AMN Healthcare Services, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports fourth-quarter results. AMN provides healthcare staffing and workforce solutions, including nurse and allied staffing, locum tenens, managed services, vendor management systems, and workforce optimization. All revenue was generated in the United States.
Financial performance
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Revenue | $1,988.5 million | $1,902.2 million | +5%; 4% organic growth |
| Gross profit / margin | $644.4 million / 32.4% | $619.7 million / 32.6% | Profit +4%; margin down 0.2 percentage points |
| Operating income / margin | $212.4 million / 10.7% | $191.6 million / 10.1% | +11%; margin up 0.6 points |
| Net income / diluted EPS | $132.6 million / $2.68 | $105.8 million / $2.15 | Net income +25% |
| Cash from operating activities | $115.3 million | $131.9 million | Down $16.6 million |
Net margin was 6.7%, versus 5.6% in 2016. The effective tax rate fell to 31.2% from 39.9%, primarily reflecting a $14.0 million discrete benefit from the Tax Cuts and Jobs Act and a $5.4 million share-based compensation tax benefit.
Fourth quarter: Revenue was $509.1 million versus $487.9 million in Q4 2016; net income was $41.2 million versus $26.4 million. Q4 2017 net income included the $14.0 million Tax Act benefit, so the reported earnings comparison was affected by this non-recurring item.
Segments and material changes
- Nurse and allied: Revenue of $1,238.5 million, up 5%; segment operating income was $182.8 million. Growth reflected a 5% increase in average clinicians on assignment and a 2% increase in average bill rate, partly offset by a $37 million decline in labor-disruption revenue.
- Locum tenens: Revenue of $430.6 million, up 2%; segment operating income fell to $51.4 million from $58.8 million. Higher revenue per day was offset by 3% fewer days filled and lower bill-to-pay spreads.
- Other workforce solutions: Revenue of $319.3 million, up 9%; segment operating income was $81.2 million. Growth in VMS, interim leadership and workforce optimization, along with Peak acquisition revenue, was partly offset by weaker permanent placement results.
Consolidated gross margin edged lower, reflecting locum tenens spread pressure and an unfavorable mix in other workforce solutions, partly offset by improved nurse and allied margins. SG&A was nearly flat in dollars and declined as a share of revenue, to 20.1% from 20.9%.
Cash, debt and liquidity
- Cash and cash equivalents were $15.1 million at year-end; current assets were $474.2 million and current liabilities were $265.3 million.
- Year-end notes payable, net of unamortized fees, were $319.8 million; the balance was principally $325 million of 5.125% senior notes due 2024. AMN repaid its remaining term loans during 2017.
- No revolver borrowings were outstanding at year-end; approximately $256 million was available under the then-existing revolver after letters of credit. On February 9, 2018, AMN replaced it with a secured $400 million revolving facility maturing in 2023.
- Capital expenditures were $26.5 million. Operating cash flow less capital expenditures was approximately $88.7 million, calculated from reported figures, versus approximately $109.9 million in 2016.
- AMN repurchased $20.2 million of stock in 2017. It reported compliance with credit-facility financial covenants at year-end and stated that operating cash flow and available borrowings should fund operations and expected capital expenditures for the next 12 months and beyond.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management described nurse and allied demand as favorable and reported growth in several workforce-solutions businesses.
- Locum tenens faced weaker hospitalist demand from some large physician practice management firms. Operating-model and technology changes were expected to disrupt productivity and revenue through Q2 2018, with anticipated longer-term benefits.
- Management planned approximately $17 million of technology investment in the following year to standardize staffing operations on PeopleSoft and Salesforce. Lower use of premium bill rates and clinician wage pressure could weigh on margins.
- Client concentration is notable: Kaiser Foundation Hospitals and affiliates represented approximately 13% of consolidated revenue in 2017. Healthcare-system consolidation and intermediaries may increase pricing pressure or concentration risk.
- Key risks include economic and healthcare-demand changes, clinician recruiting and retention, regulatory and employment-law exposure, worker classification, cybersecurity and system implementation, acquisition integration, debt covenants, and insurance-reserve estimates.
- The company disclosed wage-and-hour class actions and other ordinary-course legal matters, but said outstanding loss contingencies were not expected to have a material adverse effect; outcomes remain uncertain. It also held $64.3 million in restricted cash, cash equivalents and investments, primarily related to insurance and letters of credit.
- The audited financial statements received an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Underlying earnings excluding the $14.0 million Tax Act benefit and the $5.4 million share-based tax benefit, particularly for Q4.
- Whether locum tenens operational changes restore productivity and revenue after the expected disruption through Q2 2018.
- Margin effects from wage inflation, bill-rate trends, segment mix, and lower premium-rate utilization.
- Kaiser revenue concentration, client retention, and the profitability of MSP and VMS relationships.
- Cash conversion, restricted insurance-related balances, debt service, and covenant capacity under the replacement $400 million credit facility.
- Potential exposure from wage-and-hour litigation, professional liability and workers’ compensation reserves, and tax positions.