Neil Thomas - Senior Director, Investor Relations Susan Salka - President and Chief Executive Officer Brian Scott - Chief Financial Officer Ralph Henderson - President, Professional Services and Staffing Dan White - President, Strategic Workforce Solutions.

Tobey Sommer - SunTrust A.J. Rice - UBS Jeff Silber - BMO Capital Markets Randy Reece - Avondale Partners Mark Marcon - R.W. Baird Tim McHugh - William Blair Brooks O’Neil - Lake Street Capital Bill Sutherland - Benchmark Company Mitra Ramgopal - Sidoti & Company.

Ladies and gentlemen, thank you for standing by and welcome to the AMN Healthcare Fourth Quarter and Full Year Earnings Call. [Operator Instructions] And as a reminder, today’s conference is being recorded. I would now like to turn the conference over to Senior Director of Investor Relations, Neil Thomas. Please go ahead..

Good afternoon, everyone. Before we begin, we want to apologize for the accidental early release of some financial information. After becoming aware, we notified the NYSE to halt the trading in our stock. We subsequently issued our press release with complete information as quickly as possible. Now, on to the call.

Welcome to AMN Healthcare’s fourth quarter 2017 earnings call. A replay of this webcast will be available until March 2 at amnhealthcare.investorroom.com, following the conclusion of this call. Details for the audio replay of the conference call can be found in our earnings press release issued this afternoon.

Various remarks we make during the 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.

Our 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 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 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..

Thanks so much, Neil. Good afternoon, everyone and welcome to our quarterly earnings conference call. 2016 was another milestone year for AMN Healthcare as we executed against our long-term strategy by expanding our portfolio of solutions and delivering record revenue and profitability.

Our revenues grew by 30% to $1.9 billion, including 17% organic growth with each of our business segments generating double-digit growth. Our largest business of travel nurse staffing contributed the greatest revenue increase with 25% year-over-year growth.

Our strong top line performance and targeted investment strategy resulted in adjusted EBITDA growth of 43% and a margin of 12.5%, which is 120 basis points higher than 2015. You might recall that just 5 years ago, our adjusted EBITDA margin was about 7%.

We have been able to improve margins over the last several years by increasing the mix of our higher margin workforce solutions, expanding gross margins in our Locum Tenens business, gaining operating leverage and continuing to invest in efficiency improvements.

This performance keeps us on schedule with our stated goal of achieving a 14% adjusted EBITDA margin by 2020. During 2016, we welcomed three companies into the AMN family, adding new solutions in executive leadership recruitment and staffing, medical codings and labor disruption services.

Through continued expansion of existing clients and winning new contracts, we were also able to grow our MSP and VMS gross spend under management to over $2 billion. Many of our businesses achieved record high revenues and profitability.

Additionally, AMN was honored with several awards highlighting our commitment to corporate governance, innovation, industry leadership and the engagement of our amazing teams. While producing these strong results, we also remained focused on AMN’s future and delivering value to our shareholders, resulting in a 24% total shareholder return.

We strengthened our capital structure by securing $325 million in new unsecured notes at historically low pricing. We also opportunistically repurchased nearly 0.5 million shares under our newly authorized share buyback program.

No year is ever perfect, but 2016 was a year that delivered many new records and great value for our clients, our healthcare professionals, our team members and our shareholders. It was also a year where we could tangibly see our workforce solutions strategy paying dividend for all.

We finished the year strong with fourth quarter revenue of $488 million, 21% higher than prior year with 10% organic growth. The year-over-year growth was across all reportable segments. Our adjusted EBITDA of $61 million was 30% higher than prior year and represented a margin of 12.5%, which is 90 basis points higher than prior year.

Our Nurse and Allied Solutions segment posted fourth quarter revenue of $308 million, higher by 17% year-over-year. These results included about $10 million of labor disruption project revenues in excess of our guidance. Year-over-year, organic growth for the quarter in this segment was 12%.

Fourth quarter revenue for the largest business in this segment Travel Nurse staffing hit an all-time high and increased 15% year-over-year. This is an all-organic growth and reflects another quarter of exceptional execution by our sales, service and clinical teams in a strong demand environment.

They are doing an outstanding job of growing the number of travelers on assignment and in particular, filling positions for our MSP clients. MSP related placements now represent over 60% of the revenue for this business.

In the fourth quarter, the allied staffing division achieved another record quarter of revenue, growing 12% year-over-year all-organic growth. Volume has been the primary contributor of growth in this business. MSP has also been a key driver of the revenue and profitability growth and now represents approximately 40% of this division’s revenue.

Looking ahead to the first quarter, we expect the Nurse and Allied segment revenue to be up approximately 5% year-over-year.

Excluding our labor disruption business, which you might remember had a large project in the first quarter of 2016, the Nurse and Allied segment is expected to be up 8% to 10% year-over-year, being driven by both volume and pricing. And as a reminder, there is 1 fewer day in the first quarter of 2017 due to last year being leap year.

This has about a 1% impact on a year-over-year basis. In the Locum Tenens segment, fourth quarter revenue of $104 million is 5% higher year-over-year driven by both volume and pricing increases. Demand in the Locum’s market continues to be strong. Many of our specialties experienced year-over-year growth.

However, this was partially offset by reduced utilization in a few of our larger Locum’s MSP clients. We also experienced softness in our Locum Leaders brand, which represents less than 10% of this segment’s revenue.

During the fourth quarter, we promoted a proven leader into the President role of this brand and we are confident that performance will improve as we move forward. Considering these factors, first quarter revenue for Locum Tenens is expected to be flat year-over-year.

Fourth quarter revenue in the Other Workforce Solutions segment was $76 million, which is 89% higher year-over-year. As a reminder, this segment includes our interim leadership and placement businesses, physician permanent placement, RPO, workforce optimization, VMS solutions and the medical coding business.

Our leadership business revenue in the fourth quarter is up 11% year-over-year on a pro forma basis. We are experiencing both volume and pricing growth as well as benefiting from cross-selling opportunities into MSP clients.

I would like to give a particular shout-out to the team at The First String who had significant growth in their interim leader volume, hitting another record high in the fourth quarter. As we begin 2017, demand remains strong for both interim leaders and permanent searches.

Fourth quarter revenue from the VMS business was up over 20% year-over-year as we continue to add new clients and expand existing relationship. We currently have approximately $1 billion in vendor neutral spend flowing through these vendor management technology platforms.

The Medefis and ShiftWise teams are in the process of adding new capabilities to help our clients efficiently manage their staffing partners and vendors in their other contingent worker categories. Our VMS businesses are poised for another year of double-digit growth.

Avantas, our workforce optimization offering, continues to expand into new clients and settings and grew fourth quarter revenue by nearly 30% year-over-year. Their pipeline looks robust as we begin the New Year.

The physician permanent placement business fourth quarter revenue was down 3% year-over-year, primarily due to lower search activation and placements in both our retained and contingent search businesses. We believe the underlying market demand remains strong and provides plenty of opportunity for growth in this business.

As we begin 2017, we are experiencing sequential improvement in search and placement trends. However, since we are beginning the year at a lower starting point, we expect this business to be relatively flat year-over-year in the first quarter. Peak Health Solutions, which joined the AMN family in June of 2016, had a solid quarter.

We were proud to recently announce that Peak Health was recognized as the Category Leader for Outsourced Coding in the 2017 Best in KLAS Awards. We expect steady growth in this business in the year ahead. Overall, first quarter revenue for the Other Workforce Solutions segment is expected to be up approximately 15% year-over-year.

As we look forward in 2017 and beyond, our focus remains on growing our existing businesses, expanding our service offerings and investing in our team and internal operations to drive efficiencies.

As we evaluate the external macro drivers of our business, we continue to see many positive long-term signs; the improving economy, the aging population and the aging healthcare workforce. In addition, the healthcare industry is experiencing some of the highest levels of attritions and vacancies that we have ever seen, even at the leadership level.

These factors plus other secular trends like consolidation of healthcare systems and the growth of patient care in non-acute settings are causing the need for more sophisticated and scalable solutions.

Healthcare organizations are telling us that they want a more integrated approach to the way they manage their workforce, both permanent and contingent across multiple settings. This provides a great opportunity for AMN to further differentiate ourselves by expanding our suite of workforce services and technology solutions.

In the near-term, political dialogue regarding the potential changes to the Affordable Care Act and the impact of a new administration creates some amount of uncertainty. This has caused some apprehension in decision making across many industries, including healthcare.

We will continue to find ways to remain agile and be responsive to the needs of our clients in this dynamic environment. Our strong results today and our positive outlook for the future is made possible by the hard work and dedication of AMN’s very talented team members.

Their passion and excitement for our business shines through in the excellent customer service they provide. We are extremely proud of our entire team and want to thank them for all of their hard work. Now, I will turn the call over to Brian for a financial update, after which, Ralph and Dan will join us for the Q&A section of the call..

Thank you, Susan. Good afternoon, everyone. The company’s fourth quarter reported revenue of $487.9 million was above the high end of our guidance range with solid performance across all segments. These results included about $10 million of labor disruption project revenue that was not included in our guidance.

On a sequential basis, excluding this excess labor disruption revenue, fourth quarter revenue was up 1%. Gross margin for the quarter was 32.5%, in line with expectations and down 20 basis points from both last year and last quarter. SG&A expenses in the quarter totaled $101.1 million or 20.7% of revenue.

SG&A expenses, as a percentage of revenue, declined from the same quarter last year by 170 basis points due mainly to operating leverage. Fourth quarter nurse and allied segment revenue was $307.9 million, an increase of 17% from the prior year and 7% sequentially. Excluding our labor disruption business, sequential revenue was up 4%.

Volume was higher by 9% year-over-year while the average bill rate increased by 5%. Nurse and allied gross margin of 27.3% was 20 basis points higher compared to the prior year and 60 basis points higher sequentially.

The higher sequential margin was due mainly to a higher margin on the labor disruption revenue offsetting higher than normal sales adjustments. As noted last quarter, the underlying gross margin trend for the segment has been steadily improving.

Fourth quarter Locum Tenens segment revenue of $103.8 million was up 5% from the prior year but down 4% on a sequential basis. The year-over-year growth was driven primarily by a 4% increase in the average bill rate and a 2% increase in the number of days filled during the quarter. The sequential decline was in line with normal seasonal expectation.

Locum Tenens gross margin of 30.8% was down 40 basis points from both the prior year and prior quarter. The decrease was due mainly to a specialty mix shift and lower perm conversion fees.

Locum Tenens SG&A in the quarter included about $3 million in net favorable reserve adjustments, the majority of which related to our professional liability reserves. Fourth quarter other workforce solutions segment revenue of $76.1 million was up 89% year-over-year, but down 1% sequentially.

Gross margin of 55.7% was lower by 100 basis points sequentially due mainly to revenue mix changes within the segment. Unallocated corporate overhead in the quarter was $18.6 million, representing 3.8% of revenue.

This included about $4 million in net unfavorable adjustments with the majority due to an increase in legal reserves related to potential wage and hour class action claims. Excluding these adjustments, corporate and allocated expenses were consistent with the prior year and prior quarter at 3% of revenue.

Fourth quarter consolidated adjusted EBITDA of $60.9 million was up 30% year-over-year and 5% sequentially. The adjusted EBITDA margin of 12.5% represented an improvement of 90 basis points over the prior year. We reported net income of $26.4 million and diluted earnings per share of $0.54 for the fourth quarter.

Adjusted earnings per share was $0.62 compared to $0.47 in the prior year quarter. Cash provided by operations was $47 million for the quarter and $132 million for the full year, which compares to $56 million in the prior year. Days sales outstanding at year end was 64 days, consistent with last quarter and last year.

As of December 31, cash and equivalents totaled $11 million. Capital expenditures for the fourth quarter were $4 million. As noted on the last call, on October 3, we closed on a $325 million unsecured notes offering, providing additional flexibility for acquisitions to expand our workforce solutions strategy.

Interest expense this quarter was $6.4 million, which included $900,000 of one-time costs related to the refinancing. At year end, our total debt outstanding was $369 million. Our year end leverage ratio was 1.6x to 1x. As Susan noted earlier in the call, during the fourth quarter, we repurchased just over 443,000 shares at an average price of $29.88.

Now let’s turn to first quarter 2017 guidance. The company expects consolidated revenue of $489 million to $495 million. This guidance assumes no material labor disruption related revenue in the quarter. Gross margin is projected to be approximately 32.5%.

SG&A expenses, as a percentage of revenue are expected to be approximately 20.5% and adjusted EBITDA margin is expected to be approximately 12.5%. Effective in the first quarter, AMN is adopting a new accounting standard relating to the settlement of stock based compensation.

As a result, we are currently estimating an income tax benefit of approximately $5 million in the first quarter.

Other first quarter estimates are as follows; an income tax rate of 41% excluding the previously noted tax benefit, stock based compensation expense of $2.7 million, depreciation expense of $3 million, integration expenses of $400,000 and interest expense of $5.1 million. Diluted share count is estimated at 49.3 million shares.

That concludes our prepared remarks and now we would like to open the call for questions..

[Operator Instructions] Our first question will come from the line of Tobey Sommer with SunTrust. Please go ahead..

Thank you very much. I had a question for you.

Maybe you could describe how much your revenue generating headcount – internal headcount is up year-over-year and maybe what your plans are for a rate of growth as you look into ‘17?.

This is Ralph. I will take the first half of that. Our recruiter headcount across all of our businesses, I’ll start with travel nursing is about 16% and year-over-year and about 5% in our Locum’s business. Our allied business is actually pretty flat year-over-year.

They have just got kind of more efficient and we had rolled a couple of businesses together to take advantage of synergies we could get there. And the full year of ‘17, I’ll leave that question to Brian having industry growth rate – you probably have access to the same numbers we do, somewhere in the neighborhood of 6%..

We – I mean, the short answer is we expect to continue to add to our sales teams throughout the year across the company. We do believe we have some ability to gain more productivity out of the still somewhat younger sales team that we have.

We have a higher mix of new recruiters, particularly in nursing, that have been with the company for less than a year. And as you know from following us over the years, it takes 1 to 2 years before a recruiter really is at what we consider sort of their full productivity and even beyond that.

So, we think we have the ability to grow our volumes without having to grow quite at a comparable rate in our headcount..

Thanks. In the Other Workforce Solutions segment, I was wondering if you can make two comments. You’ve got the various businesses in there, I think if I heard you correctly, you are guiding for about 15% growth year-over-year in the first quarter.

How do we think about this business in a growth rate longer term given the mix? And I know there are kind of different elements contributing to that. Thank you..

Yes. So, it’s – all of the businesses were operating at the level that we think they are capable of than we would expect to see this segment growing faster than our staffing segments. And in many cases they are.

You heard me talk about Avantas growing at near 30%, VMS going well north of 20% year-over-year in the fourth quarter, double-digits in the leadership businesses.

But we have had an offset there with RPO actually being down on a year-over-year basis, because we had such a phenomenal 2015, in particular, driven by a couple of large projects with a couple of clients and we have not been able to quite replace that.

So, if we were able to get all of those businesses humming along at what they are capable of, then we would expect to see higher top line growth than in our other segments. And then from a margin standpoint, generally, we think of this collectively as north of 25% EBITDA margins.

There are some that are quite a bit higher than that, but on average, that’s what we look to..

Thanks. And the last one for me is if you could just comment about M&A, what you are seeing to contribute to the growth in the Other Workforce Solutions? Thank you..

Yes, thanks for asking, Tobey. We are actually really pleased with the conversations and the relationships that we are building. We want to be in a position to have several attractive M&A opportunities as we go forward.

And as you know, we have added to our executive team over the last year to make sure that we have a daily focus on making sure we are building those relationships as well as looking at the right categories and segments.

We are doing more work with our clients and prospective clients to make sure that we understand their biggest pain points and the areas of interest for us to help them with. And I can tell you that fortunately, we were very much on track from what we heard. But it helps us to dial in and be a little bit more focused on the particular areas.

I am not going to list them for competitive reasons, but generally, I would put them into the bucket of workforce solutions and many of which would have a technology element to them.

But it doesn’t mean that we won’t look at also other staffing categories within healthcare that could help us be a stronger partner for our clients or perhaps to bolster our ability to fill our jobs in areas where we are having more challenges and particularly, where we have MSP clients that we have commitments to.

So we are looking across the board, but I would say, in particular, building a lot of rapport with companies within the workforce solutions space..

Thank you very much..

Thanks, Tobey..

Thanks, Tobey..

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

Yes, hello everybody. Thanks for the questions. Just a couple of things actually. In the prepared remarks, you are mentioning that vacancy rates are stepping up attrition and so forth.

Is it the same dynamics that you have been seeing before people becoming more comfortable with the economy and maybe being one to ease up on hours or even go on and take that retirements they have been postponing or is there anything new that’s going on that’s contributing to that, that you are seeing?.

So yes, it is a continuation of those themes that you have mentioned, then they show up again and are validated in the JOLTS report that was issued for December.

We once again, as a country, remained at historically high levels for the number of healthcare job openings, increasing actually by 12% year-over-year, the number of hires only growing by 2% and quits remain at a very high level and that absolutely lines up with what we anecdotally hear from our clients everyday.

In fact, right now, in particular, I would say that we are hearing a lot of frontline frustration from our clients, because they are having such high attrition and they – we are at this time where perhaps their administrations are still kind of holding back on uncertainty or just kind of holding back on budgets.

And so they are very, very frustrated, because they desperately need that staff.

The only other new thing that we are hearing and again it is anecdotal still is the impact of the workforce not wanting to work as many hours and some of that is an impact of the economy, some of it is a generational issue where some of the newer clinicians, whether they would be millennials or well into their 30s, are not wanting to work as many hours.

They are not wanting to work weekends and they are not wanting to pick up the night shifts. And so that’s creating frustration as they have an aging workforce that is pulling back or leaving. That’s probably the one new thing and it’s probably not likely to change, unless we see some sort of major economic changes..

Okay. And then maybe somewhat related, I guess. You are – I think if I heard Brian say right that the average bill rate in the Travel segment is up about 5%.

Any comment on whether you are seeing upward pressure on that? Are people, in order to get nurses, willing to come and say, hey, we need rate relief and – or we need to get – pay more to get them, I guess? And then alternatively, are you finding that you have to reach to a little bit to get the staff that you need?.

Yes, this is Ralph. I will start with that. And we are really kind of seeing that stable pricing market at around the 5% that Brian gave in the prepared remarks.

One of the interesting trends in – several years ago, we started adding rapid response nursing and our brands in that is called NurseChoice, to all of our regular travel nurse agreements so that in the event that you couldn’t attract supply, right, you didn’t just have to raise your bill rate, you had to actually a second bill rate option and sometimes called a crisis [indiscernible] rate.

And so the utilization of crisis rate is way up on a year-over-year basis. So we have seen continued increases there. A bit regional in nature, some of the markets, we kind of take a look at them year-over-year, might look pretty flat and others like the East Coast seem to be stronger right now in terms of raising bill rates.

And it is a way for the clients to attract supply. And they are looking at vacancy, they are hurting patients, they are losing out on revenues, so they are – in most cases, the wiser ones are implementing, right, utilization crisis rates or raising the regular bill rates, so the pay rates go up. Correspondingly, they can attract new supply..

And our next question will come from the line of Jeff Silber with BMO Capital Markets. Please go ahead..

Thank you so much. In your discussion about the Locum Tenens segment, you mentioned I think it was reduced utilization with some large MSPs. Forgive me, is that something that just happened this quarter, has this been going on for a while and if not, are there any aspects that you are looking to change there? Thanks..

We did talk about this a little last quarter. We have a lot of newer MSP relationships, which are just getting started, but we also have some more mature MSP relationships where utilization has come down a little bit for just a number of reasons.

And many of them are a physician practice management company, so I think you are probably aware kind of the consolidation in that industry. We think that may be one of the reasons why their utilization is down.

We are starting to see a ramp on some of the newer MSPs and beginning to penetrate those clients further, but it just takes us a while to pivot. You get – if that physician is ready to go to work at those longer term clients and you can fill 100% in their shifts with internal staff at some point.

But the newer clients, it takes you – it can take 1 year to 2 years to building up your physician supply with the right credentialing, the privileges from that local facilities, so it’s just this is kind of in the middle ground now. And we also admitted we have some execution issues.

You heard us talk about new leadership in our Locum Leaders business. We are a little understaffed in recruitment count there. Their performance isn’t exactly as good as we are seeing in some of our other businesses where we are seeing some big jump, but it’s been offset by that execution issue there.

I do think that new leadership will begin to get some traction and we will see some growth in the Locum’s business, getting towards the latter half of the year..

Okay.

I am just shifting gears a little bit, are you seeing a big impact of the flu this year relative to last year, I think the statistics that I have seen showed somewhat of an increase, but I am just wondering how that’s been impacting your business?.

This is Ralph. I will handle that again. We are not seeing an increase on the client side with – and in the CDC said it’s kind of inching near higher margin last couple of years, but we are not seeing it translate into more respiratory or nurses in the hospital systems. It probably impacts our internal staff a little bit.

We have – seem to have had a lot of people out on a short-term leave lately. Maybe one sign of – this is probably both a – potentially related to just patient populations in the healthcare, but one of the positive things we are seeing is that med-surg nurses have risen to the top most desired specialty or where we have the most demand right now.

And that’s usually a sign of a couple of things, right, a very strong market for our business, but also potentially right in a more flu-like symptoms and – but most of the hospitals are not – when they place this order thing, these are flu-related job orders..

Okay. And then just a few numbers questions for Brian, what should we be modeling for unallocated corporate expense in the first quarter. And then on an annualized basis, what should we be looking for, for interest expense and capital spending in 2017? Thanks..

Sure. Yes. This is Brian. I think right around that 3%, maybe slightly below that. I – as I mentioned in the prepared remarks, we were elevated in the fourth quarter from adjustments. So as we look ahead, we have been at that 3% of adjusted level and that should come down a little bit over time, as regard top line.

So maybe first quarter 2.8%, 2.9% and not a big change, I guess through the year. Your question on interest expense, as I mentioned, we are going to be at $5.1 million in the first quarter. It should drop down by about $100,000 per quarter. As you know, we have now – the majority of our debt is fixed and non-pre-payable.

So as we – if we use excess cash to pay down the term loan that’s remaining, we will get a little bit of benefit from that as we go through the year. On the CapEx side, as I mentioned, we are a little over $4 million in the fourth quarter. I would expect we will be somewhere in the $5 million range per quarter during 2017..

Thank you so much..

Sure..

And our next question comes from the line of Randy Reece with Avondale Partners. Please go ahead..

Good afternoon..

Good afternoon Randy..

My first question was about the nurse and allied solutions gross margin, in the fourth quarter it was good because of mix, what would an adjusted gross margin have looked like in the fourth quarter if you didn’t have the labor disruption revenue in there?.

Sure. Yes. This is Brian. We would have been in the – we are in the high-26% range. I guess I mentioned there were a couple of puts and takes in the quarter itself, so probably 26.7%, 26.8%. And as we look to the first quarter, as I mentioned, we are seeing some good trends overall.

And so I think we look to the first quarter, we would be right around that 27% range. And that’s likely where we would expect to see it for a while. But if we found a good balance again and we want to continue to strike that balance between attracting more clinicians to the industry as we get increases and maintain the right level of profitability..

Alright, that’s a good number.

The MSP market, I was wondering if you could shed some light on what you are thinking about the potential for growing your MSP spend under management in 2017?.

I will have Dan answer that, but first, I would just like to congratulate and thank our MSP and strategic accounts team as well as currently [ph] all of the staffing and service team members in the divisions that support those MSPs, because it was our best year ever in terms of both winning new MSPs, but also delivering great service in a challenging environment.

And so just want to thank them. And Dan, if you could shed a little bit more color..

Sure. So thank you for the question, Randy. This is Dan. I will just give a little bit of color first on Q4 and the full year. So Q4, we added new client deals worth about $30 million – $38 million for the gross spend. And that took our total for the year to just a little over $185 million in gross spend.

So again, really fantastic year and I just want to thank all of the teams that were involved in that. The best way for me to characterize how it feels going into the year, we have a very strong pipeline right now still both in very significant client expansions and new client wins. The pipeline today is well over $100 million for the gross spend.

And all of those are in this verbal award contracting phase. They are all – all of them but two are multi-discipline, so more than nurse/allied. But also two, those two that I mentioned are Locum specific. So that gives us a strong momentum going into the year for 2017..

Really good, my last question is about the RPO business and what we could expect in terms of a trajectory from quarter-to-quarter in 2017 for that business?.

So again, this is Dan. I will take that. We have been relatively flat, I would say for the last two quarters. And I would say to be pretty conservative, it would be about that moving into Q1. We do see a very nice sign of our pipeline improving, but it’s a little bit too early for me to predict.

And so I would be hesitant to say anything too much more than that, but our plans for the year are definitely in kind of double-digit growth for the year..

Thank you very much..

Thanks Randy..

Our next question comes from the line of Mark Marcon with R.W. Baird. Please go ahead..

Hi, congratulations on a great year.

A few questions, with regards to the $2 billion in MSP spend that you currently have under contract, how much of that are you currently filling?.

So, thanks Mark Marcon. It – the $2 billion that we referenced is both MSP and VMS. So VMS is about $1 billion of that and MSP is about $1 billion of that. Of the MSP related spend, we are filling a little over 60% of that. And that translates into something north of 40% of our total staffing related services, if that’s helpful..

It is.

What do you think that could get to over the next couple of years if you held on to those contracts, do you think – is there a much upside to the 60%, do you think?.

I do think there is because we are at higher fill rates within the nursing piece of the business, which is not surprising since nursing MSPs have been around for almost a decade now and we have all improved our ability to execute and fulfill within those.

And then within allied, I mentioned we are at a little bit north of 40% of our revenue coming from MSP related clients. And our actual fill rates, while not at the 60%, are very, very attractive in sort of the 40% to 50% range.

Within Locums, however, while we typically do meet our fulfillment requirements on an aggregate basis with our clients, we ourselves are filling a smaller percentage of those jobs and we are relying upon our wonderful affiliate vendors in the program to help fill those.

So, I think over time we can make improvements to increase our fill rates, particularly within the Locums space. But there is so much demand outside of MSP as well and I want to make sure I point that out that we have significant demand in our traditional clients as well as through other third-parties.

And so we want to make sure that we are doing our part in improving our fill rates in those categories as well..

Great. And then with regards to the guidance in terms of Nurse and Allied for the first quarter, obviously you had a significant strike revenue or disruption revenue in the first quarter of last year, which makes a tough comp.

But if we think about it from an organic perspective, what are you anticipating in terms of bill rate increases on a year-over-year basis for that Nurse and Allied and how are we thinking about volume?.

Sure. This is Brian. So, our bill rates for the first quarter, we are looking at somewhere in the 4% range, which is right in line with where we have talked about before, this year being likely to be more in the 3% to 5%.

On a volume basis, we are going to be somewhere in the kind of upper single-digit range for Nursing and Allied and we have got some puts and takes. The local business is still – is improving, but it’s still a bit of a drag to the overall results, but the volume will be in the upper single-digits..

Great. And then with regards to these opportunities and particularly with regards to nursing, you mentioned that the millennials, I think are expressing a lack of desire or be more active about not wanting to work nights or weekends. I think that’s always been the case, but maybe they are a little more active about it.

What opportunity does that create for you?.

Well, we believe that this sort of demographic shift in preferences, which I think has shifted a bit more than what we have seen historically at least the percentage of new professionals into these areas that don’t want to work as much has probably increased.

But what it also means is they want more flexibility and that is really a positive for us, because it means that they are more likely we believe to become a traveler. If they are not going to want to stay in a role for 5 or 10 years, then they are going to look to traveling more quickly as an opportunity to help build their career.

And so we actually think this is going to be a positive trend for us. And I think also our clients are beginning to realize that perhaps it’s a trend that’s going to be challenging for them to fight.

And so they are better off being realistic with the expectations of how long someone will stay and making sure that they have got a good long-term workforce plan with us to fulfill those jobs. So, we see it actually as a positive. It creates its own challenges for everyone, but we think for our industry, it could be a positive trend..

Great.

And then with regards to perm placement, what are your expectations as the year unfolds there? I mean, I guess for the first quarter embedded within your Other Workforce Solutions, how quickly do you think that would turn and what would the driver of that be?.

Yes. So, I think they are already seeing some improvements in the trends of searches and placements, so that should bode well going into the second quarter. I think it will be more the second half of the year before we would be able to claim some better year-over-year growth rates.

I just want to be realistic with the time that it takes in order to have those trends actually translate into performance, because when you receive the searches, you don’t necessarily activate them right away. And so we have got to see that translate through into activations, which creates sourcing opportunity and placement opportunity.

We are also a little bit understaffed in our marketing sales team. These are the individuals that are out in the field and talking with clients to generate those search opportunities and we need to get staffed up there in order to make sure that we are bringing in the volume of searches.

We have we believe the right recruiter count and a great, great recruitment team that’s producing exceptionally well. We just need to go out and get the searches so that they can do their work..

Great. And I just want to make sure I have got one thing straight with regards to Nurse and Allied guidance for the first quarter. When we strip out the strike revenue in the prior year, basically, the guidance comes out for Nurse and Allied to about 8% to 10% growth.

And then if we strip out an additional – since the – we have 1 fewer day that kind of comes out to 9% to 11% all organic?.

That’s exactly right. Yes, Mark..

Now, is that for all of Nurse and Allied or just for the nursing side?.

That’s all of Nurse and Allied, the entire segment..

Great, terrific. Thanks..

Thanks Mark..

And our next question comes from the line of Tim McHugh with William Blair. Please go ahead..

Yes, thank you. Just on Other Workforce Solutions, I guess, mid-teens growth, if my math is right, implies kind of an organic growth maybe in the low to mid single-digits.

Is that just perm being flat or given the growth churns you described for other parts of that segment, I guess, I would have thought of a higher organic growth rate?.

You would. And it actually translates through to high single-digit organic growth, but it would be double-digit organic growth if we didn’t have the drag of RPO being down on a year-over-year basis. It’s a fairly significant decline for RPO and so that’s creating a little bit of the underperformance, if you will, of the segments..

Okay.

And then on, I guess, just the – is there anything competitive happening in Locum? Just to follow up on the kind of the MSP wins or the ability to sell, I guess, how confident are you, I guess, that it’s simply an execution issue or some consolidation trends in the marketplace that you can then kind of reverse?.

Yes, it definitely is something could be reversed. We have talked to others in the industry who are seeing higher growth rates. And there is not anything fundamentally different about what they are doing in the marketplace than we are doing.

So, we are – we do feel like it is really related to those two things with that customer and the execution issues in that one brand. We are – demand is up over prior year. And we have to, like I said, get our supply to align better to demand.

We have recently started implementing some analytics capabilities, which help us do that a lot better than we could in the past. So we could get a more forward-looking view of what demand is going to look like and what our database looks like and to find just the right individual at the right time to get out on to the assignment.

So, we are looking forward to seeing some pretty quick impact from that initiative, but they are hiring more recruiters, getting them up to speed faster, staying focused on keeping our existing physicians working as much as we can. It’s going to – what the team is doing. They are putting a great effort into it..

Okay. And then I guess just – sorry to circle back on this Other Workforce Solutions. So is the – is Peak Health still running at like a low 30s annual revenue run-rate or is that smaller now? I think that’s the only acquisition we are accounting for..

Yes, this is Brian. It’s right around $30 million. When we bought them in the middle of last year, there was a bit of a pullback in the industry overall, which we anticipated, but they have had a nice fourth quarter and they are on a growth trajectory. But right now, they are running just under $30 million on an annualized basis..

Okay. And then just on the tax rate just so I make sure I heard you right, $5 million benefit in the first quarter.

Will you see – I know the rules are a little unpredictable, but is that most of the benefit than you would expect to see for ‘17?.

Yes. And it’s – again, it’s mainly driven by when the equity vests and you look at the difference between what your book expense versus what the tax benefit will be. And so because the majority of our equity vests in the first quarter, that’s when that benefit will occur. So the rest of the year, it will be very immaterial, if at all.

So if you look – it’s kind of 41%. If you exclude that, it would be right around 30% is what the rate will be in the quarter with that tax benefit..

Okay, great. Thank you..

Thanks, Tim..

Next we go to the line of Brooks O’Neil with Lake Street Capital. Please go ahead..

Good afternoon, Susan, Brian and Neil..

Hi, Brooks..

Hi, Brooks..

How are you today?.

Great day..

Great day in Minnesota too. Couple of quick questions.

I am curious given the strong environment, are you seeing any new initiatives on the part of competition?.

Well, yes, there are always new initiatives. So I think we need to expect that. Is there anything new that has surprised us? No, not necessarily, but I think it’s such a dynamic environment. Our competition continues to get better. Our clients across the board continue to ask more of us and the industry.

And so you see all kinds of organizations stepping up both staffing companies, but also others that aren’t necessarily direct competitors but are doing some interesting things.

And so one thing that we believe is it’s really important that we collaborate and innovate with a variety of companies to bring innovative ideas to the market whether it be through the way that we serve clients or in our sourcing efforts.

But I can’t say there is anything that has kind of taken over the industry and in a different way in the last couple of months..

Great.

And then secondly are there any factors that you think are going to have an unusual impact on either demand or pricing as we head into the spring and summer?.

Yes, not other than the factors that we mentioned. There are a lot of positive factors that continue to drive a strong demand across really most all of our businesses. And as we mentioned, our pricing environment we think it’s positive. It’s come down to, I think, a more sustainable level in that 4% to 5% range.

We were projecting this last year that we would come down from high single-digits into kind of low single-digits and we are tracking towards that.

And I think that’s likely where we will be through the rest of the year and there are underlying kind of macro factors that are supporting that such as the shortage of clinicians, high attrition rates, the outlook for a positive economy. GDP is expected to grow at a faster rate as we go forward into 2017.

So, all those things generally speak to a stable growing demand environment, which supports a growing pricing environment as well. Now with that said, there is certainly uncertainty out there with the new administration and discussion of ACA.

We don’t think any of that will have any sort of material effect this year or quite honestly, even into next year based on the changes that they are discussing, but it would take a pretty significant change in the macro environment, I think to really move us off of the pricing environment that we are in today..

Cool. And then you have talked about it and we all understand how strong the economy is out there and the employment environment is very positive.

But I am curious if in any markets that you serve you see any signs of softening overall employment as that seems to be one of the major factors that drove the business to have some challenges back in the 2008, 2009 timeframe?.

I can’t say that we see softness in any particular area. There are – I think Ralph alluded to the fact that there are some areas of the country that are growing more than others. Our largest states are – kind of see the same largest states we have had for a while.

California, New York, Texas, Florida, Pennsylvania has popped up as a bigger state, Massachusetts. So, it’s really all over the country. And some of the newer MSPs that we have won are throughout the Midwest.

That’s probably a newer trend that we have seen in the last 12 months that there is more appetite for both workforce solutions, but also staffing needs throughout the Midwest.

I suppose if we look at the regional markets, there could be some areas that are more flattish or even down a little bit, but I don’t think I would point to anything and call it soft..

Great. And then the last question, we have talked a little bit about the growth of urgent care and freestanding ERs and some of the other outpatient service providers.

As you talk a little bit more about how that is affecting your business whether it’s a positive or negative driver and the opportunity you see there?.

Thanks, Brooks.

We see that as a positive for our industry and for AMN, in particular, because when we have clients that are becoming more vertically integrated, whether they own ambulatory surgery and home health and other kinds of patient care settings or they are just becoming affiliated, they want a staffing partner that can help them across all of those settings.

And so that usually bodes in our favor, because we are able to help them with their staffing needs and implement an MSP system and processes that help them get their arms around their total demand and their total spend.

We also work with many of those settings on an individual basis whether they be rehab, rehab chains across the country, urgent care, retail care, clinics. We have done some things in optometry more recently.

And so we absolutely see the need to plant seeds where that growth is going to occur and it’s going to be in alternative non-acute care settings that we want to make sure that we are there. And our sales team is very focused on that..

Brooks, this is Dan. I am just going to add one more thing. Last year, we had two rather significant clients with our Avantas brand, which it does workforce optimization that began to serve that market – that clinic kind of market.

You can imagine how difficult it would be to resource and schedule and so on in either a retail environment or a clinical kind of environment like that. And we found that they had some particular strength in the consulting work and the scheduling work that they have been doing there. And I think that will probably be an ongoing trend..

Great. Thank you very much. It’s nice to be on the call..

Thanks, Brooks..

Thank you, Brooks..

Our next question comes from the line of Bill Sutherland with Benchmark Company. Please go ahead..

Thanks for taking the questions.

Was there anything notable about the travel’s seasonality in the quarter and as you enter this quarter that may have affected rate of growth and that kind of thing?.

This is Ralph. I’ll handle that. I mean, every year, we have what are called the winter needs that’s kind of mostly California, but a little bit of Arizona. They have a population influx and probably also the colder weather both in California that cause them to have incremental need for RNs of all specialties.

And so winter needs were in line with what they were last year, so probably in the – almost 1,000 FTEs got on assignment in – on winter assignment. So, it’s not unusual year-over-year. I think one of the things that has been less predictable is kind of how that translates into our second quarter.

So some years, the majority of those go away and we will lose maybe 400 or so RNs and we have to convert them, put them to work in other places. And our business can sometimes seasonally drop just a little bit. And then other years, it actually looks pretty flat year-over-year and a lot of them end up staying on assignment.

So, what’s yet to be told is how that’s going to impact Q2. At this point, I would say we probably will see that normal seasonal decline, but it’s – there is still plenty of time left in the quarter for that trend to change. Hopefully, that would help.

And nothing else, though – nothing that drove volumes, probably exclude the sites we called out, that’s it..

Approximately when will you start to anniversary this RPO headwind per quarter?.

This is Brian. It’s second quarter as the comp gets easier and by the third quarter of ‘17 is when we will have lapped it..

Okay.

And Brian did you – I probably missed this, did you call out the expense as far as how it looks directionally for Q1?.

No, we didn’t give any specific information. We talked more about the segment itself and the growth rate that we expect. Susan did talk about just the performance of the leadership business, which is both B.E. Smith and The First String collectively.

Their pro forma growth rate in fourth quarter was up about 11% and the trends that we see as we start the year are still very positive in terms of the needs. We are hearing a lot about turnover of leadership within our clients and so the demand is favorable for both interim and permanent positions..

Sure. This is Dan. I would also add that of the add-on services, so when I refer to expansion opportunities, that’s either an expansion, which is same service, new geography or an add-on, which is a new service. That is by far the biggest one that we have been adding..

On our MSP contracts..

On our MSP contracts. Thank you, Ralph..

Okay. And then I will just wrap up here, we are running late.

The – also Brian, going to just ask you real quickly on the gross margin, just directionally, it feels like it settled in around 32.5 plus or minus bps, is this a year where it just kind of settles in, just based on the growth rates of your higher margin businesses, well, they are still higher, obviously, than your standard staffing, but is it enough to create an incremental lift?.

Yes. I still think as we look through the year, we would expect to see some incremental growth from that 32.5. So the first quarter, it’s just pretty much in line with the fourth quarter. But as we talked about with RPO, we expect to see more growth in the latter half of the year, perm placement as well.

The Locum Tenens gross margin was a little bit lower in the fourth quarter. So as we see those come online a little bit more, that would allow us to move up the gross margin a bit more it is right now..

Okay, great. Thanks everybody..

Thank you..

And our next question comes from the line of Mitra Ramgopal with Sidoti & Company. Please go ahead..

Yes. Hi, good afternoon.

Just a quick question on MSP, I don’t know if you have the number for 2016 in terms of what it might have been on a consolidated basis as a percentage of revenue or maybe as a percentage of total staffing and where do you see that number going maybe over the next, if you take a 5-year horizon?.

Hi Mitra, this is Brian. We are still – right about a third of our consolidated revenue is coming through MSP. And as Susan mentioned, if you look at our staffing businesses, just looking at the nurse/allied and Locum’s, those two segments, its closer to 40% of the revenue. We would expect that to continue to increase over time.

I don’t – maybe I will get Susan to start the crystal ball of where that would go, but we would anticipate it to go up over the – in the coming years and up in the upper-30s. If we got it over 40% over time, that wouldn’t be a surprise. It really is also a function of the growth we see in other service lines as well.

So that’s partly kept that number in that low-30s as we have added other service lines that are not part of MSP, but the penetration that we see with existing nurse/ allied and Locum has continued to rise..

Okay. Thanks. And then quickly, just on the acquisition front, I know you made some comments in terms of having some conversations, are you looking – if you go back to B.E.

Smith, Peak, etcetera, it all allowed you to enter some new areas, are there any holes you feel that you need to address or is it a question of just consolidating the existing areas you are in?.

I wouldn’t say there are any holes that we must fill immediately. In fact, we have a lot of opportunities still to add on or pull-through the services that we have added just in the last couple of years and so we are very focused on that.

With that said, if there were an opportunity to add in a new category that our clients were wanting within healthcare, then we would certainly look at that or if we could further add in consolidation opportunities in some of the higher demand, high growth areas, we would look at that as well.

But as I mentioned, we are probably first focused on sort of the talent, tools and workforce solutions areas..

Okay. Thanks again for taking the questions..

Thanks Mitra..

And the next question we have in queue comes from the line of A.J. Rice with UBS. Please go ahead..

Hello A.J..

Yes. Sorry about that. Yes. So just maybe a follow-up question on the comments you made about what’s happening in Locum Tenens and you are seeing some softness in certain specialties and I just wonder if you would maybe expand a little bit about what you see in there.

And then also other specialties and same specialties in terms of your own recruitment and what you are seeing and trying to get those recruits out there, is there any new areas that you are finding that are tightening up a little bit?.

Yes. Hi A.J., this is Ralph. I – well, first off, demand across the board is actually tough overall. But you are right. There are some specialties that are softer, which were ones we were particularly good in.

And the one that really probably is worth highlighting is the hospitalist and those are the ones that primarily work in the physician practice management group. And so there is just less movement in that industry right now. So that’s the key driver there.

We also – when we acquired Locum Leaders, they had a pretty hefty share of their business within government. You saw that change for Staff Care a few years ago when we kind of unraveled out of that. All of those contracts now go to small disadvantaged minority businesses. So we are seeing some pullback in the government because of that.

But we are – our emergency room medicine business is up actually almost 20% or something year-over-year, so there is some strengths in there as well. You would be surprised even anesthesiology, we are seeing a little bit of a – that comes back in those specialties. Our nurse practitioners have been strong and I think there is a lot of upside there.

Psychiatry and primary care, we are delivering on a flat basis. I think those markets are – we can do better and it’s probably a good example of where our recruitment needs to align better to where our jobs are. And we are making some progress there as well. It happened to us before.

I wish we could predict it better, but I think the team that we have is experienced in shifting and making the curve into the specialties that are growing the fastest again..

Okay.

And then just one other one possibly, on applications and what you are seeing there, you mentioned that some of the things you are seeing with the millennials suggest they might be more open to doing travel nurse, I know that doesn’t turn on the dime, but I wondered, what are you seeing in terms of nurses willing to consider taking on a travel assignment?.

Yes. I will start on all supply first. We are – have positive trends in nurse, allied, Locums and Leadership. And our – the number of applications that we are seeing, they are qualified for the type of work we have. So that’s good. We are – well, I will give you an example of what happened in January.

About one-third of the travel nurses who went to work were first-timers with us. They actually do skew towards that millennial age group, and so we are seeing a little bit of a shift from – and we always are going to have kind of nurses that are at the end of their career and nurses in the beginning of their career.

We are seeing a little bit of a shift towards people who are earlier in their career. It does offer that kind of flexibility.

All of our products do that if they want – if you are a doctor and you only want to work in emergency room one day a week or a great option and if you are a pretty young nurse and you don’t want to work at the same hospital every day at the same bad shift, you could – you can change your careers and make that.

So I agree with Susan totally that this trend will take a while to unfold, but it should be very, very positive for attracting supply. I think that will also change the model that the healthcare systems utilized.

Today, they take full-time on 98% of their hires and if you look at other industries, they are – they might have is 20% – or I am sorry, to a 75% of the workforce as a full-time labor and 25% flex. So I am looking forward to watching those trends unfold over the next few years and I will stop there before the end of the day. I could go on and on..

Your comment made me actually think of another one.

I know something you guys used to talk about was the percentage of nurses that would re-up for a second either on the same location, a second sort of tour of duty or would re-up for another travel assignment somewhere else, has there been any change in the trend in that to have a percentage of your places that are nurses re-upping?.

It’s still very strong, very solid, pretty comparable to last year at this time..

Okay. Alright, that’s great. Thanks a lot..

Great. Thanks A.J..

And that does conclude today’s question-and-answer session. I will turn it over to Susan Salka for closing remarks..

Great. Thanks Brian. Well, we really appreciate all the fantastic questions. Thank you for joining the call today and we look forward to updating you on our progress on our next earnings call..

Okay. Ladies and gentlemen, that does conclude today’s conference. Thank you for your participation. You may now disconnect..