AMN Healthcare Services, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 4, 2022. AMN provides healthcare staffing and workforce solutions through nurse and allied, physician and leadership, and technology and workforce solutions segments. Amounts below are in millions unless otherwise stated.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,138.6 | $877.8 | $4,117.7 | $2,621.2 |
| Gross profit / margin | $385.0 / 33.8% | $305.9 / 34.8% | $1,341.4 / 32.6% | $875.3 / 33.4% |
| Operating income / margin | $136.4 / 12.0% | $105.8 / 12.1% | $527.8 / 12.8% | $309.4 / 11.8% |
| Net income | $92.4 | $74.0 | $362.3 | $211.2 |
| Diluted EPS | $2.10 | $1.54 | $7.99 | $4.40 |
| Operating cash flow | Not separately provided | Not separately provided | $538.4 | $227.4 |
Q3 revenue increased 30% year over year; nine-month revenue increased 57%. Nurse and allied remained the largest segment, with nine-month revenue of $3,157.8 (up 65%). Nine-month physician and leadership revenue was $530.4 (up 23%), and technology and workforce solutions was $429.5 (up 52%).
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $155.7; current assets were $1,206.2 and current liabilities $891.2.
- Notes payable were $843.2 net of fees and premium; principal comprised $500 million of 4.625% notes due 2027 and $350 million of 4.000% notes due 2029. The $400 million revolving facility had no borrowings and $378.6 million available, subject to outstanding letters of credit.
- Nine-month investing cash outflow was $148.1, including $69.8 for acquisitions and $51.2 in capital expenditures. Financing cash outflow was $415.5, including $401.9 of share repurchases.
- AMN repurchased approximately 4.17 million shares during the first nine months at an average $96.26 per share. Shares outstanding were 43.3 million at September 30.
- Management said operating cash generation and available revolver capacity should meet operating and liquidity needs, including expected capital expenditures, for the next 12 months and beyond.
Material changes and management commentary
- Growth reflected higher organic revenue across segments. In nurse and allied, Q3 average travelers on assignment rose 23% and average bill rates rose approximately 13%; billable hours declined 2%. For the first nine months, travelers rose approximately 32% and average bill rates 27%.
- Gross margin contracted year over year: Q3 by 1.0 percentage point and nine months by 0.8 point. Management attributed pressure mainly to higher clinician compensation, lower billable hours, and mix; stronger VMS mix supported technology-segment margins.
- Management said nurse and allied demand remained above pre-pandemic levels, while bill rates and clinician compensation had declined from Q1 2022 peaks. It expected slower declines in Q4, with rates still above pre-pandemic levels at year-end. It anticipated strong Q4 locum tenens demand, continued elevated recruitment-process-outsourcing demand, and further Q4 VMS bill-rate declines before stabilization.
- Connetics, acquired in May 2022, adds international nurse and allied permanent placement capabilities. Acquisition cash paid during the period was $69.8; Connetics contingent consideration had an estimated acquisition-date fair value of $8.0.
Risks, contingencies and unusual items
- AMN had $37.2 million accrued for legal matters, including wage-and-hour class actions concerning travel-nurse per diem treatment. A separate Woehrle matter had a settlement agreement awaiting court approval; management could not estimate potential loss beyond amounts accrued.
- Key risks include changes in healthcare staffing demand and pricing, inflation or economic downturn, recruiting and retaining clinicians, client payment and collection risk, employment classification and wage claims, cybersecurity and technology disruptions, acquisitions, insurance accruals, and indebtedness.
- The company recorded a $10.1 million provision for expected credit losses during the first nine months, compared with $0.3 million in the prior-year period; the allowance for credit losses was $15.2 million at September 30.
- A new Dallas office lease is expected to commence in Q1 2023, with approximately $29.5 million of undiscounted future payments, excluding incentives.
- No impairment charges were recorded in the first nine months. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether falling bill rates and clinician compensation, and any changes in staffing volume, affect revenue growth and gross margins in subsequent quarters.
- How much Q3 and future cash generation depends on working-capital movements; nine-month operating cash flow benefited from receivables and prepaid-expense changes.
- The final outcome and potential additional exposure from the wage-and-hour cases, particularly the accrued $37.2 million contingency.
- Whether share repurchases, acquisitions, and the planned office lease alter liquidity, leverage, or share count materially.
- How demand, client collections, and the $15.2 million credit-loss allowance evolve amid economic and healthcare labor-market changes.