AMN Healthcare Services, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; amounts below are in U.S. dollars. The filing was signed May 11, 2020. AMN provides healthcare staffing and workforce solutions, including temporary and permanent placement, managed services, software, and interpretation services.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Revenue | $602.5 million | $532.4 million | Up 13%; management attributed $56.4 million of growth to acquisitions. Excluding acquisitions, revenue rose 3%. |
| Gross profit / margin | $202.1 million / 33.5% | $176.8 million / 33.2% | Gross profit up 14%; margin improved 0.3 percentage points. |
| Operating income / margin | $35.7 million / 5.9% | $45.1 million / 8.5% | Income fell despite higher revenue, with increased SG&A and depreciation and amortization. |
| Net income / diluted EPS | $13.0 million / $0.27 | $34.1 million / $0.71 | Lower operating income, higher interest expense, and a higher effective tax rate contributed to the decline. |
| Operating cash flow | $51.4 million | $36.2 million | Improved year over year. |
| Investing / financing cash flow | $(492.1) million / $456.1 million | $(36.2) million / $1.8 million | Investing outflow primarily reflected acquisitions; financing inflow primarily reflected new borrowing. |
- Margins and expenses: SG&A was $146.2 million, or 24.3% of revenue, versus $120.0 million, or 22.5%. Depreciation and amortization was $20.1 million versus $11.7 million. Interest expense, net, and other was $11.1 million versus $5.7 million.
- Taxes: The effective tax rate was 47% versus 13%, including a $5.1 million discrete tax liability associated with changes in the cash surrender value of company-owned life insurance. Management estimated a full-year 2020 effective tax rate of approximately 36%.
- Segments: Nurse and allied revenue was $424.3 million, up 14%; physician and leadership was $137.8 million, up 1%; and technology and workforce was $40.3 million, up 84%. Acquisitions contributed materially to reported growth, particularly in technology and workforce.
Financial position, debt, and liquidity
- At March 31, 2020, cash and cash equivalents were $97.5 million and total assets were $2.46 billion. Current assets were $600.6 million and current liabilities were $373.1 million.
- Balance-sheet debt included $225.0 million drawn under the revolving facility and $865.2 million of notes payable, including current and long-term portions. Separately, the filing reports $325.0 million principal of 2024 senior notes and $300.0 million principal of 2027 senior notes; these are included in notes payable, not additional to it. The company reported $157.6 million of available revolving credit.
- In February, AMN borrowed a $250.0 million term loan and drew on its revolving facility, principally to fund the Stratus Video acquisition. Credit Facilities mature February 14, 2025, carry floating rates, and are secured by substantially all company assets.
- Capital expenditures were $13.6 million. Days sales outstanding were 57 days, compared with 55 at year-end 2019 and 62 a year earlier. Cash and cash equivalents and restricted cash at quarter-end totaled $169.3 million.
Material changes, outlook, and risks
- Acquisitions: AMN acquired Stratus Video on February 14 for an initial cash purchase price of approximately $485.6 million. The acquisition added $14.4 million of revenue and $1.6 million of pretax income during the quarter. Cash paid for acquisitions, net of cash received, was $476.4 million. The acquisition added $256.0 million of goodwill; total goodwill rose to $851.5 million. Management reported no goodwill impairment.
- COVID-19: Early-quarter demand was strong, but pandemic-related restrictions and cancellations reduced demand in many businesses from mid-March. Nursing, respiratory therapy, and VMS demand initially increased, then nursing requests and bill rates began moving back toward normal in April as COVID-related demand eased. Elective-care restrictions also affected locum tenens, therapy, revenue cycle, interpretation, and permanent placement activity. Management said the duration and extent of the impact were uncertain.
- Cost actions and outlook: In April, AMN reduced SG&A by approximately $80 million on an annualized basis through measures including suspending certain employer plan contributions and reducing variable compensation, travel, professional services, and marketing. It said it would consider further actions. No specific revenue or earnings guidance was provided. Management believed operating cash flow and available revolver borrowings would fund operations and expected capital expenditures for the next 12 months and beyond.
- Credit and legal risks: AMN reported an increased allowance for credit losses, citing customer liquidity and collection concerns amid COVID-19. The allowance for accounts receivable was $8.0 million at quarter-end. The filing describes wage-and-hour class action matters and other ordinary-course claims; accrued loss contingencies were $6.5 million. Management did not expect the accrued matters to have a material adverse effect, while noting litigation uncertainty.
- Other unusual items: AMN adopted the credit-loss accounting standard on January 1, recording a $1.2 million after-tax reduction to opening retained earnings. Acquisition and integration costs, changes in earn-out fair values, and extraordinary legal expenses also contributed to higher SG&A. The filing reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- How post-quarter COVID-19 demand, cancellations, bill rates, and customer payment behavior developed relative to management’s Q1 observations.
- Whether the planned annualized $80 million SG&A reduction was achieved and what additional cost actions or operating effects followed.
- Stratus Video’s finalized purchase-price allocation, integration results, and contribution to segment growth and margins.
- Debt balances, floating-rate exposure, covenant headroom, and remaining revolver availability after acquisition financing.
- Receivables collectability, the credit-loss allowance, and developments in wage-and-hour litigation and other contingencies.
- The assumptions underlying the estimated 2020 effective tax rate and the sustainability of operating cash flow.