Healthcare Staffing Update
May 13, 2009
Dear Healthcare Industry Executive:
This letter updates information we published on March
19, 2009, for the healthcare staffing industry. We will be
discussing the 2009 first-quarter performance of the
four largest healthcare staffing companies (AMN,
Cross Country, On Assignment and MSN) as well as
other pertinent information.
The Q1'09 revenue results below show a sad story of
negative growth versus the same period in 2008 as
well as negative growth versus Q4'08 for each and
every public company. There were no exceptions to
this. All public companies discussed a weakness in
demand within their earnings calls and quarterly
earnings reports. All segments, including physician
staffing, are being hammered. From what we hear
from the private companies we speak with, they are
experiencing results similar to what the public
companies are experiencing. In plain English,
business is dismal. Owners tell us in almost every
conversation we have regarding this subject that
orders and placements are hard to come by. Owners
of a few companies claim to still be growing, but they
are exceptions to what we are hearing and their growth
is slower than it was last year. We are of the opinion
that the slowdown is affecting everyone without
exception. AMN and Cross Country think they are
gaining market share at this time. We can conjecture
that they are correct from our conversations with
owners of private companies. The end result of the
current economic situation will probably be less
competition in the future for those companies that have
the wherewithal to make it through this contraction.
We've heard that some companies have shut down,
and we believe that many companies are holding on by
their fingernails. Everybody seems to be talking about
a "lack of orders." A number of companies will not be
able to survive the current market softness unless the
situation changes sometime soon. So where are we in
this down cycle? We haven't hit bottom yet! I think we're
going to hit bottom soon, probably in Q3'09, but that's
just a guess. I also think that the recovery will be slow
once it begins. Some of the public companies think
that when a pickup in business occurs, it will be
stronger than average coming out of a recession. I'd
like to be wrong about this, but the recession is so
widespread that a quick recovery would be a miracle.
The revenue and other information that follows show
how each of the public companies is doing.
Revenue Change
|
Cross Country (CCRN)
|
2008
versus
2007 |
Q4'08
versus
Q4'07 |
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
| Nurse and Allied
Staffing
|
(8.8%)
|
(13.8%)
|
(25.3%)
|
(25.0%)
|
| Clinical Trials
Services
|
9.4%
|
(4.9%)
|
(15.6%) |
(12.4%) |
| Other Human
Capital
Management
Services |
3.7%
|
(4.2%)
|
(18.8%)
|
(12.3%)
|
| Physician Staffing |
N/A
|
N/A
|
N/A
|
(16.3%)
|
|
Company
Total
|
2.2%
(5.7%)
|
13.3%
(11.8%)
|
2.1%
(23.5%)
|
(14.8%)
N/A
|
The Company Total is Cross Country's reported
results with acquisitions (on the top line) and without
acquisitions (on the bottom line). As you can see, the
with-acquisitions revenue results are much better than
the without-acquisitions revenue results due to Cross
Country's acquisition of Medical Doctor Associates, a
major physician staffing company, in September 2008.
During Q1'09, Cross Country had a 2.1% growth
versus Q1'08 with this acquisition included in its
financial results, but had a 23.5% negative growth in its
older divisions for the first quarter of this year versus
the first quarter of last year. This negative growth was
most evident in the Nursing and Allied Staffing
segment of Cross Country, which is the largest
segment in terms of revenue for the company at 60%
of the quarter's revenue base. Cross Country indicated
that demand for its services decreased due to a weak
admission trend. In its 10-Q for the period ending
March 31, 2009, which was issued May 8, Cross
Country said, "Since the beginning of 2009, demand
for our travel nurse staffing services, as expressed by
the number of orders from our hospital and healthcare
facility customers, declined approximately 56%." It also
said, "Due to these economic and market factors, there
is the potential for the business environment for
nurses and allied staffing to weaken further during
2009." In its earnings release, Joe Boshart, president
and CEO of Cross Country, said, "Open orders for
travel nurses appear to have stabilized over the past
two months, but at levels that will likely lead to further
declines in FTE staffing volume over at least the next
two quarters if we do not see a pickup in demand from
current levels." Cross Country thinks that it will
increase market share in the Nursing and Allied
Staffing segment in 2009, a strong indication of market
weakness in general.
|
AMN Healthcare Services (AHS)
|
2008
versus
2007 |
Q4'08
versus
Q4'07 |
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
| Nursing and Allied
Staffing
|
5.2%
|
5.4%
|
(19.7%)
|
(21.0%)
|
| Locum Tenens Staffing
|
3.7%
|
-
|
(2.0%) |
(2.1%) |
| Physician Permanent
Placement |
-
|
(6.8%)
|
(17.4%)
|
(10.0%)
|
|
Company
Total
|
4.6%
|
3.5%
|
(15.0%) |
(15.5%) |
On February 15, 2008, AMN acquired Platinum Select
Staffing, a national travel allied staffing firm. Even with
revenue attributable to this transaction, AMN's Nursing
and Allied Staffing segment contracted 20% during
Q1'09 versus Q1'08, and total revenue was down 15%
for the same period. Worse yet, the sequential revenue
decline from Q4'08 to Q1'09 was 16%, a sharp
increase from the 6% sequential decline experienced
in Q4'08 versus Q3'08. AMN's revenue for the quarter
came in at $250M. With the directional weakness AMN
is experiencing and its statement in its earnings call
indicating a rapid deterioration in job orders for nurses
in Q1'09, AMN expects to experience a 20% decline in
Q2'09 revenue versus Q1'09 revenue. AMN states that
it is expanding market share in the nursing area due to
its having the largest selection of assignments, which
is also helping it to retain its existing working travelers.
The Locum Tenens Staffing segment turned in
negative growth in Q1'09 versus both Q1'08 and Q4'08
in keeping with the decreasing trend it has
experienced every quarter for the past year. The
Physician Permanent Placement segment of the
company switched from growing to decreasing
beginning in Q4'08, a trend that seems to be getting
worse based on the Q1'09 results. Company results
are a result of lower demand for services. Supply and
an inability to bring in international nurses as a result
of the current visa retrogression are also having a
negative effect.
|
On Assignment (ASGN)
|
2008
versus
2007 |
Q4'08
versus
Q4'07 |
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
| Healthcare Staffing
|
3.2%
|
(4.4%)
|
(29.2%)
|
(25.5%)
|
| Physician Staffing
|
19.6%
|
19.9%
|
5.7%
|
(6.4%)
|
| Life Sciences |
(3.8%)
|
(12.3%)
|
(22.1%)
|
(17.5%)
|
|
IT and Engineering
|
19.6%
|
3.8%
|
(30.3%) |
(25.5%) |
|
Company
Total
|
8.9%
|
(2.9%)
|
(23.4%) |
(20.7%) |
During Q1'09, On Assignment's revenue decreased
23.4% year-over-year versus Q1'08 as a result of lower
volume in its Healthcare Staffing and Life Sciences
segments as well as in its IT and Engineering
segment. Healthcare Staffing revenue was down
29.2% year-over-year and 25.5% from Q4'08 to Q1'09.
The Physician Staffing segment increased 5.7% year-
over-year but was down sequentially by 6.4%. The IT
and Engineering segment had a sharp decrease both
year-over-year and sequentially. The net effect is that
On Assignment had negative growth of 23% during the
first quarter versus last year and revenue was down
21% in Q1'09 versus Q4'08. On Assignment saw a
weakening in each month of the quarter in all
segments but believes that demand is stabilizing in all
segments other than nursing. On Assignment's
revenue in the second quarter of 2009 will be lower
than it was in the first quarter of 2009. On Assignment
sees the current business environment as being a
macroeconomic issue, with lower admissions and
demand for services in all segments. It is experiencing
a significant decline in open orders, fewer renewals
and a challenging environment.
|
Medical Staffing Network (MSNW.PK)
|
2008
versus
2007 |
Q4'08
versus
Q4'07 |
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
| Branch based per-diem
staffing
|
N/A
|
(27.5%)
|
(32.8%)
|
(12.7%)
|
| Allied Staffing
|
N/A
|
(17.5%)
|
(29.3%)
|
(14.9%)
|
| Travel Nurse Staffing |
N/A
|
(18.3%)
|
(30.9%)
|
(14.1%)
|
|
Company
Total
|
N/A
|
(20.6%)
|
(32.1%)
|
(13.2%)
|
MSN's revenue picture continues to get uglier and
uglier in all segments of its business. MSN continues
to be under volume pressure due to stagnant hospital
admissions, a weak economy and the tight credit
market. The acquisition of InteliStaf clouded reported
results by making them seem better than they were in
the first two quarters of 2008, but now it is clearly
visible how much MSN's business is being affected by
the macroeconomic environment. During Q1'09, 68%
of MSN's revenue was derived from the Branch-based
Per-diem Staffing segment, 18% was derived from the
Travel Nurse Staffing segment and 14% was derived
from the Allied Staffing segment. The Travel Nurse
Staffing segment of the business increased from 4%
to its current 18% of MSN's revenue due to the
acquisition of InteliStaf. All segments of the business
have been hit hard by the current economic
environment. Q2'09 will probably be worse rather than
better. MSN's financial condition weakened to the point
where MSN was delisted from NASDAQ. It is now on
the pink sheet listings. For the last few quarters, the
company has been closing down and consolidating
offices in an attempt to stay solvent. It cannot predict
when market conditions will improve.
Gross Margin
All companies have been taking steps to increase their
gross margins. Some have been more successful
than others have. See below:
Gross Margin Percentage
|
Cross Country (CCRN)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
|
Company
Total
|
26.2%
|
26.7%
|
26.6%
|
26.4%
|
25.7%
|
In Q1'09 Cross Country experienced a 0.5% increase
in gross margin versus Q1'08. However, during 2008
gross margin increased 1.9% versus 2007, and Cross
Country is continuing its trend of rising gross margin
since 2006. The acquisitions of MDA, Assent, AKOS
and Metropolitan Research have favorably impacted
Cross Country's gross margin. The Physician Staffing,
Clinical Trials Services and Other Human Capital
Management Services segments, which have higher
gross margins than the Nursing and Allied Staffing
segment, are increasing as a percentage of Cross
Country's business, affecting gross margin favorably.
Unfortunately, Cross Country does not break out gross
margin by segments in its quarterly and annual SEC
reporting.
|
AMN Healthcare Services (AHS)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
| Nursing and Allied Staffing
|
23.9%
|
24.5%
|
23.6%
|
23.6%
|
23.0%
|
| Locum Tenens Staffing
|
26.3%
|
26.0%
|
26.0% |
26.0% |
26.2% |
| Physician Permanent
Placement |
59.4%
|
61.3%
|
61.3%
|
58.7%
|
61.8%
|
|
Company
Total
|
26.0%
|
26.0%
|
25.7%
|
25.7%
|
25.6%
|
For the Nursing and Allied Staffing segment, AMN
experienced a decrease in gross margin of 1.0% in
Q1'09 versus the same period in 2008. Gross margin
in the Locum Tenens Staffing segment was up 0.3%
versus last year's Q1; in the Physician Permanent
Placement segment, during Q1'09, AMN had an
increase in gross margin of 2.5% versus the same
period last year. Overall, gross margin decreased
0.8% versus last year's first quarter. In its 10-Q for the
period ending March 31, 2009, AMN states, "The
decrease in gross margin mainly reflected a lower
revenue mix from the relatively high-margin business
line of international nursing and the more narrow
margins in the travel nurse business."
|
On Assignment (ASGN)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
| Healthcare Staffing
|
25.6%
|
26.4%
|
25.6%
|
26.3%
|
26.4%
|
| Physician Staffing
|
30.7%
|
30.7%
|
31.6% |
31.9% |
30.1% |
| Healthcare/Physician Staffing
Total |
27.3%
|
27.8%
|
27.5%
|
28.3%
|
27.8%
|
|
Life Sciences
|
33.6%
|
33.0%
|
34.2%
|
34.3%
|
31.9%
|
|
IT and Engineering
|
37.6%
|
37.8%
|
38.1%
|
37.9%
|
36.8%
|
|
Company
Total
|
32.3%
|
32.5%
|
32.6%
|
32.9%
|
31.7%
|
During the first quarter, On Assignment's growth
margin increased by 0.6% versus the same quarter in
2008. Also of note is that for Q1'09, gross margin was
up in the Healthcare Staffing and Physician Staffing
segments, slightly down in the Life Sciences segment,
and the same in the IT and Engineering segment
versus Q1'08. On Assignment has done an excellent
job of maintaining and growing its gross margin
percentages. All segments have exceptional gross
margin percentages.
|
Medical Staffing Network (MSNW.PK)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
|
Company
Total
|
24.9%
|
24.9%
|
25.3%
|
25.6%
|
24.9%
|
MSN has increased its gross margin by 0.8% in this
quarter versus the same quarter last year and by 0.8%
from 2007 to 2008. MSN attributes this to a continued
focus on gross profit margin expansion.
Sales General & Administrative
Expenses
Due to their contracting volume, all companies are
experiencing increases in their SG&A expenses as a
percentage of revenue. Keeping SG&A expenses in
line is always difficult in times when revenue is
contracting. Unfortunately, a higher SG&A as a
percentage of revenue during down times can turn into
higher SG&A as a percentage of revenue during good
times. SG&A expenses are not self-correcting and will
always tend to rise as a percentage of revenue unless
managed closely. See below:
Sales General & Administrative Expenses
Percentage
(Excludes Interest, Bad Debt, Depreciation and
Amortization)
|
Cross Country (CCRN)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
|
Company
Total
|
18.6%
|
18.8%
|
18.8%
|
19.0%
|
19.8%
|
Despite making numerous cutbacks in its staff, Cross
Country's SG&A expenses increased by 1.9% of
revenue in Q1'09 versus Q1'08, more than offsetting
the 0.5% percentage increase in its gross margin
during the same quarter. As mentioned last quarter,
during 2008 Cross Country's SG&A expenses
increased less as a percentage of revenue than gross
margin increased as a percentage of revenue (1.5%
SG&A increase during 2008 as compared to a 1.9%
increase in gross margin in 2008).
|
AMN Healthcare Services (AHS)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
| Nursing and Allied Staffing
|
17.4% Est.
|
17.7%
|
17.2%
|
17.5% Est.
|
18.2% Est.
|
| Locum Tenens Staffing
|
19.5% Est.
|
20.9%
|
18.8% |
18.9% Est. |
22.2% Est. |
| Physician Permanent
Placement |
35.4% Est.
|
32.6%
|
35.5%
|
35.8% Est.
|
33.8% Est.
|
|
Company
Total
|
18.9%
|
19.2%
|
18.4%
|
18.6%
|
20.1%
|
Throughout 2008, AMN tried to reduce its SG&A
expenses. For 2008, SG&A expenses increased 0.2%
versus 2007 due to the change in mix toward business
segments having higher SG&A expenses. Finally,
during Q4'08, AMN managed to reduce SG&A
expenses by 1.0% versus Q4'07. In its 8-K for 2008,
AMN noted that it began cost savings initiatives during
Q4'08. These were needed as revenue contracted in
the Q1'09 quarter due to the economic environment.
During Q1'09, SG&A rose by 1.3% versus Q1'08 as a
percentage of revenue.
|
On Assignment (ASGN)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
|
Company
Total
|
22.9%
|
22.5%
|
22.0%
|
23.4%
|
25.8%
|
On Assignment's SG&A expenses as a percentage of
revenue are higher than those of the other companies
noted. This is due mostly to its mix of business.
However, in Q1'09 On Assignment's SG&A expenses
increased by 2.2% of revenue compared to Q1'08. On
Assignment has trimmed SG&A expenses by a
significant amount but will probably have to trim more
unless there is a strong recovery starting in Q3'09.
|
Medical Staffing Network (MSNW.PK)
|
2008
Percentage |
Q2'08
Percentage |
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
|
Company
Total
|
20.3%
|
20.9%
|
19.6%
|
20.4%
|
21.6%
|
MSN continues to have very high SG&A expense levels.
In Q1'09, SG&A expenses are up on a year-over-year
basis by 1.4% versus last year. MSN has a long way to
go to get its SG&A expenses under control. With the
restructuring that MSN is going through, we hope that
MSN's SG&A expenses can revert to what we consider
more reasonable levels, which are several percentage
points below current performance. But this will require
cuts that until this time MSN management has not
shown a willingness to make, even with a continuing
contraction of its revenue.
Summary Commentary
Of note in the gross margin section is that all the public
companies had gross margins of 23% or more in
every segment during the first quarter. This is not an
accident; all the public companies are attempting to
increase their gross margins. Still, from an overall
viewpoint, the gross margin percentages for the public
companies noted above remain about 1.5% lower than
they were 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% to 1.5% in those segments
as gross margins return to historical norms.
The SG&A expenses of the public companies are
much too high, as evidenced above. SG&A expenses
still need to be cut over time to get back to where they
were prior to 2004, as SG&A is out of line with
historical percentages by 2% of revenue, generally
speaking. 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 even as high as 10% if gross margin and
SG&A are stringently managed.
The acquisition market is still sluggish in all
segments. Valuations for all public companies
decreased late last year, although they are up quite
nicely in the last two months. Credit is hard to come by,
even for the public companies, but appears to be
loosening slightly. Very few acquisitions are getting
done, and acquisition pricing is soft at this time. This is
a better time to buy than it is to sell if you have the
capital to do so. There is some risk that revenue will
continue to drop in future quarters, so transactions
have to be structured to account for this risk. It is also a
great time to do some exit planning so that you're
positioned properly in the future. At the very least, you
should know what your alternatives are and have a
contingency plan.
If you would like to confidentially discuss how we can
help you to take advantage of exit planning or
acquisition opportunities available at this time, please
contact either of us at the numbers below. 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 investment banking advisor and exit
planner to the healthcare staffing industry nationwide.
Since 1989 we've completed more than 35 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 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 clients to consider. We actively participate in the
Healthcare Staffing Summit, the American Staffing
Association (ASA), the New York Staffing Association
(NYSA) and the TechServe Alliance (formerly NACCB)
and have completed more than 115 multimillion-dollar
transactions.
If your company is out of business, please reply to this e-mail changing the subject line to "Out of Business."
Lyons Solutions, LLC
|
