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AMN Healthcare Services (AMN) Q4 2018 Earnings Conference Call Transcript

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AMN Healthcare Services (NYSE: AMN)
Q4 2018 Earnings Conference Call
Feb. 14, 2019 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the AMN Healthcare fourth-quarter 2018 earnings call. [Operator instructions] As a reminder, the conference is being recorded. I'll now turn the meeting over to our Host, Director of Investor Relations, Mr. Randy Reece.

Please go ahead, sir.

Randle Reece -- Director of Investor Relations

Good afternoon, everyone. Welcome to AMN Healthcare's fourth-quarter and full-year 2018 earnings call. A replay of this webcast will be available until February 28 at amnhealthcare.investorroom.com, following the conclusion of this call. Details for the audio replay of the conference call are in our earnings release issued this afternoon.

Various remarks we made during this call about future expectations, projections, plans, events or circumstances constitute forward-looking statements. These statements reflect the company's current believes based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements, as a result of various factors, including those identified in our most recent Form 10-K and subsequent filings with the SEC. The company does not intend to update the guidance or any forward-looking statements provided today prior to its next earnings release.

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This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at amnhealthcare.investorroom.com. On the call today are Susan Salka, chief executive officer; Brian Scott, chief financial officer; Ralph Henderson, president of professional services and staffing; and Dan White, president of workforce solutions. I will now turn the call over to Susan.

Susan Salka -- Chief Executive Officer

Thank you so much, Randy. Happy Valentine's Day, everyone, and welcome to our earnings call. Looking back at 2018, the themes at AMN were leadership and investments in our future, some of which created disruption. Throughout the year, we further evolved our leadership position within the industry.

That meant deepening our portfolio solutions with internal investments and acquisitions. In the marketplace, we competed very well. And for the year, AMN won new MSPs amounting to $230 million in gross spend under management. Our ability to serve clients with deep and diverse workforce solutions has continued into 2019, and we are thrilled to announce that Tenet Healthcare selected AMN to be the MSP provider for its regions in California and Arizona.

Tenet is one of the largest health systems in the United States, and we're seeking a total workforce solutions partner to achieve their patient care and efficiency goals. We will serve Tenet's contingent staffing needs from nursing, allied and interim executives. The gross spend under management for this contract is estimated at $100 million, and we are targeting a go-live at the end of April. We recently launched several other new MSP clients that signed contracts in 2018 and have more in implementation now.

Our delivery teams are poised to ensure that we meet or exceed the expectations of these new clients. Throughout the year, AMN continued to recruit strong, fresh leadership talent to our team to ensure we are evolving our strategy and delivery to clients. As we previously mentioned, we were fortunate to add Kelly Rakowski and Mark Hagan to our senior leadership team, bringing decades of broad healthcare and technology experience. Most recently, we welcomed Dr.

Cole Edmonson as our new chief clinical officer replacing Dr. Marcia Faller, who is retiring after a very successful 30-year career with AMN. I'd like to personally thank Marcia for all of her contributions and what she's done to help build this great organization and to build AMN's reputation as the quality leader in our industry. Dr.

Edmonson comes to us as a highly experienced and successful clinical, operational and strategic leader. He brings innovative insights on how we can best help our clients to achieve their patient care, talent and financial goals. In 2018, we launched important investments and change initiatives, particularly in our Locum Tenens and local staffing businesses. Through these necessary transformations, we also had setbacks.

In Locum Tenens, the problems are visible in our lower fourth-quarter revenue and first quarter outlook. Last spring, we converted our Locum Tenens business to a more scalable operating model, including new front and back-end system. The sales force-based system is powerful, but it has required several months of further configuration to make it easier to navigate. There were also issues with data migration from the three legacy systems.

During this time, the necessity of maintaining good customer service flowed our sales productivity. Performance was also hindered by the fact that we got a bit behind in hiring up new sales producers. We began the ramp-up hiring in the third quarter and have accelerated that into the new year. We expect to begin benefiting from these new hires' productivity in the second half of 2019.

Returning Locum Tenens to growth is our top priority. Locum is an attractive market that is of high strategic importance to our clients. Now let's review our latest results and outlook. Fourth-quarter consolidated revenue of $529 million grew 4% year over year.

Gross margin was 32.6% and adjusted EBITDA was $66 million or 12.6% of revenue. Our Nurse and Allied segment posted revenue of $329 million, which grew 2% year over year. Revenue for our largest business, Travel Nurse Staffing increased 2% year over year. Volume growth was relatively in line with our expectations.

The year-over-year headwinds of lower premium rate assignments lessened and the average build rate gap continued to improve. We knew that we would experience a difficult year-over-year comparison in Nursing for the first quarter of 2019 due to the exceptionally high utilization of winter assignments and a very strong flu season last year. That comparison has proven to be even more difficult due to a reduction in utilization at one of our top clients. This reduction has nothing to do with AMN's service delivery, but rather specific sensors dynamics for this client.

Excluding this impact, Nurse staffing revenue is expected to be up about 5% year over year in the first quarter. Allied staffing continued its winning streak with revenue growing 8% year over year as volume was strong again in the fourth quarter. Order growth has continued to improve and booking trends support continued mid-single-digit growth or better. For the Nurse and Allied segment overall, we expect revenue to be down about 1% to 2% year over year in the first quarter due to the client-specific reduction I mentioned.

Excluding this impact, this segment is expected to be up about 5%. In the Locum Tenens segment, fourth-quarter revenue of $82 million was 24% lower year over year. We had expected revenue to be down about 12% to 14%. On top of the higher-than-expected attrition and lower productivity we experienced, there were also greater-than-expected declines in the emergency medicine and hospital specialties as clients reduced demand.

Ralph and Brian can provide a bit more color for this segment in the Q&A, as I'm sure many of you'll have questions. On the bright side, our Locum's MSP business continues to add clients and is now 20% of segment revenue. We've seen stable client and clinician satisfaction scores indicating that we are taking care of our providers and clients despite the challenges. For the first quarter, Locum Tenens' revenue is expected to be down year over year similar to last quarter.

Fourth-quarter revenue in our Other Workforce Solutions segment was $117 million. Year-over-year growth was 48%, including our April acquisitions and up 1% organically. Our interim leadership and permanent placement businesses comprised about 50% of this segment's revenue. These business lines collectively grew 15% year over year with organic growth of 2%, driven by permanent placement and RPO.

Our mid-revenue cycle division produced $38 million of revenue in the fourth quarter. Medical coding revenue was slower than expected, offsetting growth in other specialties. Other Workforce Solutions also includes our VMS business, where revenue was down year over year in the fourth quarter. Transfer of VMS have improved as 2019 gets under way.

And finally, our workforce optimization and predictive analytics team at Avantas continues to make nice progress, with revenue up in the fourth quarter and growth continuing into 2019. Within our VMS and Avantas offerings, we continue to make important investments in mobile capabilities, analytics and serving additional healthcare settings. In the first quarter, total revenue for the Other Workforce Solutions segment is expected to be up about 40% overall, due primarily to the acquisitions we made last April. In January, we added an innovative new offering to our workforce solution with the acquisition of Silversheet.

Our clients have repeatedly told us that one of their biggest workforce pain point is credentialing for their permanent staff. This is the process of reviewing and verifying a clinician's education and training, work experience, licensure, board certifications and malpractice history. These are compliance verifications that need to be made upon hiring, but also on an ongoing basis while the clinician works at a facility. Silversheet has created a cloud-based platform that gives healthcare organizations a completely digital credentialing process, which makes this process easier, faster and more reliable.

We are eager to support Silversheet faster growth and to integrate them into our solution set. We remain intend every day on earning our place as our clients' strategic workforce partner. To do that, AMN must continue to add capabilities that address all aspects of healthcare labor, contingent and permanent. The people who make this future possible are the amazing AMN team members and healthcare professionals.

We owe them our deepest gratitude for their talents, enthusiasm and can-do attitude even in times when we ask them to do more. Now I will turn the call over to Brian for a financial update, after which Ralph and Dan will join us for the Q&A session.

Brian Scott -- Chief Financial Officer

Thank you, Susan. Good afternoon, everyone. The company's fourth-quarter revenue of $529 million was $5 million below the low end of our guidance range. As Susan noted earlier, this shortfall was driven mainly by lower-than-expected revenue from our Locum Tenens segment.

Gross margin for the quarter was consistent with our guidance at 32.6%, up 80 basis points from last year, but 60 basis points lower than the prior quarter. Our April acquisitions were accretive to our consolidated gross margin, representing 50 basis points of the year-over-year increase. The increase also resulted from a change to recognizing certain physician perm placement recruiting expenses and SG&A that were historically in cost of revenue. These increases were offset in part by our lower Locum Tenens gross margin.

On a sequential basis, the margin decrease was due mainly to an unfavorable revenue mix shift and a lower Locum's margin. SG&A expenses in the quarter totaled $111 million or 21% of revenue compared with 19.7% last year and 23% last quarter. The year-over-year increase in SG&A margin was primarily the result of the physician perm placement cost shift, a higher expense margin from our acquisitions and higher integration expenses, a sequential favorability related to the prior quarter legal reserve expense. Fourth-quarter Nurse and Allied segment revenue was $329 million, an increase of 2% from the prior year and 8% higher sequentially.

The sequential increase stemmed mainly from 5% higher volume plus a 2% increase in bill rate. Nurse and Allied gross margin of 27.2% was down about 20 basis points from prior year and prior quarter, though consistent with our expectations. Segment EBITDA margin was 13.8%, 120 basis points lower than the prior year. Fourth-quarter Locum Tenens' segment revenue of $82 million was 24% lower than the prior year and down 19% on a sequential basis with the declines driven by lower volume.

Locum Tenens' gross margin of 27.2% was down 210 basis points from the prior year and 120 basis points sequentially. Gross margin was negatively affected by unfavorable adjustments as the byproduct of the new system transition and an unfavorable specialty mix shift. Locum Tenens' adjusted EBITDA margin was 8.6%, down 290 basis points year over year, driven by the lower gross margin and negative operating leverage on the lower revenue. Fourth-quarter Other Workforce Solutions segment revenue of $117 million was up 48% year over year, but down 2% sequentially with growth coming mainly from the recent acquisitions.

Gross margin of 51.7% was lower by 140 basis points year over year and 70 basis points sequentially. The year-over-year variance was due mainly due to the acquisition of MedPartners, which has a lower gross margin in the segment average. On a consolidated basis, fourth-quarter adjusted EBITDA of $66 million was up 3% year over year. Adjusted EBITDA margin of 12.6% was flat year over year and down 20 basis points sequentially.

We reported net income of $36 million and diluted earnings per share of $0.74 in the fourth quarter. Adjusted earnings per share was $0.81 compared with $0.63 in the prior year quarter. Our income tax rate in the quarter was 29% and is expected to be similar in the first quarter. Interest expense and other in the quarter was a credit of $200,000, which includes a gain of $6 million on the fair market value adjustment of a minority investment.

Excluding this gain, net interest expense was $5.8 million. Cash provided by operations was $59 million for the quarter. For the full-year 2018, cash flow from operations totaled $227 million, up 41% year over year. Day sales outstanding at quarter end were 64 days, same as last quarter, compared with 63 days in the year ago quarter.

At December 31, cash and equivalents totaled $14 million. Capital expenditures in the fourth quarter were $11 million. During the quarter, we repurchased 271,000 shares of stock for $14 million. At quarter end, our total debt outstanding was $445 million and our leverage ratio was 1.7 times to one.

Now let's turn to first-quarter 2019 guidance. The company expects consolidated revenue of $520 million to $528 million. This represents top-line growth of 0% to 1% year over year. On an organic basis, revenue is expected to be down approximately 6%, due primarily to the lower Locum Tenens' revenue.

Nurse and Allied segment revenue is expected to be down about 1% to 2% from the prior year, with the Allied growth offset by lower nurse staffing revenue. Gross margin is projected to be approximately 33%, and SG&A expenses as a percentage of revenue are expected to be approximately 22.5%. Adjusted EBITDA margin is expected to be approximately 12%. As it relates to Silversheet, they will add less than $1 million of revenue this quarter.

Silversheet is still an early stage company, just starting to gain revenue momentum. We anticipate this business will reach breakeven sometime next year and will lower quarterly EPS by $0.01 to $0.02 and reduce EBITDA margin by 10 basis points throughout 2019. Other first-quarter 2019 estimates include the following: interest expense of $5.8 million, depreciation expense of $5 million, amortization expense of $6.8 million, stock-based compensation expense of $5.5 million, acquisition and integration-related expenses of about $2 million and diluted share count of 47.8 million shares. The stock compensation expense is higher in 2019 in part from certain plan changes, and we expect approximately 4.5 million per quarter for the remainder of the year.

Amortization expense is based on a preliminary valuation of amortizable intangible assets from the Silversheet acquisition. And now we'd like to open up the call for questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question from the line of Tobey Sommer with SunTrust. Please go ahead.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you very much. I was wondering if you could start up by may be telling us what the orders have been like in the Travel Nurse area, so I understand the quarter you're guiding for has a little bit of noise in it based on demand from a single client? And then if you could comment on pricing that would be great? Thanks.

Susan Salka -- Chief Executive Officer

Absolutely. I'll have Ralph jump in a little bit more on the specifics in the order trends, which have been quite honestly largely favorable and positive still, if you sort of take out that single large client. Regarding pricing, I mentioned that we've actually seen continued favorable mix trends, meaning that the gap that we -- in the headwind that we were feeling year over year in premium rate assignments has actually gone down. And so we would expect that will continue to see more favorable trends kind of going into the second quarter.

But those headwinds are lessening for us and actually lessening even more than we thought in the fourth quarter, but even more so if you look at the first quarter. So I'd say it's a very sort of stable pricing environment and we'll be lapping those headwinds very soon. So Ralph, maybe a little bit more color on the Travel Nurse order?

Ralph Henderson -- President of Professional Services and Staffing

Sure. In the fourth quarter, first, they were up versus prior year. The overall mix was actually a little unfavorable with more third-party orders or vendor neutral programs, where our fill rates are lower. But on a positive side, facilities with orders were up than facilities with TOA were up.

As we look forward into Q1, outside of the super client, we're going to see an increase in demand and orders there, and -- but probably a little lower on the -- because of the flu season, so not super robust growth there, probably the last components will look further forward as we continue to the implementation of Tenet and some of the other new deals, I would expect us to start having pretty significant lap over prior year in demand.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you. Ralph, just a follow-up on that. Does that imply that the orders for your MSP clients kind of on average is growing a little bit more slowly than those outside of your kind of direct exposure?

Ralph Henderson -- President of Professional Services and Staffing

Yes, oddly. Probably the first time we've seen that in a long time. It's a good question. But once you kind of exclude, kind of, one large client who's just down on a year-over-year basis and just to cover that may be a little bit more, certainly a client that which will continue to grow for many years, but this is just a seasonal issue for them.

I think they did not see as much enrollment in their system as they had expected and so were impacted by that. But otherwise, I think, it's pretty strong. The other third-party there kind of -- it's been an interesting mix there. And we -- often we look at that.

It's not as favorable demand for us. Our fill rates on those third-parties can be in the teens versus 50%, 60% on our MSPs, but it's been across the board. There's nothing really different about the way that looks to other than just an increase.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

OK. If I could ask a couple of questions about the Locum Tenens, then I'll get back in the queue. Susan, you mentioned sort of satisfaction scores holding steady for customers and for practitioners. But I was just curious you can't have revenue declines very long and still get fill rates, so the revenue churns could be keep challenging for your push into MSP.

Could you talk about that? And how you're kind of navigating this, hopefully, temporary phenomenon and meeting the needs of those clients if you need to?

Susan Salka -- Chief Executive Officer

Absolutely. And you're right, with MSPs clients, we have not only the opportunity to make the placement, but an obligation, and our No. 1 objective is always to get their position filled whether it be through us or through an affiliate vendor. And we're very fortunate to have a stronger panel of affiliate vendor partners that help us to hit those fill rates expectations of our clients.

And even internally, we have our best fill rates at our MSP clients. It's a priority that we make for our recruiters and account managers and quite honestly we even align incentives and other ways to make sure that everyone's focused on hitting those fill rates, which is why -- again they're much stronger for our MSP clients than they are. You could argue that we are filling our MSP jobs at the expense even perhaps some of our other direct or third-party, but that's how we expect to build the business longer term. And I think the more we have MSP base of business, it actually builds a stronger, more predictable, more recurring revenue type of client base.

And we're really pleased that I think I mentioned 20% of our Locum's revenue is now coming from MSP. So we're making good progress there. But as I said, it could be perhaps to the expense of having lower fill rates than what we think is possible that we know. We have lower fill rates, it was possible, at our direct and third-party orders.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

OK. Last question from me, and I'll get back in the queue. Could you talk about your plans to roll out new systems in the sort of the Nurse business...

Susan Salka -- Chief Executive Officer

Yes, thank you for the question. We will not be rolling out any new systems for the remainder of the year and, quite honestly, until we get stability and improved performance within our Locum's division. The vast majority of our technical and even sales operations resources are focused on improving the performance of the system for Locum. And then we will consider how we might, if ever, bring the Nursing business on to the same platform.

And we want to make sure we're actually getting the benefit out of the changes before we consider moving anything out. And I will say, whenever we bring them on to the system, it will be in a very different methodology in terms of how we implement in probably more phases as opposed to a big bang. I mentioned, Mark Hagan joining us last summer as our new Chief Information Officer. He inherited this problem, if you will, and has done a great job of really getting his arms around with his team.

But we also have to make sure we've got the right resources both third-party contractors and in-house talent to be able to not only fix these issues, which they're doing a good job of, but also as we contemplate doing anything more in the future. I probably told you more than you asked, but I want to make this clear that we're not ready to embark on anything big like this in the foreseeable future.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you very much.

Operator

Our next question from the line of A.J. Rice with Credit Suisse. Please go ahead.

Caleb Harris -- Credit Suisse -- Analyst

Hey, folks. This is Caleb Harris on for A.J. Just on the topic of the larger clients. It sounds like it's related to lower enrollment in the system.

So is there someway that could bleed in the future quarters as well? Or do we know that it's confined to Q1?

Susan Salka -- Chief Executive Officer

There was a certain amount of volume from this particular client that happens to spike in the first quarter, pretty much every year. We've had that history, and so -- and it falls off more going into the second quarter. Every year, it's a little bit different as to whether the volume continues more in the second quarter or falls off more sharply in, say, the April time frame. So there will be -- we would think some amount of reduction in the second quarter on a year-over-year basis from this client, but it would likely not be as much as what we saw in the first quarter because quite honestly their first quarter utilization last year was exceptionally high, which makes the gap just even that much more severe for the first quarter this year.

So it's -- the short answer, I suppose, is, yes, there will be some amount of shortfall we would expect going into the second quarter, but it would be at a lesser amount.

Caleb Harris -- Credit Suisse -- Analyst

Got it. That makes sense. And then on the -- you talked about the contract expansion last quarter, and that was going to roll out to areas like Allied and Locums throughout 2019. Can you talk about sort of the game plan at this point and any progress that you've made so far?

Dan White -- President of Workforce Solutions

Sure. Caleb, this is Dan. So for -- I think you're talking about not Tenet in this case, right?

Caleb Harris -- Credit Suisse -- Analyst

Correct, that's right.

Dan White -- President of Workforce Solutions

And for the implementation there, we're currently under way. We can see that really kind of hitting their regions, if you will, in the second half of the year, where we're going, sort of, a rolling implementation till about May, June. And so at that point, we'll probably start to pick up the volume at that point.

Caleb Harris -- Credit Suisse -- Analyst

OK. And then one last one, just sort of a broader topic. There's been a lot of consolidation in the industry, and I know it impacts some of your clients. Obviously, you have CHI and LifePoint and EmCare and big names like that, that have been involved in deals in the recent past.

And I don't know if you want to talk specifically about any clients, if not that's fine. But just in general, when those things happen, what are the dynamics around trying to continue those relationships or even expanding the relationships with the new partner of clients that are involved in deals?

Dan White -- President of Workforce Solutions

So Caleb, this is Dan, again. I'll take that one. Generally speaking, given the customer base that we have, consolidation actually benefits us and there's really two reasons for that. The first is that very often we have a pretty good footprint in those businesses that are combining.

So you gave CHI example. We have a good footprint on both sides of the common spirit house, if you will. But then even more importantly than that, we can offer to them more than just MSP services. We look at a total workforce management perspective and can throw different tools to -- at different challenges they may have.

So if they're struggling with perm resources or interim readership resources or MSP, depending on what their goals are, we can use a different solution to solve those problems.

Caleb Harris -- Credit Suisse -- Analyst

OK. Thanks.

Operator

Next question from the line of Jason Plagman with Jefferies. Please go ahead.

Jason Plagman -- Jefferies -- Analyst

So thanks for the questions. First one, on the Locum's business, you mentioned the aggressive hiring of new sales talent. Can you quantify that at all or kind of what the pace has been both in Q4 and now that we're into Q1?

Ralph Henderson -- President of Professional Services and Staffing

Yes. Jason, this is Ralph. The -- kind of the producer headcount in the business runs around 260 -- 250, 260, right, kind of as we entered into the Q4. We've hired about 50 people over the last few months.

And then we have another 25 coming in, in February, and we'll likely hire another 25 in March. So we're kind of nearing the 100 people in less than four quarters.

Jason Plagman -- Jefferies -- Analyst

OK. And so should we expect that to play some pressure on the gross margin throughout the year as those new folks ramp?

Ralph Henderson -- President of Professional Services and Staffing

Not on the margin, probably more on the SG&A. It's an investment prior to them being in production. The first year production for a new producer might be like $150,000 in gross margin, but that second year is what we're really hoping for, and that's about four times that. So that's why you're making investment.

But that's also why we can't commit to year-over-year improvement immediately, even though we're going to hire all those people. So that's going to take a little bit longer. There -- for keeping margins in place, right, we have -- our technology works really well and making sure that the packages and the bill rates are appropriately set for each assignment.

Brian Scott -- Chief Financial Officer

Yes, Jason, this is Brian. Just want to add that, that's reflected in the first quarter guidance that Locum's EBITDA margin will be compressed a bit for a period of time as we have those extra salespeople, and they'll really start to pay for themselves along the back half of the year. So that is already reflected in the guide. We will feel a little bit of that pressure for a bit, but we know it's absolutely critical to getting the growth back on the right trajectory.

Jason Plagman -- Jefferies -- Analyst

Yes. And just a follow-up on that. Given the long assignment times in the Locum's business, how long do you think it will take to get back to your prior run rate of $100 million plus of revenue a quarter? Is that achievable by the end of 2019, or is that more likely in 2020?

Brian Scott -- Chief Financial Officer

It will take longer than 2019. I wish we could say that they really happen that quickly. To Ralph's point, I mean, there is a -- from the hiring, there is still a bit of time before those new hires production as well. So as we think about how this year is going to play out, we've got a hill to climb here.

So our goal is to start to narrow the negative gap as we go through the year. But getting back up to that $100 million, it would be -- it would likely take a couple of years to get there unless we see a significant increase. We look back and we've had years where we've had some pretty significant increases in revenue. And with some of the contracts we're bringing in, there's a lot of -- there's ways we can get there, but we want to be able to demonstrate more progress before we really start to like chart the path of that number for you.

Jason Plagman -- Jefferies -- Analyst

OK. That makes sense. Thanks for the questions.

Operator

And we'll go to Mark Marcon with R.W. Baird. Please go ahead.

Mark Marcon -- Robert W. Baird and Company -- Analyst

Hi. Good afternoon. A couple of different questions. One, just with regard to the larger Travel Nurse client, can you talk a little bit more about, if there was any sort of change at all in terms of their behavior with regards to usage of travelers? Or is it just purely a function of their sensors?

Ralph Henderson -- President of Professional Services and Staffing

Yes, this is Ralph. I'll handle that one. Yes, they're very strategic user contingent labor. And so there is really no change in that behavior.

I think the lighter flu season and just a little bit of a sensors' decrease and combined them lower utilization.

Mark Marcon -- Robert W. Baird and Company -- Analyst

OK. And are they giving you signals that everything is, assuming that the sensors goes back to where it was, that their utilization would go up? Or has there been any sort of change in terms of their recruiting strategy for full-time nurses occurred?

Ralph Henderson -- President of Professional Services and Staffing

Yes, that's a good follow-up question. Our -- because our strategic user have certain percent of their workforce is desirable for them to be contingent labor, so for fluctuations just like this one to help them to adjust. And so there's really no change in their strategy there. All of our healthcare systems are working harder on hiring and retaining the staff that they have, but it's not -- that's not something that would have a material impact on their continued labor usage.

Mark Marcon -- Robert W. Baird and Company -- Analyst

OK, great. And then just going back on Locum's, do you -- like how far are we away from having the systems issues completely resolved? In other words, you gave us guidance for the coming quarter, but I'm just wondering how confident are you in terms of at least the year-over-year trend stabilizing?

Brian Scott -- Chief Financial Officer

Yes, this is Brian. I'll handle that one as well. We're doing new releases of the software about every two weeks now. I think we're on like our 16th release or something like that.

And we get a little bit of incremental improvement with each release. It's actually the point of putting in place these systems, as they're more configurable, you can change them, things aren't hardwired. So over time, the manual workarounds can be built into the technology, whereas with our old technology, you always had to work around it. It's all hardwired.

So while we're getting to some level of stabilization, we have tenured producers who are actually producing at levels they were prior to the implementation of the new system. So that gives us a sense that people are getting past that. But we'll constantly, I think, be making adjustments to the system that make it a better experience for our recruiters and for our candidates as well. So there -- it won't be a continuous evolution.

But I do think, I guess, maybe a question is more about parity. Versus three disparate systems, we're probably at parity, maybe not on the line item basis, but when you look at it in aggregate. And so it's just now that just becomes more about the users getting used to that system. And then those enhancements that we continue to make, it will make them more productive in the system.

Mark Marcon -- Robert W. Baird and Company -- Analyst

OK, great. And then with regards to Tenet, congratulations on that. How much are you already doing with them? And would you anticipate that you would end up filling your typical percentage of their total contracted value?

Dan White -- President of Workforce Solutions

So Mark, this is Dan, I'll take that one. So today, we serve these regions for Tenet through a third party. And as a result of that, our fill rates there are relatively small. So of that business, maybe $3 million, something like that, in total would be what we would consider sort of legacy or business that's there today.

And we also believe that our fill rates into this program are going to be at least as good as others. It happens that this particular client is quite good at running MSPs. And so they have a very knowledgeable user. The implementations are going incredibly well right now.

I don't see any reason why we couldn't get to a normal MSP fill rate for this particular client. The other benefit to this that I'll just add is that Susan mentioned in her opening remarks, we have quite a few services being driven through here, some of which are extremely profitable, interim exec, our international nursing business. We're running it on AMN technology. And so all of those things help us control the outcome much differently than perhaps another circumstance.

Brian Scott -- Chief Financial Officer

I'll get points, on the percent of the business we handle today, it's between 10% and 15% of their total spend today. So there is a lot of upside there.

Mark Marcon -- Robert W. Baird and Company -- Analyst

Great. And do you think it will take like two years to ramp up to kind of full utilization?

Dan White -- President of Workforce Solutions

A typical MSP is going to roll out over kind of an 18-ish-month period. So you'll definitely see the full utilization sometime next year.

Mark Marcon -- Robert W. Baird and Company -- Analyst

OK. Great. Thanks.

Operator

Our next question from the line of Jacob Johnson with Stephens Inc. please go ahead.

Jacob Johnson -- Stephens Inc. -- Analyst

Hey. Thanks for taking the question. Maybe if we can talk about the other segment, as you lapped the deals last year in April, how should we think about the organic growth outlook for the Other Workforce Solutions segment? It sounds like the leadership and search pieces are growing like 2% to 3%. Revenue cycle management was growing nicely.

But it sounds like it slowed in the fourth quarter, while VMS was a drag, but sounds like it's been improving. Can you just walk through the puts and takes there?

Susan Salka -- Chief Executive Officer

Sure. So if we look at interim leadership, you're right, it was on an organic basis relatively flat in the fourth quarter and close to that in the first quarter. They actually have really good underlying trends in the business in terms of new searches. And as we just mentioned, we're going to be adding new clients.

They already do some work with Tenet, but I believe we will be able to do more as well as some of the other new MSPs that we're bringing online. So we're feeling really good about that business, and something in the mid-single-digit range is probably a reasonable place to think about getting to, even though we're starting the year a bit behind that. physician perm also was very -- had very nice growth in the fourth quarter, up about 7%, and coming into the first quarter, less than that. They've been doing really well in winning the larger enterprise clients with large volume searches.

But on the flip side, they've seen softer demand in the single facility, small practices. So it sort of created a little bit of a headwind there, still growing. But they're again probably something in the mid-single digits is a reasonable place for that business regardless. And then our search business, if you sort of add up all of our total perm businesses, which would be physician perm firm and our search business, we're looking at sort of mid to low single-digit organic growth there once we sort of lap these acquisitions.

And then our mid-revenue cycle businesses had growth, but most of that was driven by the acquisition of MedPartners last year. Peak actually had a really fantastic 2018 and finished the year strong, but they did have one of their largest client who decided to bring more of their coders in-house. And so that's created a bit of a headwind in the first quarter for that division and business. But at the same time, they're adding many new clients.

In fact, they just signed a full outsourcing deal with the new clients. So we feel really good about the team there. MedPartners, which is part of that mid-revenue cycle, we're seeing really solid demand really across all categories, coding, case management, documentation improvement. We have had some disruption from the integration, which you would expect.

But layered on top of that, you might recall, we had a leadership absence due to a variety of factors. And so we're probably feeling a little bit more pain from that, and we are doing with -- shoring that up at the moment. But the market is good. I guess, the main message in mid-revenue cycle, the market is good, we see plenty of opportunity, and we're working to organize our two brands to really make sure that we're getting the synergies out of the opportunity there.

So is that helpful?

Jacob Johnson -- Stephens Inc. -- Analyst

Yes, very much. And then on margins, does the Locum disruption changed the goal for 14% EBITDA margin run rates at all? Or does it just maybe push it out a little bit or not at all?

Brian Scott -- Chief Financial Officer

This is Brian. No, the long-term answer is no. There's no change in our view toward achieving that with the businesses that we have. To your point, the timing, we've already said, would be pushed out.

And clearly, with the way we're coming with Locum, that is a drag to that. But the long-term strategy and the way we're going to get there has not changed.

Jacob Johnson -- Stephens Inc. -- Analyst

Got it. On then last one from me. Susan, I think you have a new workforce institute with Kaiser. If you'd like to -- what's the longer-term goal of this?

Susan Salka -- Chief Executive Officer

Yes. Thank you for mentioning that, and this is really in alignment with our commitment to innovation and helping to create new solutions that are going to benefit not just the Kaiser organization, but quite honestly, the healthcare community at large. And Kaiser being so innovative and progressive themselves, they have an innovation Institute. And so we're going to be collaborating on workforce-specific innovation ideas to help ensure that we're training the right clinicians not for now, but also for the future as healthcare continues to change, but then also looking at some things that could create more efficiency in the workforce.

So we've made a commitment to them over the next five years with our contract that we will be working alongside them. So initially it's going to be focused on some areas of training and upskilling in particular categories where there are the most severe shortages of nurses. But that will evolve over time. And we're just really excited and appreciative to -- that we're going to work with them.

We're working with other clients too, by the way, on some really interesting innovative things. They're not the only ones. But they are a really great example of how we can both put some skin in the game to develop some innovative new things that will benefit the overall industry.

Jacob Johnson -- Stephens Inc. -- Analyst

Great. Thanks for taking the questions.

Susan Salka -- Chief Executive Officer

Thank you.

Operator

And we'll go next to Jeff Silber with BMO Capital Markets. Please go ahead.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Thank you so much. I just want to go back to the Locum business for a second. Unfortunately, I guess, this segment has really been underperforming in the market for some time. I realize you're going to be ramping up some of your internal hiring.

Hopefully, that will help. Has the competition changed? Is there something else going on? Or do you really think that ramping up your internal hiring, you'll be able to solve some of the issues?

Dan White -- President of Workforce Solutions

Yes. I mean, it is a super-competitive marketplace. So if you're slowed down in the slightest, with very small percentage of MSP, that's just 20% now, but it's still relative to our other businesses a small percent. So each order has a lot of competition on it.

And if recruiters get slowed down at all, then somebody else fills it. So that's just the nature of the business and the problem why we need to get the people up to speed on the system and our staffing levels up. Some sort of other change in the industry, I -- well, I'll give you a couple of specialties that are -- have been a little slower growth. One is the emergency room medicine, that shift to urgent care has created a demand decreases -- significant demand increases there.

Hospitalist, a little bit of, I think, primary care doctors want to take back over those shifts. And also there's less movement in the physician management company. So hospital volumes are down, gosh, close to 30% year over year. Demand for hospitals is down 30% year over year.

So those are the big changes. They are not competitive ones. They're actually just market changes.

Jeffrey Silber -- BMO Capital Markets -- Analyst

So you think that the other companies in the space are facing at least the latter issues that you mentioned as well?

Ralph Henderson -- President of Professional Services and Staffing

Yes, if they are in those specialties. There are some that are not. And I talked to one this week that doesn't any hospitalist. And of course, they're feeling pretty good about their year.

But yes, if they are like us or they service those specialties, they would see similar trends. Now they would not have the disruption factor, and they're probably faster, right, than we are getting that candidate on the job order. And so that's why we're spending a lot of time on this call talking about how we're going to get there.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Got it. And I know this is sometimes difficult to quantify, but did you quantify or can you quantify what the flu benefit was for your company last year and what the headwind you think will be this year?

Brian Scott -- Chief Financial Officer

Sure. The -- for the first quarter last year, it was probably somewhere in the $10 million range, when you think across the Travel Nurse extensions and some additional volume along with some rapid response demand that we had across a couple of our brands. So normally, if there -- if it's just a normal season of flu, we don't really talk a lot about it. We don't see an incremental utilization or really a decline too much.

Last year was definitely an anomaly with such a significant amount of flu. So that was part of the headwind that we've talked about that we knew we would face. And so it's -- this year, with it being even weaker, I don't mean necessarily as weakened demand, but it certainly hasn't helped us in any way.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Got it. And forgive me if I missed this. Was there any labor disruption revenue in the fourth quarter or you're expecting any in the first quarter?

OK. Great. Thanks so much.

Operator

And we'll go next to Mitra Ramgopal with Sidoti & Company. Please go ahead.

Mitra Ramgopal -- Sidoti and Company -- Analyst

Yes. Hi. Good afternoon and thanks for taking the questions. Just wanted to follow up on the Tenet MSP business.

And if it's -- the arrangement is only for nursing, or does it also include Locum's Allied, similar to what you might have done with Kaiser earlier?

Susan Salka -- Chief Executive Officer

The Tenet agreement includes all forms of nursing, which would be travel nursing, local per dime nursing and international nursing. And then it includes Allied as well and inter -- I'm sorry, interim leadership.

Mitra Ramgopal -- Sidoti and Company -- Analyst

OK, great. And are you having increasing conversations with other MSP clients as it relates to more full-service arrangements?

Ralph Henderson -- President of Professional Services and Staffing

So it's interesting you say that. Maybe I'll give you a little bit more color on Q4 and Q1 pipeline. So Q4, I think we mentioned in press release that we finished the quarter at about a little over $65 million in revenue -- I mean, in gross spend, excuse me, making it about $230 million for the year. If you were to look at that $230 billion and break it down, about $75 million of that $230 million is brand new customers, never had MSP before, about $95 million of that were competitive wins, and then the rest was expansion into our existing base.

And so hopefully, that addresses the new and competitive. I'm thrilled that there is still continuing to be a brand new opportunity out there, and we're seeing that in our Q1 pipeline as well. We did mention Tenet already. At the same time, we've signed a couple of others.

So we've already signed over $150 million in gross spend for the quarter, and we have really robust set of deals that are in contracting right now as well. So we feel very strongly about moving into that quarter. About one-third of the revenue -- or gross spend that has been signed already is Locum-specific. Back to the question about, do we have places and room to grow, that clearly is a terrific advantage as well.

So feeling really strong about our ability to compete.

Mitra Ramgopal -- Sidoti and Company -- Analyst

OK. No, that's great. Another quick question on the workforce solution side. Given the different businesses you have there, I was just wondering if right now in terms of have you got to implement an ERP system for Locum? Is that something you would have to do down the road for workforce?

Landry Seedig -- Division President of Travel Nursing

No, Mitra. No. Again, we've always said we have different business lines, and they are on, in some cases, different systems. So Peak and MedPartners, for example, are on different system bill.

They will be combining onto under one, the MedPartners system. But that's a system they have been working on for years. They've proven it works really well. So that's a very small lift.

The interim business as well, they'll be migrating on to one common platform, but it's not the same one that Locum's has moved on to. It's been built for the interim business. And so we feel really good about that migration as well. We've already done it for the First String, and we'll be doing it for [Inaudible] for today as well.

So we are not looking to get every single business line on to one system. There's other ways that we can capture client data. We want to make sure we're using the right system for the right business line. So there's no major lifts going on in that segment.

Mitra Ramgopal -- Sidoti and Company -- Analyst

Great. Thanks again for taking the question.

Operator

And we have our next question from Bill Sutherland with The Benchmark Company. Please go ahead.

Bill Sutherland -- The Benchmark Company -- Analyst

Hi. I really just have one or two left here. In Other Workforce Solutions, I wonder if we could step back just a little bit, think about the growth potential of most important elements over -- more of a one to two-year timeframe. It seems like there's a little back and forth with almost each piece of it.

And if you could just maybe, Susan, characterize a little bit longer view for that group. Thanks.

Susan Salka -- Chief Executive Officer

Sure, sure. And I think some of the growth rates I referred to were more for 2019 and sort of where we would expect or hope to be toward the end of 2019. When you think about the perm placement businesses, they've historically been more volatile markets, not just for us, but for anyone who is in that business. And so we're usually more conservative and suggest that something in the mid-single-digit growth range and then the sort of 5% range is probably a reasonable place to be.

Now of course, we're always trying to do better. But considering those businesses are usually running 20% to 25% EBITDA margin, that's still a really good leverage on a 5% top-line growth. Interim leadership should really be more than that. I would say more 5% to 10% is a good range.

A lot depends upon just generally where the market is, where the economy is, will we see continued shortages across all leadership categories. And we have a great team there. We have different teams that are right now kind of focused in different areas, and we're going to be trying to pull them together a bit more to get more organized and more cohesive in our go-to-market strategy. And I think that will also help create more momentum there, because as you noticed, we've been a bit flat there.

But we're very optimistic. And so again, I think something high single digits is very reasonable there. Again, higher margins than our traditional staffing business is not necessarily 20% to 25%, but they can be high-teens, for sure. And then mid-revenue cycle, I think similarly, we should -- it's still a very much -- in some cases, an emerging industry case management and some of the other faster growing categories -- I think coding in particular is probably slower growing, low single digits.

But because of the higher growth in case management and other areas, you're probably looking at something more mid- to upper single digits. So hopefully, that's helpful for you to kind of piece that together. VMS, we think has probably similar to our MSP businesses, nurse staffing businesses, they tend to have sort of ride along with how the Nurse and Allied staffing businesses are growing and how the market is growing. So you're probably looking at a mid- to upper single-digit growth there, if that's where the staffing market grows.

Bill Sutherland -- The Benchmark Company -- Analyst

That's helpful. Thank you. And just curious on Tenet. Was that a takeaway, that business?

Susan Salka -- Chief Executive Officer

See we're working with another provider. In fact, part of their -- many of their regions are still with that other provider, and they just decided they wanted to make a change due to some of the service capabilities that we have available.

Bill Sutherland -- The Benchmark Company -- Analyst

You think it probably plays to your strengths certainly in those markets. Do you think you have the opportunity for other sectors of Tenet?

Susan Salka -- Chief Executive Officer

Well, our first focus is to exceed their expectations in the markets that we've just taken on, and we feel very confident in those markets. As you say, we have a very proven track record, have been able to deliver and get these things ramped up quickly. So we want to be successful there first. But yes, of course, we always believe we have opportunity to add on new clients and expand our existing clients.

Bill Sutherland -- The Benchmark Company -- Analyst

Understood. Thanks so much.

Susan Salka -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] And we'll go to Tobey Sommer with SunTrust. Your line is open.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Thank you. If I could ask you a question on the MSP front across your lines of business. What trends are you seeing between kind of vendor-neutral as well as, sort of your model where you provide the service as well, both in the existing business and maybe new things coming to market. Is there a tendency for either one of those categories to win more frequently?

Dan White -- President of Workforce Solutions

So this is Dan. I'll answer that one. The choice between those tends to be a little bit of kind of a religious discussion, to be honest. But the trends for me that are probably more important to you is that the larger the system, the more likely it is that they're going to take on a program that has a very strong recruitment component to it.

And that's specifically, because it makes it a lot more predictable candidly what the outcome is going to be. When you combine that with our ability to manage the MSP extremely well, we have a vendor-neutral capability in-house, and so we certainly understand how to do that. The combination of those two things is very compelling, especially to a large system that wants skin in the game. And so typically, back to the consolidation question and things like that, we see, the bigger they get, the more it is in our wheelhouse.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Right. Thanks. Just a quick numerical question for Brian. Do you have a sense for the tax rate this year?

Brian Scott -- Chief Financial Officer

29%. I mentioned that would be rate in the first quarter, and it will likely hold to that rate in the year.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

OK. Is that a good long-term rate or you're expecting a variation moving forward that you can anticipate at this time?

Brian Scott -- Chief Financial Officer

I would use that as the long-term rate.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

OK. And then last question from me. Susan, you just had the quarter here and said your focus -- top focus is improving internal operations in Locum and Tenet business. But also can't you make a small acquisition? Should we think that when we anticipate what your M&A news might be over the next few quarters that it would be kind of singularly focused on Other Workforce Solutions at this point and not into the staffing businesses? Or is my assumption misplaced?

Susan Salka -- Chief Executive Officer

I think, yes on Workforce Solutions. We've made it clear that we're always looking for additional new solutions to help our clients. But there are few and far between, which is why you haven't seen us do a lot. And even with Silversheet, while it's very innovative and very strategic, it's still relatively small.

When we think about other staffing acquisitions, I would say Locum's is not an area that we would be looking at right now, because we obviously want to get our own house in order and have a strong platform to build upon. Allied might be an area we would be interested in. As you can tell, we've got a lot of good growth going on within Allied. We have a very strong team and leader overseeing that business.

And quite honestly, there's still a lot more opportunity. It's a very fragmented part of the market. We are #1 in Allied, and yet we're still a relatively small piece of the overall puzzle. And so that's just one category.

If I could choose one, it would probably be at the top of my list within staffing.

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Perfect. Thank you very much.

Operator

And our last question will be from Mark Marcon with R.W. Baird. Please go ahead.

Mark Marcon -- Robert W. Baird and Company -- Analyst

A couple of quick detailed questions. The corporate expenses, how should we think about, the those unallocated on a go-forward basis?

Brian Scott -- Chief Financial Officer

It's right around 2.5% to revenue for now.

Mark Marcon -- Robert W. Baird and Company -- Analyst

OK. Great. And then from a -- the OWS, just in terms of just consolidated organic growth rate, as we anniversary the acquisition, how should we -- Susan, you went through the details. But on a consolidated basis, how would that come out?

Brian Scott -- Chief Financial Officer

For the Other Workforce Solutions?

Mark Marcon -- Robert W. Baird and Company -- Analyst

Yes.

Brian Scott -- Chief Financial Officer

Yes. So the -- as you're thinking about through the year?

Mark Marcon -- Robert W. Baird and Company -- Analyst

Right.

Brian Scott -- Chief Financial Officer

Yes. So the -- as Susan mentioned, the first quarter really if you -- with the first -- with the acquisition still in there, ex that, we're pretty flat in the first quarter. We were 1% up in the fourth quarter, pretty flat in the first quarter. And as we get traction on some of the things that Susan described, as we move into the back half of the year, I think we can get back into the mid-single digits.

So just track that up from where we are to that level

Mark Marcon -- Robert W. Baird and Company -- Analyst

And then from a capital allocation perspective, how should we think about that and in particular buybacks and flexibility that you have with the -- on the balance sheet?

Brian Scott -- Chief Financial Officer

Yes, this is Brian again. There's I think no real change, as Susan talked, we are still evaluating acquisition opportunities and we have plenty of balance sheet capacity to do that. But in the meantime, as we generate free cash flow, we will continue to look at both share repurchases and debt reduction. We've got still over $100 million drawn on our revolver.

So if we have extra cash on the balance sheet, we will use that to pay down debt. So I think we're continuing to be opportunistic. We still have the capacity left on our share repurchase authorization, and you probably see similar activity that you've seen over the last couple of quarters.

Mark Marcon -- Robert W. Baird and Company -- Analyst

Great. Thanks.

Operator

And I'll turn it back to our speakers for any closing comments.

Susan Salka -- Chief Executive Officer

Great. Thank you, everyone, for joining us today and certainly your continued interest in AMN. I do want to give one last shot out to the Silversheet team. We are very, very excited to have you joining the AMN family.

I'm certainly impressed with what you've built and created today, but also, everyone is excited to work with you to help take things to the next level. And I know our clients are also very excited as we've already begun to introduce your capabilities to some of them. So thank you for joining AMN, and we will be updating you all on our progress on our next earnings call.

Operator

[Operator signoff]

Duration: 64 minutes

Call Participants:

Randle Reece -- Director of Investor Relations

Susan Salka -- Chief Executive Officer

Brian Scott -- Chief Financial Officer

Tobey Sommer -- SunTrust Robinson Humphrey -- Analyst

Ralph Henderson -- President of Professional Services and Staffing

Caleb Harris -- Credit Suisse -- Analyst

Dan White -- President of Workforce Solutions

Jason Plagman -- Jefferies -- Analyst

Mark Marcon -- Robert W. Baird and Company -- Analyst

Jacob Johnson -- Stephens Inc. -- Analyst

Jeffrey Silber -- BMO Capital Markets -- Analyst

Mitra Ramgopal -- Sidoti and Company -- Analyst

Landry Seedig -- Division President of Travel Nursing

Bill Sutherland -- The Benchmark Company -- Analyst

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