AMN Healthcare Services, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited results are compared with the corresponding 2018 periods. Amounts below are in millions except per-share data.
Business context and financial performance
AMN provides healthcare staffing and workforce solutions through nurse and allied, locum tenens, and other workforce solutions segments. It completed the Advanced Medical Personnel Services acquisition in June 2019 and acquired Silversheet in January 2019; acquisitions contributed to year-over-year comparability.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $535.2 | $558.1 | $1,067.6 | $1,080.6 |
| Gross profit / margin | $179.5 / 33.5% | $181.0 / 32.4% | $356.3 / 33.4% | $348.8 / 32.3% |
| Operating income / margin | $45.2 / 8.4% | $54.8 / 9.8% | $90.2 / 8.4% | $110.0 / 10.2% |
| Net income | $28.9 | $35.5 | $63.0 | $78.2 |
| Diluted EPS | $0.61 | $0.73 | $1.32 | $1.60 |
Q2 SG&A was $121.7 million, or 22.7% of revenue, versus $115.5 million, or 20.7%. Six-month SG&A was $241.7 million, or 22.6%, versus $220.3 million, or 20.4%. Q2 and six-month gross margins improved year over year, but operating and net margins declined.
Material changes and management commentary
- Q2 revenue fell 4%; excluding acquisition contributions, management said revenue declined 5%. The decrease reflected about $14 million less labor-disruption revenue and lower locum tenens revenue.
- Locum tenens revenue fell 24% in Q2 and 23% for the six months, primarily because days filled declined 25% and 24%, respectively. Management cited disruption from operating-model and technology changes, as well as reduced hospitalist and emergency-room demand.
- Nurse and allied Q2 revenue was nearly flat. Management reported strong overall demand, but a large client’s lower contingent nurse needs and limited bill-rate growth constrained placements and clinician supply.
- Other workforce solutions revenue increased 3% in Q2 and 19% year to date; much of the six-month increase came from acquisitions. Management cited growth in interim leadership, permanent placement, and VMS, while mid-revenue-cycle performance had stabilized.
- Higher Q2 gross margin reflected nurse and allied and other workforce improvements and mix, partly offset by lower locum tenens margins. SG&A growth included acquisition and integration costs, extraordinary legal expenses, and higher compensation.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was $65.3 million, down from $125.9 million. Management attributed the decrease mainly to lower operating results, payments related to a loss contingency, and changes in receivables and other assets.
- Investing cash outflow was $240.7 million, including $228.1 million of net acquisition payments; capital expenditures were $15.5 million. Financing cash inflow was $189.3 million, primarily reflecting borrowing to fund acquisitions.
- At June 30, cash and cash equivalents were $20.9 million; cash, cash equivalents, and restricted cash totaled $98.0 million for cash-flow reporting purposes. Current assets were $489.9 million and current liabilities $316.8 million.
- Debt included $325 million of 5.125% senior notes due 2024, a $150 million term loan, and $196 million drawn on the revolving facility. The company reported $188.7 million of available revolving capacity. Term loan and revolver borrowings have floating rates; substantially all company assets secure the amended credit facilities, which mature June 14, 2024.
- Total assets rose to $1.856 billion from $1.493 billion at year-end, including goodwill of $588.5 million, largely reflecting acquisitions. Operating lease liabilities were $110.4 million following adoption of the new lease standard.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management estimated a 2019 annual effective tax rate of approximately 25% and stated that operating cash generation and available revolver borrowings should fund operations and expected capital expenditures for the next 12 months and beyond.
- Management identified a competitive clinician labor market, staffing supply constraints, client concentration and consolidation, pricing pressure, and recruiting and retention as business risks. It also highlighted technology implementation, cybersecurity, regulatory and employment matters, acquisition integration, substantial goodwill, and variable-rate debt exposure.
- Wage-and-hour class actions and other ordinary-course claims remain contingencies. The company said recorded loss contingencies were not expected to have a material adverse effect, individually or in aggregate. Separately, Advanced had an IRS payroll-tax assessment of $8.3 million under appeal; AMN stated it was indemnified for that potential liability.
- There were no impairment charges in the six months. Adoption of lease accounting on January 1, 2019 recognized operating lease right-of-use assets and liabilities without an opening retained-earnings effect.
Important facts for investors to verify
- Whether locum tenens placements and days filled recover, and whether the segment’s bill-to-pay spreads improve.
- How clinician supply, bill rates, and the large-client demand trend affect nurse and allied results.
- Acquisition contributions, integration costs, earn-out obligations, and the eventual purchase-price allocations for Advanced and Silversheet.
- Whether lower operating cash flow persists, and how acquisition spending, debt balances, and floating interest rates affect liquidity.
- Developments in wage-and-hour litigation and the Advanced IRS matter, including the scope and enforceability of the indemnification.