Ladies and gentlemen, thank you for standing by. Welcome to the AMN Healthcare third quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode and, later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Amy Chang, Vice President of Investor Relations. Please go ahead.

Thank you, Lori. Good afternoon, everyone. Welcome to AMN Healthcare’s third quarter 2015 earnings call. A replay of this webcast will be available until November 19, 2015 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, 2014 and our other filings with the SEC, which are publicly available. The results reported in this call may not be indicative of results for future quarters. These statements reflect the Company’s current beliefs and are based upon information currently available to it. Developments subsequent to this call may cause these statements to become outdated. The Company does not intend, however, to update the guidance provided today prior to its next earnings release. This call may also contain certain non-GAAP financial information. We make available additional information regarding non-GAAP financial measures in the earnings release and on the Company’s website. On the call today are Susan Salka, our President and Chief Executive Officer; as well as Brian Scott, our Chief Financial Officer. Ralph Henderson, our President of Healthcare Staffing; Mark Smith, our President of Physician Permanent Placement; and Dan White, our President of Workforce Solutions will be joining us during the Q&A session. I will now turn the call over to Susan.

Thank you so much, Amy. Good afternoon, everyone, and welcome to AMN Healthcare’s third quarter 2015 earnings conference call. AMN’s differentiated strategy and daily focus on the needs of our clients continues to enable us to produce very strong results for our shareholders. During the third quarter, our revenue and earnings were higher than expected across all business segments. The need for temporary and permanent healthcare professionals continues to be intense, translating into robust demand in every staffing and placement division. We are at record-high levels of demand across all business segments, which gives us optimism for continued growth. With such great need for clinical professionals, clients are also increasingly seeking strategic partners who can provide insights and new solutions to more effectively deal with their workforce challenges. We will provide more color on the market environment and our team’s strong execution, but first I’ll walk through some highlights for the third quarter. Consolidated revenue grew 45% year-over-year to $383 million, a record high for AMN, and 5% above the high end of our guidance. The strong year-over-year organic growth of approximately 29% was across all business segments. Our Avantas, Onward Healthcare, Locum Leaders, and Medefis companies, which were acquired during the last year, continued to perform very well. Consolidated adjusted EBITDA grew 109% over prior year with an adjusted EBITDA margin of 11.9%, representing an increase of 370 basis points. The improvement was driven by the combination of continued growth in our higher-margin workforce solutions, gross margin improvement in our Locum Tenens business, and favorable operating leverage associated with the revenue growth. Now, let’s review the third quarter results and outlook for each of our business segments. In our largest segment of Nurse and Allied Staffing, third quarter revenue rose 53% year-over-year and 11% sequentially. Two-thirds of this increase…

Thank you, Susan, and good afternoon, everyone. The Company’s third quarter reported revenue of $382.9 million was up 44.7% from last year and 9.3% from last quarter. This was 5% above the high end of our guidance with contributions from all business segments. About half of this over-performance came from our Nurse Staffing division, driven by higher than expected travel nurse revenue and EMR staffing. The other big contributors were the RPO, Locum Tenens, and Physician Perm Placement businesses. Our recent acquisition of The First String, which closed in September, contributed approximately $1 million of revenue to the quarter. Our gross margin for the quarter was 32.9%, up 250 basis points from last year and 150 basis points from last quarter. The year-over-year and sequential improvement was due to a continued increase in the mix of our higher-margin workforce solutions, an improved gross margin in our Locum Tenens segment, and a favorable workers’ compensation reserve adjustment recorded in our Nurse and Allied segment this quarter. SG&A expenses in the quarter totaled $83.1 million or 21.7% of revenue compared to $60.3 million in the same quarter last year and $74.7 million in the prior quarter. The year-over-year increase in SG&A expenses was due primarily to an approximately $8 million of additional SG&A from the recent acquisitions as well as increased employee costs and other expenses associated with our revenue growth. The sequential increase in SG&A was due primarily to the increase in employee costs along with the prior quarter including an actuarial-based $3.3 million reduction in our professional liability reserve. SG&A expenses in the quarter included approximately $700,000 of acquisition- and integration-related costs, which compares to about $1.8 million last quarter. Our third quarter Nurse and Allied segment revenue increased 52.8% from the prior year and 10.9% sequentially to $266.3 million.…

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

Thanks. Hi, everybody. First off, I might just ask you about the underlying growth trends that you see. There has been some independent analysis that’s been released of how fast some of the key segments in your business are growing this year, suggesting sort of high teens or whatever. But I wonder if you could comment on what you perceive to be sort of the underlying growth trend in the business in comparison to yours and how much might more market share gain type of activity.

Thanks, A.J. You’re probably referring to the projections put out by the SIA, which are always a good data point, but they’re looking more towards, I think, the public companies as well as some of the private surveys that they do. So, there’s never a perfect data point. We think it’s pretty darn close. However, to what the market is likely running, as you’ve noted, AMN is running higher than that in our performance across all divisions. I think there are several contributors to that. One is our focus on our clients every single day and making sure that we have strong representatives of the Company interacting with clients and clinicians and our investment in adding to those resources over the last year. We have significantly more individuals in those client- or clinician-facing relationships today than we did a year ago. Second is our strategy around workforce solutions; making sure that we are offering clients ways to be smarter and better at the way that they procure their temporary and their permanent staff. And so, our leadership position in MSP and VMS and, now, a very strong leadership position in RPO as well, I think has made a difference in AMN being able to have more and more attractive opportunities to offer our clinicians. And then, third, is the ability to recruit the supply of quality clinicians to place into those jobs. And we’ve done an excellent job in both making investments and then using those investments to increase our supply of clinicians both new supply, meaning new to the industry, never applied with a company in the industry before, but also, very importantly, making sure we’re re-engaging applicants that may have applied with one of our brands over the last several years. And that’s been, quite honestly, one of our greatest sources of new supply. So, it’s multiple factors, not just one. But I don’t think there’s any question that AMN is taking market share and growing faster than the industry.

Okay. Brian, I may have written this down wrong; we’ll see. But it sounded like you said in the Nurse and Allied business your bill rates were up about 7%. I think that’s year-over-year. Is that an apples-to-apples number or is there something underlying that? Maybe you’re placing more ICU nurses or whatever. I just wondered if you could give us a flavor for what’s happening on an apples-to-apples basis with bill rates in the Nurse and Allied segment.

This is Brian. Yes, you did hear correctly. I said 7% for the segment on a year-over-year basis. But I’ll hand that question over to Ralph maybe to give a little more color.

Yes. This is Ralph. There really isn’t a big mix change there that would cause any of that. I mean the specialties that we focus on in the travel nurse business are pretty much the same year-over-year, the top five or six specialties. And the same for Allied, which is maybe up a little bit in imaging, which has a slightly higher bill rate, but the percentage increase would still be in that 7% to 8% range, overall. So, there’s not a material issue on a year-over-year basis that would impact that. What we just found is there’s a more favorable environment for raising bill rates because underlying pay rates are going up. And our bill rates had been suppressed –I think we’ve talked about this before – in kind of the 1% to 2% range for several years, while nurse wages and allied healthcare professional wages were rising 3% to 3.5%. So, it’s a bit of a catch-up factor going on. But we do expect that to continue on for several more quarters. We don’t see it slowing down in any way.

Maybe one last question from me. And I’ll try to loop Mark in since he’s on the call here. Is the underlying growth that you’re seeing in the perm placement business sort of the standalone growth of that business? Or is there anything going on in terms of maybe AMN being involved with the MSP contracts and so forth that’s somehow helping you, in that area, grab more share than the underlying market dynamics?

Well, A.J., thank you for the question. No question the growth of our division has been based around the volume of the searches, especially with the large integrated delivery systems and in the academic environment. Now, a number of those new relationships have been developed because they were already clients of AMN and we were able to leverage that relationship. A big part of it, too, has to do with the execution of our recruitment team that has delivered very powerful results to our clients. Much of that has been aided by the technology investments that we’ve made, to date. And then, lastly, I would say a piece of this has been our increased success in the physician executive search space, both with our Merritt Hawkins team and then with the addition of Millican Solutions (inaudible) team.

Okay. All right, that’s great. Thanks a lot.

Our next question from the line of Tim McHugh with William Blair and Company. Please go ahead.

Yes. I guess, first, it’s somewhat related to the prior set of questionings. But I guess just there’s concerns out there, I guess, that the ACA benefit that some hospitals might have seen in the last year is going to roll off. You obviously, I think, addressed it a little bit with your comments about being positive for 2016. But maybe just to directly come at the issue, can you respond to that? And I guess what you see from your clients and how you think about that as a risk factor to demand.

Sure. Thanks, Tim. I’ll start with it and then probably have Ralph fill in more details around some of the specific businesses. But if we look at our orders and demand from clients today, we continue to see increases. We certainly – third quarter was considerably above prior year and increased over second quarter. And going into the fourth quarter, we continue to see increases, really across the board. You will always have a few clients here and there that are going through changes or some softness in a particular area, but that’s part of why they use us, too. It’s to have that flexibility. One of the reasons they may be having challenges is because they can’t hire enough permanent staff. And so, we can introduce the RPO division to them. So, we take a more broad-based holistic look to our overall demand and we don’t see anything across the board that would give us pause regarding the current or future demand state. And then, anecdotally, talking with our clients, they’re talking about needing to continue to build stronger relationships and that they’re worried about getting the supply of candidates that they’re going to need going forward; again, both temporary and in permanent positions. So, I’ll ask Ralph to kind of fill in some of the details regarding our specific business units.

Sure. Thanks, Susan. This is Ralph. Orders are at all-time highs just like they were last quarter. Of course, there’s puts and calls on a client-by-client basis, but, overall, the tide continues to rise. In Q3, travel nursing orders were up 80% over the same quarter last year. Allied was up 70% over the same time last period. And Locum shifts were up 20%. So that’s at the quarter point. If you kind of go from the quarter to today, they continue to rise over and above the Q3 levels. And one of the good news for us is that the growth is strongest among our MSP clients where we always have kind of slightly higher fill rates. So, while the hospital volume growth may start to level off at some point, it seems to be hospital by hospital at this point, they’re still billing with rising age of their clinical workforce. So, I think even one of them called out retirement increases that they were seeing and that they were dealing with that. So, the quits numbers at the BLS are very strong so those are up. That (inaudible) posted in July. So there’s not – while there’s some talk about some slowing, there are no visible signs in our day-to-day business.

Okay. And maybe just on another high-level question. I guess there are some signs that I guess the combination of payer mix and then having to, whether pay more to use staffing agencies or just having trouble recruiting perm staff, that there’s some pressure on margins. And so, at least some of the public hospital changes have talked about responding to that environment through a variety of things. I guess how do you think about that dynamic? And I guess how do you leverage that in a positive way for yourselves versus what’s the risk that the pressure on their margins force them to make changes, I guess, in terms of trying to hire more perm staff, trying to reduce turnover, and so forth?

Right. Well, the challenges that they have in both recruiting and retaining permanent staff are somewhat based on the economy and the fact that clinicians have more options, either to retire or potentially change jobs to another setting or even a non-clinical setting. That’s not likely to let up. And I believe most of our clients, at least the most sophisticated ones, understand that, which is why they’re trying to take a more holistic approach to things, going forward. And raising wages for their permanent staff is one tack that they can take, but it’s a very expensive one. Half of their budget is labor. Half of that is nursing. And if they have a vacancy rate of 10% or 15% they could raise wages to attract that 10% or 15%. But, then, unfortunately, they can’t raise wages just for that subset. They have to raise wages for everybody. And that just ends up increasing their overall cost basis. And, quite honestly, that cost is larger than paying a premium to a temporary organization in order to attract the same staff. So, they’re probably doing both, but it’s probably a better value proposition and cost proposition for them to make sure that they’ve got some component of their vacancies filled with interim staff. So, that’s really the value proposition. We can, in many ways, first of all, ensure that they have the staff that they need to take care of their patients because if they don’t have that they are turning patients away and that’s lost revenue and that’s a problem for them; quality deteriorates, etc. But, on top of that, their alternative is potentially more expenses than to bring in a subset of interim staff. And, again, I think the more sophisticated administrators and CFOs of hospital systems understand that. Ralph, do you have anything else you’d like to add?

Yes, the main thing. The hospitals’ alternative when they have a rapid volume fluctuation or unexpected turnover, they’re just really limited. So they can throw overtime at it to a certain point. They can raise wages, as you said, but they have to raise all wages so that’s extremely expensive. The third option is they can kind of double down on their recruiting expense and start paying these big sign-on bonuses and things like that. Most systems really believe that the best option is contingent labor. It’s flexible. It’s high-quality. It costs far less than those three options. So, most of our customers opt for contingent labor. And then, they begin to get their hiring ramped back up at kind of reasonable levels. They might even engage our RPO organization to do that, which we think is a very smart way for them to take advantage of it. So, it’s probably a misnomer to think that it’s higher cost because they would probably not be able to realize the volumes if flexible labor wasn’t an option for them.

Great, thank you.

We have a question from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Question for you on your salesforce and recruiters. What kind of growth, year-over-year, do you have at this stage? And, as you kind of set up the platform and you’re planning for 2016, what kind of growth are you going to be entering the year or, in other words, closing the fourth quarter in? Thanks.

Thanks for the question, Tobey. I’m actually going to ask Mark to first address that on the perm side because we’ve had some nice success there and I think you’ve seen it show up in the results. And then, we’ll have Ralph talk about the staffing businesses.

Thank you, Susan. In our perm placement division, we’ve seen our growth year-over-year at 19% of our sales headcount and sequentially at 14%. There’s been a nice push for us to make those hires in this quarter and really be prepared to go into 2016.

This is Ralph. In our Nurse and Allied business, we’re up over 50% in our producer headcounts and, in our Locums business, right around that 20%. So kind of combined, about 35% increase in producer count. And 2016, I’ll let Brian give you that.

What we’ll say is we are continuing to hire. We have a lot of open positions and are planning how we bring on the next cohorts really across all the businesses. So, we’re actively looking at continued growth in our headcount next year and the majority of that will be in sales positions and services that support them.

Thank you. And I wanted to ask a question kind of I guess that relates to Mark. So, you stole my thunder, Susan, by passing that one off. In the perm business and maybe thinking, also, with the new recent acquisitions in mind of placing leaders and executives, is there an opportunity in part of your strategy to benefit via subsequent MSP sales or market share gains as a result of placing, effectively, decision-makers within the customers?

This is Mark. There’s no question that when you have a successful placement of someone in an executive role, you have the opportunity to expand that relationship for the needs that they have. And we have seen some of our successes where that has benefitted us both directly in the perm placement business, but, of course, across the AMN brand.

Okay. And then, maybe this is for Brian. The leverage is coming down and, certainly, the profit performance in the quarter and year to date is driving that. Where should we think the optimal debt level or leverage ratio is? And then, as a follow-up to Susan; you’ve made some real small acquisitions, but is there something more strategic or other sizeable things in the marketplace that you’re looking at?

This is Brian. You said we’re down at 1.5 times leverage. And optimal, it really depends on the opportunities out there. We certainly have talked before about leverage up 2 times to 3 times a very, very comfortable place for us. And going above 3 times, 3 times, 3.5 times is something that we’ve done on a couple of occasions for very strategic acquisitions and we wouldn’t say that’s not a possibility. But, obviously, with the leverage down so low, we can do some things as well and still maintain a very comfortable level of leverage. So, I’ll have to pass it off to Susan for the second part of your question.

And we are still looking at acquisition opportunities to continue to add on, first and foremost to our workforce solutions and service capabilities, moving up that value chain with our clients and helping them find more ways to be more efficient in the way that they recruit and onboard and then utilize their workforce. You mentioned another, which is a key focus of ours, building out our capabilities and footprint in leadership and executive positions both on the interim and permanent side. I think, one, it’s what our clients want and need. We just had a strategy summit with our board and invited in thought leaders and CEOs of large hospital systems. And it was a key hot topic that they brought up that there is a challenge they have as they go through their own transformation and through consolidations that they need more leadership and, quite honestly, leadership with the right skills to help them go through their own transformation. So, we see that as a very interesting area. And then, continuing to build out our staffing businesses if there are areas where we see great growth. Particularly through our MSPs, we have a nice vantage point in being able to work with clients and receive orders. But, when we’re subcontracting out all of the orders in a particular area, we start to think, Gee, maybe we should provide that directly, ourselves. So, those would be the three main areas I would focus on.

And my last question, and I’ll get back in the queue, is kind of a broad one. With your business up in such a pronounced fashion and pricing also up, how do you feel the tenor of your relationships is with clients? Because this is a tremendous amount of growth you’re experiencing. It has been cited as an expense problem for hospitals. And I’m just wondering how it compares to other periods of rapid growth in your business and how your client relationships may be different than they were during those periods. Thank you.

I’ll let Dan and Ralph chime in, but I’d have to say; in my 25-plus years with the business, I’ve never seen our client relationships as strong and strategic as they are today. And our pricing is really a reflection of the market. There’s a bit of catch-up, as Ralph said. Actually, we did a review of our bill rates and looked at the average bill rate increase over the last five years and then 10 years and it’s actually averaged, if you take each year into consideration, about 2.8%. And so, a little bit of what we’re seeing now is a catch-up for many of our clients who might not have had any bill rate increase for several years. And, while there have been wage increases, we haven’t necessarily seen that always reflected in bill rate increases within our different staffing businesses. In terms of the 7% that we talked about within Nurse and Allied, that’s well-below historic high levels that I’d seen back in the early 2000s when we were well into double-digit price increases, year-over-year, in the bill rate. So, I think it’s a very, quite honestly, a very rational, reasonable level to be at. Now, if a particular facility is trying to maybe strike a slightly different balance between their temporary staff and their permanent staff, we understand that, which is why we want to bring a full suite of workforce solutions to the table and, quite honestly, be able to help them better predict what their needs are going to be. And that’s why Avantas is so important. And we’re working with clients to help them better understand what their staffing needs are going to be and how they can be most efficient with the staff they have and then make smart decisions around how they need to grow their permanent staff versus their temporary staff. So, we see it as a much more holistic picture today than what we might have seen back in 2001, 2002.

Thank you.

We have a question from the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Hi, good afternoon. It’s Henry Chien on for Jeff. I had a question on the supply side. I was wondering if you would be able to comment on trends that you’re seeing pay rates and if there’s been any change in the recruiting environment that you’re seeing or any trends? And maybe if you could just revisit what are your sort of differentiators in being able to secure your nursing supply or clinician supply. Thanks.

A lot of questions in there, Henry. I’ll start with the trend in the pay rates. The pay rates are going up at about the same pace as the bill rates, within our Nurse and Allied business. Within our physician business, I think we’re getting a little bit more leverage there, with bill rates growing a little bit faster than physician pay. There are several ways that we kind of measure our ability to attract the new supply. One is applications and our application trends are very solid. We’re up in the double digits across all of our businesses; 20%, 30% over prior year. I think referrals is one of my favorites because it not only reflects the quality of our service because you get somebody who works for us referring in somebody else and so I was very, very pleased that this quarter they’re up 112% over prior year. So, those are things. The things that make us different, a lot of them Susan talked about, which is the MSP programs themselves; having all of these exclusive relationships, having opportunities for lots of jobs. So, for instance, if one of our clients shuts down some orders and decides to cancel some assignments, we have other assignments we can put those individuals on, because of our size and our scope, that are very similar to what they had already. So, that’s probably one of the biggest advantages. The other is just the stability of having AMN and AMN’s brand behind them. We’re a very high-quality company. We do things the right way, I guess, is probably would be how I’d say it. I think we just won some big compliance award, which I was very proud of. And those kinds of things, I think, reflect our values all the time. And I think people look at that so they pick larger employers to go to work for.

You know, the number-one reason why travelers tell us they choose us and then, more importantly, stay with us is because of the relationships that they have. It’s funny. While all these other things matter and they do talk about, You have the most jobs and you’re very reliable. You’re very trustworthy, it’s the people that they interact with, starting with the recruiter, but then also the sales and service staff. And that doesn’t happen by chance. We’re very fortunate to have an extremely strong recruitment and service and support team across the organization. And we invest a lot in making sure that we are recruiting and then developing and training the right people within the organization. So you can never underestimate the power of having the right people within the organization. It’s extremely powerful.

Got it. And are you seeing any tightness increasing in the quarter, just in terms of your recruiting?

No. One of the trends that we watch is what percentage of our travelers in our Nursing Allied business are first-time travelers with us. That number continues to rise. It’s about 50% of people on assignment. So, while Susan said they love their recruiter, half of them are on their first assignment with their recruiter, which is a good thing. Towards the end of the year, I think fewer people will change jobs, but we’re not seeing that yet in November. People tend to wait, then, and start changing jobs in January again. So, that’s something that happens every year. And I think that assignments and positions are attractive. I mean they are opportunities to change their lives. They can move from a Southern state to California or Texas or Florida and bump up their standard of living quite a bit by getting a license in another state. We’ve seen a lot more interest in doing that.

All right. Thanks so much for the color.

Thanks, Henry.

We have a question from the line of Mitra Ramgopal with Sidoti and Company. Please go ahead.

Yes. Hi, most of my questions have been answered. But I just wanted to get a sense, if you look back over the last couple of years, you’ve had tremendous margin improvement. And I was wondering, given some of the investments you’re planning on making, whether it be internal or based on the acquisition side, how should we think about the room for margin expansion going forward?

You’re right, Mitra. We’ve been certainly pleased with the progress that we’ve made and the main contributors to the margin improvement, particularly on the EBITDA line, have been that focus on workforce solutions. It has been a great contributor not only to our relationships and our strategy with our clients, but, financially, it’s certainly been very positive. Right now, our workforce solutions businesses contribute about 5% to – are about 5% of overall consolidated revenue, but they’re more like 15% of our overall profitability. And so, that just speaks to how much impact they’ve made on our ability to ramp up that EBITDA margin faster than we’ve expected. So, that’s going to continue to be a focus for us. We’ve seen great growth across all of our workforce solutions and we expect that to continue as we go forward.

And this is Brian. And then you see, obviously, the operating leverage on our SG&A. And, as we continue to see top-line growth, even as we’re investing in the business, we talked about that on the call, we’ve still been able to achieve operating leverage. And, as we look ahead, that is still an opportunity for us to get that leverage on revenue growth. And then, we continue to focus on operational improvements as well. The technology investments we’re making and just the daily focus we have on process improvement, we think we can drive even more efficiency than we have today as we look ahead, as well.

Okay, thanks. And, Susan, I know you touched on this a little earlier. But when you look at potential acquisition opportunities for you and where you’d like to invest, are there any sort of specific areas that you feel you need to sort of round out your offering? Or is this more a question of just trying to expand what you already have?

Yes. There’s nothing that we must do to fill in a gap, but there’s things that we very much believe we could do and should do to serve our clients in a better way. So, first, again, is the workforce solutions category. Sometimes, there will be a technology element to that. There almost has to be these days if you’re going to talk about efficiency. But, then, also continuing to move up that value chain and focus on leadership positions, both interim and permanent, we think is an important category. And then, filling in these different maybe holes or gasp where, again, we would have to do it, but it would serve our clients better if we could have more capabilities to provide in some areas that we’re currently subcontracting.

Okay, thanks again for taking the questions.

Thank you, Mitra.

Okay.

We have a question from the line of Randy Reece with Avondale Partners. Please go ahead.

Good afternoon.

Hi, Randy.

If you’d like to take a break from being thrown under the hospital bus I have a question about the percentage of revenue from non-staffing activities. Now, what I’m throwing in this bucket would be the fees from VMS, fees from MSP, fees from – let’s throw RPO in here; everything that’s not temporary and contract staffing. I’m wondering what percentage of revenue, non-staffing revenue is now and how much that’s changed year-over-year.

So, the number I just gave to Mitra includes all of those things except for the MSP affiliate vendor fees. So, we’ll have to maybe do a little calculation to get that. We don’t quite think of that as a workforce solution because we have to do that in conjunction with our staffing businesses. But if you just take VMS, RPO, and Avantas, it would be about 5% of our consolidated revenue and about 15% of our EBITDA. And that is more than double what it was a year ago. Does that help?

Yes. That’s a big part of the change in gross margin, is it not?

This is Brian. It’s the largest part of the change. As I mentioned in our prepared remarks, the year-over-year improvement, that’s the biggest piece. Over half of the year-over-year gross margin improvement is from the growth in workforce solutions. We also did see, though, improvement in our Locum Tenens margin as well. So that was nice progress to be seeing on that side. But it has been a very large contributor to the gross margin and, of course, down through EBITDA margin as well. It’s been a combination of the growth in those workforce solutions, but there has been definitely operating leverage, as well, on our core staffing businesses, as we’ve seen really nice growth there.

Just to be clear when you were talking about the effect of workforce solutions on margins, does that include the VMS fees?

Yes, it does.

Okay. Now, back to the bus. Have you ever seen a period in the history of the industry where there was a setup like this? Where kind of a temporary lull in demand followed by this huge catch-up where, all of a sudden, the clients were all behind on hiring. It produced a burst of demand for contractors and temporary help and, all of a sudden, you’re filling an unusually high percentage of hires. Have you ever seen anything like that? And how is it supposed to play out over subsequent quarters? Are some of these people going to be slowly replaced by permanent hires so that you have a little higher than normal churn of contractors? Or is there the potential for your business to actually decline after a surge like this?

Maybe I’ll take that in pieces. The first is I’ve never seen a trend exactly like this. We’ve always had cycles and trends. They’re always a bit different. And this one certainly is different and the drivers of it are different as well. Again, the economy is certainly important, but the level of attrition and retirements that we’re seeing are at historical highs from what we’re told in as far back as we can analyze the data. You have, on top of that, of course, the aging population, which wasn’t as much of a factor maybe 15 years ago, but folks are starting to feel like it really is starting to matter. And then, you have healthcare reform. And so, it’s hard to look back and look at any particular period. What we have done is look at our order levels today because they are at historical highs. I mean considerably higher than what we’ve seen at any point in the past. And, yet, if you think about our traveler count, our traveler count in volumes are still well below our historical highs. If we go back to 2001, I think it was 2001 or 2002, we had, in our travel nurse business, about 8,200 clinicians working on a lower order base than we have today. Today, we have about 6,000. That would be sort of your comp on higher orders. And so, that tells me that we have a lot of runway left. In fact, orders could stop. In fact, I believe they could go down. Because we have so many jobs within the industry that are being unfilled today by us or anyone in the industry that we could actually see order levels drop a little bit and we could still grow based on if you look back to those prior periods. So, that gives me and I think the team confidence that we’re not at some peak and we’d see a decline. Quite honestly, we’re still coming up the mountain. Will there be a time, years down the road, when we see that peak? I suppose it’s possible. I can’t predict that. But what I can do is look at our trends, the data that we have, which would suggest we’re still coming up the mountain pretty strongly. We don’t see the peak in sight.

It’s worthy of scrutiny because, if I just use your stock price as a proxy to back into what investors are assuming is run rate earnings here, it suggests that the market has decided a significant portion of your earnings in the second half of this year is unsustainable; if you just divide the current stock price by a reasonable PE ratio. And from what I hear you saying, you don’t think you’re about to have a year where you have no growth.

Correct.

Very good. Thank you.

Thank you, Randy.

I’ll add one thing. I think last time, when the industry was just first coming up, I felt like there was a battle between the staffing firms and the clients. This feels very different. It is a war for talent, but, at this point, it feels like we’re on the same side. And I don’t think we’re seen as an enemy in this. I think, in most cases, the clients are talking to us, What percentage of our labor should be contingent? Is 6%, 7%, 8% too high or is that too low versus what others are doing? And so, I think the dialogue is a lot better. The relationships are a lot closer. If you take a look like at events in the staffing industry, like Y2K was probably the biggest one where there was a jump in demand while people got ready for Y2K, there was a big utilization of technical IT help at the time. Post-Y2K, everybody thought it would go away. And, guess what happened. Just the penetration rate went up because they found out it was actually very effective. So, you have employers like Cisco that are running – half of their IT workforce is contingent labor. So, I guess you could be the naysayer or you could take a look at it and say; potentially, this is the event that triggers higher penetration levels in our industry.

Excellent answer. Thank you very much.

We have a question from Mark Marcon with R.W. Baird. Please go ahead.

Congratulations on the great results. Just wondering, just going back to how things are going to ramp from here. How many more hospital systems or hospitals are you getting orders from now than a year ago? Like what percentage are relatively new?

Well, there’s two ways to look at it. There aren’t as many that are new-new that we’ve never done business with before because we’ve been in business for 30 years and, at some point, we’ve had a contract or even have a current contract with the vast majority of facilities that have ever used temporary staff. But the number of facilities that actually have orders with us today versus a year ago is up about 40%. And so, that just speaks to the fact that you have seen a great increase in the number of facilities that have said, I can’t deal with the vacancies that I have and the attrition that I have, particularly on the nursing side. That statistic I gave you, by the way, is nurse-specific.

Yes. That’s what I was getting at, Susan. And then, with regards to – like what percentage of the orders are you filling now?

We’ve never given exact percentages on a quarter-to-quarter basis. But I will say that for our MSP clients, of course, we’ve filled significantly more of the orders. And our goal is to fill 90%, 95% of all of the jobs they give us, whether we fill it or we work with an affiliate vendor, subcontractor, to help us fill those. Those fill rates are challenged, as they are for any provider of MSP, because of the strength in demand. And then, on the traditional placement side, we’ve seen pressure on the fill rates as well, but that’s completely expected and typical when you’ve seen this kind of ramp-up in demand. Our clients tell us that we fill significantly more jobs than any other provider within the industry. And we get some insight into that through our own MSPs. But, maybe I’ll ask Dan to comment on this since he’s talking with more of those MSP clients on a daily basis.

I think one way to look at this, Mark, is this third quarter was our best sales quarter of the year. So, not only are we having great experience with our existing clients, but new clients are coming to us for the same reasons that Ralph and Susan have been talking about all along. We have a powerful combination of workforce solutions that we can help our customers with. We have an unbelievable strategic accounts team that every single day talks them through the options that aren’t price-related; so, requirements or other things that they can do to change their own situation and really control their own destiny from a cost perspective. So, from my point of view, whether it’s MSP or RPO or even this nice new addition we have with The First String; these are all examples where we are winning new business and the customers are grateful to give it to us.

Great. And then, with regards to, just on the MSP side, what percentage of the Nurse and Allied revenue is coming from MSP, clients that you have an MSP relationship with?

It’s Ralph. I’ll give you the MSP is about 31% of our total revenue. On the Nurse and Allied side – which is actually down just a couple of percentage points because of the acquisition and the workforce solutions businesses and so I want to make sure I call that out. I think we said 33% Q3 last year. On the Nurse and Allied it’s about –

It’s in the mid-40s% for the nursing and then, as we mentioned on our report, it’s about 30% on the allied side.

And it’s 16% in Locums, up from 12%.

Okay, great. And then, just in terms of the clinician side, just people who are more open to being travelers; with the shortages that are out there, are you seeing an even – I mean you mentioned 50% of the travelers that you now have on assignment are brand-new travelers. How would that compare to a couple of years ago?

Our normal level – well, I mean if you go way back into the recession, probably none were coming in, so that’s the bottom. Then, a couple of years ago, you’re probably talking more in the 25% to 30%, maybe a third. And then, more recently, hitting the 50% number. And our allied is actually even a little bit higher, closer to 60%.

Is that surging the same way as the orders are?

There’s a correlation that exists there, yes. I haven’t looked to see if it’s exact.

The percentage is lower and it’s what helped pull supply into the industry. When you have demand rising at a rapid level, it means there are more jobs in more locations, more attractive opportunities for people to want to leave their permanent job and come into the travel industry. You also have pricing helping because, with price increases, we can pass along that in the form of compensation and that pulls some travelers into the industry. So, you’ve always had this phenomena where when demand goes up, you see supply following. It lags a bit and it’s never enough, but, in some ways, that’s a good thing because it is that imbalance between demand and supply which drives the greatest growth within our industry and entices more people to come in.

I mean, with all of that being said, I mean is there any way that you can – I know you answered this, in a way. But I mean like when we look at next year, when we’re going up against such tough comps, we’re still going to be growing, but I mean what’s a more sustainable level of growth, do you think? That’s what everybody is wrestling with.

Yes, they are. And we’re not ready to give our guidance for next year. And, quite honestly, we will give it probably on a quarter-by-quarter basis, as we have throughout this year. But what we are trying to signal is we are very optimistic about next year. Will we be running at 29% organic growth rates? I don’t think so, based on the phenomenal year that we’ve had and the comps that we’ll have. But I certainly don’t expect it to be less. And so, if you just start to extrapolate our results from the third and fourth quarter of the end of 2015 going into next year and if you just assumed some normal-ish type of growth rates resuming, you would still see very impressive results for us in 2016.

I mean what about the potential – I don’t believe this – and, as you know, my wife was a nurse for 18 years and ran ICUs and we lived through the 2000s and know exactly what can happen. But there are some people who are making the case that, you know what? We’re going to have this ACA-related taper and so admissions are going to go down. Or the growth in admissions are going to go down. Even with that being said, just given the turnover, it sounds like there’s no way you could envision things sliding as dramatically as some say. I mean are you hearing anything from any of your clients saying, Gee, we think – hey, you know what? We need you now, but six months from now we think things are going to adjust?

No, we’re generally not hearing that. In fact, quite the opposite. They’re concerned about their workforce challenges, the attrition, the lack of supply of candidates, particularly skilled supply, and they want to take a more strategic holistic approach. And they very much value our expertise and experience and are even, in some cases, pushing us to do more for them. And that’s why I do believe that our leadership position in workforce solutions puts us in a really strong position to be able to more interesting things for clients going forward. And they’re asking for it. So, that’s more what the conversation has been and not so much about whether things are going to decline or not; more about the fact that these demand levels will sustain or potentially grow and they need to make sure that they can get the staff that they need. Now, will you have a few clients here and there with decreased census or could they be wrong? I suppose. But anything that we’re hearing from them now or seeing in our numbers would not suggest we’re anywhere near that.

Great, thanks.

Thanks so much, Mark.

Thank you. And I’ll turn it back to our speakers for closing remarks.

Terrific. Well, we really appreciate everyone’s participation today and we certainly appreciate your continued support of AMN. We look forward to updating you on our progress next quarter.

Thank you. And, ladies and gentlemen, this will conclude our teleconference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.