Healthcare Staffing Update
August 12, 2009
Dear Healthcare Industry Executive:
This letter updates information we published on May
13, 2009, for the healthcare staffing industry. We will be
discussing the 2009 second-quarter performance of
the four largest healthcare staffing companies (AMN,
Cross Country, On Assignment and MSN), as well as
other pertinent information.
The Q2'09 revenue results below show a continuing
sad story of negative growth versus the same period in
2008 and versus Q1'09 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.
From what we hear from the private companies we
speak with, they are experiencing results similar to
what the public companies are experiencing, with few
exceptions. Revenue is way off versus last year.
Owners tell us in almost every conversation we have
regarding this subject that orders and placements are
hard to come by, although in the last few weeks we've
heard some encouraging news about the order rate
picking up from some companies. Very few companies
claim to be growing.
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 many
companies have shut down, and we believe that many
companies are holding on by their fingernails. A
number of companies will not be able to survive the
current market softness unless the situation changes
soon. We haven't hit bottom yet! I think we're going to
hit bottom soon, probably in the next two quarters, and
that the recovery will be slow once it begins.
The revenue results and other information that follow
show how each of the public companies is doing.
Revenue Change
|
Cross Country (CCRN)
|
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
| Nurse and Allied
Staffing
|
(25.3%)
|
(25.0%)
|
(40.8%)
|
(25.2%)
|
| Clinical Trials
Services
|
(15.6%)
|
(12.4%)
|
(22.1%)
|
(7.5%)
|
| Other Human
Capital
Management
Services |
(18.8%)
|
(12.3%)
|
(23.0%)
|
(7.4%)
|
| Physician Staffing |
N/A
|
(16.3%)
|
N/A
|
6.5%
|
|
Company
Total
|
2.1%
(23.5%) |
(14.8%)
N/A |
(12.8%)
(36.6%)
|
(15.0%)
(20.5%) |
The Company Total within the box above is Cross
Country's reported results with acquisitions included
(on the top line) and without acquisitions included (on
the bottom line). As you can see, the with-acquisitions
revenue results are much better than the without-
acquisitions revenue results. Cross Country acquired
Medical Doctor Associates, a major physician staffing
company, in September 2008. During Q2'09, Cross
Country had negative growth of 12.8% versus Q2'08
with this acquisition included in its financial results but
had a 36.6% negative growth in its older divisions for
the second quarter of this year versus the second
quarter of last year. This negative growth was most
evident in the Nursing and Allied Staffing segment of
Cross Country. Nursing and Allied Staffing is Cross
Country's largest segment in terms of revenue and
was 53% of the quarter's revenue base, down from
60% of the revenue base last quarter. Cross Country
continues to indicate that demand for its services has
decreased due to a weak admission trend, although
Cross Country also indicated that initial orders in early
July more than doubled initial orders in early June. We
doubt that the firmness in the order rate is sustainable
and believe that talks of stabilization are premature,
especially in the Travel Nursing portion of the company.
|
AMN Healthcare Services (AHS)
|
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
| Nursing and Allied
Staffing
|
(19.7%)
|
(21.0%)
|
(48.4%)
|
(32.2%)
|
| Locum Tenens Staffing
|
(2.0%)
|
(2.1%)
|
(5.7%)
|
5.8%
|
| Physician Permanent
Placement |
(17.4%)
|
(10.0%)
|
(34.0%)
|
(18.7%)
|
|
Company
Total
|
(15.0%)
|
(15.5%)
|
(36.3%)
|
(20.2%)
|
AMN's overall results are similar to Cross Country's
results without acquisitions. AMN's Nursing and Allied
segment contracted 48% during Q2'09 versus Q2'08
and is now down to 61% of total revenue. Total revenue
was down 36% for Q2'09 versus Q2'08. The total
sequential revenue decline from Q1'09 to Q2'09 was
20%, an increase from the 16% sequential decline
experienced in Q1'09 versus Q4'08. AMN's total
revenue continues to deteriorate. The Locum Tenens
Staffing segment, which is now 34% of total revenue,
experienced negative growth in Q2'09 versus Q2'08 but
experienced some growth on a quarter-to-quarter
basis. The Physician Permanent Placement segment
of the company showed increasing weakness versus
prior results. Company performance is a result of
lower demand for services.
|
On Assignment (ASGN)
|
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
| Healthcare Staffing
|
(29.2%)
|
(25.5%)
|
(49.3%)
|
(26.2%)
|
| Physician Staffing
|
5.7%
|
(6.4%)
|
6.9%
|
7.2%
|
| Life Sciences |
(22.1%)
|
(17.5%)
|
(29.2%)
|
(10.4%)
|
|
IT and Engineering
|
(30.3%)
|
(25.5%)
|
(42.3%)
|
(14.8%)
|
|
Company
Total
|
(23.4%)
|
(20.7%)
|
(34.8%)
|
(12.8%)
|
During Q2'09, On Assignment's revenue decreased
34.8% year over year versus Q2'08, 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 49.3% year over year and 26.2% from Q1'09
to Q2'09. The Physician Staffing segment increased
6.9% year over year and 7.2% sequentially. The IT and
Engineering segment had a sharp decrease both year
over year and sequentially. The net effect was that On
Assignment had negative growth of 35% during the
second quarter versus last year and revenue was
down 13% in Q2'09 versus Q1'09. On Assignment
sees the current business environment as being a
macroeconomic issue, with lower admissions and
demand for services in all segments except Physician
Staffing.
|
Medical Staffing Network (MSNW.PK)
|
Q1'09
versus
Q1'08 |
Q1'09
versus
Q4'08 |
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
| Branch based per-Diem
staffing
|
(32.8%)
|
(12.7%)
|
(37.3%)
|
(9.7%)
|
| Allied Staffing
|
(29.3%)
|
(14.9%)
|
(37.4%)
|
(5.0%)
|
| Travel Nurse Staffing |
(30.9%)
|
(14.1%)
|
(45.1%)
|
(20.9%)
|
|
Company
Total
|
(32.1%)
|
(13.2%)
|
(38.7%)
|
(11.1%)
|
MSN's revenue picture continues to deteriorate in all
segments of its business, but the rate of decrease
quarter to quarter has improved slightly. MSN
continues to be under severe volume pressure due to
stagnant hospital admissions and a weak economy.
The acquisition of InteliStaf no longer clouds reported
results, which show how much MSN's business is
being affected by the macroeconomic environment.
During Q2'09, 99.6% of MSN's revenue was derived
from temporary staffing and also during Q2'09, 69% of
MSN's revenue was derived from the Branch-based
per Diem Staffing segment, 16% was derived from the
Travel Nurse Staffing segment and 15% was derived
from the Allied Staffing segment. The Travel Nurse
Staffing segment of the business has increased from
4% to its current 16% of MSN's revenue due to the
acquisition of InteliStaf. All segments of the business
have been hit hard by the current economic
environment. We think that Q3'09 revenue will probably
be lower than Q2'09's revenue. Because of its weak
financial condition, 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. It cannot predict when market
conditions will improve.
Gross Margin
All the public companies have been taking steps to
increase their gross margin percentages. See below:
Gross Margin Percentage
|
Cross Country (CCRN)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
|
Company
Total
|
26.6%
|
26.4%
|
25.7%
|
27.4%
|
In Q2'09, Cross Country experienced a 0.7% increase
in gross margin versus Q2'08. 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)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
| Nursing and Allied Staffing
|
23.6%
|
23.6%
|
23.0%
|
24.9%
|
| Locum Tenens Staffing
|
26.0%
|
26.0%
|
26.2% |
26.2% |
| Physician Permanent
Placement |
61.3%
|
58.7%
|
61.8%
|
58.4%
|
|
Company
Total
|
25.7%
|
25.7%
|
25.6%
|
27.0%
|
For the Nursing and Allied Staffing segment, AMN
experienced an increase in gross margin of 0.5% in
Q2'09 versus the same period in 2008. Gross margin
in the Locum Tenens Staffing segment was up 0.3%
versus last year's Q2; in the Physician Permanent
Placement segment, during Q2'09, AMN had a
decrease in gross margin of 0.9% versus the same
period last year. Overall, gross margin increased 0.6%
versus last year's second quarter.
|
On Assignment (ASGN)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
| Healthcare Staffing
|
25.6%
|
26.3%
|
26.4%
|
28.5%
|
| Physician Staffing
|
31.6%
|
31.9%
|
30.1% |
32.5% |
| Healthcare/Physician Staffing
Total |
27.5%
|
28.3%
|
27.8%
|
30.5%
|
|
Life Sciences
|
34.2%
|
34.3%
|
31.9%
|
31.8%
|
|
IT and Engineering
|
38.1%
|
37.9%
|
36.8%
|
36.8%
|
|
Company
Total
|
32.6%
|
32.9%
|
31.7%
|
32.8%
|
During the second quarter, On Assignment's growth
margin increased by 0.3% versus the same quarter in
2008. Also of note is that for Q2'09, 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 Q1'09. On Assignment has done an excellent
job of maintaining and growing its gross margin
percentages. All On Assignment business segments
have exceptional gross margin percentages.
|
Medical Staffing Network (MSNW.PK)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
|
Company
Total
|
25.3%
|
25.6%
|
24.9%
|
26.7%
|
MSN increased its gross margin by 1.7% in Q2'09
versus the second quarter of 2008. MSN attributes this
improvement 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 downtimes 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)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
|
Company
Total
|
18.8%
|
19.0%
|
19.8%
|
22.0%
|
Despite making numerous cutbacks in its staff, Cross
Country's SG&A expenses increased by 3.2% of
revenue in Q2'09 versus Q2'08, more than offsetting
the 0.7% percentage increase in its gross margin
during the same quarter. As mentioned the last two
quarters, 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 compared
to a 1.9% increase in gross margin in 2008). However,
this quarter the reverse is true, and we hope this is not
going to continue in the long term.
|
AMN Healthcare Services (AHS)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
| Nursing and Allied Staffing
|
17.2%
|
17.5% Est.
|
18.2% Est.
|
18.8% Est.
|
| Locum Tenens Staffing
|
18.8%
|
18.9% Est.
|
22.2% Est. |
14.8% Est. |
| Physician Permanent
Placement |
35.5%
|
35.8% Est.
|
33.8% Est.
|
33.6% Est.
|
|
Company
Total
|
18.4%
|
18.6%
|
20.1%
|
19.0%
|
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
Q1'09 and Q2'09, due to the economic environment.
During Q2'09, SG&A decreased by 0.2% versus Q2'08
as a percentage of revenue.
|
On Assignment (ASGN)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
|
Company
Total
|
22.0%
|
23.4%
|
25.8%
|
29.4%
|
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 Q2'09, On Assignment's SG&A expenses
increased by 4.5% of revenue compared to Q2'08. On
Assignment has trimmed SG&A expenses by a
significant amount and is seeking to retain its core
staff but will probably have to trim more SG&A expense
going forward.
|
Medical Staffing Network (MSNW.PK)
|
Q3'08
Percentage |
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
|
Company
Total
|
19.6%
|
20.4%
|
21.6%
|
21.0%
|
MSN continues to have very high SG&A expense levels.
In Q2'09, SG&A expenses are up on a year-over-year
basis by 0.3% versus last year. MSN's SG&A expenses
are not in line with historical averages, which are
several percentage points below current performance.
MSN management is struggling to control SG&A
expenses due to the continuing contraction of its
revenue.
Summary Commentary
Of note in the gross margin section is that all the public
companies had gross margins of 24.9% or more in
every segment during the second quarter. This is not
an accident; all the public companies are attempting to
increase their gross margins and have been
successful doing this to the point that gross margin
has risen to near-historical norms during this quarter.
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. 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 nursing
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. None of the
public companies are seeking acquisitions. Very few
acquisitions are being done, and acquisition pricing
remains soft at this time. This is a better time to buy
than it is to sell if you have the capital to do so. If you
are a buyer, the risk that revenue will continue to drop
in future quarters is causing transactions to be
structured to account for this risk.
Now is 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 exit 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 we 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
|
