We'll kick things off here. Hello everyone. I'm Jack Slevin, Equity Research Analyst here at Jefferies LLC, covering some of the verticals within our Healthcare Services research team. I'm really pleased here to be joined by AMN Healthcare Services Inc. We've got Cary Grace, CEO, Brian Scott, CFO, and Randy Reece, IR. Thank you all for joining. I really appreciate it.
You're welcome.
Awesome. Maybe, Cary, I'll turn it to you. Just to level set with the group on sort of AMN, state of the union, what are the things that really matter to you right now or that you're talking about?
For those of you who don't know AMN Healthcare Services Inc., we are the leader in total talent solutions for all things workforce for healthcare providers across the U.S. Think of us as serving every type of clinical role in all types of everything from permanent to per diem to contingent, including executive search. We have a portfolio of 20 solutions that are both on the services and technology side. Trailing twelve-month revenue is $2.8 billion, 2,900 corporate employees. We go to market as three businesses: our Nurse and Allied Solutions business, our Physician and Leadership Solutions business, and our Technology and Workforce Solutions business. Top of mind for us is we are at a really important inflection point in healthcare in the U.S.
From the workforce standpoint, we are coming out of what I call the post-COVID normalization of the workforce, where there is a lot of focus on how do I reestablish my permanent workforce, really look at the shape of my workforce getting back to normal. Organizations are now shifting into a mode of how do I build sustainable workforces that are both high quality and affordable and have embedded flexibility that clinicians increasingly want. We are very focused on how we build and deliver that next generation of solutions and services to our clients, and particularly using tech enablement both in our client solutions, but also in how we operate as a company.
Awesome. Thank you, Cary. Maybe a couple items because it's amazing, these days, this year, it feels like you go away for two days and everything can change. Two things I want to ask you on that front. One, obviously, H1B is a topic that's coming out of D.C. right now that people need to pay attention to with a lot of moving pieces. It's a question I'm getting in relation to your name. I'm sure you're getting the question as well. Maybe just giving you space to say, you know, what's the exposure there? How should we think about any impact that could come from changes to H1B?
Yeah, these days you can't kind of go out and have a glass of wine without, by the end of it, something, your email kind of hitting up. I'll start and then Brian, add anything that I missed. We have one of our solutions is an international business, where we are bringing in, nurses into the U.S. to serve typically in two and increasingly three-year cycles. We bring them in predominantly with green cards. The H1B visas did not really affect us as much. It's a very, it's a small part of our international business. From a context standpoint for AMN Healthcare Services Inc., it's less than 1% of consolidated revenue for AMN. It is something that people are tracking. I think as part of broader immigration policies, it's not something that has an impact on our business.
Okay.
Yeah, we, and it's, you know, there's talk about, you know, potential exemptions for healthcare workers. I think the target of the new fee is probably more on other categories of workers. I think there's still more to play out in terms of how it may impact the physician population or nurses, whether there'll be exemptions there. I'd say a lot of healthcare systems, particularly in rural markets, need these clinical workers coming in from overseas. If not, it's going to just exacerbate the shortages, which ironically could actually drive more demand for the temporary solutions, whether it's locum tenens or on the nursing front. We're hopeful that there'll be some solutions in D.C. that create some exemptions as well. To Cary's point, we use a different category of visas. They're more permanent for the nurses we bring over.
We just have a very small number that come through in H1B visas. Any that are on assignment or already in the queue will have no impact. It's a very, very, very small part of our business. We've got more than enough supply and demand with the other categories of visas that we, you know, we'll just navigate around this as well.
Got it. Okay. It makes total sense. The other piece that, if you had blinked your eyes and looked away for a minute, you might have missed the refinancing that you all just did on some of your debt. Brian, I'm sure you're going to want to take this one, but can you just walk through what you did with the refinancing and why you did it?
Sure. Yeah. Cary's more than equipped to handle this one as well. For those that don't know, we had a revolver in place that had a $750 million borrowing capacity that was going to mature in 2028. More importantly, we had $500 million in high-yield notes that were going to mature the latter part of 2027. They were going to come concurrent later next year. With the bond market being so strong, we decided to kind of do things at the same time in conjunction with our bank. We redid our revolving facility, new five-year tenor, took it down to $450 million. Still plenty of capacity there, but we'll save money on the undrawn portion, really more borrowing capacity than we really would foresee ever needing any time in the near horizon for sure.
We did $400 million of new notes that will mature in 2031, pushing out that maturity significantly. We'll borrow $100 million in the new revolver. We'll have more prepayable debt as well, as we've talked for the last year about aggressively paying down debt. It frees up more prepayable debt immediately and then pushes that maturity out on the $400 million of notes. We also got some additional flexibility with our covenants with that as well. We feel like now we wanted to have a bulletproof balance sheet to be able to focus more on running the business. We've created more capacity and, again, a long runway before we have to think about any debt maturities.
Awesome. Okay. Maybe to think a little bit about a couple of topics that are a little more near-term in nature, it's about this time of year that you're going to get a lot of questions about winter seasonal orders. I don't want to preempt anything on Q3, but we'd love to get any color you have on sort of how that's tracked recently in terms of orders looking towards that winter season.
Yeah. On our last earnings call, we talked about we had just started getting winter orders in. We had a number of clients who are already telling us, you know, what we should be expecting from a winter order standpoint. We're tracking as we thought we were going to be tracking, which is a good thing. What we like about seeing the winter orders come in as expected is you really had over the past couple of years when you were still in a period of reset post-COVID normalization, where even if you were getting some winter orders, it was hard to see when the market was still resetting. I think, again, this is, you know, we're still in the process of getting winter orders, but all of this is around how we continue to see signs of stabilization.
Yeah, we're probably emphasizing it more this year too, just because we know in the second quarter, we talked about in the last call the disruption that occurred in a lot of industries when you had the tariff talk and then for healthcare specifically, the funding cuts to the academic medical centers and then the cuts that are going to come from the new tax bill. It just kind of threw everybody into a bit of a pause mode. We saw improvement in that by the time we had our call in early August with demand stable and extension rates kind of bouncing back to where they were prior to all that noise. I think this is just another indication that our clients are still very busy. Patient volumes are still running positive. They still need, obviously, access to great clinical labor to deliver care.
If we're seeing winter orders around this time, that's also a good sign that our clients are focused more on how to make sure they have the right labor force in place and that they're planning for continued high volumes. They want to make sure they have our services intact well in advance. That's, again, just another sign of more stability. We'd love to see even greater demand over time. We think that the shortages over time will drive that. In the near term, just getting back to fundamental business execution is important for our customers.
Okay. Maybe just to follow up on one of the points you brought up there, Brian. When you think about health systems and the little pause is maybe not the right word, but like the little breath they had to take to see what they were facing on the bill when there was a lot of uncertainty. Now that that's out there and you're having conversations with some of your large clients, how are people feeling? Obviously, a lot of the big impacts to hospitals won't actually hit from a financial perspective until 2028 or, you know, depending on what happens in Congress, maybe not at all. We'll see. Is there a sense of ease that you're sensing? We'd just love to get any color in terms of how those conversations progressed.
Yeah. I think the three, I mean, you really had within two weeks, all three things hit simultaneously, right? At the time, tariffs, it was just procurement running exercises for them around what do we think the impact's going to be? Really nothing on BBB at that point. The academic medical centers started to get a sense that they were going to get cuts. You've seen clarity on all three of those in some ways. It doesn't mean that any of them feel certainty because there's still probably as many questions about what the ultimate impact of this is going to look like. You can come and say, "Hey, Medicaid's going to be affected." You don't know if it's 10- 11 million Medicaid participants, how many of them have access to other insurance.
There's still, I'd say, knowledge that there's some unanswered questions around what the real impact is going to be. The bottom line for all of them is we're going to be in a place where expense management matters. We also believe that we are going to have still increased patient demands just by virtue of having an aging population. They want the physicians to be able to meet that demand that drives their revenue growth. They want a model from a workforce standpoint where you still have significant underlying labor increases that are sustainable for them in a world that's still going to be expense constrained. If over the past two years, the conversation was, "Hey, we're going to use one of the primary levers, kind of normalizing our permanent to contingent staff," that lever really has been pulled already.
They're really looking for what is the next new thing, what is the next new set of services and tech-enabled solutions that are going to enable me to be able to serve an increasing number of patients in a cost-effective but high-quality way.
Okay. Really interesting. Maybe to just bring it right back to both the near-term and a little bit of a longer-term question. Strike has been very positive for you this year and late last year. Maybe just getting any sort of update on how opportunities are developing as we look more near-term in the next couple of quarters. On the longer-term basis, is that something I think investors oftentimes, because it's lumpy, it's hard to figure out what to do with it, to be frank. Is that something you feel like over time is an opportunity that you can, despite the lumpiness, sort of grow or capitalize on more going forward?
Let me tell you kind of what strike means to us, and I'll let Brian talk about the lumpiness of it. For clients that have unionized populations, pick some number if it's priority number one, two, or three in terms of capabilities. For those clients, having this capability is very important to them. It may not happen all the time, but when it happens, it's incredibly disruptive. There are not a lot of players who are really good at being able to have these solutions. You typically are better off having someone who's going to partner with you on this that knows your facilities, that knows your organization, because it's as much a logistics game as anything. We made a very conscious decision two years ago to more broadly support our existing clients in these capabilities. We had done it very selectively. We built technology to support it.
We have much more scale in our overall operations, particularly around credentialing. This was a strategic decision of one of our portfolio solutions to support our clients. We have the biggest pipeline we've ever had from a sales standpoint. We have been public in the last two earnings calls that we have two large potential strikes that we could be supporting in the fourth quarter. I'll say about strikes, there's an 80% chance it's going to happen, and there's an 80% chance it's not. On any given hour, that statement is going to be true. It's very important to us for clients. It's very important to us for prospects. It helps us win business when we go out and talk about it. We do see this as something that we will probably be talking to the street more about. You can follow what's happening on strikes.
Some of these strikes will make national news in terms of what's going on. We do view this strategically as a very important client capability.
Yeah. I said it, the amount per year is going to vary, but it is still real revenue, it's real EBITDA and cash flow. I think that strategic value is sometimes hard to measure. You know, client retention, building that trust, and being able to sell more services is part and parcel of all of this. I think that part alone, just for the client retention, is worth a lot more than just the revenue on the actual events themselves. As we also look to continue to invest in the business, manage our balance sheet prudently, and pay down debt, this also frees up more cash to do that as well. We've been aggressive in paying down our revolver this year, nearly done with that. You know, we want to keep investing in our business as well. There's opportunity.
The technology we built to support this solution, we think, is best in class now. We have other areas of investment, whether it's AI enablement, continuing to improve all of our technical debt and getting to more automation. The cash we generate from this also allows us to do that. That kind of has an ongoing ROI from the dollars you generate. We're proud of the solution we built, but we think it has several really long-term benefits internally and with our clients.
What's interesting about it is we actually built this technology largely with AI developers.
Okay. Wow. Very interesting. Maybe I'm going to acknowledge you guys don't have a crystal ball, right? I've heard the word stability twice or three times already in the presentation, which is good, obviously, in the broader context of things. As you think about maybe what I've been trying to dig in on, I think what some investors are trying to zero in on as well is if you think about KPIs or signals you could get that the environment's actually turning, you know, not asking you to say like, "Hey, when's demand going to come back in full?" What are you watching for or how are you monitoring it to see the overall health of when we might get a rebound out of this, what it feels like prolonged cyclical low that the industry has gone through?
Let me do it from a market and then from an AMN standpoint and add in whatever I missed. From a market standpoint, you would typically look at things like bill rate. We've largely seen bill rate stabilization starting at the back half of last year. What you want to see into 2026, because this is all based off of a labor market, a labor market that continues to go up, is you'd want to see bill rate increases. What you'd want to see is not just utilization stabilization, but you'd want to see utilization increasing as patient demand increases. Those would be the things that I'd be looking at from a market standpoint.
For AMN, partially because of the breadth of our solutions, partially because coming out of COVID, we really played in a very important part of the market, but a part of the market that was about 25% of the total market. We have positioned ourselves against the entirety of the market. We have an ability to grow even if the market doesn't grow. There are macro tailwinds for market growth in this industry. We're not waiting for that. We are looking from an AMN standpoint at are we getting net strategic client growth? Are we getting higher fill rates? Not just in our MSP relationships, but in our vendor-neutral relationships where we've had a lot of success over the past year in increasing fill. Also, are we selling more of our 20 solutions to our clients?
In our top strategic clients, we have gone from an average of eight services to them to 10. We still have 10 more to go. We still have significantly more clients that we have really greenfields in front of us in terms of our solutions. Those would be the leading indicators around are we getting traction at AMN.
Yeah, and there's just other signals you can look at. One, you know, what are the hospitals saying, right? What are our clients telling us in terms of are they focusing more on every conversation on how they want to keep bringing down their use of contract labor? Are they more focused now on how do they get the kind of the best utilization of both their perm and contract labor? That's more of the discussion we're having now. Even the public hospitals, you know, are talking more in their calls about they kind of feel like they're in a good place from a mix standpoint. Those are just data points we continue to evaluate.
Customers first, hearing them and looking at where their volume may have been pre-COVID and post-COVID, and most of them are kind of more back to where they were before, which tells me we're probably hitting more of a natural floor when you consider the shortages that exist in certain specialties or geographies. They've gone through a tremendous amount of permanent hiring. You're starting to see a slowdown in some of the permanent hiring trends as well. I think kind of the hiring at all costs has been going on for the last three or four years now. As that slows down too, you're going to get to a more natural mix. It's a combination of the internal data that we see in terms of order, but also what we're hearing from clients and some of those external data points.
I don't know if Randy and the other on the labor side, what you're seeing that would support it as well.
That was the first thing that we really needed to see normalize, as we went several years there where the healthcare sector was hiring at a really furious rate. That was pretty much everyone we talked to, hiring more people than they had expected to, and that supplanted some need for contingent labor. There are risks to overhiring. Now it seems that major health systems recognize that there would be risks to overhiring going forward from this point. That's the corner that I, the first corner I wanted to see us turn. We really have to get back to the point for our industry to work where we can pass cost increases through.
We know regardless of if we hold pay rates steady, we know that housing expenses are going to increase just kind of in a linear fashion from quarter to quarter, and we need the ability to pass that through so that we're not eating it in the gross margin. It will make the industry healthier to get to that point. I don't think we're quite there yet.
Okay. Got it. Maybe just to pick at that just a little bit because it was another question on my list. The competitive dynamics, we've seen some players that have been willing to take a tighter spread or maybe chase things at rates that were a little lower, and the net result being a little bit of gross margin compression that the industry has seen broadly. Any update there? How should we think about sort of what the marketplace looks like? Have we moved past that, or is there still a little bit of irrationality, for lack of a better term, that's taking place?
I think you're seeing two things. One is we continue to see a very intense competitive environment. In the businesses that we play in, this went from a $25 billion TAM pre-COVID to at the height of COVID in the high $60 billion to now in the mid to high $30 billion. In that period where in COVID the TAM went up, you had a lot of competitors who were attracted to this space. While that has rationalized a bit, you still see a very strong competitive environment. We're also seeing them rational. These competitors care about profitability. When you look at where we have come in terms of bill rate stabilization and some of the commentary that Randy and Brian made around just what we've seen in gross margins, there is an interest in not taking further compression, we think.
What you'd want to see, and this pulls a little bit on what Randy just said, is you want to see as you go into 2026 that you're starting to see bill rate increases to reflect some of the higher costs. We expect the competitive environment to be intense but rational.
Okay. Got it. Maybe to switch gears just a little bit, the MSP environment, you know, it changed a little bit coming out of COVID. We saw more vendor-neutral coming in. I think there's been, you've given some commentaries, a little more normalization back to MSP as a structure rather than vendor-neutral. Maybe just on both fronts, if you can talk about sort of what are the dynamics you're seeing today and what does the pipeline look like for, you know, net new contract wins on either side?
Yeah. Coming out of COVID, we saw a couple of things. One is really irrespective of the model you were in during COVID, you didn't like the outcome at the end. Everybody coming out was looking at it and saying, "Hey, if I was vendor neutral, I didn't get the supply that I wanted. I might want to go MSP. If you were MSP, you might want to go vendor neutral." We saw that as a general rule. We did see numbers-wise more interest in vendor neutral coming out. There was a sense that it was more transparent. You were able to control some of the spend and the competition more. The reality is the tools had become so transparent across the board that you get that really across any of these models. That was definitely something that we saw in 2023, probably into 2024.
If you look at our pipeline now, whereas it had had a slight bias to vendor neutral, it now has a slight bias toward MSP. Thing one is our pipeline is both. This year we probably see more coming back in that are interested in going into some type of supplier-led program than we've maybe seen in 2023. I think the big thing is if you looked at the distinction between an MSP and a vendor neutral, even three years ago or four years ago, some of the distinctions have blurred. There's transparency in market data and information for all those models. We have it on our systems for MSP clients and for vendor neutral. You also see higher fill rates in vendor neutral programs in a number of cases.
There are more of these hybrid solutions in between those types of programs probably in 2025 than you would have seen in 2021.
Okay. Got it. Maybe if you extend sort of some of those dynamics into how that impacts your pipeline for VMS and the VMS product overall, better or worse, depending on what the mix looks like, how would you describe some of the dynamics of that currently?
I think AMN has, you know, part of our dynamics is we are much more competitive in vendor-neutral than we were a couple of years ago. We really rebuilt our VMS platform, ShiftWise Flex. We enhanced it really across the board in terms of features and functionality. We rebuilt it in 2023. We replatformed our clients in 2024 into the first part of this year. We have a more competitive solution set to play in it, thing one. We look at it from a market standpoint, and our strategy is we want to serve a client in whatever model they want to be served in. If they want a vendor-neutral model, we are going to support them in a vendor-neutral model. If they want a supplier-led model, we are going to support them in a supplier-led model, and it's going to have the same technology underneath it.
If they want to change in five years in their next RFP cycle, they can change a model without having to change the technology. We are a client-centric organization, and we want to be able to support a much broader swath of those clients in the market than we probably historically had.
I think we've always offered those solutions, but we were obviously always preferred. I still do a staffing-led program because we can deliver higher direct fill rates. We also weren't very capable of filling in a vendor-neutral environment. We just didn't have the speed. We're kind of purpose built around exclusivity with orders on staffing-led. Not only have we done the upgrades to ShiftWise Flex, but our internal applicant tracking system, our AMN Passport app, which is the number one used app in our industry, and those are all very highly integrated solutions now. We can go from order to candidate matching to submission in a matter of hours now in a way that used to take us a week or more. We can be much more competitive and have much higher fill rates even if it's vendor-neutral versus only on MSP.
Not only do we want to be client-centric and listen to what they want and deliver it really effectively, but we can also deliver better fill rates with our model that we have today. If these are any of the case, it creates the platform of a trusted partnership where we can go in and sell a lot of other solutions as well. We want to get our foot in the door, demonstrate our capabilities, and it might just start being a Nurse and Allied Solutions, but then we can bring a lot of other really valuable solutions, whether it's on interim leadership or perm or locum tenens. There's language services. There are a lot of things we can do for our clients to help them deliver great patient care and drive savings.
That's where serving, listening first, giving them what they want as a solution, and then bringing more to the table is where we're going to win in the long run as well.
Okay. Got it. Two minutes left. I'm going to try to do the classic analyst thing and sneak two questions into one here to close it out. We didn't get to talk about international. Visa retrogression has been a discussion there, obviously a headwind recently that's now sort of at a sustainable level. Any comments on sort of what that looks like now going forward? The second one being, I think we were chatting a little before, Cary, everyone wants to know, okay, where's rate going to be and where's volume going to be a year from now? If you look out to 2026 and say, you know, what should an investor be thinking about that's underappreciated currently? What would you point to as you think about sort of a 12-month plus outlook?
Do you want to do so then?
Yeah. On the international side, for those that may not be aware, there's come through a period of visa retrogression since 2023 where basically they pushed back the dates of applicants they were looking at. That started to move forward again. That's taken, you know, $100 million of revenue from 2023- 2025 and over $30 million of EBITDA out of the business. We're now starting to move to a position where with the dates moving forward during the current government year, that ends today, we're going to have a slight sequential increase in Q4, and we expect to be going back to positive year-over-year growth starting in the first quarter of next year. That will continue. If there's continued movement in the dates as we expect, that's going to continue to fuel our growth.
We have more than enough supply and demand to recover everything we've lost, and then some. It's really just a function of timing as the dates move forward. We feel really good about that business recovery.
Yeah. I think people didn't appreciate probably how much of a headwind that was happening simultaneously with the broader reset over the past two years. It'll be very nice to have it both not be a headwind but a tailwind. Things that we would be looking at over the next 12 months: one is obviously just what's happening in terms of overall market demand. Are you starting to see some of the growth coming off of what we've seen is more stabilization recently? For us, we look at it as are we getting client growth? Are we continuing to make progress in selling more of our solutions to our existing clients? Are we continuing to fill more of the jobs that are out there? Our mantra internally is we only want to focus on getting more of the demand that's out there. We can't control what the overall demand is.
We can control what we're filling overall. We think we have the next 12- 18 months to extend our lead from an innovation standpoint that we can, from a technology, AI enablement, in a world where the competitors are distracted, really extend the leadership position that we have.
Awesome. That is going to wrap it up. Cary, Brian, Randy, thank you so much for joining us. Really appreciate having you here.
Thank you for having us.