AMN

Business Context and Reporting Period

Company: AMN Healthcare Services, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: The Company is the nation's largest provider of comprehensive healthcare staffing and workforce solutions, operating through four segments: nurse and allied healthcare staffing, locum tenens staffing, physician permanent placement services, and home healthcare services (added via the September 2010 acquisition of NFI Investors, Inc.).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 60% year-over-year, driven primarily by the inclusion of the NFI acquisition and an increase in the average number of temporary healthcare professionals on assignment.
• Segment Performance:
  • Nurse & Allied: Revenue up 79% ($134.8M vs $75.2M), with $41.6M attributable to NFI.
  • Locum Tenens: Revenue up 16% ($70.2M vs $60.4M), with $6.4M attributable to NFI.
  • Physician Permanent: Revenue up 41% ($10.8M vs $7.7M), boosted by new accounting guidance adoption and NFI.
  • Home Healthcare: New segment contributing $13.6M (no prior year comparison).
• Expenses: Cost of revenue rose to 70.4% of revenue (from 72.1%), improving gross margin. Selling, general, and administrative (SG&A) expenses increased 66% to $52.9M, largely due to NFI integration costs and business growth.
• Interest Expense: Net interest expense more than doubled to $5.5M (from $2.6M) due to higher debt balances and interest rates associated with the NFI acquisition financing.
• Tax Rate: Effective tax rate decreased to 54.5% from 63.9%.

Guidance, Outlook, and Risks

• Outlook: Management expects cash generated from operations and available borrowings to be sufficient for the next 12 months. The company anticipates continued revenue growth from the NFI integration and managed services programs.
• Accounting Changes: Adoption of new revenue recognition guidance (FASB update) effective Jan 1, 2011, added $2.1M to physician permanent placement revenue.
• Liquidity: As of March 31, 2011, $215.1M was outstanding under credit facilities with $26.4M available on the secured revolver. Days Sales Outstanding (DSO) was 54 days.
• Risks & Contingencies:
  • Regulatory: Exposure to Medicare/Medicaid reimbursement cuts and new regulatory requirements (e.g., "face-to-face" encounters) in the home healthcare segment.
  • Economic: Demand remains sensitive to economic conditions and hospital budget constraints.
  • Debt Covenants: Compliance with financial ratio covenants (leverage and fixed charge coverage) is required; the company was in compliance as of March 31, 2011.
  • Integration: Risks associated with successfully integrating NFI systems and operations.

Investor Verification Checklist

• Debt Servicing: Verify the impact of the high interest rate environment (LIBOR floors and spreads) on future net income given the $212.8M term loan balance.
• Working Capital: Monitor the trend in Accounts Receivable, which increased significantly ($11.3M cash outflow impact), pushing DSO to 54 days.
• Home Healthcare Margins: Assess the sustainability of the 38.1% gross margin in the new home healthcare segment amidst potential government reimbursement cuts.
• Preferred Stock Conversion: Track the conversion of Series A Conditional Convertible Preferred Stock (5,567 shares outstanding) into common stock, which is triggered if the common stock price exceeds $10.00 for 30 consecutive days.
• Goodwill Impairment: Review the $154.5M goodwill balance, particularly in light of the $214.9M accumulated impairment loss noted in prior periods.