AMN Healthcare Services, Inc. (NYSE:AMN) Q3 2022 Earnings Conference Call November 3, 2022 5:00 PM ET
Company Participants
Randle Reece – Senior Director, Investor Relations
Susan Salka – Chief Executive Officer
Jeff Knudson – Chief Financial Officer
Kelly Rakowski – Group President and Chief Operating Officer, Strategic Talent Solutions
Landry Seedig – Group President and Chief Operating Officer, Nursing and Allied Solutions
James Taylor – President and Chief Operating Officer, Physician and Leadership Solutions
Conference Call Participants
Mark Marcon – Robert W. Baird & Company
Joanna Gajuk – Bank of America Securities
A.J. Rice – Credit Suisse
Jeff Silber – BMO Capital Markets
Tobey Sommer – Truist Securities
Tim Mulrooney – William Blair
Operator
Thank you for standing by and welcome to AMN Healthcare’s Third Quarter 2022 Earnings Call. [Operator Instructions] I would now like to hand the call over to Randle Reece, Senior Director of Investor Relations. Please go ahead.
Randle Reece
Good afternoon, everyone. Welcome to AMN Healthcare’s third quarter 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 forms 10-K and 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; and Landry Seedig, Group President and Chief Operating Officer of Nursing and Allied Solutions. James Taylor, President and Chief Operating Officer of Physician and Leadership Solutions, would normally be joining us, but he is representing AMN today on the President’s panel about the future of healthcare workforce solutions at the SAA conference.
I will now turn the call over to Susan.
Susan Salka
Thank you so much, Randy and welcome everyone. We have many topics to share and celebrate today, but I will start with one reflection as I begin my 84th and last earnings call. When AMN went public 21 years ago, we were a single-service travel nursing company. And while it’s still our largest business today, there is no doubt we have come a long way in building a healthier, more diverse and impactful company over those years. In addition to being the most comprehensive staffing provider, we have also become the leader in workforce solutions and technology platforms in healthcare. Our stock has risen about 650%. And for the last decade, we’ve been consistently in the top quartile of delivering total shareholder returns. Most importantly, we positively impacted millions of patients’ and families’ lives, and we’re proud to be a national leader in diversity, equity, equality and inclusion and a recognized contributor to our communities.
AMN is stronger than ever before, and we have tremendous opportunities ahead to make a greater impact for all of our stakeholders. We have incredible strength, stability and diversity of experience across our leadership team, and these are the people driving the results you see today. This gives me great confidence as I pass the CEO baton to Cary Grace later this month. Cary is the perfect leader to build upon the strong culture and foundation we have created at AMN. Our team is very excited to begin working with her and continue the momentum we have in the market. And I know you will enjoy getting to know her in the coming months, too.
Now, let’s turn to our results and the trends we think are most important to our future. As we’ve discussed before, a great confluence of pressures caused healthcare staffing demand to reach unprecedented levels last fall and winter. Our team has worked closely with clients to bring the unusually high pay and bill rates down as quickly and smoothly as possible as demand pulled back but remains well above pre-pandemic levels.
Throughout 2022, we have been proactive and transparent in communicating the expected decline in revenue after the first quarter peak. While we are above our earlier expectations, we believe things have generally played out as we anticipated. During the third quarter, all 3 of our business segments again exceeded revenue expectations and we are pleased with our trajectory in the fourth quarter. Since February, we had a $1 billion revenue target with a 15% adjusted EBITDA margin for the fourth quarter and our guidance today is comfortably ahead of these targets. In times when many companies struggle for visibility, we maintained our strong track record of setting reasonable expectations and performing well against them.
Third quarter revenue was $1.14 billion with adjusted EBITDA of $182 million. Revenue was 20% lower than the second quarter caused mainly by the anticipated decline in our largest segment, Nurse and Allied Solutions. Nurse and Allied segment revenue was $828 million in the third quarter, 32% higher year-over-year and declining 25% sequentially. Travel Nurse revenue grew 31% year-over-year and was down 25% from the prior quarter. Demand for travel nursing remains well above pre-pandemic levels with strength across all specialties. In addition, our supply of candidates including new applicants, remain stronger than pre-pandemic levels, and we have the benefit of a significant number of candidates that have been added to our network over the last 2 years. An increased preference among clinicians for flexibility, coupled with the investments we are making in our digital capabilities, gives us confidence in our ability to attract clinicians for the future.
Our Allied business had an 8% sequential revenue decline and 39% year-over-year growth. Areas of strength included imaging and therapy. For the fourth quarter, we expect revenue in Nurse and Allied Solutions to be down 7% sequentially and approximately 29% year-over-year due primarily to the reduction in bill rates we’ve discussed. We project sequential growth in volume in the fourth quarter, offset by seasonally lower hours and a flattening in bill rates.
In our Physician and Leadership Solutions segment, third quarter revenue was $175 million, showing 16% growth over the prior year, slightly better than our guidance. Our search businesses led the segment with 21% revenue growth, with locum tenens up 19% and interim leadership growing 9%. In the fourth quarter, we project revenue in Physician and Leadership Solutions to be flat versus prior year. Excluding pandemic-related business, revenue would be up approximately 6% year-over-year. Demand remains strong and well above pre-pandemic levels for locum tenens and physician permanent placement. Some healthcare organizations are streamlining leadership and non-clinical roles to reduce costs and this has affected short-term demand for interim and permanent leadership. In the long run, we expect turnover in leadership positions to remain relatively high, continuing to drive demand.
In our Technology and Workforce Solutions segment, we continue to build our leadership position. For the last 12 months, our MSP and VMS gross spend under management was over $12 billion. AMN’s VMS, workforce optimization and RPO offerings, in which we have invested heavily in the last decade, are critical solutions to help clients address the labor challenges of today and tomorrow. And as you know, 2.5 years ago, we added language services. Collectively, these solutions further differentiate AMN in the marketplace with innovative technology platforms, helping to improve access and quality of care while also reducing costs.
In the third quarter, Technology and Workforce Solutions segment revenue of $135 million grew 35% year-over-year, better than our guidance of 30%. VMS revenue beat expectations at $60 million, up 80% over prior year but down from $75 million in the prior quarter. Consistent with our Travel Nurse business, the sequential decline in VMS was driven by lower volume and bill rate. VMS language services, workforce optimization and RPO solutions exceeded our growth expectations for the quarter. We continue to grow our customer base across this segment. Our VMS business, which offers three unique platforms, now serves over 500 clients. Our RPO client base has doubled compared with pre-pandemic, and language services has grown volumes 70% in the last 2 years.
For the fourth quarter, we expect revenue in Technology and Workforce Solutions to grow approximately 10% year-over-year with similar increases in all major business lines. Continued investment in all of our offerings, both improving our existing capabilities and creating new ones has never been more important. As our country’s demand for healthcare services is increasing with an aging population and the aftermath of the pandemic, the healthcare community is faced with workforce shortages far worse than previously seen or anticipated. These shortages are expected to last for many years to come. As a result, healthcare organizations are adjusting their models, expecting that a greater percentage of their clinical labor will come from contingent staffing. This is a great topic for Kelly to expand upon in today’s Q&A session because we are working extensively with our clients and industry groups to address this crisis.
At the same time, we are committed to helping ensure that a career in healthcare is fulfilling and sustainable. Supporting clinicians with wellness, resiliency and mental health services is just as important as rewarding them with appropriate compensation for the hard and highly skilled work they do every day for our loved one. It is exciting to imagine the wonders that healthcare organizations and professionals will do in the coming years, and I’m confident that AMN will play an increasingly important role.
In just a few minutes, Kelly and Landry will join us for the Q&A session. For now though, I will turn the call over to our colleague, Jeff, who will provide more insights on our financial results.
Jeff Knudson
Thank you, Susan, and good afternoon, everyone. Third quarter revenue of $1.139 billion was 3% above the guidance range driven by outperformance from all three segments. Consolidated revenue increased 30% year-over-year and decreased 20% sequentially. Excluding labor disruption revenue, consolidated revenue decreased 17% sequentially.
Gross margin for the quarter was 33.8%, 100 basis points lower than prior year and up 150 basis points from prior quarter. Year-over-year, the margin was lower primarily from higher clinician compensation and less average hours worked in nurse staffing, partially offset by higher margins in our Technology and Workforce Solutions businesses. Sequentially, the margin was higher due to favorable clinician pay package and a favorable revenue mix shift.
Consolidated SG&A expenses were $215 million or 18.9% of revenue compared with $174 million or 19.8% of revenue in the year ago quarter and $244 million or 17.1% of revenue in the previous quarter. SG&A expenses increased year-over-year primarily associated with revenue growth, including hiring, rewarding and supporting our team members.
Adjusted SG&A, excluding certain nonrecurring expenses and stock-based compensation expense, was $204 million this quarter or 17.9% of revenue compared with $168 million or 19.2% of revenue in the year ago quarter. The improvement in adjusted SG&A margin came from operating leverage on the revenue growth. On a sequential basis, adjusted SG&A was lower by $24 million due to less variable compensation from lower revenue.
In the third quarter, Nurse and Allied revenue was $828 million, 32% higher than prior year and down 25% from prior quarter. As we expected, the third quarter experienced the largest sequential decline in average bill rate, down 14%. Our Travel Nurse business grew revenue 31% over prior year and declined 25% sequentially. Allied revenue was $190 million, growing 39% from the prior year and down 8% from the second quarter.
Nurse and Allied gross margin of 27% was 230 basis points lower than prior year and up 130 basis points sequentially. The year-over-year change was due mainly to lower labor disruption revenue. Sequentially, the margin increase stemmed primarily from favorable changes in clinician compensation and favorable labor disruption margin. Segment EBITDA margin of 13.9% was 90 basis points lower than prior year and 70 basis points lower than prior quarter. Year-over-year, lower gross margin was partially offset by the SG&A leverage from higher revenue.
Physician and Leadership Solutions revenue in the third quarter was $175 million, 16% higher year-over-year and flat sequentially. Locum tenens revenue was $106 million, 19% higher than prior year. Interim leadership revenue increased 9% from prior year, and both were flat sequentially. Search revenue increased 21% from prior year and was down 3% sequentially. Gross margin for this segment was 34%, 80 basis points lower than the prior year and down 20 basis points sequentially. The year-over-year margin decline was primarily due to lower gross margin for locum tenens due to an unfavorable specialty mix. Segment EBITDA margin was 13.6%, up 80 basis points from last year and up 220 basis points sequentially. The year-over-year increase in EBITDA margin was primarily due to SG&A leverage on higher revenue.
Technology and Workforce Solutions revenue was $135 million in the third quarter, growing 35% year-over-year and down 10% from the prior quarter. VMS revenue of $60 million grew 80% year-over-year and was down 20% quarter-over-quarter. Segment gross margin of 75.6% was up from the year ago margin of 69.4% and down 270 basis points sequentially. The year-over-year increase was due to the growth of the higher-margin VMS business. Segment EBITDA margin of 52.7% was up 550 basis points year-over-year and down 250 basis points sequentially.
Consolidated third quarter adjusted EBITDA of $182 million was higher by 31% year-over-year and down 22% sequentially. Adjusted EBITDA margin of 16% was 20 basis points higher year-over-year and down 30 basis points from the second quarter. We reported net income of $92 million and diluted earnings per share of $2.10 in the quarter. Adjusted earnings per share was $2.57 compared with $1.73 in the year ago quarter. Days sales outstanding was 59 days, 1 day less than the prior year and 9 days higher than last quarter when collections were unusually strong. Operating cash flow for the quarter was $114 million in capital expenditures were $20 million. As of September 30, we had cash and equivalents of $156 million, long-term debt of $850 million and a leverage ratio of 0.8x:1.
Now turning to fourth quarter guidance, we are projecting consolidated revenue to be in a range of $1.05 billion to $1.08 billion, down 21% to 23% over prior year. Revenue guidance includes $8 million of labor disruption revenue compared with $85 million in the year ago period. We expect the average bill rate for our Nurse and Allied segment to be approximately 25% lower than the first quarter level, higher than our prior expectation. Fourth quarter gross margin is projected to be 33.3% to 33.8%. Reported SG&A expenses are projected to be 19.5% to 20% of revenue. Operating margin is expected to be 10.7% to 11.3%, and adjusted EBITDA margin is expected to be 15% to 15.5%. Other fourth quarter guidance details can be found in today’s earnings release.
In February, based on our anticipated fourth quarter exit rate, we laid out a framework for 2023 expectations, including $4 billion of annualized revenue and a 15% adjusted EBITDA margin. Based on the midpoint of our current guidance for the fourth quarter of 2022, the same approach implies $4.26 billion of revenue and an adjusted EBITDA margin of approximately 15.3%. Our views on 2023 are based on current business trends and do not anticipate any major changes in our end markets.
And now I’d like to hand the call back to Susan for closing remarks as after 32 years of incredible service, this is her last earnings call. Susan, on behalf of the entire AMN team, we would like to express our sincere gratitude for the impact you have made in our communities and on all of our professional and personal lives.
Susan Salka
Thanks so much, Jeff and thanks to everyone who have extended their congratulations and gratitude. But anything that I’ve achieved is a complete reflection of all of the team at AMN, our clients, our clinicians and, I have to say, even our analysts and our shareholders. In the last 21 years as a public company, I’ve learned a great deal from you and some of you have been around with me that long. And I really want to thank you for your support of AMN and your confidence in me and the leadership team. Many of you have supported us through some ups and downs, but you’ve also understood that we were on a long-term mission. Yes, it was an important strategy to make an impact in the healthcare world but also to ensure that we are a purpose-driven and socially responsible organization. And I think you know that you’re in good hands, great hearts and great minds going forward. And none of those things will change.
Over the last 30 years, I’ve just had the privilege of working with and watching also the great work of our clients and clinicians. And they are very much the beacon of how we have built AMN to serve them better so that they can do what they do best, and that is care for our loved ones. I will never forget when one of AMN’s nurses helped care for my dad after he had a stroke, and she was part of the team that helped to save his life. It’s been an honor every day to support our clients and clinicians, and my admiration for them and what they do and how much they give to the community every day will never ever fade.
And similarly, our passionate and talented team at AMN, they have been a constant source of inspiration and learning. We have a purpose at AMN of helping to achieve personal and professional goals. They certainly helped me achieve my personal and professional goals, and it’s been an honor and a privilege to help, in any way, individuals and teams to pursue their goals. We have a very diverse and inclusive culture that I think you know is very deliberate on our part. It makes us unique. It makes us strong. And I know that, that attention to our culture and the importance of diversity and inclusion will continue forward with this leadership team and certainly under Cary’s leadership as well.
We work hard, but we have a heck of a lot of fun along the way, and part of that fun is also reaching out into communities, both near and far, and making sure that we are doing our part to help people outside the walls of our business. And that great work will continue. It’s one of my greatest joys about how AMN has been built is about our culture. And of course, I wouldn’t want to leave out our Board of Directors who have provided many years of guidance and support, and particularly our Chairman, Doug Wheat, who’s been my most important mentor for over 20 years. I would not be the CEO and leader I am today without his guidance. So a huge thanks to all of our directors, current and past.
At AMN, if you were here, you know that we refer to each other and our group as a family, and we take care of each other, professionally, personally through many events, good times challenging times. And I really can’t imagine my life, I don’t want to imagine it, without AMN. I’ve spent more years raising AMN than I have my own kids who are now amazing young adults themselves, forging their way through the world and making an impact. And I want to take a moment to thank them, thank my incredible husband, Scott, my mom and dad, who always support me, put up with me, always showed up for AMN. And we are all in on this amazing mission. It’s been an incredible journey for all of us.
So over the last few weeks, some people have asked me more often if I’m sad to leave AMN after so many years. And of course, I have to say there’s a little bit of sadness in knowing that I won’t get that daily fulfillment. It’s sort of a selfish thing, but I get tremendous fulfillment and inspiration out of working with such a talented, caring group of people. But at the same time, I am bursting with pride. So I can’t help but have a huge smile on my face and in my heart because it’s almost like being that proud dad or mom when you feel that your child is soaring and making a positive impact in this world beyond anything that you could contribute additionally. And I have much to look forward to myself, spending more time with my incredible family.
So I will always be a friend and a supporter of AMN and everyone knows that I will do anything I can to achieve the mission from the sidelines. As proud as I am of AMN today I truly believe our best and brightest days and our greatest impact are in the years to come and it’s in great hands.
And with that, we will open up the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Mark Marcon of Robert W. Baird & Company. Please go ahead.
Mark Marcon
Hey, good afternoon everybody. And first and foremost, Susan, I just want to extend my best wishes and congratulations on an incredible accomplishment in terms of what you have done with AMN. It’s been a pleasure following the company for the last 15, 16 years now and it’s clearly in great shape going forward. And I know that you’re going to continue to do really fantastic things in your future years to help society. So congrats on everything, both in terms of the financial performance but also the societal benefits that the company has provided. Can you talk a little bit, with regards to just the guidance, with regards to the fourth quarter, particularly in terms of Nurse and Allied? It sounds like bill rates are going to actually be a little bit better, down 25% year-over-year for the fourth quarter, if I heard correctly. And we’re basically looking at a 29% sequential decline in terms of the revenue. And so I was wondering, as it relates to that, how much are we thinking? And I meant year-over-year in terms of the 29% decline. We heard that volumes are going to be up. What are some of the things that could cause Nurse and Allied to do a little bit better than what you’re guiding for? I am wondering, there is obviously been a lot of stuff in the media about pediatric respiratory illnesses. There is concerns about the flu. What are some of the potential puts and takes that could make that guidance a little bit conservative? And then a follow-up is basically a little bit more thoughts with regards to how you are thinking about 2023 and raising the guidance to the $4.26 billion and 15.3% EBITDA margins? Thank you.
Jeff Knudson
Sure, Mark. This is Jeff. I will start. So, the 25% on the bill rate is off of the first quarter peak and not a year-over-year number. As we look sequentially, we do expect volumes in Nurse and Allied to be up over Q3 and then bill rates down sequentially approximately mid single-digits. We have seen a flattening in the bill rates since the September timeframe. We do anticipate or project that they will continue to decline towards the end of the quarter. So if they remain flat through the end of the year, that could provide a little bit of upside to our December revenue projections. So those are the main puts and takes. And then I would also just point out that when you think about the year-over-year revenue decline in Nurse and Allied, we only have $8 million of labor disruption revenue in the fourth quarter guide, and that’s comparing against $85 million last year. So that’s playing into that larger percentage decline on a year-over-year basis. And I will pass it over to Landry on the flu question.
Landry Seedig
Mark, it’s Landry. So on the flu, we went back and looked at a lot of our historical trends and times whenever there was a spike in the flu and times and years that it wasn’t spiking so much. And we really haven’t seen anything historically, no big changes, of how that impacts our business. So local staffing does have a little bit of an impact. It’s not because they are seeing flu patients, it’s more because they are helping out a couple of our clients with administration of flu vaccines. So we typically see that every year anyways. But looking back at historical, there is no strong correlation of the fourth quarter, even the first quarter, volume performance based on what the national flu is doing. Of course, we are seeing all the same stuff that you probably are on the news about how bad the flu season could be and then you hear about RSV, you hear about COVID. We are actually hoping that, that doesn’t happen. I think the team and our clients have worked pretty hard to get bill rates more at a normal level. And I think that would kind of just set us off track if we have to go up and down again through another spike. So for many reasons, I actually hope that we don’t see any sort of spike from the combination of those three things. But if you relate it specifically to what we’ve seen regarding the flu in the past, don’t really expect any major changes.
Susan Salka
And I have nothing to add to that, Mark, other than thank you for your very kind comments. I feel quite honored to have known you and worked with you through the years. Thank you.
Jeff Knudson
Mark, on your ‘23 question, I would just say, with the flattening in the bill rates that we’ve seen post September and where demand sits not just within Nurse and Allied but across PLS and the revenue growth that we are seeing in Technology and Workforce Solutions, I think that’s what gave us the confidence to talk about annualizing the fourth quarter number. And then from the EBITDA improvement, I would just say, on the heels of generating 33.8% gross margins in the third quarter, the midpoint of the guide being slightly beneath that in the fourth quarter, the midpoint of our fourth quarter gross margin guide is 140 basis points approximately better than where we were in the first half. So we have seen a nice improvement in gross margins into the back half of the year. And that’s partially driven by Nurse and Allied and the improvement of bill pay spread we have seen but also with mix, with the Technology and Workforce Solutions segment and we don’t see those trends changing as we move into the first part of ‘23.
Mark Marcon
That’s perfect. Thank you very much. Susan, all the best.
Jeff Knudson
Thank you, Mark, to you as well.
Operator
Thank you. Our next question comes from the line of Kevin Fischbeck of Bank of America Securities. Please go ahead.
Joanna Gajuk
Hi, good afternoon. Actually, this is Joanna Gajuk filling in for Kevin today. So thanks for taking the question. Susan, again, congratulations. We will definitely miss you on calls and conferences, but hopefully, we will hear from you through different channels this time, I’m sure we will. So, congrats again. And just a question here, so we talked about bill rates. And you mentioned the potential that we’d have another spike in either of the different viruses that are out there could drive higher bill rates, but I guess that will also drive some potentially higher demand. But still, you feel like the solution is here to keep the bill rates slower. So just any comment on the potential higher demand, are you seeing any of this already happening or not yet?
Landry Seedig
Yes. So this is Landry again. So on my first comment, I wasn’t necessarily thinking that there would be a spike in demand due to any sort of flu spike or COVID spike. None of our projections are based on that just because of some of the things we’ve seen in prior years where those things did not create the spike. So hoping that, that does not occur. So nothing is assumed in anything that we went over through our prepared remarks.
Now demand for travel nursing and allied, right now, it is much stronger than it was before the pandemic. If you look at it on a year-over-year basis, it is down. This time last year, it was the highest that we had ever seen on record. Of course, the United States is going through one of the biggest surges of COVID at that point. So we continue to just be in this robust demand environment, a couple of areas that would be down a little bit more as you would expect, would be ICU and respiratory. So you would expect that just from where we were in prior year. But then there is some other areas, like therapy as an example, that’s very robust right now. So we’re hearing a lot of cost pressure from our clients, but in the same breath, they still desperately need the staff. And so that’s why we’re seeing the high demand that we are.
Joanna Gajuk
Great. And if I may follow-up to the comment made in the prepared remarks around your expectations for a greater percent of labor to come from contract labor over time, but to that vein, we’re also hearing potentially some nurses actually returning to permanent jobs. So I don’t know if there is any color you hear from your clients or some demand you see there in terms of this dynamic happening. Or are you saying that it’s de minimis and so, given the overall shortages, the demand for contract labor, would not anticipate as much as maybe some people think? Thanks.
Kelly Rakowski
Hi. Great question. This is Kelly. A few things, as we think about the market in general, and it’s certainly still volatile and settling down, but it’s settled in, I think, as we’ve talked with clients walking their halls week-to-week, engaging with other industry partners, the industry itself is still considering this to be a crisis and is one most of our clients see persisting for multiple years. And so while, yes, we’re getting some success filling vacancies, the gap between hires and vacancies continues to persist at very high levels. So, some of the modeling that we have generally heard from our clients is that they see their core staff being able to fulfill about 60% of their roles. They think another 20% will come from their contingent staff, whether that’s us or sometimes looking to increase their flexibility within their own staffing. And then there is another 20% that, quite honestly, is unaccounted for. And so they are looking to other solutions. They are looking at ways that they can change their care models. They are looking at ways that they can augment with technology. We are working with them on a daily basis, helping them do a better job of predicting their demand and planning for their supply in different ways and utilizing their staff in different ways. So our workforce optimization solutions that we’ve been engaged with clients for over a decade are very impactful and important today as they try to manage through those significant gaps. And of course, what we are trying to do, as Landry mentioned, is continue to fill their gaps, first and foremost, through our travel and per diem and local support as well, at the same time, being highly aware of the cost pressures that they are under and then, long-term, looking at different care models augmented by technology, by virtual health. If you look at things like our language services solutions where we’ve adapted to a much more efficient model, utilizing a virtual remote solution for a lot of their language services, it’s that kind of innovation where we’re at the table with our clients and industry partners thinking about those long-term solutions. But certainly, in the next 2 to 3 years, the mix of contingent staff we expect and our clients expect will stay at the levels that we’re seeing today while we also help them with those permanent backfills using our RPO solutions, our international solutions. So I’ll sum it up to say they are looking at it from all fronts given the level of crisis and gaps that they are facing.
Joanna Gajuk
Thank you. I appreciate it.
Operator
[Operator Instructions] Our next question comes from the line of A.J. Rice of Credit Suisse. Please go ahead.
A.J. Rice
Thanks. Hi, everybody. And best wishes, Susan. I always think about the way you managed the company through the credit crisis of ‘08, ‘09 and the challenges that presented, and how you pivoted and made a number of opportunistic acquisitions in the ensuing years just made AMN the company it is today. And so, congratulations on a great run, when I think about your comments earlier in the year, and as you pointed out, you’ve been probably closer to what’s played out than anybody, providers, etcetera. One of the things I know you guys said earlier in the year is you thought the fourth quarter would be the sort of bottoming out and that you would then maybe return to normalized type of growth or more of traditional backdrop. Is that still your view or, at this point now, maybe we’ve got some more decline in the first 6 months of next year on bill rates, maybe it’s so tight that we will go faster? What is your view on sort of where the market is in terms of normalizing?
Jeff Knudson
Yes, A.J., we would expect, and this has been our view for some time, to return to generally a normal seasonal pattern in 2023 off of the fourth quarter numbers. So will the bill rates be seasonally high in Q1 and Q4 and could they step back a little bit from these levels in the second and third quarter? I am not sure. But where we’re sitting right now for what we see from the September numbers to where we’re at right now, we think the worst is behind us from these 9% or 11% or 14% sequential decline that we’ve seen, and we think the fourth quarter, for all intents and purposes, outside of seasonal fluctuations next year, that we’ve reached the bottom.
A.J. Rice
Okay. And maybe just as a follow-up, I know you’ve been long-term viewed as a partner for nurses. And with the MSP program over the last number of years, you’ve become a partner for your hospital clients as well. Obviously, we’re seeing downgrades with hospitals, hospitals struggling. We’re seeing a lot of crosscurrents in the economy, the bill rates coming down. I guess I would be interested just in a little more commentary on – you talk about 20%, where they don’t know how they are going to fill it. Are you engaged at least with them on trying to come up with solutions on the health systems side? And what are some of those things looking like? And then on the clinician side, do you sense any angst, maybe I need to go back to my permanent placement, or this may not last, or is that just off the table with the clinicians at this point?
Kelly Rakowski
Hi, A.J. It’s Kelly. I’ll start and then Landry can build in on the nursing and supply side. So I’ll expand a little bit on what we’re seeing from the hospitals and health systems, and it is a huge challenge right now. We have incredible empathy for our clients and they continue every day to fulfill their missions of serving their communities. So there is multiple different approaches that they are taking, first and foremost, is trying to backfill for those vacancies. It is challenging as we’re engaged with them, [Technical Difficulty] you have heard about the increase we’ve had in our recruitment process outsourcing and our international solutions where we’re trying to bring in more perm nurses. For every placement we fill, there is two to three new acquisitions coming through. So they are not really getting ahead as much as they need to in that area. And again, our fulfillment becomes really important for them because it is making the difference not only in how they are staffing but will they be able to maintain their service levels. We’re seeing the ultimate difficult decisions of some hospitals deciding to close down services either temporarily or permanently or moving those around, in the case of health systems, really looking at their capacity to be able to manage more cost effectively and create different pockets of access. But that’s going to leave access challenges for other parts of the community. So we’re doing everything we can to stay very aligned with their high-critical needs so they can avoid those ultimate decisions.
And then everywhere in between, as we look to how do they optimize their current staff, not only are they dealing with a shortage but they are also facing new worker preferences. So they have a younger population of nurses that they are employing who have an experience gap to them. They want a different type of flexibility in their work processes. So some of it’s also about how do they meet their needs and change their staffing models; also looking at creating more team-based care, which will create more need in our allied and payer professionals; looking at technology to see how that will augment not only their insights and decision-making and planning but also into the care models, things like virtual care, telehealth that is going to provide maybe some changes in how care is received. All of those areas, our robust portfolio in both those tried and true solutions that we’ve had for years, as well as some of the newer ones we’ve acquired, we’re bringing those to the table as we innovate alongside of our clients and other industry partners. And that’s going to take some time, A.J. Some of those, we can get some short-term support, but some of those are going to be multiyear transformational solutions that they will adopt.
Landry Seedig
A.J., this is Landry. On the clinician side, so still very high interest in travel and work demand [indiscernible] comments for us. There is a couple of different preferences that the clinicians are looking for, and pay is just one of those preferences that drive supply. Actually, location and flexibility are right there at the top in terms of their preferences whenever they are thinking about what type of job that they want to work. So of course, pay is a factor. Some clinicians might say that that’s one of the most important factors, but if you look at our pay rates, it’s still generally going to be higher than what they can make in a permanent job. So you combine that with all the different locations that they have available to them, the flexibility of them being able to go and work with temporary assignments and then take some, in their eyes, much needed time off between assignments, we think we’re in a pretty good spot. Our new applicants in the third quarter are actually the second highest Q3 on record. And so the only Q3 that was higher was Q3 of last year. But as you recall, that’s when our demand was a record high. So we feel really good about our supply numbers, the tools that we’re using to drive the supply to us and the investments that we’re making and their experience to retain them.
A.J. Rice
Okay. Great, thanks a lot.
Susan Salka
Thank you, A.J.
Operator
Thank you. Our next question comes from Jeff Silber of BMO Capital Markets. Please go ahead. Apologies, please standby. And Mr. Silber, your line is open. Please proceed.
Jeff Silber
Hi, can you hear me now?
Susan Salka
Yes. We can.
Jeff Silber
Fantastic. Susan, this is, Jeff. Just saying, I really wanted to wish you congratulations along with the rest of us. You really had a great run and you’re going to be sorely missed. Thanks for everything you’ve done.
Susan Salka
Thank you, Jeff. It’s been honor really. And fun, it’s been fun.
Jeff Silber
Yes. Absolutely. So I hate to take this as a segue into a negative question, but with periods of economic slowdown, how would that impact your business? I know in prior downturns, we’ve seen the supply of nurses increase. Many nurses that were working part time have come back into the workforce. Do you expect something similar like that if we do go into a recession?
Susan Salka
We really don’t, Jeff, not to the extent that you saw previously. And it’s not just what we think, it’s what’s generally being discussed amongst healthcare leaders, particularly I’d say nurse executives and those that are leading some of the nursing schools. And the reason is because of the vast shortage that we have and the starting point of what we have in terms of the shortfall in clinicians, we were at a much different starting point when we had the last contraction in terms of the shortage of clinicians. I think at the time, it was well under 100,000. And today, we’re starting with something probably north of 400,000. No one knows, for sure, because it’s difficult to get real-time information. But that shortage is actually expected to be close to 1 million nurses in the next few years if there is not some sort of change. So I guess a good news in this negative scenario is perhaps if there is a recession, it could keep the shortage at this level versus having to get significantly worse over time. And so the starting point is one issue. The second is what clinicians have been through the last 2.5 years. I mean it really is a form of PTSD and probably not just because of the last 2.5 years. As a profession, many of them, were already at that breaking point, not feeling they were getting the support or respect that they needed, not the levels of compensation that they needed. And then you layer the pandemic on top of that, of course, accelerated, exaggerated the shortage and also, I think, really strengthened the resolve of nurses that less the profession, at least less the bedside part of healthcare. It strengthened their resolve that they really don’t want to remain in that setting for a whole variety of reasons. So they may have retired. They may have gone into another type of role within healthcare. There are many non-bedside clinical roles in healthcare, and those will probably continue if they have moved on to them. And some of them have left the profession altogether. So while it’s difficult to model exactly if you kind of triangulate those different factors, the general thinking is we won’t see the same supply elasticity that we saw during that same financial contraction.
Jeff Silber
Okay. That was very helpful. My follow-up question is a different area. I think you mentioned in your prepared remarks that some of your hospital clients were streamlining, I think it was the word you used, some leadership position from some non-clinical positions. I know it’s a relatively small piece of the business, but if we can just get a little bit more color on that, that would be great. Thanks.
Susan Salka
Yes. Sure. So you probably read news articles and heard on other earnings reports that hospitals are looking for any opportunity to reduce cost, but not in the patient contact roles, not in clinical roles or those that are truly supporting patients on a minute-by-minute basis. So that lead to administrative roles and leadership roles. And so while most leaders would indicate that there is already a lot of burnout amongst the leadership ranks, which is why you saw very high attrition in the last couple of years amongst those leaders, they are still cutting more and trying to redistribute that work or restructure and reorganize the way that they manage their operations. I can tell you there is a lot of concern amongst the healthcare organizations about what the outcome of that will be because something has to continue, and it will probably just create more burnout as it does in the clinical front. But they are just doing what they can within an environment where their financial picture is not looking good today and not going to look better necessarily next year. So I think they are just trying to anyway they can, probably hoping it’s relatively short-term. But for now, it’s the place they can cut without directly affecting patient care. So with that said, it’s brought down the demand in our interim leadership business as well as in the executive search business. And so we are feeling the effects of that with less orders. Still more than we can fill, so there is certainly opportunity for us to make placements even with less demand there. We think it’s relatively short-term in nature based on what clients are saying. But it could last through the next year or so, and so we’ve got to do a better job of filling the orders that we have.
Jeff Silber
Okay, very helpful. Thank you so much.
Operator
Thank you. Our next question comes from Tobey Sommer of Truist Securities. Please go ahead.
Tobey Sommer
Thank you, Susan, a really well-rounded impact during your career. I’m not so much reminded of a specific business event, but the colorful wall of photos you had from your different trips to Guatemala and the wide smiles on those, so congratulations. I wanted to ask a question about your client relationships, the mood and the sort of tenor of those. This has been a stressful 2.5-year period. It seems from the outside that you really rallied to support your largest customers as best you were able. What is the mood between them and yourselves as you have pricing come down and kind of look towards whatever this new normal is? Thanks.
Kelly Rakowski
Hi, Tobey, it’s Kelly. I love that question about the mood. I will say it has, well, a lot of dimensions to it. And I’ve had the good fortune of – a lot of hospitals have at least reopened to non-patient care visitors to actually get out and about and spend time in their hallways, talking through strategy. And you’re right in that we are very proud of what we have done to stick by our clients through the pandemic. I have hospital CEOs stop me and remind me to share with our whole team that they would not have been able to make it through the pandemic without our support. So that is still a pervasive sentiment knowing what we had to do to scale our services and provide them with quality and highly competent clinicians during this hard time. At the same time, there has certainly been a stress on the need to reduce cost given that has become a pretty significant increase for them in their salary wage and the benefits. So we’ve also have done everything that we can to help them reduce those costs, reduce those bill rates. Obviously, you see that in the trends. But we’ve also done that in a way that continues to help them make sure that they can attract the talent that they need. So it’s been, particularly in our most strategic clients, a very deliberate and thoughtful strategy. We provide them with market data, both nationally and locally. We’re providing them more and more analytics, reporting and insights to guide them through that decision-making. They are very appreciative of the same kind of transparency that we share. We help give them perspective on the future so that they can plan accordingly not only for the cost but for where they need to fill those gaps. So I would say our partnerships have been strengthened more and more. And then the more that we can bring our capabilities, our expertise and our portfolio to them to help them think about that long-term, they see us trying to help manage the utilization to appropriate levels. They know what that does to some of our staffing businesses. They also recognize the value of what we can bring more broadly. So that has been very positive. It’s allowed us to maintain high retention rates of our clients and most of the discussions we’re having around long-term futures and what we can do. So I won’t sugarcoat that there is not still constraints driven by the financial situation, very highly productive relationships and appreciation for what we’ve been able to do over the last couple of years.
Tobey Sommer
And for my follow-up, I’d like to get your opinion on the company’s positioning to deliver clinicians at sort of different cost structures internally as more and more technologies rolled out in the staffing industry and some players try to have a more tech-enabled approach. Is the company kind of well positioned to stratify how it delivers those services in a company to deliver kind of at different price points? Thanks.
Susan Salka
Yes. Tobey, it’s Susan. I know we are moving more and more in that direction every day as we’ve invested heavily in technology. 80% of our CapEx spend goes towards technology, whether that be client-clinician-facing things like Passport but also improving and streamlining and integrating our own internal systems so that we can make it as frictionless and efficient as possible. And the more that we can do that – and still create a positive experience. Maybe it’s a lighter touch experience for some clinicians or clients that don’t feel like they need quite as much assistance, then we can pass that along in different pricing over time. I don’t think that we’re there yet. We are seeing greater utilization of things like Passport where we are matching tens of thousands of jobs every month, and we have 160,000 very active users on Passport who can not only manage existing assignments then do things that they used to have, e-mail or fax or conveyed for somebody to manually input. Now they can just upload it directly, much like you do your online banking. So I think as we continue down that road, we will be able to better and better stratify the different kind of offerings into, this is 90% digital, therefore, it’s this kind of offering, everything digitally assisted now. Or this is a higher touch where you may have clients and clinicians that want that.
So I’d say we’re very well positioned because of the resources that we have, because of the talent that we have. We’ve been working at this a long time and making investments in our digital forefront. We want it to be scalable. I think one of the things you probably heard, Tobey, with some of the newer companies that have popped up over the last few years, who maybe initially claimed to be all digital, is then they realize, well, maybe it’s not that easy. There actually does need to be somebody who makes sure that the clinician has a license or credentials or whatever it may be. And so it ends up being a little more labor – actually probably a lot more labor intensive than they expect because what they built maybe wasn’t as scalable. So we want to make sure that the investments we’re making match the scale, not only that we are today but where we’re going. We see ourselves as being absolutely on the forefront of digital innovation. We also have more systems that need to be probably integrated into that digital interface. So we’re on a journey, and I’d say we’re very, very well positioned to get there. And we have, again, the talent and the resources. We should be moving faster than anybody else in the market and having a better client and clinician experience than anyone else.
Tobey Sommer
Thank you.
Operator
Thank you. Our next question comes from the line of Tim Mulrooney of William Blair. Please go ahead.
Tim Mulrooney
Yes. Good afternoon. First of all, Susan, I just want to throw in my congratulations on your tenure at AMN and good luck on your next adventure.
Susan Salka
Thanks so much, Tim. Appreciate all your support.
Tim Mulrooney
Of course. So first, we saw some cases of healthcare operators reporting third quarter earnings where contract labor costs actually increased sequentially from the second quarter to the third quarter. Just curious if you were seeing that as well, if you actually saw a pickup in volumes with some of your larger clients as you moved through the third quarter or if volumes were more of a sequential decline throughout the quarter?
Landry Seedig
Hey, Tim, it’s Landry. So if you look at it client by client, you would certainly see some puts and takes. So there is a few large clients that we have that I know for a fact that the trends look quite a bit different. It could be due to their population, could be due to where they are geographically. It could be due to their member network and what they need to do within their network. So there were different puts and takes in the quarter. And then I think you asked about volumes specifically as we moved through the third quarter, and I think it was mid-Q3 when we started to see volumes in both our Travel Nurse and Allied business has come back up.
Tim Mulrooney
Got it. That’s helpful, Landry, thank you. And then finally for me, you touched on this briefly in your prepared remarks, but Susan, this is really our only opportunity to ask this publicly. So just curious why you think Cary Grace is the right person to move AMN forward to the next level, just drawing on her experience and capabilities, where she came from and why that’s a good fit here? Thank you.
Susan Salka
Yes. No, thanks for asking, Tim. We had many fantastic candidates. That’s one of the reasons it perhaps took just a tad longer than maybe people thought that it would, but it was a good problem to have. And in the end, the Board felt and I feel that Cary is an excellent cultural match for the organization, which is very important that we have a leader that is going to continue to build upon and evolve the foundation that has made AMN so strong because our strategy will change, the investments we make, the needs of our clients will change. And we’ve built a great muscle in being able to change, and she will bring a fresh perspective. But something that probably shouldn’t change a lot is the strong culture and values of the organization. So I feel very confident that she will be additive to that. She has a proven track record to drive enterprise growth through a diverse portfolio of solutions at scale.
And we felt that was important to have someone who’s been where we want to go, whether it be new product launches, looking at our enterprise client team and strategy. The team has done a great job of evolving that, but we probably have additional room as we continue to segment our market and think about how we serve clients differently. And just the previous question around digital, how do we think about digital staffing versus a more full-service staffing, so having someone like her who has already gone through a transformation like that where she helped rationalize a variety of global tech platforms and created scale and really went through a digital transformation for both clients and their customers was, I think, an important feather in her cap because it’s very critical to our strategy. And as much as we have a terrific team, I think a fresh perspective on how someone who comes from a human capital and talent industry would approach things outside of direct healthcare is, I think, really a valuable experience for us.
Tim Mulrooney
Got it.
Susan Salka
I hope, that’s helpful, Tim. Thank you, Tim.
Operator
Thank you. At this time, I’d like to turn the call back over to Susan Salka for closing remarks. Madam?
End of Q&A
Susan Salka
Thank you so very much. We appreciate you all joining us today and the team. We will look forward to updating you along with Cary on our next earnings call. And thanks again for the support everyone’s provided AMN and to me over the years. [Technical Difficulty]
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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