AMN Healthcare Services Inc

NYSE:AMN

Earnings Call Transcript 2019-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to AMN Healthcare's Second Quarter 2019 Earnings Call. [Operator Instructions] And as a reminder, today's call is being recorded.

I would now like to turn the call to our host Randle Reece, Director of Investor Relations. Please go ahead.

[Randle Reece, Director of IR]

Good afternoon, everyone. Welcome to AMN Healthcare's Second Quarter 2019 Earnings Call. The replay of this webcast will be available until August 20 at amnhealthcare.investorroom.com following the conclusion of this call.

Details for the audio replay of the conference call are in our earnings release issued this afternoon.

Various remarks we make during this call about future expectations, projections, 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 as a result of various factors, including those identified in our most recent Form 10-K and subsequent filings with the SEC. The company does not intend to update the 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 amnhealthcare.investorroom.com.

On the call today are Susan Salka, Chief Executive Officer; Brian Scott, Chief Financial Officer; Kelly Rakowski, President of Leadership and Search; Ralph Henderson, President of Professional Services and Staffing; and Dan White, President of Workforce Solutions.

I'll now turn the call over to Susan.

[Susan Salka, President, CEO]

Thank you so much, Randy. As we head into the second half of the year, we are very pleased to share good news with you regarding the AMN's performance and the positive impact being made by our team members all across the country.

Our financial results exceeded our guidance for the quarter, driven by strength in Nurse and Allied, although several of our businesses also meet expectations back and we're excited about the early contributions from our latest acquisition Advanced Medical, who joined the AMN family in mid-June.

We are seeing the union of Advanced and AMN paid off even at this early stage, the Advance team is doing a wonderful job delivering to their clients and expanding business across all of the markets they serve.

Their co-based therapy solutions continue to perform very well and are poised to achieve or exceed the growth we expected for the upcoming school year.

In addition, the infusion of Travel Nurse and Allied orders from AMN and MSPs, coupled with their highly capable recruiters has enabled the team to help AMN serve these clients during this time of high demand.

This was an ideal time for AMN to bring on the expertise of the Advanced team. In addition to their performance, I have been very impressed and inspired by their enthusiasm for community service and harnessing our greater resources to make a positive impact.

As we think about our market environment today, we are very optimistic. Demand across most of our business is strong and in several cases, showing signs of increasing need for AMN's expertise.

Competition for skilled clinical talent is intense and the staffing demand is even higher than it was last quarter across nearly all of our divisions.

Turnover and vacancies throughout the health care remains at record levels and labor tension continues as many clinicians are frustrated by being asked to cover higher-than-usual workload.

Consolidation and increasing complexity in managing health care labor drives demand for more comprehensive Workforce Solutions and pushes AMN to continuously enhance our capabilities.

This is most visible in our MSP-related business, where we have had another quarter of double-digit revenue growth. The need for outsourced staffing and workforce optimization is stronger than we have ever seen and with AMN's successful track record and significant delivery capabilities, we continue to win new clients as well as expand existing relationships.

We assigned several new and expanded MSP contracts this year, which we expect to add nearly $200 million of annualized growth spend under management at maturity.

Now let's review our latest results and outlook. Second quarter consolidated revenue of $535 million was our second highest on record.

Gross margin was 33.5% and adjusted EBITDA was $67 million, or 12.5% of revenue. Our Nurse and Allied segment posted revenue of $332 million, flat year-over-year, which was better than guidance due to a higher labor disruption revenue and $5 million from the Advanced acquisition.

Revenue for our largest business Travel Nurse Staffing grew 2% year-over-year on an organic basis. Growth was driven by volume with the average bill rates relatively flat on a year-over-year basis.

Demand for Travel Nurse continue to grow since we last share our performance in early May. Today, demand for Travel Nurses is more than 20% higher than prior year. And the growth is in all types of clients, including our MSP clients, direct and third party. Adding to our confidence is the fact that we have begun to receive the seasonal winter needs for assignments, starting in the fourth and the first quarters.

In those cases, clients are indicating their contingent staffing needs in the future will be greater than or close to same as last year.

As we look forward to the third quarter, we are beginning to see pricing improve with our revenue per day expected to be above prior year. This is a very good sign that the higher levels of demand are also making way for some positive movement in pricing, which allows us to increase pay rates to attract and convert candidates.

Allied staffing remained exceptionally strong even as comps got tougher in the second quarter, this team is really firing on all cylinders and we are excited to see 9% organic revenue growth in the second quarter.

The greatest increase is in the emerging respiratory and laboratory specialties, which is very helpful since the availability of this talent is slightly more accessible than in therapy. Client needs are very robust and we received solid growth continuing in this division. As we look to the third quarter for the Nurse and Allied segment, we expect revenues to be up 16% to 18% year-over-year, including a full quarter from the addition of Advanced with organic growth in the mid-single digits.

In the Locum Tenens segment, second quarter revenue was in line with our expectations at $82 million, although still below prior year, we continue to make steady progress after our process and technology changes.

Our new hiring and training programs have gone well, and in fact in recent weeks our newer recruiters contributed 16% to placement activity and our tenured staff is nearly reaching the productivity levels that we had a year ago.

For the third quarter, Locum Tenens' revenue ramp looks to be flat to slightly up sequentially, which would result in an improving year-over-year comparison.

We believe that Locum's revenue will hit year-over-year growth by mid to late fourth quarter.

Second quarter revenue and in our Other Workforce Solutions segment was $121 million, showing year-over-year growth of 3%.

Our Leadership and Search division, which is comprised of interim leadership and permanent placement solutions, makes up about half of this segment's revenue.

This group grew revenue 4% year-over-year and 7% sequentially. We're excited about the momentum that they have in this business and have a collective team that's elevating the conversations and the strategic approach with our clients.

Within our mid-revenue cycle business, the integration of our MedPartners and Peak brands is progressing very nicely and I'm impressed with their new go-to-market strategy and collaboration with our other businesses.

Although revenue is still lower year-over-year, there are more favorable trends as we head into the third quarter. Other Workforce Solutions, also includes our VMS and Avantas businesses, which had a solid second quarter growth with expectations of continued growth to the remainder of the year.

In the third quarter, total revenue for the Other Workforce Solutions segment is expected to be up approximately 3% year-over-year, with growth in most businesses.

Before I turn the call over to Brian, I'd like to take a moment to thank our thousand of corporate team members and health care professionals, who poured their hearts and their talents into helping our clients and their patients every single day. The biggest reason for AMN success is the quality of our people, and the passion they have for making a positive impact.

A great example of this kind is an impact that we can make with our clients and our clinicians is our upcoming medical and community mission trip to Guatemala, for the seventh consecutive year I'll soon be joining AMN-sponsored doctors, nurses and other team members to provide medical care and install smoke-free stalls and water filters and support local schools in the most poorest areas of the country.

During our week together, we will be fortunate to serve over 1,000 Guatemalan patients and families. This is just one of the many ways that AMN strives to use our resources to help others and to make a difference.

Now I'll turn the call over to Brian for our financial update, after which, Kelly, Ralph and Dan will join us for the Q&A session.

[Brian Scott, CAO, CFO & Treasurer]

Thank you, Susan, and good afternoon, everyone. The company second quarter revenue of $535 million was above the high end of our guidance range. The biggest driver of this upside came from the higher-than-expected performance in our Nurse and Allied segment. Revenue was up 1% sequentially and down 4% year-over-year.

Gross margin for the quarter was consistent with our guidance at 33.5%, up 110 basis points from last year and 30 basis points better than the prior quarter.

The year-over-year increase was a result of increased margins in the Nurse and Allied and Other Workforce Solutions segment, along with the favorable segment mix shift.

Second quarter Nurse and Allied segment revenue was $332 million, flat with the prior year and down 2% sequentially due to typical seasonality.

The quarter included an $8 million labor disruption event, which was the biggest driver of our outperformance. The prior year included a $25 million labor disruption event, creating a difficult year-over-year comparison. Nurse and Allied gross margin of 26.5% was 125 basis points better than the prior year, or down 40 basis points from prior quarter.

The year-over-year increase was from the combination of a higher labor disruption margin this year, partly offset by a higher health insurance costs.

The margin was also down sequentially from the higher insurance costs. Segment EBITDA margin was 14.7%, with about 100 basis points benefit from a favorable malpractice reserve adjustment included in SG&A.

Second quarter Locum Tenens revenue was $82 million was 24% less than the prior year and up 2% on a sequential basis.

Gross margin of 27.8% was consistent with prior quarter, and we expect a similar margin in the third quarter.

Segment EBITDA margin of 8.7% was above our expectation, due in part to a favorable actuarial adjustment, and we expect to run in the 7% to 8% margin range until we gain more operating leverage on future revenue growth.

Second quarter Other Workforce Solutions segment revenue was $121 million was up 3% year-over-year, and 6% higher sequentially.

Segment gross margin of 54% was higher by 190 basis points year-over-year and 150 basis points sequentially, due to a favorable shift in business mix within the segment, and an improved margin from our interim leadership business.

On a consolidated basis, second quarter adjusted EBITDA of $67 million was down 5% year-over-year. Adjusted EBITDA margin of 12.5% was lower by 10 basis points year-over-year, though up 10 basis points sequentially.

The margin in the quarter was favorably impacted by previously noted malpractice reserve and higher margins on labor disruption revenue.

These benefits were partly offset by labor reserve increases, higher clinician health insurance costs and certain commission and bonus accrual trust.

Adjusting for these items the consolidated margin for the quarter was in line with our guidance of approximately 12%. We reported net income of $28 million and diluted earnings per share of $0.61 in the second quarter. Adjusted earnings per share was $0.77 compared with $0.83 in a year ago quarter.

Our GAAP income tax during the quarter was 26% and was 30% on an adjusted basis. Our tax rate is expected to be 30% in the third and fourth quarters.

Cash provided from operations was $29 million for the quarter. Day sales outstanding at quarter end was 63 days, but excluding the Advanced acquisition would have been 60 days.

At June 30, cash equivalents totaled $21 million. Capital expenditures for the second quarter were $8 million and at quarter end, our total debt outstanding was $671 million and our leverage ratio was 2.4x to 1.

Now let's turn to the third quarter of 2019 guidance. The company expects consolidated revenue of $560 million to $566 million, up approximately 7% year-over-year. Excluding the impact of the Advanced acquisition, consolidated revenue will be flat to up 1%.

This guidance does not assume any material labor disruption events in the quarter. Gross margin is projected to be approximately 33%, with the sequential decline mainly for the fourth quarter impact of the Advanced acquisition.

SG&A expenses as a percentage of revenue are expected to be approximately 22.5%, adjusted EBITDA margin expected to be approximately 12%.

For the third quarter 2019 estimates include the following: interest expense of $7.4 million, depreciation expense of $5.6 million, amortization expense of $9.6 million, stock-based compensation expense of $4.2 million and acquisition, integration, and other extraordinary expenses of about $4 million. The share count is expected to be 47.5 million shares.

And we would like to open the call for questions.

[Operator]

[Operator Instructions] And our first question comes from Jason Plagman [Jefferies and Company].

[Jason Plagman, Jefferies and Company]

So first one, I was just wondering I guess, it's more color on your trends with your largest clients, if you've seen that level of headwind on the growth side, normalize a little bit, just any color you can provide on how that's impacting your Q3 outlook and then also for the winter season?

[Ralph Henderson, President of Professional Services & Staffing]

Yes, Jason, this is Ralph and I'll handle on that one and Dan can add though or Susan keep covering it. We did see some improvement in the second quarter with that client. We talked about the Q1 decrease have been in the neighborhood of 12% to 13% year-over-year, although slightly favorable with that in the second quarter. That client also, it has a lot of winter needs that decrease, they cut the sequential decrease. Winter volume comes down by gosh over $20 million from 1 quarter to the next when those winter needs end. And then as we look forward, it's probably with the better news is we're looking at Q3 where we would have or not probably a less material impact than it did in Q1 and Q2. The other positive news there is that, that's really kind of impacting just our Travel Nurse business and the client continues to grow in other areas of the business. So we're seeing considerable growth from them in our Allied, our Locum's business as well as our rapid response business.

[Jason Plagman, Jefferies and Company]

Great. That's helpful. And then on MSP wins in the quarter, all in all, I noticed in the quarter, but just what you're seeing as far as activity in the marketplace, health systems looking to in any commentary that you've seen any change in that activity since the last quarter?

[Dan White, President of Strategic Workforce Solutions]

Jason, this is Dan. We actually see a lots of really terrific activity in the marketplace. Our wins since our last call are worked over $40 million in gross spend and as Susan mentioned, it puts us just nearly at $200 million year-to-date. Geographic mix and the specialty mix of those programs are very nice and in line with the rest of our programs. We saw also an additional $40 million in contracts for our VMS business, which also shows a lot of nice activity for those kinds of programs as well. So if you also factor in the fact that we have a little over $110 million in programs, that are currently in contracting in our pipeline, I feel really good about where we're going to end this year versus last year on the activity and productivity really of our sales team.

[Operator]

Now to line of Tobey Sommer [SunTrust]

[Susan Salka, President, CEO]

Maybe we can circle back to Tobey.

[Operator]

Now to the line of A.J. Rice [Credit Suisse]

[A.J. Rice, Credit Suisse]

Just first to ask about over the last few quarters, we've talked about some of the dynamics with the hospital customer base, maybe pay the bonus system to get full-time employees and not being willing to raise rates as needed to pass for you to get that incremental person to fill a slot for them. It sounds like you're saying that maybe changing a little bit or are you seeing some of the premium rates situations return and I know with pretty much anniversary through all that, but where are we at in terms of getting the increase as you think you need to meet the demand that you're seeing?

[Ralph Henderson, President of Professional Services & Staffing]

A.J. this is Ralph I'll start on that one. You're right. We're seeing clients are increasing the percentage of higher own bonus for their internal staff, we saw ones that saved about 10% of requisition have a signing bonus attached to it. The range would normally be interned 3% to 7% range historically, so that probably gives you some sense of how difficult it is to hire in today's market. To you point, yes, we are starting to in our Travel Nurse business to see some pricing increases as we get into of July. It's not anything significant yet, but after I think about 6 quarters of pricing decreases, respectively, in line with the market at the time, we are starting to see an increase as we enter Q3. So that will help bring more supply to the marketplace and I think we've talked about this before 75% of that goes back to the traveller and that will help us recoup our numbers up on the fulfillment side too.

[A.J. Rice, Credit Suisse]

And then my other question would be around your Locum Tenens business. I guess, in the last few quarters, there's been a discussion about have demand for certain specialties and these where others have picked, you had to build up pipeline and then second, there's been discussion about the technological upgrades or technology upgrades you've been doing and that's depressed performance a little bit. It sounds like, again, both of those from moving on a good production and if I heard you right you were saying, you think you might show year-to-year growth in the fourth quarter in that business. I want to confirm that and maybe flesh out a little more of those 2 drivers of the potential long-term growth and where you're at in anniversaring some of the issues, but also maybe start to maybe able to say growth is inside in the next few quarters?

[Ralph Henderson, President of Professional Services & Staffing]

This is Ralph, and I'll start, again, on that one. You're right. Demand is beginning to improve in the business is probably a result of our people not being as distracted by technology and process changes and getting back to their core jobs, that feels good to us. The specialties aren't perfect for us and are not in the high fill rates specialties we'd like to be in the emergency room and the hospitals yet, so those are still are pretty significantly, but they are in specialties where we perform well like surgery, I'm subs and anesthesiology. We are beginning to use them in new technology and tools that beeped off our capabilities in those areas where we're seeing stronger, stronger fill rates and growth rates there.

Our new recruiters, which we talked about last quarter, which was in a more of SG&A item in Q1, are beginning to produce the actually make up about 16% of our production and in time they could make up a third of 40% of our production, so they're ramping nicely. The new tool is actually easier to learn and so they're able to get into their career faster and start producing revenue for us. There was a third-party cash -- on the first part of it. Yes, we do -- we continue to anticipate sequential growth in Q3, and then as well looking forward to getting back up over prior year in Q4 and maybe towards the end of the quarter before we get there. But I say that's going to begin happening that we're looking forward to a more robust growth after that.

[Operator]

Now to the line of Sam England. Now we'll move along to the line of Mark Marcon [R.W. Baird]

[Mark Marcon, R.W. Baird]

Sounds like things are turning up. I'm wondering if you can talk a little bit about the color in terms of the winter orders a little bit and also can you remind us exactly how much strike revenue you ended up getting this quarter and how much you might anticipate in the coming quarters or what the compare was there.

[Brian Scott, CAO, CFO & Treasurer]

Mark, I'll take the second part of the question first. As I mentioned, we had one of them that was the most material in the quarter was about $8 million. We had a little over $10 million in total, but some of that we had anticipated to occur in when we gave last guidance. So that was was the best part. Last year, we were a little over $25 million and the majority of the 1 major event. So I think, that kind of covers the, although it did help this quarter, but we're still down year-over-year as we expected.

[Ralph Henderson, President of Professional Services & Staffing]

Winter orders, this is Ralph, we're right now, it's very early to call it and so we're just beginning to see some of the needs from some of our larger customers, particularly on the West Coast. and they're in line with where we are at this point last year. We don't have any insight yet as to do so things could improve or change quite a bit from here and probably have about a dozen of our large winter orders clients that haven't actually placed their orders year. So a little early to call, but there is no bad news there.

[Mark Marcon, R.W. Baird]

Okay, sounds like it's good. And then with regards to the orders being up roughly around 20%, can you talk about how wide spread that is and also one of the difficulties with regards to fulfilling the orders and potentially capturing even more robust revenue growth?

[Susan Salka, President, CEO]

Mark, this is Susan, I'll jump in and give Ralph a break there that also want Kelly to move way in and some of the demand that they're seeing in leadership and search, but just in regards to our Nurse and Allied business, where we can make that statement about orders being up over 20% really across the board in those businesses. It really is very geographically dispersed, which is nice, because we want to assignments from all claims from potential candidates and also help support our e-book rates, which continues to be very strong. And then just coming from 1 client or 1 area in fact our of facilities with orders are also up over 20% in those Nurse and Allied, which is another very good healthy sign for the marketplace.

Now certainly our MSP clients can be some of the highest fill rates for us, which is there should be we're very focused on making sure we meet their expectations in overall fill rates. And so we know we're thrilled to have the opportunity to really make sure that we're doing our part in selling those, but even with our direct clients to the third-party, we see orders up significantly, which really tells us that it's not just an AMN MSP story, but rather it's really a broad market increase. So with that, Kelly maybe I'll ask you to share a little bit more insight on the leadership business as well.

[Kelly Rakowski, President of Leadership & Search Solutions]

Yes, I'll be happy to, I think, on the interim entry management side, we are seeing very similar demands for interim leadership positions, very much in the accordance with what we're seeing in our clinical demand as well. And that's really across the board and highly concentrated in our clinical leadership needs, and we see that at the start of the quarter that demand continues to increase. And on the same side, we're seeing some really nice trends in our permanent placement business across the board, all 3 physician perm, executive search as well as our PO experienced double-digit sequential growth and our volume this past quarter and we're continuing to see that. I think that reflective of the market and the needs as well as we brought our different search capabilities together, and really getting more leverage out of our sales and clients accounts focus across the country, higher level of cross-selling and meeting our client more comprehensively. So very encouraged by those trends as well.

[Ralph Henderson, President of Professional Services & Staffing]

Mark, this is Ralph on clinicians supply constrains are improving slightly overall what we talked about last quarter certainly the higher demand, higher demand in MSP, slight movement in bill rates are helping. It's kind of an interesting phenomenon. Our actual leads are up on a year-over-year basis, but our applications are down. So it probably gets people people sitting a little bit right now. They're looking at jobs over, they're more active in looking at opportunities, but they're not yet point the trigger on those opportunities.

[Operator]

[Operator Instructions] Now to the line of Henry Chien.

[Unidentified Analyst]

I wanted to ask about so we've been hearing some stuff about reimbursement rates coming down a bit with from the insurance carriers, I was just wondering what kind of impact do you see on that if that any and maybe if you could just comment on sort of the general kind of pricing environment, if you could?

[Ralph Henderson, President of Professional Services & Staffing]

Yes, this is Ralph. Just a little bit on the tone in the market, I think, it's probably important to note we're moving in front of our clients and we're just actually getting through our quarterly reviews right now. What we're hearing is they're very, very confident in their patient volume and then maybe some lingering concerns about reimbursement changes, but it's actually quieter than it has been for the last 3 or 4 quarters. But I don't think that is troubling them right now I think everyone, of course, is going to was a politics and things, but we're not hearing that from our clients. I think the constraint on the bill rate increases is just can we fill it internally first, that will actually open the order with us, but they won't move quite as quickly and so they see what sort of float they have on applicants and then that excites several steps with they're actually starting to increasing bill rates And we Are partway through those steps now, but we're not completely through them yet. Does not help?

[Operator]

[Operator Instructions] Now to the line of Tobey Sommer [SunTrust].

Q - Tobey Sommer

Could you comment on pricing in the interplay maybe dynamic between what you describe sort of better bill rates on average, looking forward as well as what you're seeing and how that plays into it?

[Susan Salka, President, CEO]

Sure, Tobey. We mentioned that we're starting to see some improvements in pricing, looking into the third quarter. And that would be our average bill rate, which is really a composition of the regular bill rate, which has increased a bit. But more so the mix than utilization of premium rate assignments and we are seeing that mix increased as we go into the third quarter, now it will naturally increase as we go into the fourth and the first quarter, and that's when winter assignments begin. And as we're getting into the early glimpse at the rates of those winter assignments, I'd say they are on par with what we had seen last year. So we're feeling good about that. And if we continue to see a positive mixed shift, that should generally be positive overall for us in terms of being able to, again, have the pay rates to support strong fill rates for those assignments. Generally, we've seen this over the decades and very well having covered this industry for so long that we have seen this dynamic play out many times where we begin to see demand increase at a fairly rapid space, which we saw in the second quarter and continuing into today. And it takes a few months, if not quarters, before we really start to see that translate into some improved pricing. And with that improved pricing, then we can increase pay rates and that helps to pull more supply into the industry.

So I would say we're not quite there yet, but I would expect based on historical trends that we would be getting there in the next few months. Now, of course, our team isn't waiting for that. We are doing all kinds of things to increase the number of applications, to do a better job of converting or increase that conversion rate and we're doing a lot of really exciting and interesting things on mobile and digital. And so I think we can make improvements even without more significant pricing increases. But generally that's when you start to see the greater volume start to really impact the business.

[Tobey Sommer, SunTrust]

From your perspective, 2 more questions for me. How much would price have to move to kind of increase the Travel Nurse supply and market available for the company and what those improving demand in your various perm businesses, mean to you as far as a pricing cycle, what -- how do you connect those 2 pieces of information?

[Susan Salka, President, CEO]

Well, I'll start with the general pricing question and then have Kelly talk about physician. I don't think there's a perfect correlation in number on the pricing because it depends on also does the share of volume of orders and demand that we have, which I have to say is at near historical highs. And so usually, if you have significant demand, it doesn't take quite as much pricing movement, really start to pull supply into the market.

But certainly, it's something sort of north of 3%, would probably be enough to start to make some movement. Some of that, again, is already occurring with the premium rate mixed shift in and of itself because usually premium rates are closer to 10% of our overall the regular rate. So just a mix of premium rate assignments, we'll see some of that movement as well. So I'm sorry, if it's not a perfect correlation and perfect answer because there's just so many different inputs and dynamics that can occur. So...

[Kelly Rakowski, President of Leadership & Search Solutions]

Yes, I'll add and this is Kelly from the perspective of perm and nursing as a comparison. I mean we are seeing our clients face the same challenges in the market. They are seeing a lot of attrition of nurses and other clinicians get recruited away. We are seeing higher levels of signing bonuses and I don't mean to stay competitive and their permanent roles too. So like Susan said, it's a hard to tie it 2 together, but we're seeing the same dynamics play out for both permanent roles as well as contingent roles. So our team does a good job of keeping each other current with what are some of the latest trends in the market and supporting our clients in those regards.

[Operator]

And now, move to the line of Mitra Ramgopal.

[Unidentified Analyst]

Just 2 questions. Susan, I know you mentioned, in Locum's, you expect by mid to late fourth quarter we should start seeing some growth there, and I was just wondering if that's more reflection of the investments you've made in the technology and new people you've brought on or is there also strength in the underlying markets is going to help that?

[Susan Salka, President, CEO]

So we are seeing growth today, just to be clear. We have some growth going into the second quarter and the third quarter. So what you're referring to is the year-over-year growth, and we expect that we'll kind of cross that threshold late fourth quarter. It is that our team is becoming more productive, they're doing a much better job of really maximizing what their system is capable of and I think just getting through that learning curve. The newer producers that we've hired, they're recruiters and account managers that have come on board over the last 6 months are becoming more productive as we mentioned that making up a little over 15% of our placement activity today and that is going to continue to increase every day and in the fourth quarter, in particular, we should start to see them as Ralph said, approaching maybe a third or more of our placement activity. And so some of it is just getting the momentum and the benefit of the changes that we've been making over the last year. And the fact that we really haven't had continued disruption. I think we are beyond their technology and process disruption elements. And now, it's just really fine-tuning and maximizing the potential of the system.

The underlying demand is strong overall. If we look at the total aggregate demand within Locum's, it's actually at very high levels. We have different fill rates within different specialties. So as Ralph mentioned, we don't have fairly low demand in emergency medicine and in hospitalist, where we traditionally have very high fill rates. So we've got to make sure that we are finding demand in other areas where we can have equally high fill rates. But it's improving, every day, and I feel like the team is on a very good path right now.

[Unidentified Analyst]

Okay, that's great. And then quickly on Advanced Medical, I know it's still very early days, but I was just curious in terms of if you're already starting to see any incremental opportunities as it relates to as you've talked about that could to be interesting and tele therapy, et cetera, or is it still too early to get anything that?

[Randle Reece, Director of IR]

They're off to a great start beat our forecast for the first couple of week of Q2 and so to be Advanced team. Their core business is so what their focus has been so we haven't spent much time in the integration yet across selling, so they can focus on the schools business and that's up considerably over prior year in the 50-plus percentage range, which is good. We've also had schools business with our Allied division. So the combined entity by the way, nnow is our second largest business. Allied is always the third with the acquisition moves up to our second largest business. And obviously, good margins and we didn't talk much about the industry overall, but lots, the demand is higher, our ability to attract clinicians has been better than it is in our -- in the nursing and Locum's business. So lots of positives there.

The size of the school businesses, we've also taken advantage of our MSP programs, and again, filling orders in those programs. And so they are up about fivefold with their track record was, that there were supplier in the program before, so they kind of knew and the clients under our program, they've actually performed considerably better, which is positive as well.

So far so good, tele therapy, which is one of the things we're most excited about in their business, but right now, we'll start it exists as a way to supervise people working in school environments, which is that which helps extend the reach of the clinicians and our hope is to expand that beyond therapy, which is in speech, skills into more behavioral specialties over time. And so we're kind of beginning those conversations, but obviously it's a powerful combination. And once we get into the schools to be able to expand to help them even with the nurses, which we have with the business we haven't been in -- or into the doctors on the behavioral health side as well. So a lots of upside there and they're off to a great start overall.

[Operator]

And now, to the line of Bill Sutherland [The Benchmark Company]

[Bill Sutherland, The Benchmark Company]

I was curious on the $200 million in MSP wins today, kind of what's the mix that you've got there of Nursing, Allied, and Locum and then I was curious that the fill rate is picking up, partially due to Advanced?

[Dan White, President of Strategic Workforce Solutions]

So this is Ralph. I'll start with that. Bill, this is Dan. And if you look at the whole group overall, about 60% of the total is Nurse. 30% of the total is Locum's, and the rest is Allied and interim exec combined. And then with regard to the fill rates, clearly, those ones aren't the ones that are yet even implemented at this point. And so I think just generally, if you look at our MSPs, our fill rates overall are kind of in that sort of 55% to 65% depending on what business line you're talking about.

[Randle Reece, Director of IR]

And then internal capture, right, affiliate vendors, which have an amazing network gets us into the 90s, which we think is kind of industry-leading numbers there. But also, right, we have a bunch of new business. So I know all our capture is good. And thinking, in particular, 1 large client we talked about a couple of quarters ago, I think, we're already in internal captures up in the 40% to 45% range. We normally wouldn't be that high in that relationship. So and kind of bringing the new clients of actually your fill rate was down temporarily on the entire portfolio particularly we have a lot of new wins like we've had recently. But we're trending at or above what we thought we would be and we'll get better and better at those new clients. So we'd expect they'll have more of a contribution for the route Q4, Q1 and maybe beyond.

[Susan Salka, President, CEO]

And as I mentioned, Bill, the Advanced team is helping, and they're doing a very nice job of filling into our MSP. But it is still early. They've been here less than 2 months, and so we're looking forward to even more opportunity for them to help us so they're doing a great job out of the gates.

[Bill Sutherland, The Benchmark Company]

Got it. And If I could just ask 1 on mid-revenue. I think a little more perspective on that part in peaks time coming together and when you think it will start to lead to some revenue growth?

[Susan Salka, President, CEO]

Yes, so that team has certainly done a fantastic job of bringing the 2 brands and teams together to try to really get the synergies out of the more 1 organization. And we've brought them all in the same system that actually occurred over the last few months and they have been operating on the new system, which was actually already existent. We just wanted to get everybody operating out of the same front office and back office systems. So that we could more easily see and place candidates. And so there's really no disruption evidence and they're often running into the third quarter, and we're already seeing nice trends there, demand is up in a couple of their major businesses, up in case management as well, they've been doing a really great job of starting to sell into our MSP clients within AMN as well as other new clients. And then their placement activity in general has been really most of their business is coming into the third quarter. So I don't know but I can give you an update on exactly when that will translate into year-over-year growth. But I would say, really on kind of all key trends we're seeing a much better trajectory going forward?

[Brian Scott, CAO, CFO & Treasurer]

I'll a little bit color. So we've had several quarters where we had the sequential declines and part as I mentioned, I think, 2 quarters ago, our pecan had a large customer that had reduced our utilization. And so that was part of the as we're getting through as of the third quarter guidance, we expect to be up a little bit sequentially, so that's we're talking about better trends. We're still down year-over-year in kind of in mid-single digits, so that will likely be the trend through the back half of the year just because of the larger that client has declined, but I think as we get into this year with the momentum, we are seeing we'd expect the growth early next year.

[Operator]

Now to the line of Tim McHugh [William Blair]

[Tim McHugh, William Blair]

Just one follow-up on Locum's. I guess the improving the pace of improvement in the productivity of the new salespeople, is that, I guess, it's improving, but it was from a low base. So relevant to your expectations and how that progressing and then also how are you finding turnover amongst both legacy salespeople and the new salespeople model?

[Ralph Henderson, President of Professional Services & Staffing]

Tim, this is Ralph. I'll start with the second one, when our turnover in the second quarter decreased significantly over what we've been experiencing in the prior 2 to 3 quarters which when people were probably most frustrated when we actually had a large number of employees come back to us and rejoin the team, which is great. Of the new recruiters, actually above what we anticipated that would be at this point. So we had -- we speculated, I guess, at the time that the neutral would be easier to learn than the old database and systems and that's proven true. I think we would -- we'd be happier if we were higher and I think, if the demand trends change just a little bit, that would be useful. But in the meantime, they're beating our expectations. But there's still a lot of upside in those new hires.

[Tim McHugh, William Blair]

Okay. And on the mid-revenue cycle -- or mid-cycle, revenues from collection I, know you're going through some process improvements. Are we still quarters away from seeing that sort of business return to positive growth? Or is that something in the near term you might expect to see turnaround?

[Susan Salka, President, CEO]

Yes, so we are seeing it turn and improve and are going into the third and fourth quarter as Brian mentioned earlier, we had a fairly large client that brought their program in house last year, it started last year. So that created a bit of a headwind for that and then some other things, but that actually was one of the bigger headwinds. We're starting to lap that at the end of this year. In terms of year-over-year growth, I think, we're talking more first quarter of 2020.

[Operator]

Now to the line of Jason Plagman [Jefferies and Company]

[Jason Plagman, Jefferies and Company]

We hadn't hear much from Brain, so I thought a question just one question on capital deployment any thoughts on priorities with the leverage picking up and is there any upside for incremental M&A in the near future? Or are we focused on digesting Advanced medical for the time being? That's it for me.

[Brian Scott, CAO, CFO & Treasurer]

Thank you, Jason. Kind of all those are true in some respect, we're still looking for opportunities and I think that hasn't really changed of the leverage level we're at it 2.4x, it still gives us capacity to do acquisitions. In the meantime, we'll likely focus on debt reduction. We still opportunity to buy that shares. We're probably focused more reducing our debt just to provide more capacity.

But I don't think that the last acquisition of Advanced is not has not diminished our interest and exploring opportunities like acquisitions. We're still very disciplined and finding the right targets in the right spaces. But it's actually been more active in the last few months. There's a few different opportunities that we've been able to look at and we're having dialogue as well. So that really nothing has really changed in that regard, we think the Advanced, the integration, it's in the space that marry with and so we think we'll have a very successful integration as we focus more on the back half of the year and that gives us a room to continue to look at the opportunities.

[Operator]

[Operator Instructions] And now to the line of Mark Marcon [R.W. Baird]

[Mark Marcon, R.W. Baird]

Just a quick follow-up on Advanced Medical. What are you assuming for the third quarter and based on that assumption, what would the organic revenue growth be for them?

[Brian Scott, CAO, CFO & Treasurer]

So it's about $35 million or so of revenue in the third quarter. The rates, I don't have the exact number with me here, but I think it would represent double-digit growth on a year-over-year basis for us. And a portion of that was really when we talked about the schools business, they're seeing really strong growth in the number of new starts in the new school year, so that's a part of it. Although nursing is also up quite a bit, there were kind of flat to down a little bit as they exited 2018, then back to nice growth rate and then for the core therapy business as well. So really all parts of the business are growing.

[Mark Marcon, R.W. Baird]

Great. and then locum's, with regards to the systems, how far along are you in terms of like if 100% were optimal, how far along are you in terms of the system optimization?

[Ralph Henderson, President of Professional Services & Staffing]

Yes, this is Ralph. It's not a big concern for us anymore. We talked about that for several quarters. So we have a system, that is significantly better than our prior systems. We are releasing new releases and it's software is a different animal now than it used to be you put in place, you used the new version, you just kept it until a new version came out. But with the tools that we have now, where we really believe new software upgrades about every 2 weeks and we cross train employees on those every 4 weeks. So we continue to make changes as we see they won't to improve the business, but technology is not keeping us from growing any longer.

[Operator]

And now, to the line of Tobey Sommer.

[Susan Salka, President, CEO]

Tobey, do you have a follow-up question? Maybe not.

[Tobey Sommer, SunTrust]

Yes, I was hoping if you could ask about the just comment about school business sort of the addressable market and whether Advanced has the scale that it needs for you to kind of attack that market or there maybe some sort of capability or geographic presence that could be rounded out either through M&A or organically?

[Ralph Henderson, President of Professional Services & Staffing]

Yes, Tobey, this is Ralph. And Brian actually introduced me to the school business with the real little return when we first heard about the growth rates of the business for the addressable market, but our research shows that it's north of $1 billion and certainly, underpenetrated and there's probably 4 or 5 companies that have over $50 million in revenue in that space, it's very fragmented so. There's a great upside opportunity. The addressable market could be considerably larger. As schools, I think, start to understand that they have an options available to them staff, these are mandated staffing levels for them, so they get reimbursement from government on them. So we're, I think schools may not even know how options exist in some cases, big school systems of course do, but there's certainly a very large market to go after that probably not quite as big as I guess travel nursing, but maybe half as big.

[Brian Scott, CAO, CFO & Treasurer]

Yes, this is Brian. So they're ability to go after the entire country, if you look at the growth it had this year and some of their newer wins in school districts that are indifferent geographies all over the country. So there's no limitation if you actually have some distinct advantages which we won't go all the details in terms of how they are able to recruit talent into these opportunities and really partner more with some of the school districts to address their total leads versus buying kind of the fragmented way, which is historically our that industry has operated. So it is a lot of opportunity to continue to penetrate that market.

[Operator]

We have no one else in queue. Please continue.

[Susan Salka, President, CEO]

Okay. Well, thank you, everyone, for joining us today for our robust conversation. We appreciate your time. And we look forward to updating you on our progress on our next earnings call.

[Operator]

All right. Thank you. And ladies and gentlemen, this does conclude our conference for today. But today's call will be available for replay after 7:30 p.m. Eastern Time today to midnight of August 20, 2019. You may access the AT&T replay systems any time by dialing 1 [phone] and entering the access code 469775,. international participants may dial [phone], and again, those numbers are 1 [phone], and international [phone] with the access code being 469775. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.