AMN Healthcare Services, Inc. — 2013 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2013; quarterly data are also disclosed. AMN provides healthcare staffing and workforce solutions through nurse and allied staffing, locum tenens staffing, and physician permanent placement. The 2013 results include ShiftWise only from its November 20 acquisition date.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $1,011.8 million | $954.0 million |
| Gross profit / margin | $297.3 million / 29.4% | $270.4 million / 28.3% |
| Operating income / margin | $65.5 million / 6.5% | $53.3 million / 5.5% |
| Net income | $32.9 million | $17.1 million |
| Diluted EPS | $0.69 | $0.37 |
| Cash from operations | $58.6 million | $60.5 million |
- Revenue rose 6%; net income increased approximately 92%. Lower interest expense helped: $9.7 million in 2013 versus $26.0 million in 2012, which included a debt-extinguishment loss.
- Segment revenue was $682.0 million for nurse and allied staffing, $287.5 million for locum tenens, and $42.4 million for physician permanent placement. All three segments grew year over year.
- Fourth-quarter revenue was $248.7 million versus $247.8 million a year earlier; net income was $8.4 million versus $7.1 million.
- Cash and cash equivalents were $15.6 million at year-end; restricted cash, equivalents and investments were a further $23.1 million. Current assets were $230.1 million and current liabilities $140.3 million.
- Debt at year-end included $148.7 million of term-loan debt, net of discount, and $10.0 million drawn on the revolver. The company reported $30.5 million of available revolver capacity. Operating cash flow was $58.6 million; investing used $47.9 million, including $39.5 million for ShiftWise; financing used $0.8 million.
Material changes, outlook and risks
- Gross margin improved across all three segments, supported by favorable insurance claims experience, improved locum-tenens bill-to-pay spreads, and higher physician-placement recruiter productivity. SG&A rose to $218.2 million, or 21.6% of revenue, from $202.9 million, or 21.3%.
- Management said early-2014 travel-nursing demand had improved from mid-2013 levels but remained below the prior year; allied demand was relatively stable. It cited weaker inpatient admissions, reimbursement cuts, and hospital spending controls amid PPACA uncertainty. No specific quantitative earnings or revenue guidance was provided.
- Managed-services contracts represented approximately 40% of nurse and allied segment revenue in 2013. Management expects workforce-solutions revenue to continue growing as managed-services adoption and ShiftWise expand, while noting higher insurance and housing costs.
- ShiftWise was acquired for $39.5 million in cash. Its preliminary purchase accounting included $21.3 million of goodwill and $19.8 million of identifiable intangibles; allocation remained subject to finalization. ShiftWise contributed approximately $1.4 million of revenue after acquisition.
- Key risks include economic sensitivity of staffing demand, competitive pricing and clinician recruitment costs, dependence on client relationships, and concentration: one managed-services client exceeded 10% of nurse and allied segment revenue. No single healthcare system exceeded 10% of consolidated revenue.
- Other exposures include variable-rate debt and covenant requirements, healthcare and employment regulation, professional-liability and workers-compensation reserves, technology-system implementation, and tax uncertainty. Unrecognized tax benefits including interest and penalties totaled approximately $27.2 million. The IRS had proposed income- and payroll-tax adjustments for 2007–2010; AMN disputed the positions and said the matter’s timing and potential range were uncertain.
- A wage-and-hour class-action settlement was for an immaterial amount, fully reserved at year-end, and received final court approval in February 2014. Management reported no other known pending or threatened litigation reasonably likely to materially affect results, financial position, or liquidity.
- Management and KPMG reported effective internal control over financial reporting as of December 31, 2013, and KPMG issued unqualified opinions on the financial statements and controls. ShiftWise controls were excluded from the year-end assessment.
Important facts for investors to verify
- Whether 2014 staffing demand and hospital utilization recover, particularly in travel nursing, and how that affects volumes and bill rates.
- Whether growth in managed services and ShiftWise generates expected recurring revenue and efficiencies, and whether final acquisition accounting changes reported values.
- Debt repayment capacity, variable-rate exposure, revolver availability after letters of credit, and continued compliance with credit covenants.
- Developments in the IRS examinations and the adequacy of tax, insurance, and self-insured liability reserves.
- Whether housing, insurance, and labor costs can be offset through operational efficiencies or client rate increases.