AMN Healthcare Services, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial statement values are converted from thousands to millions unless noted.
Business context and financial performance
AMN provides healthcare staffing and workforce technology solutions through nurse and allied, physician and leadership, and technology and workforce segments. Results reflect a normalization in staffing demand after pandemic-era highs, particularly in travel nursing.
- Q3 revenue: $853.5 million, down 25% year over year. Gross profit was $289.5 million; operating income $86.9 million; net income $53.2 million. Diluted EPS was $1.39, versus $2.10.
- Q3 margins: Gross margin was 33.9% versus 33.8%; operating margin was 10.2% versus 12.0%; net margin was 6.2% versus 8.1%.
- Nine-month revenue: $2,971.0 million, down 28%. Gross profit was $988.6 million; operating income $304.3 million; net income $198.2 million. Diluted EPS was $4.99, versus $7.99.
- Nine-month margins: Gross margin was 33.3% versus 32.6%; operating margin was 10.2% versus 12.8%; net margin was 6.7% versus 8.8%.
Segments and material changes
- Nurse and allied solutions: Q3 revenue was $573.4 million, down 31%; nine-month revenue was $2,086.9 million, down 34%. Q3 declines reflected 19% fewer average travelers on assignment, an approximately 10% lower average bill rate, 4% fewer billable hours, and lower labor disruption revenue. For the nine months, average bill rates and travelers each declined approximately 16%.
- Physician and leadership solutions: Q3 revenue was $159.6 million, down 9%; nine-month revenue was $501.5 million, down 5%. Locum tenens revenue grew about 6% in Q3, supported by a 15% increase in revenue per day filled, partly offset by 7% fewer days filled. Interim leadership and permanent placement/search activity weakened.
- Technology and workforce solutions: Q3 revenue was $120.5 million, down 11%; nine-month revenue was $382.5 million, down 11%. VMS revenue fell 37% in Q3 and 34% for nine months; language services grew 20% and 21%, respectively.
- Q3 gross margin improved slightly year over year, primarily from sales mix and improved nurse and allied margins, but technology and workforce margin fell to 65.0% from 75.6%. Nine-month consolidated gross margin also improved, while technology and workforce margin fell to 67.9% from 76.9%.
- SG&A decreased in dollars but rose as a share of revenue: 19.1% in Q3 versus 18.9%, and 19.2% for nine months versus 17.4%. Interest expense and other increased to $11.5 million in Q3 and $34.0 million for nine months, mainly due to higher average debt outstanding.
Cash, liquidity and capital
- Nine-month operating cash flow: $413.3 million, down from $538.4 million. Capital expenditures were $73.8 million. Investing cash outflow was $88.8 million; financing cash outflow was $352.8 million.
- Cash and cash equivalents were $29.4 million at September 30, 2023, versus $64.5 million at year-end 2022. Cash, cash equivalents and restricted cash totaled $109.6 million, excluding restricted investments.
- Debt included $95.0 million drawn on the revolving facility and $850.0 million principal amount of senior notes: $500.0 million due 2027 and $350.0 million due 2029. The $750.0 million secured revolving facility had $634.2 million available; its maturity was extended to February 2028.
- AMN repurchased $424.7 million of stock during the first nine months, including a $200.0 million accelerated share repurchase. Shares outstanding at September 30 were 37.8 million, versus 41.9 million at December 31, 2022.
- Management stated that operating cash flow and available revolver borrowings should be sufficient for operations and liquidity needs, including expected capital expenditures, for the next 12 months and beyond. DSO was 61 days, up from 55 days at year-end 2022.
Outlook, risks and unusual items
- Management reported travel nurse demand recovering from an early-second-quarter low through early Q4, but remaining below pre-pandemic levels. It expected nurse and allied bill rates and clinician compensation to decrease slightly in Q4, at a slower pace than earlier in 2023.
- Management expected strong locum tenens demand to continue, with a seasonal Q4 dip. Demand in interim leadership and executive search had weakened. Language services utilization continued to grow; VMS volumes and bill rates were expected to decrease slightly in Q4 while remaining above pre-pandemic levels in 2023.
- Management estimated a 27% annual effective tax rate for 2023. The filing does not provide a consolidated revenue or earnings forecast.
- A $62.0 million accrual relates to the Clarke wage-and-hour matter; settlement was agreed and awaited court approval. The separate Woehrle matter was approved and paid in Q2 2023.
- On October 23, 2023, AMN announced a proposed acquisition of Medical Search International and Dr. Wanted Healthcare Staffing for approximately $300 million cash, subject to customary conditions and regulatory approval.
- Key risks cited include changes in healthcare clients’ contingent-labor demand and cost controls, recruiting and retention, legal and employment claims, cybersecurity and technology disruptions, acquisition execution, goodwill impairment, and indebtedness. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether travel nurse assignment volumes and bill rates stabilize, and whether the Q4 demand and rate commentary is borne out.
- Trends in locum tenens, language services and VMS, including the extent to which growth in stronger businesses offsets staffing declines.
- Operating cash conversion, DSO, available revolver capacity and debt levels as buybacks and the proposed acquisition affect liquidity.
- Court approval and final payment implications of the $62.0 million Clarke settlement accrual.
- Closing conditions, final cash consideration and expected financing and integration effects of the proposed approximately $300 million acquisition.