AMN Healthcare Services, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. Unless otherwise stated, amounts below are in millions of dollars.
Business context and results
AMN provides healthcare staffing and workforce solutions through nurse and allied, physician and leadership, and technology and workforce solutions segments. Q2 revenue was $1,426.6 million, up 66% year over year; first-half revenue was $2,979.1 million, up 71%.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $1,426.6 | $857.4 | $2,979.1 | $1,743.4 |
| Gross profit / margin | $460.2 / 32.3% | $280.5 / 32.7% | $956.4 / 32.1% | $569.4 / 32.7% |
| Operating income / margin | $183.5 / 12.9% | $99.2 / 11.6% | $391.5 / 13.1% | $203.6 / 11.7% |
| Net income | $123.8 | $66.8 | $269.8 | $137.1 |
| Diluted EPS | $2.77 | $1.39 | $5.87 | $2.86 |
Segment performance and material changes
- Nurse and allied: Q2 revenue rose 76% to $1,101.5 million; first-half revenue rose 82% to $2,329.5 million. Growth reflected more travelers on assignment, higher bill rates and labor-disruption work. Q2 average traveler count and average bill rate each increased approximately 31%; billable hours declined 3%.
- Physician and leadership: Q2 revenue increased 26% to $175.7 million; first-half revenue increased 27% to $355.2 million, supported by locum tenens and permanent placement growth.
- Technology and workforce: Q2 revenue increased 59% to $149.4 million; first-half revenue increased 61% to $294.4 million, led by vendor management systems and language services.
- Consolidated gross margin declined 0.4 percentage points in Q2 and 0.6 points for the first half. Management attributed the decline mainly to higher clinician compensation, segment mix and lower physician-segment margins. SG&A increased in dollars with growth but decreased as a share of revenue, to 17.1% in Q2 from 18.3% and 16.9% for the first half from 18.2%.
Cash flow, debt and liquidity
- First-half operating cash flow was $424.7 million, versus $210.6 million a year earlier. Investing used $115.8 million, including $69.8 million for acquisitions and $30.8 million of capital expenditures.
- Financing used $411.7 million, including $401.9 million for share repurchases. Cash, cash equivalents and restricted cash at June 30 totaled $143.9 million; unrestricted cash and equivalents were $79.4 million.
- Debt principal included $500 million of 4.625% notes due 2027 and $350 million of 4.000% notes due 2029. Notes payable, net, was $842.9 million. The $400 million revolving facility had no borrowings and $378.6 million available, after facility usage.
- Management said operating cash generation and available revolver capacity should be sufficient for operations and liquidity needs, including expected capital expenditures, for the next 12 months and beyond. DSO was 50 days, compared with 53 at year-end 2021.
Outlook, risks and unusual items
- Management said travel-nurse demand was moving toward more normal levels after a first-quarter COVID-related surge, but remained above pre-pandemic levels. Bill rates and clinician compensation declined in Q2; management expected further declines in Q3 and stabilization above pre-pandemic levels by year-end. VMS rates were also expected to decline in Q3 before stabilizing; recruitment-process-outsourcing demand was expected to remain elevated.
- The company acquired Connetics in May 2022 for an initial purchase price of $78.8 million, including an estimated $8.0 million contingent earn-out liability. Connetics recruits and permanently places international nurses and allied professionals.
- AMN repurchased approximately 4.17 million shares in the first half at an average $96.26 per share, for $401.9 million. Weighted average diluted shares fell to 44.7 million in Q2 from 48.0 million a year earlier.
- Accrued legal contingencies were $37.2 million, principally associated with wage-and-hour class actions. One matter had a settlement agreement awaiting court approval; the company could not estimate possible losses beyond recorded accruals.
- Other relevant exposures include healthcare labor demand and pricing, clinician recruitment and retention, client payment and collectability, litigation and employment-law compliance, acquisition execution, cybersecurity and technology disruption, goodwill impairment, and debt-related risks. The company reported no material change to previously disclosed risk factors.
- The company estimated its 2022 annual effective tax rate at approximately 27%. Q2’s 29% effective rate included discrete tax expense associated with changes in the cash surrender value of company-owned life insurance.
Important facts for investors to verify
- Whether staffing demand, bill rates and clinician compensation follow management’s expected Q3 declines and year-end stabilization.
- How much recent revenue and earnings growth is sustained by underlying volume versus elevated pricing, labor-disruption work and acquired businesses.
- Whether lower gross margins in nurse and allied and physician businesses persist, and how segment mix affects consolidated profitability.
- Cash conversion, working-capital movements, and the effect of the substantial repurchases on liquidity and share count.
- Resolution and adequacy of accruals for wage-and-hour litigation, and the contingent earn-out and integration outcomes for Connetics.