Good day, and welcome to the AMN Healthcare Q4 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker 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. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Randle Reece, Senior Director of Investor Relations. Please go ahead, sir.
Good afternoon, everyone. Welcome to AMN Healthcare's Q4 and full year 2022 earnings call. A replay of this webcast will be available at ir.amnhealthcare.com following the conclusion of this call. 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 Cary Grace, Chief Executive Officer, Jeff Knudson, Chief Financial Officer, Kelly Rakowski, Group President and COO of Strategic Talent Solutions, and Landry Seedig, Group President and COO of Nursing and Allied Solutions. James Taylor, President and COO of Physician and Leadership Solutions, is unavailable today. I will now turn the call over to Cary.
Thank you, Randy. Welcome everyone. I want to begin by expressing my gratitude for the warm welcome I received by the AMN team, our board of directors, investors and analysts, and our clients since my time as CEO began in late November. The past few months have more than confirmed all the reasons why I joined AMN. AMN stands at the nexus of healthcare and talent, where we make an increasingly valuable difference in the quality and timeliness of care. My experience running large client-centric service delivery businesses that combine organic growth and acquisitions positions me well to help guide AMN through its next phase of growth. Though everybody says they have a great company culture, AMN truly has something special. Our entire leadership team is committed to living the AMN difference every day and making sure we create great long-term opportunities for everyone in our organization.
I'm especially grateful to report good news in my first AMN Healthcare conference call with outstanding Q4 results and a strong Q1 outlook. Thank you to our healthcare professionals and team members for making a valuable impact for our clients in 2022 with more than 250,000 placements as our country managed through the pandemic. I am proud of how we are partnering with clients to optimize their labor costs, reducing bill rates as the urgency of demand moderated, and investing in tech-enabled solutions to help our clients transform care delivery models and manage their workforces over the long term. We remain the preferred partner for healthcare clients with our MSP and VMS programs managing more than $12 billion of labor spend in 2022.
AMN is a preferred employer for healthcare professionals and corporate team members, as demonstrated by several recent accolades we received, including the Diversity, Equity & Inclusion Award from the National Association of Corporate Directors and being named to the Bloomberg Gender-Equality Index for our commitment to gender equality and equity for a sixth year in a row. Over the past year, as we managed through extremely high demand, we were looking ahead, anticipating a moderation with the wind down of the pandemic. Our businesses exceeded the expectations we laid out a year ago. Our high level of performance is apparent in our latest financial results and outlook for the current quarter. Q4 revenue was $1.13 billion, with Adjusted EBITDA of $175 million. Every business segment exceeded guidance in what continues to be a fast-changing market.
Nursing and Allied segment revenue was ahead of expectations in the Q4, nearly flat with the Q3, despite lower labor disruption revenue. The moderation of bill rates was somewhat less than we had anticipated, with the segment average bill rate coming in 23% lower than the Q1 peak. As expected, volume in travel nurse was higher than the Q3, offset by the lower average bill rate. Demand for travel nursing remains above 2019 levels even after the healthcare sector maintained an impressive pace of permanent hiring over the past eight months. Our allied business had 6% year-over-year revenue growth with a 3% sequential increase.
The team did a phenomenal job pivoting focus from pandemic-related specialties to therapy and other areas. For the Q1 of 2023, we expect revenue in Nurse and Allied Solutions to be stable sequentially and down 32%-34% year-over-year against our most difficult comparison of the year. In our Physician and Leadership Solutions segment, Q4 revenue was slightly better than our guidance. Locum Tenens is operating at a consistently high level with 4 consecutive quarters over $100 million of revenue. Interim Leadership and Search achieved record high revenue for the year. As we expected, demand for Interim Leadership and Search was lower in the Q4 as some clients focused on short-term cost savings. In the Q1, we project revenue in Physician and Leadership Solutions to be down 10%-12% year-over-year.
Excluding pandemic-related business, revenue would be flat to prior year. Demand is well above pre-pandemic levels for Locum Tenens and Physician Permanent Placement. In Technology and Workforce Solutions, revenue grew 14% year-over-year, better than our guidance of about 10% growth. Our language services business was the primary driver of the outperformance. Since AMN acquired the company in 2020, language services has doubled its revenue, a great example of how we can add value with acquisitions. It is further evidence of our commitment to innovation, supporting quality patient care, and making a positive impact to the communities we serve.
In 2022 alone, we enhanced the healthcare experience and outcomes for patients in over 15 million interactions. Also in this segment, VMS revenue continued its moderation in line with our expectations. For the Q1, we expect revenue in Technology and Workforce Solutions to be down 10%-12% year-over-year due to lower VMS revenue. I'll turn over the call to Jeff for more details about our results and outlook, after which I will return to provide a glimpse at our focus areas for 2023 and beyond.
Thank you, Cary, and good afternoon, everyone. Q4 revenue of $1.126 billion was 4% above the high end of our guidance range, with all three segments contributing to the outperformance. Consolidated revenue was down 17% year-over-year and 1% sequentially. Excluding labor disruption revenue, consolidated revenue was in line with the prior quarter. Gross margin for the quarter was 33.3%, 140 basis points higher than prior year and down 50 basis points sequentially. Year-over-year, the margin was higher due to a revenue mix shift toward higher margin businesses. Sequentially, the margin was lower due to the typical seasonal revenue mix shift towards staffing.
Consolidated SG&A expenses were $219 million or 19.5% of revenue, compared with $239 million or 17.5% of revenue in the year-ago quarter and $215 million or 18.9% of revenue in the previous quarter. SG&A expenses were lower year-over-year, primarily due to lower employee-related expenses given less revenue and more normal operating conditions. Higher allowances for credit losses and legal reserve expenses drove the increase in SG&A compared with the prior quarter. Adjusted SG&A, excluding certain non-recurring expenses and stock-based compensation expense, was $202 million this quarter or 17.9% of revenue, compared with $212 million or 15.6% of revenue in the year-ago quarter. The increase in adjusted SG&A margin came from less operating leverage on lower revenue.
In the Q4, Nurse and Allied revenue was $825 million, 24% lower than prior year and slightly down sequentially. Average bill rate was lower by 2% quarter-over-quarter and average hours down 1%, offsetting 3% higher volume. Our travel nurse revenue was down 24% versus prior year and flat sequentially. Allied revenue was $195 million, growing 6% from the prior year and 3% above prior quarter. Nurse and Allied gross margin of 26.6% was 40 basis points lower than prior year and prior quarter. The year-over-year change was caused by less labor disruption revenue, lower average hours, and higher insurance expenses, partially offset by improvement in the bill-pay spread. Sequentially, the margin decrease stemmed primarily from the favorable workers' compensation adjustment that occurred in Q3.
Segment operating margin of 12.7% was 370 basis points lower than prior year and 120 basis points lower than prior quarter, reflecting the higher allowances for credit losses. Physician and Leadership Solutions revenue in the Q4 was $168 million, 2% higher year-over-year and down 4% sequentially. Locum Tenens revenue was $103 million, 4% higher than prior year or growing by 13% excluding pandemic-related revenue. Interim Leadership revenue increased 4% from prior year and was down 5% from prior quarter. Search revenue declined 10% from prior year and was down 13% sequentially. Gross margin for this segment was 35%, 100 basis points higher than prior quarter and down 10 basis points year-over-year.
The sequential margin increase was primarily due to higher gross margin for Locum Tenens, partially offset by mix. Segment operating margin was 16.7%, up 510 basis points from last year and up 310 basis points sequentially. The higher profit margin came primarily from a lower allowance for credit losses and a favorable actuarial adjustment. Technology and Workforce Solutions revenue was $133 million in the Q4, growing 14% year-over-year and down 1% sequentially. Language services stood out with revenue of $58 million, which grew 23% year-over-year and 5% quarter-over-quarter. VMS revenue of $55 million grew 5% year-over-year and was down 9% from prior quarter, as we had expected.
Segment gross margin was 73.3%, up 130 basis points over prior year and down 230 basis points sequentially. The year-over-year and sequential changes track revenue comparisons for the higher margin VMS business. Segment operating margin of 50.2% was up 280 basis points year-over-year and down 250 basis points sequentially. Consolidated Q4 Adjusted EBITDA of $175 million was lower by 22% year-over-year and down 4% from the prior quarter. Adjusted EBITDA margin of 15.5% was 80 basis points lower year-over-year and down 50 basis points sequentially. We reported net income of $82 million and diluted earnings per share of $1.88 in the quarter.
Adjusted earnings per share was $2.48, compared with $2.95 in the year-ago quarter. Days sales outstanding came in better than expected at 55 days, four days less than the prior quarter and two days higher than prior year. Operating cash flow for the quarter was $115 million, capital expenditures were $25 million. As of December 31st, we had cash and equivalents of $65 million, long-term debt of $850 million, and a net leverage ratio of 1x to 1. Recapping financial highlights for the full year of 2022, we reported revenue of $5.24 billion, a 32% year-over-year increase, and net income of $444 million, which grew 36% compared with 2021.
Adjusted EBITDA was $847 million, up 33% from prior year. Full year Adjusted EBITDA margin of 16.1% was 20 basis points higher year-over-year. GAAP EPS was $9.90, up 45% year-over-year. Adjusted EPS was $11.90, higher than prior year by 48%. EPS benefited from our repurchases of $577 million in stock during the year. Full year cash flow from operations was $654 million, which included a $24 million payment of deferred payroll taxes from the CARES Act. Adjusting for the CARES Act repayment, nearly 80% of our Adjusted EBITDA was converted into cash flow from operations. Capital expenditures totaled $76 million. Since the end of 2022, two events have bolstered our capital strategy.
We obtained an expansion of our revolving line of credit, adding $350 million of borrowing capacity to total $750 million, with its tenor extended to 2028. The interest rate for the expanded facility is in line with previous terms. In addition, the board of directors expanded our share repurchase authorization by $500 million. Since our last earnings call, we bought back 2.4 million shares of stock for $275 million. The latest authorization gives us a total of $551 million in potential buybacks. Now looking at Q1 2023 guidance. We project consolidated revenue to be in a range of $1.1 billion-$1.13 billion, down 27%-29% over prior year.
Gross margin is projected to be 32.6%-33.1%. Reported SG&A expenses are projected to be 18.3%-18.8% of revenue. Operating margin is expected to be 11%-11.7%, and Adjusted EBITDA margin is expected to be 15.4%-15.9%. Average diluted shares outstanding are projected to be $42 million, reflecting our recent share repurchase activity. Other Q1 guidance details can be found in today's earnings release. Last quarter, we talked about 2023 returning to a normal seasonal pattern. Our Q4 results and Q1 outlook came in stronger than we had expected, with higher bill rates being a key driver.
After the Q1 strength, current business trends suggest a decline in nurse and allied revenue for Q2 that is greater than normal seasonality. While demand is still above pre-pandemic levels, we have seen some clients pursue near-term cost savings and reduce utilization of contingent staff. Labor market conditions remain very tight, with high vacancies and attrition, and we believe staffing demand will go back up over the summer in line with normal seasonality. Now I'd like to hand the call back to Cary.
Thank you, Jeff. While the healthcare sector hired more than nine million people in 2022, that hiring spree resulted in a net employment increase of less than 800,000. Competition for talent remains intense, and wage inflation is elevated. Voluntary turnover remains at the highest level in more than 20 years, and conditions are most difficult for our clients in acute care. Recognizing these enduring issues, we are focused on four key areas that we believe will drive long-term value for all our stakeholders. First, we will continue to be the preferred partner for healthcare organizations as they optimize their workforce strategy to meet continued long-term increases in utilization. Our solution set is comprehensive and differentiated and will be more so with our internal investments and acquisition strategy. We see great opportunity both in better serving current clients and winning new clients.
On that path, we will strengthen our ability to go to market as one AMN, building brand equity and making it easier for clients and healthcare professionals to work with us. We are already gaining traction on initiatives to improve our speed to deliver while maintaining our industry-leading quality. As demand has receded from its extreme highs, our MSP strategy better positions us to gain share. Second, we are expanding our efforts to ensure AMN is the preferred employer for healthcare professionals and team members. These programs include new initiatives on workplace flexibility, ensuring competitive pay and benefits at all levels, career pathing and mentoring, and industry leadership in diversity, equality, equity, and inclusion. Our healthcare professionals benefit from having the largest selection of job opportunities in the industry, easily accessed through mobile technology.
We want to keep building our diversified portfolio that is expanding and improving total talent solutions for healthcare. Our strategy is to aggressively increase technology enablement in every aspect of AMN. Our plan will allocate approximately 2% of revenue to capital expenditures with a heavy focus on digital innovation. These investments will improve outcomes for our existing solutions and add new technology-led solutions to keep up with the challenge of delivering care amidst a sustained mismatch of supply and demand. We are continuing to invest in digital-first initiatives such as AMN Passport, our always-on connection with more than 170,000 nurses and growing.
Finally, we are committed to being good stewards of capital. Our capital expenditures more than doubled over the past three years, enabling us to lead our industry in technology improvements. We have built a company with high quality of earnings and strong free cash flows that give us strategic options. With a strong balance sheet and expanded borrowing capacity, we have the framework and flexibility to make attractive acquisitions while also repurchasing stock, which we believe is a great investment opportunity. Now, let's please open the call for questions.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks. I guess, you know, basically flat earnings sequentially in Q1 speaks to some stability there, but there's always seasonality in it from Q4 to Q1. I think the big debate right now is just kind of, you know, what the new normal is, in your view around healthcare staffing demand. It was really helpful to hear your comments about the seasonal drop into Q2. Has your view on Q2 changed? Is it more about Q1 being higher than it is about Q2 being lower? I guess we should be here kinda, again, Q2, Q3 change from where you were when you were giving guidance last time.
Hi, Kevin. Thanks for the question. Maybe what we'll do is I'll turn it over to Jeff, who'll talk a little bit about the patterning of Q1, Q2, and then Landry and I can talk a little bit more broadly about demand.
Yeah, Kevin. The Q1 guidance is higher than what we would've originally thought, really primarily driven from higher bill rates, and that's partially driven by mix with some higher rate orders that will be rolling off at the end of Q1. As a result, we are expecting a higher than normal sequential decline in nurse and allied revenue, you know, from Q1 to Q2. If we just step back and think about Q2, you know, going into the year, we would've expected the Q2 to be the lowest revenue and EBITDA margin quarter of the year, and that is still the case.
On the Nurse and Allied side, we would normally expect a 6% sequential decline in the Q2, you know, looking at historical patterns. That's normalized for labor disruption driven by the winter orders winding down, and that 6% would be driven by equal declines in both volume and bill rates. As the bill rates were higher in both the Q4 and the Q1, we do now expect a high single-digit bill rate decline in the Q2, again, primarily driven by that mix influence from Q1 and the normal seasonality. Then we would expect the Q2 sequential volume decline to be higher than our historical seasonality, but less than the bill rate declines.
Hey, Kevin, if we step back and take the demand question, let me kind of give you a perspective on what we see as the shape of demand and some of the factors around supply that we're seeing, then I'll have Landry comment a little bit more on what we've been seeing more recently. If I go back into the onset of the pandemic, it really accelerated an existing supply-demand imbalance across the healthcare workforce. As we've moderated down from the emergency demand levels we saw during the pandemic, we still have an enduring structural change in the supply of and demand for these healthcare professionals. The things that we are seeing and continuing to track is you're seeing continued utilization demand growing. I think people are pegging it somewhere kind of 5+% annually.
The new supply, especially of nurses, is not keeping up with these increases. The already constrained supply of the healthcare professionals is being impacted by retirement. The same demographics that are driving some of the increases in demand are also driving the accelerated retirement of some of our healthcare professionals. We also continue to see bedside clinicians leaving and taking less stressful jobs in healthcare and elsewhere.
Beyond these supply-demand, you know, enduring imbalances, we're seeing compensation expectations that have increased across all economic sectors as high inflation has put upward pressure on wages. That really was happening throughout the pandemic. The conversations we've been talking to our clients about is, how do we help them attract and retain the workforce they need to serve their patients in a cost-effective way? Enduring structural supply-demand imbalance, continued upward, you know, kind of leaving point from the pandemic of pressure on wages. I'll turn it over to Landry to talk a little bit about what we're seeing more recently.
Yeah. Hi, Kevin. We do as of today, we continue to see travel nurse and allied demand that is above pre-pandemic levels. It is down from some of the highs that we saw in the industry during some of those major COVID spikes. You really have to think about at the peak, a lot of that demand is what we would, you know, kind of characterize as irrelevant, and it never did get filled by the overall industry. You had demand spiking because of the extreme needs that exist there and the inadequate labor supply that exists.
We've been predicting all along that we wouldn't have as high of demand whenever things settled down, yet the demand still would be higher than pre-pandemic levels, due to some of those universal issues on the labor within healthcare. We have seen a couple of reports out there on demand in the marketplace that reflect what others might be seeing in the industry. While our demand is down, as I just mentioned, our decline has not been as steep as what some of those reports suggest. I think there's a couple reasons for that. I think, you know, one reason is that we stayed true to our MSP customers over the past two years.
Also the AMN team really did not chase any of the kind of what we would consider short-term business over the past couple of years. A lot of our conversations right now with clients are about reducing costs, but the reality is that their facilities remain highly understaffed even today. Bill rates, you know, they've moderated for the most part, clients are looking for decreases in their order volume really to try to accomplish a lot of their contingent labor expense targets. You know, if you look at some of the underlying drivers of supply and demand, we expect that the pullback's gonna be pretty short-term, and it's really just overall not sustainable in the marketplace. We do expect to see a healthy demand environment as we progress throughout the year.
There's quite a bit of levers that we're pulling right now, things like increasing our MSP fill rates and then also returning our internal capture to some historical levels. We saw that dip a little bit throughout the pandemic whenever demand was really high and we were highly reliant on our supplier partners. The last thing that I'd mention is that we also have opportunities of focusing more on our non-MSPs, which we had previously been deprioritizing over the past couple of years.
Okay, that's fantastic. I would just do one more, I guess, Cary, whenever there's a new CEO, always looking to see kind of what they're focusing more on now. I guess in your prepared comments, this go as one AMN thing kind of stuck out to me. Any way to size kind of what you see the opportunity as and how we should think about what that could mean? Thanks.
Let me, thanks, Kevin. Let me give you a little bit of perspective at a macro level. As we continue on these calls throughout the year, I'll continue to put color on it. One AMN, I know there's gonna be, you know, a very physical representation of that, where you will start to see our brands come together. We will literally look more cohesive and integrated as one company. Really a lot of the things that we are working incredibly hard on and will continue to throughout the year is how do we actually make all the parts across AMN work more seamlessly together. There's a lot of implications for work that we're doing to streamline our processes across our 20 solution sets, to streamline our platform.
A lot of what we want one AMN to feel like is to feel easier to do business with, both for all of our clients, for our clinicians, and very importantly for our own team members. If I gave you an example of what I would expect it to start changing in terms of the shape of our financials, as a proxy right now, if you looked at our 30 largest clients, of our 20 solutions, we have an average of eight. Obviously, if you went much, much further across our client base and then kind of did the math around our 20 solutions, there's tremendous opportunity for us to further penetrate those client relationships. We'll have more success in doing that if we've created a real and meaningful value proposition, that's compelling to them.
Thanks.
Thank you. One moment for our next question. That will come from the line of A.J. Rice with Credit Suisse. Your line is open.
Hi, everybody. Congratulations, Cary, on your Q1 here. Let me just maybe drill down a little bit further on some of the stuff that Landry was saying. If you look at your MSP accounts, I know in the peak, you couldn't fill all the orders, the entire industry couldn't fill all the orders, but you were subcontracting, contracting out a meaningful percentage. If you look at, say, Q3 to Q4, are you stepping up the percentage that you're filling of those open orders meaningfully, or is it still a fair number that are being subcontracted and potentially even going unfilled among your MSP accounts?
A.J. Rice, I was gonna say thank you for that. You got our strategy, what we were doing throughout the pandemic and also around what we have been doing subsequently. I'll let Landry Seedig kind of kick off and then talk, and then Kelly Rakowski can talk a little bit about our broader MSP strategy.
I'm gonna turn that one over to Kelly, but I was just gonna mention, A.J., both Q3 and Q4 are strong. You know, we were living in really high demand in the Q4. Those you'd have to look at that as being pretty flat. Right now, our focus is on increasing that as we progress through Q1 going into Q2, and we are seeing increases on that, but I'll let Kelly provide a little bit more detail.
Yeah. A.J., just to build on that, certainly favorable trends for us as those demand, that demand lowers from Q4 to Q1. We're seeing both increased fulfillment as well as some increases, incremental increases in our internal capture. We will remain, you know, our model will remain a combination of AMN's ability to fulfill on behalf of our clients, but also the strength of our supplier network, which is critical for us to achieve that full fulfillment as well as augment our capabilities in, you know, regional or specialized areas. We were very fortunate to have the strength of our suppliers throughout COVID, as were our clients. That, that strategy won't change, although we do have opportunities to grow that.
It also creates additional capacity for us as we're seeing pretty strong demand from a new business and pipeline perspective, A.J. We've been very active in the market. We added a few new MSPs in the last couple of quarters and a healthy pipeline for us here starting the year. We will continue to grow our client base. Again, the strength of our network will be a key part of that growth.
Okay. Just to follow up, another comment you guys were making. When you think about what happened in the pandemic, you had some new competitors come in and grab some marginal share. There was always like you said, you had to emphasize your MSP accounts and some of the other ones probably got less focus. As you're thinking about having the opportunity to go back after some of that business, how sticky is it with the new competitors? Are you finding that people are willing to come back to you pretty easily? I wondered also whether it might create some opportunities on the M&A side. I know traditionally a lot of your M&A has been adjacent businesses, but I wondered if there were opportunities emerging, in the core travel Nursing, Allied and, Locums businesses you might look at.
A.J., this is Landry, I can start with it. The non-MSP business, we never left it. We just deprioritized it. We still, nothing changed in our relationships. We were very transparent with, whether those are direct contracts or where we are third party to some of those, you know, maybe other MSP or VMS holders out in the marketplace. There was nothing that was being hidden. We were trying to find other solutions to try to help even some of those different types of clients out, whether that was through our VMS system or our local business or some other businesses. All those contracts still exist. We still get those orders. We can just prioritize them higher within our order rating numbers.
Some of the short-term business that I was referring to though was just more of that, you know, kind of state contracts or some of the facilities that we're setting up for vaccine centers or standup hospitals or FEMA, just some of those other programs that, you know, we thought would go away at some point, and they, in fact, have. I think our strategy is staying, you know, highly focused on our MSP customers, has seen, you know, the retention rate of our MSP customers, in the long run has and will continue to play out well for us.
A.J. Rice, just to your, to your last comment around as I reflect on some of the new business and new strategic relationships we're bringing in, we are seeing some early traction as we go to market with a more comprehensive solution set and really emphasizing that, and clients looking for more solutions as they, you know, face this challenging market. We have seen as one early indicator, the number of service lines per contract is going up with our new business versus in the past where we started with contracts and saw growth over time. We'll expect to see that trend continue as well.
Hey, A.J., on the M&A side, we expect M&A to continue to be an important part of our growth strategy. So you should expect us to have a proactive focus on M&A, especially as ways that we think it can help us serve our clients more effectively. We will look at strategic fit, we'll look at financial fit, we'll look at cultural fit, quality of management. We will look at more traditional staffing assets. We also will look at and have a focus on tech-enabled solutions. What I would say from a kind of what we have seen standpoint, last year, we probably unbiased saw more traditional staffing assets. I know it's relatively early in the year, but we're seeing, you know, relatively more tech-enabled solutions come up. Know that we will look broadly, we will look at fit, and we are very interested in M&A as a growth strategy.
Okay, great. Thanks a lot.
Thank you. One moment for our next question. That will come from the line of Tobey Sommer with Truist. Your line is open.
Thank you. I wanted to see if you could spend some time giving us some more color on VMS and MSP trends. In particular, if you could touch on the what seems like rapid adoption of vendor-neutral MSPs and VMS solutions, and maybe also speak to any timing of recompetes for your larger MSPs. Thank you.
Hey, Toby, I'm gonna turn it over to Kelly in a second. As a frame up for this conversation, we have very intentionally built a broad set of capabilities. We know that clients have different needs, and they have different strategies for how they wanna manage their workforce, recruiting, retention, staffing strategies. Think of this as Kelly talks about some of those trends, that we really do look at it, and we start with the client need, and then we work around from that and how we can be helpful to them and how they wanna execute that strategy. Kelly, I'll turn it over to you to talk about some of those trends.
Yeah. Hi, Toby. You know, I would say, I'm not sure we're seeing some of those trends. I will say, it's pretty typical, we typically see on any given year, you know, from our own mix of business. It changed a little bit during COVID. As I look at our pipeline over the last two years, in 2021, we saw a heavier mix of technology-only solutions. We start to see that come back. I would say our pipeline today is more heavily weighted towards full MSP programs.
Also we see in our because we have, you know, multiple VMS solutions and such a large client base, nearly 500, you know, typically in any given year, we'll see some transition from clients who wanna take their business in-house, and conversely, those who wanna transition from an in-house solution into our MSP program. We've had both of those, you know, play out in our client base. Again, I would say that is pretty typical to what we've seen in the past. You know, we are seeing, of course, clients wanna add to their ability to have more flexible type solutions inside their workforce. I would say it's more of an and to the use of travel nurse, so things like internal float pools.
You know, you did see some internal agency activity where they're using VMS solutions to help accommodate that. Certainly, we are partnering with them in highly customized ways to meet their local needs. On the second part of your question, Toby, around our outlook for our renewals and contracts. We had a very strong retention rate last year. We have a very typical renewal period. As we look at, you know, our contracts coming to terms, we have a very strong outlook this year for renewals. In fact, we've got, you know, several already in verbal if not contracted this year. Nothing is accelerating that or really changing that. A lot of the catch-up that had happened from delays during COVID have played out in contracting over the past year.
Thanks. For my follow-up, I wanted to see if I could get you to talk about why you think demand rebounds in the summer, and for travel nurse, and if that's, you know, merely a reflection and reliance on history of a product of conversations and what customers are telling you, how do you get to that as a conclusion?
You know, I think it really goes back to a combination of some of the comments that Jeff, Landry and I are making. If you look at it from a macro standpoint and just look at the structural imbalance in supply and demand, against the backdrop of you know, We just published some research on this just on timing and continued delays in access. We know that the demand continues to get pent up. As much as clients right now are extremely focused on cost containment, they also are very focused on how are they going to staff to meet their demand. It's a combination of what we're seeing structurally. Second, that we have seen seasonal patterns typically where you start to get winter orders as you go through the summer. It's really a combination of both of those things.
Yeah, Tobey Sommer, I would just add, you know, it really is not sustainable. All of the lower demand is purely a CFO decision right now. We're not seeing it from CNOs, we're not seeing it from unit managers. It's purely a financial decision. They are still understaffed. Nothing has changed there. The reality is that our Q1 volumes are good. It's just the demand has been pulled back. That's their solution that they're thinking to cut for cost savings.
They haven't felt the pain, right? Our clinicians are still there right now. Whenever those clinicians start coming off, it'll get noisy, their internal staff will be getting noisy. They will experience even higher turnover. It's not, you know, we saw this throughout the pandemic, but we've also seen this over the last 15 years. It's just not sustainable whenever there is a shortage within a facility, it's a poor decision not to have the labor.
Tobey Sommer, the last part that I would add that I know we've talked about, particularly over the past, you know, 12-18 months, is when you look at the, really kind of the fragile state of the workforce. We do a biannual survey of nurses, and we'll publish it in May. I just got some of the data over the past 24 hours. If you look at the macro level satisfaction levels, for nursing career, current nursing job, we saw it drop down to 71%.
That number had been between 80%-85% for 10 years. When you look at, you know, still very high turnover rate, satisfaction levels going down, there is this balance of, for a lot of our clients, how do they find the balance between the cost containment, but also making sure that from a workplace standpoint, that they have an environment that is going to be able to retain and keep their precious staff.
Thank you.
Thank you. One moment for our next question. That will come from the line of Tim Mulrooney with William Blair. Your line is open.
Cary, Jeff, Kelly, Landry, good afternoon.
Good afternoon.
There's a lot of moving parts here with, you know, Q1 expected to be stronger, Q2 expected to be lower than normal. I just wanna ask it a different way. Last quarter, you laid out a framework for 2023 of more than $4 billion in annualized revenue and 15% EBITDA margins. Is that still your expectation today?
Tim. You're right. The Q1 guidance is higher than what we had thought. Again, that's primarily driven from higher bill rates. That's what's also driving, you know, our expectation for, you know, a lower Q2 and that higher than normal sequential decline we talked about earlier. You know, given everything that Landry just talked about with demand increasing in the second half, and we also believe that bill rates off of that Q2 level will follow a normal seasonal pattern into Q2, that if that normal seasonality plays out in the second half, you know, we would see a path to that full year expectation that we laid out in the last call.
Okay, thanks. You know, the last few years, you just building on that, you've provided an expectation where you think bill rates ultimately settle as you exit the year. What is your expectation for bill rates as you hit the exit in 2023?
They really haven't. They were higher in the Q4 and the Q1 than what we thought. With that high single-digit decline into the Q2, they're still exiting the year with where we originally thought they would be. It's just they weren't there in the Q4 and the Q1.
Okay. Thank you.
Thank you. One moment for our next question. That will come from the line of Mark Marcon with Robert W. Baird. Your line is open.
Hey, good afternoon, everybody. With regards to just the Q4, just the rearview mirror, you mentioned, you know, some credit adjustments with regards to Nurse and Allied in the operating margin for the Q4. Jeff, what was that exactly? What happened?
Yeah. There was just a reserve for credit losses or bad debt, Mark. There was one specific MSP account that we have concerns about. Also just given the macro environment, we also took a slightly larger than normal general reserve for expected credit losses, and that impacted Nurse and Allied primarily.
Okay
-is what drove those dollars.
That MSP account is one large one, or is it a, you know, relatively well contained?
It's relatively well contained, and it's not one of our larger accounts.
Okay, great. Really appreciate, you know, the forward look into Q2. That's extremely helpful. Cary Grace, Jeff Knudson, kudos to you for both, you know, disclosing what you're seeing now as it relates to that. It does sound like a lot of that is basically, you know, the change in terms of the bill rates. It sounds like basically in Q4 and Q1, the bill rates are higher due to certain specialties that are being utilized to a greater extent. What specialties are you seeing that, you know, are that are high bill rate specialties that, you know, were a little bit higher than expected in terms of the utilization in Q4 and Q1, and why would that drop off more than usual going into Q2?
Yeah. Mark, going into the Q4, our expectation for bill rates was that they would decline in the mid-single digits. They ended up coming down 2% over Q3 levels. Really the higher bill rate specialties is a driver of why they increase sequentially, into the Q1. That's really just about a number of urgent needs orders that we received that a carried a higher bill rate, that from a mix standpoint, drove bill rates up in the Q1. Those will predominantly roll off, by the end of the Q1 as we exit into Q2.
Great. Then if I could just cheat and just ask one more. Just how much variance are you seeing in terms of the behavior among your 30 largest clients in terms of how they're treating the need for, you know, cost discipline versus, you know, managing the workload on the floors?
Hi, Mark, it's Kelly. I'm chuckling a little bit because, you know, we have a lot of variation just in the makeup of those 30, you know, across the country, different sizes, different settings, you know, different communities that they serve. On the one hand, it's difficult to sort of peg consistency. But I will say from a in general, you know, Landry talked about it, you know, we're coming off of peaks of very high volume. There's still the sensitivity around the financials. While I think the industry, particularly the hospital industry, started to see some improvement in their bottom line coming out of December, there's still considerable financial strain on the systems, and they're looking to their largest line item of their labor expenses to be able to manage that going forward.
You know, I would say there's still that sensitivity to cost management, largely doing that through bill rates, through some of the urgent needs that Jeff just referred to. We're seeing them turn to us to help them with, you know, predictive planning, utilizing our permanent resources to help them backfill so that they can bring back down those vacancy rates to more normal levels. High sensitivity still to cost. At the same time, still a need around fulfillment. You know, Landry mentioned there's, you know, they still need the nurses and their allied professionals on the floors. There's challenges around retention. You know, we hear most CHROs talk about, you know, I don't have a recruitment challenge, I have a retention challenge.
I need to keep the people I have, and we know the biggest factor to retention is creating a safe, positive work environment. They're not, you know, they don't wanna relinquish the use of contingent staff. Our teams just continue to work with them on all fronts, helping them from a short-term perspective, manage those costs, but also bringing to bear other capabilities and parts of our solution to help them with the long term. I think with that's probably a very broad brush, universal, kind of lay of the land, Mark.
I appreciate that, Kelly. Thank you.
Thank you. One moment for our next question.
That will come from the line of Jeff Silber with BMO Capital Markets. Your line is open.
Hey, this is Ryan on for Jeff. I just wanted to ask a quick question on the Tech and Workforce. I was just curious what the drivers are for the segment for the year as you lap some challenging comps and some headwinds in VMS. Do you think the language service business can continue its strong trajectory and really drive the segment going forward? Thank you.
Yeah. Thanks, Ryan. I would say, you know, when you look at the year-over-year comparisons for the rest of the year, that we would still expect language services to be growing, you know, in that high teens rate as we move through the rest of the year. As you noted, you know, VMS will have some very tough, you know, comparisons, particularly in the Q2, you know, beyond Q1, in the Q2 and Q3 timeframe. They'll also be challenged, you know, sequentially in the Q2 as some of these bill rate dynamics that we talked about on Nurse and Allied play out in the front half of the year.
I'll just add, Ryan, on language services, I mean, you heard Cary mention, you know, we celebrated a three-year anniversary with AMN this week. That team just continues to deliver very high quality services, very strong retention of clients, as well as kind of in-account growth. We still see organic growth patterns for that business within their existing account base as they increase adoption of the model. In some cases where we have accounts where we might be working with health systems on a few of their hospitals, they see our results, and they continue to expand. We have a, you know, strong pipeline and new acquisition there, and still an opportunity to grow within our MSP base. Just a shout-out to that team for their tremendous value that they bring to their customers, and we're just thrilled to have them as part of AMN.
Sure. Thank you. Just as my follow-up, given some of the clinicians rolling off in the Q2 and CFO grumblings about cost, I'm just wondering if there's any room to move bill rates lower, offer any concessions to kind of ease the financial burdens on providers for later in the year? Are you expecting normal seasonality to return in the second half?
The bill rate is a tricky one because we saw bill rates go down on our orders, not necessarily on our placements throughout. The bill rates on the placements did go down, but the orders went down to a level last year that it was negatively impacting bill rates because of the low pay. That's why we've got some confidence in where we think that the bill rates are gonna normalize.
That's a little bit tricky one. I think the, the better thing is to go and offer more solutions to help with the overall labor problem. You know, whether that's offering some RPO solutions or, you know, more local float pool type of solutions that. It's not new. It's not something brand new, but clients are looking to try all sorts of new things right now. Then I think your other part of your question had to do with the second half of the year.
Yeah.
-seasonality.
On the seasonality, we are expecting the second half of the year to play out, which would mean, you know, Q3 would typically be up, you know, modestly over Q2, and then a little bit of stronger growth in the Q4 over Q3 levels.
Thank you.
Got it. Thank you.
One moment. One moment for our next question. That will come from the line of Taji Phillips with Jefferies. Your line is open.
Hey, good afternoon, guys. It's Brian Tanquilut. I guess my question for the team, you know, there's a lot of chatter around the competitive dynamics in the space where, you know, some of your competitors are talking about expectations for, you know, a good bit of incremental decline in bill rates going forward or their predictions. Just curious what you're seeing in the market in terms of the competition and what you're hearing in terms of, you know, is there a potential for price aggressiveness from some of the players in the market at this point?
Hey, this is Landry, Brian. Jeff mentioned that, you know, we are anticipating that sequential decline in bill rate from Q1 to Q2. From what we're seeing from the competition there is, you know, some pockets of small competitors out there that, you know, might make a margin move or a bill rate move. That's not something that we've seen as of right now from any of our large competitors.
Got it. Okay, awesome. Thank you. That's all I got.
Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any closing remarks.
Thank you. Before we say our final goodbye, I know we talked quite a bit about a couple of our businesses. We didn't talk as much about PLS. I just wanna give them a big recognition for, as you go and look at throughout 2022, they had just a terrific year, including in the Locums business, four consecutive quarters of hitting over $100 million of revenue. deserves a, deserves a special shout-out. Thank you all for being with us. We appreciate all the questions and all the interest. I'm gonna end with how I started, which is I could not be more thrilled to be part of this wonderful AMN team, and I am looking forward to spending time with all of you in the coming weeks and months.
Thank you all for participating. This concludes today's program. You may now disconnect.