AMN Healthcare Services, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Unaudited results. AMN provides healthcare staffing and workforce solutions through nurse and allied staffing, locum tenens staffing, and physician permanent placement.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $253.9 million | $235.8 million | $506.1 million | $462.2 million |
| Gross profit / margin | $74.4 million / 29.3% | $67.0 million / 28.4% | $147.4 million / 29.1% | $130.2 million / 28.2% |
| Operating income / margin | $16.6 million / 6.5% | $13.1 million / 5.6% | $32.7 million / 6.4% | $25.5 million / 5.5% |
| Net income (loss) | $8.4 million | $(0.1) million | $16.0 million | $4.2 million |
| Diluted EPS | $0.18 | $0.00 | $0.33 | $0.09 |
- Cash flow: Six-month operating cash flow was $16.5 million versus $30.6 million in 2012. Investing used $5.3 million; financing used $6.5 million. Cash rose to $10.5 million from $5.7 million at year-end.
- Liquidity and debt: Current assets were $210.2 million and current liabilities $111.2 million. Term-loan debt, net of discount, was approximately $153.5 million; no revolver borrowings were outstanding and $36.4 million of revolver capacity was available. Restricted cash and investments were $21.0 million. The company reported compliance with credit covenants.
- Other metrics: Days sales outstanding was 54 days, versus 53 days at year-end 2012 and June 30, 2012. Estimated 2013 effective tax rate was approximately 39.9%.
Material changes and drivers
- Q2 revenue grew 8%; six-month revenue grew 9%, with increases in all three segments. Six-month nurse and allied staffing revenue rose 11% to $346.9 million; locum tenens increased 5% to $138.2 million; physician permanent placement increased 13% to $21.0 million.
- Gross margin improved year over year, mainly from favorable insurance claims experience in nurse and allied staffing and improved bill-to-pay spreads in locum tenens. SG&A rose with staffing, commissions, and professional-liability costs, partly offset by a $3.0 million benefit from settling acquisition indemnification claims.
- Interest expense fell to $3.1 million in Q2 from $13.6 million, and to $6.0 million for the half from $19.1 million. The prior-year periods included a $9.8 million debt-extinguishment loss; 2013 also benefited from lower average debt and rates.
- Operating cash flow declined, primarily because of higher tax payments and increased receivables associated with revenue growth and higher DSO. Capital expenditures were $5.3 million versus $2.2 million in the first half of 2012.
- An April 2013 credit amendment reduced loan spreads and the term-loan LIBOR floor and increased the letter-of-credit sublimit. The company paid down $5.0 million of term debt in the first half.
Outlook, commentary, and risks
- Management stated that operating cash flow and revolver availability should fund operations for the next 12 months and beyond. No specific revenue or earnings guidance was provided.
- Management reported nursing demand broadly consistent with the prior year, citing weaker inpatient admissions, federal reimbursement cuts, and hospital spending controls amid healthcare-reform uncertainty. Therapy demand had fallen since late 2012 following Medicare reimbursement changes.
- Demand was strong in several locum tenens specialties, including primary care, hospitalist, and emergency medicine, but weaker in radiology; professional-liability costs increased. Physician permanent placement demand and recruiter productivity improved.
- The IRS proposed adjustments involving clinician per diems and related employment-tax treatment for 2007–2010 and certain prior NOL carryforwards. AMN disputed the positions and filed protests; it said the potential claim range could not be reasonably determined and resolution was not expected within 12 months.
- A wage-and-hour class action and related matter were settled in Q2 for an amount described as immaterial, subject to court approval; the company said it had fully reserved for the settlement. Other ordinary-course claims and possible client indemnification obligations remain.
- Key risks include staffing demand and pricing, clinician recruitment and retention, healthcare reimbursement and regulation, professional-liability and employment claims, tax contingencies, and the ability to service debt. Management noted moderate seasonal fluctuations in demand and results.
Important facts for investors to verify
- Whether receivables and DSO stabilize, given the year-over-year growth and decline in operating cash flow.
- Whether demand softness in nursing and therapy, and weaker radiology demand, continues or spreads to other specialties.
- Whether gross-margin gains persist as professional-liability costs and other staffing-related expenses change.
- Developments in the IRS examinations and the wage-and-hour settlement, including any effect on tax reserves, liabilities, or cash flow.
- Debt, available revolver capacity, letter-of-credit usage, and ongoing compliance with credit covenants.
- The durability of earnings excluding the one-time $3.0 million acquisition holdback benefit and the comparison effect of the prior-year debt-extinguishment loss.