AMN Healthcare Services, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. AMN provides U.S. healthcare staffing and workforce solutions, including nurse and allied staffing, locum tenens, physician permanent placement, managed services, vendor management technology and recruitment outsourcing.
Financial and operating results
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $1,463.1 million | $1,036.0 million |
| Gross profit / margin | $469.4 million / 32.1% | $316.1 million / 30.5% |
| Operating income / margin | $128.9 million / 8.8% | $67.9 million / 6.6% |
| Net income | $81.9 million | $33.2 million |
| Diluted EPS | $1.68 | $0.69 |
| Cash from operating activities | $56.3 million | $27.7 million |
- Fourth-quarter 2015 revenue was $402.6 million, gross profit was $131.8 million, and net income was $20.2 million. Fourth-quarter 2014 amounts were $279.6 million, $84.7 million, and $9.9 million, respectively.
- At year-end, cash and cash equivalents were $9.6 million; total assets were $880.4 million and stockholders’ equity was $347.9 million.
- Debt outstanding was $136.9 million under the term loan and $82.5 million under the revolver, or approximately $219.4 million before unamortized fees. The reported debt balance net of fees was $218.5 million. Revolver availability was $132.3 million.
- Capital expenditures were $27.0 million; cash used in investing activities was $116.1 million, including $84.1 million of net acquisition payments. Days sales outstanding increased to 64 days from 61 days.
Changes versus the prior comparable period
- Revenue grew 41% year over year, including 26% organic growth. Acquisitions contributed approximately $161.6 million of revenue and $17.1 million of pretax income for the year, according to management.
- Revenue increased across all three reportable segments: nurse and allied staffing to $1,023.9 million (+47%), locum tenens to $385.1 million (+30%), and physician permanent placement to $54.0 million (+21%).
- Gross margin improved by 1.6 percentage points. Management attributed the gain to higher-margin workforce solutions acquisitions and growth, higher locum bill-to-pay spreads, and improved physician-placement recruiter productivity.
- SG&A rose to $319.5 million from $232.2 million, while declining as a share of revenue to 21.8% from 22.4%. The increase included acquisition-related expense, integration costs, and growth-support spending.
- Net income rose substantially; the effective tax rate fell to 32.4% from 43.4%, primarily reflecting the IRS audit settlement and related tax items.
Outlook, commentary and notable items
- Management reported robust demand throughout 2015 and strong demand continuing into the first quarter of 2016, particularly for workforce solutions, travel nurse and allied staffing, locum tenens, and physician placement. No quantified financial guidance was provided.
- Management said higher clinician pay rates were needed to attract supply amid strong demand, while higher client bill rates helped mitigate gross-margin pressure. It expected workforce solutions revenue to continue growing and contribute to margins.
- AMN acquired Onward Healthcare, Locum Leaders and Medefis in January 2015, The First String Healthcare in September, and Millican in October. In January 2016, it acquired B.E. Smith for $163.8 million and HealthSource Global Staffing for $6.5 million plus a contingent earn-out.
- The January 2016 credit amendment increased the revolver from $225 million to $275 million and added a $75 million term loan, used in part to finance the B.E. Smith acquisition. The company’s credit facilities are secured and include financial and other covenants.
- The company planned approximately $15 million of annual IT investments in each of the next two years to standardize staffing operations on PeopleSoft and Salesforce. Implementation risks include disruption, conversion errors, and internal-control impacts.
- Key risks include economic and healthcare-demand shifts, clinician recruitment and retention, client concentration and pricing leverage, regulation and employment classification, malpractice and insurance exposures, cybersecurity and technology disruptions, acquisition integration, goodwill impairment, and debt/covenant obligations. One healthcare system represented approximately 11% of consolidated revenue in 2015.
- The IRS settled audits for tax years 2007–2010 in 2015 for $7.2 million including interest; the settlement produced a reported federal tax benefit of approximately $12.2 million. Audits for 2011–2012 remained in appeals, and the IRS began an audit of 2013.
- Management reported no pending or threatened litigation believed reasonably likely to materially adversely affect the company. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; acquired 2015 entities were excluded from the internal-control assessment.
Important facts for investors to verify
- How much of revenue growth and margin improvement is organic and repeatable, versus acquired or dependent on unusually strong staffing demand and bill-rate increases.
- Whether the company can recruit enough clinicians at costs that preserve margins, and whether higher pay can continue to be passed through to clients.
- The impact of the 11% client concentration, longer receivable collection cycle, and third-party VMS billing processes on cash conversion and credit risk.
- Post-acquisition performance, integration progress, purchase-price commitments and contingent earn-outs, particularly following the 2016 B.E. Smith and HealthSource acquisitions.
- Debt and covenant headroom after the January 2016 borrowing expansion, and the execution, cost and control risks of planned technology modernization.
- Resolution of the 2011–2012 IRS appeals and adequacy of insurance, legal and other contingent-liability reserves.