AMN

Business Context and Reporting Period

Company: AMN Healthcare Services, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: The Company is the nation's largest provider of comprehensive healthcare staffing and management services, operating through three segments: nurse and allied healthcare staffing, locum tenens staffing, and physician permanent placement services.

Key Financial Metrics

Note: Operating cash flow for the six months ended June 30, 2010, was a net use of cash of $18.3 million, contrasting with a net provision of $73.9 million in the prior year period.

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 25% year-over-year for the quarter and 35% for the six-month period, primarily due to a decrease in the average number of temporary healthcare professionals on assignment.
• Profitability Improvement: Net income for the six months ended June 30, 2010, was $0.9 million, a significant improvement from a net loss of $117.5 million in the same period in 2009. The 2009 loss was heavily impacted by $180.8 million in impairment and restructuring charges, which were absent in 2010.
• Segment Performance:
  • Nurse & Allied Staffing: Revenue down 32% (quarter) and 45% (six months).
  • Locum Tenens: Revenue down 17% (quarter) and 18% (six months).
  • Physician Placement: Revenue down 7% (quarter) and 20% (six months).
• Expense Management: Selling, general, and administrative (SG&A) expenses decreased 8% for the quarter and 24% for the six months, driven by cost-reduction actions taken in 2009 and reduced bad debt expense.

Outlook, Risks, and Unusual Items

• Acquisition of Medfinders: On July 28, 2010, the Company entered into a definitive agreement to acquire Medfinders (NF Investors, Inc.) for an estimated value of $220 million. The transaction involves issuing common stock and Series A Conditional Convertible Preferred Stock. Financing will involve amending credit facilities and using existing cash.
• Market Conditions: Demand remains below pre-recession levels due to economic conditions, though the Company notes stabilization and incremental improvement in the second quarter. Clients are increasingly relying on permanent labor and preferred vendor relationships.
• Tax Rate: The effective income tax rate for the six months ended June 30, 2010, was 69.3%, significantly higher than the 2009 rate of 27.7%. Management estimates the annual effective tax rate for 2010 to be approximately 65.1%, driven by state taxes and provisions for uncertain tax positions.
• Liquidity: As of June 30, 2010, $103.6 million was outstanding under the credit facility with $40.0 million available. The Company believes cash flow and borrowings will be sufficient for the next 12 months.
• Risks: Key risks include the ability to sustain growth in an economic downturn, recruitment of qualified professionals, credit risk concentration, and the impact of healthcare reform legislation (Affordable Care Act).

Investor Verification Checklist

• Acquisition Financing: Verify the terms and approval status of the credit facility amendments required to fund the Medfinders acquisition and retire its debt.
• Revenue Trends: Monitor the stabilization of demand and the shift toward managed services and preferred vendor accounts as a counter to the overall revenue decline.
• Effective Tax Rate: Review the components of the high effective tax rate (65.1% estimated for 2010) and the impact of uncertain tax positions on future earnings.
• Cash Flow Reversal: Investigate the drivers behind the negative operating cash flow of $18.3 million in the first half of 2010 despite positive net income, specifically regarding changes in working capital (accounts receivable and payables).
• Debt Covenants: Confirm continued compliance with financial covenants (fixed charge coverage and leverage ratios) given the increased debt load from the pending acquisition.