|
Cross Country (CCRN)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06 |
Q3'07
versus
Q3'06 |
| Nurse and Allied
Staffing
|
5.5%
|
6.5%
|
5.6%
|
| Clinical Trials
Services
|
86.8%
|
87.7%
|
96.7%
|
| Other Human
Capital
Management
Services |
(3.1%)
|
6.8%
|
14.9%
|
|
Company
Total
|
10.2%
|
11.9%
|
13.7%
|
Cross Country grew faster in the third quarter than it
did in the first two quarters of this year and in its 10-Q
for the period ending September 30, 2007, Cross
Country indicated that the increase was partially due to
its clinical trials services acquisitions, although
excluding the impact of acquisitions, Cross Country
grew by 7.3% in the quarter with growth coming from
an increase in revenue from its nurse and allied
staffing segment, supplemented by increases in
organic revenue from its clinical trials services
segment and other human capital management
services segment. All segments of Cross Country's
business showed growth in the third quarter. The
increase in revenue from the nurse and allied
business segment was primarily from its travel nurse
staffing operations and was partially offset by a
decrease in its per-diem staffing and allied operations.
Cross Country indicated that it saw improved pricing
and volume that was slightly offset by a reduction in
average hours worked per week as revenue per full-
time equivalent (FTE) and average bill rates increased
approximately 3.7% and 4.1% respectively in this
quarter versus the same quarter last year, while the
average number of nurses and allied staffing FTEs on
contract increased only 1.8% from the three months
ending September 30, 2006.
Excluding the impact of acquisitions in the clinical trials
services segment, revenue grew 18.5% in this
segment. The increase was primarily due to an
increase in temporary staffing volume. The other
human capital management services business saw
increases in both its education and training and
retained search businesses.
|
AMN Healthcare Services (AHS)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06 |
Q3'07
versus
Q3'06 |
| Nursing and Allied
Staffing
|
12.6%
|
10.9%
|
1.1%
|
| Locum Tenens Staffing
|
10.5%
|
10.4%
|
21.2%
|
| Physician Permanent
Placement |
5.0%
|
(0.6%)
|
7.1%
|
|
Company
Total
|
11.7%
|
12.5%
|
6.2%
|
In its 10-Q for the period ending September 30, 2007,
2007, AMN indicated that in its nursing and allied
staffing segment it is experiencing a weakening in
demand in certain key regions such as California and
specialties which has been partially offset by
increased in demand in other areas of the country. It
indicates that the lower demand is being driven by
several factors such as relatively flat anticipated
hospital admission levels, the aggressive hiring of
new graduates and efforts by hospitals to increase
efforts on recruiting permanent labor. The company
also noted a constraint in supply and an inability to
bring in international nurses as a result of the current
visa retrogression as well as some effect from price
increases. It also noted a decrease in the average
number of workers on assignment. In its locum tenens
staffing segment, the average number of days filled by
temporary healthcare professional increased 11.5%
and bill rates/mix of specialties contributed to an
increase of 9.6%.
|
On Assignment (ASGN)
|
Q1'07
versus
Q1'06 |
Q2'07
versus
Q2'06 |
Q3'07
versus
Q3'06 |
| Healthcare Staffing
|
5.9%
|
10.4%
|
(1.3%)
|
| Physician Staffing
|
New
|
New
|
New
|
| Life Sciences |
19.7%
|
14.9%
|
12.6%
|
|
IT and Engineering
|
New
|
New
|
New
|
|
Company
Total
|
NA
|
NA
|
NA
|
Within its 10-Q for the period ending September 30,
2007, On Assignment made no reference as to what is
behind the fall-off of healthcare staffing revenue.
Therefore we can only conjecture that it is due to the
significant reduction in utilization by one of its largest
travel customers due to their difficulty in meeting
government regulatory requirements as noted in its
last quarters' 10-Q. As noted the last two quarters,
during the first quarter of 2007, 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 |
Q3'07
versus
Q3'06 |
| Branch based per-diem
Staffing
|
(2.4%)
|
(2.5%)
|
Not Reported
|
| Allied Staffing
|
(0.6%)
|
17.4%
|
Not Reported
|
| Travel Nurse Staffing |
(45.8%)
|
(35.4%)
|
Not Reported
|
|
Company
Total
|
(4.5%)
|
(2.4%)
|
(1.2%)
|
In its 10-Q for the period ending September 30, 2007,
MSN indicated that revenue and gross profit margins
have been 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. During the third quarter,
MSN acquired InteliStaf Holdings and AMR ProNurse.
The InteliStaf acquisition had a major effect on MSN's
revenue as it is a significant acquisition for the
Company. It acquired InteliStaf to strengthen its travel
nurse staffing business and to expand the number of
markets its per-diem division operates in. The AMR
ProNurse acquisition was made to expand MSN's
vendor management service agreements. The current
mix of business within MSN is 65% of revenue was
derived from per-diem staffing, 21% was from travel
nurse staffing and 14% was from staffing various allied
health professionals during the third quarter of
2007.
Gross Margin
Each company has a different gross margin story. See
below:
Gross Margin Percentage
|
Cross Country (CCRN)
|
Q1'07
Percentage |
Q2'07
Percentage |
Q3'07
Percentage |
|
Company
Total
|
23.0%
|
23.7%
|
24.8%
|
In the third quarter, Cross Country experienced a 1.6%
increase in gross margin versus the same period in
2006. This increase is partially due to the impact of the
Assent, AKOS and Metropolitan Research acquisitions.
Also impacting gross margin is the fact that the clinical
trials services and other human capital management
services (which have higher gross margins than the
nursing and allied staffing businesses) increased at a
higher rate than the nursing and allied staffing
business segment. 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 |
Q3'07
Percentage |
| Nursing and Allied Staffing
|
23.3%
|
23.3%
|
24.2
|
| Locum Tenens Staffing
|
25.2%
|
25.6%
|
27.0% |
| Physician Permanent
Placement |
63.2%
|
60.0%
|
60.2%
|
|
Company
Total
|
25.5%
|
25.5%
|
26.6%
|
For the nursing and allied segment, AMN experienced
a decrease in gross margin of 0.6% in the third
quarter, 1.2% during the second quarter following a
decrease of 1.5% in the first quarter versus the same
period in 2006; it experienced a 0.8% increase in
gross margin for the locum tenens staffing segment in
the third quarter as opposed to a decrease in gross
margin of 1.2% in both Q1 and Q2 of 2007 versus the
same periods of 2006; in the physician permanent
placement segment during Q3'07, AMN had a
decrease in gross margin of 0.5% versus the same
period last year following 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 first quarter of 2007 versus the first
quarter of 2006. Housing costs negatively impacted
nursing and allied gross margin. Bill rate increases
favorably impacted the locum tenens gross margin.
|
On Assignment (ASGN)
|
Q1'07
Percentage |
Q2'07
Percentage |
Q3'07
Percentage |
| Healthcare Staffing
|
24.6%
|
25.4%
|
25.4%
|
| Physician Staffing
|
29.4%
|
31.3%
|
29.1% |
| Healthcare/Physician Staffing
Total |
26.0%
|
27.1%
|
26.5%
|
|
Life Sciences
|
32.9%
|
34.1%
|
33.7%
|
|
IT and Engineering
|
37.1%
|
37.2%
|
37.7%
|
|
Company
Total
|
30.6%
|
32.1%
|
32.0%
|
During the third quarter, On Assignment increased its
gross margin in both the healthcare staffing segment
(a 1.4% increase) and the life sciences segment (a
1.0% increase) versus the prior year. This is an
outstanding achievement. As stated previously, 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 Staffing Network (MRN)
|
Q1'07
Percentage |
Q2'07
Percentage |
Q3'07
Percentage |
|
Company
Total
|
23.2%
|
24.5%
|
23.9%
|
MSN has increased its gross margin by 1.2% in this
quarter versus the same quarter last year and
attributes this to a more favorable pricing environment
than in recent years. It stated in its June 30, 2007 10-Q
that it has begun to see increases in bill rates, which
have now taken place for the past 8-9 months as of
September 30, 2007.
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 |
Q3'07
Percentage |
|
Company
Total
|
16.8%
|
17.0%
|
17.5%
|
Cross Country improved its SG&A expenses by 0.6% of
revenue in Q3'07 versus Q3'06. The increase in
selling, general and administrative expenses from the
second to the third quarter was primarily due to the
additional expenses from the acquisitions, higher
expenses in the nursing and allied staffing business
and higher selling expenses in the other human
capital management services businesses. Both the
clinical trials services and other human capital
management services segments operate with higher
selling, general and administrative expenses relative
to revenue than the nursing and allied staffing
business. Despite the increase of expense as a
percentage of revenue from Q2'07 to Q3'07, it appears
to us that Cross Country is doing a little 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 within its segments.
|
AMN Healthcare Services (AHS)
|
Q1'07
Percentage |
Q2'07
Percentage |
Q3'07
Percentage |
| Nursing and Allied Staffing
|
17.3%
|
17.5%
|
17.5%
|
| Locum Tenens Staffing
|
20.0%
|
16.9%
|
18.1% |
| Physician Permanent
Placement |
35.7%
|
37.8%
|
38.6%
|
|
Company
Total
|
18.5%
|
18.2%
|
18.6%
|
During the third quarter, AMN's SG&A expenses
improved by 0.5% versus the third quarter of 2006 even
though its SG&A expense increased as a percent of
revenue versus the second quarter this year. Year over
year, SG&A expenses are trending toward levels we
think are reasonable, although we still consider them
to be on the high side.
|
On Assignment (ASGN)
|
Q1'07
Percentage |
Q2'07
Percentage |
Q3'07
Percentage |
|
Company
Total
|
23.5%
|
23.1%
|
22.1%
|
As noted in our last two letters, On Assignment is
much more of a hybrid company than any of the other
companies noted. A significant portion of its revenue,
46.9% in the third quarter, came from outside of its
traditional businesses due to acquisitions this year.
Furthermore, On Assignment does not report SG&A by
segment. We 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 |
Q3'07
Percentage |
|
Company
Total
|
21.9%
|
20.5%
|
18.5%
|
MSN appears to be using volume to offset its high
SG&A expense levels. During Q3'07, SG&A expenses
are down on a year over year basis by 0.7% versus last
year. With the recent acquisitions of InteliStaf and AMR
ProNurse, we hope to see MSN's 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, although the rate
of growth was slower this quarter than last quarter. The
results for Cross Country, ANM and On Assignment
confirm this. 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.
As stated previously, 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 a number
of companies that are growing faster than the market
although we think they are an exception. In the longer
term, we 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 shows no signs of being lifted and this
is bad news for all companies involved with bringing
healthcare staffing personnel in to the country from
international locations. No news to the positive is on
the horizon at this time.
Of note in the gross margin section is that all the public
companies had gross margin of 23.9% or more in the
third 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 1.5%- 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 due to the continuing weakness in
the economy and in hospital admissions. Demand in
the per-diem staffing area has already weakened.
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.lyonssolutions.com .
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
