Overview

AMN Healthcare Services (NYSE:AMN) provide healthcare workforce solutions and staffing services to healthcare facilities across the nation. As an innovative total talent solutions partner, its managed services programs, or “MSP,” vendor management systems, or “VMS,” workforce consulting services, predictive modeling, staff scheduling, credentialing services, revenue cycle solutions and the placement of physicians, nurses, allied healthcare professionals and healthcare leaders into temporary and permanent positions enable its clients to successfully reduce staffing complexity, increase efficiency and lead their organizations within the rapidly evolving healthcare environment.¹

For the year ended December 31, 2019, the company recorded revenue of $2,222.1 million, as compared to $2,136.1 million for 2018. The company recorded net income of $114.0 million for 2019, as compared to $141.7 million for 2018. Nurse and allied solutions segment revenue comprised 64% and 61% of total consolidated revenue for the years ended December 31, 2019 and 2018, respectively. Locum tenens solutions segment revenue comprised 15% and 18% of total consolidated revenue for the years ended December 31, 2019 and 2018, respectively. Other workforce solutions segment revenue comprised 21% and 21% of total consolidated revenue for the years ended December 31, 2019 and 2018, respectively.

The company believe AMN Healthcare Services has become recognized as the market-leading innovator in providing healthcare talent solutions in the United States. The company seek to advance its market-leading position through a number of strategies that focus on market penetration, expansion of its talent solutions, increasing operational efficiency and scalability and increasing its supply of qualified healthcare professionals. The company's market growth strategy continues to focus on broadening and investing, both organically and through strategic acquisitions, in service offerings beyond its traditional temporary staffing and permanent placement services, to include more strategic and recurring revenue sources from innovative workforce solutions offerings such as MSP, VMS, workforce optimization services, and other technology-enabled services, which generally operate at higher margins than its traditional healthcare staffing businesses. The company also seek strategic opportunities to expand into complementary service offerings to its staffing businesses that leverage its core capabilities of recruiting and credentialing healthcare professionals.

As part of its long-term growth strategy to add value for its clients, healthcare professionals, and stockholders, on December 19, 2019, June 14, 2019, January 30, 2019, April 9, 2018 and April 6, 2018, the company acquired b4health, Advanced, Silversheet, MedPartners HIM (“MedPartners”), and Phillips DiPisa and Leaders For Today (“PDA” and “LFT”), respectively. b4health is an innovative technology company and a leading provider of a web-based internal float pool management solution and VMS for healthcare facilities. Advanced is a national healthcare staffing company that specializes in placing therapists and nurses across multiple settings, including hospitals, schools, clinics, skilled nursing facilities, and home health. Silversheet provides innovative credentialing software solutions to clinicians and healthcare enterprises. MedPartners provides revenue cycle solutions, including case management, clinical documentation improvement, medical coding and registry services to hospitals and physician medical groups nationwide. PDA and LFT offer a range of leadership staffing and permanent placement solutions for the healthcare industry.

Operationally, its strategic initiatives focus on investing in and further developing its processes and systems to achieve market leading efficiency and scalability, which the company believe will provide operating leverage as its revenue grows. From a healthcare professional supply perspective, the company continue to invest in new candidate recruitment and engagement initiatives and technologies to access and effectively utilize its network of qualified healthcare professionals to capitalize on the demand growth AMN Healthcare Services is experiencing, which the company expect to continue in the future due to the combined effects of healthcare reform, the aging population and labor shortages within certain regions and disciplines.

Over the last several years, AMN Healthcare Services has worked to execute on its management strategies and intend to continue to do so in the future. Over the past five years, AMN Healthcare Services has grown its business both organically and as a result of a number of acquisitions.

The company typically experience modest seasonal fluctuations during its fiscal year and they tend to vary among its business segments. These fluctuations can vary slightly in intensity from year to year. Over the last four years, steadily and progressively increasing demand muted some of the effects of these quarterly fluctuations.

Services

In 2019, the company conducted its business through three reportable segments: (1) nurse and allied solutions, (2) locum tenens solutions and (3) other workforce solutions. The company set forth each segment’s revenue and operating income under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.” Through its business segments, the company provide its healthcare clients with a wide range of workforce solutions and staffing services as set forth below.

1. Travel Nurse Staffing. The company provide clients with nurses, most of them registered nurses, to work temporary assignments under its flagship brand, American Mobile, as well as under its Onward Healthcare, Nurses Rx, and Advanced brands. Assignments in acute-care hospitals, including teaching institutions, trauma centers and community hospitals, comprise the majority of its assignments. The length of the assignment varies with a typical travel nurse assignment of 13 weeks. Under its O’Grady-Peyton brand, the company also recruit nurses internationally from English speaking countries who immigrate to the United States under a permanent resident visa (Green Card) and who typically work for it for a period of 24 months.
2. Rapid Response Nurse Staffing and Labor Disruption Services. The company provide a shorter-term staffing solution of typically up to eight weeks under its NurseChoice and HealthSource Global Staffing brands to address hospitals’ urgent need for registered nurses. NurseChoice and HealthSource Global Staffing recruit and place nurses who can begin assignments within one to two weeks in contrast to the three to five week lead time that may be required for travel nurses. The company also provide labor disruption services for clients involved in strikes of nurses and allied professional staff through its HealthSource Global Staffing brand.
3. Local, or Per Diem, Staffing. Through its Nursefinders brand, the company provide its clients local staffing, often in support of its MSP clients. Local staffing involves the placement of locally-based healthcare professionals on daily shift work on an as-needed basis. Hospitals and healthcare facilities often give only a few hours’ notice of their local staffing assignments that require a turnaround from their staffing agencies of generally less than 24 hours.
4. Locum Tenens Staffing. The company place physicians of all specialties, advanced practice clinicians and dentists on an independent contractor basis on temporary assignments with all types of healthcare organizations throughout the United States, including hospitals, health systems, medical groups, occupational medical clinics, psychiatric facilities, government institutions and insurance companies. The company recruit these professionals nationwide and typically place them on assignment lengths ranging from a few days up to one year. The company market these services through its Staff Care and Locum Leaders brands.
5. Allied Staffing. The company provide allied health professionals under the Med Travelers, Club Staffing and Advanced brands to acute-care hospitals and other healthcare facilities such as skilled nursing facilities, rehabilitation clinics, schools, and retail and mail-order pharmacies. Allied health professionals include such disciplines as physical therapists, respiratory therapists, occupational therapists, medical and radiology technologists, lab technicians, speech pathologists, rehabilitation assistants and pharmacists.
6. Revenue Cycle Solutions. The company's AMN Revenue Cycle Solutions brand provides skilled labor solutions for remote medical coding, clinical documentation improvement, case management, and clinical data registry, and also provides auditing and advisory services. Clients include hospitals and physician medical groups nationwide.
7. Physician Permanent Placement Services. The company provide retained search, physician permanent placement services to hospitals, healthcare facilities and physician practice groups throughout the United States through its Merritt Hawkins brand.
8. Interim Leadership Staffing and Executive Search Services. Under the brand name B.E. Smith, the company provide executive and clinical leadership interim staffing, healthcare executive search services and advisory services. Practice areas include senior healthcare executives, physician executives, chief nursing officers and other clinical and operational leaders. The company also provide physician executive leadership search services focused on serving academic medical centers and children’s hospitals nationwide. This business line provides it greater access to the “C-suite” of its clients and prospective clients, which the company believe helps improve its visibility as a strategic partner to them and helps provide it with cross-selling opportunities.
9. Recruitment Process Outsourcing. The company offer its clients RPO services, customized to their particular needs, in which the company recruit, hire and/or onboard permanent clinical and nonclinical positions on behalf of the client. The company's RPO program leverages its expertise and support systems to replace or complement a client’s existing internal recruitment functions for permanent hiring needs, providing cost-effective flexibility to its clients to determine how to best obtain and use recruiting resources.
10. Managed Services Programs. Many of its clients and prospective clients use a number of healthcare staffing agencies to fulfill their healthcare professional needs. The company offer a comprehensive managed services program, in which the company manage all or a portion of a client’s staffing needs. This service includes both the placement of its own healthcare professionals and the utilization of other staffing agencies to fulfill the client’s staffing needs. The company believe an MSP increases efficiencies and cost savings for its clients and facilities staffing optimization. The company often use its own VMS technology as part of its MSP, which the company believe further enhances the value of its service offering. In 2019, the company had approximately $1.4 billion in annualized gross billings under management under its MSPs and approximately 45% of its consolidated revenue flowed through MSP relationships, which has steadily increased over the past decade.
11. Vendor Management Systems. Some clients and prospective clients prefer a vendor-neutral VMS technology that allows them to self-manage procurement of contingent clinical labor and their internal float pool. The company provide three software as a service (“SaaS”)-based VMS technologies, ShiftWise, Medefis and b4health, to clients that desire this option. The company's VMS technologies provide, among other things, control over a wide variety of tasks via a single system and consolidated reporting. In 2019, the company had approximately $1.2 billion in annualized gross billings flow through its VMS programs, for which the company typically earn a 4-5% fee.
12. Workforce Optimization Services. The company provide workforce optimization services, including consulting, data analytics, predictive labor demand modeling and SaaS-delivered scheduling technology. The company's Avantas business provides proprietary scheduling software, Smart Square, which uses predictive analytics to create better, more accurate and timely staffing plans for a client, which has been demonstrated to reduce a client’s clinical labor spend.
13. Credentialing Services. Through its acquisition of Silversheet, the company provide innovative credentialing software solutions to clinicians and healthcare enterprises. Silversheet’s products help reduce the complexity and challenges of the clinician credentialing process, enhance its clients’ ability to provide safe, effective, and high-quality medical care for patients, and greatly improve the clinician experience.
14. Digital Staffing. Through investment in new technologies, AMN Healthcare Services is streamlining the match of the right clinicians to the right assignment to meet the on-demand needs of its clients. The AMN Hub mobile application allows nurses and allied professionals to quickly search hundreds of jobs, book multiple shifts that match their qualifications and availability, and receive instantaneous shift confirmation, helping its clients quickly fill workforce gaps.
15. Flex Pool Management. The company offer an innovative and comprehensive workforce solution that provides technology and services to build and manage dedicated resource pools. This regional workforce model utilizes standardized processes, integrated systems, and advanced scheduling technology to mobilize clinicians and meet the growing demand of its MSP clients.

Geographic Markets and Client Base

During each of the past three years, (1) the company generated all of its revenue in the United States and (2) all of its long-lived assets were located in the United States. The company typically generate revenue in all 50 states. During 2019, the largest percentages of its revenue were concentrated in California, New York and Texas.

More than half of its temporary and contract healthcare professional assignments occur at acute-care hospitals. In addition to acute-care hospitals, the company provide services to sub-acute healthcare facilities, physician groups, rehabilitation centers, schools, home health service providers and ambulatory surgery centers. The company's clients, many of the largest and most prestigious and progressive health care systems in the country, include Kaiser Foundation Hospitals, Providence Health & Services, CommonSpirit Health, LifePoint Health, Stanford Hospital and Clinics, PeaceHealth, MedStar Health, and Tenet Health. Kaiser Foundation Hospitals (and its affiliates), to whom the company provide clinical managed services, comprised approximately 13% of its consolidated revenue and 18% of its nursing and allied solutions segment’s revenue for the twelve months ended December 31, 2019. No other client healthcare system or single client facility comprised more than 3% of its consolidated revenue for the twelve months ended December 31, 2019.

Industry

The primary markets in which the company compete are U.S. temporary and contract healthcare staffing, workforce solutions and executive search. Staffing Industry Analysts (“SIA”) estimates that the segments of the healthcare staffing markets in which the company primarily operate have an aggregate 2019 estimated market size of $17.5 billion, of which travel nurse, per diem nurse, locum tenens and allied healthcare comprise $5.6 billion, $3.7 billion, $4.0 billion and $4.2 billion, respectively. The company also operate within the interim leadership, executive search, physician permanent placement, RPO, VMS, revenue cycle solutions, and workforce optimization and consulting services markets. The company estimate the market size of these additional segments to be at least $5.0 billion in 2020.

Industry Demand Drivers

Many factors affect the demand for contingent and permanent healthcare talent, which, accordingly, affects the size of the markets in which the company primarily operate. Of these many factors, the company believe the following serve as some of the most significant drivers of demand.

• Economic Environment and Employment Rate. Demand for its services is affected by growth of the U.S. economy, which influences the employment rate. Growth in real U.S. gross domestic product generally drives rising employment rates. Favorable macro drivers typically result in increased demand for its services. Generally, the company believe a positive economic environment and growing employment lead to increasing demand for healthcare services. As employment levels rise, healthcare facilities, like employers in many industries, experience higher levels of employee attrition and find it increasingly difficult to obtain and retain permanent staff.
• Supply of Healthcare Professionals. While reports differ on the existence and extent of current and future healthcare professional shortages, many regions of the United States are experiencing a shortage of physicians and nurses that the company believe will persist in the future. According to the Association of American Medical Colleges, the physician shortage is expected to range from 46,900 to 121,900 physicians by 2032. In nursing, geographic and specialty-based shortages are also expected through 2030. Demand for its services is positively correlated with activity in the permanent labor market. When nurse vacancy rates increase, temporary nurse staffing orders typically increase as well.
• General Demand for Healthcare Services. Changes in demand for healthcare services, particularly at acute healthcare hospitals and other inpatient facilities, like skilled nursing facilities, affect the demand for its services. According to the U.S. Department of Health and Human Services, with the passage of the Affordable Care Act, the uninsured population declined by more than 18 million people between 2010 and 2018. Growth of the insured population contributed to a relatively sharp increase in national healthcare expenditures beginning in 2014. Additionally, the U.S. population continues to age, and medical technology advances are contributing to longer life expectancy. A pronounced shift in U.S. age demographics is expected to boost growth of health expenditures, projected by the Centers for Medicare & Medicaid Services at a 5.5% annual rate from 2018-2027. According to the U.S. Census Bureau, the number of adults age 65 or older is on pace to grow an estimated 38% between 2015 and 2025. People over 65 are three times more likely to have a hospital stay and twice as likely to visit a physician office compared with the rest of the population. These dynamics could place upward pressure on demand for the services the company provide in the coming years. Not only does the age-demographic shift affect healthcare services demand, it also complicates the supply of skilled labor, as an increasing number of clinicians are aging out of the workforce.
• Adoption of Workforce Solutions. The company believe healthcare organizations increasingly seek sophisticated, innovative and economically beneficial total talent solutions that improve patient outcomes. The company believe the prevalence of workforce solutions, such as MSP, VMS, RPO and workforce optimization tools, in the healthcare industry is still underpenetrated in comparison with non-healthcare sectors. During 2019, approximately 45% of its consolidated revenues were generated through MSP relationships, which the company estimate is higher than its competitors. The talent shortage and significance of clinical labor in healthcare facilities’ cost structures may accelerate the adoption of strategic outsourced workforce solutions, which could place upward pressure on demand for the services the company provide.

Recent Trends

Demand for its temporary and permanent placement staffing services is driven in part by U.S. economic and labor trends. U.S. Bureau of Labor Statistics survey data reflect near record levels of healthcare job openings and quits. The company view these data, along with a 50-year-low unemployment rate and continued economic growth, as positive trends for the healthcare staffing industry. These positive macroeconomic and labor trends have created a highly competitive labor market for healthcare professionals and its clinician supply, particularly in nursing, has not kept pace with growth in client demand because wage growth for contingent clinicians has not kept pace with that of permanent clinicians.

Consolidation within the healthcare industry is creating larger, more sophisticated and complex health systems. The company believe consolidation has elevated the need for strategic talent solutions partners capable of addressing their recruiting, staffing and workforce optimization goals. Given the increasing need for partners capable of offering a comprehensive workforce solution, the company continue to see the benefits of its total talent solutions strategy, particularly with its MSPs. As a result of its ongoing focus on these strategic MSP relationships, the percentage of its staffing revenue derived from its MSP clients continues to increase. The company believe these strategic, longer-term relationships will continue to comprise a greater proportion of revenue in its staffing businesses.

In its nurse and allied solutions segment, overall demand is strong and at the highest levels seen since 2016. A tight labor market and modest growth in bill rates is impacting its ability to recruit enough nurses to meet the increased demand. The company's allied staffing business continues to have strong overall demand resulting in steady organic revenue growth. However, AMN Healthcare Services has recently experienced a decline in demand for therapists from skilled nursing facility clients resulting from recently implemented Medicare reimbursement changes. Access to additional supply of nurse and allied healthcare professionals from the Advanced acquisition has helped it better address its clients’ staffing demands.

The demand environment for locum tenens is also generally favorable, although demand for hospitalists and emergency room physicians significantly declined over the past 12 months. The company's locum tenens segment has stabilized after disruption resulting from process and technology changes made during 2018, and recruiter productivity continues to improve.

In its other workforce solutions segment, better demand and placements in the interim leadership and physician permanent placement divisions and growth in its technology workforce solutions are driving improved segment performance. The company's revenue cycle solutions division has experienced a revenue decline in recent quarters due mainly to organizational changes made to support its long-term go to market strategy, but the company expect improved performance from growing opportunities to serve its MSP customers.

Financial highlights

Revenue increased 4% to $2,222.1 million for 2019 from $2,136.1 million for 2018, primarily attributable to additional revenue of $117.6 million from its PDA, LFT, MedPartners, Silversheet and Advanced acquisitions and higher organic revenue in its nurse and allied solutions segment, partially offset by lower revenue in its locum tenens solutions segment. Excluding the additional revenue from acquisitions, revenue decreased 1%.²

Nurse and allied solutions segment revenue increased 9% to $1,420.0 million for 2019 from $1,306.5 million for 2018. The $113.4 million increase was primarily attributable to additional revenue of $82.3 million in connection with the Advanced acquisition and a 1% increase in the average bill rate during the year ended December 31, 2019.

Locum tenens solutions segment revenue decreased 17% to $324.7 million for 2019 from $393.4 million for 2018. The $68.7 million decrease was primarily attributable to a 17% decrease in the number of days filled.

Other workforce solutions segment revenue increased 9% to $477.5 million for 2019 from $436.2 million for 2018. Of the $41.3 million increase, $35.3 million was attributable to additional revenue in connection with the PDA, LFT, MedPartners and Silversheet acquisitions, with the remainder primarily attributable to growth in its permanent placement, VMS, and organic interim leadership businesses, partially offset by a decline in its organic revenue cycle solutions business during the year ended December 31, 2019.

Gross profit increased 7% to $743.5 million for 2019 from $696.4 million for 2018, representing gross margins of 33.5% and 32.6%, respectively. The gross margin for the year ended December 31, 2019 was positively impacted by a higher gross margin in its nurse and allied solutions segment, driven by higher labor disruption margin, higher other workforce solutions gross margin, a change in its physician permanent placement business model that prompted a $4.3 million classification of certain recruiter compensation expenses to SG&A that was previously in cost of revenue, and a favorable segment mix shift. These positive factors were partially offset by a lower margin in its locum tenens solutions segment. Gross margin by reportable segment for 2019 and 2018 was 28.0% and 27.2% for nurse and allied solutions, 27.4% and 28.6% for locum tenens solutions, and 53.8% and 52.4% for other workforce solutions, respectively. The year-over-year gross margin decline in the locum tenens solutions segment was primarily driven by an increase in non-billable expenses and lower perm conversion fees.

Employees

As of December 31, 2019, the company had approximately 3,236 corporate employees. During the fourth quarter of 2019, the company had an average of (1) 10,462 nurses, allied and other clinical healthcare professionals, (2) 438 executive and clinical leadership interim staff, and (3) 1,118 mid-revenue cycle professionals contracted to work for it. This does not include its locum tenens, all of whom are independent contractors and not its employees.

References

1. ^ https://www.amnhealthcare.com/about-amn-healthcare/
2. ^ https://www.sec.gov/ix?doc=/Archives/edgar/data/1142750/000114275020000013/amn-20191231x10k.htm#sA0CF4FD51D625468ADC0FBF565775CF5