AMN Healthcare Services, Inc. — Q1 2014 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2014, compared with Q1 2013. AMN provides healthcare staffing and workforce solutions through nurse and allied staffing, locum tenens staffing, and physician permanent placement. Amounts below are in millions unless noted.
Financial performance
- Revenue: $240.9, down 4% from $252.1. Gross profit rose 1% to $74.0; gross margin increased to 30.7% from 29.0%.
- Operating results: SG&A was $54.7 versus $53.6; depreciation and amortization was $3.8 versus $3.3. Operating income was $15.5, down from $16.1; operating margin was 6.4% in both periods.
- Profit: Net income was $7.6, essentially unchanged from $7.6. Diluted EPS was $0.16 versus $0.16; basic EPS was $0.16 versus $0.17. Interest expense, net and other declined to $1.8 from $2.9. Effective tax rate was 44.0%, versus 42.9%; management estimated approximately 43.0% for 2014.
- Segment revenue: Nurse and allied staffing $163.5, down 8%; locum tenens $66.9, up 2%; physician permanent placement $10.6, up 7%. Segment gross margins were 29.0%, 29.9%, and 63.0%, respectively, compared with 27.5%, 27.9%, and 62.6%.
- Cash flow: Operating cash flow was $1.0, improved from cash used of $2.2. Investing used $4.7, including $5.8 of fixed-asset purchases and a $2.0 Pipeline investment. Financing used $2.6, including $3.9 paid for shares withheld for taxes. Cash declined $6.3 to $9.3.
- Balance sheet and liquidity: At March 31, cash was $9.3; current assets were $228.5 and current liabilities $141.2. Debt included $10.0 outstanding on the revolver and $148.7 of notes payable, net of discount, including $7.5 classified as current. Restricted cash, cash equivalents and investments totaled $21.6. DSO was 56 days.
Changes and management commentary
- Revenue declined mainly because fewer clinicians were on assignment in nurse and allied staffing. Locum tenens benefited from higher revenue per day filled despite fewer days filled; physician placement grew with more active searches and placements.
- Gross margin improved through higher bill-to-pay spreads and the contribution of acquired ShiftWise, a workforce-management technology provider acquired in November 2013. Higher SG&A and depreciation/amortization partly offset margin gains.
- Management reported nurse and allied staffing orders above prior-year levels, but said cautious clients, reimbursement changes, and lower hospital census had prevented stronger booking volumes. Managed-services contracts represented approximately 45% of nurse and allied revenue and 8% of locum tenens revenue. Management expected workforce-solutions revenue to continue growing; no specific earnings or revenue guidance was provided.
- In March, AMN invested $2.0 in Pipeline Health Holdings, initially owning approximately 9%, and committed up to a further $3.0 subject to milestones. The first additional $1.0 milestone investment was made in April.
Debt, risks, and contingencies
- On April 18, 2014, AMN refinanced its prior facilities with a secured $225.0 revolving facility and $150.0 term loan, maturing April 18, 2019. Borrowings carry floating rates; term-loan principal amortizes at 5% annually. The agreement includes leverage and interest-coverage covenants, and the company incurred approximately $3.5 in fees. Management said operating cash generation and available borrowing capacity should fund operations for at least 12 months.
- The IRS challenged tax treatment of clinician per diems and proposed payroll-tax adjustments for 2007–2010. The positions are mutually exclusive, and the company said it could not determine a reasonable range of potential claims. AMN contested both reports and was pursuing IRS Appeals; audits of 2011 and 2012 were also underway.
- AMN cited demand, client retention and pricing, healthcare regulation, clinician recruitment, technology execution, professional-liability and employment claims, tax exposures, and debt service as risks. It reported no material change to previously disclosed risk factors. A wage-and-hour class action settlement was completed for an immaterial amount.
Important facts for investors to verify
- Whether higher staffing orders translate into bookings and assignment volumes, particularly in nurse and allied staffing.
- Progress in expanding managed-services, VMS, and RPO revenue, and the contribution and integration of ShiftWise.
- Cash conversion, receivables/DSO, capital spending, and the effect of restricted cash and insurance-related funding.
- Post-refinancing debt balances, floating-rate exposure, covenant headroom, and compliance with credit-agreement terms.
- Developments in IRS examinations and the potential effect of tax contingencies on earnings and cash flow; the filing provides no clear estimate of potential exposure.