Good day, and thank you for standing by. Welcome to the AMN Healthcare Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your moderator today, Randle Reece, Senior Director of Investor Relations. Please go ahead.
Good afternoon, everyone. Welcome to AMN Healthcare's Q2 2022 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com following the conclusion of this call. Details for the audio replay of the conference call are in our earnings release issued this afternoon. Various remarks we make during this call about future expectations, projections, trends, 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 because of various factors and cautionary statements, including those identified in our most recently filed Form 10-K and Form 10-Q, our earnings release, and subsequent filings with the SEC. The company does not intend to update guidance or any forward-looking statements provided today prior to its next earnings release. This call contains certain non-GAAP financial information.
Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at ir.amnhealthcare.com. On the call today are Susan Salka, Chief Executive Officer, Jeff Knudson, Chief Financial Officer, Kelly Rakowski, Group President and Chief Operating Officer of Strategic Talent Solutions, Landry Seedig, Group President and COO of Nursing and Allied Solutions, and James Taylor, Group President and COO of Physician and Leadership Solutions. I will now turn the call over to Susan.
Thank you so much, Randle, and welcome everyone. Throughout the Q2, the AMN team, our healthcare professionals, and our partners once again delivered outstanding and critical service for our clients. The over 70,000 quality healthcare workers placed by AMN and our supplier partners in the quarter cared for many thousands of patients across the U.S. While the healthcare staffing industry is a small fraction of the overall workforce, our contributions are very meaningful and will become even more so as these labor shortages are expected to worsen and persist for years to come. The healthcare delivery model that is highly dependent on the skills, passion, and many hours worked by clinicians is being tested beyond its limits. Open healthcare jobs in the U.S. continue to outpace beyond 2.5 times the number of hires each month, and there is no quick fix.
Healthcare organizations are challenged to resume full capacity of patient care, including a backlog of surgeries. Almost all are dealing with a high number of vacancies, attrition rates, and intense competition in hiring, all amidst rising costs across their delivery systems. In past times, one response to cost pressures would be to reduce contingent and permanent staff, but that's not a viable option when they are already understaffed. Fortunately, there is some cost relief due to bill rates declining in the travel nurse market as we expected it would. Last winter, the urgency of the market's need for contingent labor reached an extreme level, and now the excessive demand for last-minute staffing has mostly subsided. With more time to recruit and place healthcare professionals, we are helping clients maintain their contingent workforce while also reducing the cost.
This progress will be more fully visible in our Q3 results, where we are guiding revenue to be about 23% lower than our Q2. This is better than the expectations we laid out in February and May. The strong demand we are continuing to experience across all businesses gives us confidence we will exit 2022 with an annualized revenue run rate of more than $4 billion. Now let's talk about the quarter that we just finished. Our strong Q2 results delivered revenue of $1.43 billion with an adjusted EBITDA of $233 million. This was slightly stronger than we expected, with revenue up 66% over prior year and 8% lower than the Q1, due primarily to the expected decline in nurse bill rates.
All three of our operating segments exceeded expectations, which shows the breadth of how our clients engage us for comprehensive short- and long-term talent solutions. In Nurse and Allied Solutions, segment revenue was $1.1 billion, up 76% year-over-year. Travel nurse staffing revenue grew 70% year-over-year, balanced between volume and bill rate growth. Allied staffing grew revenue 54% year-over-year, driven mainly by higher volume. Revenue growth was similarly strong in therapy, imaging, and laboratory specialties. As anticipated, at the beginning of the Q2, demand for travel nurses and a few allied modalities declined from the all-time high in Q1. As the quarter progressed, demand grew significantly due to the persistent vacancies and labor shortages faced by healthcare organizations.
At these high levels of demand and the trajectory of bill rates for future placements, we believe the average bill rate will bottom out slightly higher than we previously expected. We were thrilled to welcome the Connectics team to the AMN family during the quarter. With the demand for international clinicians at record levels, we know that their successful sourcing and direct hire model will be a well-timed option for clients. This team will continue to be led by the same outstanding leaders who built the business and will take it to the next level within AMN. For the Q3, we expect nurse and allied revenue to grow 24%-28% year-over-year, with the increase coming primarily from a higher number of clinicians on assignment. Physician and Leadership Solutions recorded Q2 revenue of $176 million, 26% higher than a year ago.
Locum tenens revenue growth improved to 36% year-over-year, overcoming the end of pandemic-related assignments earlier in the year. Demand is strong across all specialties, and one notable trend is the growth in our primary care telehealth placements with clients. Interim leadership delivered another record quarter and physician and executive search revenue posted outstanding 28% growth. Our physician perm team reached an all-time high for placements. More and more, AMN is partnering with healthcare organizations on large, multi-search, long-term engagements. In the Q3, we expect Physician and Leadership Solutions revenue to grow approximately 15% year-over-year. Technology and Workforce Solutions hit another record with Q2 revenue of $149 million, up 59% year-over-year. Our VMS technology business led the growth again with revenue up 144% versus prior year based on higher volume and fees.
Language services and RPO were also nicely ahead of expectations. The growth in these higher margin service and technology businesses gives us confidence in our ability to expand AMN's margins over time. Q3 revenue for Technology and Workforce Solutions is projected to grow approximately 30% year-over-year as VMS revenue moderates along with market-wide trends. As we have expected for several quarters, the Q3 revenue decline is mostly driven by Nurse and Allied, where pandemic-related crisis compensation and bill rates have come down. The largest sequential step down in bill rates for clinicians on assignment is occurring in the Q3. Over the last 18 months, we have invested heavily in our client and clinician relationships, our team, our technologies, and our communities. That level of spending naturally steps down as business moves closer to the new normal.
We have planned well in anticipation of these changes in the market, and our team has positioned us to absorb a decrease in revenue without a need to reduce staff. In fact, we are still recruiting to build the strongest AMN team possible. We are more enthusiastic than ever about the long-term potential for AMN to be an even greater innovator and contributor as the healthcare system deals with higher demand and difficult labor supply.
Whatever comes our way, I know the AMN team is more than up to the challenge and will always lean on the foundation of our values and inclusive culture to make a difference. The heart and soul of AMN is stronger than ever, which is evident in our outstanding results we reported today. It is also evident in the personal and professional support our colleagues give to one another each and every day. In just a few minutes, James, Kelly, and Landry will join us for the Q&A session. For now, though, I would like to turn the call over to our colleague, Jeff, who will provide more insight on our financial results.
Thank you, Susan, and good afternoon, everyone. Q2 revenue of $1.43 billion was 4% above the high end of our guidance range, driven by outperformance from all three segments. Consolidated revenue increased 66% year over year and decreased 8% sequentially. Excluding $83 million of labor disruption revenue, consolidated revenue decreased 14% sequentially. Gross margin for the quarter was 32.3%, 40 basis points lower than prior year and up 30 basis points sequentially. Year over year, the margin was lower from less hours in nurse staffing and a revenue mix shift toward our lower margin staffing businesses. Sequentially, the revenue mix change was favorable to gross margin.
Consolidated SG&A expenses were $244 million, or 17.1% of revenue, compared with $157 million, or 18.3% of revenue in the year ago quarter, and $258 million, or 16.6% of revenue in the previous quarter. SG&A expenses increased year-over-year, primarily due to higher expenses for growing, rewarding, and supporting our team members. Adjusted SG&A, excluding certain non-recurring expenses and stock-based compensation expense, was $229 million this quarter, or 16% of revenue, compared with $148 million, or 17.2% of revenue in the year ago quarter. The improvement in SG&A margin came from operating leverage on the revenue growth. On a sequential basis, adjusted SG&A was lower by $11 million due to lower performance compensation.
In the Q2, Nurse and Allied revenue was $1.1 billion, 76% higher than prior year and down 10% sequentially. Our travel nurse business grew revenue 70% over prior year and declined 20% sequentially. Travelers on assignment grew 33% year-over-year and declined 3% sequentially. Allied revenue was $207 million, growing 54% from the prior year and down 3% sequentially. Allied volume was up 34% over prior year and down 2% sequentially. Nurse and Allied gross margin of 25.7% was 90 basis points lower than prior year and down 50 basis points sequentially. The year-over-year change was due mainly to higher compensation for clinicians. Sequentially, the margin decline stemmed primarily from lower hours and higher insurance costs, partially offset by labor disruption revenue and favorable changes in negotiated package.
Segment EBITDA margin of 14.6% was 30 basis points higher than prior year and 130 basis points lower than prior quarter. Year-over-year, lower gross margin was more than offset by the SG&A leverage from higher revenue. Physician and Leadership Solutions revenue in the Q2 was $176 million, 26% higher year-over-year and down 2% sequentially. Locum tenens revenue was $106 million, 36% higher than prior year and down 6% sequentially. Locums had $14 million less pandemic-related revenue in the Q2 versus the first, while core revenue grew 8% sequentially. Interim leadership revenue increased 8% from prior year and was up 7% sequentially. Search revenue increased 28% from prior year and was down 1% sequentially.
Gross margin for this segment was 34.2%, 240 basis points lower than the prior year and down 90 basis points sequentially. The year-over-year margin decline was primarily due to revenue mix changes and lower gross margins for locum tenens and interim leadership. Segment EBITDA margin was 11.4%, down 430 basis points from last year and flat sequentially. The year-over-year decline in EBITDA margin was primarily due to lower gross margin as well as a higher performance compensation accrual. Technology and Workforce Solutions revenue was $149 million in the Q2, growing 59% year-over-year and up 3% sequentially. VMS revenue of $75 million grew 144% year-over-year and was flat sequentially. Language services and RPO also exceeded our growth expectations for the quarter.
Segment gross margin was 78.3%, up from the year-ago margin of 67.7% and up 160 basis points sequentially. The year-over-year increase was due to the growth of the higher margin VMS business. Segment EBITDA margin of 55.2% was up 980 basis points year-over-year and 80 basis points sequentially. Consolidated Q2 adjusted EBITDA of $233 million was higher by 74% year-over-year and down 10% sequentially. Adjusted EBITDA margin of 16.3% was 70 basis points higher year-over-year and down 30 basis points sequentially. We reported net income of $124 million and diluted earnings per share of $2.77 in the quarter.
Adjusted earnings per share was $3.31 compared with $1.64 in the year ago quarter. Day sales outstanding was 50 days, in line with the prior year and 7 days lower than last quarter due to strong collections and the cadence of revenue through the quarter. Operating cash flow for the quarter was very strong at $224 million, and capital expenditures were $17 million. As of June 30th, we had cash and equivalents of $79 million, long-term debt of $850 million, and a net leverage ratio of 0.9 times to 1. From a capital allocation perspective, the company used $174 million of cash to repurchase 1.9 million shares of our stock in the quarter at an average price of $92.65.
As of June 30, $326 million remained under our stock repurchase authorization. We continued our acquisition strategy in the Q2 with the purchase of Connetics USA, a fast-growing, high-margin business that helps us better address client needs for permanent recruitment of international nurses and allied professionals. The acquisition was completed in mid-May and added $2 million of revenue in the quarter. Now turning to Q3 guidance. We are projecting consolidated revenue to be in a range of $1.08-$1.11 billion, up 23%-26% over prior year. This revenue guidance includes $7 million of labor disruption revenue. Q3 gross margin is projected to be 33%-33.5%. At the midpoint, consolidated gross margin would be approximately 100 basis points higher than the Q2 level.
This increase is due to improvement in Nurse & Allied, along with a favorable revenue mix shift. Reported SG&A expenses are projected to be 18%-18.5% of revenue as we lose some operating leverage due to the expected lower bill rates. Operating margin is expected to be 11.8%-12.4%, and adjusted EBITDA margin is expected to be 15.5%-16%. Other third-quarter guidance details can be found in today's earnings release. On May's call, we said we expected the average bill rate for Nurse & Allied to decline in the low double digits sequentially in the Q2, with the largest drop coming in the Q3.
The Nurse & Allied average bill rate for Q2 came in 9% lower than the Q1, and we still expect the Q3 to experience the largest sequential decline of the year. Our current expectation is that we will exit the year with Nurse & Allied bill rates stabilizing at approximately 30% lower than the Q1 level, better than our prior expectation of 35% below the Q1 peak. The trends across our business segments give us confidence that Q4 revenue will come in greater than $1 billion with an adjusted EBITDA margin of at least 15%. Now we'd like to open the call for questions.
As a reminder, to ask a question, you will need to press star one one on your telephone. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Tim Mulrooney with William Blair. Your line is now open.
Susan, Jeff, Kelly, Landry, James, good afternoon.
Hello there.
Yeah, two quick questions. As I look at your volume numbers, you know, I see Nurse & Allied travelers on assignment was down, I think only 4% sequentially from the Q1. I think you telegraphed some expected moderation in volumes for a while now, but I'm curious how you're thinking about Nurse & Allied volume cadence as we move through the third and the Q4s of this year.
Hey, Tim, how's it going? This is Landry. Yeah, so the Q2 to Q3, of course, you know, as Jeff mentioned, we've got a revenue decline there. Primary driver there is the bill rates that are declining. And then outside of that, yes, we do have some volume declines sequentially from Q2 to Q3. Part of that, you know, typically you would see some seasonal declines. So if you go back both during the pandemic as well as before the pandemic, we would see those seasonal declines. We're seeing that same thing or expecting that same thing today as we look to Q3. A part of that, though, is schools. So, you know, just seasonally, that volume will decline.
Another thing that we're seeing is that our clinicians, you know, are not immune to some of the burnout that's taken place in the marketplace, whether you're working perm or travel or per diem, we're experiencing some of that. They're taking a little bit of time off. We actually have a metric that we track, and it tracks the time off between assignments, and we can see that metric has increased. They're taking a little bit longer break, a little bit longer vacation. You add all those things together and that's what you get on the Q2 to Q3. Sequentially from Q3 to Q4, we expect volumes to come back up.
Come back up? Okay. All right. That's not what we have in our model. I'll update that. Thank you, Landry. Just one more. You know, one of your competitors reported results yesterday saying the bill rates are, I guess, coming down a little faster than pay rates, which is squeezing their margins. Are you seeing the same thing in your travel nurse business? If so, is that a dynamic you expect to play out for a few more quarters, or is that not necessarily something that you're seeing?
Yeah, Tim, this is Jeff. I'd say when you look at our Q2 over Q1 gross margins, that was primarily driven by revenue mix. However, within Nurse and Allied, we did see lower hours coming off of the Q1 peak, and we also had some workers' comp insurance true-ups in the quarter. There was some favorability in Q2 over Q1 from a sequential perspective, both due to the labor disruption revenue as well as some modest impacts from negotiated package. Moving forward into the Q3, you know, we said that we expect consolidated gross margins to be up roughly 100 basis points. Again, that's driven by a shift in the revenue mix with the bill rate declines. There again there is some favorability in that negotiated package within Nurse and Allied as well.
Tim, just a little more clarity on the reduction in bill rates, and I think you're maybe referring to specifically if a bill rate is reduced in the middle of an assignment, we typically will peg the pay rate to that bill rate. If a client provides their appropriate notice in the middle of an assignment that the rate is going to change, then we'll have that conversation with the nurse to talk about whether they wanna stay at that lower rate, or perhaps they can move to a different assignment. Because of the vast orders that we have across the country, oftentimes moving is a better option for them. That's how we manage it. We don't expect to feel gross margin compression from that specific issue that you're referring to.
That's great color. Thank you.
Thank you, Tim.
Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Your line is now open.
Great. Thanks. Just wondering if you could provide a little more color on the increase during the quarter about new orders that you mentioned. It sounds like you're expecting that out as unusually strong. Can you maybe help us put some context to the magnitude of that versus what you would normally see? It obviously was happening as COVID started to increase again. I mean, how are you thinking about how much of that is, you know, that burnout dynamic and shortage dynamic versus hospitals maybe afraid of COVID creating an issue and trying to put in orders in front of that?
You know, great question. We'll give color on that. I'm pretty sure you're referring to Nursing, but I'd like for, you know, Landry to also give some color on the Allied business, and then perhaps James can talk about our Physician and Leadership businesses as well and the demand trends.
Hey, Kevin, it's Landry. I guess first off, kinda starting with the end there, you'd mentioned, you know, how much of the increase right now might be related to the COVID spike that we're seeing, and we don't correlate any of it really, as it relates to the COVID spike. What we're hearing from our clients is that it is the shortages that they're dealing with. Right now, travel nurse and allied demand is currently today, more than two times, the amount of demand that we would've seen before the pandemic at the same time period. On the travel nursing side specifically, we did see those declines coming off those really high numbers that we saw at the very beginning of the year.
Demand declined through April, and then over the last 13 weeks, we have seen sequential increases every single week for the past 13 weeks. Right now, demand for travel nursing is actually up more than 80% since the low point that we saw at the beginning of the Q2.
James.
Thank you, Landry. To add to what Landry was saying concerning the physicians and leadership, we're expecting our demand to remain high across all the majority of our Physician and Leadership Solutions businesses, even as the COVID-related projects, as the demand diminishes. Just by some perspective here, locums quarter two demand in terms of growth stay stable, was up 75% year-over-year, specifically driven by primary care, CRNA, surgery, hospital, and dentistry. In our interim business, our engagements reached 492, which is the highest ever, which was 7% higher year-over-year and 5% higher sequentially. In our search business, we continue to see strong pipeline across the practices. The leadership pipeline also was up high double- or single digits over quarter-over-quarter.
Our physician perm business is up also high single digits sequentially. Our fill rates are very strong in both perm, our interim business and also our search business. They are achieving high single digits sequentially quarter over quarter. We do see a decrease from a fill rate standpoint in our locums business, and that's purely driven by the high demand that we have in the locums business and the constraint that we have on supply.
All right. Well, that's all helpful. I guess, given that, you know, sounds like you guys expect a bigger decline in bill rates in Q3 than in Q2, even though demand has been consistently increasing throughout Q2, I think kinda giving you a bigger buffer into Q3. Why are bill rates gonna drop even faster in Q3 than Q2, given the ramp in demand? Thanks.
Hey, Kevin, it's Landry Seedig again. There's a lag there. Maybe I just speak to a correlation between fill rates and bill rates together. You know, we have been expecting that these bill rates would come down from the peaks that we saw in the Q1, the really high bill rate months, of course, in the February and March time frame. Exactly what's been happening. The trajectory, as we mentioned, it's not as steep as what we thought that it might be, it might have been. You know, with the bill rates coming down, of course, we've also seen the pay rates come down, and those have now come down to a point to where we're starting to see it have a negative impact on bill rate.
That's why we think that we've actually probably hit an inflection point at this point. It takes a little bit of time for, you know, all of that to, you know, work its way through and the trends, and it's a little bit too early to call, but that's what it looks like, what's happening out in the marketplace, which is leading us to make the statement and kinda updating our number for Q4 that Jeff mentioned.
Kevin, the other bit of information that might give you some insight in our confidence is that we are getting our winter orders in. They're fairly dwarfed by the large number of orders that we already have. As we're getting those orders in, they're really as strong, if not stronger, than prior years. The rates are largely in line and even some clients talking about higher rates. I think that's another sign that we've probably seen that trough in rates. You know, we'll be booking those people into the Q4. As we look at our bill rate transfer travelers on assignment going into the Q4, they're looking stable to, in some cases, a little stronger, but at the very least, stable.
All right, great. Thank you.
Thank you.
Operator?
Thank you. Our next question comes from A.J. Rice with Credit Suisse. Your line is open.
Hi, everybody. A number of questions I could ask. I'll focus in on when you look at where your contracts are rolling over in July, the bill rates on those, is that about where you're assuming the whole quarter plays out? Or are you still well above and have leeway for it to drop further into quarter to get to the numbers you're putting out today?
Yeah, A.J., as we think about moving through the Q3 there, we're still expecting sequential declines every month all the way through September, and then a very modest decline in the bill rates into the Q4 to settle out at that 30% below the Q1 peak.
Okay.
To be clear, A.J., most of those people are already booked and have either started their assignment, which is why we have good visibility or they're soon to start their assignment.
I got you. Of course, that's true. The other thing I was gonna ask you is about, you know, the perception was hospitals were getting all this COVID relief money, CARES Act, add-on payments, Medicare sequestration relief, and they were plowing that back in to get nurses to make sure they could fill, you know, meet their demand and were willing to pay very high prices. A lot of that money is rolling off now.
I know they need the nurses, but we've seen a little bit nursing homes aren't a big customer for you all, but some of the people that deal with nursing homes, which are admittedly in worse shape than hospitals, are saying that nursing homes are just they're going without, frankly, in some cases, and to the point of pushing the limit on staffing levels and all. I don't think hospitals are at that point, but I wonder what is your conversation with them about the pain factor. We've seen some downgrades of major health systems. We've seen at least one large system announce that they've swung to a loss now. What are you hearing from your customers about not just their desire, obviously, to have nurses, but what's the pain level that they're feeling as this COVID money runs off?
Well, this is Susan. I'll start and then have Kelly jump in, since she's talking with clients, much more on a daily basis about these exact issues. I'd say that there was more optimism within the healthcare community back in maybe the March, April timeframe, that they could use some of the extra money to recruit and retain clinicians and curb the attrition and the vacancies. Which is why our orders declined. Some of it was just the crisis assignments falling off, and some of it was their optimism that they could put a dent in their vacancies. It just didn't really come to fruition to the level that they had expected. Some of it is, you know, nurses not willing to come back into the employment market at all.
Certainly the cost to recruit them back in. I talked about this on the last earnings call, that, you know, it's a very expensive proposition for hospitals to permanently increase the compensation for their permanent staff. If you do 10% across all nurses working in hospitals, you'd be at something like $15 billion. It's just really quite cost prohibitive when their cost pressures are really all already so great. You know, the conversation now is this is the new norm, and they are looking for other mid and long-term solutions to deal with it. I'll turn it over to Kelly and have her fill in how we're helping them do that.
Yeah. Thank you, Susan. Hi, AJ. I think you had it exactly right. I think their level of optimism was met with some realities in the market of just the supply that was available to hire into full-time staff. They're still experiencing levels of attrition due to burnout. I think as Landry mentioned earlier, I think the summer months are particularly challenging as well to hire in new. They are continuing to attack this from all fronts. You know, we've seen our RPO business increase due to that need for assistance in bringing in permanent staff. Our orders and placements are at an all-time high for that business, and we continue to add new clients needing that assistance with talent acquisition.
They're continuing to look at how they optimize the workforce that they have, certainly becoming more efficient in their processes, as you mentioned, trying to create some more capacity and take away some of that constraint. Certainly, they are still turning to a contingent workforce to help them both in the local market as well as we see that in our travel needs. I will say, A.J., the level of criticality where we're seeing the need for predictive understanding of the supply because that is informing decisions where they may have to shut down services either on a temporary or longer-term basis, particularly in some of their procedural areas. It's becoming very important that they have our assistance and others around staffing those so that they're able to continue to keep their doors open, services open to serve their communities.
Okay. Thanks a lot. Thank you. Our next question comes from Brian Tanquilut with Jefferies. Your line is now open.
Hey, good afternoon, guys, and congrats on the quarter. I guess, just to clarify some of the comments you made and try to tie a few things together. I think, Susan, you made a comment that the bottom, you think that rates will bottom out higher than you had previously expected. Is that just given the demand dynamic? Maybe just tying that to a comment that you guys made about how the run rate is still kind of like $1 billion of revenue. Just trying to figure out how to put those two comments together when it sounds like you're expecting, you know, the bottom of rates to be higher than before.
Yes, Brian. It's Susan. I, you know, I would say it's slightly higher. You know, we had said 35% below. Now we're thinking closer to 30, and we get that visibility based on where we've seen the stability in bill rates over the last several weeks and then starting to see future placements at that rate. Most of the larger clients are discussing, "Can we hold at this rate or do we need to go higher?" Not, "Do we need to go lower?" I think there's, with the additional orders that Landry discussed, you know, rising so much through the Q2 and still coming in today, I think there's a reality that they may need to in some very targeted areas even raise rates if it's curbing their ability to deliver critical services.
I guess that's why we get the confidence in where we think that we will, you know, so-called bottom out. You could argue we've sort of bottomed out now, but because of the lag Landry discussed, those, the assignments that were booked and maybe started a few weeks or months ago, those will play out, and some clinicians haven't even started that were booked at higher rates. That's why there's a little bit of a slope going into the Q4.
Gotcha. Then as I look at just the Technology and Workforce Solutions segment, you know, margins were obviously very strong. Just wondering how you're thinking about the sustainability there, or is there any call-out explaining, you know, kinda like peak margins for this group?
I think what you need to keep in mind there as we move through the back half of the year, our VMS business, we will start to see sequential revenue declines there in the third and Q4 as the same bill rate dynamics that impact Nurse and Allied make their way through the VMS business, and that's the highest margin business that we have within the segment. That will start to impact not only the gross margins, but the adjusted EBITDA margins into the back half.
All right. Got it. Thanks, guys.
Thank you. Our next question comes from Jeffrey Silber with BMO Capital Markets. Your line is now open.
Actually, I think it's Jeff Silber with BMO. I must have used the wrong PIN. Sorry about that. I appreciate you taking my question. Susan, I think in your prepared remarks, you talked about internal hiring. I may have misheard you, but if that was true, can you talk about where that hiring, which divisions, what type of positions are you really focusing on right now?
Absolutely, Jeff, and thanks for asking. You know, we have positions open pretty much all across the organization. I mean, we certainly have some amount of attrition, although I will say our Q2 attrition was perhaps the lowest in our company history or as long as we've tracked it to this level of accuracy. You know, we're really pleased with where we are in our ability to develop and retain our staff. I think it also very much speaks to our culture and people's desire to be a part of our mission and what we're trying to accomplish. With that said, occasionally people leave, so you're hiring for that. Then we're adding positions pretty much across all divisions and departments. You know, certainly in our technology-related divisions, we're receiving some really nice growth.
We are adding, and then even in our staffing businesses, with the volume increases that Landry referred to, and we are expecting volume increases over time in physician and leadership. We've got to have the trained recruiters and account managers and staff there to support them. It's really, really across the company.
Okay, that's helpful. As long as we're talking about recruiting, maybe we can talk about you recruiting professionals. I know obviously there's been, you know, a tremendous amount of volatility on the nurse and allied side. At a high level, are you seeing new types of travelers coming in, specifically from a demographic perspective in terms of younger nurses traveling that they may not have traveled beforehand?
Yeah. Hey, Jeff, it's Landry. We don't capture age at time of application, but we do track it at placement. We're certainly seeing a larger percentage of our overall new placements with clinicians that are under 40. Right now under the age of 40, it makes up about 2/3 of our new placements. Also in the Q2, we saw our largest increase in new placements for clinicians that were actually between the age of 21 to 25. You know, that data does suggest that, you know, we're starting to see a shift towards a younger demographic, where, you know, what we've been talking about, what we see out in the market or other industries, their preferences are to work in a more kind of flexible work arrangement.
All right. That's great to hear. Thanks so much.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Again, that is star one one on your telephone. Our next question comes from Tobey Sommer with Truist.
Could ask a follow-up question on the pri-
Your line is open.
Thank you. I wanted to ask a follow-up question on the pricing. As you look at travel nurse pricing in terms of whatever visibility you do have at this point into the balance of the year, when you make your comments, is that including winter needs and what seasonally can be higher priced, you know, bill rates and assignments? Or are you trying to normalize for that when you're rendering a judgment and describing a bottoming? Thank you.
Yeah, I would say, Tobey, we did look at where those winter need orders were coming in, and then we also looked at history and where "normal orders" were in Q4 versus winter needs. Given the visibility that the winter needs were giving us that is why we made that commentary on the Q4.
Okay, thank you. I wanted to ask a question about, you know, there have been a lot of labor disruptions and/or, you know, contract negotiations in recent months, and I think there's more to, you know, pretty decent amount of activity for the balance of the year. I've noticed as a result that the union agreements contemplate pretty significant wage increases for full-time staff, you know, not just mid-single digits, but high for a number of years. When you step back and look at the labor complex as a whole, full and part-time, do you consider more rapid wage growth for unionized employees to be supportive or disruptive to pricing for travel nurses over time?
We haven't really seen historically, Toby, those negotiations and any resulting changes in comp structure be impactful or disruptive. Now, it may be for that client, but it doesn't necessarily spill over and affect the entire nurse profession and industry. Of course, I think you know the numbers well, about 20% of nurses fall under union agreements. Maybe it's not surprising that it doesn't have an immediate or even long-term effect when those things occur. Just because you're seeing an 8% increase or even a 10% increase at a particular facility or system, I doubt that you're going to see that ripple across the entire healthcare ecosystem because it just becomes very cost prohibitive. It's, you know, a difficult equation for them to sustain, especially when they have all of their cost pressures.
It's a long way of saying I don't think it's going to be disruptive. What it is telling of how much the nurses and other clinicians are empowered to push back and demand changes that they think would be good for their profession and for patient care. Oftentimes at the top of that list is staffing ratios. Whether they're regulated or not, clinicians, particularly nurses, want to know that there's appropriate staffing. In fact, if you put compensation aside, staffing levels and flexibility are two of the top things that clinicians are seeking. Those things would be net positive for us if they're, you know, being pushed to hold to higher levels of staffing ratios.
Thank you very much.
Thanks, Tobey.
Thank you. Our next question comes from Bill Sutherland with The Benchmark Company. Your line's now open.
Hey, everybody. That was very suspenseful.
Hi, Bill.
How are you doing?
Good.
Susan, I think on the supply issue, I'd like to see what you're thinking, looking out over the horizon a bit. I know there's some program expansion going on, but how do you think it kinda trends, as far as supply finally beginning to expand a bit?
There is a lot of work being done to expand education. They've prioritized nurses for visas, not giving them a special visa, but prioritized them to try to get them through immigration in some sort of normal timeframe. With that said, it's going to be years. You know, most healthcare leaders and nurse executives are thinking in the 5-10-year range before we'll see any lessening in the shortage. In fact, the common thinking and research papers that I read suggest it will get worse before it gets better because there really just is not a quick fix. That doesn't mean we shouldn't be partnering and aligning with others to do things.
You know, it starts with retaining the precious workforce that we have, which is why AMN is aligning with our clients in a variety of organizations and starting right at home with our own clinicians and providing them with support to make sure that they have the, whether it be mental health support, wellness support, rejuvenation, resiliency, so that they can stay in the workforce. Landry mentioned earlier, they need more time off in between assignments, so we need to be supportive of that.
We, you know, we think we all need to do our part to try to retain the precious workforce that we have, upskill the workforce that we have, so we are working with some clients on some programs to try to get clinicians the specialty training that they need. You know, I'll say, Bill, all of this is not going to fix anything in the near term. They're the right things to do. They will make an impact, but it won't be a measurable impact. It's really going to take a longer term cycle.
Right. Yeah. Totally different topic, capital allocation. How would you rank your priorities? I think I know the top priority, but if Jeff could address that.
Yeah. Thanks, Bill. We are still very focused on executing against our M&A pipeline, and all else being equal, we would prefer to deploy our capital to a high margin accretive business. Absent anything compelling on the M&A front, we will look to repurchase shares opportunistically. I mean, we've deployed over $400 million of capital in the first half of the year, including $174 million in the Q2 to share repurchases, and we still have $326 million left on our authorization, and the balance sheet's in great shape. There's no prepaid debt, the leverage ratio is below 1x, and there's ample free cash flow coming in the back half of the year to not only support share repurchases but also M&A. Those two things aren't mutually exclusive.
I would expect your cash flows are gonna increase quite materially over the next 12 months.
Well, our conversion ratio in the Q2 was about as good as it's been in quite some time. That, I think that's indicative as these revenues come down, the free cash flow generation power that this company has.
Great. Thanks, everybody.
Thank you. I would now like to turn the conference back to Susan Salka for closing remarks.
Thank you so much. We very much appreciate you all being with us today and for your interest in AMN and our mission and what we're accomplishing here. Again, a big call-out to our amazing team members, our clinicians, and all of our partners. We are all in this together and yes, making a significant impact, but we still have a lot ahead of us. I just wanna thank everybody for their hard work.
This concludes today's conference call. Thank you for participating. You may now disconnect.