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Healthcare Staffing Update
November 18, 2008
Dear Healthcare Industry Executive:
This letter updates information we published
August 12, 2008 for the healthcare staffing industry. We
will be discussing the third quarter performance in
2008 of the four (4) largest healthcare staffing
companies, AMN, Cross Country, On Assignment and
MSN as well as other pertinent information.
The Q3'08 revenue results for the public companies
below shows that without acquisitions, nursing and
allied revenue slowed in the quarter
versus the same period of 2007. The exception to this
was On Assignment which saw revenue growth in
nursing and allied without having any benefit from
acquisitions. Generally speaking, during Q3'08, the
public companies saw a weakness in demand within
the nursing and allied segment. We believe that most
private companies are experiencing the same trends
the public companies are experiencing, meaning that
growth is hard to come by. Those companies with very
robust recruiting engines for their size are faring better
than the average company, although the slowing down
is effecting everyone.
Within the last few weeks, we have been hearing that
there are some cancellations happening on
in-process travel assignments. This does not bode
well for the next quarter's results if it
continues.
The revenue and other information that follows shows
how much variation in results is experienced by the
public companies.
Revenue Change
|
Cross Country (CCRN)
|
2007
versus
2006 |
Q1'08
versus
Q1'07 |
Q2'08
versus
Q2'07 |
Q3'08
versus
Q3'07 |
| Nurse and Allied
Staffing
|
3.9%
|
(2.7%)
|
(7.3%)
|
(11.6%)
|
| Clinical Trials
Services
|
69.9%
|
26.2%
|
27.2%
|
(2.9%)
|
| Other Human
Capital
Management
Services |
8.5%
|
15.6%
|
6.5%
|
(1.5%)
|
|
Company
Total
|
9.6%
|
1.8%
|
(2.5%)
|
(3.8%)
|
As you can see above, Cross Country has had
negative growth for the third quarter of this year versus
the third quarter of last year. This lack of performance
came from all divisions, but particularly the nursing
and allied staffing segments of Cross Country which is
the largest in terms of revenue for the company at 72%
of Cross Country's revenue base. Cross Country
indicated that demand for its services decreased due
to a weak admission trend or budgetary constraints.
We think this same weakness will be seen again in
the fourth quarter of this year and may even become
accentuated. On a positive note, Cross Country
continues to have strong pricing offsetting some of the
volume weakness in the Nursing and Allied Staffing
segment.
|
AMN Healthcare Services (AHS)
|
2007
versus
2006 |
Q1'08
versus
Q1'07 |
Q2'08
versus
Q2'07 |
Q3'08
versus
Q3'07 |
| Nursing and Allied
Staffing
|
5.1%
|
2.0%
|
7.0%
|
6.4%
|
| Locum Tenens Staffing
|
15.8%
|
6.9%
|
4.9%
|
2.8%
|
| Physician Permanent
Placement |
2.1%
|
5.5%
|
6.6%
|
(4.6%)
|
|
Company
Total
|
7.6%
|
3.4%
|
6.4%
|
4.9%
|
As of February 15, 2008 AMN acquired Platinum Select
Staffing, a national travel allied staffing firm. Even
though revenue attributable to this transaction was not
published, we believe that this acquisition is the major
if not only reason that AMN's Nursing and Allied
Staffing segment grew at all during the quarter versus
Q3'07. Continued volume weakness exists in this
division and will likely remain weak in the current
environment. The Locum Tenens staffing growth rate
has decreased every quarter this year. The Physician
and Permanent Placement segment of the Company
has switched from growing to decreasing versus a
year ago. Company growth is being constrained mostly
by demand. Supply and an inability to bring in
international nurses as a result of the current visa
retrogression are also having a negative effect, but
probably not as much as during prior quarters.
|
On Assignment (ASGN)
|
2007
versus
2006 |
Q1'08
versus
Q1'07 |
Q2'08
versus
Q2'07 |
Q3'08
versus
Q3'07 |
| Healthcare Staffing
|
2.9%
|
4.4%
|
5.0%
|
7.8%
|
| Physician Staffing
|
New
|
14.5%
|
20.4%
|
23.4%
|
| Life Sciences |
14.6%
|
2.9%
|
(3.8%)
|
(1.4%)
|
|
IT and Engineering
|
New
|
New
|
15.7%
|
11.5%
|
|
Company
Total
|
N/A
|
N/A
|
8.5%
|
8.9%
|
On Assignment's revenue increased 8.9%
year-over-year as a result of growth in its Healthcare,
Physician
and IT and Engineering segments. The life science
segment revenue decreased 1.4% while both the
Nurse Travel and Allied Healthcare lines increased
during the quarter. Nurse Travel revenue increased
8.5% and Allied Healthcare revenue increased 6.2%.
Physician Staffing revenue increased 23.4%. The IT
and Engineering segments grew 11.5% this quarter.
Company growth is still being significantly powered by
the acquisitions it made in the first quarter of 2007,
although in the Healthcare Staffing segment, On
Assignment is growing at a time when other
companies are really not growing.
|
Medical Staffing Network (MRN)
|
2007
versus
2006 |
Q1'08
versus
Q1'07 |
Q2'08
versus
Q2'07 |
Q3'08
versus
Q3'07 |
| Branch based per-diem
Staffing
|
Not Reported
|
N/A
|
N/A
|
(8.6%)
|
| Allied Staffing
|
Not Reported
|
N/A
|
N/A
|
(4.9%)
|
| Travel Nurse Staffing |
Not Reported
|
N/A
|
N/A
|
(28.2%)
|
|
Company
Total
|
N/A
|
N/A
|
N/A
|
(12.2%)
|
MSN's revenue picture is not pretty. It could get worse.
MSN is closing down and is consolidating offices
starting in Q4'08. All segments of the business
showed worse results than they did last year. MSN has
been under volume pressure due to stagnant hospital
admissions for some time now, but it is also
experiencing pressure from a weak economy and a
tight
credit market. Up until this quarter, the acquisition of
InteliStaf clouded this within the reported results.
During Q3'08, 70% of MSN's revenue was derived from
per diem staffing, 17% was derived from travel staffing
and 13% was derived from allied staffing. The travel
segment of the business increased from 4% of MSN's
revenue due to the acquisition of InteliStaf and seems
to be the hardest hit in the current operating
environment.
Gross Margin
Each company has a different gross margin story
although all companies have been taking steps to
increase their gross margin. Some have been more
successful than others. See below:
Gross Margin Percentage
|
Cross Country (CCRN)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
|
Company
Total
|
24.3%
|
25.2%
|
26.7%
|
26.6%
|
In Q3'08 Cross Country experienced a 1.8% increase
in gross margin versus the same period in 2007 and
continued its trend of rising gross margin since 2006.
As previously stated, most of the increase is 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) are increasing as a percentage of Cross
Country's business whereas the nursing and allied
staffing business segment is decreasing as a
percentage of Cross Country's business.
|
AMN Healthcare Services (AHS)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
| Nursing and Allied Staffing
|
23.8%
|
24.0%
|
24.5
|
23.6
|
| Locum Tenens Staffing
|
26.7%
|
25.9%
|
26.0% |
26.6% |
| Physician Permanent
Placement |
61.6%
|
59.3%
|
61.3%
|
57.5%
|
|
Company
Total
|
26.4%
|
26.4%
|
26.0%
|
25.7%
|
For the nursing and allied segment, AMN experienced
a decrease in gross margin of 0.6% in the third quarter
versus the same period in 2007. Gross margin in the
locum tenens staffing business experienced a similar
phenomenon being down 0.4% versus last year's Q3;
in the physician permanent placement segment,
during Q3'08, AMN had an decrease in gross margin of
2.7% versus the same period last year. Overall, gross
margin decreased 0.9% versus last years' third
quarter. In its 8-K issued October 30, 2008, AMN
indicated that the lower gross margins it experienced
was due to lower gross margin contributions from
higher margin business lines such as international
nursing and physician permanent placement and a
shift in the mix of specialties within its' Locum Tenens
Staffing segment.
|
On Assignment (ASGN)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
| Healthcare Staffing
|
25.3%
|
24.2%
|
26.4%
|
25.6%
|
| Physician Staffing
|
29.2%
|
28.2%
|
30.7% |
31.6% |
| Healthcare/Physician Staffing
Total |
26.5%
|
25.5%
|
27.8%
|
27.5%
|
|
Life Sciences
|
33.4%
|
32.9%
|
33.0%
|
34.2%
|
|
IT and Engineering
|
37.4%
|
36.8%
|
37.8%
|
38.1%
|
|
Company
Total
|
31.7%
|
31.1%
|
32.5%
|
32.6%
|
During the third quarter, On Assignment's growth
margin increased by 0.6% versus the same quarter in
2007. Also of note is that gross margin is up in all
segments versus On Assignment's full year 2007
gross margin. The change in mix of business toward
IT and Engineering and Physician staffing is favorably
affecting the overall gross margin, however, all
segments have exceptional gross margin
percentages. On Assignment is doing an excellent job
of maintaining and growing its' gross margin
percentages.
|
Medical Staffing Network (MRN)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
|
Company
Total
|
24.1%
|
24.1%
|
24.9%
|
25.3%
|
MSN has increased its gross margin by 1.4% in this
quarter versus the same quarter last year. MSN
attributes this to a continued focus on gross profit
margin expansion.
Sales General & Administrative
Expenses
Each company has a different SG&A story. Only On
Assignment has a positive SG&A performance. See
below:
Sales General & Administrative Expenses
Percentage
(Excludes Interest, Bad Debt, Depreciation and
Amortization)
|
Cross Country (CCRN)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
|
Company
Total
|
17.1%
|
17.9%
|
18.8%
|
18.8%
|
Cross Country's SG&A expenses increased by 1.8% of
revenue in Q3'08 versus Q3'07, offsetting the same
percentage increase as its gross margin. SG&A
expenses also increased 0.3% during 2007 verses
2006. Some of this is due to Cross Country's mix of
business changing, but SG&A continues to go the
wrong way for the Company, especially as revenue has
decreased by $7.0M this quarter versus last year and
costs have increased by $2.0M for Q3'08 versus Q3'07.
|
AMN Healthcare Services (AHS)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
| Nursing and Allied Staffing
|
17.6%
|
17.3%
|
17.7%
|
17.2%
|
| Locum Tenens Staffing
|
18.7%
|
19.4%
|
20.9% |
18.8% |
| Physician Permanent
Placement |
37.5%
|
37.6%
|
32.6%
|
35.5%
|
|
Company
Total
|
18.7%
|
18.8%
|
19.2%
|
18.4%
|
AMN is getting it's SG&A expenses in line with
historical averages, although they are still on the high
side of historical averages. During the third quarter,
AMN's SG&A expenses worsened by 0.6% versus the
third quarter of 2007. In its' 8-K, AMN notes that SG&A
expenses would have been the same percentage as
they were last year had it not been for restructuring and
legal expenses associated with the Company's
pharmacy staffing business. Only Locum Tenens
Staffing showed improvement in SG&A expenses as a
percentage of revenue.
|
On Assignment (ASGN)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
|
Company
Total
|
23.0%
|
23.6%
|
22.5%
|
24.0%
|
Even though On Assignment's SG&A expenses as a
percentage of revenue are higher than the other
companies noted, the fact that On Assignment is now
experiencing operating income at 8.4% during the
quarter is more than respectable. We believe that
On Assignment is setting the stage for significant profit
growth and performance this year and 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)
|
2007
Percentage |
Q1'08
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
|
Company
Total
|
19.9%
|
20.2%
|
20.9%
|
19.6%
|
MSN has again not been able to use volume to offset
its high SG&A expense levels in the third quarter.
During Q3'08, SG&A expenses are up on a year over
year basis by 1.2%% versus last year. With the
restructuring that MSN is going through, we hope to
eventually see MSN's SG&A expenses revert to what
we consider more reasonable levels, which are
several percentage points below current performance.
Summary Commentary
Of note in the gross margin section is that all the public
companies had a gross margin of 23.6% or more in
every segment during the third quarter. This is not by
accident as all the public companies are attempting to
increase their gross margin. Still, from an overall
viewpoint, the gross margin percentage for the public
companies noted above remains about 1%-1.5%
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%-1.5%
in those segments.
The SG&A expenses of some of the public companies
still 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 a point
of reference, 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.
The acquisition market has turned sluggish in most
segments. That doesn't mean that acquisitions are not
getting done, rather it means that it will be more difficult
to get acquisitions done. Acquisition pricing has
weakened due to economic considerations and the
continuing weakness in the stocks of the public
companies and in hospital admissions.
If you would like to confidentially discuss how we could
help you to take advantage of exit planning or
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
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1984 as
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and today Lyons Solutions, LLC is a
premier Investment Banking advisor and Exit Planner
to the
healthcare
staffing industry nationwide. Since 1989
we've
completed over 30 healthcare
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industry transactions. We have built an
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corporate and private equity buyer
database and
provide sound, practical advice to owners
of private
companies seeking to execute an exit strategy,
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 plan their exits and to jointly
determine the
best
time for them to approach the market and
then
aggressively develop alternatives for our
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consider. Our senior deal makers / exit planners
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participate
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Association (NYSA) and have
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