AMN Healthcare Services, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited consolidated results; financial figures below are in millions of dollars except per-share data and percentages. Comparisons are with Q1 2016 unless stated otherwise.
Business context
AMN provides healthcare staffing and workforce solutions, including managed services programs (MSP), vendor management systems (VMS), recruitment and placement, and workforce technology. Its reportable segments are nurse and allied solutions, locum tenens solutions, and other workforce solutions.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $495.2 | $468.0; up 6% (4% organic growth) |
| Gross profit / margin | $161.8 / 32.7% | $151.9 / 32.5% |
| Operating income / margin | $52.0 / 10.5% | $47.3 / 10.1% |
| Net income | $32.0 | $25.9 |
| Diluted EPS | $0.65 | $0.53 |
| Operating cash flow | $52.3 | $35.2 |
| Capital expenditures | $5.5 | $6.6 |
- Revenue by segment: nurse and allied $313.5 (up 5%); locum tenens $102.8 (essentially flat); other workforce solutions $78.8 (up 17%). Segment operating income was $46.0, $12.2, and $19.9, respectively.
- Gross margins by segment were 27.7% for nurse and allied (26.6% prior year), 30.7% for locum tenens (31.0%), and 55.0% for other workforce solutions (60.3%). The consolidated margin improvement chiefly reflected lower nurse and allied health insurance costs; other workforce solutions was pressured by acquisition-related mix and lower leadership margins.
- Cash and cash equivalents were $37.7 at March 31, versus $10.6 at December 31, 2016. Current assets were $472.2 and current liabilities $277.7.
- Debt included $325.0 principal of 5.125% senior notes due 2024 and approximately $43.0 of term loans, net of fees. No revolving-credit borrowings were outstanding; $264.2 of revolver capacity was available. The balance sheet reported notes payable, net of fees, of $362.3 in total, including the current portion.
- Management said operating cash flow and available revolver capacity should fund operations for at least the next year. Q1 financing cash outflow was $11.9, including $3.7 of acquisition earn-out payments and $7.3 for shares withheld for payroll taxes.
Material changes and management commentary
- Revenue growth included $7.4 from the 2016 Peak acquisition; the remainder was primarily organic. Nurse and allied growth reflected a 7% increase in average professionals on assignment and a 3% increase in average bill rate, partly offset by approximately $11.0 less labor-disruption revenue and the prior-year leap-year calendar effect.
- Locum tenens revenue per day filled rose 5%, offset by a 5% decline in days filled. Management cited physician recruiting, credentialing, and geographic matching as constraints on faster segment growth.
- SG&A rose to $102.1 from $97.8, while its share of revenue declined to 20.6% from 20.9%. Interest expense and other increased to $5.1 from $3.2, mainly due to higher interest-bearing notes.
- Net cash from operations improved year over year, partly reflecting operating results, collection timing, restricted-cash movements, and the tax-accounting change. Days sales outstanding were 61 days, compared with 64 at December 31, 2016 and 59 a year earlier.
Outlook, risks, contingencies, and unusual items
- No revenue or earnings guidance was provided. Management estimated a 2017 annual effective tax rate of approximately 39%; the Q1 rate was 32%, including a $4.3 tax benefit from adopting ASU 2016-09. Management did not expect another benefit of similar magnitude during the rest of 2017, and noted potential tax-rate volatility from equity award activity.
- Management reported strong interest in MSP solutions and favorable locum tenens demand trends, but said it had not seen the typical seasonal staffing-demand increase in nurse and allied solutions. Healthcare-sector uncertainty surrounding potential Affordable Care Act changes could affect reimbursement and service utilization. Management believed the Interstate Medical Licensure Compact, implemented by seven states in April, could help with physician geography constraints.
- The 2011–2012 IRS income and employment tax examination matter remained at IRS Appeals; resolution timing was uncertain. The company said its reserves for open tax matters were adequate.
- Wage-and-hour class actions and other ordinary-course legal matters were disclosed. Management considered probable losses on wage-and-hour claims and the aggregate effect of outstanding contingencies not material, while noting actual losses could differ from estimates.
- The company reported no material impairment indicators in the quarter, no material off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. It identified risks including healthcare demand and reimbursement changes, recruiting and retention, regulation and worker classification, cybersecurity and technology disruption, insurance accruals, acquisitions, and significant indebtedness.
- Management planned to adopt the new revenue recognition standard in Q1 2018 using the modified retrospective approach and was still assessing its effects. The filing also notes termination of the remaining $40 million interest-rate swap on May 3, 2017, after quarter-end.
Important facts for investors to verify
- Whether organic growth and staffing demand trends persist, particularly the lack of typical seasonal demand in nurse and allied solutions.
- How assignment volumes, bill rates, locum tenens days filled, and segment margins evolve, including the effect of Peak-related mix.
- Cash conversion and working-capital quality, including receivables, allowance levels, and the timing-driven improvement in collections.
- Debt service capacity, revolver availability, and the effects of interest rates and the post-quarter swap termination.
- Resolution and potential financial effects of the IRS Appeals matter, legal contingencies, and the estimated impacts of upcoming accounting standards.