AMN Healthcare Services, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unaudited results; amounts below are in millions except per-share data. AMN provides healthcare staffing and workforce solutions through nurse and allied staffing, locum tenens staffing, and physician permanent placement services.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $350.1 | $250.9 | $677.7 | $491.8 |
| Gross profit / margin | $110.1 / 31.4% | $77.2 / 30.8% | $211.6 / 31.2% | $151.1 / 30.7% |
| Operating income / margin | $30.2 / 8.6% | $17.6 / 7.1% | $54.9 / 8.1% | $33.1 / 6.7% |
| Net income | $15.9 | $7.2 | $28.1 | $14.8 |
| Diluted EPS | $0.32 | $0.15 | $0.58 | $0.31 |
| Operating cash flow | Not presented for the quarter | $33.7 | $7.0 |
- Q2 revenue rose 40%, with reported organic growth of 24%; six-month revenue rose 38%, with reported organic growth of 23%. Acquisitions contributed approximately $38.2 million of Q2 revenue and $71.7 million for the first half.
- Q2 SG&A was $74.7 million, or 21.3% of revenue, versus $55.6 million, or 22.1%, a year earlier. Six-month SG&A was $146.3 million, or 21.6%, versus $110.2 million, or 22.4%.
- For the first half, investing cash outflow was $94.9 million, including $76.9 million paid for Onward Healthcare and $14.6 million of capital expenditures. Financing provided $62.6 million.
- At June 30, cash was $14.5 million and working capital was approximately $111.7 million. Debt comprised $140.6 million under the term loan and $85.5 million drawn on the revolver; $130.1 million of revolver capacity remained available. The company classified $30 million of revolver borrowings as current based on intended repayment within 12 months.
Material changes and operating drivers
- On January 7, 2015, AMN acquired Onward Healthcare, including Locum Leaders and Medefis, for approximately $76.9 million in cash. Preliminary purchase accounting included $42.8 million of goodwill and $30.2 million of identifiable intangibles; allocation remained subject to finalization. Avantas, acquired in December 2014, also contributed to 2015 results.
- Nurse and allied staffing Q2 revenue grew 45% to $240.0 million, including acquisition contributions; underlying growth reflected more professionals on assignment, higher bill rates, more hours worked, and workforce-solutions growth. Locum tenens revenue grew 31% to $97.4 million, driven by acquisitions and increases in days filled and revenue per day. Physician permanent placement revenue grew 19% to $12.7 million.
- Management attributed higher consolidated gross margin primarily to acquired higher-margin Medefis and Avantas businesses and growth in RPO and ShiftWise. Locum tenens margins declined, including from higher sales adjustments; first-half results also reflected lower bill-to-pay spreads in that segment.
- Q2 interest expense and other was $2.0 million versus $4.6 million, mainly because the prior-year quarter included a $3.1 million debt-extinguishment charge. 2015 interest costs were partly affected by higher average borrowings for the acquisition.
Outlook, risks, and contingencies
- Management said staffing demand remained strong across businesses, with increased assignment levels and future bookings, more first-time travelers, and continued demand for workforce-solution programs. Management cited higher bill rates as helping offset increased clinician pay rates. No numerical revenue or earnings guidance was provided.
- Management expects cash from operations and available revolver borrowings to fund operations for the next 12 months and beyond. The company estimated its 2015 annual effective tax rate at approximately 44%.
- In April 2015, AMN entered an interest-rate swap covering $100 million of variable-rate term debt, paying a fixed 0.983% and receiving one-month LIBOR through March 30, 2018. Management said a 100-basis-point rate increase would not have had a material effect on the first-half statements.
- After quarter-end, the IRS settled its 2007–2010 federal income and employment tax audit for $5.8 million, excluding interest. AMN expected to record approximately $12.0 million of federal tax benefits in Q3 2015 and approximately $1.5 million of state tax benefits by Q4 2016. The company continued to contest proposed adjustments for 2011–2012 and stated its reserves were adequate.
- Avantas has a contingent earn-out of up to $8.5 million based on results for the 12 months ending June 30, 2016. AMN also entered a 10-year Dallas office lease with estimated base rent of approximately $24.0 million over its term.
- Management reported no material expected adverse effect from ordinary-course legal matters and no material changes to the risk factors in its 2014 annual report. Key disclosed risks include staffing supply and retention, client pricing and concentration, healthcare regulation, professional liability, privacy and technology execution, tax and insurance accruals, and debt service.
Important facts for investors to verify
- How much of reported revenue and earnings growth is sustainable organic growth versus acquisition contribution, and how the acquired businesses perform after integration.
- Whether accounts receivable growth and DSO (60 days at June 30, versus 55 days a year earlier) affect collections and operating cash conversion.
- Revolver utilization, planned repayment of the $30 million current portion, and exposure to variable interest rates despite the swap.
- Outcomes of the 2011–2012 IRS protest and the timing and realization of the expected tax benefits from the 2007–2010 settlement.
- Progress on acquisition purchase-price allocations, Avantas earn-out performance, and margin trends—particularly in locum tenens staffing.