AMN Healthcare Announces Second Quarter 2019 Results

Dollars in millions, except per share amounts.

Q2 2019

% Change

Q2 2018

YTD June

30, 2019

% Change

YTD June

30, 2018

Revenue

$535.2

(4)%

$1,067.6

(1)%

Gross profit

$179.5

(1)%

$356.3

2%

Net income

$28.9

(19)%

$63.0

(19)%

Diluted EPS

$0.61

(16)%

$1.32

(18)%

Adjusted diluted EPS*

$0.77

(7)%

$1.52

(7)%

Adjusted EBITDA*

$66.7

(5)%

$132.7

(3)%

Guidance*

Consolidated revenue

$560 - $566 million

Gross margin

33.0%

SG&A as percentage of revenue

22.5%

Operating margin

7.7%

Adjusted EBITDA margin

12.0%

*Note: Guidance percentage metrics are approximate.  For a reconciliation of adjusted EBITDA margin, see the table entitled "Reconciliation of Guidance Adjusted EBITDA Margin to Guidance Operating Margin" below.

Condensed Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

June 30,

June 30,

2019

2018

2019

2019

2018

Revenue

$

535,177

$

558,108

$

532,441

$

1,067,618

$

1,080,597

Cost of revenue

355,635

377,152

355,682

711,317

731,817

Gross profit

179,542

180,956

176,759

356,301

348,780

Gross margin

32.4%

33.2%

33.4%

32.3%

Operating expenses:

Selling, general and administrative (SG&A)

121,668

115,535

119,997

241,665

220,272

SG&A as a % of revenue

22.7%

20.7%

22.5%

22.6%

20.4%

Depreciation and amortization

12,718

10,606

11,710

24,428

18,492

Total operating expenses

134,386

126,141

131,707

266,093

238,764

Income from operations

45,156

54,815

45,052

90,208

110,016

Operating margin ⁽¹⁾

8.4%

9.8%

8.5%

8.4%

10.2%

Interest expense, net, and other

6,065

6,376

5,673

11,738

11,711

Income before income taxes

39,091

48,439

39,379

78,470

98,305

Income tax expense

10,222

12,910

5,257

15,479

20,095

Net income

$

28,869

$

35,529

$

34,122

$

62,991

$

78,210

Net income as a % of revenue

5.4%

6.4%

6.4%

5.9%

7.2%

Other comprehensive income (loss):

Foreign currency translation and other

91

(101)

(190)

72

Other comprehensive income (loss)

(89)

91

(101)

(190)

72

Comprehensive income

$

28,780

$

35,620

$

34,021

$

62,801

$

78,282

Net income per common share:

Basic

$

0.62

$

0.75

$

0.73

$

1.35

$

1.64

Diluted

$

0.61

$

0.73

$

0.71

$

1.32

$

1.60

Weighted average common shares outstanding:

Basic

46,644

47,653

46,784

46,713

47,693

Diluted

47,424

48,936

47,772

47,597

49,026

AMN Healthcare Services, Inc.

Supplemental Financial and Operating Data

(dollars in thousands, except per share data and operating data)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

2019

2018

2019

2019

2018

Revenue

Nurse and allied solutions

$

331,627

$

332,728

$

337,029

$

668,656

$

670,907

Locum tenens solutions

82,074

107,297

80,490

162,564

210,414

Other workforce solutions

121,476

118,083

114,922

236,398

199,276

$

535,177

$

558,108

$

532,441

$

1,067,618

$

1,080,597

Reconciliation of Non-GAAP Items:

Segment operating income ⁽²⁾

Nurse and allied solutions

$

48,694

$

43,936

$

47,922

$

96,616

$

95,741

Locum tenens solutions

7,128

13,371

5,701

12,829

23,329

Other workforce solutions

27,127

28,576

26,188

53,315

48,427

82,949

85,883

79,811

162,760

167,497

Unallocated corporate overhead

16,217

15,823

13,834

30,051

30,918

Adjusted EBITDA ⁽³⁾

66,732

70,060

65,977

132,709

136,579

Adjusted EBITDA margin ⁽⁴⁾

12.5%

12.6%

12.4%

12.4%

12.6%

Depreciation and amortization

12,718

10,606

11,710

24,428

18,492

Share-based compensation ⁽⁵⁾

3,702

3,281

5,186

8,888

6,145

Acquisition, integration and other costs ⁽⁶⁾

5,156

1,358

4,029

9,185

1,926

Income from operations

45,156

54,815

45,052

90,208

110,016

Interest expense, net, and other

6,065

6,376

5,673

11,738

11,711

Income before income taxes

39,091

48,439

39,379

78,470

98,305

Income tax expense

10,222

12,910

5,257

15,479

20,095

Net income

$

28,869

$

35,529

$

34,122

$

62,991

$

78,210

GAAP diluted net income per share (EPS)

$

0.61

$

0.73

$

0.71

$

1.32

$

1.60

Adjustments:

Amortization of intangible assets

0.15

0.13

0.14

0.29

0.22

Acquisition, integration and other costs ⁽⁶⁾

0.11

0.02

0.09

0.20

0.03

Debt financing related costs

—

—

—

—

0.01

Tax effect on above adjustments

(0.07)

(0.04)

(0.06)

(0.13)

(0.07)

Tax correction related to prior periods ⁽⁷⁾

—

—

—

—

(0.05)

Tax effect of COLI fair value changes ⁽⁸⁾

(0.01)

—

(0.03)

(0.04)

—

Excess tax benefits ⁽⁹⁾

(0.02)

(0.01)

(0.10)

(0.12)

(0.10)

Adjusted diluted EPS ⁽¹⁰⁾

$

0.77

$

0.83

$

0.75

$

1.52

$

1.64

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

2019

2018

2019

2019

2018

Gross Margin

Nurse and allied solutions

27.5%

26.3%

27.9%

27.7%

27.2%

Locum tenens solutions

27.8%

29.8%

27.7%

27.8%

29.2%

Other workforce solutions

54.0%

52.2%

52.6%

53.3%

52.7%

Operating Data:

Nurse and allied solutions

Average healthcare

professionals on assignment ⁽¹¹⁾

9,393

9,095

9,580

9,487

9,331

Locum tenens solutions

Days filled ⁽¹²⁾

41,563

55,225

40,496

82,059

108,020

Revenue per day filled ⁽¹³⁾

$

1,975

$

1,943

$

1,988

$

1,981

$

1,948

As of June 30,

As of March 31,

2019

2018

2019

Leverage ratio ⁽¹⁴⁾

2.4

1.7

1.9

AMN Healthcare Services, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

June 30, 2019

December 31,

2018

June 30, 2018

Assets

Current assets:

Cash and cash equivalents

$

20,937

$

13,856

$

22,894

Accounts receivable, net

369,372

365,871

354,781

Accounts receivable, subcontractor

50,058

50,143

34,657

Prepaid and other current assets

49,501

52,296

56,189

Total current assets

489,868

482,166

468,521

Restricted cash, cash equivalents and investments

65,919

59,331

61,839

Fixed assets, net

97,249

90,419

81,221

Operating lease right-of-use assets

95,247

—

—

Other assets

109,909

96,152

83,034

Goodwill

588,457

438,506

439,134

Intangible assets, net

409,439

326,147

339,514

Total assets

1,856,088

$

1,492,721

$

1,473,263

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and accrued expenses

$

124,672

$

149,603

$

123,105

Accrued compensation and benefits

149,937

135,059

130,258

Current portion of notes payable

3,750

—

—

Current portion of operating lease liabilities

13,068

—

—

Deferred revenue

11,053

12,365

13,615

Other current liabilities

14,344

10,243

16,261

Total current liabilities

316,824

307,270

283,239

Revolving credit facility

196,000

120,000

155,000

Notes payable, less unamortized fees

466,610

320,607

320,225

Deferred income taxes, net

39,273

27,326

19,863

Operating lease liabilities

97,355

—

—

Other long-term liabilities

59,586

78,528

78,192

Total liabilities

1,175,648

853,731

856,519

Commitments and contingencies

Stockholders' equity:

680,440

638,990

616,744

Total liabilities and stockholders' equity

$

1,856,088

$

1,492,721

$

1,473,263

AMN Healthcare Services, Inc.

Summary Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

2019

2018

2019

2018

Net cash provided by operating activities

$

29,077

$

66,203

$

36,214

$

65,291

$

125,938

Net cash used in investing activities

(204,443)

(229,337)

(36,248)

(240,691)

(238,950)

Net cash provided by financing activities

187,495

133,627

1,790

189,285

118,657

Effect of exchange rates on cash

(89)

91

(101)

(190)

72

Net increase (decrease) in cash, cash equivalents and restricted cash

12,040

(29,416)

1,655

13,695

5,717

Cash, cash equivalents and restricted cash at beginning of period

85,979

134,027

84,324

84,324

98,894

Cash, cash equivalents and restricted cash at end of period

98,019

$

104,611

$

85,979

$

98,019

$

104,611

AMN Healthcare Services, Inc.

Additional Supplemental Non-GAAP Disclosures

Reconciliation of Guidance Adjusted EBITDA Margin to

Guidance Operating Margin

(unaudited)

Three Months Ended

September 30, 2019

Adjusted EBITDA margin ⁽¹⁵⁾

12.0%

Deduct:

Share-based compensation

0.8%

Acquisition, integration and other costs

0.8%

EBITDA margin

10.4%

Depreciation and amortization

2.7%

Operating margin

(1)

(2)

Segment operating income represents net income plus interest expense (net of interest income) and other, income tax expense, depreciation and amortization, unallocated corporate overhead, acquisition and integration costs, extraordinary legal expenses, legal settlement accrual increases and share-based compensation.

(3)

Adjusted EBITDA represents net income plus interest expense (net of interest income) and other, income tax expense, depreciation and amortization, acquisition and integration costs, extraordinary legal expenses, legal settlement accrual increases and share-based compensation. Management believes that adjusted EBITDA provides an effective measure of the Company's results, as it excludes certain items that management believes are not indicative of the Company's operating performance and is a measure used in the Company's credit agreement and the indenture governing our 5.125% Senior Notes due 2024. Adjusted EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to income from operations or net income as an indicator of operating performance. Although management believes that some of the items excluded from adjusted EBITDA are not indicative of the Company's operating performance, these items do impact the statement of comprehensive income, and management therefore utilizes adjusted EBITDA as an operating performance measure in conjunction with GAAP measures such as net income.

(4)

Adjusted EBITDA margin represents adjusted EBITDA divided by revenue.

(5)

Share-based compensation for the six months ended June 30, 2019 was impacted by two modifications during the first quarter and effective in 2019, a new vesting condition that resulted in accelerated expense recognition.

(6)

Acquisition, integration and other costs of $5,156,000 and $9,185,000 for the three and six months ended June 30, 2019, respectively, include extraordinary legal expenses of approximately $2,500,000 and $4,600,000, respectively. These expenses were partially offset by decreases in contingent consideration liabilities for recently acquired companies of $1,458,000 and $2,158,000 for the three and six months ended June 30, 2019, respectively. Beginning in 2019, we exclude the impact of extraordinary legal expenses from the calculation of adjusted EBITDA because we believe that these expenses are not indicative of the Company's operating performance.

(7)

During the first quarter of 2018, the Company recorded a net tax benefit of $2,501,000 to adjust for an immaterial out-of-period error identified in that quarter related to the income tax treatment of fair value changes in the cash surrender value of its company owned life insurance for years ended December 31, 2015 through December 31, 2017. These fair value changes had not previously been included as a benefit in the tax provision of the related years.

(8)

The Company recorded a net tax benefit of $575,000 and $2,102,000 related to the income tax treatment of the fair value changes in the cash surrender value of its company owned life insurance for the three and six months ended June 30, 2019, respectively. Since these changes in fair value are unrelated to the Company's operating performance, we exclude the impact on adjusted diluted EPS.

(9)

The consolidated effective tax rate for the three and six months ended June 30, 2019 was favorably affected by the recording of excess tax benefits relating to equity awards vested and exercised during the period. As a result of the adoption of a new accounting pronouncement on January 1, 2017, we no longer record excess tax benefits as an increase to additional paid-in capital, but record such excess tax benefits on a prospective basis as a reduction of income tax expense, which amounted to $973,000 and $576,000 for the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019 and 2018, excess tax benefits recorded as a reduction of income tax expense were $5,542,000 and $5,094,000, respectively. The magnitude of the impact of excess tax benefits generated in the future, which may be favorable or unfavorable, is dependent upon the Company's future grants of share-based compensation, the Company's future stock price on the date awards vest or exercise in relation to the fair value of the awards on the grant date or the exercise behavior of the Company's stock appreciation rights holders. Since these favorable tax benefits are largely unrelated to our current year's income before taxes and is unrepresentative of our normal effective tax rate, we exclude their impact on adjusted diluted EPS.

(10)

Adjusted diluted EPS represents GAAP diluted EPS excluding the impact of the (A) amortization of intangible assets, (B) acquisition and integration costs, (C) extraordinary legal expenses, (D) legal settlement accrual increases, (E) changes in fair value of equity investments since January 1, 2018, (F) deferred financing costs, (G) tax effect, if any, of the foregoing adjustments, (H) excess tax benefits relating to equity awards vested and exercised since January 1, 2017, and (I) correction of prior periods error. Management included this non-GAAP measure to provide investors and prospective investors with an alternative method for assessing the Company's operating results in a manner that is focused on its operating performance and to provide a more consistent basis for comparison between periods. However, investors and prospective investors should note that this non-GAAP measure involves judgment by management (in particular, judgment as to what is classified as a special item to be excluded from adjusted diluted EPS). Although management believes the items excluded from adjusted diluted EPS are not indicative of the Company's operating performance, these items do impact the statement of comprehensive income, and management therefore utilizes adjusted diluted EPS as an operating performance measure in conjunction with GAAP measures such as GAAP diluted EPS.

(11)

Average healthcare professionals on assignment represents the average number of nurse and allied healthcare professionals on assignment during the period presented.

(12)

Days filled is calculated by dividing the locum tenens hours filled during the period by eight hours.

(13)

Revenue per day filled represents revenue of the Company's locum tenens solutions segment divided by days filled for the period presented.

(14)

Leverage ratio represents the ratio of the consolidated funded indebtedness (as calculated per the Company's credit   agreement) at the end of the subject period to the consolidated adjusted EBITDA (as calculated per the Company's credit agreement) for the twelve-month period ended at the end of the subject period.

(15)

Guidance percentage metrics are approximate.