Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare first quarter 2014 earnings call. [Operator instructions.] I would now like to turn the conference over to our host, Vice President of Investor Relations Ms. Amy Chang. Please go ahead.

Thanks operator. Good afternoon, everyone. Welcome to AMN Healthcare's first quarter 2014 earnings call. A replay of this webcast will be available until May 15, 2014 at amnhealthcare.investorroom.com. Details for the audio replay of the conference call can be found in our earnings press release. Regarding our policy on forward-looking statements, various remarks and characterizations we make during this call about future expectations, projections, plans, prospects, events, or circumstances constitute forward-looking statements. Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, should, would, project, may, variations of such words, and other similar expressions. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our annual report on Form 10-K for the year ended December 31, 2013, and our other filings with the SEC, which are publicly available. The results reported in this call may not be indicative of results for future quarters. These statements reflect the company's current beliefs and are based upon information currently available to it. Developments subsequent to this call may cause these statements to become outdated. The company does not intend, however, to update the guidance provided today prior to its next earnings release. This call may also contain certain non-GAAP financial information. We make available additional information regarding non-GAAP financial measures in the earnings release and on the company's website. On the call today are Susan Salka, our President and Chief Executive Officer, as well as Brian Scott, our Chief Financial Officer. Joining us during the Q&A session will be Ralph Henderson, our President of Healthcare Staffing, and Bob Livonius, our President of Strategic Workforce Solutions. I will now turn the call over to Susan.

Thank you, Amy. Good afternoon everyone, and welcome to AMN Healthcare’s first quarter 2014 earnings conference call. AMN is making progress on our long term strategy as the innovator in healthcare workforce solutions, as well as improving our operating margins. With that said, the first quarter proved to be more challenging than expected. Some of the factors impacting the first quarter were lower census volumes, a lighter flu season, and adverse weather. Although the mid to longer term effects of the Affordable Care Act are still expected to drive greater demand for clinicians, the shorter term impacts are resulting in lower utilization of healthcare services and difficulty in predicting workforce needs. These trends resulted in first quarter consolidated revenue lower than we expected and lower than prior year by 4%. In spite of the slightly softer volumes, our strategy to increase our mix of workforce solutions business and improve our gross margins enabled AMN to deliver solid profitability and expand adjusted EBITDA margin to 8.8%. This margin improvement was achieved while making continued investments in our infrastructure and to further differentiate AMN in the marketplace. Now let’s review the first quarter results of our three business segments in more detail. I’ll start first with our largest segment of nurse and allied staffing, which has been the most affected by the continued soft hospital census and reimbursement changes over the last year. First quarter revenue for this segment was down 8% year over year and flat sequentially. Gross margin grew 150 basis points over prior year and 130 basis points over prior quarter. Our travel nurse first quarter revenue was down 8% year over year and flat sequentially. The lower than expected revenue for travel nursing was driven by three factors. First, weather impacts were greater than we anticipated when we…

Thank you, Susan. Good afternoon everyone. The company’s first quarter revenue of $240.9 million was down 4.5% from last year and 3.1% from last quarter. Our gross margin for the quarter was 30.7%, up 170 basis points from last year, and 90 basis points from last quarter. The year over year increase was due mainly to margin improvement in all business segments, with the sequential increase due mainly to margin improvement in the nurse and allied segment. Both comparisons benefited from having a full quarter inclusion of the higher-margin ShiftWise business. SG&A in the quarter totaled $54.7 million, or 22.7% of revenue, compared to $53.6 million in the same quarter last year and $54.5 million last quarter. The year over year increase in SG&A was due primarily to the inclusion of the ShiftWise expenses in the current quarter, partially offset by lower professional liability expenses. Our first quarter nurse and allied segment revenue decreased 7.5% from the prior year and 0.4% sequentially to $163.5 million. Volume of 5,633 average clinicians on assignment was lower by 9.4% year over year, and up 0.4% sequentially. Our average bill rate was up slightly over last year. Nurse and allied gross margin of 29% was higher year over year by 50 basis points and sequentially by 130 basis points. The year over year improvement was due to the inclusion of the higher-margin ShiftWise business, along with improved bill pay spreads. The sequential improvement was due to a full quarter inclusion of the ShiftWise business, along with favorable insurance expenses. First quarter nurse and allied segment operating margin of 12.2% was lower by 50 basis points year over year and higher by 30 basis points from the prior quarter, with the year over year reduction resulting from negative operating leverage on lower revenue. First quarter…

[Operator instructions.] And our first question is from the line of A.J. Rice with UBS.

First of all, on the comments about expanding the agreement with your largest MSP customer to 16 new states, is that reflected in the quarter? Or is that somehow staged over time?

It is staged over time, and it was our largest allied MSP client. We actually have other larger nursing client son the MSP side. And they are, as you would guess, a large national player, and we started in certainly their largest regions, but over time, they want to expand it to every state that they do business in. And so we should take it as a great sign. They were very pleased with the work we were able to do with them in the first set of states, and so now rolling it out to this next set. It started March 31, so it will probably take a few months to get that fully rolled out to all of those additional states. But it’s a great example of how we can work with the client initially in one area, and sometimes that’s a particular specialty like nursing, or allied, or Locums, and then expand our business in helping them in other ways. And sometimes that’s a regional expansion, and sometimes it is an expansion into other service lines.

And were they an MSP client of someone else, or is this the first time they’ve really gone the MSP route for allied?

This was an MSP win for us, a little more than a year ago, and it’s not different than about three or four others we sold last year, where they started out with one portion of the country, like Susan talked about, and we’re rolling out other parts of the country. And so far, all of the ones we’ve sold that way, which is not uncommon - if you have a very large, national player, it’s pretty common that you start in one part of the country - so far, all of them have continued to want to expand.

Appreciate the comments you guys made about reform, and obviously that will take time to really ramp across the country. But one thing we have heard from a couple of the hospital chains is that they have seen - California’s sort of the leader in the public exchanges, as well as doing the Medicaid expansion. It seems like there’s some optimism that California providers are seeing some of the early effects of health reform. I know you guys are big out there. Can you tell us specifically, in that market, have you seen anything that gives you any early indication of how reform might play out?

I think what we’re hearing from our clients is that their volumes in the first quarter in particular were still not where they had hoped that they would be. But the mix of their volumes was better, so they had less uninsured care provided and more insured, whether it be through Medi-Cal or Medicare, etc. And so they have better margins and feel better about their profitability profile going forward, but their overall census hadn’t necessarily gone up.

And maybe just the last question for Brian. You talked about greater flexibility under the new bank agreement, maybe, to pursue strategic or tactical opportunities. Can you elaborate a little more on what does this, what this agreement allows you to do, or how is the flexibility improved over what you had before?

I think the main thing obviously, with the line of credit going in March from $50 million under our previous agreement to $225 million, you have kind of ready access to additional capital at a very low cost. In addition to that, the agreement has an accordion feature as well, where we have the ability to increase either the term loan or the revolver an additional $125 million if we decided that was necessary. But kind of out of the gate, that ability to access that larger revolving credit facility is the main flexibility that we added.

Our next question is from the line of Jeff Silber with BMO Capital Markets.

Susan, I believe in your prepared remarks, you talked about a number of factors that impacted the business specifically in the nurse allied area: lower census, flu season, the weather, etc. Is it possible to rank order those?

It’s difficult, because it’s hard to always attribute exact volume changes, but we can give you maybe an order of magnitude. If you recall, on the weather we had said in our prior call that we thought it would be about a $2 million to $3 million impact, and we think it was more than that probably by a million or two. It’s hard, again, to give an exact number, but as we dug into office closures, interviews that didn’t happen, etc., it seemed like it probably was a greater impact from that. The other one was the average hours worked, which is really a byproduct of the census being lower than expected and the lighter flu season. And that probably impacted the quarter just a little under $2 million in revenue. That’s one that has continued, though, as well, and I think it’s a reflection of the uncertainty that our clients are feeling around their census. And so it goes back to our commentary that they’re giving us the orders, they believe they’re going to need people, but they don’t know exactly what that utilization is going to be. And so once they get them on assignment, they’re calling them off - and it’s not just our nurses, they’re calling their own staff off as well - and providing them with less hours. It’s a small fraction on a percentage basis, but when you add it up across a large number of people, obviously it adds up to real dollars, and in our case, as I said, it was just probably around about a $2 million mark. And so those are probably the two biggest impacts. Ralph, anything else you want to add?

On the flu stat, a little color there. The acuity was just kind of average on that, the duration was very short. So generally speaking, when acuity is high and duration is long, we’ll see higher volumes. In this case, it was so short. It may have even spiked orders at times that then got closed out before they were even filled, when they realized they didn’t have the needs that they thought they were going to have. Also, if they did fill those orders, that’s probably part of the cause behind the shortened hours. If they were in an over-staffed situation, they obviously asked their temporary labor to leave early, to work one less shift a week, and things like that. So I think those were things that we probably didn’t anticipate happening whenever we put our guidance out for Q1.

Brian, I believe when you were talking about the Locum Tenens area, you cited lower professional liability. Can we get a little bit more color in terms of what’s going on there?

We’ve had more favorable experience in the last several quarters, and so that will translate into favorable reserve adjustments as well. So we had an actuarial study done in the fourth quarter, and had about a $400,000 reduction reserve. First quarter, we had kind of a similar amount that the reserve came down. On a comparative basis, Q1 of last year we were seeing a little bit negative trending, and so we actually had to increase the reserve in the first quarter, brought it down a little bit in the first quarter of this year and that’s what drove the favorable comp on a year-to-year basis.

Can you just remind me how often those studies are done?

We have a formal study done twice a year for professional liability at the second quarter and the fourth quarter. We do analyze the reserves in the interim periods, just for any material changes. And so we will make smaller adjustments in those periods, but we actually have the formal study done in June and December.

The guidance that you gave for interest expense for the second quarter, is that a good run rate for the remainder of the year?

Yeah, it might come down a little bit from there, just assuming we use our free cash flow to pay down debt. But otherwise, on a run rate, 1.5 is a good number.

And how about depreciation and amortization?

Pretty consistent with the second quarter. I think that’s a good number.

And what about capital spending for the year?

Q1 was kind of the high point on the capex. Part of it was a carryover of some investments we had planned for the fourth quarter that pulled into the first quarter. So I would expect it to be more in the $3 million to $4 million a quarter for the remainder of the year.

And we have a question from Josh Vogel with Sidoti & Company. Josh Vogel - Sidoti & Company : I wanted to focus a little bit on SG&A. I understand with ShiftWise costs are a little bit elevated there, and Susan, you talked about investments in streamlining the operations. And I understand to a degree that will be ongoing, but when you get out beyond Q2, will you see some leverage on the SG&A line? Or should we expect this mid-20% range to be the run rate going forward?

You know, we gave guidance for the second quarter of between 22.5% and 23%. I think for 2014 that’s a good range to be thinking about. As we start to see more of the benefits from these investments we’re making during this year, obviously we would anticipate that, along with getting some revenue leverage over time, that you’d see that number come down. Josh Vogel - Sidoti & Company : Is there more upfront investment in the streamlining of the operations or can you quantify for us what hits up each quarter?

The thing is, we’ve been making different investments over the last year. We talked a lot last year about the investments we’re making in our digital transformation. So the bulk of that work really ended in the first quarter of this year. So those costs were already built into 2013. As those expenses have ramped down, we’ve now kind of reallocated those dollars towards some of these other projects we’re working on. So not a real material change in the next several quarters in the amount that we’re deploying into these projects. It’s probably an order of magnitude of maybe $500,000 to $1 million per quarter. So they’re not huge amounts, but again, they’re investments we’re making that we think will generate efficiency in the longer term as well. Josh Vogel - Sidoti & Company : Shifting gears a little bit more, I understand we can’t control the weather and any weather-related impact to your volumes. And same with regard to a decline in hours worked. But could you basically remind us of the visibility you have across your nurse and physician markets with regards to the orders you see today, and how reliable they are over the next two to three months?

The orders that we have today, say for nursing, are generally for starts that would occur anywhere between May and even going into July. Occasionally, we’ll get orders further out during seasonal times, but right now we’re probably looking within that timeframe. And so in a normal situation, you would expect that you can follow your typical booking trends of when you get the order, the number of days on average that it’s taking to fill that order, both in terms of the commitment from the client and then ultimately when does the person start. But what we’ve seen is that it’s taken a little bit longer, not to get the candidates or the interviews, but to get the client to commit to actually booking an assignment, and then also getting the person to start. So the urgency has just flipped a little bit. And so I’d say it’s similar visibility in terms of the orders we’re getting are for kind of the typical time that we would see, the next month to three months, but the client’s behavior shifted a little bit in the first quarter. Ralph, anything else you’d like to add?

In the travel nurse business, the orders are up double digits right now, and normally we’d give a more robust forecast for the quarter, given those order volumes. It’s actually likewise for allied and for Locums than we’re even giving. We have a couple of things going on there, one which Susan has called out, which is the clients are just moving very slowly on making offers. They’re interviewing candidates at a higher frequency over prior year, they’re accepting applications, things like that, but they just are not offering the assignment. So that’s caused us to be more cautious on the forecast. And additionally, there is a slight seasonal pullback in Q2 that’s caused by our west coast customers who use significantly more travel nurses in Q1 than they do in Q2, by a magnitude of usually 200 to 300 travel nurses. Those assignments end, and then they come back in Q4 of the year. So it’s kind of a combination of factors going on there. I would say that the fact that the clients are putting in the orders is a sign that they feel like their volumes are going to increase any day. They fact that they aren’t making offers is probably that they just don’t have any more visibility into that than we do right now. Josh Vogel - Sidoti & Company : Just looking at the commentary in the press release, you say that you think material improvement in nursing and allied are still likely a few months out. I don’t want to get too technical, but what is your definition of a material improvement, and how confident are you that it is likely only a few months out?

In terms of how you quantify material, I don’t know that there’s a perfect number, but more than a percent or two. Something that moves the needle and creates some momentum. And in terms of our confidence, it goes back to what Ralph just said on the orders being up. Normally we would be much more optimistic about even the second quarter, because of just the sheer number of new orders that we’re getting and the fact that it’s up double digits over prior year. So the sense is that the need is there, and the demand is there, and that we ought to see some year over year improvements soon, but because our clients surprised us a little bit, with their more cautious behavior, we are probably hedging a little bit, because we’re not seeing it all translate through. The other thing that gives us really good confidence is the pipeline of MSP contracts that we have. I mentioned that we’ve got several contracts actually in contracting now. So this is where the client has said, “I want an MSP, I’ve chosen AMN, we just need to get this thing inked.” And maybe Bob, it would be helpful for you to give a little color on that.

In this April timeframe, we’ve had more contracts in the clients’ hands than we can ever see, by a magnitude of about two times the number of contracts that we’ve had in prior quarters, waiting to be in the final contracting process. So most of them are actually in the clients’ hands, as opposed to our hands. So we do anticipate that the pipeline is strong enough to help us through the balance of the year, and of course most of our big sales in MSPs don’t necessarily help us right away. They’ll help us over time. Some of our clients in the MSP process do help get us kickstarted by ordering some of their needs early on, and they’ll start buying from us early in the process, before they actually contract with us. However, it doesn’t mean that we’re getting all of that business. It means that we do have an opportunity to pick up more business as these contracts get completely closed. Josh Vogel - Sidoti & Company : It’s good to see the traction on the MSP front, which goes into my last question. You signed four new MSPs last quarter. You’re talking about a strong pipeline, several in contract today. I just want to get a sense of the overall market dynamics. Are you taking these accounts from competitors? Or are these MSPs that have been doing this work in house and now are just starting to outsource?

It’s about two-thirds new and about one-third from competitors. And I’d also just highlight that some clients go from an already existing BMS model, like even a ShiftWise, and a couple of cases in our pipeline are clients who are already ShiftWise clients that are going to move to an MSP model. You do see that happen, by the way, to go the other way from time to time, where an MSP will go to a BMS model. We’re glad that we made this strategic decision to buy ShiftWise, because it enables us to really maintain the continuity with clients as they shift even their strategies around how they want to use these tools. But I think we commented that we sold four VMS clients in the first quarter and their pipeline is also strong. So to answer your question, I think we’re largely selling new, two-thirds of them, roughly, are new contracts, where they’re just now learning that this is the right thing to do. They’re beginning to understand that other people are doing it. We get a lot of leverage from our Novation contract. We just resigned our Novation contract again. We think they’re a big, big help to us in terms of helping us get new business, and they’re actually out in the marketplace showing their members why they should be doing something like this, and why they should convince themselves to stop doing it the old way and start buying new services. The way in which you do business going forward should be under this new model with an MSP or at least with a VMS, if not an MSP.

We have a question from Tim McHugh with William Blair.

Just to clarify, did you say order volume is up double digits?

In nursing, I was talking about, but it is also up in allied and our days available are up in Locums. So pretty much across the board we’re up.

And just to play the devil’s advocate, I know you said your sense is that it’s weak census volumes and cost pressure, which is why the clients aren’t pulling the trigger, even with the orders. Are clients shopping them more? Are they sending them out to more people? And I guess maybe just more competition to get those orders filled? Have you crossed off the list any issue that this is competition or execution or something like that?

I understand and appreciate the question. It’s something we’ve looked at very carefully. We’ve even gone so far as to take a look at the candidates submitted, how well they matched up to the criteria, whether they were currently on assignment with us or at that facility previously, and things like that. We don’t see any issue there with quality, so that’s why we believe it is more of a hedge against volumes than anything else. And we also have the proxy of having visibility into ShiftWise results. And ShiftWise is, of course, a vendor-neutral technology, and all of our competitors fill those orders and get access to those orders the same as we do. And we actually see the exact same, if not slightly worse trends in the ShiftWise volume numbers than we see in our own.

You mentioned the number of opportunities for the MSP is up. What’s competition for those contracts like? Have you seen the competitors improve their pitches for that, or is it still an area where a lot of people aren’t really focusing on yet in this market?

The competition is definitely always improving, and that’s why we need to continue to improve as well. And we have the benefit of having a very strong track record in MSP, far more years and far more reference clients and successes than any other company in the industry. And so that gives us a good differentiator, but we have to look for more ways that we can further differentiate ourselves with those clients. Bob, any other commentary you have on the competition?

I think we respect all the competition that’s out there. I think there are a few players who actually have dropped out of the market or have really deemphasized the sale of the MSP program, because I think they’ve come to the conclusion that unless you really make a tremendous amount of investment in the sales resources and the technologies, as we’ve done with ShiftWise, you really can’t compete with the more sophisticated and complex sales that clients are buying today. So I think I would say the companies have gotten better, but there are fewer of them, really fewer good, quality providers. So we’re usually up against the same two or three providers in every situation. And in our VMS model, ShiftWise is up against two or three other good competitors that are providing a vendor-neutral model. Sometimes clients want to decide between a VMS or an MSP and they’ll know that up front, and that gives us the ability to go in and have them by one or the other. Or there are other times when the client is deciding I don’t know whether I want a VMS or an MSP, and then we get a chance to be at the table twice.

We have a question from Tobey Summer with SunTrust.

Just wanted to ask a little bit on the supply side of nursing in particular. What are you seeing there? Any changes? An kind of looking out over the remainder of the year or so, do you anticipate any changes that may affect the pay rates, bill rates?

What we’re seeing on the supply side, from an application standpoint, very solid numbers. Because of our digital transformation initiative, our social media programs are very, very strong, and sufficient to drive much higher growth rates than we’re talking about today. And we’ve also seen rebook behavior among our existing nurses at very high rates, as high as historical high. So they seem to be pretty confident about the marketplace as well. So nothing negative in the supply numbers, it’s really just kind of this issue of not executing against the demand they think they’re going to have is really the only area of concern.

On housing and travel, any changes in expenses there?

Not a lot changed from the last quarter. Again, housing costs are still a headwind for us. Things are moderating to some degree. Last year there was more of a 5% increase. We’re hearing more now of like a 3% to 4% nationally, although in some of the major metro markets, where we have accounts, it’s more like 5% to 6%. And that’s been more what our experience has been over the last couple of quarters as well. We’ve also been focusing strategically on having shorter term leases. In a cautious environment, we don’t want to end up with vacancy as well. So we’ve been able to lower our vacancy, but there’s a tradeoff of slightly higher rents for that as well, but we think that’s appropriate in the environment we’re in now. Keep in mind as well, not all of our travelers are in housing as well. About half of them are also getting kind of a monthly stipend. And so it doesn’t affect all of our housing costs when we see our rents go up. But we expect it to be a headwind going forward, although there are indications that with more and more units coming online this year and next year, that will start to moderate later this year and especially into 2015.

We have a question from the line of Mark Marcon with Robert W. Baird.

With regard to ShiftWise, what was the revenue contribution from them this quarter?

Right around $3 million.

And that would have all fallen into nursing and allied?

Correct.

With regard to the monthly trends, I know the orders were going up, but in terms of the nurses on assignment, how did that trend as the quarter progressed and going into April?

March was about 200 higher than January was. It was progressing very nicely, and then it did flatten out in April.

And can you talk a little bit about the number of MSP contracts that you currently have in place relative to a year ago? Give us an order of magnitude?

I don’t know if we give the exact number out.

It’s basically over 130.

So it grows by the number of contracts, and it’s actually growing at a slower pace than the number of facilities, because what happens is sometimes we’ll be at one that has 20 or 30 facilities on it. So we’re actually growing the number of facilities by a lot as a percentage. The number of contracts has grown from last year to this year probably close to 15% to 20%.

That would be about right.

So the number of facilities is up 15% to 20%?

Facilities is actually up higher. We’ve gone from, I think, 500 to 650 or 700 facilities, I think, something like that.

And then have there been any contracts, or within contracts, facilities that have been terminated or just didn’t go as expected?

We win more than we lose, but usually the losses come from an acquisition where they made a strategic decision at a corporate level to acquire a hospital facility of ours under a contract with an MSP. And they may already be with a competitor. They may be already with a VMS model or another MSP provider, and they just sweep in our facility. And those are the most common scenario that we have, when we lose an account.

Did that occur at all?

We did have one in the first quarter, and forty, when the two organizations came together, we had an MSP at one of the organizations, and the other organization had the ShiftWise VMS in place. They ultimately decided to go with the vendor neutral VMS solution, so the business will migrate over to be all ShiftWise. So we still have the client, we’ll still be filling their jobs, but it won’t be under an MSP. It will be under a VMS, through our ShiftWise technology.

That’s another, I think, important point to make. I can’t think of an instance where we lost an account, where we didn’t still have the account. So even if we lost the MSP, somewhere else we then became part of the vendor network and oftentimes, because we already had a preferred position with a number of nurses we had there, we didn’t see, necessarily, a big change in our volume.

And just to come back to Josh’s question, as you look at how you think the second half may end up shaping up, and I know it’s difficult to say, but how would you talk about just the seasonal patterns and the comps that you’re going up against?

Most of the reports and speculation by the hospital community and analysts who cover them suggests that volumes should improve in the second half of the year. And we hear that anecdotally from our own larger clients as well, so we’re a believer that things will get better in the second half of the year, but we don’t have anything more than what you read - I guess we do have what our clients tell us - to really support that. So we need to be ready to deliver on that, and we think that we are. Our comps will get easier in the latter half of the year, because we started to see the slowdown in nursing occur in the second half of 2013. So I think just naturally, the year over year comps will become easier for us, if you will, and we ought to see some better results. But a lot of it depends upon the underlying market demand as well.

Thank you, and I’ll turn it back to Susan Salka for closing remarks.

Great, thanks so much. We really appreciate your questions and your joining us today, and certainly your continued support of AMN. And we look forward to updating you on our progress next quarter.