AMN Healthcare Services, Inc. — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless otherwise stated. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions.
Business context and results
AMN provides healthcare staffing and workforce solutions through nurse and allied solutions, physician and leadership solutions, and technology and workforce solutions. Results reflected the sharp retreat in travel nurse demand and rates from pandemic-era highs, partly offset by strength in allied staffing, locum tenens, and language services.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,126.2 | $1,552.5 | Down 27% |
| Gross profit / margin | $368.8 / 32.8% | $496.2 / 32.0% | Profit down 26%; margin up 0.8 points |
| Operating income / margin | $125.7 / 11.2% | $207.9 / 13.4% | Income down 40% |
| Net income / margin | $84.1 / 7.5% | $146.0 / 9.4% | Income down 42% |
| Diluted EPS | $2.02 | $3.09 | Down 35% |
| Operating cash flow | $43.4 | $200.2 | Down $156.8 |
Revenue and operating drivers
- Nurse and allied: Revenue fell 33% to $824.5 million. Travel nurse staffing revenue was $592.7 million, down from $970.1 million. Management attributed the segment decline primarily to an approximately 22% lower average bill rate, 11% fewer average travelers on assignment, and 3% fewer billable hours. Segment gross margin was 25.9%, versus 26.2%.
- Physician and leadership: Revenue declined 8% to $165.8 million. Locum tenens revenue decreased approximately 5%, with days filled down 9% and revenue per day filled up 4%; interim leadership and permanent placement/search also weakened. Segment gross margin was 35.2%, versus 35.0%.
- Technology and workforce: Revenue declined 6% to $136.0 million. VMS revenue fell 28%, while language services grew 25%. Segment gross margin decreased to 71.4% from 76.7%.
Consolidated gross margin improved mainly because lower nurse and allied revenue changed the sales mix. SG&A declined to $205.6 million from $257.6 million, primarily due to lower employee compensation and benefits, but rose as a share of revenue to 18.3% from 16.6%. The provision for expected credit losses increased; management cited concern about one specific customer’s ability to pay and broader collectability uncertainty.
Cash flow, debt, and liquidity
- Operating cash flow was $43.4 million, versus $200.2 million. Management cited lower earnings, bonus and commission payments, and working-capital changes. DSO was 55 days, unchanged from December 31, 2022 and down from 57 days a year earlier.
- Investing cash outflow was $32.4 million, including $17.5 million of capital expenditures and $17.0 million of deferred compensation plan funding. Financing cash outflow was $44.5 million, including $174.7 million of share repurchases, partly offset by $210.0 million of revolving-credit borrowings.
- Cash and cash equivalents were $28.5 million at March 31, versus $64.5 million at year-end. Cash, cash equivalents, and restricted cash totaled $104.4 million for cash-flow reporting purposes.
- Debt included $140.0 million drawn on the revolving facility and $850.0 million principal outstanding on senior notes: $500.0 million of 4.625% notes due 2027 and $350.0 million of 4.000% notes due 2029. The notes’ combined carrying amount was $843.8 million. The $750.0 million secured revolver had $589.2 million of available credit at quarter-end.
- A February 2023 credit amendment extended the revolver maturity to February 10, 2028, increased commitments to $750.0 million, and transitioned the reference rate from LIBOR to SOFR. Management stated that operating cash flow and available borrowings should fund operations and liquidity needs, including expected capital expenditures, for the next 12 months and beyond.
Outlook, risks, and unusual items
- Management said travel nurse demand had fallen significantly from historic highs and was slightly below pre-pandemic levels; nurse bill rates and compensation were expected to stabilize above pre-pandemic levels during 2023. Allied demand remained above pre-pandemic levels. Locum tenens demand was well above pre-pandemic levels, with continued strong demand expected in Q2 2023; interim leadership and search remained softer.
- Management expected VMS trends to track nurse and allied conditions, with rates stabilizing above pre-pandemic levels. Clients were accelerating efforts to contain contingent-labor costs and reassessing workforce solutions. The filing provides no specific consolidated revenue or earnings guidance.
- The company estimated an approximately 28% annual effective tax rate for 2023; Q1’s effective rate was 27%.
- The allowance for credit losses on accounts receivable rose to $37.7 million from $31.9 million at year-end. The Q1 cash-flow reconciliation included a $25.4 million increase in the allowance for credit losses and sales credits.
- Accruals for two significant wage-and-hour matters totaled $46.2 million at March 31. One matter had an approved settlement with payment expected in Q2 2023; the company could not estimate possible losses beyond amounts accrued. A new Dallas office lease was expected to commence in Q2 2023, with approximately $29.5 million of undiscounted future payments, excluding incentives.
- AMN repurchased 1.8 million shares for $174.7 million during Q1 at an average $98.81 per share. The board authorized a total of $1.35 billion in repurchases, with $476.7 million remaining at quarter-end. Management said it intended to enter into an approximately $200 million accelerated repurchase; the filing also reports additional repurchases through May 5.
- Key disclosed risks include further reductions in temporary staffing demand and bill rates, client cost containment, customer credit and collection risk, clinician recruitment and retention, litigation and employment-law exposure, cybersecurity and technology disruptions, goodwill impairment, and indebtedness and variable-rate interest exposure. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether travel nurse volumes and bill rates stabilize as management expects, and how that affects nurse and allied margins.
- Whether operating cash flow recovers after Q1’s working-capital outflows and lower earnings.
- Collections from the customer driving the increased credit-loss provision, and any further allowance changes.
- Settlement payment timing and whether litigation exposure exceeds the $46.2 million accrued.
- Execution and funding of the planned accelerated share repurchase, alongside debt levels and remaining revolver capacity.