On August 6, 2020 AMN Healthcare Services, Inc. (NYSE: AMN), the leader and innovator in total talent solutions for healthcare organizations across the United States, reported its second quarter 2020 financial results (Press release, AMN Healthcare Services, AUG 6, 2020, View Source [SID1234563197]). Financial highlights are as follows:
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Business Highlights
AMN team members and our healthcare professionals have been instrumental in responding to our country’s needs to care for COVID-19 patients.
We have increased diversity, inclusion, equity and equality actions and education to support our team members and communities in fighting social injustice and racism.
Second quarter financial results were ahead of guidance, led by strength in travel nurse staffing and the quick recovery of our language interpretation business, Stratus Video.
Revenue of $608 million was 14% above prior year, with organic revenue higher by 2%, and adjusted EBITDA was $81 million.
While many of our businesses saw demand disrupted by the COVID-19 pandemic, most business lines performed in line with or better than our expectations in the second quarter.
Operating cash flow in the quarter was $77 million, helping us to pay down $127 million of debt and reach a leverage ratio of 2.7 to 1.
With improving healthcare utilization and the continued impact of COVID-19, current travel nurse demand is significantly higher than prior-year levels.
"Our healthcare professionals and the entire AMN team are doing an exceptional job of pivoting and leaning in to help patients receive the compassionate care needed as our country navigates through this crisis, and we are prioritizing their health and well-being," said Susan R. Salka, Chief Executive Officer of AMN Healthcare. "AMN’s long-standing commitment to diversity, equality, equity and inclusion has been a critical part of our culture and collaboration with stakeholders. Our dedication in fighting for social justice and against racism has been fortified over these last few months, and AMN is taking greater action to support our team members, healthcare professionals, clients and communities.
"In this unprecedented business environment, we have adapted our operations and cost structure to be more agile and responsive to the fast-changing needs of our healthcare professionals and clients. We are also continuing to make important investments in our people, processes and technology to further differentiate AMN and enable future growth opportunities," Ms. Salka said. "We believe these past few months have strengthened our relationship with our strategic clients and improved our competitive positioning as we have launched expanded and new solutions, demonstrating the value of having a total talent solutions partner."
Second Quarter 2020 Results
Consolidated revenue for the quarter was $608 million, a 14% increase over prior year and 1% higher than prior quarter. On an organic basis, consolidated revenue was up 2% over prior year.
Revenue for the Nurse and Allied Solutions segment was $444 million up 21% year over year, up 13% organic excluding the June 2019 acquisition of Advanced Medical, and up 5% sequentially. Travel Nurse revenue led the way with 41% year-over-year growth, including 35% organic. Allied division revenue increased 10% year over year due to the acquisition of Advanced Medical, with organic revenue down 13%.
The Physician and Leadership Solutions segment reported revenue of $109 million, down 24% year over year and down 21% sequentially. All business lines in the segment were negatively affected by the reductions in non-emergency care. Locum tenens revenue was $62 million, down 25% year over year and down sequentially by 22%. Interim leadership revenue fell 17% year over year, and our physician and leadership search businesses saw revenue decline 34% compared with a year ago.
Technology and Workforce Solutions segment revenue was $55 million for an increase of 123% year over year (3% organic), driven in large part by our acquisitions of Stratus Video and b4health. Stratus Video contributed $28 million revenue in the quarter, significantly better than expected as this business quickly rebounded from a COVID-19-driven slowdown in March and April. Our vendor management systems, open marketplace and scheduling and predictive analytics businesses also performed better than expected.
Gross margin was 32.5%, lower by 100 basis points year over year and sequentially. The variance was driven primarily by a segment mix shift toward lower-margin Nurse and Allied staffing and a lower gross margin in the Nurse and Allied Solutions segment from a lower bill-pay spread.
SG&A expenses were $137 million, or 22.5% of revenue, compared with $122 million, or 22.7% of revenue, in the same quarter last year. SG&A was $146 million, or 24.3% of revenue, in the previous quarter. The year-over-year increase in SG&A costs included $10 million of additional SG&A from acquired companies. SG&A in the quarter also included $4 million of restructuring expenses associated with our cost reduction actions, $4 million of acquisition integration expenses, and a $5 million increase in the earn-out obligation associated with the b4health acquisition.
Income from operations was $38 million with an operating margin of 6.3%, compared with $45 million and 8.4%, respectively, in the same quarter last year. Adjusted EBITDA was $81 million, a year-over-year increase of 21%. Adjusted EBITDA margin was 13.2%, representing an increase of 70 basis points year over year.
Net income was $22 million, or $0.47 per diluted share, compared with $29 million, or $0.61 per diluted share, in the same quarter last year. Adjusted diluted EPS in the second quarter was $0.83. As noted in the tables of this press release, the difference between GAAP and adjusted net income and EPS is driven by higher amortization related to recent acquisitions, integration-related expenses, and an increase in the earn-out obligation for the b4health acquisition, offset in part by adjustments to normalize our tax rate.
At June 30, 2020, cash and cash equivalents totaled $43 million. Cash flow from operations was $77 million for the quarter, and capital expenditures were $6 million. The Company ended the quarter with total debt outstanding of $973 million and a leverage ratio of 2.7 to 1.
Third Quarter 2020 Outlook
The COVID-19 pandemic has been highly disruptive to economic activity and to healthcare infrastructure in the United States, making healthcare labor demand volatile, differing widely among client segments. COVID-19 patient volumes have been highly variable, with surges continuing across the country driving significantly higher demand for nurses; however, elective procedures and routine care are still below pre-crisis levels. The trajectory of healthcare and economic recovery is uncertain, and we are anticipating continued surges in COVID-19 care coupled with a modest recovery of non-COVID-19 healthcare services.
In our Nurse and Allied Solutions segment, we expect third quarter revenue to be down approximately 10% from prior year. For our largest business of travel nurse staffing, we expect revenue to be up 3-5% to prior year, with lower volumes offset by higher rates and hours worked. Allied revenue is expected to be lower than prior year by 27-29% as a result of reduced healthcare utilization, particularly impacting our physical therapy discipline.
Our Physician and Leadership Solutions segment saw a sharp sequential drop in April revenue as the national response to the pandemic resulted in an abrupt falloff of contingent and permanent labor demand. The revenue trend stabilized in June, and we expect the segment will remain at this level in the third quarter with revenue estimated at nearly 30% below prior year.
We project revenue for our Technology and Workforce Solutions segment to rise approximately 140% compared with prior year, including the recent acquisitions of Stratus Video and b4health. Segment revenue dropped in April, but May and June rebounded. Our language interpretation business has experienced steady growth in billable minutes since May, which we expect will continue through the third quarter.
Based on the above trends, we are projecting consolidated third quarter revenue to be in a range of $510 million to $525 million. Third quarter gross margin is expected to be 33.0-33.5%, operating margin is expected to be above 7%, and adjusted EBITDA margin is expected to be greater than 13%.
Third quarter estimates for certain financial items include depreciation of $7 million, non-cash amortization expense of $15 million, stock-based compensation expense of $4 million, interest expense of $10 million, integration expenses of $6 million, and an adjusted tax rate of 30%.
Conference Call on August 6, 2020
AMN Healthcare Services, Inc. (NYSE: AMN), the leader and innovator in total talent solutions for healthcare, will host a conference call to discuss its second quarter 2020 financial results and outlook on Thursday, August 6, 2020, at 5:00 p.m. Eastern Time. A live webcast of the call can be accessed through AMN Healthcare’s website at View Source Please log in at least 10 minutes prior to the conference call in order to download the applicable audio software. Interested parties may participate live via telephone by dialing (833) 968-2219 in the U.S. or +1 778-560-2894 internationally and using passcode 5756627. Following the conclusion of the call, a replay of the webcast will be available at the Company’s website. Alternatively, a telephonic replay of the call will be available starting at 8:00 p.m. Eastern Time on August 6, 2020, and can be accessed until 11:59 p.m. Eastern Time on August 20, 2020, by calling (800) 585-8367 in the U.S. or +1 416-621-4642 internationally, with access code 5756627.