AMN Healthcare Services, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Financial statements are unaudited. Amounts below are in millions unless otherwise noted. The September 2010 acquisition of NFI materially affects year-over-year comparability, especially for home healthcare and staffing results.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $242.3 | $176.3 | $706.2 | $468.9 |
| Gross profit / margin | $68.7 / 28.4% | $48.3 / 27.4% | $201.6 / 28.5% | $129.5 / 27.6% |
| Operating loss | $(20.3) | $(52.0) | $(1.6) | $(43.8) |
| Net loss | $(26.9) | $(51.3) | $(23.8) | $(50.4) |
| Net loss per diluted share | $(0.67) | $(1.48) | $(0.60) | $(1.52) |
For the nine months, operating cash flow was $12.8, compared with $3.2 in 2010; investing cash outflow was $0.8 and financing cash outflow was $9.2. Cash at quarter-end was $4.6. Accounts receivable was $143.9, and days sales outstanding were 55, versus 53 at year-end 2010. The company attributed improved operating cash flow primarily to better operating results, partly offset by the increase in receivables.
At September 30, total notes payable, net of discount, were approximately $206.6, with $3.0 drawn on the revolver; the company reported $209.6 outstanding under its credit facilities, net of discount, and $36.6 of available revolver capacity. Restricted cash and cash equivalents were $18.3. The company said operating cash generation and available revolver borrowings should fund operations for the next 12 months. It was in compliance with credit covenants at quarter-end.
Changes and operating drivers
- Revenue increased 37% in Q3 and 51% for the nine-month period. Growth reflected NFI-related revenue and increased average temporary healthcare professionals on assignment.
- Nurse and allied revenue was $147.7 in Q3 and $422.5 for nine months; locum tenens revenue was $72.1 and $213.4, respectively. NFI contributed substantially to both comparisons. Physician permanent placement revenue was $9.2 and $29.5; home healthcare revenue was $13.3 and $40.8.
- Gross margin improved year over year in both periods. Management cited favorable workers’ compensation adjustments, the higher-margin NFI business, and revenue recognized under newly adopted multiple-deliverable accounting guidance.
- SG&A rose 15% in Q3 to $53.8 and 41% for nine months to $159.4, largely reflecting NFI and growth-related costs. Nine-month interest expense increased to $18.1 from $14.0, including $1.1 of credit-amendment costs in 2011; 2010 included $5.2 of NFI financing costs.
Impairment, outlook and risks
- Q3 and nine-month 2011 results include $31.2 of impairment charges: an estimated $24.5 goodwill charge and $6.7 for indefinite-lived intangible assets, primarily related to home healthcare. The charge followed lower near-term home healthcare growth expectations amid reimbursement and funding pressures. The second step of the goodwill impairment analysis was not complete at filing; the amount was management’s best estimate and may require further assessment.
- Management reported improving travel nurse demand: Q3 orders were more than two-thirds above Q3 2010, but remained below 2007–2008 peak levels. Locum demand was broadly stable, with weakness in behavioral health, radiology and anesthesia; permanent placement demand remained stagnant.
- Home healthcare revenue faced federal and state reimbursement reductions, funding pressures, and new regulatory requirements. Additional Medicare reimbursement cuts were proposed for 2012. The company also described uncertainty around healthcare reform and its potential effects on reimbursement, demand, costs and regulation.
- In October 2011, the company signed a non-binding letter of intent with a strategic buyer to acquire its home healthcare business. A purchase agreement was not assured at filing. The filing provides no formal numerical earnings or revenue guidance.
- July 2011 amendments increased the revolver commitment from $40.0 to $50.0, permitted a conditional additional $15.0 accordion, and revised certain financial covenants and excess-cash-flow prepayment provisions. Debt carries floating rates; a 1% rate change above the applicable floor would have changed nine-month interest expense by approximately $1.7.
Key facts for investors to verify
- Whether the final home healthcare goodwill impairment differs from the $24.5 estimate, and whether further intangible-asset impairment is required.
- Whether the proposed home healthcare sale proceeds to a binding agreement, and its expected financial and operational effects.
- How much reported revenue growth reflects NFI acquisition effects versus organic growth, and whether staffing demand and margins remain durable.
- Receivables, DSO, cash conversion, revolver availability and covenant compliance as operating conditions evolve.
- The effect of reimbursement changes, healthcare regulation and floating interest rates on home healthcare demand, debt service and liquidity.