AMN Healthcare Services, Inc. — Q2 2020 Form 10-Q
Business context and period. The unaudited quarter and six months ended June 30, 2020 cover a healthcare staffing and workforce-solutions business. Results reflect the COVID-19 disruption and the February acquisition of Stratus Video. Unless noted otherwise, amounts below are in millions.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $608.4 | $535.2 | $1,210.8 | $1,067.6 |
| Gross profit / margin | $197.5 / 32.5% | $179.5 / 33.5% | $399.6 / 33.0% | $356.3 / 33.4% |
| Operating income / margin | $38.4 / 6.3% | $45.2 / 8.4% | $74.1 / 6.1% | $90.2 / 8.4% |
| Net income | $22.3 | $28.9 | $35.3 | $63.0 |
| Diluted EPS | $0.47 | $0.61 | $0.74 | $1.32 |
For the first half, operating cash flow was $128.3, versus $65.3 a year earlier. Investing used $513.3, including $476.5 for acquisitions; financing provided $329.0. Cash and cash equivalents were $43.1 at June 30, down from $83.0 at year-end 2019. DSO was 55 days, unchanged from year-end and down from 63 days at June 30, 2019.
At June 30, borrowings included $248.4 of term-loan principal, $100.0 drawn on the revolving facility, and $625.0 of senior notes; $282.6 remained available on the revolver. Credit-facility maturity is February 2025. The filing states that operating cash generation and available revolver capacity are expected to fund operations and expected capital expenditures for the next 12 months and beyond.
Changes and segment performance
- Q2 revenue grew 14% year over year, but excluding acquisitions increased 2%. First-half revenue grew 13%, or 2% excluding acquisitions.
- Q2 net income fell 23% year over year; first-half net income fell 44%. Lower operating income and higher interest expense weighed on earnings. Higher amortization also reflected acquired intangible assets.
- Q2 nurse and allied revenue rose 21% to $444.5, helped by Advanced and higher average bill rates; average professionals on assignment declined 13%. Physician and leadership revenue fell 24% to $108.6 amid COVID-related cancellations and reduced searches. Technology and workforce revenue rose 123% to $55.3, largely due to Stratus Video and b4health.
- Consolidated gross margin declined 1.0 percentage point in Q2. Management cited lower nurse bill-to-pay spreads; technology-segment margin also fell as Stratus Video changed the segment’s revenue mix.
- Segment reporting was reorganized in March 2020 into nurse and allied, physician and leadership, and technology and workforce solutions; prior-period segment figures were reclassified.
Outlook, risks and unusual items
- Management described demand as volatile and difficult to predict. Non-essential and elective healthcare restrictions hurt many service lines, while nursing demand fluctuated sharply with COVID-19 cases. By mid-July, nursing demand exceeded prior-year levels, with urgent assignments and rates rising; many requests were short-term. Recovery in physician and leadership services remained uneven.
- During Q2, the company took actions intended to reduce SG&A by approximately $120 million on an annualized basis, including workforce, variable compensation, travel and other expense reductions, and suspension of certain employer plan contributions.
- Management estimated a 2020 annual effective tax rate of approximately 32%. Q2’s 17% effective rate reflected a $4.3 million discrete tax benefit related to company-owned life insurance.
- COVID-19 risks include weaker client demand and payment capacity, collection delays, staffing disruptions, higher self-insurance costs and uncertainty about the duration of the pandemic. The allowance for credit losses rose to $8.5 from $3.3 at year-end; management said COVID-19 had not materially affected estimates as of June 30, but estimates may change.
- Stratus Video was acquired for approximately $485.6 in February, funded primarily with new term-loan and revolver borrowings. Goodwill was $870.1 at June 30; the company reported no goodwill impairment for the first half. Acquisition-related contingent consideration and integration costs affected results.
- The company reported accrued legal contingencies of $10.5, principally involving wage-and-hour claims. It said it could not estimate possible losses beyond amounts accrued for certain matters; it did not expect accrued matters to have a material adverse effect.
- No formal revenue or earnings guidance was provided. The filing reported no material off-balance-sheet arrangements and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether nursing demand, bill rates and assignment durations remain elevated, and whether elective-care recovery supports other staffing lines.
- Whether customer credit quality and collections hold up; monitor receivables, credit-loss provisions and DSO.
- How acquisitions contribute to organic growth, margins and cash generation, including Stratus Video integration and contingent consideration.
- Debt levels, floating-rate exposure, revolver availability and compliance with credit-agreement terms.
- Whether cost reductions can be sustained without impairing recruiting capacity or service delivery, and whether legal and self-insurance exposures change.