AMN Healthcare Services, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also presents unaudited fourth-quarter results. AMN provides healthcare staffing and workforce solutions through nurse and allied staffing, locum tenens staffing, and physician permanent placement.
Financial results
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Revenue | $1,036.0 million | $1,011.8 million | +2% |
| Gross profit / margin | $316.1 million / 30.5% | $297.3 million / 29.4% | +6%; +1.1 percentage points |
| Operating income / margin | $67.9 million / 6.6% | $65.5 million / 6.5% | +4% |
| Net income | $33.2 million | $32.9 million | +1% |
| Diluted EPS | $0.69 | $0.69 | Unchanged |
| Cash from operating activities | $27.7 million | $60.2 million | Down $32.5 million |
Fourth quarter: Revenue was $279.6 million versus $248.7 million a year earlier; gross profit was $84.7 million versus $74.2 million; net income was $9.9 million versus $8.4 million. Diluted EPS was $0.20 versus $0.17.
Segment revenue: Nurse and allied staffing was $695.2 million (+2%); locum tenens was $296.2 million (+3%); physician permanent placement was $44.7 million (+5%).
Liquidity and debt: Cash was $13.1 million at year-end, compared with $15.6 million in 2013. Current assets were $282.7 million and current liabilities $178.3 million. Total debt outstanding was $162.4 million, comprising a $144.4 million term loan and $18.0 million drawn on the revolver; $197.6 million of revolver availability remained. The company reported no material off-balance-sheet arrangements.
Changes, operating trends, and outlook
- Revenue growth was modest, while gross margin improved from 29.4% to 30.5%, reflecting higher bill-to-pay spreads, improved margins across segments, and the contribution of ShiftWise. SG&A increased 6% to $232.2 million and rose to 22.4% of revenue from 21.6%, partly due to a full year of ShiftWise and technology spending.
- Operating cash flow fell primarily because accounts receivable and subcontractor receivables increased; days sales outstanding rose to 61 from 55. Management cited slower payments from some large customers and billing-process delays, but reported no overall deterioration in client credit quality.
- Management said staffing demand improved through the second half of 2014 and into Q1 2015, with travel nurse, allied, locum tenens, and permanent placement demand strengthening. It expected workforce-solutions revenue to grow, supported by managed services and technology offerings; the filing gives no quantified earnings or revenue guidance.
- Cost pressures include rising housing expense and higher clinician pay rates. Management said higher client bill rates had partly offset these pressures, but noted some compression in pay-to-bill spreads as competition for nursing talent increased.
- Managed services represented about one-third of consolidated revenue in 2014; MSP revenue was about 45% of nurse and allied segment revenue and 12% of locum tenens revenue. Kaiser Foundation Hospitals and affiliates accounted for approximately 10% of consolidated revenue.
Transactions, contingencies, and risks
- AMN acquired Avantas in December 2014 for a total purchase price of $17.5 million, including contingent consideration. A potential additional earn-out of up to $8.5 million is tied to future performance. On January 7, 2015, it acquired Onward Healthcare, Locum Leaders, and Medefis for $82.5 million in cash.
- The April 2014 credit agreement refinanced prior facilities and matures in April 2019. It has floating rates, financial covenants, and restrictions that include limits on dividends and share repurchases. A 100-basis-point rate increase was not expected to have a material 2014 financial-statement effect.
- The company disclosed $28.7 million of unrecognized tax benefits, including interest and penalties. IRS income-tax and employment-tax disputes concerning 2007–2010 assessments remained unresolved; management believed reserves were adequate but could not predict timing or settlement amount.
- Other material risk areas include clinician recruitment and retention, customer concentration and purchasing power, reimbursement and regulatory changes, independent-contractor classification, malpractice and employment claims, cybersecurity/privacy, technology-system implementation, acquisition integration, and potential goodwill or intangible impairment.
- Management reported no pending or threatened litigation believed reasonably likely to have a material adverse effect. A wage-and-hour class action was settled in Q1 2014 for an immaterial amount. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification points
- Confirm the durability of improving demand, bill rates, and gross margins against rising clinician compensation and housing costs.
- Track receivables, DSO, and operating cash conversion, especially given the 2014 decline in operating cash flow.
- Review debt covenant headroom, variable-rate exposure, scheduled term-loan amortization, and available revolver capacity.
- Assess integration, purchase accounting, and earn-out exposure for Avantas and the post-year-end Onward Healthcare, Locum Leaders, and Medefis acquisition.
- Monitor the IRS disputes and the adequacy of tax, insurance, and litigation reserves, as well as customer concentration and the company’s technology modernization program.