AMN Healthcare Services, Inc. (AMN) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the AMN Healthcare Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 6, 2026. And I would now like to turn the conference over to Randy Reece, Vice President of Investor Relations. Thank you. Please go ahead.

Good afternoon, everyone. Welcome to AMN Healthcare's Second Quarter 2026 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com at the conclusion of this call. 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 with me today are Cary Grace, President and Chief Executive Officer; and Brian Scott, Chief Financial and Operating Officer. I will now turn the call over to Cary.

Thank you, Randy, and good afternoon, everyone. We appreciate you joining us today. I am pleased to report that our second quarter results came in better than we forecasted with 5 of our solutions growing revenue year-over-year. Second quarter consolidated revenue was $673 million, 6% above the high end of our guidance range and 2% higher year-over-year. Adjusted EBITDA was $73 million or 10.9% of revenue, up 26% year-over-year. Adjusted EPS came in at $0.77 compared with $0.30 in the year ago quarter. And we ended the quarter with $362 million in cash on our balance sheet, providing us with the ability to invest in our long-term strategy, including acquisition opportunities. We used our strong financial position to make 2 small yet strategic acquisitions that extend and advance our capabilities. Our performance year-to-date demonstrated our effectiveness in balancing day-to-day execution while simultaneously handling large labor disruption events. While there were some unique items in our results, I am very encouraged to report that our core earnings exceeded guidance with building momentum that lifts our third quarter outlook. With contingent labor rates at a historically low premium to permanent staff, more clients are using flexible labor to meet their increasing patient demand. There is also continued interest in broader workforce optimization and tech-enabled talent solutions to build sustainable workforces. As the leader and innovator in total talent solutions, AMN is well positioned to support these market and client needs. Our second quarter performance was highlighted by revenue strength in our travel nurse, international nurse, allied, schools and search businesses. Our Nurse and Allied Solutions segment drove the favorable surprise in the second quarter in several ways. Segment revenue of $422 million grew 11% year-over-year and was 12% ahead of the consensus estimate. Nurse and Allied revenue benefited from higher volume on increased demand as well as higher-than-expected labor disruption revenue. Segment gross margin was 28.4%, with underlying margins in line with our expectations, along with several beneficial factors specific to the quarter. Travel nurse volume showed 6% year-over-year growth and Allied volume grew 7%, both the highest growth rate these businesses have achieved in 4 years. Improving demand and strong fulfillment drove our performance. Year-over-year, travel nurse orders turned positive in May and accelerated in June. As of early August, the improvement continued with orders up about 40% year-over-year and 20% higher than August 2024. As expected, international nurse had 23% year-over-year revenue growth in the second quarter. While we continue to benefit from the forward movement in Visa application cutoff dates, Embassy appointments for Visa applicants have not kept pace. Relief from the Embassy backlog will influence how much this business grows in 2027. Allied orders showed modest year-over-year growth in the first quarter and accelerated through the second quarter with mid-teens growth rates in June and July. Allied demand strength is broad-based in terms of settings and specialties. Notably, our schools business is on track for another year of double-digit revenue growth for the upcoming school year. Our team is executing very well against this higher demand with high fill rates, which fueled the second quarter outperformance and continued volume momentum. Third quarter guidance includes better than 10% year-over-year volume growth for both travel nurse and allied. As demand increases, we are benefiting from our multiyear focus on process automation, 24/7 business operations and AI enablement of recruiting, resulting in higher fill rates across our MSP, VMS and third-party platforms. For the third quarter, we expect Nurse and Allied segment revenue to grow 9% to 11% year-over-year. Physician and Leadership Solutions segment revenue in the second quarter was $165 million, lower by 6% year-over-year and in line with guidance. Segment gross margin was 26.5%, down year-over-year, though modestly up from the first quarter. We saw a positive inflection in the second quarter from our search business, which produced 27% year-over-year revenue growth. New demand showed strong growth across physician and executive search. While the higher demand is being driven by executive turnover and facility expansion, growth is coming also from stronger positioning of AMN solutions in the market, with particular strength in academic medical centers. We are leveraging our market leadership in health care search to broaden our capabilities into adjacent services. In June, we acquired the ESSENTIAL Brand Leadership Assessment solution to support clients in leadership selection, evaluation and coaching as well as succession planning. Locum tenens revenue in the second quarter was $131 million, lower by 8% year-over-year and in line with guidance. We continue to see more locum demand growth in vendor-neutral third-party channels, which are the most competitive to fill. Our locums business is going through the same process and technology transformation that enabled our nurse and allied business segment to compete successfully across all demand channels. Interim leadership revenue was $22 million, down 3% from prior year. New searches have been building over the past quarter, which is a reflection of our leading market position, increased investments in our sales team and a growing wave of turnover and project-based needs in health care leadership positions. We are optimistic about the direction of demand and our ability to pursue year-over-year growth in 2027. For the third quarter, we project Physician and Leadership Solutions revenue to be down 5% to 7% year-over-year. Technology and Workforce Solutions segment revenue was $87 million in the second quarter, down 15% year-over-year and in line with guidance. Segment gross margin was 48.6%, lower sequentially and year-over-year. Language services revenue of $70 million was down 8%, with VMS revenue of $15 million, down 20% from a year ago. Language services volume was flat year-over-year, while pricing was down 8%. Pricing will remain a headwind as we work through new client wins and renewals. The rollout of our lower-cost core service tier continues to be well received, helping us compete more broadly in the market and win new clients. We are expanding our workforce globalization for service delivery over the next several quarters to stabilize and improve gross margin. In June, we acquired Jaide Health to extend our medically qualified language interpretation services with AI-enabled support for the patient before and after the clinical interaction. The Jaide platform improves the ability of limited English proficiency patients to communicate through the intake and discharge processes, further strengthening our value proposition of enabling high-quality and cost-effective patient care. We also continue to strengthen our WorkWise labor force management optimization and engagement platform. We are seeing increasing interest in data and analytics to help drive workforce optimization. Last quarter, we introduced enhancements to our dashboards, including supplier performance and insights with third-party bill and pay rate intelligence that can be segmented by skill set and geographic markets. We built our strongest solution yet to empower data-driven workforce decision-making. And we continue to enhance the features of our market-leading Passport app, including adding AI-enabled search for clinicians. Passport adoption grew throughout the quarter and recently surpassed 400,000 users, up 33% year-over-year, providing AMN with one of the largest clinician networks in health care staffing. Importantly, monthly active users increased by more than 50% over the prior year. For the third quarter, we estimate Technology and Workforce Solutions revenue to be down 11% to 13% year-over-year. This quarter's financial performance has continued to improve our balance sheet strength. Our capital allocation approach remains focused on creating long-term shareholder value, reflected in this quarter with the 2 targeted acquisitions that enhance our solutions portfolio while also returning capital through modest share repurchases. As the health care workforce services market continues to normalize, we are seeing increasing indications of industry consolidation, and we believe our financial strength and market leadership position us well to be both an active participant and a beneficiary of these trends. We also welcomed 2 important additions to our leadership team with the appointment of a new Chief People Officer and Chief Commercial Officer. These proven leaders will help strengthen our talent strategy, enhance our technology-enabled and people-centered solutions and drive a more integrated go-to-market approach aligned with our long-term growth objectives. Their appointments also underscore AMN Healthcare's position as a premier destination for top talent, reflecting the strength of our platform, culture and growth opportunities, as we continue to attract experienced leaders who can help advance our strategic priorities. Now I'll turn the call to Brian for a deeper look at our second quarter results and third quarter outlook.

Thank you, Cary. I'd like to call out some details to expand on our second quarter financial results published this afternoon. Consolidated second quarter revenue of $673 million grew 2% year-over-year and was 6% above the upper end of our guidance range. The revenue upside came from labor disruption and strong performance in travel nurse, allied and search. Our Q2 guidance had assumed $10 million in labor disruption revenue, while the actual reported revenue came in at $25 million. Reported gross margin was 30.6%, 210 basis points above the top end of guidance. Second quarter net income was $21 million compared with a net loss of $116 million in the prior year period and net income of $62 million in the prior quarter. Adjusted EBITDA was $73 million or 10.9% of revenue. Adjusted EPS was $0.77. Our consolidated results benefited from several items that are not expected to recur in the third quarter, including a true-up of billing accruals from the large Q1 labor disruption event, a reserve reversal from a prior year event and other favorable reserve adjustments. These Q2 items added about $27 million to revenue, 290 basis points to our consolidated gross margin and 370 basis points to our adjusted EBITDA margin. Excluding these items, our Q2 revenue would still be almost 2% above the high end of our guidance range, and our EBITDA margin would be at the top end of our 6.7% to 7.2% guidance. Consolidated SG&A expenses in the quarter were $147 million. Adjusted SG&A, excluding certain items, was $135 million, down 4% compared to the prior year. SG&A included a $5 million unfavorable professional liability actuarial adjustment, partly offset by a $3 million favorable adjustment to the allowance for credit losses. The Nurse and Allied segment reported revenue of $422 million with a 28.4% gross margin and 13.8% segment operating margin. The previously noted labor disruption billing and reserve adjustments contributed 490 basis points to the gross margin and 600 basis points to segment operating margin during the quarter. Turning to our traditional staffing operations, performance was led by our travel nurse and allied business lines. Travel nurse volume grew 6% year-over-year and was 3% better than the high end of guidance. Allied volume was up 7% year-over-year and exceeded our guidance by 1%. International nurse revenue also grew 23% year-over-year. Nurse and allied average bill rate was nearly flat year-over-year, a bit better than we had expected, and average work were up 1% year-over-year. Higher demand and strong capture of that demand drove revenue above expectations. Bookings momentum is a key driver of our third quarter revenue outlook, which calls for double-digit year-over-year growth at the midpoint for the Nurse and Allied segment. The highlight of our Physician and Leadership Solutions segment this quarter was search. Physician search grew new searches by 37% sequentially and 40% year-over-year. Executive search saw new searches increase 30% year-over-year and leadership search volume rose by 60%. Our locum tenens revenue was flat sequentially due in part to a negative sales adjustment that reduced revenue and gross profit by $2 million. Volume increased by just under 1%, which is below our typical seasonal uplift, which we called out on last quarter's call. As Cary noted, we are actively engaged in several initiatives to get this business back to growth. In our Technology and Workforce Solutions segment, while revenue was down 15% year-over-year, it was down 11%, excluding the divestiture of SmartSquare. Language services continues to navigate through the transition to our shared service strategy, which is enabling us to retain more clients. Minutes were up 3% sequentially and flat year-over-year despite the pressures on the limited English proficiency population and nominal contribution from new clients. Price per minute was down 3% sequentially and 8% year-over-year. Revenue in our VMS business was $15 million in the second quarter, and we expect this revenue to stabilize at this level over the second half of the year with prospects for sequential growth in 2027. Days sales outstanding for the quarter was 52 days. Excluding working capital effects from the large labor disruption events in the first quarter, DSO was 54 days, flat sequentially and 2 days lower year-over-year. While our earnings release provides additional balance sheet and cash flow details, I want to highlight that we ended the quarter with $362 million in cash and equivalents. This was above our expectation of $175 million, primarily due to favorable working capital impacts, including a remaining outstanding balance of strike-related client deposits of $117 million at quarter end. Even with Q3 cash flow, including a $20 million interest payment and higher cash tax payments and assuming the remainder of the deposits are repaid this quarter, we would anticipate at least $225 million of cash at quarter end. We ended the second quarter with total debt of $750 million, and our leverage ratio as calculated per our credit agreement was 1.5x. During the second quarter, we repurchased 85,000 shares at an average price of $26.33. Going forward, and assuming no other material capital allocation needs, we anticipate modest share repurchases primarily to offset dilution from equity awards. Moving to the third quarter outlook. We expect consolidated revenue in the range of $640 million to $655 million. Gross margin is expected to be 27% to 27.5%. Reported SG&A is projected to be 22% to 22.5% of revenue. Operating margin is expected to be 0.2% to 0.8% and adjusted EBITDA margin is expected to be 6.5% to 7%. Additional guidance details are provided in the earnings release. Now operator, let's open up the call for questions.

And your first question comes from the line of Jeff Silber from BMO Capital Markets.

Cary, in your prepared remarks, you mentioned how your clients are seeing contingent percentage at historic lows. Can you just kind of quantify that roughly where it is now, and I know there's no such thing as normal, but what should we expect that to normalize at over time?

Yes. Thank you, Jeff. So if you look at -- and I'll go through kind of the cadence of what that's looked like over the past cycle, pre-COVID, you would have seen that premium of contingent to permanent labor be in the mid- to high teens. During COVID, you got up to 100% premium just because of the significant spike in demand. We're now back down into the mid- to high single digits. Some would put that in some markets at actually even lower than that. And so the effect of all that is coming out of COVID, getting back to permanent and reducing contingent spend was part of the workforce cost containment strategy. If you look at where we are today, particularly with both the relatively limited premium and the flexibility it provides, it's actually an important part of how you solve for your workforce strategy.

All right. That's helpful. I guess I was thinking about the penetration rate, so to speak, the percentage of contract labor. Any comments on that, how that's tracking in your clients versus what was maybe pre-COVID?

Yes. We have clients that are in different places. And even within clients, you can have especially their urban locations at much higher levels of utilization. I would say as a general comment, we have seen overall utilization with clients that is at or slightly below where they were pre-COVID.

And your next question comes from the line of A.J. Rice from UBS.

First, just to ask about your margin assumption. Obviously, this quarter, there's a lot of puts and takes, but it sounds like you were 10.9% in aggregate. You're going for a 6.5% to 7% EBITDA margin in the third quarter. It doesn't sound like there's -- you're sort of assuming the margin for the core business was about the same in the third quarter that you saw in the second, or is there any place where you're assuming much of a change sequentially quarter-to-quarter?

Thanks, A.J. This is Brian. I would say there's not any significant changes when you work through some of the items that we called out that impacted the higher margin in the second quarter. When you look at the underpinning of that and look from Q2 to Q3, there aren't any significant changes in the gross margins across the 3 different segments, and our SG&A is running pretty consistently as well. And so when you take that and bring it over, that's where you end up in the range for both the gross margin guidance as well as the adjusted EBITDA. The Technology Workforce Solutions segment is more mix with that business down a bit and that has a higher margin profile. That's why the guide on the gross margin at the midpoint would be a bit below where our second quarter was, again, on a normalized basis, that's probably the one thing I would call out, it's more mix between the segments than it is any material changes within the segment.

And maybe in there somewhere I missed it, but is the guidance on the strike revenue to go back to about $10 million for the third quarter?

Yes. We've embedded in there around $7 million or $8 million of strike-related revenue in the third quarter.

Okay. And then maybe a bigger picture question on the sort of step-up in demand that you're seeing in Nurse and Allied. Is that focused in any particular area, large systems, academic medical centers, community hospitals, MSP, non-MSP? Is there any way you can -- is it across the board, or is there any way to characterize where you're seeing a pickup in strength?

Yes. We're seeing it broad-based. And so both in terms of regions, size of health care providers, and we're also seeing it across service models. So we saw increases in our MSP book. We're seeing increase in vendor-neutral and third-party programs. So the demand acceleration that we're seeing, we've really been in the kind of year-over-year demand increase posture for Allied for most of 2025 and '26. But what we saw in nurse that accelerated in May was broad-based.

You referenced -- just as a last final point on that. You referenced in your comments some market disruption. Do you think what you're seeing is mostly just underlying strength of market, or are you picking up share given some of the disruption that's happening at some of your major competitors?

I think that we are benefiting from 2 things in our business. One is some of the underlying demand acceleration that we believe is happening across the market. And the second part is we are executing very well against that demand. And so we have been talking about this for a couple of years about how we're building a more automated tech-enabled scaled chassis. We're faster. And so it's not just the demand, and we're now playing across the entirety of the market, but we are executing very well on filling that demand.

Yes. [indiscernible] we grew the market overall in the second quarter, which I think is indicative of the -- with our fill rates increasing on vendor neutral, that typically would imply that we're taking some share. And the team has done a great job of delivering high fill rates on our direct and MSPs. And just in terms of overall demand as well, this is something we've talked about, I think, on prior calls with patient utilization still increasing in hospitals, the rate of growth this year has slowed down, but you've still seen several years of increasing patient volumes. And then over the last several quarters, you've seen a slowdown in the permanent hiring. I think if you looked at the total cost of permanent labor has increased significantly over the last 3 or 4 years. And so as hiring has slowed down and you have the attrition occurring, it's not unsurprising that you start to see demand pick up as well.

And your next question comes from the line of Tobey Sommer from Truist Securities.

I'd love to get your perspective, both historically and prospectively when demand increases or orders increase to this degree, my sense is that historically rates follow if the demand increase persists for long enough, not a month or 2, but call it, 6 months. Are you seeing any difference in bill rates in your order book versus your TOA, and do you expect to?

Yes. Let me give you a little bit of perspective of what we see today, and I'll have Brian layer in what we've seen historically through some of these cycles. So we have seen the broad-based demand that we've been talking about. We haven't yet seen bill rate increases from that. And so bill rates have been stable. We are seeing some places where bill rates are increasing with clients who just need to get them filled, but it's not more sustained. But we would expect that when you start seeing higher periods of demand, particularly if winter orders start coming in and you start seeing that more sustained demand, there is a lag effect, but that you would start to see bill rates improve. Brian, what would you...

Yes. I mean, Tobey, we've been through enough cycles together on this that I think you're spot on. That's what we've seen historically. There is a lag. The exact timing, I think, is hard to predict. But if you do have sustained higher demand, it's still a very competitive environment. That's the one thing that's, I think, a little bit different. You have more suppliers in the industry than you've had historically. So that, I think, is also creating more competition to fill orders where maybe that you haven't seen the rates pick up as much yet. But if it sustains for a longer period and grows more, then at some point, that competition from clients would typically drive rate increases. And we welcome that because that will also create the opportunity for us to bring more supply into the industry because obviously, our #1 priority is filling positions for our clients.

Could you -- speaking of supply, could you sustain a decent level of growth just based on increasing TOA at these bill rates, or do you need higher bill rates to generate the supply to sustain meaningful volume growth?

I think it depends on where the demand is coming from. So we have very large pockets of clients, I'd say, particularly in locations and -- that are very attractive that we could continue to supply at these bill rates. I think as you leave this year and get into next year, you would want to start seeing some bill rate increases just because there's going to be a natural labor market increase expectation that is the foundation of any of these rates.

And then one last question for me, if I could. Could you give us an update on the status of the Kaiser renewal, the RFP out in the market? And I understand you probably can't tell us like who's going to win, you're going to retain, et cetera, but maybe give us your view on the prospects, the format of the proposal, if it's still a unified single vendor?

Yes. So our Kaiser contract goes to the end of 2026, and the client is now in the long expected RFP process. And all of this RFP process is part of the normal governance cadence. We expect this RFP process to be competitive. And we also have a very strong, long-standing relationship with Kaiser and very strong program performance. So we feel well positioned.

And your next question comes from the line of Kevin Fischbeck from Bank of America.

Great. I guess maybe just a follow-up on that one. What historically has happened after the RFP reprocurement? Do they normally seek better terms, or is it basically just similar terms that you would expect on a new contract?

I would say, generally speaking, procurement will strive for better terms as just a theme that we see across the board. I think we talked about this a little bit last quarter, but given the breadth and depth of the Kaiser relationship, we have evolved how we support and service them even during the course of this contract. And so we are more market-like than you would have been 4 years ago or 5 years ago. And I give a lot of credit to both parties for that. So I would say from what we see overall in RFP processes, we're not seeing anything different about how you continue to try to negotiate terms or what people are looking for.

Okay. And then is there a way to size the 2 deals that you did in technology workforce revenue EBITDA contribution annually?