|
Cross Country (CCRN)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06 |
| Nurse and Allied
Staffing
|
5.5%
|
6.5%
|
| Clinical Trials
Services
|
86.8%
|
87.7%
|
| Other Human
Capital
Management
Services |
(3.1%)
|
6.8%
|
|
Company
Total
|
10.2%
|
11.9%
|
Cross Country grew faster in the
second
quarter than it did in the first quarter of this
year and in its 10-Q for the period ending
June
30, 2007, Cross Country indicated that the
company reevaluated its reporting
segments in
conjunction with its recent acquisitions of
clinical trials services businesses. As a
result,
the company disaggregated clinical trials
services from nurse and allied staffing, both
formerly reported in the healthcare staffing
segment. We have reflected this same
change
above to comply with current reporting.
Cross
Country's new reporting segment for clinical
trials services includes it's organic
ClinForce business, plus recently acquired
Metropolitan Research and AKOS and will
include Assent Consulting in the future.
All segments of Cross Country's business
showed growth in the second quarter.
Clinical
Trials Services showed the most growth
due to
the acquisitions that occurred in this
segment.
In its 10-Q, Cross Country indicated that the
average monthly number of open orders
from
hospital clients is substantially higher than
the
low point of the most recent industry down-
turn
in 2003 but well below the prior industry
peak in
2001. It went on to say that it believes that
this
is due to the improved labor dynamics that
have created increased nurse turnover at
hospitals recently, which has in turn
contributed
to price increases for its nurse staffing
services
and an improvement in the supply of RN's
seeking travel assignments with the
company. It
sees continued strength in pricing and
better
opportunities for growth in the future.
|
AMN Healthcare Services (AHS)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06 |
| Nursing and Allied
Staffing
|
12.6%
|
10.9%
|
| Locum Tenens
Staffing |
10.5%
|
10.4%
|
| Physical
Permanent
Placement |
5.0%
|
(0.6%)
|
|
Company
Total
|
11.7%
|
12.5%
|
In its 10-Q for the period ending
June
30, 2007, AMN indicated that in its nursing
and
allied staffing segment, the average
number of
temporary healthcare professionals
increased
6.6% and that there was a 4.3% increase in
revenue per temporary. In its locum tenens
staffing segment, the average number of
days
filled by temporary healthcare professional
increased 8.9% and bill rates increased by
1.5%. It also noted that there was some
lessening in demand driven by lower
census
and admission levels; and the aggressive
hiring
of new graduates and efforts by hospitals to
increase efforts on recruiting permanent
labor.
|
On Assignment (ASGN)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06 |
| Healthcare Staffing
|
5.9%
|
10.4%
|
| Physician Staffing
|
New
|
New |
| Life Sciences |
19.7%
|
14.9%
|
|
IT and Engineering |
New |
New |
Within its 10-Q for the period ending
June 30,
2007, On Assignment has said that the
integration of its two acquisitions, Vista
Staffing
Solutions (Physician Staffing) and Oxford
Global Resources (IT and Engineering) are
going very well and that revenue growth
from
the historical Healthcare Staffing and Life
Sciences segments remained strong
particularly in light of the significant
reduction in
utilization by one of its largest travel
customers
due to their difficulty in meeting government
regulatory requirements. It also indicated
that
the Physician Staffing and Life Sciences
segments continue to have the strongest
end
markets, followed by IT and Engineering
and
Healthcare segments. As noted last
quarter,
the President of On Assignment said "Our
focus in the remainder of 2007 will be to
continue to grow and expand our revenue
base
and improve our EBITDA. In order to
achieve
this, we will continue to work to increase bill
rates, raise gross margins and contain
costs."
|
Medical Staffing Network (MRN)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06
| Branch based Per-
diem
Staffing
|
(2.4%)
|
(2.5%)
|
| Allied Staffing
|
(0.6%)
|
17.4%
|
| Travel Nurse
Staffing |
(45.8%)
|
(35.4%)
|
|
Company
Total
|
(4.5%)
|
(2.4%)
|
|
In its 10-Q for the period ending
June
30, 2007,
MSN indicates that revenue and gross
profit
margin is under pressure due to stagnant
hospital admissions having suppressed
incremental demand for temporary nurses
and
that it has begun to see an increase in bill
rates. MSN cannot predict when conditions
will
improve, but is confident in the long-term
growth of the industry. MSN did not
complete
any acquisitions during the first two
quarters of
the year, but has subsequently completed
the
acquisition of InteliStaf Holdings, which will
be
quickly integrated into MSN. The InteliStaf
acquisition will have a major effect on
MSN's
revenue for the remainder of the year as it
is a
significant acquisition for the
Company.
Gross Margin
Each company has a different gross
margin story. See below:
|
Cross Country (CCRN)
|
Q1'07
Percentage
|
Q2'07
Percentage |
|
Company
Total
|
23.0%
|
23.7%
|
In the second quarter, Cross Country
experienced a 0.6% increase in gross
margin
versus the same period in 2006. Although
no
explanation was given, we believe that the
increase in gross margin is for two
reasons.
First, in its 10-Q for the first quarter, Cross
Country indicated that there has been a
widening in its bill-pay spread in the
healthcare
staffing business. We think this trend is
continuing. The second reason we believe
Cross Country's gross margin in increasing
is
because we believe there are higher
margins
associated with the clinical trials
businesses
than with the nurse staffing businesses. So,
as
the clinical trials business becomes a
larger
portion of the company, gross margin must
rise.
|
AMN Healthcare Services (AHS)
|
Q1'07
Percentage |
Q2'07 Percentage |
| Nursing and Allied
Staffing
|
23.3%
|
23.3%
|
| Locum Tenens
Staffing
|
25.2%
|
25.6%
|
| Physician
Permanent Placement |
63.2%
|
60.0%
|
|
Company
Total
|
25.5% |
25.5% |
AMN experienced a decrease in gross
margin of 1.2% during the second quarter
following a decrease of 1.5% for the
nursing and allied staffing segment in the
first quarter; it experienced a decrease in
gross margin of 1.2% for the locum tenens
staffing segment in both Q1 and Q2 of
2007 versus the same periods of 2006;
and a decrease in gross margin of 0.6% in
the second quarter of 2007 versus the
same period of 2006 following an increase
in gross margin of 3.1% in the physician
permanent placement segment in the first
quarter of 2007 versus the first quarter of
2006. Housing costs negatively impacted
nursing and allied gross margin. Mix of
physician specialties negatively impacted
locum tenens gross margin.
|
On Assignment (ASGN)
|
Q1'07
Percentage
|
Q2'07 Percentage |
| Healthcare Staffing
|
24.6%
|
25.4%
|
| Physician Staffing
|
29.4%
|
31.3%
|
|
Healthcare/Physcian Staffing Total
|
26.0%
|
27.1%
|
| Life Sciences |
32.9%
|
34.1%
|
|
IT and Engineering |
37.1 |
37.2 |
During the second quarter, On Assignment
increased its gross margin both versus the
prior quarter and prior year within each
business segment. This is an outstanding
achievement. The company has been
focused
on raising gross margin across all
segments of
its business for some time and is currently
benefiting from this effort.
|
Medical Stffing Network (MRN)
|
Q1'07
Percentage |
Q2'07
Percentage |
|
Company
Total
|
23.2%
|
24.5%
|
MSN has increased its gross margin by
2.4% in
the past year and attributes this to a more
favorable pricing environment than in recent
years. It stated that it has begun to see
increases in bill rates over the past 5-6
months.
Sales General & Administrative
Expenses
Each company has a different SG&A
story.
See below:
Sales General & Administrative
Expenses
Percentage
(Excludes Interest, Bad Debt, Depreciation
and
Amortization)
|
Cross Country (CCRN)
|
Q1'07
Percentage |
Q2'07
Percentage |
|
Company
Total
|
16.8%
|
17.0%
|
Cross Country improved its SG&A
expenses by
0.1% of revenue in Q2'07 versus Q2'06. In
Q1'07, it improved its SG&A expenses by
0.8%
of revenue versus Q1'06. In the first
quarter's
10-Q, it cited lower Sarbanes-Oxley costs,
lower legal fees and lower corporate
compensation; partially offset by an
increase in
consulting fees. It also cited improved
operating leverage in its healthcare staffing
business and a lower mix of other capital
management businesses with higher
SG&A
burden than its healthcare staffing business
as
reasons for the improvement. It appears
that
Cross Country is now doing a better job of
leveraging its overhead than it did in the
recent
past. Cross Country intends to continually
improve its profitability, so it will probably
continue to emphasize improvement of its
SG&A costs as a percentage of revenue.
|
AMN Healthcare Services (AHS)
|
Q1'07
Percentage |
Q2'07 Percentage |
| Nursing and Allied
Staffing
|
17.3%
|
17.5%
|
| Locum Tenens
Staffing
|
20.0%
|
16.9%
|
| Physical
Permanent
Placement |
35.7%
|
37.8 |
|
Company
Total
|
18.5%
|
18.2%
|
During the second quarter, AMN's SG&A
expenses improved by 1.8% versus the
second
quarter of 2006. SG&A expenses improved
by
about 1.8% each in both the nursing and
allied
staffing segments and locum tenens
staffing
segment and appear to now be getting
back in
line with the SG&A expense levels we think
are
reasonable.
|
On Assignment (ASGN)
|
Q1'07
Percentage |
Q2'07
Percentage |
|
Company
Total
|
23.5%
|
23.1%
|
As noted in our last letter, On Assignment
is
much more of a hybrid company than any of
the other companies noted. A significant
portion of its revenue, 46.3%, comes from
outside of its traditional businesses due to
acquisitions this year. Furthermore, On
Assignment does not report SG&A by
segment.
We do know that On Assignment has been
working for some time to reduce its SG&A
as a
percent of revenue and has made
significant
improvements in the last two (2) years and
in
this quarter as well. With its goal of
continuing
to control costs, we believe that On
Assignment
probably has a much better cost structure in
its
healthcare and physician staffing areas
than is
reflected above especially since its gross
margin in these areas are significantly
below
that of its other businesses as shown in the
gross margin section above.
|
Medical Staffing Network (MRN)
|
Q1'07
Percentage |
Q2'07
Percentage |
|
Company
Total
|
21.9%
|
20.5%
|
During Q1'07, MSN's SG&A expenses
were
impacted by higher professional service
fees
and recruiting/promotional costs. These
were
not present during Q2'07. SG&A expenses
were up 2.1% of revenue on a year over
year
basis during Q2'07 and are up 2.0% on a
year
to date basis. With the recent acquisition of
InteliStaf, hopefully MSN will begin to see
its
SG&A expenses revert to what we
consider
more reasonable levels.
Summary Commentary
The above revenue change section
indicates
that the healthcare staffing market is
growing.
The results for Cross Country, ANM and On
Assignment confirm this. Given the
consistency
surrounding the growth stories, you should
be
participating in the market growth that is
taking
place if you are a travel or allied company,
unless your specialty is in the radiology
area,
which is experiencing decreased demand.
If you are growing at a faster rate than the
companies above, it probably means that
you
have a good recruiting engine. We know of
companies that are growing faster than the
market. We think they are the exception
and
expect there will be a weeding out of
weaker
companies in the industry as there are
many
suppliers and too few bodies to fill open
orders.
Industry revenue will continue to be limited
by
supply acquisition and turnover rather than
by
demand. Retrogression was lifted
temporarily in
early July. That is good news for all
companies
involved with bringing healthcare personnel
in
to the country from international locations.
The
questions remaining are how long will the
temporary changes last and will congress
pass
a longer term fix anytime soon.
Of note in the gross margin section is that
all
the public companies had gross margin of
23.3% or more in the second quarter, no
matter what segment of the business was
reported. This is not by accident as all the
public companies are taking actions to
increase
their gross margin. Still, from an overall
viewpoint, the gross margin percentage for
the
public companies noted above remains
about
2% lower than it was prior to 2002-2003 in
the
nurse staffing and travel nurse segments of
the
market. Longer term, we expect that the
gross
margin percentage for public companies
will
rise by 1%-2% in those segments.
Generally speaking, the SG&A expenses of the
public companies will need to shrink over time
to get back to where they were prior to 2004 as
they are still out of line with historical
percentages by 1-2% of revenue. As we've
said previously, healthcare staffing companies
probably should have SG&A expenses in the
range of 15% to 17% of revenue for travel or
per-diem companies and in the range of 18%
to 20% for physician and allied staffing
companies. These guidelines should allow for
EBITDA in the range of 6% to 8% or more if
gross margin is properly managed. Almost any
buyer we know would have a difficult time
considering a company to be a quality service
provider unless it had 6% EBITDA and gross
margin percentages similar to that experienced
by the public companies.
The growth in value of any company requires
both strong buyer interest and increasing
business profits. So if buyer interest wanes,
business value diminishes very quickly. The
acquisition market is still strong in most
segments. We are getting concerned about
how long this will last. Demand in the per-diem
staffing area is already showing signs of
weakening.
If you would like to confidentially discuss how
we could help you to take advantage of
acquisition opportunities available at this time,
we should talk! Please contact either of us at
the numbers below and for more information
about us please visit our website
www.lyonsolutions.com.
Sincerely,
Visit Our Website
About Lyons Solutions,
LLC
We were founded in
1984 as
Lyons &
Associates, Inc.
and today Lyons Solutions, LLC is a
premier merger
and acquisitions financial advisor to the
healthcare
staffing industry nationwide. Since 1989
we've
completed approximately 30 healthcare
staffing
industry transactions. We have built an
extensive
corporate and private equity buyer
database and
provide sound, practical advice to owners
of private
companies seeking to execute a business
sale,
merger, acquisition, recapitalization or
management
buyout transaction. Seller clients tend to
have
revenue ranging from $5 million to $100
million. We
work with our clients to jointly determine the
best
time for them to approach the market and
then
aggressively develop alternatives for our
clients to
consider. Our senior deal makers actively
participate
in the Healthcare Staffing Summit, the
American
Staffing Association (ASA), the New
Jersey Staffing
Alliance (NJSA), the New York Staffing
Association (NYSA) and the Florida
Staffing Association (FSA) and have
completed over 100
multi-million dollar transactions.
Lyons Solutions, LLC
