AMN Healthcare Services, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. AMN provides healthcare staffing and workforce solutions across nurse and allied, locum tenens, and other workforce solutions.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $567.6m | $526.8m | $1,635.2m | $1,607.4m |
| Gross profit / margin | $190.0m / 33.5% | $175.1m / 33.2% | $546.3m / 33.4% | $523.9m / 32.6% |
| Operating income / margin | $39.7m / 7.0% | $42.6m / 8.1% | $129.9m / 7.9% | $152.7m / 9.5% |
| Net income | $23.5m | $27.9m | $86.5m | $106.1m |
| Diluted EPS | $0.49 | $0.58 | $1.82 | $2.17 |
- Q3 revenue rose 8%, but only 1% excluding acquisitions; nine-month revenue rose 2%, while excluding acquisitions it declined 3%.
- Q3 SG&A increased to $133.2m (23.5% of revenue, versus 23.0%); nine-month SG&A was $374.9m (22.9%, versus 21.2%). Higher acquisition, integration, compensation, legal and earn-out costs contributed. Depreciation and amortization also rose, partly due to acquisitions and a shortened useful life for a MedPartners trade name.
- Operating cash flow was $146.2m for the first nine months, down from $168.0m. Investing cash outflow was $253.6m, including $228.2m for acquisitions and $24.8m of capital expenditures. Financing cash inflow was $136.4m. Cash and equivalents at quarter-end were $40.7m; DSO was 57 days, compared with 64 days at both year-end 2018 and September 2018.
Segments and material changes
- Nurse and allied: Q3 revenue increased 18% to $362.5m, including Advanced acquisition revenue; average professionals on assignment and average bill rate each increased 2%. Nine-month revenue rose 6% to $1,031.2m. Segment operating income was $47.5m in Q3 and $144.2m year to date.
- Locum tenens: Q3 revenue fell 17% to $84.2m, with days filled down 15%; nine-month revenue declined 21% to $246.7m, primarily as days filled fell 21%. Segment operating income declined to $6.2m in Q3 and $19.0m year to date.
- Other workforce solutions: Q3 revenue increased 1% to $120.9m; nine-month revenue increased 12% to $357.3m, substantially reflecting acquisitions. Segment operating income was $27.8m in Q3 and $81.1m year to date.
- Gross margin improved overall, but lower locum tenens margins and unfavorable segment mix partly offset gains. Nine-month gross margin also benefited from a $4.3m reclassification of certain physician placement recruiter compensation from cost of revenue to SG&A.
Liquidity, debt and notable events
- At September 30, reported borrowings included $146.0m drawn on the revolving facility, $149.1m on the term loan, and $325.0m principal amount of 5.125% notes due 2024. The company reported $239.3m of available revolver capacity. Credit facilities mature June 14, 2024, bear floating rates, and are secured by substantially all company assets.
- On October 1, after quarter-end, AMN issued $300.0m of 4.625% senior notes due 2027 and used proceeds and operating cash to repay $149.1m of term debt and $146.0m of revolver borrowings, plus approximately $4.3m in fees and expenses. The notes are unsecured and include customary restrictive covenants.
- AMN adopted lease accounting in 2019, recognizing $114.8m of lease liabilities and $99.5m of right-of-use assets at adoption; the filing says adoption did not affect opening retained earnings. At September 30, operating lease liabilities were $107.5m.
- Acquisitions included Advanced and Silversheet in 2019. Advanced purchase accounting remained preliminary; contingent consideration liabilities totaled $15.1m at September 30.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management described healthcare staffing demand and the broader labor market as favorable, but said clinician supply—particularly nurses—has not kept pace with demand. It also cited fewer contingent nurse needs at a large client and lower therapist demand from skilled nursing facilities following Medicare reimbursement changes.
- Management said locum tenens demand was generally favorable but hospitalist and emergency-room physician demand had declined; the business had stabilized following 2018 process and technology changes. It reported signs of stabilization in revenue cycle solutions and improving demand in interim leadership, permanent placement and technology workforce solutions.
- The company believed operating cash flow and available revolver capacity would be sufficient for operations and expected capital expenditures for the next 12 months and beyond. Risks include clinician recruitment and retention, client concentration and pricing, healthcare reimbursement and regulation, technology and cybersecurity, acquisition integration, leverage and floating-rate exposure, and goodwill or intangible-asset impairment.
- AMN disclosed wage-and-hour class-action matters and other ordinary-course legal claims. It accrued $6.0m for loss contingencies and stated it did not expect accrued matters to have a material adverse effect; outcomes remain uncertain. An $8.3m IRS assessment relating to Advanced is under appeal, with AMN stating it is indemnified for the potential liability.
Investor facts to verify
- Whether organic revenue and operating results improve, particularly given the 3% nine-month revenue decline excluding acquisitions and continued locum tenens weakness.
- Whether nurse supply constraints, customer staffing needs and skilled-nursing reimbursement changes affect placements, bill rates and margins.
- Integration results and final purchase accounting for Advanced and Silversheet, including earn-outs, goodwill and amortization expense.
- Post-quarter debt refinancing effects, including interest costs, covenant headroom and the balance of fixed-rate versus variable-rate debt.
- Developments in wage-and-hour litigation and the Advanced tax appeal, as well as any material changes in liquidity or cash conversion.