AMN Healthcare Services, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; filed August 5, 2016. AMN provides healthcare staffing and workforce solutions, including nurse and allied staffing, locum tenens, executive search, managed services, technology, and medical coding. Unless otherwise noted, amounts below are in millions.
Financial performance
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $473.7 | $350.1 | $941.7 | $677.7 |
| Gross profit / margin | $154.8 / 32.7% | $110.1 / 31.4% | $306.7 / 32.6% | $211.6 / 31.2% |
| Operating income / margin | $47.9 / 10.2% | $30.2 / 8.6% | $95.2 / 10.1% | $54.9 / 8.1% |
| Net income | $26.3 | $15.9 | $52.2 | $28.1 |
| Diluted EPS | $0.53 | $0.32 | $1.06 | $0.58 |
- Q2 revenue rose 35% year over year; first-half revenue rose 39%. Management attributed the first-half increase to approximately $105 million of acquisition revenue and 24% organic growth.
- First-half segment revenue was $590.4 million for nurse and allied solutions, $211.9 million for locum tenens, and $139.5 million for other workforce solutions. Other workforce solutions grew substantially with acquisitions and organic gains.
- First-half operating cash flow was $55.3 million, versus $33.7 million a year earlier. Investing used $233.2 million, including $216.4 million for acquisitions; financing provided $189.2 million. Cash and cash equivalents ended at $21.1 million.
- At June 30, current assets were $442.6 million and current liabilities $301.6 million. Revolver borrowings were $206.5 million, with $58.3 million available; term loans, net of unamortized fees, were $205.3 million. Total reported debt was therefore approximately $411.8 million. The company reported $28.5 million of restricted cash and cash equivalents.
Material changes and drivers
- Three acquisitions were completed in the first half: B.E. Smith, HealthSource Global Staffing, and Peak Provider Solutions. They expanded executive/interim leadership, rapid-response staffing, and medical coding services. Acquisition cash payments were financed in part with additional revolver borrowings and a $75 million term loan.
- Organic growth was supported by higher staffing volumes and bill rates. Nurse and allied revenue benefited from a 16% increase in average professionals on assignment and a 7% increase in average bill rate for the first half; locum tenens benefited from more days filled and higher revenue per day.
- Consolidated gross margin improved, reflecting growth in higher-margin other workforce solutions and improved locum tenens bill-to-pay spreads. Nurse and allied margins faced pressure from higher pay rates and a shift toward filling MSP assignments with AMN staff rather than associate vendors. Other workforce solutions margins declined year over year due to acquisition-related sales mix.
- Accounts receivable increased, and days sales outstanding was 64 days at June 30, unchanged from December 31, 2015 but above 60 days a year earlier. Management attributed the year-over-year increase partly to acquired business.
Outlook, risks, and unusual items
- Management said healthcare staffing demand remained strong and near all-time highs, while supply constraints limited fulfillment. It prioritized MSP orders; recruitment, credentialing, and placement capacity constrained faster locum tenens growth. Management expected the 2016 annual effective tax rate to be approximately 41%.
- Management believed operating cash flow and available revolver capacity would be sufficient for operations for the next 12 months and beyond. The filing does not provide revenue or earnings guidance.
- Debt is variable-rate, although a swap fixed the rate on $100 million of term debt at 0.983% through March 2018. Management stated that a 100-basis-point interest-rate increase would not have had a material effect during the reported periods. Credit facilities include leverage and interest-coverage covenants.
- Risks include recruiting and retaining healthcare professionals, wage and employment claims, client concentration and pricing pressure, acquisition integration, technology and cybersecurity disruptions, insurance accrual variability, and the ability to service debt. Management reported no material change to previously disclosed risk factors.
- The company had an ongoing IRS audit concerning 2011 and 2012 income and employment tax matters and expected the years to be at IRS Appeals in 2016; management believed reserves for open years were adequate. Wage-and-hour class actions were outstanding; management said the probable loss was not significant and accruals were not material, while noting actual losses could differ materially.
- Acquisition earn-out liabilities totaled $7.1 million at June 30. Goodwill increased to $342.8 million, largely from acquisitions; no impairment indicators were identified during the first half.
Important facts for investors to verify
- How much future growth is organic versus acquisition-driven, and whether acquired businesses meet expected performance and integration goals.
- Whether labor-supply constraints, MSP fulfillment choices, and pay-rate increases affect staffing volumes and segment margins.
- Trends in receivables, DSO, operating cash conversion, debt levels, revolver availability, and compliance with credit covenants.
- Updates on the 2011–2012 IRS audit, wage-and-hour litigation, and contingent acquisition earn-outs.
- Implementation effects of pending revenue-recognition and lease accounting standards; management was still evaluating their impact.