AMN Healthcare Services, Inc. — 2014 Q3 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2014. AMN provides healthcare staffing and workforce solutions through nurse and allied healthcare staffing, locum tenens staffing, and physician permanent placement services. Figures below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $264.6 | $257.1 | $756.4 | $763.2 |
| Gross profit / margin | $80.3 / 30.4% | $75.7 / 29.4% | $231.4 / 30.6% | $223.1 / 29.2% |
| Operating income | $15.9 | $16.7 | $49.0 | $49.5 |
| Net income | $8.5 | $8.6 | $23.3 | $24.6 |
| Diluted EPS | $0.18 | $0.18 | $0.49 | $0.51 |
Q3 revenue rose 3% year over year, while net income edged down. For the first nine months, revenue declined 1% and net income declined 5%. Gross margins improved in both comparisons, but SG&A and depreciation and amortization increased. Nine-month income included a $3.1 million loss on extinguishment of debt related to refinancing.
Segments. Q3 revenue increased in all three segments: nurse and allied staffing to $174.3 million (+2%), locum tenens to $78.8 million (+5%), and physician permanent placement to $11.5 million (+5%). For the nine months, nurse and allied staffing revenue fell 3% to $503.6 million, while locum tenens rose 3% to $220.0 million and physician permanent placement rose 3% to $32.7 million. Lower average clinician assignments, including fewer electronic medical record engagements, weighed on nurse and allied revenue; higher rates and ShiftWise revenue partly offset the decline.
Cash flow, balance sheet, and debt
- Nine-month operating cash flow was $22.6 million, down from $44.3 million in 2013. Management cited higher receivables, timing of payments, and increased restricted funds for the insurance captive. DSO was 57 days, versus 52 days at September 30, 2013.
- Investing cash outflow was $10.3 million, including $14.3 million of fixed-asset purchases and a $5.0 million Pipeline investment, partly offset by a reduction in restricted cash and investments. Financing cash outflow was $18.3 million.
- Cash and cash equivalents were $9.7 million at September 30, 2014, versus $15.6 million at December 31, 2013. Current assets were $249.1 million and current liabilities were $147.8 million.
- Total debt was $146.3 million, including $7.5 million current; no revolver borrowings were outstanding. The secured revolver had $216.8 million available after letters of credit. The term loan carried a 1.9% variable rate at quarter-end and matures under the credit agreement in 2019.
- Total liabilities were $383.4 million and stockholders’ equity was $245.4 million. The company stated operating cash and revolver availability should fund operations for the next 12 months and beyond.
Outlook, commentary, risks, and unusual items
- Management said the staffing environment improved through Q3: travel nurse and allied demand was significantly above prior-year levels, and locum tenens demand had increased across most specialties. Managed-services contracts represented approximately 33% of nine-month revenue, up from 29% a year earlier. The filing provides no specific revenue or earnings guidance.
- Management expects workforce-solutions revenue to continue growing as managed-services programs, VMS, and recruitment process outsourcing expand. It also expects to continue investing in technology and recruitment initiatives.
- Management estimated a 43.2% effective tax rate for 2014. IRS appeals remain pending over proposed federal income-tax and employment-tax adjustments related to provider per diems and benefits; the company said the positions are mutually exclusive, it is defending its position, and resolution timing is uncertain.
- Management said a fourth-quarter impairment charge on a local-staffing indefinite-lived tradename was reasonably possible given lower-than-expected revenue in that business; no impairment trigger was identified through September 30.
- Other notable items: refinancing generated a $3.1 million debt-extinguishment loss and $3.5 million of financing costs; the San Diego headquarters lease was extended through July 2027. The company reported ordinary-course legal matters and an immaterial wage-and-hour settlement completed in Q1.
- Key risks include demand cyclicality, client concentration and contract retention, clinician recruitment and retention, regulatory and employment-law compliance, professional liability and self-insurance reserves, technology execution, potential impairment, tax contingencies, and debt-service capacity. No material risk-factor changes were reported.
Important facts for investors to verify
- Whether improving staffing demand and bookings translate into sustained revenue growth, particularly in nurse and allied staffing.
- Receivables, DSO, and operating cash flow trends, given the significant year-over-year decline in cash from operations.
- Progress and final resolution of the IRS income- and employment-tax matters, including any change in reserves or cash exposure.
- The fourth-quarter annual impairment test for the local-staffing tradename and any resulting charge.
- Debt covenant compliance, variable-rate exposure, and the impact of the extended headquarters lease and planned technology investment on liquidity.