AMN Healthcare Services, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Unaudited results cover the company’s healthcare staffing and workforce-solutions businesses: nurse and allied staffing, locum tenens staffing, and physician permanent placement.
Financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $252.1 million | $226.4 million |
| Gross profit / margin | $73.0 million / 29.0% | $63.2 million / 27.9% |
| Operating income / margin | $16.1 million / 6.4% | $12.3 million / 5.5% |
| Net income | $7.6 million | $4.3 million |
| Diluted earnings per share | $0.16 | $0.09 |
| Cash from operations | $(2.7) million | $9.6 million |
- Revenue grew 11%. Nurse and allied staffing revenue rose 15% to $176.8 million; locum tenens rose 3% to $65.5 million; physician permanent placement rose 10% to $9.9 million.
- Gross margin improved 1.1 percentage points. Management attributed the improvement mainly to stronger locum tenens spreads and a $1.2 million workers’ compensation actuarial benefit in nurse and allied staffing.
- SG&A was $53.6 million, or 21.3% of revenue, versus $47.2 million, or 20.8%. The increase reflected staffing, commissions and business-support costs; the prior-year period included a $2.0 million California employment-tax refund.
- Net interest expense fell to $2.9 million from $5.5 million, primarily due to lower average debt and interest rates. The effective tax rate was 42.9%, versus 49.3% in Q1 2012; management estimated a 42.3% rate for full-year 2013.
Liquidity and debt
Cash was $1.9 million at March 31, 2013, down from $5.7 million at year-end. Operating cash use was $2.7 million, and investing cash use was $2.2 million, including $2.2 million for fixed-asset purchases and development. The operating cash outflow reflected $4.9 million of tax payments, slower collections on electronic-medical-record staffing work, and revenue earned late in the quarter. Days sales outstanding were 56, compared with 53 at year-end.
Debt included $158.2 million of term-loan borrowings, net of discount, and $1.0 million drawn on the $50 million revolver. The company reported $35.4 million of available revolver capacity. It was in compliance with its financial covenants. Restricted cash and investments were $18.8 million. Management said operating cash generation and revolver availability should fund operations for the next 12 months and beyond.
Outlook, developments and risks
- No quantified revenue or earnings guidance was provided. Management described travel-nurse demand as declining near quarter-end and early in Q2 after rising through 2012 and early 2013. Therapy demand had weakened following Medicare reimbursement changes; managed-services customers and shifting sales resources partly mitigated the impact.
- Locum tenens demand was strong in primary care, hospitalist, emergency medicine and advanced-practice specialties, but weaker in anesthesia and radiology. Bill rates improved, while rising provider pay rates put some pressure on spreads. Physician permanent placement demand and recruiter productivity improved.
- An April 9, 2013 credit amendment reduced specified revolver and term-loan interest spreads and the term-loan LIBOR floor, and raised the letter-of-credit sublimit from $20 million to $30 million. The company expected $434,000 of financing-fee and original-issue-discount write-offs and additional amendment-related costs in April.
- Material risk areas include staffing demand and pricing, client concentration and retention, clinician recruitment, healthcare reimbursement and regulation, employment and independent-contractor classification, litigation and self-insurance accruals, tax matters, and debt service. The company was contesting IRS proposed adjustments for 2007–2010 and considered its tax reserves adequate; it did not expect a material change in gross uncertain tax liabilities over the next 12 months.
- A wage-and-hour class action was the most significant disclosed legal matter; the company had accrued an immaterial amount, and the possible loss range could not be estimated. Management knew of no other pending or threatened litigation reasonably likely to materially affect results, financial position or liquidity.
Important facts for investors to verify
- Whether the Q1 cash-collection timing effects reverse as expected, and how receivables and DSO trend in subsequent quarters.
- Whether weaker travel-nurse and therapy demand affects segment revenue and margins, and whether locum tenens pay-rate pressure continues.
- The realized interest savings and one-time expense from the April credit amendment, along with ongoing covenant compliance and available revolver capacity.
- The persistence of the Q1 margin improvement, including the effect of the $1.2 million workers’ compensation benefit.
- Developments in the IRS audit and wage-and-hour matter, including any change in reserves or reasonably possible exposure.