. We saw some really strong collections at the end of the quarter that drove that. So we’ve been, the last several quarters been running more in that $55 million range.

If I look at our overall AR though, we’re not having any of our credit issues. The current portion is really solid, so overall, the balance looks really good, say more due to the function of the revenue growth..

Okay. All right. Thanks a lot..

Thank you, A.J..

Thank you. The next question in queue that will come from Tim McHugh with William Blair & Company. Please go ahead..

Thank you.

I guess first, sorry to make you guys repeat it, but I think Ralph, I missed what you said about October versus kind of the order volume in the quarter being double, or?.

So, yeah. As Susan mentioned I think in the comments were, in the quarter for Q3 were up double where we’re at last year, and then thus far in October we’re up another 40%..

Versus the level you’re at in Q3, sequentially up. That’s okay..

It is still up about double year-over-year maybe a little bit better, just depends on the week. It tends to hover around a 100% increase..

Okay. And I guess, as we think about that environment, obviously it’s tough to fill that type of order volume. You’ve been talking about supply-constrained environment. What’s the risk right now that your clients don’t I guess fully grasp the environment and there’s blowback in terms of the MSP arrangements and the growth of that.

It doesn’t sound like it’s had an issue because you continue to see good growth there, but I guess how much of a risk is that right now that they blame it on you guys getting a first look at jobs or something like that and not delivering in an environment like this..

As I mentioned earlier, our MSP clients, and not surprising are some of the most sophisticated buyers of contingent staffing.

And so, they understand the supply-demand dynamics very well, and we provide a lot of information to them so that they understand the market environment from a rate standpoint and they understand that their rate will dictate the attractiveness of their assignment.

And so, they tend to be the early movers, and have been in making sure that their rate adjust to the market and that they are positioned well. And that helps to ensure then that we are able to continue to attract that supply. We have been doing very well on our overall fill rates in fact.

We have just renewed most of our large MSPs during the last six months to nine months and they’re very pleased with our services overall.

It’s important that we stay close with them since they understand how quickly the market’s changing, and that’s where things like Ralph described, the sort of the crisis emergency rates come into play, because there could be some really critical areas where they need to put in some short-term higher rates to ensure that they get those needs met quickly.

Because of the relationship and trust that we built up with them, they understand that we’re only bringing them that and we can support it with data because that is the nature of the market.

So, we find those conversations are actually very productive and easier to have than with say a competitive traditional account where maybe they aren’t quite as sophisticated and we aren’t having ongoing conversations.

Now, also having the largest affiliate vendor network is very beneficial for us; it’s something we worked very hard at, making sure that we have a strong group of subcontractors, affiliate vendors that are also receiving those orders and have the opportunity.

And those affiliate vendors have been benefiting quite a bit from those relationships and contracts over the past years. And so we find that they are still very engaged in making sure that they maintain their good position in those contracts with us, because they see the value in them.

So while it might be sort of harder for everybody to meet the increased demand – and let’s face it, as a market, we can’t immediately meet the increased demand until we get more supply.

We actually see that those MSP clients who everyone knows are the bigger buyers and will probably be the more sustained bigger buyers still get the attention they need. I know, long answer, sorry, but it’s an important question..

Yeah. No, that’s helpful. And I guess in that context as we think about the expense growth, I guess not just Q4, but as we go into next year, you had talked about aggressively ramping up basically your recruiting sales force.

Where are you at now relative to that demand? I know directionally it’s you need more, but how much more, how significant of a kind of investment do you think you need to make going forward here?.

Yeah, we would hope to have a more normal hiring pattern in line with the growth. We just had that surge a little bit in over the last couple of quarters, because of the spike in demand. But normally we can operate in line with our revenue growth and not have to make these investments so far than they’ve been..

We had our largest group of new travel nurse recruiters starting training in early September. I would like to have that problem again quite honestly in January or February because it would be such a great sign that demand is continuing to rise at an even faster pace.

So we have no problem adding those resources when we see that the demand is there, it’s sustained and we need to add the resources to ensure that we’re meeting our client’s needs. high-class problem..

Right. One last one, just Locums being flat year-over-year in your guidance, I think there was a project in the year-ago period, maybe that’s why, but your commentary was fairly positive relative to kind of flat year-over-year guidance. Just trying to reconcile....

Yeah, we feel great about this business and the trend on days sold and days available are up. They’re kind of single digits. You may we have to get the orders filled at, we still have a lot of work to do there, but the team is working diligently to get that done.

The year-over-year issue in Q4 is really two very large projects that we did in Q4 of last year. Actually there is a little bit of impact even in Q3, in our Q3 results from both of those projects as well that are both no longer the project ended either at the end of Q4 or beginning of Q1..

Okay. Thank you..

Thanks, Tim..

Thank you very much. Our next question in queue that will come from Randy Reece with Avondale Partners. Please go ahead..

Afternoon..

Hi, Randy..

Hey, Randy..

First of all, I was wondering if you could give me an idea of what gross margins look like gross margin comparisons in like-for-like business and how much, if you just take out the effects of any kind of mix shift.

What gross margin comparisons look like?.

This is Brian.

Do you want it on the – thinking of that year-over-year, sequentially or both?.

Let’s talk year-over-year..

Sure. That in the segment basis the gross margin for nursing last year was 27.4%..

Yeah..

This year, it’s 28.7%..

Let’s say, just drilling down below that broad segment basis, a little more, on a little more granular level, I know they are differences within those segments. And I was just wondering, if you could get beyond whatever kind of mixed shift effects there are within those segments themselves..

This is Brian. I guess we don’t typically do that. I would say, as general trend, there’s not any, there’s not many major shifts within say the Nurse and Allied segment; the only one from a year-over-year is really the addition of ShiftWise, which represents kind of the biggest piece of the year-over-year increase.

Outside of that there have been some changes, but I would not say any of them are big enough either to be notable as well..

Okay. And then just on the – in a separate direction, I would like to discuss a little more about how swings in demand affect your operations, your ability to plan expenses. Over the last four quarters, there have been such significant swings, and does that affect how willing you are to commit expenses in anticipation for growth.

Were you quick or slow to reinvest, to turn this, the spending back on after the lull that you saw in the winter?.

I think Randy, we have been typically pretty quick to ramp up and ramp down when necessary and it’s something we’ve gotten better at over the years, certainly having been through both of those trends many, many times. And I would say that we were very quick to react this time.

Even though I talked about hiring a lot of recruiters and sales staff at the end of the third quarter, we were already hiring in sort of the June-July timeframe, as we started to see orders pick up. And so I think our team is very good at recognizing the trends and then very quickly mobilizing and going into action.

That’s why, as Ralph mentioned, our temporary expenses were up, because even if we can’t hire the permanent employees fast enough, we will very quickly add temporary resources to ensure that we are able to convert the higher demand and certainly take care of the volume that we are placing through good service..

During the third quarter, you announced and you mentioned it in your prepared remarks, the Center for Professional Advancement.

And could you describe how that is going to affect your relationship with customers and how that’s going to fit into your strategy overall?.

Sure, I’d love to.

And this really comes out of dialog that we’ve been having with our major customers over the last I’d say 18 months or so, where they becoming increasingly concerned about the shortage of our healthcare professionals, but also in particular, some of the newer types of healthcare professionals that really didn’t exist three years to five years ago.

And even if they did, the way they’ll be utilized going forward will be very different. So, areas like case managers, case and care navigators, even the fact that all kinds of clinicians need to be better trained in current technologies, and how to do team-based patient care delivery.

And they want our help in creating training and education programs so that they’re not doing it one-off for each hospital or each system. And so the center was really born out of that need from our clients to add additional value and partner with them in a more strategic way, so that we can be additive to that supply challenge going forward.

And so we’ll be working with clients to identify what are those most critical categories, how can we create training programs in partnership with them, where maybe we’re providing part of the training online and through other forms and they are providing some of the onsite preceptor, sort of learning in action, and together we’re helping create that supply.

Obviously, there’s a revenue component to that for us as well, but it’s also a longer term investment in the supply for our clients in the future..

And my last question involves the popular phenomenon of hospital chains managing their own flex pools.

How much difficulty do you hear from clients in their own management of internal flex pools and how does that affect your business?.

Yeah, this is Ralph. I’ll handle that. In-house pools were fairly easy to staff during the recession until many hospitals were able to grow their pools in, I’ve heard, numbers in the hundred. It’s some of the bigger systems in terms of number of them employees they have in those pools.

Some of those systems are some of the ones with the largest numbers of orders with us right now. So I get a sense that the pools were insufficient, certainly kind of current demand levels and that I think their pools are being depleted.

We’re seeing more job turnover with more quits, people coming back to the travel industry and things like that I think are starting to impact them. We’ve even had a couple of requests from clients lately to manage their pools, which we can do with one of the ShiftWise technologies.

So I get a sense that it’s not going as well for them as it had been or as you would expect and the market changes as quickly on them.

So it does hurt our per diem business, you know the daily part of per diem, but the per diem business is beginning to take a look at being there more for longer-term assignments, working on skills that are maybe less impacted by that short-term nature of those that are per diem shifts. Hope that helps..

Thank you..

Thank you. Our next question in queue will come from Mark Marcon with R.W. Baird. Please go ahead..

Good afternoon.

With regards to the MSP contracts that you’ve been bidding on, can you give us a little more flavor with regards to what sort of win rates you’re seeing, and also the ones that you’ve just implemented, how they’re scaling up?.

Sure, I’d love to. So, as I mentioned on our last call and I think I kind of reiterated today, we saw a nice tick-up in the momentum of new MSP wins, kind of late second quarter and then throughout the third quarter. In fact, we won more new MSPs in the third quarter than we won during the full first half of 2014.

And few characteristics of those which have been really encouraging is that the majority of them, well more than half of them are utilizing multiple AMN service lines, meaning Nursing and Allied or Locums and Nursing. In fact, typically if you’re only using one, it would be more of a Locums client that is really just in the physician business.

But we’re seeing a much better adoption of multiple service lines going into the initial MSP as well as add-ons and extensions of our existing MSP.

So in addition to the new wins we had, we had several what we would call expansions where we have an MSP that’s adding additional facilities, as well as add-on service clients where maybe we already had an existing nursing contract but we’ve added in Allied or we’ve added in Locum’s. And we had a lot of momentum in that area.

If I look at the distribution of gross billings of those contracts that we wanted, this is more looking forward to what their ultimate potential is at maturity; about 40% to 45% of those gross billings would come from Locum’s; about a third comes from nurse travel, Locum’s about 15%, Allied’s about 10%, and those numbers will change.

This is a forecast based on what we believe it’s the beginning of the implementation. But it just gives you a little bit of flavor that we’re absolutely signing more of Locums contracts as a percentage, which is we think a very positive thing. As I mentioned, our penetration of Locums revenue coming from MSP clients hit 12% in the third quarter.

We believe that will continue to rise..

That’s great.

And can you talk about renewals, like what sort of renewal rate are you running at in terms of the MSP?.

We’ve had really good success in renewing our major MSPs. And I mentioned that we bring most of our top five or six I think in the last six months. So that’s very positive for us. There is occasionally, there will be one where it’s up for re-bid and for whatever reason they make a decision to go with another vendor.

It’s pretty rare, but it does happen occasionally. We’re renewing the vast majority of our MSPs when they come up with and sometimes they take them out for a re-bid just to test the market and sometimes they don’t..

Great. Thank you for the color..

Great. Thanks, Mark..

Thank you. We do have a follow-up in queue from Tobey Sommer. Please go ahead..

Thank you. Just some quick numbers questions if I could.

Do you have an expectation for the tax rate in the fourth quarter?.

Yeah. 44%..

44%. Thanks.

And what percentage is the recruiter head count up currently? Or you can express it some other way if you’d like?.

Yeah. It’s up about 10% from the same point last quarter..

Oh sequentially then, okay. Thank you..

Yeah..

And what is the percent of sales from local in travel nursing?.

We don’t give an exact percentage. We generally said that travel and for travel and nursing division is about two-thirds of our Nurse and Allied segment. Obviously, local’s gotten smaller over time, Allied’s number two in that category. And as a percentage of profitability, local is a very small percentage of that segment..

Understood. And then, during some – an answer to a previous question, I think, you mentioned traveler count in 2007. I may have misheard; I think you said 6,100 travelers.

Is the old high 7,100 or somewhere in there?.

No..

Well, that was the – I mean, you’re going back years before that, actually our all-time high was around 8,400 back in 2001. But I think Ralph was making the correlation that at the last time we had ordered at this level, the traveler count at that time and sort of looking forward to the next six months was around 6,100.

So it just sort of gives you an idea of what’s possible. Now, we are certainly not forecasting. Traveler count is 6,100 in any near-term, but in terms of the sort of the demand potential and what that can do for the business, it’s pretty enormous..

Just two last questions for me. One, could you comment on if your customer, your hospital clients are expecting the increase in census to continue? And then any kind of comment you could give about Ebola and what it means for your business if anything right now? Thank you..

So, first on the Ebola comments, we certainly have had a lot of dialogue with our clients and have put into action resources for both our clients and in particular our clinician to make sure that they feel prepared and comfortable to have the resources to be safe and well-trained in this environment.

So we have a lot of things on our website, working with our clients to make sure that we are providing those resources as needed. And there’s some clients are asking for some initial screening to change a little bit and we’ve already put that in place over the last month.

But in terms of the demand increase, it actually hasn’t been as great as you would think. We went back and tried to point to specific orders, where maybe you had a hospital in a particular area, where their existing nurses wouldn’t come to work or there were concerns in the local area.

And if we sort of added up those, what we would call Ebola-related orders, it was less than 40. And so, we don’t think that there is an overall impact. I do think that because of the concerns, it causes people to be just a little bit more cautious. And so, ERs are very full right now and so they probably would be with the flu season beginning anyway.

Maybe it’s a little higher than usual because individuals are wanting to get in there quickly to be assessed..

In your expect, you’re hearing from clients about census headed into next year?.

Yeah. So if you look at our orders and demand trends right now, they would indicate that they are expecting continued increases, because the orders just keep flowing in with more momentum. And some of those orders are for individuals starting in December and January and a few even past that. So that’s a really positive sign.

When it comes to the first quarter, I do think that we have to be realistic, particularly considering what happened this year with the first quarter.

First of all, you have to remember that there are two fewer calendar which results in fewer billing days, which hit particularly nursing, allied, but also Locums a bit, and that creates, even at a flat volume, you get a 2% headwind. And also, you have to remember, over the holidays, even travel nurses like to go home and see their families.

And so, you tend to get a drop-off at the end of the fourth quarter and the beginning of the first quarter. So, flattish volumes going into the first quarter is not an unusual thing at all. And of course in 2014 we actually saw expenses drop a little bit due to the insurance resets, higher deductible trends in particular.

So it’s kind of unclear whether that impact will repeat itself. We are certainly paying attention to it; could be up, it could be down a little bit. We think it’s prudent to not completely ignore the trends that we experienced earlier this year. And so, if you looked at our order bank, you would get very optimistic about growth in the first quarter.

We think we need to reflect back on this year and expect some form of impact from those insurance resets..

That makes a lot of sense, slightly little bit of a sequential headwind to revenue in the first quarter. Thank you very much..

First you’ve got the two fewer billing days, which creates a headwind even without that..

Absolutely, thank you very much..

Great, thank you..

Thank you. At this time, there is no additional questions in queue. So I’ll turn the conference call back over to our host for any closing comments..

Terrific. Well, we really appreciate everyone joining in today and we appreciate your continued support of AMN Healthcare. We look forward to updating you on our progress next quarter..

Thank you very much. And ladies and gentlemen that does conclude your conference call for today. We do thank you for your participation and for using AT&T’s Executive Teleconference. You may now disconnect..