AMN Healthcare Services(AMN) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes for the relevant periods Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $2,344,865 | $1,931,646 | | Total Current Assets | $513,703 | $560,499 | | Goodwill | $869,941 | $595,551 | | Total Liabilities | $1,537,792 | $1,194,904 | | Total Current Liabilities | $386,168 | $378,105 | | Total Stockholders' Equity | $807,073 | $736,742 | - Total assets increased by $413.2 million, primarily driven by a significant increase in goodwill and intangible assets due to acquisitions[5] - Total liabilities increased by $342.9 million, mainly due to higher notes payable and deferred income taxes[5] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $551,631 | $567,597 | $1,762,443 | $1,635,215 | | Gross Profit | $184,633 | $190,031 | $584,239 | $546,332 | | Income from Operations | $46,462 | $39,739 | $120,606 | $129,947 | | Net Income | $26,067 | $23,515 | $61,357 | $86,506 | | Basic EPS | $0.55 | $0.50 | $1.29 | $1.85 | | Diluted EPS | $0.55 | $0.49 | $1.29 | $1.82 | - Revenue decreased 3% for the three months ended September 30, 2020, but increased 8% for the nine months ended September 30, 2020, compared to the prior year periods[6] - Net income increased 10.8% for the three months ended September 30, 2020, but decreased 29.1% for the nine months ended September 30, 2020, compared to the prior year periods[6] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Dec 31, 2019 | Sep 30, 2020 | | :--- | :--- | :--- | | Common Shares Outstanding | 49,283 | 49,550 | | Common Stock Amount | $493 | $495 | | Additional Paid-in Capital | $455,193 | $465,438 | | Retained Earnings | $400,047 | $460,250 | | Total Stockholders' Equity | $736,742 | $807,073 | - Total stockholders' equity increased by $70.3 million from December 31, 2019, to September 30, 2020, primarily due to an increase in retained earnings and additional paid-in capital[9] - The cumulative-effect adjustment from the adoption of the credit loss standard reduced retained earnings by $1,154 (net of tax) as of January 1, 2020[9] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $216,981 | $146,205 | | Net cash used in investing activities | $(528,458) | $(253,606) | | Net cash provided by financing activities | $266,557 | $136,440 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(45,039) | $28,981 | | Cash, cash equivalents and restricted cash at end of period | $108,923 | $113,305 | - Net cash provided by operating activities increased by $70.8 million, primarily due to an increase in other liabilities and improved accounts receivable collections[11][13][140] - Net cash used in investing activities significantly increased by $274.8 million, mainly due to higher cash paid for acquisitions ($476.5 million in 2020 vs $228.2 million in 2019)[11][13][141] - Net cash provided by financing activities increased by $130.1 million, driven by proceeds from term loans and senior notes, partially offset by repayments and acquisition earn-out payments[13][142] Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Basis of Presentation - The Company's financial statements are unaudited and prepared in conformity with U.S. GAAP, with management making estimates and assumptions that could differ from actual results[16][18] - The COVID-19 pandemic has created economic uncertainty, but the Company's transition to remote work has not materially impacted operations or financial reporting as of September 30, 2020[19][20] - The Company adopted the credit loss standard (ASU 2016-13) and the goodwill impairment simplification standard (ASU 2017-04) effective January 1, 2020, with immaterial impact on financial statements[21][24] Note 2. Acquisitions - The Company completed four acquisitions between January 1, 2019, and September 30, 2020: Stratus Video (Feb 2020), b4health (Dec 2019), Advanced (June 2019), and Silversheet (Jan 2019)[31][32][38][40][43] Key Acquisition Details (in thousands) | Acquisition | Date | Initial Purchase Price | Segment | Goodwill (Acquisition Date) | | :--- | :--- | :--- | :--- | :--- | | Stratus Video | Feb 14, 2020 | $485,568 | Technology & Workforce | $274,427 | | b4health | Dec 19, 2019 | $23,006 | Technology & Workforce | $13,594 | | Advanced | June 14, 2019 | $211,743 | Nurse & Allied | $119,868 | | Silversheet | Jan 30, 2019 | $31,676 | Technology & Workforce | $23,537 | Pro Forma Consolidated Results (in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 (Pro Forma) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 (Pro Forma) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $551,631 | $595,211 | $1,776,315 | $1,767,010 | | Net Income | $29,030 | $17,850 | $71,434 | $54,667 | Note 3. Revenue Recognition - Revenue is primarily derived from temporary staffing and permanent placement of healthcare professionals, SaaS-based technologies (VMS, scheduling), and outsourced workforce services (language interpretation, RPO)[45] - Revenue is recognized when control of services is transferred to customers, reflecting the consideration expected in exchange for those services[45] - For MSP arrangements using subcontractors, revenue is recorded net of subcontractor expenses when acting as an agent[45] Note 4. Net Income Per Common Share Net Income Per Common Share (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $26,067 | $23,515 | $61,357 | $86,506 | | Basic EPS | $0.55 | $0.50 | $1.29 | $1.85 | | Diluted EPS | $0.55 | $0.49 | $1.29 | $1.82 | | Weighted Average Common Shares Outstanding - Basic | 47,476 | 46,677 | 47,406 | 46,701 | | Weighted Average Common Shares Outstanding - Diluted | 47,676 | 47,607 | 47,647 | 47,600 | - Basic and diluted EPS increased for the three months ended September 30, 2020, but decreased for the nine months ended September 30, 2020, compared to the prior year periods[50] Note 5. Segment Information - Effective March 8, 2020, the Company reorganized its reportable segments into: (1) Nurse and Allied Solutions, (2) Physician and Leadership Solutions, and (3) Technology and Workforce Solutions[51] Revenue by Reportable Segment (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Nurse and Allied Solutions | $382,699 | $398,417 | $1,251,509 | $1,139,883 | | Physician and Leadership Solutions | $109,116 | $143,842 | $355,580 | $423,368 | | Technology and Workforce Solutions | $59,816 | $25,338 | $155,354 | $71,964 | | Total Revenue | $551,631 | $567,597 | $1,762,443 | $1,635,215 | Segment Operating Income (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Nurse and Allied Solutions | $52,923 | $52,533 | $173,706 | $158,841 | | Physician and Leadership Solutions | $15,538 | $17,547 | $45,432 | $52,280 | | Technology and Workforce Solutions | $25,680 | $11,426 | $62,814 | $33,145 | | Total Segment Operating Income | $94,141 | $81,506 | $281,952 | $244,266 | - Goodwill balances were reallocated to reporting units following the segment reorganization, with no impairment loss recognized[60] Note 6. Notes Payable and Credit Agreement - The Company's debt structure includes a $400 million Senior Credit Facility, a $250 million Additional Term Loan (under the Amended Credit Agreement), and 4.625% Senior Notes due 2027[63][64][66] - In August 2020, an additional $200 million of 4.625% Senior Notes due 2027 were issued, with proceeds used to repay $200 million of the Additional Term Loan[66][67] - The Amended Credit Agreement extended the maturity date of the Senior Credit Facility to February 14, 2025, coterminous with the Additional Term Loan[64] Note 7. Fair Value Measurement - Assets and liabilities measured on a recurring basis include money market funds (Level 1), deferred compensation (Level 1), commercial paper (Level 2), and acquisition contingent consideration liabilities (Level 3)[70][71][72][73] Fair Value Measurements as of September 30, 2020 (in thousands) | Asset/Liability | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Money market funds | $2,354 | $2,354 | $— | $— | | Deferred compensation | $(87,934) | $(87,934) | $— | $— | | Commercial paper | $59,196 | $— | $59,196 | $— | | Acquisition contingent consideration liabilities | $(1,400) | $— | $— | $(1,400) | - Goodwill and indefinite-lived intangible assets are evaluated annually for impairment using Level 3 inputs (discounted cash flows)[79] Note 8. Income Taxes - The Company is subject to U.S. federal, state, and foreign taxation, with open tax years generally after 2016 for federal and 2010 for state/local/foreign[85] - Indemnifications are in place for potential tax liabilities from the Advanced and Stratus Video acquisitions for pre-acquisition periods[85] Note 9. Commitments and Contingencies: Legal Proceedings - The Company is involved in various lawsuits and claims in the ordinary course of business, including professional liability, tax, compensation, and employee-related matters[86] - Loss contingencies are accrued when probable and reasonably estimable, with significant judgment required[86] - Accrued loss contingencies as of September 30, 2020, are not expected to have a material adverse effect on the Company's financial position or results of operations[88] Note 10. Balance Sheet Details Selected Balance Sheet Details (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Other Current Assets | $30,591 | $40,446 | | Fixed Assets, net | $112,752 | $104,832 | | Other Assets | $125,831 | $120,254 | | Accounts Payable and Accrued Expenses | $152,935 | $156,140 | | Accrued Compensation and Benefits | $184,736 | $170,932 | | Other Current Liabilities | $11,884 | $25,302 | | Other Long-Term Liabilities | $95,736 | $61,813 | - Fixed assets, net, increased by $7.9 million, primarily due to increased investment in software and furniture/equipment[90] - Accrued compensation and benefits increased by $13.8 million, mainly due to higher accrued payroll and bonuses[90] Note 11. Subsequent Events - On October 20, 2020, the Company issued $350 million aggregate principal amount of 4.000% Senior Notes due 2029[91] - Proceeds from the 2029 Notes and cash from operations were used to redeem all outstanding 5.125% Senior Notes due 2024 ($325 million) and repay $40 million under the Senior Credit Facility[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, capital resources, and recent business trends Changes to Our Reportable Segments - Effective March 8, 2020, the Company reorganized its reportable segments to better align with strategy and operations, now comprising Nurse and Allied Solutions, Physician and Leadership Solutions, and Technology and Workforce Solutions[94] Overview of Our Business - The Company provides healthcare workforce solutions and staffing services, including managed services programs (MSP), vendor management systems (VMS), remote video interpretation, and placement of various healthcare professionals[95] - Recent acquisitions (Stratus Video, b4health, Advanced, Silversheet) aim to add value through remote video interpreting, float pool management, staffing, and credentialing software[101] Segment Revenue Contribution (Nine Months Ended Sep 30) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Nurse and Allied Solutions | 71% | 70% | | Physician and Leadership Solutions | 20% | 26% | | Technology and Workforce Solutions | 9% | 4% | Recent Trends - COVID-19 significantly impacted demand, with initial declines in many businesses due to 'shelter-in-place' orders and suspension of elective services, followed by fluctuating and historically high demand for nursing services[102][103] - Nurse and allied solutions experienced significant increases in bill rates and wages for nurses, especially in specialties like ICU and telemetry, with overall nursing demand at record levels since mid-July[103] - Physician and leadership solutions saw a decline in locum tenens, interim leadership, and permanent placement demand due to COVID-19, with slow and inconsistent recovery[106][107] - Technology and workforce solutions, particularly VMS technologies and language interpretation, experienced initial declines but later saw increased utilization and new client adoption, exceeding pre-COVID-19 levels by mid-June for interpretation[108][109] - The Company implemented cost reduction measures in Q2 2020, including workforce reductions and reduced spending, but is selectively increasing workforce and restoring benefits as businesses recover[111] Critical Accounting Policies and Estimates - No material changes in critical accounting policies and estimates, other than the adoption of ASUs described in Note 1, were reported[112][113] Results of Operations Key Financial Highlights (Unaudited Condensed Consolidated Statements of Operations) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $551.6M | $567.6M | $1,762.4M | $1,635.2M | | Gross Profit | $184.6M | $190.0M | $584.2M | $546.3M | | Gross Margin | 33.5% | 33.5% | 33.1% | 33.4% | | SG&A Expenses | $111.2M (20.2% of revenue) | $133.2M (23.5% of revenue) | $394.5M (22.4% of revenue) | $374.9M (22.9% of revenue) | | Depreciation and Amortization | $26.9M | $17.1M | $69.1M | $41.5M | | Income from Operations | $46.5M | $39.7M | $120.6M | $129.9M | | Net Income | $26.1M (4.7% of revenue) | $23.5M (4.1% of revenue) | $61.4M (3.5% of revenue) | $86.5M (5.3% of revenue) | - Revenue for the three months decreased 3% YoY, primarily due to lower revenue in physician and leadership solutions and nurse and allied solutions, partially offset by $36.6 million from acquisitions[115] - Revenue for the nine months increased 8% YoY, driven by $154.4 million from acquisitions and higher organic revenue in nurse and allied solutions, partially offset by declines in physician and leadership solutions[127] - SG&A expenses decreased for the three months due to cost reduction measures and lower acquisition-related costs, but increased for the nine months due to acquisition-related expenses and higher share-based compensation[122][133] - Depreciation and amortization expenses significantly increased for both periods due to intangible assets from recent acquisitions and shortened useful lives of tradename assets[123][135] Liquidity and Capital Resources Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $216,981 | $146,205 | | Net cash used in investing activities | $(528,458) | $(253,606) | | Net cash provided by financing activities | $266,557 | $136,440 | - Operating cash flow increased due to higher other liabilities (CARES Act deferrals) and improved accounts receivable collections[140] - Investing cash flow increased significantly due to $476.5 million used for acquisitions in 2020[141] - Financing cash flow increased due to borrowings from the Senior Credit Facility, Additional Term Loan, and New 2027 Notes, partially offset by repayments and acquisition earn-out payments[142] - As of September 30, 2020, the Company had $46.9 million outstanding on the Additional Term Loan, $40.0 million drawn on the Senior Credit Facility (with $338.1 million available), $325.0 million in 2024 Notes, and $500.0 million in 2027 Notes[138] Recent Accounting Pronouncements - The Company is evaluating the impact of ASU 2019-12 ('Simplifying the Accounting for Income Taxes') and ASU 2020-01 ('Clarifying the Interactions between Topic 321, Topic 323, and Topic 815'), both effective after December 15, 2020, but does not expect a material impact from ASU 2020-01[156][157] Special Note Regarding Forward-Looking Statements - The report contains forward-looking statements based on expectations, estimates, forecasts, and projections, which involve risks and uncertainties that could cause actual results to differ materially[159] - Key risk factors include the effects of the COVID-19 pandemic on business, demand for services, operational disruptions, financial condition of clients, economic downturns, ability to recruit and retain healthcare professionals, regulatory compliance, and integration of acquisitions[159][160] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk from variable interest debt - The primary market risk exposure is interest rate risk from variable interest debt instruments[161] - A 100 basis point increase in interest rates would not have a material effect on the financial statements for the three and nine months ended September 30, 2020[161] - Foreign currency risk is considered immaterial as substantially all revenue is generated in the United States[161] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and notes no material changes in internal financial reporting controls - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020[162] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[163] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section states that there are no legal proceedings to report under this item - No legal proceedings are reported in this section[165] Item 1A. Risk Factors This section outlines additional risk factors, primarily focusing on the adverse effects of the COVID-19 pandemic - The COVID-19 pandemic has negatively impacted the global economy and created significant volatility, posing risks to the Company's business, financial condition, and results of operations[168] - Demand for staffing services and workforce technology solutions is sensitive to economic activity and has fluctuated significantly due to COVID-19, with decreased demand for non-essential healthcare services[169] - Risks include potential disruptions to operations due to employee unavailability, increased workers' compensation and health insurance costs, and impaired ability of clients to make timely payments[171][172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchase program and confirms no shares were repurchased during the period - The Board authorized a $150 million common stock repurchase program on November 1, 2016, with no expiration date[174] - No shares of common stock were repurchased during the nine months ended September 30, 2020[175] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - No defaults upon senior securities are reported in this section[175] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[175] Item 5. Other Information This section states that there is no other information to report - No other information is reported in this section[175] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q - Exhibits include the Indenture dated October 20, 2020, certifications by Susan R. Salka and Brian M. Scott, and various XBRL taxonomy documents[177]