Healthcare Staffing Update
November 9, 2009
Dear Healthcare Industry Executive:
This letter updates information we published on
August 12, 2009, for the healthcare staffing industry.
We will be discussing the 2009 third-quarter
performance of the four largest healthcare staffing
companies (AMN, Cross Country, On Assignment and
MSN), as well as other pertinent information.
The Q3'09 revenue results below shows that negative
growth is continuing versus the same period in 2008
and versus Q2'09 for these companies. However, the
magnitude of the negative growth is slowing, in some
cases significantly. Most public companies discussed
an increase in demand within their earnings calls and
quarterly earnings reports. Most private companies are
experiencing similar results to what the public
companies are experiencing from demand and
revenue viewpoints, with few exceptions. Revenue is
significantly down versus last year but appears to be
bottoming.
Once we are through this contraction there should be
fewer competitors as many companies are holding on
by their fingernails. A number of companies will not be
able to survive the current market softness and slow
growth in the future unless the macroeconomic
situation changes soon. We expect that when the
recovery begins that it will be a slow, uneven recovery
over several years in which the stronger companies
will take market share from the weaker companies.
The revenue results and other information that follow
show how each of the public companies is doing.
Revenue Change
|
Cross Country (CCRN)
|
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
Q3'09
versus
Q3'08 |
Q3'09
versus
Q2'09 |
| Nurse and Allied
Staffing
|
(40.8%)
|
(25.2%)
|
(50.3%)
|
(18.5%)
|
| Clinical Trials
Services
|
(22.1%)
|
(7.5%)
|
(35.4%)
|
(15.3%)
|
| Other Human
Capital
Management
Services |
(23.0%)
|
(7.4%)
|
(26.3%)
|
(7.3%)
|
| Physician Staffing |
N/A
|
6.5%
|
N/A
|
(2.8%)
|
|
Company
Total
|
(12.8%)
(36.6%) |
(15.0%)
(20.5%) |
(27.2%)
(42.0%)
|
(13.0%)
(16.9%) |
Within the Company Total 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 although in both cases
revenue is down in Q3'09 both annually and since last
quarter. Cross Country acquired Medical Doctor
Associates, a major physician staffing company, in
September 2008. During Q3'09, Cross Country had
negative growth of 27.2% versus Q3'08 with this
acquisition included in its financial results but had a
42% negative growth in its older divisions for the third
quarter of this year versus the third quarter of last year.
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 49% of the quarter's
revenue base, down from 60% of the revenue base at
the end of Q1'09. Cross Country has seen an
improvement in the demand for its services and
indicates that since Mid-September its travel staffing
volume has increased 6% resulting from a significant
increase in demand since the spring, with current
open order levels for travel nurses six times the levels
seen prior to the summer. It expects revenue for Q4'09
to be down by 5% to 8% from Q3'09, which would
mean that its revenue is bottoming.
|
AMN Healthcare Services (AHS)
|
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
Q3'09
versus
Q3'08 |
Q3'09
versus
Q2'09 |
| Nursing and Allied
Staffing
|
(48.4%)
|
(32.2%)
|
(62.2%)
|
(26.1%)
|
| Locum Tenens Staffing
|
(5.7%)
|
5.8%
|
(11.5%)
|
(4.6%)
|
| Physician Permanent
Placement |
(34.0%)
|
(18.7%)
|
(30.6%)
|
(2.0%)
|
|
Company
Total
|
(36.3%)
|
(20.2%)
|
(47.2%)
|
(16.5%)
|
AMN's overall results are similar to but slightly more
negative than Cross Country's results without
acquisitions. AMN's Nursing and Allied segment
contracted 62% during Q3'09 versus Q3'08 and is
down to 49% of total revenue from 69% of revenue a
year ago. Total revenue was down 47% for Q3'09
versus Q3'08. The total sequential revenue decline
from Q2'09 to Q3'09 was 17%, a decrease from the
20% sequential decline experienced in Q2'09 versus
Q1'09. AMN's total revenue continues to deteriorate.
The Locum Tenens Staffing segment, which is now
34% of total revenue, experienced negative growth in
Q3'09 versus Q3'08 and on a quarter-to-quarter basis.
The Physician Permanent Placement segment of the
company showed decreasing weakness versus prior
results. Company performance is a result of lower
demand for services which AMN indicates has
stabilized as of the latter part of the third quarter, but
that remains at levels below what AMN has
experienced during the last ten years. AMN expects
revenue for Q4'09 to be down by 9% to 15% versus
Q3'09.
|
On Assignment (ASGN)
|
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
Q3'09
versus
Q3'08 |
Q3'09
versus
Q2'09 |
| Healthcare Staffing
|
(49.3%)
|
(26.2%)
|
(56.2%)
|
(9.6%)
|
| Physician Staffing
|
6.9%
|
7.2%
|
(4.3%)
|
(3.1%)
|
| Life Sciences |
(29.2%)
|
(10.4%)
|
(33.5%)
|
(0.7%)
|
|
IT and Engineering
|
(42.3%)
|
(14.8%)
|
(43.5%)
|
(2.0%)
|
|
Company
Total
|
(34.8%)
|
(12.8%)
|
(39.4%)
|
(3.7%)
|
During Q3'09, On Assignment's revenue decreased
39% year over year versus Q3'08, primarily 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 56% year over year and 10% from Q2'09 to
Q3'09. The Physician Staffing segment decreased 4%
year over year and 3% sequentially. The IT and
Engineering segment had a sharp decrease year over
year and a slight decrease sequentially. The net effect
was that On Assignment had negative growth of 39%
during the third quarter versus last year and revenue
was down 4% in Q3'09 versus Q2'09. Revenue is
stabilizing and On Assignment saw an increase in
professionals out on assignment at the end of the
quarter versus the beginning of the quarter. It expects
revenue for Q4'09 to be slightly lower than revenue for
Q3'09. During Q4'09, On Assignment expects some
divisions to grow, but expects nursing revenue to
decline due to the holidays/number of billable days in
the quarter.
|
Medical Staffing Network (MSNW.PK)
|
Q2'09
versus
Q2'08 |
Q2'09
versus
Q1'09 |
Q3'09
versus
Q3'08 |
Q3'09
versus
Q2'09 |
| Branch-based Per-diem Staffing
|
(37.3%)
|
(9.7%)
|
(39.2%)
|
(6.9%)
|
| Allied Staffing
|
(37.4%)
|
(5.0%)
|
(37.9%)
|
(4.4%)
|
| Travel Nurse Staffing |
(45.1%)
|
(20.9%)
|
(56.0%)
|
(27.6%)
|
|
Company
Total
|
(38.7%)
|
(11.1%)
|
(41.9%)
|
(10.0%)
|
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 Q3'09, 73% of MSN's revenue was derived from
the Branch-based per-diem Staffing segment, 13%
was derived from the Travel Nurse Staffing segment
and 14% was derived from the Allied Staffing segment.
All segments of the business have been hit hard by the
current economic environment. We think that Q4'09
revenue will be lower than Q3'09's revenue by similar
amounts. Because of its weak financial condition, MSN
was delisted from NASDAQ. It is now on the pink sheet
listings. For the last several quarters, the company has
been closing down and consolidating offices. It cannot
predict when market conditions will improve. MSN is
technically insolvent. Its liabilities and debt outweighs
its hard assets by a factor of about two to one and
during Q3'09 its long-term debt was reclassified from
a long-term to a current liability. It reports a
stockholders' deficit of about $17 Million, but that is
understated as MSN has $51 Million of goodwill and
intangible assets on its balance sheet. During Q3'09,
MSN wrote off $15 Million of goodwill and intangible
assets and reported a loss of approximately the same
amount. MSN's balance sheet continues to worsen
and we wonder if MSN can recover from its weakened
position without being sold or filing for bankruptcy
protection.
Gross Margin
All the public companies have been taking steps to
increase their gross margin percentages. See below:
Gross Margin Percentage
|
Cross Country (CCRN)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
|
Company
Total
|
26.4%
|
25.7%
|
27.4%
|
27.3%
|
In Q3'09, Cross Country experienced a 0.7% increase
in gross margin versus Q3'08. 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.
Cross Country, however, does not break out or discuss
gross margin by segments in its quarterly and annual
SEC reporting so it is difficult to know what Cross
Country's gross margin is by segment other than by
inference which would lead us to believe that its gross
margin by segment is similar to AMN's gross margin
by segment.
|
AMN Healthcare Services (AHS)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
| Nursing and Allied Staffing
|
23.6%
|
23.0%
|
24.9%
|
24.4%
|
| Locum Tenens Staffing
|
26.0%
|
26.2%
|
26.2% |
27.2% |
| Physician Permanent
Placement |
58.7%
|
61.8%
|
58.4%
|
57.7%
|
|
Company
Total
|
25.7%
|
25.6%
|
27.0%
|
27.4%
|
For the Nursing and Allied Staffing segment, AMN
experienced an increase in gross margin of 0.8% in
Q3'09 versus the same period in 2008. Gross margin
in the Locum Tenens Staffing segment was up 1.2%
versus last year's Q3; in the Physician Permanent
Placement segment, during Q3'09, AMN had a
decrease in gross margin of 3.6% versus the same
period last year. Overall, gross margin increased 1.7%
versus last year's third quarter due to Nursing and
Allied Staffing revenue being a much lower percentage
of AMN's revenue than in the previous year.
|
On Assignment (ASGN)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
| Healthcare Staffing
|
26.3%
|
26.4%
|
28.5%
|
29.9%
|
| Physician Staffing
|
31.9%
|
30.1%
|
32.5% |
33.4% |
| Healthcare/Physician Staffing
Total |
28.3%
|
27.8%
|
30.5%
|
31.7%
|
|
Life Sciences
|
34.3%
|
31.9%
|
31.8%
|
33.6%
|
|
IT and Engineering
|
37.9%
|
36.8%
|
36.8%
|
35.6%
|
|
Company
Total
|
32.9%
|
31.7%
|
32.8%
|
33.4%
|
During the third quarter, On Assignment's gross
margin increased by 0.8% versus the same quarter in
2008. Also of note is that for Q3'09, gross margin was
up in the Healthcare Staffing segment by 4.3% and in
the Physician Staffing segment by 1.8%, down in the
Life Sciences segment by 0.8%, and down in the IT
and Engineering segment by 2.5% versus Q3'09.
Overall, 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 which
makes On Assignment a good candidate to rapidly
increase profitability as revenue increases.
|
Medical Staffing Network (MSNW.PK)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
|
Company
Total
|
25.6%
|
24.9%
|
26.7%
|
27.7%
|
MSN increased its gross margin by 2.4% in Q3'09
versus the third quarter of 2008. MSN attributes this
improvement to a continued focus on gross profit
margin expansion and a recent favorable trend in the
actuarial valuations of its self-insurance accrued
liabilities.
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)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
|
Company
Total
|
19.0%
|
19.8%
|
22.0%
|
22.3%
|
Despite making numerous cutbacks in its staff, Cross
Country's SG&A expenses increased by 3.5% of
revenue in Q3'09 versus Q3'08, more than offsetting
the 0.7% percentage increase in its gross margin
during the quarter. How much of this a result of
restructuring charges is not known to us, but Cross
Country's SG&A expense is clearly too high.
|
AMN Healthcare Services (AHS)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
| Nursing and Allied Staffing
|
17.5% Est.
|
18.2% Est.
|
18.8% Est.
|
18.8% Est.
|
| Locum Tenens Staffing
|
18.9% Est.
|
22.2% Est.
|
14.8% Est. |
17.2% Est. |
| Physician Permanent
Placement |
35.8% Est.
|
33.8% Est.
|
33.6% Est.
|
32.3% Est.
|
|
Company
Total (excluding restructuring charges)
|
18.6%
|
20.1%
|
19.0%
|
22.2%
|
In its 8-K for 2008, AMN noted that it began cost-
savings initiatives during Q4'08. These were needed,
as revenue has contracted in Q1'09, Q2'09 and Q3'09,
due to the economic environment. Overall, SG&A
expenses are down 39% in the last year. Q3'09 SG&A
as a percentage of revenue is up 3.1% versus Q3'08
without taking in to consideration restructuring charges
which amount to another 3.7% of revenue. Because its
SG&A is so high, AMN lost money in Q3'09.
|
On Assignment (ASGN)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
|
Company
Total (including restructuring charges)
|
23.4%
|
25.8%
|
29.4%
|
26.1%
|
In Q2'09, On Assignment's SG&A expenses increased
by 4.5% of revenue compared to Q2'08 and in Q3'09,
On Assignment's SG&A expenses increased by 4.1%
of revenue compared to Q3'08. In both quarters, On
Assignment's SG&A expenses included restructuring
charges which are not broken out separately. Including
restructuring charges, On Assignment has a trimmed
SG&A expense by 28% in the last year in response to a
revenue drop of 39%. It is seeking to retain its core
staff and grow revenue per billable day starting in
Q4'09. On Assignment has remained profitable due to
its high gross margin, even with high SG&A expenses.
|
Medical Staffing Network (MSNW.PK)
|
Q4'08
Percentage |
Q1'09
Percentage |
Q2'09
Percentage |
Q3'09
Percentage |
|
Company
Total
|
20.4%
|
21.6%
|
21.0%
|
20.8%
|
MSN continues to have very high SG&A expense levels.
In Q3'09, SG&A expenses are up on a year-over-year
basis by 0.6% versus last year but are four percentage
points higher than historical SG&A expenses were.
MSN's SG&A expenses are not in line with historical
averages, which were four percentage points below
current SG&A percentages. MSN management is
struggling to control SG&A expenses due to the
continuing contraction of its revenue. Because MSN's
gross margin percentage has increased by such a
large amount, MSN was able to break even on an
operations basis (including interest expense) in Q3'09.
This is an improvement, but it may be too little, too late.
Summary Commentary
Of note in the gross margin section is that all the public
companies had gross margins of 24.4% or more in
every segment during the third quarter. All the public
companies are attempting to increase their gross
margins and have been successful doing this.
The SG&A expenses of the public companies are too
high, as explained above. SG&A expenses still need to
be cut over time to get back to where they were prior to
2004. Every public company's SG&A expenses are out
of line with historical percentages by 2% or more of
revenue.
The acquisition market is picking up. Several of the
public companies have been seeking acquisitions
beginning in this quarter. There are still few
acquisitions being done, but we have seen some
firming in acquisition pricing. It is still a better time to
buy than it is to sell if you have the capital to do so.
Even though revenue appears to be bottoming out, the
majority of transactions are being structured to account
for continued revenue and profitability 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
|
