AMN Healthcare Services, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This annual report includes fourth-quarter results; it is not a standalone quarterly filing. Amounts below are in U.S. dollars.
Business context
AMN provides U.S. healthcare staffing and workforce solutions, including nurse and allied staffing, locum tenens, managed services programs (MSP), vendor management systems (VMS), recruitment, workforce technology, credentialing and revenue cycle services. In 2019, revenue came from nurse and allied solutions (64%), locum tenens solutions (15%) and other workforce solutions (21%). Approximately 45% of consolidated revenue flowed through MSP relationships. Kaiser Foundation Hospitals and affiliates represented about 13% of consolidated revenue.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $2,222.1 million | $2,136.1 million |
| Gross profit / gross margin | $743.5 million / 33.5% | $696.4 million / 32.6% |
| Operating income / operating margin | $176.9 million / 8.0% | $202.8 million / 9.5% |
| Net income / diluted EPS | $114.0 million / $2.40 | $141.7 million / $2.91 |
| Cash from operations | $224.9 million | $227.0 million |
| Cash used in investing activities | $(291.8) million | $(279.3) million |
| Cash and cash equivalents at year-end | $83.0 million | $13.9 million |
| Total debt, net of unamortized fees | $617.2 million | $320.6 million |
Capital expenditures were $35.2 million in 2019; operating cash flow less capital expenditures was approximately $189.6 million. Year-end current assets were $560.5 million versus current liabilities of $378.1 million. Days sales outstanding improved to 55 days from 64 days.
At year-end, gross principal debt comprised $325 million of 5.125% notes due 2024 and $300 million of 4.625% notes due 2027. No amounts were drawn on the revolving facility; approximately $382.6 million remained available after letters of credit. The company reported compliance with credit agreement financial tests.
Material changes versus comparable periods
- Full-year revenue increased 4%, but declined 1% excluding acquired businesses. Acquisitions contributed $117.6 million of additional revenue.
- Nurse and allied revenue rose 9% to $1,420.0 million, including $82.3 million from Advanced and a 1% increase in average bill rate. Locum tenens revenue fell 17% to $324.7 million, primarily as days filled declined 17%. Other workforce solutions revenue increased 9% to $477.5 million.
- Gross margin increased to 33.5%, helped by nurse and allied and other workforce solutions margins and a favorable business mix. Management noted that $4.3 million of physician permanent placement recruiter compensation was reclassified from cost of revenue to SG&A, which also affected the comparison.
- Operating income fell 13% and net income fell 20%. SG&A rose to $508.0 million, or 22.9% of revenue, from $452.3 million, or 21.2%; depreciation and amortization also increased, partly reflecting acquisitions and technology investment. Interest expense, net and other rose to $28.4 million from $16.1 million, including the effect of higher average debt and a prior-year investment gain.
- Fourth-quarter revenue was $586.9 million versus $528.6 million in Q4 2018; net income was $27.5 million versus $35.6 million. Diluted EPS was $0.58 versus $0.74.
- The company issued $300 million of 2027 notes and repaid its remaining term debt during Q4. It repurchased 395,212 shares for $18.7 million during 2019, down from $67.0 million of repurchases in 2018.
Outlook, risks and unusual items
Management described demand as strong in nurse and allied staffing and generally favorable in locum tenens, while noting clinician supply had not kept pace with demand, particularly in nursing. Skilled-nursing-facility therapist demand weakened following Medicare reimbursement changes; locum tenens demand for hospitalists and emergency-room physicians declined. Management’s strategy emphasizes acquisitions, cross-selling, technology, operational efficiency and growing recurring workforce-solutions revenue. The filing provides no specific numeric revenue or earnings guidance. Management stated that operating cash generation and available revolver capacity were expected to fund operations and capital needs for the next 12 months and beyond.
- Acquisitions: 2019 acquisitions included Advanced, Silversheet and b4health; acquisition spending was $247.9 million net of cash received. Goodwill rose to $595.6 million. No impairment charges were recorded in 2019.
- Subsequent event: On February 14, 2020, AMN acquired Stratus Video for $475 million in cash, financed with an additional $250 million term loan facility and $175 million borrowed under the revolver. This materially changes the post-year-end financing picture.
- Legal and insurance exposures: The company reported wage-and-hour class actions and other ordinary-course matters, including allegations involving breaks, overtime calculations and time worked. Management believed accrued contingencies would not have a material adverse effect, while acknowledging litigation uncertainty. Professional liability accruals totaled $42.5 million and were identified as a critical audit matter.
- Other key risks: economic downturn and client pricing pressure; clinician recruitment and wage costs; customer concentration and healthcare-system consolidation; regulatory, employment-classification and reimbursement changes; cybersecurity and technology disruptions; acquisition integration and goodwill impairment; variable-rate debt and restrictive covenants.
- Accounting and audit: The company adopted lease accounting in 2019, recording operating lease right-of-use assets of $89.9 million and lease liabilities of $105.2 million at year-end. KPMG issued unqualified opinions on the financial statements and internal controls. The Advanced acquisition’s intangible-asset valuation was also a critical audit matter.
Important facts for investors to verify
- Whether organic demand and clinician supply improve, especially in nursing, and whether bill rates can cover wage and recruiting cost increases.
- Whether locum tenens days filled recover and the decline in hospitalist and emergency-room demand stabilizes.
- Post-Stratus acquisition debt, revolver usage, interest costs, covenant headroom and integration performance; year-end liquidity figures predate that acquisition.
- Acquisition contributions versus organic growth, including the performance of Advanced and other acquired businesses, and the assumptions supporting goodwill and intangible values.
- Developments in wage-and-hour litigation, professional liability reserves and other contingencies, plus continued customer concentration in Kaiser.
- Whether reported gross-margin improvement is sustainable, given the favorable mix and the $4.3 million compensation reclassification.