David Erdman - IR Brian Scott - CFO Susan Salka - President & CEO Ralph Henderson - President, Professional Services and Staffing Dan White - President, Strategic Workforce Solutions.

A.J. Rice - UBS Tobey Sommer - SunTrust Tim McHugh - William Blair & Company Randy Reece - Avondale Partners Mark Marcon - Robert W. Baird Matt Blazei - Lake Street Capital Markets.

Ladies and gentlemen, thank you for standing-by. Welcome to the AMN Healthcare Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, today’s conference is being recorded. And I'll now turn the conference over to our first presenter, Mr. David Erdman. Please go ahead sir..

Thank you, and good afternoon, everyone. Welcome to AMN Healthcare's third quarter 2016 earnings call. A replay of the webcast will be available until November 17, at amnhealthcare.investorroom.com following the conclusion of the call. Details for the audio replay of the conference call can be found in our earnings press release issued short while ago.

Various remarks and characterizations we make during this call about future expectations, projections, plans, events, or circumstances constitute forward-looking statements. These statements reflect the company's current beliefs based upon information currently available to it.

Or actual results may differ materially from those indicated by these forward-looking statements as a result of various factors including those identified in our most recent Form 10-K and subsequent filings with the SEC.

The company does not intend to update the 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 the company's website.

On the call today with me are Susan Salka, President and Chief Executive Officer; Brian Scott, Chief Financial Officer; Ralph Henderson, President of Professional Services and Staffing; and Dan White, President of Strategic Workforce Solutions. I will now turn the call over to Susan..

Thank you so much David. Good afternoon everyone and welcome to our third quarter earnings conference call. It is clear from our strong earnings report today that AMN’s leading position in delivering innovative workforce solution is making an impact for our clients. Active organizations across the U.S.

are dealing with significant labor challenges and our solutions help to ensure that they have the healthcare professionals and leaders they need to stay focused on delivering quality patient care. Over the last decade we’ve taken significant step to expand and diversify our business and we’re seeing the benefits of this strategy in our results.

Most importantly for clients we’re able to provide greater expertise and a broad portfolio of solutions to help them tackle their temporary and permanent staffing challenges both short term and long term. But shareholders have also benefitted as we now have nearly 50% of our revenue coming from other workforce solutions and MSP related revenue.

These strategic offerings help to create stronger client relationship, more recurring revenue, greater opportunity for cross selling and are less economically sensitive. Demand from existing clients remained strong and we’re experiencing a record year of winning new workforce solutions contracts.

As a result third quarter consolidated was up 23% year-over-year with the largest contributor in organic growth. We continued to grow our workforce solutions footprint and MSP business. Since the inception of our MSP program in 2008, we’ve grown MSP revenue from 1% to approximately 40% of our staffing revenue today.

This arrangement improved fill rate reduces the time to fill vacancies, minimizes risk and creates efficiencies that allow the client to focus on providing quality care. From our perspective MSP gives us a competitive advantage, it builds stronger client relationships and reduces cyclicality.

Year-to-date we’ve added MSP contracts with a projected annualized growth spend under management of over $150 million. On top of this we’ve over $100 million more in contracting.

MSP has proven to be an effective strategy for healthcare organizations to address their contingent workforce challenges as they continue to deal with high turnover and persistent labor shortages. Our VMS solutions ShiftWise analysis provides an attractive option for clients that prefer to manage the staffing process themselves.

This business line continues to experience strong growth through both new contract wins and expanding existing relationship. In total, we have more than $1 billion in gross spend flowing through VMS arrangements. As we announced in September, Steven Rodriguez joined AMN as the President of our ShiftWise business.

Steven has over 20 years of technology related experience and we are excited to have him and his family joining AMN.

In addition to MSP and VMS, the growth in our other workforce solutions enables us to help clients optimize their internal recruitment and staffing effort as well as ensure they have the right leader in place to guide their team through so much change. The AMN healthcare brand has never been stronger.

Our clients recognize us as being a trusted and innovative partner as we implement cost effective services to address [indiscernible] of workforce related issues they face every day.

We recently hosted our Fifth Annual Healthcare Workforce Summit with leaders representing a variety of settings including the largest systems, outpatient facilities and retail healthcare providers looking to expand their footprints.

The feedback from all was consistent, workforce challenges are severe today and they are not going to get significantly better anytime soon. Innovative solutions and partners like AMN to assist them in taking a fresh approach to how they manage their staffing needs.

As announced in mid-October to further illustrate how important of brand identity is to our success we changed our common stock trading symbol to AMN to help harness the strength and recognition of our valued brands. Our vision and strategy are clear and sound allowing us to grow both organically and through meaningful reasonably valued acquisitions.

We have a proven track record of successfully integrating new businesses into the AMN family. We also now have improved liquidity as a result of the recent bond offering, Brian will talk more about this later.

We will continue to focus on execution of organic and acquisition growth opportunities, but in order to enhance our ability to deliver shareholder value I’m pleased to announce that our board of directors authorized a $115 million share repurchase program. The authorization has no time limit and we intend to be opportunistic in our approach.

Now, let’s briefly review our third quarter results and our outlook for the fourth quarter for each of our segments. Consolidated revenue for the third quarter was higher than expectations at $473 million, which is up 23% of prior year and 12% on an organic basis. Growth occurred across all three reportable segments.

Consolidated adjusted EBITDA was $58 million up 27% from prior year. This reflected a margin of 12.3%, which was 40 basis points higher than the same quarter last year. Our nurse and allied segment posted revenue of $287 million higher by 16% year-over-year which was virtually all organic growth.

Revenue in the largest business in this segment travel nurse staffing increased 21% year-over-year this is all organic growth and reflects another quarter of exceptional execution by our sales, service and clinical teams and a strong demand environment. Our leading MSP position is also a key contributor to growth in this business.

The allied staffing division achieved another record quarter of revenue growing 10% year-over-year again this is all organic growth. This business includes the placement of several specialties including rehab therapy, imaging, respiratory and laboratory professionals.

We continue to expand MSP relationship to include allied services resulting in approximately 35% of allied’s revenue now flowing through our MSP program. Looking ahead to the fourth quarter we expect the nurse and allied segment’s revenue to be up 12% to 13% year-over-year.

This increase is being driven by over 10% volume growth from travel nurse and allied businesses. The strong growth is being partially offset by weakness in our local staffing division. Our guidance also assumed we will have approximately 2 million of labor disruption services in the fourth quarter which is similar to what we had in the third quarter.

In the Locum Tenens segment revenue of $109 million was up 7% year-over-year, growth occurred across multiple specialties with the largest increases coming from surgery, emergency medicine and anesthesiology. Demand trends remain very strong in those specialties and we believe there are plenty of room for volume growth.

As we mentioned on the last quarter call the primary constraint continues to be the challenges associated with recruiting and credentialing an ample number of physicians to match the geographies of the demand, but we are making positive strides.

Fourth quarter revenue for the Locum segment is expected to be up 5% to 6% year-over-year driven by volume growth of 4%. Revenue in the other workforce solutions segment was $77 million which is 125% higher year-over-year.

This segment includes our interim leadership in placement businesses, physician permanent placement, RPO, workforce optimization, VMS solutions and our recently acquired medical coding business. Our leadership businesses which were acquired over the last year are up 20% year-over-year on a pro forma basis.

They continue to execute well and are benefiting from the cross selling opportunities into our MSP client relationships. Revenue from the VMS businesses are up over 30% year-over-year as we continue to add new clients and expand existing ones. [indiscernible] our workforce optimization offerings grew revenue by more than 50% year-on-year.

Workforce optimization and the use of predictive analytics was a topic of high interest at the summit that I mentioned earlier. The physician permanent placement business was up more than 5% year-on-year driven primarily by higher placements.

Recruitment process outsourcing was down year-over-year and sequentially but appears to be stabilizing, we expecting to resume growth in this business in 2017. Overall, fourth quarter revenue for the other workforce solutions segment is expected to be up approximately 90% year-on-year.

Our results tell a compelling story about the value that we are able to provide healthcare organizations and professionals everyday across the country. But what is behind these numbers that makes the biggest impact is our incredible team.

Our clinicians, our interim leaders, our new coding team and of course our internal team, they are smart, talented always striving to be better and most importantly they care about what they do and the people they serve. I am so proud of this team and together we will continue to make an impact and serve our shareholders well each and every day.

Now, I will turn the call over to Brian for a financial update after which Ralph and Dan will join us to be available for the Q&A section of the call..

Thank you, Susan, and good afternoon everyone. The company’s third quarter reported revenue of $472.6 million was slightly above the high-end of our guidance, as performance from all three reportable segments exceeded expectations.

Revenue was down slightly sequentially which resulted from $2 million of revenue from labor disruption services in the third quarter compared to $19 million in the second quarter. If we exclude this service line third quarter revenue was up 4% sequentially. Gross margin for the quarter was 32.7%, down 20 basis from last year and flat sequentially.

The year-over-year gross margin decline was due to a lower nurse and allied segment gross margin which was partially offset by the increased mix of the higher margin workforce solution segment and an improved stride in our Locum Tenens segment. SG&A expenses in the quarter totaled $100 million or 21.2% of revenue.

SG&A expenses as a percentage of revenue declined from the same quarter last year by 50 basis points due to improved operating leverage, but increased sequentially 20 basis due primarily to a $2 million favorable professional liability reserve adjustment recorded in the previous quarter.

Third quarter nurse and allied segment revenue was $286.8 million an increase of 16% from the prior year and a decrease of 2% sequentially. Excluding our labor disruption business sequential revenue was up 4%. Volume of 8458 average healthcare professionals on assignment was higher by 12% year-over-year.

While the average bill rate was 5% higher year-over-year. Nurse and allied margin of 26% was 80 basis points lower compared to prior year and flat sequentially. The lower year-over-year margin was due to a narrow bill paid spread and higher direct cost most noticeably higher housing cost.

However, the gross margin trend modestly improved through the quarter and into our fourth quarter bookings. Third quarter Locum Tenens segment revenue of $108.6 million was up 7% from the prior year but down slightly on a sequential basis.

The year-over-year growth was driven primarily due to 5% increase in the average bill rate and 1% increase in the number of bills paid during the quarter. Locum Tenens gross margin of 31.2% was higher by 50 basis points from the prior year and down 10 basis points sequentially. The year-over-year increase resulted in improved bill paid spread.

Third quarter other workforce solution revenue of 77.3 million was up 125% year-over-year and over 7% sequentially. Gross margin of 56.7% was lower by 220 basis points sequentially due mainly to having a full quarter contribution from [indiscernible] solution which we acquired in June.

Third quarter consolidated adjusted EBITDA of 58.1 million was up 27% year-over-year but down 2% sequentially. The adjusted EBITDA margin of 12.3% represented an improvement of 40 basis points over the prior year. We recorded net income of 27.3 million and diluted earnings per share of $0.55 for the third quarter.

Adjusted earnings per share of $0.62 compared to $.48 in a prior year quarter. Our tax rate was 37.5% which is lower than our guidance mainly due to the recognition of R&D tax credits in the quarter.

Cash provided by operations was 30 million for the quarter and 85 million year-to-date representing a 52% increase compared to the first nine months of 2015. The DSO outstanding was 64 days consistent with last quarter but still higher than our targeted DSO.

As of September 30, cash and equivalents totaled 16 million and totaled debt outstanding was $386 million. The third quarter leverage ratio was 1.75 times one compared to 1.9 times in the prior quarter. Capital expenditure for the third quarter were 5 million. Before turning to guidance let me say a few word about the bond offering we recently closed.

In mid September we announced the launch of $300 million private offering design to achieve multiple objectives. Most notably we saw an opportunistic fix rate debt at a historical favorable price that extend the maturity diversifies our capital structure and provides financial flexibility to execute on our strategic goals.

Due to significant over subscription and favorable returns we elected to increase the size of the offering to $325 million the procedure of which were applied to fully extinguish the amount outstanding under the revolver and repay a portion of our term loan.

As of the October 3, closing of the financing we have 65 million outstanding our remaining term loan and zero drawn on the $275 million revolver. In connection of the offering we reduced the amount of our interest rates from 100 million to 40 million. Now let's turn to fourth quarter 2016 guidance.

The company expects consolidated revenue of $473 million to $479 million. This 18%-19% year-over-year increase includes organic growth of about 10%. Gross margin is projected to be approximately 32.5% which is down sequentially due to seasonality. SG&A expenses as a percentage of revenue are expected to be approximately 21% to 21.5%.

Adjusted EBITDA margin is expected to be approximately 11.5% to 12%. Other fourth quarter estimates are as follows. Tax rate of 41%.

Stock based compensation expense of 2.6 million depreciation expense of 3.2 million acquisition and integration expense of about 1 million and diluted share count of 49.5 million shares which doesn't include any potential reductions from the recently announced share repurchase program.

Interest expense is projected at 5.4 million primarily reflecting the change in rate from the new bond offering. We are also expected to record 900,000 of non-recurring cost in connection with the offering. That concludes our prepared remarks. Now I would like to open the call for questions..

[Operator Instructions] Our first question today comes from the line of A.J. Rice with UBS. Please go ahead..

Hello everybody. Maybe just ask a couple questions.

Can you comment on what you are seeing in terms of MSP fill rates I know you quoted downtime much of the orders that you gave in your MSPs and the amount that you particularly able to fill is that trending in any different direction than what you reported before?.

Thanks for the question A.J. We are pretty confident that our fill rates within the industry are absolutely the highest. Our clients and new clients tell us that is why they choose and then as MSP provider. Fill rates have come down just a little bit at some clients and other clients have been steady.

We have always a supply constraint environment and orders are at a very high watermark right now, higher than last year and I mean in particular we have a lot of orders for what we would call our winter needs and we start to get those in the July time frame and so by nature of the fact that they are longer lead time orders you would expect that our sale percentage would be lower until we get closer to the actual placement date.

I hope that that makes sense but so we are not – at this moment our fill rates would actually be down but it has more to do with the timing of those orders than it does our success in filling them.

In fact, we just got verbal renewals on two of our largest MSP relationship and so we feel that our fill rates while they could always be better are what our clients need to deal with the challenges they have..

Okay.

And those comments that you made bake into my other questions one was in terms of the competitive landscape for MSP which you get – are you still characterizing I know you guys were really early in the lengthy segments which is still, very much change, maybe some other competitors have come in or it is pretty much the same and technically you are coding business, can you bring that under the umbrella of your MSPs or is that outside of the hospital MSPs?.

Yes. I will start with that one and I will have Dan take up on the competitive landscape for the MSP environment.

But yes absolutely the medical coding business can come in under our MSP relationship and contract one of the reason it was such an attracted acquisition for us because many of our MSP clients were asking us if we could provide coding services and so we have already begun that process of introducing them to those MSP clients in the process of getting them added to the contract.

Now it's only been a few months so we don't actually have a lot of placements from that but we would expect over time that we will be able to accomplish there what we have done with our other add-on business like leadership as an example.

We have been able to add the first string [indiscernible] into several of our MSP relationships and that's really helped fuel their growth. They are very engaged in the process to really becoming a part of that MSP strategic relationship. So Dan I will have you chat a bit about competitive environment..

Thanks Susan. Hi A.J. This is Dan.

I would say that just to characterize the bit of continuum of offers that we see probably ranges from client just using VMS software to manage the program themselves for middle of the ground might be a vendor neutral offer that firm probably doesn't staff themselves and then sort of the far end of the spectrum being staffing program and as you can imagine we service clients in each one of those sort of continuum areas.

I wouldn't say that the landscape has changed much from a competitive point of view meaning that I don't see any new entrance per say, I would say that the competitive nature of the business still remains very high. All of us obviously want to compete for the biggest and best of those client relationship and currently in our fair share of those..

Okay. Just maybe one more thing to add-on I think there are two things that are top of mind for any new MSP prospects or potential client. One is still rates, who has the greatest probability of filling the jobs that they put out, if we can't do that nothing else matters much and again AMN absolutely leads the way we believe in fill rates.

And second, multiple services having the ability to bring for multiple staffing and that works for solution services is something that we see being discussed at the table as they are considering which partners they want to choose and they are again AMN has the broadest and deepest suite of solutions that actually have traction and clients referral so a reference account.

So we think that that's why we often win particularly the larger ones because we can bring those multiple services to bear..

Okay and just the last one, I know Brian in the prepared remarks you mentioned that guys factored in seasonality third to fourth quarter and I know lots of times there is parts of the country whether it's Florida whether it's south west maybe where you see sort of a snowbird effect and seasonal pick up.

Can you just tell us I am curious this year whether you are seeing is you characterize this normal activity any more or less slower to bill, less to bill anyway you would characterize that normal seasonal pattern and the demand for nurse associated with it?.

Yes this is Ralph A.J. I will tackle that. We are seeing really kind of a normal seasonal trend. You are right we have increase in volume particularly in California but in kind of the warm weather state. We haven't seen any increases due to two seasons or anything like that as a matter of facts it looks pretty mild this year.

What I will say and I think Susan was kind of capturing this on note the winner orders are ahead of where they were last year and we are facing ahead of filling them from where we were at the same time last year.

So it maybe will see a little more benefit this year than in the past from both stronger orders slightly stronger orders and slightly higher fill rates but it's not that different than we have seen them the last year..

Okay great. Thanks so much..

Thank you A.J..

And we do have a question from the line of Tobey Sommer with SunTrust. Please go ahead..

Great. Follow-up on the most recent question.

In terms of the winter needs, when do those start and typically end the startle for QA and 1Q?.

Yes that's a really, really good question because it has slopped around sometimes based on clients worrying about the demand level and wanting to get ahead of their competition for travelers during the winter season.

So we typically get the orders in July, August and September but it starts to get really start in November and through January and so we have seen a little bit of shift last year from kind of the first quarter into the fourth.

This year should be similar to last year but lot of starts in November but it's just still a preponderance to the volume comes in January..

Thanks.

I wanted to ask question about the workforce solutions businesses kind of longer term there are collection of businesses and so maybe I will ask it from here from an aggregate perspective what on a ballpark basis what kind of growth rate you think the collection of businesses how should we think about that over the long term not guidance, not the fourth quarter that kind of compared the staffing businesses?.

Sure. We since most of the businesses in our other workforce solution category and also I would include the MSP program that have staffing revenue flow through them we would expect that they would grow at a faster pace than the core direct staffing businesses.

Now for the other workforce solutions things like the [Aventis] offering RPO I would suggest even VMS, they are more early stage and in early in their penetration and capability to really expand and build their business.

So just by nature of the fact that they have touched so few clients really at this stage they ought to be seeing rapid growth and you have absolutely seen I mentioned [Aventis] is growing 50% year-over-year. Now it's top of a small base but they are also looking at a very positive growth trajectory going forward.

RPO has been a little bit more lumpy as you might recall we had a fantastic year in 2015 and has come down 2016.

I would actually suggest that has more to do with the early stage of adaption by the healthcare industry itself and the companies like us that provide those services as we learn how to work together with clients and creating more recurring revenues sustainable relationship.

So I think overtime we would expect that industry to be growing at a faster clip and a very steady clip. So overall I guess the short answer they should grow faster than our staffing businesses and that means we ought to see the benefit of that both from a recurring revenue, less cyclicality and the profitability..

Thank you.

Could you update us on your plans to streamline internal systems and any kind of benefits or cost that we should be in look out for as we head into the next year?.

This is Brian. I will take that one. So as we mentioned on the last call we went live with our new staffing platform which is a talk about for is both – it’s an integrated solution that covers both the funds and back office systems and it's a multiyear project we are going through.

We put our local staffing business on the system in the second quarter and we continue to refine the system and it's not just the technology itself but the operating model and how our team interacts and there is pretty significant change from the systems that we were using before.

So we are seeing good signs from it but there is still work to be done there. We are currently going through the process of developing the system for our local business and we would expect to go live on that solution later in 2017. So as it relates to 2017 there won’t really be a significant amount of benefits.

It really is going to start to flow through more in 2018 as we get efficiency on the local platform and then ultimately move the travel business on there in 2018 as well..

Okay. Thank you. And two other questions I am wondering if you could comment on pricing across the segment and in the labor disruption area does the third quarter or fourth quarter represent sort of de-emphasis of that business.

Any kind of color on the levels that you saw on the quarter in regarding to the fourth quarter will be helpful?.

So first regarding the labor disruption business and for those are familiar we acquired HSG in January of this year to help our client to manage through these labor disruption situations that we had been actually doing some of that in the prior years but it became a bigger distraction.

So we decided that we would bring in an organization team HSG who is expert in doing this and it would be less of a distraction and we do a better job of helping our clients.

So in first and second quarter we had a couple of surprised strikes that occurred and the team did an excellent job assisting with those in the second quarter the revenue from that business was 19 million and in the third quarter it was around 2 and so that's the nature of this business where you may have some quarters where you only have consulting and advisory related fees which is where the 2 million comes from.

There were no significant strikes in the third quarter. And that's what we are projecting in the fourth quarter as well. Now we could be surprised and there are a few situations that are certainly hanging out there. And if they come to proliferation then we might see some upside there.

We typically don't include that in our guidance unless we are certain or actually in the midst of actually staffing the strike itself. And that will be the nature of this business I think going forward and so we will typically try to be conservative.

It is not the de-emphasis as we have those situations arise we always have to evaluate that particular opportunity, the clients the type of strategic relationship we have or don't have with them, the economics what other demand we have that we are trying to fill at that time and so there could even be strikes as they were in the third quarter that we decided not to participate in.

And so that's I think what you will see going forward..

Thank you for that. Maybe you could comment on pricing. That would be helpful. Thank you..

Ralph take the pricing question..

As we talked about earlier the bill rates continue to be strong. We are up 5% in the nurse and allied segment. Not a lot of movements sequentially there. But still a good pricing environment and really though most of that as I can see from the margins is going back to the nurses and to slightly higher housing cost Locum also strong pricing market.

5% year-over-year and about the same sequentially I think. I am sorry about 0.5% sequentially so not the same sequentially but pretty even with the prior quarter. And then the market there is good as well for getting price increases certainly we think some additional outside in the Locum business.

And the labor market still almost all time high in terms of jobs open, the number of jobs getting filled. It's isn't going up any higher pay so we anticipate the pricing environment to continue to be good for our businesses..

Thank you very much..

Thank you Tobey..

And we do have the question from the line of Tim McHugh with William Blair & Company. Please go ahead..

Yes. Thanks.

First can I ask about the in the Locum area you talked about seeing improvements and I guess your ability to fill the PG-1, how far off do you think you are before I guess you can really start to have higher fill rates and start to see that growth rate improve?.

Good question. Tim this Ralph.

So the I think we mentioned this in the last call we have a couple of the large physician practice management client, MSP client and if you like the space closely I think some of you doing -- does you have probably seen that there is a little less movement of in and out of physicians practice management over the last year or so.

Some settling down I guess. Part of our business in that area is driven by when one physician practice management company replaces another or when a client decides that in source versus outsource and so there was a lot revenue in some of our past quarters.

We haven't seen much of that activity in the last couple of quarters and so that's cause a little of slow down.

Now the upside has occurred really more in due care systems where some of our newer winds are due care system who use a light amount of Locums but in markets that didn't overlap really well where physicians were already based and so we are in the process of moving unusual fill rates like in the first quarter of new Locums MSP can be 10% not very high while we spend up to six months getting our people credential and privileged for those assignments.

We do anticipate in most cases we will get up to 50% or even higher on those accounts and we are seeing quite a bit of progress on those that's why I think we feel a little bit better about where Locum is trending. And actually did finish Q3 slightly stronger than we expected as well..

Okay.

If we were to think of the 250 million of kind of MSPs you have there, including what's under contracting I guess in terms of gross spend, how I guess penetrated are you of those at this point? How much of that ramped up versus more in the future that could contribute to growth from this point?.

Tim this is Dan. I will take that one. So the new ones that are coming into under contract that's about 100 million I would say 80 million of that 100 million is incremental to us. So a good, good chunk of it is incremental to us..

Is that because it's new region or new service areas?.

Meaning that we didn't have much direct relationship with them prior to that so it's not necessarily about the region or anything else. It's just the different deeper relationship I think..

Okay. And getting back to the strike kind of revenue labor disruption revenue what is the debate internally you mentioned it sounded like you elected not to participate in some of the structures there, I agree there are some big ones that some hospitals you have worked for in the past.

And so what’s the trade off it's just the bill confidence in filling it, is it pricing, I guess how should we think about that in the future?.

Yes and yes and yes it's really variety of things. It's the economics of the opportunity.

It is what the competing and opportunities are for us at other client where we already perhaps have orders that we are need to fill and not wanting to distract supply or our team from those even though we might have a different pool of strike related nurses if you will sometimes we also tap into our broader network as we should, our broader database and so we need to be confident that we are not going to distract but I would say it's probably more to do with economics and the management relationship we do best when HSG is the primary manager of the labor disruption process starting from the early advisory, consulted stages through the actual management of the strike.

So when they are not the primary manager are less likely to participate in the strike. It doesn't mean we won’t and as we said we have sometimes in the past but we are probably less likely to pull that trigger unless we really feel we need to..

Alright. Thank you..

Thank you Tim..

And we do have a question from the line of Jeff Silber with BMO. Please go ahead..

Hey guys it's Henry Chen on for Jeff..

Hi Henry..

Hi.

I just had a question on well some of the public hospitals that are reported seemed to be having some weakening trends in admission, just wonder if you can touch a little bit upon any changes of any that you are seeing from your client in terms of demand order and any more probably for entering into a more slower type growth environment how you think strategically how you would sort of adapt the companies to that?.

Well, we really haven't seen that any sort of material change in the demand behavior for our clients. I think we mentioned a couple of times demand is up year-over-year. And really our biggest constraint continues to be the ability to attract and credential place more than supply although I have to say the team is doing an outstanding job.

If you look at our travel nurse business for example I think about the third of our nurses working on first time traveler with us, which would come from new applications as well as doing a better job of engaging our existing database you get those first time travelers to work.

And there is always more than we can do but our road block to growth is really not demand at this point it's more supply related and then in getting to what we hearing from our clients and any behavior changes we are actually hearing that they are going to want and need more from us I mentioned the healthcare workforce that we had in October and it was such a great opportunity to sit in the room with about 150 to 200 healthcare leaders from the variety of organizations and settings across the country.

And the message from them was very consistent.

They are struggling with vacancies, turnover, and they are very concerned about the aging clinical population and what that's going to do not only short term but long term and yes they are trying things but those tactics aren't particularly new nor are they making any sort of material difference so they are really wanting to think about how they can approach this in a different way which gets to more workforce solutions whether it be MSPs the MSS, the Aventis organization that helps some predictive analytic so I know it's kind of a long answer but we have to look at both the current data which is strong in terms of the demand that we have but also listening to our clients and what they are going to need from us a year plus from now and they are indicating they are going to need more from us.

In fact, is ever complaints it's AMN we want you to fill more about of our jobs..

Okay that's great to hear.

And just a quick follow-up I think you mentioned this briefly about the local base business theme just little weak on the quarters just wondering if you can clarify on that?.

Yes this is Ralph. I will handle that. Our Locum business is down about 15% of the quarter.

It's really only about kind of 7% of the whole nursing allied segment so put it in perspective the issues there is really kind of both the internal and external on the external basis, we’re recruiting the challenge in this market because there is so many full time and long term travel nursing jobs and kind of share that same supply database and work one shift at a time, moonlighting which is one of the applicant sources for them is down because they can get additional shifts with their core jobs.

So those are – that's impacting them as well and then as you heard we recently started changing the processes and technology and we had to pull a lot of people into meetings to help design that technology and we think that's also impacted their business. It's important business to it and so we continue to make it more and more effective overtime.

I think you probably remember when we first got in this business we were worried about the margins and so we to optimize it quite a bit to get it back to a more healthier margin.So, we continue to support growing that business. So, truly kind of majority of the issues there, I don’t know I missed any looking around the room now and I guess I'm fine..

Okay. That could be right. Thanks so much, thanks for the color..

Thank you, Henry..

Thanks, Henry..

And we do have a question from the line of Randy Reece with Avondale Partners, please go ahead..

Good afternoon..

Hi, Randy..

Hi. We've known for a while that you are going through a soft patch with the RPO and the permanent placement business also is a little bit slower not just with you but with everybody. And your guidance kind of works out to flattish sequentially revenue there.

My questions were first of all I was wondering what the organic growth rate of the other workforce solutions business look like for the third quarter and what was implied in the fourth quarter guidance?.

Sure. So, the third quarter I think I mentioned some of the other workforce solution businesses like Avantas being up 50% year-over-year, the VMS business has been up 30%.

Leadership, which we didn’t own all of that last year was a bit on a proforma basis was up 20% and our physician business actually sequentially I think you are mentioning the physician current placement this has been flat.It’s usually down a little bit and that’s a very typical seasonal trend.

So, they or continue to see more normal patterns going forward into 2017. I'll then addressed RPO because that one has been a little bit more of a rollercoaster ride through the year..

So, Randy, this is Dan. Just a little bit of color on last year versus this year. Last year we had two very significant one year contracts that were about 40% of the annual revenue. And we successfully completed those, very satisfied customers, but they were annual and so they were basically done in that sort of January February timeframe.

And so, we've been very successfully kind of chipping away at that gap. And as a good example of that, just this quarter we signed five new contracts with annual value of about $4 million.

And so, you can see that that on top of last quarters similar kind of a performance.It's helping us chip back into where the big hole, that's essentially that those two big one, your projects left us with. On the other hand, I would also say that the market for RPO is moving from this really early adopter, almost skeptical point-of-view.

It's a really much more acceptance and these deals that we're seeing now are more common to be two and three years as opposed to just one. So, I think there is a little bit of positive movement. From a buying perspective, there's also I think terrific activity from the sales team.

And then finally, our existing clients do continue to renew and expand as well. So, while it was certainly a big host of sale, I really feel quite positive about where we are..

This is the one segment that is the most perplexing trying to forecast, there's not a whole lot of historical restated financials for it. And there's been numerous acquisitions along the way.

So, with the mix which you have right now, is there a typical expectation for how much what percentage of annual revenue would fall in each quarter of the year? Is going to be linear looking or is it going to be really seasonal?.

So, Randy, this is Brian. So, that the percentage of the total revenue, I mean it's about 16%. It's really not going to move materially..

On the segment revenue..

If the segment is --..

If you look at the segment, the annual revenue, what percentage would be typically in the first quarter, second, third, fourth quarter? Is it going to look like a linear ramp through the year or is it going to be heavier in particular quarters and the others?.

Sure.

Yes, just more seasonality then you're asking, does it bind still?.

Yes..

So, typically the fourth quarter would be down a little bit as you historically the prime place of business is you know was we're usually down a little bit in the fourth quarter. Our leadership business is candy as well. And so, collectively, those are the some of the larger businesses. It's not uncommon for to be down a little bit.

Just normal seasonality. And then it should go really from there, it sequentially for second and third quarter..

Very good, thank you very much..

Sure..

And we do have a question from the line of Mark Marcon from Robert W. Baird. Please go ahead..

Good afternoon. Wondering, can you talk a little bit about the just the pricing environment as it relates to just the travel nursing side and what sort of inflation rate you would expect to see there. I apologize if the question has already been asked. But I have to put the conference call..

Thanks, Mark. So, yes, we did share a little bit of colour on pricing which has been strong and consistent running about 5% at low employments but also within nurse and allied. And we expect that to be quite consistent for the next couple of quarters.

We do think that going into next year, we will come down to something that looks more like nurse wage inflation. So, we've generally said 3% to 5%, like could be 2% to 4% but generally in that range. As we are signing new contracts and some of these newer MSP deals that we mentioned earlier, they are coming in at a higher level.

So, that gives us confidence that we will continue to see at least that sort of reasonable level of increase in. not surprising because as we keep saying demand is still at a very high level and so in order to compete for that scarce supply, we do have to keep up with the rising nurse wages as well as housing cost and other things..

Okay, great. And then this in terms of thinking through the gross margins just on nurse and allied.

How should we think about that particularly with rental expenses?.

Hey, this is Brian. Hey, Mark. Well, as I mentioned in our prep remarks that the gross margin in nurse and allied improved a little bit. In some of our recent bookings it's you got a little bit of a headwind in the fourth quarter seasonally as you have a lower hours worked.

So, even as you're negotiating maybe as probably a better margin placement, it's offset a little bit in the quarter by just some seasonality as well. But as we've mentioned in the last couple of quarters, we -- our margin has come down a little bit over the prior year.

Some of it on the bill pays but we expected as Ralph mentioned, we have been deliberately trying to increase pay rates with the bill rate increases so that we can attract more clinicians and fill more orders. We are then trying to maintain our margins and it come down some but as we're -- is worth looking at our packages on any placement.

We're trying to chip in a way at getting that margin back a little bit. So, I'd say you'd expect very modest improvement quarter-to-quarter over the next few quarters. But we're more focussed on growing volumes, attracting supply and fill rate..

Got it.

And then Brian, can you just repeat some of the numbers that you gave us in your prepared remarks just in terms of with regards to the guidance so specifically share count, tax rate, etcetera?.

Sure. Yeah, of course, yes. But then the tax rate I said was 41%, was lower in the third quarter, so discreet at credits we had in the third quarter. But fourth quarter a 41%, stock comp at 2.6 million, depreciation 3.2 million, share count I said 49.5 million and then interest expense at 5.4 million..

And then, can you talk a little bit about what you're seeing in terms of potential acquisition targets, I mean, with the capital that you currently have. You certainly have more room to and to pursue things..

We are absolutely looking as been vocal about for several quarters now.

And as you know we were fortunate to add Matthew Zubiller on to our team in July to help give us more focus in time to make sure that our acquisitions are lining with our strategy and to also make sure that we're recalibrating our long term strategy as appropriate with what our clients need and where the market is.

So, we are actively looking and making sure that we are aware of what's coming available but also building relationships with organisations and that we think might not be interested in selling today but might be interested in the next couple of years.

And that's quite honestly where we'd had some of our most successful acquisitions, since where we built our foreign relationship over the year as opposed to some profits that just pops up on the radar. But we'll look at those. And the areas that we're looking at would be additional workforce solution.

So, additional services that help us to help our client with this whole process of recruiting, on boarding, developing, optimizing, the workforce. Second, would be new categories. So, think of the leadership businesses that we recently added and the coding businesses as new categories that we weren’t provide incredulously.

We certainly could look at additional acquisitions in both of those categories because we're very excited about both of those segments of the industry and we think we can and should and increase our footprint. And then the third area would be consolidation price.

Opportunities to double down on some of our existing businesses and we'll be very opportunistic about that. Certainly when bill rates are so critical. And we may be having challenges in areas like locum wanting to attract and place more supply of candidates. That would be an attractive area as an example. So, hopefully that's helpful, Mark..

It's very helpful. Thanks..

Thanks, Mark..

And we do have a question from the line of Matt Blazei with Lake Street Capital Markets. Please go ahead..

Hello, everybody. Most of my questions have been asked obviously here over the last what was 30, 40 minutes. But I did have one question and then that goes back to the sort of the gross margin outlook for the other workforce solutions.

You mentioned that it had, it had, and it's come down a couple of 100 basis points this quarter because of the acquisition of Peak.

And I'm wondering if that sort of sets the baseline here for gross margins or is there a mix shift still to come that may alter that one way or the other?.

This is Brian. I would say it's a reasonable baseline for going forward certainly on a quarter-to-quarter based on the growth rates of each business line. It may fluctuate but I think that where it is now is a reasonable way to look at it.

And along that line too on the EBITDA margin we talked about it being in the mid-20s and I think in the near term at least that think a reasonable place to be thinking about it as well..

All right, I appreciate it. Thank you, guys..

And we do have a question follow-up question from the line of Tobey Sommer with SunTrust. Please go ahead..

Thank you. I want to ask a question about how the shifting healthcare services landscape were the more outpatient clinics and more venues to receive service impacts the demand for labour. So, as the kind of more dispersed areas to receive service. Do you think that is a of kind of a fundamental driver of the demand in itself.

How much longer do you think that this trend impacts demand for temporary healthcare professionals? Thanks..

Yes, Tobey. We absolutely think it's having an impact and it's not just us.

Our clients tell us that they think some of the labour challenges that they are seeing are because clinicians have more opportunities and as you see growth in an outpatient setting, then retail clinics and urgent care, they are pulling that scarce labour into those other settings. And they don’t expect that to change anytime soon.

In fact they think it's going to get work as you see greater growth in those categories. Now, they're not necessarily large employers today but as they continue to grow at a faster pace, they're going to continue to draw more of that labour supply away from the acute care settings.

So, we absolutely think it's contributing now but it's likely to be a contributor going forward as well. Now that certainly creates a demand opportunity for us in the acute care setting. It means that our clients have par. We also have opportunity in those alternative settings. And so, we absolutely are working with clients in all of those settings.

I mentioned at the healthcare workforce I mean we had many participants that were from those other settings and they are also concerned about making sure that they get the right labour.

And we're actually been signing new contracts with these new kinds of organizations and organizations that perhaps didn’t use any temporary labour just a couple of years ago and now are seeing it as part of an integral part of how they manage their workforce going forward. And as well as services like Avantas and our VMS solution..

Thank you, very much..

Thank you, Tobey..

And at this time, it is clear, there are no other further questions in queue. Please continue..

Great, thanks Brad. Well, thank you everyone for joining us on the call today. We look forward to updating you on our progress and the results next quarter..

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect..