Earnings Call Transcript - AMN Q3 2025

Randy Reece, Vice President, Investor Relations

Good afternoon, everyone. Welcome to AMN Healthcare's Third Quarter 2025 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com at the conclusion of this call. Remarks we make during this call about future expectations, projections, trends, 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 because of various factors and cautionary statements, including those identified in our most recently filed Forms 10-K and 10-Q, our earnings release and subsequent filings with the SEC. The company does not intend to update 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 ir.amnhealthcare.com. On the call with me today are Cary Grace, President and Chief Executive Officer; and Brian Scott, Chief Financial and Operating Officer. I will now turn the call over to Cary.

Cary Grace, President and Chief Executive Officer

Thank you, Randy, and welcome to today's conference call. Since our last call, AMN has continued to adapt to changes in the marketplace and position the company to win as our industry transitions from recovery to growth. Third quarter revenue of $634 million was $9 million above the high end of our guidance range. Consolidated gross margin was near the upper end of guidance, and SG&A expenses were better than expected. Adjusted EBITDA for the third quarter was $57.5 million, which was 9.1% of revenue, 90 basis points above the high end of our guidance range. After experiencing demand softness in the second quarter, staffing demand recovered moderately in the third quarter, extension rates rebounded, and Travel Nurse winter orders came in slightly favorable to prior year. At the same time, permanent hiring activity in the health care sector fell notably in the third quarter according to a private survey of job openings. The different directions of contingent and permanent recruiting suggest that employers are beginning to seek more flexibility in their workforce strategies to meet increasing patient utilization. This is an increasingly attractive strategy as we estimate that the spread between Travel Nurse bill rates and fully loaded permanent nurse compensation is at a historical low. Bill rates maintained stability through the last 9 months, and there are a few indications suggesting that some clients are reconsidering a bill rate strategy, in which rates have not kept up with increased costs. In fact, we expect bill rates for Nurse and Allied Staffing to be up modestly year-over-year in the fourth quarter for the first time in 3 years. Our consolidated outlook for the fourth quarter calls for revenue a little better than $720 million at the midpoint or just over $620 million, excluding Labor Disruption revenue. Our guidance includes about $5 million extra SG&A expenses in Q4 related to Labor Disruption support. While conditions for individual business lines vary, we benefit from the diversification among our 20 solutions, which keep us well positioned to serve clients' evolving needs and desire for strategic partners over the long run. All 3 business segments beat consensus revenue estimates in the third quarter, led by $12 million upside in Nurse and Allied Solutions. Part of the Nurse and Allied beat came from higher-than-expected Labor Disruption revenue. As projected, lower Q2 demand and extensions flowed through to lower Q3 revenue, though less than we expected. As new demand and extension offers improved in the quarter, our team executed well to capture this demand and set us up for higher Travel Nurse and Allied revenue in Q4. Demand improved modestly through the third quarter into October, including higher winter orders. For the fourth quarter, we expect about $100 million in Labor Disruption revenue. Total Nurse and Allied revenue will be up low single digits year-over-year or down approximately 6% to 8%, excluding Labor Disruption. This will be our best year-over-year revenue comparison for the segment in 3 years. In our Physician and Leadership Solutions segment, revenue grew 2% sequentially in Locum Tenens and Interim Leadership, while Search revenue was stable. We were pleased to record 3% year-over-year growth in Locum Tenens revenue. The highlight in Locum was days booked for MSP clients, which grew by 15% year-over-year, including a nice boost from new client wins. For the fourth quarter, Physician and Leadership Solutions revenue is projected to be down sequentially by approximately 6%, due primarily to seasonally lower Locum's volume. For our Technology and Workforce Solutions segment, third quarter revenue was $7 million lower than the prior quarter. Most of that drop came from the sale of our Smart Square business on July 1. VMS revenue was $2 million lower and Language Services revenue less than $1 million lower. In the fourth quarter, we expect Technology and Workforce Solutions revenue to be down mid-single digits compared with the third quarter with seasonally lower language services minutes and the lingering runoff from previously discussed client transitions in our VMS and Language Services businesses. I want to touch on the subject of gross margins. Our consolidated gross margin has declined this year caused by an unfavorable revenue mix shift and competitive pressures in Staffing and Language services. As Nurse and Allied demand moves from stability to growth, we expect Staffing gross margins to stabilize. We expect improvement in international staffing revenue and other high-margin services to lift our consolidated gross margin in 2026. In a normal demand recovery, we also would expect to see travelers average hours worked increase and placement mix improve, both of which would create margin growth opportunity. AMN has differentiated itself in many ways this year, including from a financial perspective. At the end of the third quarter, we had a $0 balance on our revolving line of credit, down from $210 million at the end of 2024. In early October, we completed a debt refinancing transaction that strengthened our financial position and improved our corporate debt rating. Our earliest debt expiration was extended out to 2029. Our revolver was downsized to reduce carrying costs and debt leverage covenant increased to give us more operating flexibility. The next phase of our strategy to gain market share is in view as we see an increasing number of prospects, seeking more complete talent solutions. Our performance on client retention remained strong year-to-date, and our latest Net Promoter Scores were significantly improved from last year. Our aggressive plan to improve technology, processes and customer focus paid off with a 700 basis point year-over-year improvement in client satisfaction. We continue to expand our number of service lines provided to clients, and we see interest from a number of strategic clients in consolidating their decentralized locum spend. We are also making progress on our strategy to fill more of the available demand by improving our speed to fill. For example, over the past 12 months, we doubled our fill rate in our vendor-neutral program. Overall, competition for new clients and renewals has seen less motivation from clients to switch vendors as they prioritize other initiatives. However, we remain confident that our client-first approach and industry-leading spectrum of talent solutions will win over the coming quarters and years. Now, I will turn over the call to Brian to give more details on our latest financial results and business outlook.

Brian Scott, Chief Financial and Operating Officer

Thank you, Cary, and good afternoon, everyone. Third quarter consolidated revenue was $634 million, above the high end of our guidance range, driven by outperformance in our Nurse and Allied and Physician and Leadership segments. Revenue was down 8% from the prior year and down 4% sequentially. Consolidated gross margin for the third quarter was 29.1% at the high end of our guidance range. Gross margin declined 190 basis points year-over-year and 70 basis points sequentially. Consolidated SG&A expenses were $139 million compared with $150 million in the prior year and $155 million in the previous quarter. Adjusted SG&A, which excludes certain expenses, was $129 million in the third quarter compared with $141 million in the prior year and $140 million in the previous quarter. The sequential decrease in adjusted SG&A is primarily attributable to a lower bad debt expense and an unfavorable prior quarter professional liability reserve adjustment. Third quarter Nurse and Allied revenue was $361 million, down 9% from the prior year, though exceeding the high end of our guidance range, driven by higher-than-expected Travel Nurse volume and $12 million of Labor Disruption revenue. Sequentially, segment revenue was down 5%, primarily due to lower volume. Year-over-year, Nurse and Allied segment volume decreased 11% and average rate and average hours worked were flat. Sequentially, volume was down 6%, while the average rate was down 1% and hours worked were flat. Travel Nurse revenue in the third quarter was $196 million, a decrease of 20% from the prior year period and 6% from the prior quarter. Allied revenue in the quarter was $142 million, up 1% year-over-year and down 2% sequentially. Nurse and Allied gross margin in the third quarter was 24.1%, a decrease of 90 basis points year-over-year. Sequentially, gross margin was up 20 basis points. We noted in the earnings release that our lower consolidated Q4 gross margin guidance is partly influenced by Labor Disruption-related factors. Due in part to timing of activities, Labor Disruption benefited the Nurse and Allied segment gross margin in Q3 by about 150 basis points, with a nominal drag to the segment gross margin in Q4. We expect the fourth quarter Nurse and Allied segment gross margin to be approximately 21%, with the lower sequential outlook also being driven by seasonally lower average hours worked and a modest decline in spreads. Moving to the Physician and Leadership Solutions segment. Third quarter revenue of $178 million was down 1% year-over-year. Sequentially, revenue was up 2%, mainly driven by Locum Tenens' performance. Locum Tenens' revenue in the quarter was $146 million, up 3% year-over-year and 2% sequentially. Interim leadership revenue of $23 million decreased 20% from the prior year period, but was up 2% sequentially. Search revenue of $9 million was down 7% year-over-year and flat sequentially. Gross margin for the Physician and Leadership Solutions segment was 27.2%, down 110 basis points year-over-year, attributable to a lower bill pay spread in locum tenens and an unfavorable revenue mix shift. Sequentially, gross margin decreased 100 basis points, and we expect Q4 segment gross margin to remain consistent with Q3. Technology and Workforce Solutions revenue for the third quarter was $95 million, down 12% year-over-year and 7% sequentially, primarily driven by lower VMS revenue and the sale of Smart Square. Language Services revenue for the quarter was $75 million, flat year-over-year and down 1% sequentially. VMS revenue for the quarter was $17 million, a decrease of 32% year-over-year and 11% sequentially. Segment gross margin was 51.5%, down 640 basis points from the prior year period due primarily to a lower revenue mix from VMS, the sale of Smart Square and lower margin in language services. Sequentially, gross margin declined 360 basis points, driven by the same factors. We anticipate segment gross margin stepping down by about 100 basis points in the fourth quarter, with lower expected VMS revenue along with pricing pressure in Language Services. Consolidated operating income of $48 million included a $39 million gain on the sale of Smart Square. Third quarter consolidated adjusted EBITDA was $58 million, down 22% year-over-year and 1% sequentially. Adjusted EBITDA margin for the quarter was 9.1%, down 160 basis points from the prior year period and up 20 basis points sequentially. Third quarter net income was $29 million. This compared with net income of $7 million in the prior year period and a net loss of $116 million in the prior quarter, which included noncash goodwill and intangible asset impairment charges. Third quarter GAAP diluted earnings per share was $0.76. Adjusted earnings per share for the quarter was $0.39 compared with $0.61 in the prior year period and $0.30 in the prior quarter. Days sales outstanding for the quarter were 57 days, which was 3 days lower than a year ago and 3 days higher sequentially. Operating cash flow for the third quarter was $23 million and capital expenditures were $8 million. As of September 30, we had cash and equivalents of $53 million and total debt of $850 million. We ended the quarter with a net leverage ratio of 3.3x to 1. In October, we completed the refinancing of $500 million of unsecured notes, due in 2027; with $400 million of new unsecured notes, due in 2031. Concurrently, we downsized our revolver capacity to $450 million and increased our maximum leverage ratio covenant. These transactions immediately increased our balance sheet resilience. Moving to fourth quarter guidance. We project consolidated revenue to be in the range of $715 million to $730 million. This revenue guidance includes approximately $100 million related to Labor Disruption support. Gross margin is projected to be between 25.5% and 26%. Excluding the impact of Labor Disruption revenue, our gross margin would be higher by about 100 basis points. Reported SG&A expenses are projected to be approximately 20% to 20.5% of revenue and include about $5 million of additional costs in the quarter to support Labor Disruption activity. Operating margin is expected to be 0.2% to 0.8% and adjusted EBITDA margin is expected to be 6.8% to 7.3%. Additional fourth quarter guidance details can be found in today's earnings release. Now operator, please open up the call for questions.

Trevor Romeo, Analyst

I have a multipart question regarding the margin guidance, particularly starting with gross margins. You reported 29% in Q3, and there's an anticipated 100 basis points decrease due to the Labor Disruption in Q4. Even accounting for that, it seems there will be a 240 to 250 basis point drop sequentially in gross margin. Could you clarify the individual drivers of this on a consolidated basis and the extent of each factor?

Brian Scott, Chief Financial and Operating Officer

Sure. Yes, Trevor, this is Brian. No problem. To start, regarding the third quarter, the 29% margin reflects the impact of the Labor Disruption event, which we supported with some timing activities. This actually provided a slight benefit to our margin in the third quarter. If we normalize the third quarter, that 29% would be closer to 28%. For the fourth quarter, if you were to exclude the impact we discussed, you'd find the margin is around 27% or in the high 26s when looking at the midpoint of our range, accounting for that 100 basis points. This indicates a change of just over 100 basis points sequentially from Q3 to Q4 when factoring that out. Several factors contribute to this shift, primarily the revenue mix across our segments. In the guidance we provided, both our Physician and Leadership and Technology Workforce Solutions segments, which traditionally have higher margins, are expected to see declines. These are likely the primary factors driving the change. Additionally, there’s some seasonal impact. In Nurse and Allied, for instance, there's typically a decrease in working hours, which also slightly drags down the margin in the fourth quarter. Lastly, we did experience some favorability from sales reserves in Nurse and Allied during the third quarter, which explains the larger quarter-to-quarter change in margins.

Trevor Romeo, Analyst

Okay. Brian, that's helpful. If I could maybe follow up on, I guess, the EBITDA margin guidance. I think, just if we're trying to isolate, maybe the ex the big Labor Disruption event, just what's the underlying performance of the business, I guess. If I just take the midpoint of your guidance there, I think, I get about $50 million, $51 million of EBITDA, but you obviously have that big Labor Disruption event in there. So if we're trying to use that as kind of a guide for modeling going forward, maybe you could just help us think about what the underlying EBITDA would look like and how that could evolve going forward?

Brian Scott, Chief Financial and Operating Officer

Sure. We aimed to provide enough information on the components. The revenue from that event indeed had a lower margin profile due to its scale. A significant portion of what we're billing pertains to pass-through costs, like transportation, which affects the margin when the revenue is that substantial. Additionally, some timing factors relate to the transition between the third and fourth quarters. Excluding that event, we would be in the mid-6s EBITDA margin range for the guidance, taking into account the effects of the Labor Disruption in the quarter.

Trevor Romeo, Analyst

Okay. That's helpful. And then maybe if I could just do one more, if you don't mind. I guess, encouraging definitely to hear about sequential volume growth into Q4. So I guess my question there is, you did talk about winter orders being up, I think, modestly versus last year. I guess, do you get the sense that this is more of a winter phenomenon? Or would you kind of chalk up the sequential volume growth to some kind of underlying improvement in demand, and maybe a shift in the contingent versus permanent staff that, I think, Cary alluded to in the comments?

Cary Grace, President and Chief Executive Officer

Yes, Trevor, we're viewing this situation as a combination of factors. Since our last call, we've observed the shape of demand has changed. In the second quarter, there was a pause in decision-making as people processed potential policy changes. For Travel Nurse, demand hit a low point in mid-May, but now we've seen about a 50% increase since then. We're still slightly below last year's demand, but there has been consistent growth in Travel Nurse since May. In allied demand, we're flat compared to last year, and while Locums have improved from Q2 to Q3, we're still down in the mid-single digits year-over-year. However, we're noticing demand improvements that go beyond just winter orders. This overall combination is contributing to the growth from Q3 to Q4, and even when adjusting for seasonality, we expect good growth in the fourth quarter.

Kevin Fischbeck, Analyst

Great. Maybe just to go back to the gross margin discussion. I guess in Q3, it looked like all the businesses had year-over-year gross margin compression. Can you just talk a little bit about the outlook for gross margins for next year across the businesses? It sounds like you think that the demand firming in Nurse and Allied is going to provide some stability there, but I guess it wasn't clear to me exactly what you were thinking about the other 2 businesses.

Cary Grace, President and Chief Executive Officer

Yes. Let me maybe pick up on some themes that we see going into next year. And I know we don't give guidance, but I'll give you some transparency about what we see. First, and this has been a negative impact for us the past 2-plus years, is we expect to see more favorable revenue mix. That will be coming from international nurses, which we already have seen enough from a visa retrogression this year to have some transparency about those placements next year. We expect International Nurse to be up from a revenue standpoint, 20-plus percent, and that's a higher-margin business. VMS, we've had a tailwind in VMS predominantly from our Medefis marketplace platform of clients going off. And so we would expect, as we get into 2023, for VMS to turn positive, and that has been a headwind for us. And then we also are seeing healthy demand increases from our leadership and search businesses. And those are the higher-margin businesses, both in PLS, and they're accretive to margin from a consolidated standpoint. So Kevin, first is, we're seeing more tailwinds around some of our higher-margin businesses as we leave this year and go into 2026. We've also been very focused on filling, especially where we have more direct access to demand. So think MSPs, our own VMS platform and direct accounts. I mentioned this in my opening remarks, year-over-year, we've doubled our internal capture on our own VMS. So we'll continue to focus on that. And then we're starting to see with some clients, some movement in bill rates. That's really from an industry standpoint. One of the things we'll be looking for as we get into 2026 is more consistent improvement of bill rates, which would obviously have a strong impact on margins.

Kevin Fischbeck, Analyst

Okay. Great. And the VMS improvement that you expect next year, is that tied? Or I guess when I think about VMS, I kind of think about it more tied broadly to Nurse demand. Is that happening because you expect Nurse and Allied demand to grow, and therefore, VMS will grow along with that? Or are you seeing...

Cary Grace, President and Chief Executive Officer

We're not necessarily assuming strong underlying growth. We just have had post-COVID, some clients who had gone on to this marketplace VMS coming off of it. And that process had a fairly long tail on it that we are at the very end of. And we've also layered in some wins that we've had this year. So the combination of those 2 things will help us get back to growth on our VMS business in 2026.

Kevin Fischbeck, Analyst

Okay. And I guess maybe just talk a little bit about the competitive dynamic, I guess, in the past, you noted that there's been some players who were kind of aggressive. How do you feel broadly about the competitive backdrop right now?

Cary Grace, President and Chief Executive Officer

The markets remain competitive, and we're seeing that both in terms of what we see for clients and in our overall pipeline as well as just competition to fill open orders, but we're not seeing competitors be irrational, and so if orders aren't priced at market, you're seeing them stay open. So while we're seeing a competitive environment, we also see rationality in that environment. And we feel like the market is really favoring total talent solutions platforms. And so that is a message that's resounding in the marketplace of looking and saying, I'm not coming in just to fill on one type of solution, but I'm coming in and I'm helping you build a sustainable workforce solution. And so we feel like our platform is very well positioned as the market goes into that next phase.

Tobey Sommer, Analyst

I want to ask something just kind of out in the future here. If you look at the federal health care funding cuts, such as Medicaid, and there are more to a decent list of them. Do you see customers having higher or lower demand for contingent labor because these changes kind of get feathered in over time, independent of the shutdown outcome?

Cary Grace, President and Chief Executive Officer

Yes, you're going to see some variance among systems about both where they are overall financially and kind of where they are in workforce in general, but the 2 themes that I'd say are predominant across all of our clients is they are focused on revenue growth, and they're simultaneously very focused on cost containment. So the more prevalent sentiment that we hear is pretty consistent with what you've heard from some of the public company health systems, who have reported over the past couple of weeks, which is they're still expecting to have low single-digit increases in patient utilization. They're focused on how do we ensure that we're able to meet those demands, but also do it from a workforce standpoint in an affordable way, knowing that labor has been increasing higher than reimbursement rates. So there is a lot of focus on sustainability of solutions, which gets a little bit back to my point around total talent solutions platform. And the other piece, Tobey, that's really more recent, we actually heard this at a health care conference this week is there's growing recognition about the affordability of contingent labor relative to permanent labor, and particularly by finance executives. So if you look at where we are on a premium of contingent labor to fully loaded permanent costs, you're under 10%. And so when you look at this past quarter, permanent hiring in health care was down the most we've seen in several years. You've also seen this increase in demand since the second quarter for contingent, and a growing recognition about the affordability of contingent and the role it can play in creating a flexible workforce.

Tobey Sommer, Analyst

Well, having finance professionals be advocates would be a reversal and probably just what the doctor ordered, so to speak. Within Nurse and Allied, could you talk about from a bill rate, pay rate and spread perspective, do you think bill rates can rise enough so that you can pass on at least the elements that seem to be empirically with a decent amount of inflation, I'm thinking of per diems and housing specifically.

Cary Grace, President and Chief Executive Officer

I think, we have been talking about stabilization of bill rates for some time period. And as I mentioned, for Nurse and Allied, we're going to see in the fourth quarter, a very slight increase in bill rates for the first time in 3 years. We need to see that more consistently, Tobey. So you just look at it from an underlying labor cost standpoint, you really do need to, as an industry, get to increasing bill rates. We're seeing clients who've had open orders out there for some time period that aren't priced to market. We saw that even today, a client changed some bill rates. So we are starting to see that gradually happen. You just need to see it more consistently as we get into 2026.

Brian Scott, Chief Financial and Operating Officer

Yes. I think in the near term, the rate increases we find necessary are primarily aimed at making compensation packages more appealing to attract nurses to take assignments. Our focus isn't on expanding margins right now; it's about driving more volume. Clients with open orders that have remained unfilled are realizing they have tested rates for long enough to understand that they won't be filled at those levels. If they need to fulfill those orders, especially while not hiring permanently, they're considering the cost involved. We are optimistic that these potential rate increases will help us fill more orders, which will in turn allow us to increase volume. Our business is capable of handling a larger volume than we currently do, and we will gain significant operating leverage from that. So, that's our primary goal. Additionally, as Karen noted earlier, as the need to fill orders grows, we will also continue to encourage the use of travelers who are already assigned. When you observe an increase in average hours, that’s where you begin to see the benefits you mentioned because certain costs, like per diems, are more fixed. This will create a win-win situation, as clients already have staff on-site who can take on more work, which also benefits our margins.

Cary Grace, President and Chief Executive Officer

What I would say is that from a market perspective, we don't have a supply issue as long as the order is priced appropriately. This will be a key factor for us to monitor regarding our clients, focusing not only on the increase in demand but also on whether there is an acknowledgment that to fulfill orders, bill rates may need to be raised.

Tobey Sommer, Analyst

I'm going to sneak in one last one, if I could. Your only public competitor has got due to potentially be acquired here in the next month. Is that a good thing or a bad thing for AMN and the industry if that goes through or does not?

Cary Grace, President and Chief Executive Officer

It doesn't change our strategy or what we're going to do. So we do think in the intermediate and long term, this industry needs to consolidate. So I think that is a direction that we think will happen. For this particular deal, it doesn't change what we would do in 2026 or our strategy.

Albert Rice, Analyst

Can you provide an update on the situation with clinicians, including the number of clinicians renewing for new assignments and new applicants? Additionally, can you share your insights on how this is evolving and what rate increases may be necessary to attract more travelers for assignments?

Cary Grace, President and Chief Executive Officer

Yes. Overall, we are still seeing a healthy supply now in certain locations or certain specialties, you may be more constrained. I'd say overall in Locums, you see more supply challenges than you do in Nurse and Allied more broadly. What we are seeing is if an order is priced right, then we can fill that order. And so that is the dynamic that we've been spending a lot of time with clients on is, A.J., how do we get them to a point where we can actually fill that order?

Brian Scott, Chief Financial and Operating Officer

Yes. I mean, we're putting a lot of work around how do we improve that clinician experience so that we are thought of as the employer of choice. At this time, we've had some really good success in the investments we've made there.

Cary Grace, President and Chief Executive Officer

We have a tool called PreCheck that helps us identify roles that might interest candidates and allows us to fill those positions automatically. We also gather insights from various clinicians regarding their expected pay packages for job acceptance. This enhances our predictive analytics, helping clients understand supply and demand and expectations. Coupled with the extensive data we have on our Workwise platform regarding market rates, we believe this will be increasingly beneficial for them in 2026 to secure the contingent staff they need.

Albert Rice, Analyst

When considering the Allied business or even Locums, I'm curious if you've noticed any shifts in the demand for certain types of clinicians within those sectors, or if there has been a decline in demand for any specific groups.

Cary Grace, President and Chief Executive Officer

For Locums, looking year-over-year, 8 of our 10 specialties experienced growth, indicating broad-based demand across these areas. More recently, the demand has been particularly high in surgery, hospitalist, dentistry, and anesthesia. We are observing strong demand in these four specialties, especially over the past quarter. In the allied sector, therapy and imaging led the way. Additionally, our Allied business, which includes a schools segment, experienced significant growth this year and we anticipate this trend will continue into 2026. Yes. So a couple of things. One, if you look at our pipeline, our pipeline actually grew very nicely quarter-over-quarter. Underneath it, between MSP and VMS, there is a bias towards MSP in the pipeline. We had been trending post-COVID where the pipeline had a bias towards VMS. Now both grew quarter-over-quarter, but we do see a bias in MSP. The other 2 themes that we see from a sales standpoint is, we have momentum in extensions. And so that has been a focus for us to do more with our current clients. And so we are seeing momentum in expansions with clients. A focus has been on how we put Locums in there, language services. And then I'd say the last theme that we're seeing from a sales standpoint is, if we lose in a pipeline, we are increasingly losing to the incumbent and to inertia. And so again, we think we have a differentiated platform around total talent solutions as we go into 2026 that we'll be able to combat some of that.

Mark Marcon, Analyst

Cary, Brian, you mentioned that if orders are priced right, we can get the clinicians. When you talked about the orders trending up, are you talking about only the orders that you would consider to be priced right? Or is that inclusive of orders that potentially aren't really fillable?

Cary Grace, President and Chief Executive Officer

It's inclusive of all orders, but what I would say underneath that is if we look at more kind of aged open orders, there's been a very slight uptick, but not meaningfully.

Brian Scott, Chief Financial and Operating Officer

Yes. As we've discussed the trends from the past few months, the winter orders are typically priced at the rate we fill. This is why, in the third quarter, despite a sequential decline which we anticipated, we exceeded the guidance we provided. As we began receiving more of those orders, the team excelled in filling them promptly. When the extension rates returned, we were able to maintain a higher number on assignment. This affected the third quarter, but the sequential increase we expect in the fourth quarter is largely influenced by this. For the other orders with lower rates, it’s not that we aren't filling any of them; it's just that the percentage filled is significantly lower. As these orders are posted, the team will continue to work on them, but overall, the fill rates and time to fill are lower. Cary mentioned that one client has decided to raise the rate on some of their existing orders that have been pending, recognizing the need to fill them. This adjustment will allow the team to act quickly and fill most of those orders as well. Therefore, while we have always considered all orders, the shift towards more orders being priced appropriately means we can convert more of them into placements.

Mark Marcon, Analyst

Great. That's encouraging. And then can you talk a little bit more about what you're seeing in terms of demand trends out of rural hospitals and particularly the ones that have been impacted by Medicaid cuts. We're starting to hear a little bit about how some of those facilities might be trending more towards travel nursing to an even greater extent than they already did, partially because if they're uncertain about their financial outlook, they'd rather turn to the travelers. Is that true? Does that resonate? What are you seeing from that perspective?

Cary Grace, President and Chief Executive Officer

We haven't seen any discernible trends or differences in rural hospitals. What I will say that has existed for some time is international nurses are typically a very good solution, broadly speaking, for a number of health systems, but in particular, for rural systems. It's attractive for the clinician coming over and bringing their family over. It's a very cost-effective way for these systems to be able to put in a longer-term clinician in there. So the international dimension is typically, marginally more important to rural hospitals than you would see elsewhere, but we haven't seen any real noticeable difference in rural hospitals versus others.

Brian Scott, Chief Financial and Operating Officer

But I think that decision-making that is what we're seeing as you've got more CFOs and finance folks involved in some of the buying decisions is that there is uncertainty and so wanting that flexibility as they pull back on some of their permanent hiring and recognizing that the incremental cost for bringing in contract labor is about as low as it's ever been. And so I think that not only in the rural areas, maybe they don't have access otherwise or they want that flexibility, that same type of dynamic we're seeing with certain clients in different settings as well.

Mark Marcon, Analyst

Great. In terms of normal seasonality, if we exclude the Labor Disruption revenue from the fourth quarter, how should we consider the usual seasonality between Q4 and Q1? Typically, we expect the winter orders to continue into Q1, but I'm curious if there’s anything that might alter that trend this year?

Brian Scott, Chief Financial and Operating Officer

No, I don't think anything will change that dynamic. Some of the assignments extend into the first quarter, so it's reasonable to anticipate nominal growth from Q4 to Q1 in nursing. We still need to fill in that quarter, but with the demand trends, especially after a decline in the third quarter, we should see improvement carrying into the first quarter. As Cary mentioned, we've had a strong year in the schools business, which will also impact the first quarter for Allied. Additionally, seasonally, our Locums business is typically lower, and that will bounce back in the first quarter. Historically, we've seen sequential growth in these areas, and we expect that trend to continue this year as well.

Constantine Davides, Analyst

Cary, in your prepared remarks, you highlighted the Locum days booked strength for your MSP clients. Can you expand upon exactly what you're doing to better leverage your MSP relationships for Locum starting with what transpired in the third quarter? And then I guess as a follow-up to that, is there a structural reason why the percentage of revenue from MSPs for Locums has kind of stayed pretty steady in the high teens level versus what you see typically in Nurse and Allied?

Cary Grace, President and Chief Executive Officer

Yes. So a couple of things about what we're doing in Locum. One is, we have made very intentional moves over the past 18 months to structurally be able to support our Locums MSPs. That includes in our ShiftWise Flex platform, having capabilities that we rolled out at the end of last year to extend what we had done for Nurse and Allied into Locums. We also added our Locums clinicians onto Passport earlier this year. So we have more AMN platform integration of our Locums business into core technology that we have built to support our Nurse and Allied business. Second is, we have been proactively selling to our current clients, Locum's capabilities. In a number of cases, one of the trends that you're seeing broadly is a desire, particularly for regional national systems to centralize pretty decentralized Locum spend. Oftentimes, that will happen with the same program leaders that lead Nurse and Allied. So we've been doing those 2 things. And then the third very important piece is that if you look at year-over-year, our fill rates in Locums, you have seen one of the biggest increases of our fill rates in our MSPs. So we're not only prioritizing continuing to expand our Locums MSP clients and the platform that we have underneath it, but we have a world-class Locums MSP team that has increased our fill rate on those platforms year-over-year.

Constantine Davides, Analyst

And then just a few moving pieces with Labor Disruption in the third quarter and fourth quarter, but overall, a pretty strong year for that part of your business. And as you look ahead to 2026, and I know forecasting this activity is probably an imprecise science, but at a high level, how is 2026 shaping up from a collective bargaining standpoint across the client base?

Cary Grace, President and Chief Executive Officer

Yes. There are several factors to consider. Statistically, there have been more strikes recently than in the past, which is a trend we monitor. We have a solid pipeline of strikes that our clients have requested us to get involved with in the coming year. Our solutions for managing strikes are crucial for clients with unionized workforces, and we exclusively support strikes for our clients. We're seeing ongoing strong activity in this area, and we anticipate that our strike business will remain active over the next 12 months.

Constantine Davides, Analyst

Great. And then if I could just sneak one last one in. The language services part of the business, can you just expand a little bit on the sort of the demand there, the level of price compression you're seeing? And I guess just your longer-term thoughts on the business, just given how quickly technology in that area seems to be evolving.

Cary Grace, President and Chief Executive Officer

Let me start with the long term. This business is really important to us, not just in how it supports our clients in delivering strong patient care, but also in terms of access. We value this business highly. We have noticed that growth has moderated throughout the year, which aligns with the experiences of others in the industry due to stricter immigration policies. In the second quarter, as well as this quarter, you may have observed some modest growth in minutes, but that has been countered by pricing pressure. We expect to see the same trend next quarter. We plan to implement some changes to our operating model to improve our cost to serve, and we anticipate that you will start noticing the benefits in 2026. However, we believe that growth will be more modest than what you might have observed 18 months ago, but we still regard this as a growth business and feel well positioned to succeed in it.

Jack Slevin, Analyst

I'm going to apologize in advance, but I want to go back over some of the strike margin stuff. So if you'll just bear with me, what I'm getting is the 10 basis point gross margin impact that you called out in the $5 million of G&A. But Brian, I thought, I also heard a mid-6s comment on EBITDA margin ex-strike. So on my math, it's a little below 6%, if you plug those other 2 pieces. I just want to make sure I heard that commentary right. And then the second piece of the question on that front. I think, I heard some commentary that maybe made it sound like the Labor Disruption trends ultimately benefited 3Q based on some of the stuff that's happening now. Did I hear that correctly? Or just trying to understand on the strike front sort of how to take the balance, a few comments on that.

Brian Scott, Chief Financial and Operating Officer

Yes, I will address those points in reverse order. You heard correctly that due to the way the services were rolled out for the event, we experienced a margin benefit in the third quarter. This resulted in approximately a 100 basis point increase in gross margin for the consolidated figures in Q3. Looking ahead to Q4, we mentioned that the significant revenue from Nurse and Allied, which has a lower margin profile, impacted our consolidated guidance by pulling the margin down. If you adjust for that and consider a normalized perspective, you would see the margin closer to 27%. So, our margin shifted from 29% to 28%, and with that adjustment, our guidance would be around 27%. This reflects about a 100 basis point change in margin from Q3 to Q4 on that adjusted basis. Does that clarify things?

Jack Slevin, Analyst

Yes, I think that's helpful. Yes. No, no, I appreciate it.

Brian Scott, Chief Financial and Operating Officer

You heard correctly. I meant to convey that if you take our revenue guidance and exclude most of the factors affecting that revenue number we provided, you would find that the inputs suggest an adjusted EBITDA margin in the mid-6s range for the quarter.

Jack Slevin, Analyst

Okay. Got it. That's really helpful. And then second one on this front. I mean, I think, what it sounds like to me, I'm hearing a lot of things that might trend positively when you talk about VMS, return on international, the schools points you brought up and then just overall having a bill rate environment that has been pretty stable to now possibly trending up into '26. If you look at the ex-strike margins in 4Q and appreciating there's a little bit of seasonality there. But if you look at the ex-strike margins in 4Q, is that a decent way to think about a floor on where margins can go going forward? Or can you just help me piece together sort of how we go from that margin level forward?

Brian Scott, Chief Financial and Operating Officer

Yes, the short answer is yes. We see that as likely a minimum threshold. If you consider the guidance we provided and account for the 100 basis points, you are looking at 26.5% to 27%. If you also factor in some typical level of labor restructuring activity, you're within that 27% range, which seems like a reasonable baseline. From there, we can explore the components that were previously mentioned regarding the opportunities we anticipate heading into 2026. Some of these, like the volume increase we expect in international markets starting in Q1, are clearly visible, while others will be proactive initiatives we will work on throughout the year.

Jeff Silber, Analyst

I know it's late. I'll just ask one. I think, last quarter, you talked about some of the weakness in academic medical centers considering what was going on with funding, et cetera. Can we get an update on that? Has that changed at all?

Cary Grace, President and Chief Executive Officer

Yes. Trend remains the same. So if we look at where academic medical centers are year-over-year, they are still lagging our non-academic medical care systems, but we are getting closer to them being stabilized. And I would expect that as we really start, kind of, 2026, that they would be, if not stabilized, very close to stabilized.

Jeff Silber, Analyst

And can you just remind me what percentage of the business that is?

Cary Grace, President and Chief Executive Officer

I'm pulling it up from last quarter. 20%.

Randy Reece, Vice President, Investor Relations

This concludes today's conference call. Thank you for participating, and you may now disconnect.