AMN Healthcare Services, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited fourth-quarter results. AMN provides healthcare staffing and workforce solutions through nurse and allied staffing, locum tenens staffing, and physician permanent placement. Home healthcare was sold in January 2012 and is reported as discontinued operations.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $954.0 million | $887.5 million |
| Gross profit / margin | $270.4 million / 28.3% | $249.3 million / 28.1% |
| Operating income | $53.3 million | $37.6 million |
| Continuing operations income | $16.3 million | $5.0 million |
| Net income (loss) | $17.1 million | $(26.3) million |
| Diluted EPS | $0.37 | $(0.57) |
| Operating cash flow | $60.5 million | $19.3 million |
| Cash and cash equivalents at year-end | $5.7 million | $4.0 million |
| Term debt, net of discount | $158.2 million | $202.3 million |
Revenue grew 7%, led by nurse and allied staffing, whose revenue rose 15% to $653.8 million. Locum tenens revenue fell 6% to $261.4 million; physician permanent placement revenue was nearly flat at $38.7 million. SG&A was $202.9 million, or 21.3% of revenue, versus 22.0% the prior year. Net income improved substantially, in part because 2011 included $38.9 million of home-health impairment charges in discontinued operations.
Fourth quarter: Revenue was $247.8 million versus $222.1 million in Q4 2011; gross profit was $70.6 million versus $62.8 million. Continuing-operations income was $7.1 million versus $1.7 million. Net income was $7.1 million, compared with a net loss of $2.4 million in Q4 2011, which included discontinued-operation losses. Diluted EPS was $0.15 versus a loss of $0.05.
Gross margin improved modestly year over year. Segment gross margins were 26.5% for nurse and allied staffing, 27.9% for locum tenens, and 62.3% for physician permanent placement. The locum tenens margin improved from 25.8%, while nurse and allied and permanent-placement margins declined slightly.
Liquidity, debt and capital
- Operating cash flow increased to $60.5 million, supported by improved results and collections. Year-end days sales outstanding were 53, down from 61 at year-end 2011 (57 excluding discontinued home health).
- Investing activities provided $3.0 million, including $9.1 million of home-health sale proceeds; capital expenditures were $5.5 million. Financing activities used $61.7 million, primarily for debt repayments and refinancing.
- AMN refinanced its credit facilities in April 2012. At year-end, it had $158.2 million of term debt, no revolver borrowings, and $36.4 million of available revolver capacity under a $50 million facility. The term loan carried a 5.75% stated rate at year-end and matures in 2018; the revolver matures in 2017.
- Debt is floating-rate and secured; a 1 percentage-point rate change was estimated to alter 2012 interest expense by approximately $1.9 million. The company reported compliance with credit-agreement covenants at year-end.
- Restricted cash and investments totaled $18.9 million, largely supporting letters of credit. The company reported $31.9 million of outstanding letters of credit. It did not expect to pay dividends and stated that operating cash flow and revolver availability should fund operations for at least the next 12 months.
Changes, outlook and material matters
- Travel-nurse demand had recovered from its 2009 low but remained below 2007–2008 levels. Managed-services contracts generated about one-third of nurse and allied staffing revenue in 2012, versus 1% in 2008. Management reported continued demand growth early in 2013.
- Management cited strong demand for primary-care and hospitalist locum tenens, but weaker demand in anesthesia and radiology. Therapy staffing demand fell significantly from Q4 2012 amid Medicare reimbursement changes; managed-services clients and shifting sales resources partly mitigated the effect.
- No quantified earnings or revenue guidance is provided. Management expects capital expenditures of approximately 1% of revenue and believes liquidity is adequate, while noting future acquisitions may be funded through cash, borrowing, or capital markets.
- 2012 interest expense included $9.8 million of debt-extinguishment costs: an $8.6 million write-off of financing fees and original issue discount and a $1.2 million prepayment penalty. The home-health sale generated a $1.2 million after-tax gain. A California payroll-tax settlement produced a $2.0 million SG&A benefit.
- Risks include sensitivity to hospital census and economic conditions, client bargaining power and concentration, clinician recruitment and retention, healthcare regulation and reimbursement changes, independent-contractor classification, malpractice and employment claims, and technology disruption. The 2014 healthcare-law changes could raise benefit costs; the company was evaluating their effects.
- Uncertain income-tax liabilities, including interest and penalties, were $24.6 million. An IRS examination covering 2007–2010 had produced proposed adjustments in February 2013; management considered its reserves adequate and intended to contest the proposals. A wage-and-hour class action had an immaterial accrual, but the possible loss range could not be estimated.
- No 2012 goodwill or indefinite-lived intangible impairment was recorded. Management noted limited valuation headroom for the locum tenens tradename (12%) and a narrower-than-other-units fair-value cushion for physician permanent placement.
Investor verification points
- Confirm revenue growth and the contrasting nurse/allied and locum tenens volume trends, including the effect of Medicare reimbursement changes on therapy staffing.
- Review cash conversion, receivables and DSO, and whether the improved operating cash flow is sustainable.
- Assess debt repayment capacity, floating-rate exposure, covenant headroom, and the availability of revolver capacity after letters of credit.
- Track IRS proposed adjustments and the $24.6 million uncertain-tax-position liability, as well as developments in the wage-and-hour litigation.
- Monitor impairment assumptions for the locum tenens tradename and physician permanent-placement reporting unit, and the cost effects of healthcare-law changes.