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AMN Healthcare Services, Inc.  (NYSE:AMN)
Q2 2019 Earnings Call
Aug. 06, 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 AMN Healthcare Second Quarter 2019 Earnings Call. [Operator Instructions]

I would now like to turn the call over to our host Randle Reece, Director of Investor Relations. Please go ahead.

Randle Reece -- Director of Investor Relations

Good afternoon, everyone. Welcome to AMN Healthcare's second quarter 2019 earnings call. The replay of this webcast will be available until August 20th 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 make during this call about future expectations, projections, plans, events or circumstances constitute forward-looking statements. These statements reflect the company's current beliefs 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. 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; Kelly Rakowski, President of Leadership and Search; Ralph Henderson, President of Professional Services and Staffing; and Dan White, President of Workforce Solutions.

I'll now turn the call over to Susan.

Susan Salka -- Chief Executive Officer

Thank you so much, Randy. As we head into the second half of the year, we are very pleased to share good news with you regarding AMN's performance and the positive impact being made by our team members all across the country.

Our financial results exceeded our guidance for the quarter, driven by strength in Nurse and Allied, although several of our businesses also beat expectations, and we're excited about the early contributions from our latest acquisition Advanced Medical, who joined the AMN family in mid-June. We are seeing the union of Advanced and AMN pay off even at this early stage, the Advance team is doing a wonderful job delivering to their clients and expanding business across all of the markets they serve. Their school-based therapy solutions continue to perform very well and are poised to achieve or exceed the growth we expected for the upcoming school year. In addition, the infusion of Travel Nurse and Allied orders from AMN MSPs, coupled with their highly capable recruiters has enabled the team to help AMN serve these clients during this time of high demand.

This was an ideal time for AMN to bring on the expertise of the Advanced team. In addition to their performance, I've been very impressed and inspired by their enthusiasm for community service and harnessing our greater resources to make a positive impact. As we think about our market environment today, we are very optimistic. Demand across most of our businesses is strong, and in several cases, showing signs of increasing need for AMN's expertise. Competition for skilled clinical talent is intense and staffing demand is even higher than it was last quarter across nearly all of our divisions.

Turnover and vacancies throughout healthcare remain at record levels, and labor tension continues as many clinicians are frustrated by being asked to cover higher-than-usual workloads. Consolidation and increasing complexity in managing healthcare labor drives demand for more comprehensive Workforce Solutions and pushes AMN to continuously enhance our capabilities. This is most visible in our MSP-related business, where we had another quarter of double-digit revenue growth. The need for outsource staffing and workforce optimization is stronger than we have ever seen, and with AMN's successful track record and significant delivery capabilities, we continue to win new clients as well as expand existing relationships. We assigned several new and expanded MSP contracts this year, which we expect to add nearly 200 million of annualized growth spend under management at maturity.

Now let's review our latest results and outlook. Second quarter consolidated revenue of $535 million was our second highest on record. Gross margin was 33.5% and adjusted EBITDA was $67 million or 12.5% of revenue. Our Nurse and Allied segment posted revenue of $332 million flat year-over-year, which was better than guidance due to higher labor disruption revenue and $5 million from the Advanced acquisition.

Revenue for our largest business Travel Nurse Staffing grew 2% year-over-year on an organic basis. Growth was driven by volume with average bill rates relatively flat on a year-over-year basis.

Demand for Travel Nurses continue to grow since we last shared our performance in early May. Today, demand for Travel Nurses is more than 20% higher than prior year. And the growth is in all types of clients, including our MSP clients, direct and third-party. Adding to our confidence is the fact that we have begun to receive the seasonal winter needs for assignments, starting in the fourth and the first quarters.

In those cases, clients are indicating their contingent staffing needs in the future will be greater than or close to same as last year. As we look forward to the third quarter, we are beginning to see pricing improve with our revenue per day expected to be above prior year. This is a very good sign that the higher levels of demand are also making way for some positive movement in pricing, which allows us to increase pay rates to attract and convert candidates.

Allied staffing remained exceptionally strong even as comps got tougher in the second quarter. This team is really firing on all cylinders and we were excited to see 9% organic revenue growth in the second quarter. The greatest increase is in the imaging, respiratory and laboratory specialties, which is very helpful since the availability of this talent is slightly more accessible than in therapy. Client needs are very robust and we foresee solid growth continuing in this division. As we look to the third quarter for the Nurse and Allied segment, we expect revenue to be up 16% to 18% year-over-year, including a full quarter from the addition of Advanced with organic growth in the mid-single digits.

In the Locum Tenens segment, second quarter revenue was in line with our expectations at $82 million, although still below prior year, we continue to make steady progress after our process and technology changes. Our new hiring and training programs have gone well, in fact in recent weeks our newer recruiters contributed 16% to placement activity and our tenured staff is nearly reaching the productivity levels that we had a year ago.

For the third quarter, Locum Tenens' revenue looks to be flat to slightly up sequentially, which would result in an improving year-over-year comparison. We believe that Locum's revenue will hit year-over-year growth by mid to late fourth quarter. Second quarter revenue in our Other Workforce Solutions segment was $121 million, showing year-over-year growth of 3%.

Our Leadership and Search division, which is comprised of interim leadership and permanent placement solutions, makes up about half of this segment's revenue. This group grew revenue 4% year-over-year and 7% sequentially. We're excited about the momentum that they have in this business and have a collective team that's elevating the conversation and the strategic approach with our clients. Within our mid-revenue cycle business, the integration of our MedPartners and Peak brands is progressing very nicely, and I'm impressed with their new go-to-market strategy and collaboration with our other businesses. Although revenue is still lower year-over-year, there are more favorable trends as we head into the third quarter.

Other Workforce Solutions also includes our VMS and Avantas businesses, which had solid second quarter growth with expectations of continued growth through the remainder of the year. In the third quarter, total revenue for the Other Workforce Solutions segment is expected to be up approximately 3% year-over-year, with growth in most businesses.

Before I turn the call over to Brian, I'd like to take a moment to thank our thousand of corporate team members and healthcare professionals, who poured their hearts and their talents into helping our clients and their patients every single day. The biggest reason for AMN success is the quality of our people, and the passion they have for making a positive impact. A great example of this kind of impact that we can make with our clients and our clinicians is our upcoming medical and community mission trip to Guatemala. For the seventh consecutive year, I'll soon be joining AMN-sponsored doctors, nurses and other team members to provide medical care and install smoke-free stalls and water filters and support local schools in the most and poorest areas of the country. During our week together, we will be fortunate to serve over 1,000 Guatemalan patients and families. This is just one of the many ways that AMN strives to use our resources to help others and to make a difference.

Now I'll turn the call over to Brian for our financial update, after which, Kelly, Ralph and Dan will join us for the Q&A session.

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

Thanks, Susan, and good afternoon, everyone. The company's second quarter revenue of $535 million was above the high end of our guidance range. The biggest driver of this upside came from the higher-than-expected performance in our Nurse and Allied segment. Revenue was up 1% sequentially and down 4% year-over-year. Gross margin for the quarter was consistent with our guidance at 33.5%, up 110 basis points from last year and 30 basis points better than the prior quarter. The year-over-year increase was a result of increased margins in the Nurse and Allied and Other Workforce Solutions segments, along with a favorable segment mix shift.

Second quarter Nurse and Allied segment revenue was $332 million, flat with the prior year and down 2% sequentially due to typical seasonality. The quarter included an $8 million labor disruption events, which was the biggest driver of our outperformance. The prior year included a $25 million labor disruption event, creating a difficult year-over-year comparison. Nurse and Allied gross margin of 27.5% was 125 basis points better than the prior year or down 40 basis points from prior quarter. The year-over-year increase was from the combination of a higher labor disruption margin this year, partly offset by a higher health insurance cost. The margin was also down sequentially from the higher insurance costs. Segment EBITDA margin was 14.7%, with about 100 basis points benefit from a favorable malpractice reserve adjustment included in SG&A.

Second quarter Locum Tenens revenue of $82 million was 24% less than the prior year and up 2% on a sequential basis. Gross margin of 27.8% was consistent with prior quarter, and we expect a similar margin in the third quarter. Segment EBITDA margin of 8.7% was above our expectation, due in part to a favorable actuarial adjustment, and we expect to run in the 7% to 8% margin range until we gain more operating leverage on future revenue growth.

Second quarter Other Workforce Solutions segment revenue of $121 million was up 3% year-over-year and 6% higher sequentially. Segment gross margin of 54% was higher by 190 basis points year-over-year and 150 basis points sequentially, due to a favorable shift in business mix within the segment, and an improved margin from our interim leadership business.

On a consolidated basis, second quarter adjusted EBITDA of $67 million was down 5% year-over-year. Adjusted EBITDA margin of 12.5% was lower by 10 basis points year-over-year, though up 10 basis points sequentially. The margin in the quarter was favorably impacted by previously noted malpractice reserve reductions and a higher margin on the labor disruption revenue. These benefits were partly offset by labor reserve increases, higher clinician health insurance costs and certain commission and bonus accrual trust. Adjusting for these items the consolidated margin for the quarter was in line with our guidance at approximately 12%. We reported net income of $28 million and diluted earnings per share of $0.61 in the second quarter. Adjusted earnings per share was $0.77 compared with $0.83 in a year ago quarter.

Our GAAP income tax during the quarter was 26% and was 30% on an adjusted basis. Our tax rate is expected to be 30% in the third and fourth quarters. Cash provided by operations was $29 million for the quarter. Day sales outstanding at quarter end was 63 days, but excluding the Advanced acquisition would have been 60 days. At June 30, cash and equivalents totaled $21 million. Capital expenditures in the second quarter were $8 million, and at quarter end, our total debt outstanding was $671 million and our leverage ratio was 2.4 times to 1.

Now let's turn to third quarter 2019 guidance. The company expects consolidated revenue of $560 million to $566 million, up approximately 7% year-over-year. Excluding the impact of the Advanced acquisition, consolidated revenue would be flat to up 1%. This guidance does not assume any material labor disruption events in the quarter. Gross margin is projected to be approximately 33%, with a sequential decline due mainly to having a full quarter impact of the Advanced acquisition. SG&A expenses as a percentage of revenue are expected to be approximately 22.5%, adjusted EBITDA margin is expected to be approximately 12%.

For the third quarter 2019 estimates include the following: interest expense of $7.4 million, depreciation expense of $5.6 million, amortization expense of $9.6 million, stock-based compensation expense of $4.2 million and acquisition, integration and other extraordinary expenses of about $4 million. Diluted share count is expected to be 47.5 million shares.

And now we'd like to open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Jason Plagman. Please go ahead.

Jason Plagman -- Jefferies -- Analyst

Hey, good afternoon. Thanks for the question. So first one, I was just wondering I guess, more color on your trends with your largest clients, if you've seen that level of headwind on the growth side, normalize a little bit or just any color you can provide on how that's impacting your Q3 outlook and then also for the winter season?

Ralph Henderson -- President of Professional Services & Staffing

Yes, Jason. This is Ralph, I'll handle that one, and if Dan has anything to add or Susan will keep covering it. We did see some improvement in the second quarter with that client. We talked about the Q1 decrease have been in the neighborhood of, I think, 12% to 13% year-over-year, with slightly favorable to that in the second quarter. That client also -- it has a lot of winter needs that decreased -- they cut the sequential decrease; winter volume comes down by gosh over $20 million from one quarter to the next when those winter needs end. And then as we look forward, it's probably what the better news is, we're looking at Q3 where we would have -- not -- probably less material impact than it did in Q1 and Q2. The other positive news there is that that's really kind of impacting just our Travel Nurse business and the client continues to grow in other areas of the business. So we're seeing considerable growth from them in our Allied, our Locum's business as well as in our Rapid response business.

Jason Plagman -- Jefferies -- Analyst

Great. That's helpful. And then on the MSP wins in the quarter -- all, I noticed in the quarter, but just what you're seeing as far as activity in the marketplace, health systems looking to -- for strategic partners, any commentary on if you've seen any change in that activity since the last quarter?

Dan White -- President of Strategic Workforce Solutions

Hi, Jason. This is Dan, we actually see a lots of really terrific activity in the marketplace. Our wins since our last call are worked over $40 million in gross spend, and as Susan mentioned, that puts us just nearly at $200 million year-to-date. Geographic mix and the specialty mix of those programs are very nice and align well with the rest of our programs. We saw also an additional $40 million in contracts for our VMS business, which also shows a lot of nice activity for those kinds of programs as well. So if you also factor in the fact that we have a little over $110 million in programs, that are currently in contracting in our pipeline, I feel really good about where we're going to end this year versus last year on the activity and productivity really of our sales team.

Operator

Thank you. Now to line of Tobey Sommer. Please go ahead. Is your phone on mute sir?

Susan Salka -- Chief Executive Officer

Maybe we can circle back to Tobey.

Operator

All right. And now to line of A.J. Rice. Please go ahead.

A.J. Rice -- Credit Suisse -- Analyst

Hi, everybody. Just first to ask about -- I know the last few quarters, we've talked about some of the dynamics with the hospital customer base, maybe paying bonuses to get full-time employees and not being as willing to raise rates as needed to -- for you to get that incremental person to fill a slot for them. It sounds like you're saying that maybe changing a little bit. Are you seeing some of the premium rates situations return, I know we pretty much anniversary through all that, but where are we at in terms of getting the increase as you think you need to meet the demand that you're seeing?

Ralph Henderson -- President of Professional Services & Staffing

Hi, A.J. This is Ralph, I'll start on that one. You're right, we're seeing clients who're increasing the percentage of time they're paying hire on bonus for their internal staff. We saw ones that saved about 10% of requisition have a signing bonus attached to it. The range would normally be in kind of that 3% to 7% range historically, so that probably gives you some sense of how difficult it is to hire in today's market. To your point, yeah, we're starting to -- in our Travel Nurse business to see some pricing increases as we get into July. It's not anything significant yet, but after I think about six quarters of pricing decreases, respectfully, in line with the market at the time, we are -- started to see an increase as we enter Q3. So that'll help bring more supply to the marketplace and I think we've talked about this before, 75% of that goes back to the traveller and that will help us recoup and get our numbers up on the fulfillment side too.

A.J. Rice -- Credit Suisse -- Analyst

Thank you. And then my other question would be around your Locum Tenens business. I guess, in the last few quarters, there's been discussion about how the demand for certain specialties, are these where others have picked and you had to build up pipeline. And then second, there's been discussion about the technological upgrades or technology upgrades you've been doing and that's depressed their performance a little bit. It sounds like, again, both of those were moving in a good production and if I heard you right that you were even saying, you think you might show year-to-year growth in the fourth quarter in that business. I want to confirm that and maybe flesh out a little more of those two drivers of potential long-term growth and where you're at in anniversaring some of the issues, but also maybe start to maybe able to say growth is inside in the next few quarters?

Ralph Henderson -- President of Professional Services & Staffing

This is Ralph, I'll start again on that one. On you're right, demand is beginning to improve in the business, it's probably a result of our people not being as distracted by technology and process changes and getting back to their core jobs, that feels good to us. The specialties aren't perfect for us, they're not in the high fill rates specialties we'd like to be in the emergency room and hospitals yet, so those are still up pretty significantly, but they are in specialties where we perform well like surgery, IM subs and anesthesiology. And we're beginning to use the new technology and tools to beef up our capabilities in those areas where we're seeing stronger, stronger fill rates and growth rates there.

Our new recruiters, which we talked about last quarter, which was more of an SG&A item in Q1 are beginning to produce, they actually make up about 16% of our production, and in time, they could make up a third -- 40% of our production. So they're ramping nicely. The new tool is actually easier to learn and so they're able to get into their career faster and start producing revenue for us. There was a third part of the question, I think--

Dan White -- President of Strategic Workforce Solutions

Turning the corner--

Ralph Henderson -- President of Professional Services & Staffing

Turning to the first part of it. Yeah, we do -- we continue to anticipate sequential growth in Q3, and then as well looking forward to getting back up over prior year in Q4 and maybe toward the end of the quarter before we get there. But offense point that that's going to begin happening first we're looking forward to a more robust growth after that.

Operator

All right. Thank you. And now to line of Sam England. Please go ahead. Is your phone on mute? Well, we'll move along to line of Mark Marcon. Please go ahead.

Mark Marcon -- Baird -- Analyst

Hey, good afternoon, everybody. Sounds like things are turning up. I'm wondering if you can talk a little bit about the color in terms of the winter orders a little bit more. And also can you remind us exactly how much strike revenue you ended up getting this quarter and how much you might anticipate in the coming quarters or what the compare was there?

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

Okay, Mark, I'll take that second part of the question first. As I mentioned, we had one event that was the most material in the quarter, it was about $8 million. We had a little over $10 million in total, but some of that we had anticipated that had occur when we gave last guidance. So really that was the biggest part. Last year, we were a little over $25 million, the majority from one major event. So I think that kind of covers the, although it did help this quarter, it was still down year-over-year as we expected.

Ralph Henderson -- President of Professional Services & Staffing

On the winter orders, it's Ralph. We're -- right now, it's very early to call it and so we're just beginning to see some of the needs from some of our larger customers particularly on the West Coast. And they're in line with what we're at, at this point last year. We don't have any insight yet as to flu so things could improve or change quite a bit from here and we probably have about a dozen of our large winter orders clients that haven't actually placed their orders yet. So little early to call, but there is no bad news there.

Mark Marcon -- Baird -- Analyst

Okay. It sounds like it's good and then with regards to the orders being up roughly around 20%. Can you talk about how widespread that is? And also to what are the difficulties with regards to fulfilling the orders and potentially capturing even more robust revenue growth?

Susan Salka -- Chief Executive Officer

Hey, Mark. This is Susan, I'll jump in and give Ralph a little break here, but also want Kelly to weigh in on some of the demand that they're seeing in leadership and search. But just in regards to our Nurse and Allied business, where we can make that statement about orders being up over 20% really across the board in those businesses. It really is very geographically dispersed, which is nice, because we want assignments for all kinds of potential candidates and then also help support our rebook rates, which continue to be very strong. And they're not all just coming from one client or one area, in fact, our facilities with orders are also up over 20% in those Nurse and Allied, which is another very good healthy sign for the marketplace.

Now certainly our MSP clients can be some of the highest fill rates for us, which is -- they should be we're very focused on making sure that we meet their expectations in overall fill rates. And so we're thrilled to have the opportunity to really make sure that we're doing our part in selling those. But even with our direct clients and the third-party, we see orders up significantly, which really tells us that it's not just an AMN MSP story, but rather it's really a broad market increase. So with that, Kelly maybe I'll ask you to share a little bit more insight on the leadership business as well.

Kelly Rakowski -- President of Leadership & Search Solutions

Yeah, I'll be happy to, I think, on the interim management side, we're seeing very similar demands for interim leadership positions, very much in the accordance with what we're seeing in our clinical demand as well. And that's really across the board and highly concentrated in our clinical leadership needs, and we see that at the start of the quarter that demand continues to increase. And on the same side, we're seeing some really nice trends in our permanent placement business across the board, all three physician perm, executive search as well as our PO experienced double-digit sequential growth and volume this past quarter and we're continuing to see that, and I think that's reflective of the market and the needs as well as we brought our different search capabilities together and really getting more leverage out of our sales and client accounts focus across the country, higher level of cross-selling and meeting our client needs more comprehensively. So very encouraged by those trends as well.

Ralph Henderson -- President of Professional Services & Staffing

And Mark. This is Ralph, I'll weigh in on the clinician supply, constrains are improving slightly overall what we talked about last quarter certainly the higher demand, higher demand in MSP, slight movement in bill rates are helping. It's kind of an interesting phenomenon. Our actual leads are up on a year-over-year basis, but our applications are down. So it probably gets to people sitting a little bit right now. They're looking at jobs over, they're more active in looking for opportunities, but they're not yet point the trigger on those opportunities.

Operator

All right. Thank you. [Operator Instructions] And now to line of Henry Chien. Please go ahead.

Unidentified Participant -- -- Analyst

Hi, everybody, thanks for the question. I wanted to ask about -- so we've been hearing some stuff about reimbursement rates coming down a bit with from the insurance carriers, I was just wondering what kind of impact do you see on that or if any? And maybe if you could just comment on sort of the general kind of pricing environment, if you could? Thanks.

Ralph Henderson -- President of Professional Services & Staffing

Yes, this is Ralph. Just a little bit on the tone in the market, I think, it's probably important to note, when we're in front of our clients and we're just actually getting through our quarterly reviews right now. What we're hearing is they're very, very confident in their patient volume. There may be some lingering concerns about reimbursement changes, but it's actually quieter than it's been for the last three or four quarters. But I don't think that is troubling them right now I think everyone, of course, is going to watch the politics and things, but we're not hearing that from our clients. I think the constraint on the bill rate increases is just can we fill it internally first, that'll actually open the order with us, but they won't move quite as quickly and so they see what sort of flow that they have on applicants and then it's like several steps you have to go through before they actually start increasing bill rates And we're partway through those steps now, but we're not completely through that yet. Does not help?

Unidentified Participant -- -- Analyst

All right. Okay, yeah, no that helps. Great, all right. Thanks so much.

Operator

[Operator Instructions] And now to line of Tobey Sommer. Please go ahead.

Tobey Sommer -- SunTrust -- Analyst

Thank you. Thanks for coming back to me. Could you comment on pricing in the interplay maybe dynamic between what you describe the sort of better bill rates on average looking forward as well as what you're seeing for winter needs and how that plays into it? Thanks.

Susan Salka -- Chief Executive Officer

Sure, Tobey. So we mentioned that we were starting to see some improvements in pricing looking into the third quarter, and that would be our average bill rate, which is really a composition of the regular bill rate, which has increased a bit. But more or so the mix and utilization of premium rate assignments and we are seeing that mix increase a little bit as we go into the third quarter. Now it will naturally increase as we go into the fourth and the first quarter, since that's when winter assignments begin. And as we're getting an early glimpse at the rates for those winter assignments, I'd say they're on par with what we had seen last year, so we're feeling good about that. And if we continue to see a positive mix shift, that should generally be positive overall for us in terms of being able to, again, have the pay rates to support strong fill rates for those assignments.

Generally, we've seen this over the decades and you know very well having covered this industry for so long that we have seen this dynamic play out many times where we begin to see demand increase at a fairly rapid space, which we saw in the second quarter and continuing into today. And it takes a few months, if not quarters, before we really start to see that translate into some improved pricing. And with that improved pricing, then we can increase pay rates and that helps to pull more supply into the industry. So I'd say we're not quite there yet, but I would expect based on historical trends that we would be getting there in the next few months. Now, of course, our team isn't waiting for that. We're doing all kinds of things to increase the number of applications, to do a better job of converting or increase that conversion rate and we're doing a lot of really exciting and interesting things on mobile and digital. And so, I think we can make improvements even without more significant pricing increases, but generally, that's when you start to see the greater volume start to really impact the business.

Tobey Sommer -- SunTrust -- Analyst

From your perspective, two more questions from me. How much does -- would price have to move to kind of increase the Travel Nurse supply in the market and are available to the company? And what those improving demand in your various perm businesses mean to you as far as a pricing cycle, what -- how do you connect those two pieces of information?

Susan Salka -- Chief Executive Officer

So I'll start with the general pricing question and then have Kelly talk about physician. I don't think there's a perfect correlation in number on the pricing and it's because it depends on also just the share of volume of orders and demand that we have, which I have to say is at near historical highs. And so usually, if you have significant demand, it doesn't take quite as much pricing movement to really start to pull supply into the market. But certainly, something sort of north of 3% would probably be enough to start to make some movement. Some of that, again, is already occurring with the premium rate mix shift in and of itself because usually premium rates are closer to 10% above the regular rate. So just with a mix of more premium rate assignments, we'll see some of that movement as well. So I'm sorry, there's not a perfect correlation and a perfect answer because there are just so many different inputs and dynamics that can occur. So--

Kelly Rakowski -- President of Leadership & Search Solutions

Yeah, and I'll add. This is Kelly, from the perspective of permanent hire particularly in nursing as a comparison. I mean we're seeing our clients face the same challenges in the market. They're seeing a lot of attrition as nurses and other clinicians get recruited away. We're seeing higher levels of sign on bonuses and then you need to stay competitive in their permanent roles too. So it's -- and like Susan said, hard to tie the two together, but we're seeing the same dynamics play out for both permanent roles as well as contingent roles. So our team does a good job of keeping each other current with what are some of the latest trends in the market and supporting our clients in those regards.

Operator

Thank you. And now to line of Mitra Ramgopal. Please go ahead.

Unidentified Participant -- -- Analyst

Yes, hi. Good afternoon. Just two questions. Susan, I know you mentioned, in Locum's, you expect by mid late fourth quarter we should start seeing some growth there. And I was just wondering if that's more reflection of the investments you've made in the technology and new people you've brought on or is there also some strength in the underlying market that's going to help that?

Susan Salka -- Chief Executive Officer

So we are seeing growth today, just to be clear. We have some growth going into the second quarter and in the third quarter. So what you're referring to is the year-over-year growth, and we expect that we'll kind of cross that threshold late fourth quarter. It is that our team is becoming more productive. They're doing a much better job of really maximizing what their system is capable of, and I think just getting through that learning curve. The newer producers that we've hired, they're recruiters and account managers that have come on board over the last six months are becoming more productive as we mentioned that making up a little over 15% of our placement activity today and that is going to continue to increase every day and in the fourth quarter, in particular, we should start to see them as Ralph said, approaching maybe even a third or more of our placement activity. And so some of this is just getting the momentum and the benefit of the changes that we've been making over the last year. And the fact that we really haven't had continued disruption. I think we're beyond the technology and process disruption elements. And now, it's just really fine-tuning and maximizing the potential of the system.

The underlying demand is strong overall. If we look at the total aggregate demand within Locum's, it's actually at very high levels. We have different fill rates within different specialties. So as Ralph mentioned, we still have fairly low demand in emergency medicine and in hospitalist, where we traditionally had very high fill rates. So we've got to make sure that we are finding demand in other areas where we can have equally high fill rates there. But it's improving, every day, and I feel like the team is on a very good path right now.

Unidentified Participant -- -- Analyst

Okay, now that's great. And then quickly on Advanced Medical, I know it's still very early there, but I was just curious in terms of if you're already starting to see any incremental opportunities as it relates to as you've talked about that could be interesting mental health and teletherapy, etc.? Or is it still too early to be anything that?

Ralph Henderson -- President of Professional Services & Staffing

They're off to a great start. They -- I think they actually beat our forecast for their first couple of weeks of Q2, so everyone is shot out to be Advanced team. Their school business is what their focus has been, so we haven't spent much time on integration yet across selling, so they could focus on their school's business and that's up considerably over prior year in the 50-plus percentage range, which is good. We've also had schools' business with our Allied division. So the combined entity by the way now is our second largest business. Allied is always the third, but with the acquisition it moves them up to our second largest business. And obviously, good margins and we didn't talk much about the industry overall, but lots -- the demand is higher, our ability to attract clinicians has been better than it is in our -- in the nursing or in the Locum's business. So lots of positives there. The size of the school businesses, where they've also taken advantage of our MSP programs and begun filling orders in those programs. And so they're up about fivefold what their track record was, they were supplier in the program before, so they kind of knew less and knew the clients, but under our program, they've actually performed considerably better, which is positive as well.

So, so far so good, teletherapy, which is one of the things we're most excited about in their business. And right now, we start -- it exists as a way to supervise people working in school environments, which is -- which helps extend the reach of the clinician. And our hope is to expand that beyond therapy, which is in speech skills and into more behavioral specialties over time. And so we're just kind of beginning those conversations, but obviously, it's a powerful combination of -- and once we get into the schools to be able to expand to help them even with the nurses, which we have -- business we haven't been in or into the doctors on the behavioral health side as well. So lots of upside there and they're off to a great start overall.

Operator

Thank you. And now to line of Bill Sutherland. Please go ahead.

Bill Sutherland -- The Benchmark Company -- Analyst

Thank you. Curious on the $200 million in MSP wins to-date and kind of what's the mix that you've got there of Nursing, Allied and Locum? And then curious if the fill rate is ticking up, partially due to Advanced? Thanks.

Dan White -- President of Strategic Workforce Solutions

[Indecipherable] I'll start with that. Bill, this is Dan. And if you look at the whole group overall, about 60% of the total is Nurse, 30% of the total is Locum's and the rest is Allied and interim exec combined. And then with regard to the fill rates, clearly, those ones aren't the ones that are yet even implemented at this point. And so I think just generally, if you look at our MSPs, our fill rates overall are kind of in that sort of 55% to 65% depending on what business line you're talking about.

Ralph Henderson -- President of Professional Services & Staffing

And then that's our internal capture, right, I think our affiliate vendors, which have an amazing network gets us into the 90s, which we think is kind of industry-leading numbers there. But also, right, we have a bunch of new business. So I know all our capture is good. And thinking, in particular, one large client we talked about a couple of quarters ago, I think, we're already in internal captures up in the 40% to 45% range. We normally wouldn't be that high that early in that relationship. So and kind of when you bring on a client, actually your fill rate goes down temporarily on the entire portfolio particularly we have a lot of new wins like we've had recently. But we're trending at or above what we thought we'd be and we'll get better and better at those new clients. So we'd expect they'll have more of a contribution further out Q4 and Q1 and beyond.

Susan Salka -- Chief Executive Officer

And as I mentioned, Bill, the Advanced team is helping, and they're doing a very nice job of filling into our MSP. But it is still early. They've only been with now less than two months. And so we're looking forward to even more opportunity for them to help us fill those gaps, but they're doing a great job out of the gates.

Bill Sutherland -- The Benchmark Company -- Analyst

Got it. And then If I could just ask one on mid-revenue. I think if you can just provide a little more perspective on MedPartners and Peak coming together and when you think it'll start to lead to some revenue growth? Thanks.

Susan Salka -- Chief Executive Officer

Yeah, so that team has certainly done a fantastic job of bringing those two brands and teams together to try to really get the synergies out of being more one organization. And we've brought them all on the same system that actually occurred over the last few months and they've been operating on the new system, which was actually already existent. We just wanted to get everybody operating out of the same front office and back office systems. So that we could more easily see and place candidates. So there was really no disruption evidence and they are often running into the third quarter, and we're already seeing some nice trends there, demand is up in a couple of their major businesses, up in case management as well, they've been doing a really great job of starting to sell into our MSP clients within AMN as well as winning other new clients. And then their placement activity in general has been really most of their business lines coming into the third quarter. So I don't know if I can give you a date on exactly when that will translate into year-over-year growth. But I would say, really on kind of all key trends we're seeing a much better trajectory going forward.

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

Bill, I'll give a little more color on the -- so we've had several quarters where we had some sequential declines in part, as we mentioned, I think, two quarters ago, Peak had a large customer that had reduced our utilization. And so that was part of the reason that as we are getting through that -- as our third quarter guidance, we expect to be up a little bit sequentially, so that's we're talking about better trends, but we're still down year-over-year in kind of the mid-single digits, that'll likely be the trend through the back half of the year just because of that larger that client has declined, but I think as we get to the end of this year with the momentum we're seeing, we'd expect to get back to growth early next year.

Operator

Thank you. And now to line of Tim McHugh. Please go ahead.

Tim McHugh -- William Blair -- Analyst

Thanks. Just wanted to follow-up on Locum's. I guess the improving -- the pace of improvement and the productivity of the new salespeople. Is that, I guess, it's improving, but it was from a low base. So relevant to your expectations and how that's progressing? And then also how are you finding turnover among both the legacy salespeople and the new salespeople as they're on the new bond? Thanks.

Ralph Henderson -- President of Professional Services & Staffing

Yeah, Tim, this is Ralph. I'll start with the second one, where our turnover in the second quarter decreased significantly over what we've been experiencing in the prior two to three quarters which when people were probably most frustrated when we actually had a large number of employees come back to us and rejoin the team, which is great. Of the new recruiters, they're actually above where we anticipated they'd be at this point. So we had -- we speculated, I guess, at the time that the neutral would be easier to learn than the old database and systems, and that's proven true. I think we would -- we'd be happier if we were higher and I think, if the demand trends change just a little bit, that would be useful. But in the meantime, they're beating our expectations. But there's still a lot of upside in those new hires.

Tim McHugh -- William Blair -- Analyst

Okay, thanks. And on the mid-revenue cycle -- or mid-cycle, revenues from collection I, know you're going through some process improvement. Are we still quarters away from seeing that sort of business return to positive growth? Or is that something in the near term you might expect to see turnaround?

Susan Salka -- Chief Executive Officer

Yes, so we are seeing a churn and improve going into the third and the fourth quarter. As Brian mentioned earlier, we had a fairly large client that brought their program in house last year, it started last year and so that created a bit of a headwind for us, I think amid some other things, but that actually was one of the bigger headwinds. We'll start to lap that at the end of this year. In terms of year-over-year growth, I think, we're talking more first quarter of 2020.

Operator

All right. Thank you. And now to line of Jason Plagman. Please go ahead.

Jason Plagman -- Jefferies -- Analyst

Hey, we hadn't heard much from Brain, so I thought I'd throw him a question just one question, capital deployment any thoughts on priorities with the leverage ticking up and is there any upside for incremental M&A in the near future? Or are we focused on digesting Advanced Medical for the time being? That's it from me.

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

Thanks, Jason. I'd kind of all those are true in some respect. We're still looking at opportunities and I think that hasn't really changed. The leverage level that we're at 2.4 times, we think that still gives us capacity to do acquisitions. In the meantime, [Indecipherable] cash, we'll likely focus on debt reduction. We still have the opportunity to buy that shares too, but we'll probably focus more on reducing our debt, just so it provides more capacity. But I don't think that the last acquisition of Advanced has not diminished our interest in exploring opportunities to make acquisitions. We're still very disciplined and finding the right targets in the right spaces. But it's actually been more active in the last few months. There's a few different opportunities that we've been able to look at and then some other ones we're having dialogue with as well. So that really -- nothing has really changed in that regard, we think Advanced -- the integration, it's in the space that we very much marry with, so we think we'll have a very successful integration as we focus more on that in the back half of the year and that gives us room to continue to look at opportunities.

Operator

Thank you. [Operator Instructions] And now to line of Mark Marcon. Please go ahead.

Mark Marcon -- Baird -- Analyst

Just a quick follow-up on Advanced Medical, what are you assuming for the third quarter? And based on that assumption, what would that organic revenue growth be for them?

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

So it's about $35 million or so of revenue in the third quarter. The rates, I don't have the exact number with me here, but I think it would represent double-digit growth on a year-over-year basis. And a portion of that was really when we talked about the schools' business, they're seeing really strong growth in the number of new starts in the new school year, so that's a part of it. Although Nursing is also up quite a bit, they were kind of flat to down a little bit as they exited 2018, they're back to a nice growth rate and then for the core therapy business as well. So really all parts of the business are growing.

Mark Marcon -- Baird -- Analyst

Great. And then Locum's, just with regards to the systems. How far along are you in terms of like if 100% were optimal, how far along are you in terms of the system optimization?

Ralph Henderson -- President of Professional Services & Staffing

Yes, this is Ralph. It's not a big concern for us anymore. We talked about that for several quarters. So we have a system that is significantly better than our prior systems. We are releasing new releases, the software is just a different animal now than it used to be, put it in place let it, you used the version, you just kept it until a new version came out. But with the tools that we have now, where we release new software upgrades about every two weeks and we cross train employees on those about every four weeks. So we continue to make changes as we see they won't improve the business, but technology is not keeping us from growing any longer.

Mark Marcon -- Baird -- Analyst

Great. Thanks.

Ralph Henderson -- President of Professional Services & Staffing

Thanks, Mark.

Operator

Thank you. And now to line of Tobey Sommer. Please go ahead.

Susan Salka -- Chief Executive Officer

Tobey, did you have a follow-up question? Maybe not.

Tobey Sommer -- SunTrust -- Analyst

Yes, I was hoping you could ask about or just comment about school business sort of the addressable market and whether Advanced has all the scale that it needs for you to kind of attack that market or maybe some sort of capability or geographic presence that could be rounded out either through M&A or organic means?

Ralph Henderson -- President of Professional Services & Staffing

Yes, Tobey, this is Ralph. And Brian's the one who introduced me to the school business, so he may want to weigh in on this. I was a little return when we first heard about the growth rates in the business and about the size of the addressable market, but our research shows that it's north of $1 billion and certainly underpenetrated. There's probably four or five companies that have over $50 million in revenue in that space, it's very fragmented. So there's a great upside opportunity and the addressable market could be considerably larger. As schools, I think, start to understand that they have an options available to them staff and these are mandated staffing levels for them, so they get reimbursement by the government on them, and so we're -- I think schools may not even know options exist in some cases, big school systems of course do, but there's certainly a very large market to go after there probably not quite as big I guess as Travel Nursing, but maybe at least half as big.

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

And this is Brian. There is no limit to school's ability to go after the entire country, if you look at the growth it had this year and some of their newer wins are in school districts that are in different geographies all over the country. So there's no limitation and if you actually have some distinct advantages which we won't go into all the details in terms of how they are able to recruit talent into these opportunities and really partner more with some of the school districts to address their total needs versus buying kind of in a fragmented way, which is historically how that industry has operated. So we -- it gives us a lot of opportunity to continue to penetrate that market.

Tobey Sommer -- SunTrust -- Analyst

Thanks. I appreciate it.

Operator

Thank you. We have no one else in queue. Please continue.

Susan Salka -- Chief Executive Officer

Okay. Well, thank you everyone, for joining us today for a robust conversation. We appreciate your time, and we look forward to updating you on our progress on our next earnings call.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Randle Reece -- Director of Investor Relations

Susan Salka -- Chief Executive Officer

Brian Scott -- Chief Administrative Officer, Chief Financial Officer & Treasurer

Jason Plagman -- Jefferies -- Analyst

Ralph Henderson -- President of Professional Services & Staffing

Dan White -- President of Strategic Workforce Solutions

A.J. Rice -- Credit Suisse -- Analyst

Mark Marcon -- Baird -- Analyst

Kelly Rakowski -- President of Leadership & Search Solutions

Unidentified Participant -- -- Analyst

Tobey Sommer -- SunTrust -- Analyst

Bill Sutherland -- The Benchmark Company -- Analyst

Tim McHugh -- William Blair -- Analyst

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