UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the period ended September 30, 2002March 31, 2003
Commission File No.: 001-16753
AMN HEALTHCARE SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | ||
(State or Other Jurisdiction of | ||
Incorporation or Organization) | 06-1500476 (I.R.S. Employer Identification No.) |
12235 El Camino Real, Suite 200 San Diego, California | 92130 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (858) 792-0711
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨
As of NovemberMay 12, 2002,2003, there were 42,991,05238,323,650 shares outstanding of the registrant’s common stock, $0.01 par value, $0.01 per share.
AMN HEALTHCARE SERVICES, INC.
Item | Page | |||
PART I—FINANCIAL INFORMATION | ||||
1. | Consolidated Financial Statements: | |||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
2. | 9 | |||
3. | 16 | |||
4. | 17 | |||
PART II—OTHER INFORMATION | ||||
2. | 18 | |||
6. | 18 | |||
19 | ||||
20 |
Item | Page | |||
PART I—FINANCIAL INFORMATION | ||||
1. | Condensed Consolidated Financial Statements (unaudited): | |||
Condensed Consolidated Balance Sheets, | 1 | |||
Condensed Consolidated Statements of Operations, | 2 | |||
Condensed Consolidated Statement of Stockholders’ Equity, | 3 | |||
Condensed Consolidated Statements of Cash Flows, | 4 | |||
5 | ||||
2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||
3. | 15 | |||
4. | 15 | |||
PART II—OTHER INFORMATION | ||||
6. | 16 | |||
17 | ||||
18 |
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AMN HEALTHCARE SERVICES, INC.
September 30, 2002 | December 31, 2001 | |||||||
(Unaudited) | ||||||||
(In thousands, except par value) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 58,891 | $ | 15,654 | ||||
Short-term held-to-maturity investments | 11,116 | 16,314 | ||||||
Accounts receivable, net | 129,246 | 105,416 | ||||||
Income taxes receivable | — | 4,803 | ||||||
Prepaid expenses | 10,326 | 7,810 | ||||||
Other current assets | 2,740 | 1,943 | ||||||
Total current assets | 212,319 | 151,940 | ||||||
Fixed assets, net | 10,120 | 7,713 | ||||||
Deferred income taxes, net | 16,432 | 19,406 | ||||||
Deposits | 1,347 | 617 | ||||||
Goodwill, net | 135,532 | 127,752 | ||||||
Other intangibles, net | 1,301 | 1,501 | ||||||
Total assets | $ | 377,051 | $ | 308,929 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Bank overdraft | $ | 3,762 | $ | 1,643 | ||||
Accounts payable and accrued expenses | 13,303 | 5,625 | ||||||
Accrued compensation and benefits | 35,622 | 23,965 | ||||||
Income taxes payable | 4,835 | — | ||||||
Other current liabilities | 1,093 | 4,229 | ||||||
Total current liabilities | 58,615 | 35,462 | ||||||
Long-term liabilities | 1,771 | 1,562 | ||||||
Total liabilities | 60,386 | 37,024 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value; 200,000 shares authorized; 42,991 and 42,290 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively | 430 | 423 | ||||||
Additional paid-in capital | 352,624 | 345,821 | ||||||
Accumulated deficit | (36,389 | ) | (74,339 | ) | ||||
Total stockholders’ equity | 316,665 | 271,905 | ||||||
Commitments and contingencies | ||||||||
Total liabilities and stockholders’ equity | $ | 377,051 | $ | 308,929 | ||||
(Unaudited and in thousands, except par value)
March 31, 2003 | December 31, 2002 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 28,633 |
| $ | 40,135 |
| ||
Accounts receivable, net |
| 130,684 |
|
| 134,456 |
| ||
Prepaid expenses |
| 15,499 |
|
| 11,897 |
| ||
Other current assets |
| 2,180 |
|
| 2,165 |
| ||
Total current assets |
| 176,996 |
|
| 188,653 |
| ||
Fixed assets, net |
| 12,117 |
|
| 9,869 |
| ||
Deferred income taxes, net |
| 11,361 |
|
| 12,111 |
| ||
Deposits |
| 1,497 |
|
| 1,412 |
| ||
Goodwill, net |
| 135,532 |
|
| 135,532 |
| ||
Other intangibles, net |
| 1,971 |
|
| 1,197 |
| ||
Total assets | $ | 339,474 |
| $ | 348,774 |
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Bank overdraft | $ | 3,431 |
| $ | 1,225 |
| ||
Accounts payable and accrued expenses |
| 12,194 |
|
| 12,738 |
| ||
Accrued compensation and benefits |
| 37,168 |
|
| 34,488 |
| ||
Income taxes payable |
| 6,524 |
|
| 1,659 |
| ||
Other current liabilities |
| 1,257 |
|
| 1,238 |
| ||
Total current liabilities |
| 60,574 |
|
| 51,348 |
| ||
Other long-term liabilities |
| 1,554 |
|
| 1,602 |
| ||
Total liabilities |
| 62,128 |
|
| 52,950 |
| ||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value; 200,000 shares authorized; 42,991 shares issued at March 31, 2003 and December 31, 2002, respectively |
| 430 |
|
| 430 |
| ||
Additional paid-in capital |
| 352,759 |
|
| 352,541 |
| ||
Treasury stock, at cost (4,507 and 2,078 shares at March 31, 2003 and December 31, 2002, respectively) |
| (66,199 | ) |
| (35,164 | ) | ||
Accumulated deficit |
| (9,584 | ) |
| (21,983 | ) | ||
Accumulated other comprehensive loss |
| (60 | ) |
| — |
| ||
Total stockholders’ equity |
| 277,346 |
|
| 295,824 |
| ||
Commitments and contingencies | ||||||||
Total liabilities and stockholders’ equity | $ | 339,474 |
| $ | 348,774 |
| ||
See accompanying notes to unaudited condensed consolidated financial statements.
AMN HEALTHCARE SERVICES, INC.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||
(Unaudited, in thousands, except per share amounts) | ||||||||||||||
Revenue | $ | 203,445 | $ | 137,936 | $ | 568,636 | $ | 357,108 | ||||||
Cost of revenue | 153,748 | 103,310 | 430,350 | 267,333 | ||||||||||
Gross profit | 49,697 | 34,626 | 138,286 | 89,775 | ||||||||||
Expenses: | ||||||||||||||
Selling, general and administrative, excluding non-cash stock-based compensation | 25,049 | 18,714 | 72,181 | 49,750 | ||||||||||
Non-cash stock-based compensation | 219 | 4,366 | 655 | 13,096 | ||||||||||
Amortization | 98 | 1,432 | 272 | 4,128 | ||||||||||
Depreciation | 837 | 604 | 2,265 | 1,484 | ||||||||||
Transaction costs | — | — | 139 | — | ||||||||||
Total expenses | 26,203 | 25,116 | 75,512 | 68,458 | ||||||||||
Income from operations | 23,494 | 9,510 | 62,774 | 21,317 | ||||||||||
Interest (income) expense, net | (66 | ) | 3,783 | (217 | ) | 11,780 | ||||||||
Income before income taxes | 23,560 | 5,727 | 62,991 | 9,537 | ||||||||||
Income tax expense | 9,268 | 2,978 | 25,041 | 4,959 | ||||||||||
Net income | $ | 14,292 | $ | 2,749 | $ | 37,950 | $ | 4,578 | ||||||
Net income per common share: | ||||||||||||||
Basic | $ | 0.33 | $ | 0.10 | $ | 0.89 | $ | 0.16 | ||||||
Diluted | $ | 0.30 | $ | 0.09 | $ | 0.80 | $ | 0.15 | ||||||
Weighted average common shares outstanding—basic | 42,989 | 28,835 | 42,627 | 28,835 | ||||||||||
Weighted average common shares outstanding—diluted | 47,054 | 31,431 | 47,152 | 31,431 | ||||||||||
(Unaudited and in thousands, except per share amounts)
Three Months Ended March 31, | |||||||
2003 | 2002 | ||||||
Revenue | $ | 199,765 | $ | 173,956 |
| ||
Cost of revenue |
| 155,014 |
| 131,753 |
| ||
Gross profit |
| 44,751 |
| 42,203 |
| ||
Expenses: | |||||||
Selling, general and administrative, excluding non-cash stock-based compensation |
| 22,837 |
| 22,725 |
| ||
Non-cash stock-based compensation |
| 218 |
| 218 |
| ||
Amortization |
| 95 |
| 82 |
| ||
Depreciation |
| 1,020 |
| 691 |
| ||
Total expenses |
| 24,170 |
| 23,716 |
| ||
Income from operations |
| 20,581 |
| 18,487 |
| ||
Interest (income) expense, net |
| 83 |
| (142 | ) | ||
Income before income taxes |
| 20,498 |
| 18,629 |
| ||
Income tax expense |
| 8,099 |
| 7,452 |
| ||
Net income | $ | 12,399 | $ | 11,177 |
| ||
Net income per common share: | |||||||
Basic | $ | 0.31 | $ | 0.26 |
| ||
Diluted | $ | 0.29 | $ | 0.24 |
| ||
Weighted average common shares outstanding—basic |
| 39,834 |
| 42,290 |
| ||
Weighted average common shares outstanding—diluted |
| 42,999 |
| 46,991 |
| ||
See accompanying notes to unaudited condensed consolidated financial statements.
AMN HEALTHCARE SERVICES, INC.
Nine Months Ended September 30, 2002 | |||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||
Shares | Amount | ||||||||||||||||
(Unaudited, in thousands) | |||||||||||||||||
Balance, December 31, 2001 | 42,290 | $ | 423 | $ | 345,821 | $ | (74,339 | ) | $ | 271,905 | |||||||
Costs of issuance of common stock | — | — | (1,056 | ) | — | (1,056 | ) | ||||||||||
Exercise of stock options | 701 | 7 | 3,176 | — | 3,183 | ||||||||||||
Non-cash income tax benefit from stock option exercises | — | — | 4,028 | — | 4,028 | ||||||||||||
Non-cash stock-based compensation | — | — | 655 | — | 655 | ||||||||||||
Net income | — | — | — | 37,950 | 37,950 | ||||||||||||
Balance, September 30, 2002 | 42,991 | $ | 430 | $ | 352,624 | $ | (36,389 | ) | $ | 316,665 | |||||||
(Unaudited and in thousands)
Three Months Ended March 31, 2003 | ||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance, December 31, 2002 | 42,991 | $ | 430 | $ | 352,541 | $ | (35,164 | ) | $ | (21,983 | ) | $ | — | �� | $ | 295,824 |
| |||||||
Repurchase of common stock into treasury | — |
| — |
| — |
| (31,035 | ) |
| — |
|
| — |
|
| (31,035 | ) | |||||||
Non-cash stock-based compensation | — |
| — |
| 218 |
| — |
|
| — |
|
| — |
|
| 218 |
| |||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Foreign currency translation adjustment | — |
| — |
| — |
| — |
|
| — |
|
| (60 | ) |
| (60 | ) | |||||||
Net income | — |
| — |
| — |
| — |
|
| 12,399 |
|
| — |
|
| 12,399 |
| |||||||
Balance, March 31, 2003 | 42,991 | $ | 430 | $ | 352,759 | $ | (66,199 | ) | $ | (9,584 | ) | $ | (60 | ) | $ | 277,346 |
| |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
AMN HEALTHCARE SERVICES, INC.
Nine Months Ended September 30, | ||||||||
2002 | 2001 | |||||||
(Unaudited, in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 37,950 | $ | 4,578 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,537 | 5,612 | ||||||
Provision for bad debts | 2,810 | 2,100 | ||||||
Non-cash interest expense | 278 | 4,068 | ||||||
Provision for (benefit from) deferred income taxes | 52 | (6,376 | ) | |||||
Non-cash stock-based compensation | 655 | 13,096 | ||||||
Loss on disposal of fixed assets | (1 | ) | (1 | ) | ||||
Changes in assets and liabilities, net of effects from acquisitions: | ||||||||
Accounts receivable | (24,913 | ) | (21,499 | ) | ||||
Income taxes receivable and other current assets | 947 | (2,985 | ) | |||||
Deposits | (668 | ) | (39 | ) | ||||
Accounts payable and accrued expenses | 4,339 | 1,984 | ||||||
Accrued compensation and benefits | 11,331 | 8,234 | ||||||
Income taxes payable | 12,501 | 3,568 | ||||||
Due to former shareholder | — | (1,940 | ) | |||||
Other liabilities | 16 | 32 | ||||||
Net cash provided by operating activities | 47,834 | 10,432 | ||||||
Cash flows from investing activities: | ||||||||
Proceeds from maturity of short-term held-to-maturity investments | 5,198 | — | ||||||
Purchase of fixed assets | (3,298 | ) | (2,880 | ) | ||||
Cash paid for deferred purchase agreement | (1,000 | ) | — | |||||
Acquisitions, net of cash acquired | (9,534 | ) | (12,976 | ) | ||||
Net cash used in investing activities | (8,634 | ) | (15,856 | ) | ||||
Cash flows from financing activities: | ||||||||
Capital lease repayments | (171 | ) | (59 | ) | ||||
Proceeds from issuance of notes payable | — | 18,000 | ||||||
Payment of financing costs | (38 | ) | (629 | ) | ||||
Payments on notes payable | — | (9,522 | ) | |||||
Offering costs | (1,056 | ) | — | |||||
Proceeds from issuance of common stock, net of issuance costs | 3,183 | — | ||||||
Change in bank overdraft | 2,119 | 1,041 | ||||||
Net cash provided by financing activities | 4,037 | 8,831 | ||||||
Net increase in cash and cash equivalents | 43,237 | 3,407 | ||||||
Cash and cash equivalents at beginning of period | 15,654 | 546 | ||||||
Cash and cash equivalents at end of period | $ | 58,891 | $ | 3,953 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest (net of $0 and $55 capitalized in 2002 and 2001, respectively) | $ | 190 | $ | 7,168 | ||||
Cash paid for income taxes | $ | 8,490 | $ | 6,816 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Accrued interest on notes payable converted to additional notes payable | $ | — | $ | 2,476 | ||||
Fixed assets obtained through capital leases | $ | 1,262 | $ | 54 | ||||
Supplemental disclosures of noncash investing and financing activities: | ||||||||
Fair value of assets acquired in acquisitions, net of cash received | $ | 2,082 | $ | 6,205 | ||||
Goodwill | 7,780 | 11,325 | ||||||
Noncompete covenants | 200 | 200 | ||||||
Liabilities assumed | (528 | ) | (4,754 | ) | ||||
Net cash paid for acquisitions | $ | 9,534 | $ | 12,976 | ||||
(Unaudited and in thousands)
Three Months Ended March 31, | ||||||||
2003 | 2002 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 12,399 |
| $ | 11,177 |
| ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization |
| 1,115 |
|
| 773 |
| ||
Provision for bad debts |
| 29 |
|
| 865 |
| ||
Non-cash interest expense |
| 109 |
|
| 86 |
| ||
Deferred income tax benefit |
| 750 |
|
| 21 |
| ||
Non-cash stock-based compensation |
| 218 |
|
| 218 |
| ||
Changes in assets and liabilities, net of effects from acquisitions: | ||||||||
Accounts receivable |
| 3,743 |
|
| (20,966 | ) | ||
Prepaid expenses and other current assets |
| (3,617 | ) |
| 3,736 |
| ||
Deposits |
| (85 | ) |
| 311 |
| ||
Accounts payable and accrued expenses |
| (544 | ) |
| 1,748 |
| ||
Accrued compensation and benefits |
| 2,680 |
|
| 4,667 |
| ||
Income taxes payable |
| 4,865 |
|
| 2,473 |
| ||
Other liabilities |
| 9 |
|
| 9 |
| ||
Net cash provided by operating activities |
| 21,671 |
|
| 5,118 |
| ||
Cash flows from investing activities: | ||||||||
Proceeds from maturity of short-term held-to-maturity investments |
| — |
|
| 4,148 |
| ||
Purchase of fixed assets |
| (3,260 | ) |
| (948 | ) | ||
Net cash provided by (used in) investing activities |
| (3,260 | ) |
| 3,200 |
| ||
Cash flows from financing activities: | ||||||||
Capital lease repayments |
| (69 | ) |
| (30 | ) | ||
Payment of financing costs |
| (955 | ) |
| (17 | ) | ||
Proceeds from issuance of common stock, net of issuance costs |
| — |
|
| (63 | ) | ||
Repurchase of common stock |
| (31,035 | ) |
| — |
| ||
Change in bank overdraft |
| 2,206 |
|
| 1,426 |
| ||
Net cash provided by (used in) financing activities |
| (29,853 | ) |
| 1,316 |
| ||
Effect of exchange rate changes on cash |
| (60 | ) |
| — |
| ||
Net increase (decrease) in cash and cash equivalents |
| (11,502 | ) |
| 9,634 |
| ||
Cash and cash equivalents at beginning of period |
| 40,135 |
|
| 15,654 |
| ||
Cash and cash equivalents at end of period | $ | 28,633 |
| $ | 25,288 |
| ||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 90 |
| $ | 62 |
| ||
Cash paid for income taxes | $ | 2,359 |
| $ | 326 |
| ||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Fixed assets obtained through capital leases | $ | 8 |
| $ | 26 |
| ||
See accompanying notes to unaudited condensed consolidated financial statements.
AMN HEALTHCARE SERVICES, INC.
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated balance sheets and related consolidated statements of operations, stockholders’ equity and cash flows contained in this Quarterly Report on Form 10-Q, which are unaudited, include the accounts of AMN Healthcare Services, Inc. (the Company) and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such financial statements have been included. These entries consisted only of normal recurring items. The results of operations for the interim period are not necessarily indicative of the results that you may expectto be expected for any other interim period or for the fullentire fiscal year.
The consolidated financial statements do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Please refer to the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2001,2002, contained in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
2. STOCK-BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44,Accounting for Certain amounts inTransactions involving Stock Compensation, an Interpretation of APB Opinion No. 25to account for its stock option plans. Under this method, compensation expense for fixed plans is measured on the 2001 consolidated financial statements have been reclassifieddate of grant only if the then current market price of the underlying stock exceeded the exercise price and is recorded on a straight-line basis over the applicable vesting period. Compensation expense for variable plans is recorded at the end of each reporting period until the related performance criteria is met and is measured based on the excess of the then current market price of the underlying stock over the exercise price. SFAS No. 123,Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to conformcontinue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148.
AMN HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table compares net income per share as reported by the Company to the 2002 presentation.
Three Months Ended March 31, | ||||||
2003 | 2002 | |||||
As reported: | ||||||
Net income | $ | 12,399 | $ | 11,177 | ||
Stock-based employee compensation, net of tax | $ | 132 | $ | 131 | ||
Net income per common share: | ||||||
Basic | $ | 0.31 | $ | 0.26 | ||
Diluted | $ | 0.29 | $ | 0.24 | ||
Pro forma: | ||||||
Net income, as reported | $ | 12,399 | $ | 11,177 | ||
Additional pro forma stock-based employee compensation per SFAS 123, net of tax |
| 396 |
| 314 | ||
Pro forma net income | $ | 12,003 | $ | 10,863 | ||
Pro forma net income per common share: | ||||||
Basic | $ | 0.30 | $ | 0.26 | ||
Diluted | $ | 0.28 | $ | 0.23 | ||
2.3. EARNINGS PER SHARE
Basic earnings per share (EPS) excludes dilution and is computed by dividing net income attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (convertible preferred stock, warrants to purchase common stock and common stock options using the treasury stock method) were exercised or converted into common stock. PotentialOptions to purchase 669,500 shares of common shares instock were excluded from the diluted EPS computation are excluded in loss periodscalculation as their effect would be anti-dilutive.
The following table sets forth, for the periods indicated, the computation of basic and diluted EPS:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
Net income | $ | 14,292 | $ | 2,749 | $ | 37,950 | $ | 4,578 | ||||
Weighted average common shares outstanding—basic | 42,989 | 28,835 | 42,627 | 28,835 | ||||||||
Basic net income per common share | $ | 0.33 | $ | 0.10 | $ | 0.89 | $ | 0.16 | ||||
Weighted average common shares outstanding—basic | 42,989 | 28,835 | 42,627 | 28,835 | ||||||||
Plus stock options | 4,065 | 716 | 4,525 | 716 | ||||||||
Plus warrants | — | 1,880 | — | 1,880 | ||||||||
Weighted average common shares outstanding—diluted | 47,054 | 31,431 | 47,152 | 31,431 | ||||||||
Diluted net income per common share | $ | 0.30 | $ | 0.09 | $ | 0.80 | $ | 0.15 | ||||
Three Months Ended March 31, | ||||||
2003 | 2002 | |||||
Net income | $ | 12,399 | $ | 11,177 | ||
Weighted average common shares outstanding—basic |
| 39,834 |
| 42,290 | ||
Basic net income per common share | $ | 0.31 | $ | 0.26 | ||
Weighted average common shares outstanding—basic |
| 39,834 |
| 42,290 | ||
Plus stock options |
| 3,165 |
| 4,701 | ||
Weighted average common shares outstanding—diluted |
| 42,999 |
| 46,991 | ||
Diluted net income per common share | $ | 0.29 | $ | 0.24 | ||
AMN HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3. ACQUISITIONS4. ACQUISITION
On May 1, 2001, AMN Healthcare, Inc.,April 23, 2002, a wholly owned subsidiary of the Company (AMN), acquired 100% of the issued and outstanding stock of O’Grady-Peyton International (USA), Inc. (OGP), a healthcare staffing company specializing in the recruitment of nurses domestically and from English-speaking foreign countries. The acquisition was recorded using the purchase method of accounting. Thus, the results of operations from the acquired assets are included in the Company’s consolidated financial statements from the acquisition date.
A subsidiary of the Company acquired HRMC’s assets of $2,070,000 (net of cash received), assumed its liabilities of $524,000 and recorded goodwill in the amount of $7,379,000, which is not subject to amortization under the provisions of Statement of Accounting Standards (SFAS) No. 142 (see Note 5) and is tax deductible in its entirety. AMNThe Company allocated $200,000 of the purchase price to the noncompetea non-compete agreement, which is being amortized over the four-year life of the agreement.
Unaudited pro forma operating results for the Company, assuming the acquisitionsacquisition of OGP and HRMC had beenwas made at the beginning of the periods presented, arethree month period ended March 31, 2002, is as follows (in thousands, except per share amounts):
Nine Months Ended September 30, | ||||||
2002 | 2001 | |||||
Revenue | $ | 573,367 | $ | 377,119 | ||
Income from operations | 63,130 | 23,434 | ||||
Net income | $ | 38,166 | $ | 5,311 | ||
Basic net income per common share | $ | 0.90 | $ | 0.18 | ||
Diluted net income per common share | $ | 0.81 | $ | 0.17 | ||
Weighted average common shares outstanding—basic | 42,627 | 28,835 | ||||
Weighted average common shares outstanding—diluted | 47,152 | 31,431 | ||||
Revenue | $ | 177,720 | |
Income from operations | $ | 18,888 | |
Net income | $ | 11,418 | |
Basic net income per common share | $ | 0.27 | |
Diluted net income per common share | $ | 0.24 | |
Weighted average common shares outstanding—basic |
| 42,290 | |
Weighted average common shares outstanding—diluted |
| 46,991 | |
4.5. COMPREHENSIVE INCOME
SFAS No. 130,Reporting Comprehensive Income, establishes rules for the reporting of comprehensive income and its components. Comprehensive income (loss) includes items such as effective gains and losses on foreign currency forward exchange contracts, foreign currency translation adjustments and unrealized holding gains and losses on available-for-sale securities. For the ninethree months ended September 30, 2002,March 31, 2003, comprehensive income equaled net income.(loss) included a $60,000 foreign currency translation adjustment loss.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. NEW ACCOUNTING PRONOUNCEMENTS6. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
As of the date of adoption of SFAS No. 142, the Company had unamortized goodwill in the amount of $127,752,000 and unamortized identifiable intangible assets in the amount of $871,000, all of which are subject to the transition provisions of SFAS Nos. 141 and 142. Amortization expense related to goodwill was $3,898,000 for the nine months ended September 30, 2001. The Company adopted SFAS No. 142 as of January 1, 2002, performed the two-step transitional goodwill impairment test and determined there was no impairment as of January 1, 2002. The Company has also re-evaluated the classifications of its existing intangible assets and goodwill in accordance with SFAS No. 141 and has determined that the current classifications conform with the criteria in SFAS No. 141.
September 30, 2002 | December 31, 2001 | |||||||||||||
Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | |||||||||||
Non-compete agreements | $ | 1,544 | $ | (737 | ) | $ | 1,336 | $ | (465 | ) | ||||
Deferred financing costs | 671 | (177 | ) | 633 | (3 | ) | ||||||||
Total | $ | 2,215 | $ | (914 | ) | $ | 1,969 | $ | (468 | ) | ||||
March 31, 2003 | December 31, 2002 | |||||||||||||
Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | |||||||||||
Non-compete agreements | $ | 1,542 | $ | (929 | ) | $ | 1,544 | $ | (834 | ) | ||||
Deferred financing costs |
| 1,688 |
| (330 | ) |
| 733 |
| (246 | ) | ||||
Total | $ | 3,230 | $ | (1,259 | ) | $ | 2,277 | $ | (1,080 | ) | ||||
Aggregate amortization expense for the intangible assets presented in the above table was $448,000$179,000 and $1,316,000$126,000 for the ninethree months ended September 30,March 31, 2003 and March 31, 2002, and September 30, 2001, respectively. Amortization of deferred financing costs is included in interest expense. Estimated future aggregate amortization expense as of September 30, 2002March 31, 2003 is as follows (in thousands):
Amount | |||
Three months ending December 31, 2002 | $ | 164 | |
Year ending December 31, 2003 | $ | 606 | |
Year ending December 31, 2004 | $ | 446 | |
Year ending December 31, 2005 | $ | 67 | |
Year ending December 31, 2006 and thereafter | $ | 18 |
Amount | |||
Nine months ending December 31, 2003 | $ | 554 | |
Year ending December 31, 2004 | $ | 610 | |
Year ending December 31, 2005 | $ | 429 | |
Year ending December 31, 2006 | $ | 378 |
7. NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 146,Accounting for Costs Associated with Exit or Disposal Activities, on January 1, 2003. SFAS No. 146 revises the accounting for specified employee and $127.8 million, respectively. The changes in the carrying amountcontract terminations that are part of goodwillrestructuring activities and allows recognition of a liability for the nine monthscost associated with an exit or disposal activity only when the liability is incurred and can be measured at fair value. This statement applies on a prospective basis to exit or disposal activities that are initiated after December 31, 2002.
The Company adopted the initial recognition and measurement provisions of Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, on January 1, 2003, which apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN No. 45 during the quarter ended September 30, 2002 are as follows (in thousands):
Amount | |||
Goodwill, as of December 31, 2001 | $ | 127,752 | |
Goodwill acquired | 7,780 | ||
Goodwill as of September 30, 2002 | $ | 135,532 | |
The following reconciliation adjusts net income for amortization expense related to goodwill that is no longer amortized underCompany adopted the interim disclosure provisions of SFAS No. 142, net of tax (in thousands, except per share data):
Nine Months Ended September 30, | ||||||
2002 | 2001 | |||||
Net income, as reported | $ | 37,950 | $ | 4,578 | ||
Goodwill amortization, net of tax | — | 1,871 | ||||
Adjusted net income | $ | 37,950 | $ | 6,449 | ||
Basic net income per common share: | ||||||
Net income per common share, as reported | $ | 0.89 | $ | 0.16 | ||
Goodwill amortization per common share | — | 0.06 | ||||
Adjusted net income per common share—basic | $ | 0.89 | $ | 0.22 | ||
Diluted net income per common share: | ||||||
Diluted net income per common share, as reported | $ | 0.80 | $ | 0.15 | ||
Goodwill amortization per common share | — | 0.06 | ||||
Adjusted net income per common share—diluted | $ | 0.80 | $ | 0.21 | ||
2003. Related interim disclosures are included herein.
The following discussion should be read in conjunction with, and is qualified in its entirety by, our financial statements and the notes thereto and other financial information included elsewhere herein and in our Annual Report on Form 10-K for the year ended December 31, 2001.2002. Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements.” See “—Special“Special Note Regarding Forward-Looking Statements.”
Overview
We are a leading temporary healthcare staffing company and the largest nationwide provider of travel nurse staffing services, one of the fastest growing segments of the temporary healthcare staffing industry.services. We recruit nurses and allied health professionals, our “temporary healthcare professionals,” and place them on temporary assignments, typically for 13 weeks, away from their permanent homes, at hospitals and healthcare facilities throughout the United States.
Our services are marketed to two distinct customer bases: (1) hospitalstemporary healthcare professionals and (2) hospital and healthcare facilities and (2) nurses and alliedfacility clients. We use a multi-brand recruiting strategy to enhance our ability to successfully attract temporary healthcare professionals. We have established a geographically diverse hospital and client base, ranging from national healthcare providers to premier teaching and regional hospitals. We currently hold contracts with over 40% of all acute-care hospitalsprofessionals in the United States which provides our temporary healthcare professionals with a broad selection of assignments in all regions of the country.and internationally. Our hospitalseven separate recruitment brands, American Mobile Healthcare, Medical Express, NursesRx, Preferred Healthcare Staffing, HRMC, Thera Tech Staffing and healthcare facility clients utilize our services to help manage staff shortages, flexible staffing models, new unit openings, seasonal patient census variations,O’Grady-Peyton International, have distinct geographic market strengths and other short and long-term staffing needs.brand images. Nurses and allied healthcare professionals join us for a variety of reasons including to seekthat include: seeking flexible work opportunities, to travel to different areas of the country, to buildbuilding their clinical skills and resume by working at prestigious healthcare facilities to escapeand escaping the demands and political environment of working as a permanent staff nursenurse. Our large number of hospital and healthcare facility clients allows us to earnoffer traveling positions in all 50 states and in a variety of work environments. In addition, we provide our temporary healthcare professionals with an attractive compensationbenefits package, including free or subsidized housing, travel reimbursement, professional development opportunities, a 401(k) plan and benefit packages.
We believe that we have organized our operating model to deliver consistent, high-quality sales and service efforts to our two distinct client bases. Processes within our operating model have been developed and are in place with the intent to maximize the quantity and quality of assignment requests, (orders)or “orders,” from our hospital and healthcare facility clients and increase the expediency and probability of successfully placing our temporary healthcare professionals. The consistent quality of the benefit and support services, which we provide to our temporary healthcare professionals, is also critical to our growth and success, since the majority of our travelerstemporary healthcare professionals stay with us for multiple assignments and our largest source of new candidates is word-of-mouth referrals from satisfied current and former temporary healthcare professionals.
We derive substantially all of our revenue from fees paid directly by hospitals and healthcare facilities rather than from payments by government or other third parties. We enter into two types of contracts with our hospital and healthcare facility clients: flat rate contracts and payroll contracts. Under a flat rate contract, the temporary healthcare professional becomes an employee of the hospital or healthcare facility and is placed on their payroll. We bill the hospital or healthcare facility a “flat” weekly rate to compensate us for providing recruitment, housing and travel services. Alternatively, under a payroll contract, the temporary healthcare professional is our employee. We then bill our hospital or healthcare facility client at an hourly rate to compensate us for the temporary healthcare professional’s wages and benefits, as well as for recruitment, housing and travel services. Our clients generally prefer payroll contracts because this arrangement eliminates significant employee and payroll administrative burdens for them. Although the temporary healthcare professional wage and benefits billed under a payroll contract primarily represent a pass-through cost component for us, we are able to generate greater
profits by providing these value-added services. While payroll contracts generate more gross profit than flat rate contracts, the gross margin generated is lower due to the pass-through of the temporary healthcare professional’s
Since 1998, we have completed five strategic acquisitions. We acquired Medical Express, Inc. in November 1998, which strengthened our presence in the Pacific Northwest and Mountain states. During 2000, we completed the acquisitions of Nurses RX, Inc. in June, and Preferred Healthcare Staffing, Inc. in November, which strengthened our presence in the Eastern and Southern regions of the United States. We completed our fourth acquisition in May 2001, acquiring O’Grady-Peyton International (USA), Inc., the leading recruiter of registered nurses from English-speaking foreign countries for placement in the United States. In April 2002, we completed the acquisition of Healthcare Resource Management Corporation, further strengthening our presence in the Eastern and Southern regions of the United States. Each of these acquisitions has been accounted for by the purchase method of accounting. Therefore, the operating results of the acquired entities are included in our results of operations commencing on the date of acquisition of each entity. As a result, our results of operations following each acquisition may not be comparable with our prior results.
From 1996 through 2000, the completiontemporary healthcare staffing industry grew at a compound annual growth rate of our initial public offering in November 2001, options13%, and this growth accelerated to purchase 5,182,000 sharesa compound annual growth rate of our common stockapproximately 21% from 2000 to 2002. During the most recent completed quarters, we believe the travel nurse staffing sector’s growth rate has substantially moderated from the accelerated pace experienced during the previous two years. Additionally, we believe that we granted to members of our management became immediately vested. These options had an average exercise price $12.45 below the initial public offering price of $17.00 per share. Ascurrent demand for temporary healthcare professionals declined over the past several months as a result we recorded approximately $18.8 million of non-cash stock-based compensation expensecertain factors. In particular, our client hospitals are placing orders and hiring our temporary healthcare professionals later in the fourth quarterplacement cycle, and we believe hospitals have increased their efforts to retain permanent staff and maximize the utilization of 2001, of which $18.7 million was related to these options. In addition, we also recorded $13.1 million of non-cash stock-based compensation expense in the first three quarters of 2001 and $22.4 million in 2000. We also retired all of our indebtedness (approximately $145.2 million) with the proceeds from and upon the completion of our initial public offering. The retirement of debt resulted in an extraordinary charge against earnings of approximately $5.5 million, net of income tax benefit, related to the write-off of the unamortized discount on our senior subordinated notes and unamortized deferred financing costs and loan fees resulting from the early extinguishment of our existing indebtedness, and a prepayment premium resulting from the early extinguishment of the senior subordinated notes.
Critical Accounting Principles and Estimates
In response to the SEC’s Release Numbers 33-8040 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” and 33-8056, “Commission Statement about Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our unaudited consolidated financial statements. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to asset impairment, accruals for self-insurance and compensation and related benefits, revenue recognition, allowance for doubtful accounts, and contingencies and litigation. We state these accounting policies in the notes to the audited consolidated financial statements and related notes for the year ended December 31, 2001,2002, contained in our Annual Report of Form 10-K as filed with the Securities and Exchange Commission, and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from thosethese estimates under different assumptions or conditions.
We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our unaudited consolidated financial statements:
We have recorded goodwill and intangibles resulting from our acquisitions completed in the past four years. Through December 31, 2001, goodwill and intangibles were amortized on a straight-line basis over their lives of 25 years and 4 years, respectively. Upon the adoption of SFAS No. 142 on January 1, 2002, we ceased amortizing goodwill and performed an annual impairment analysis to assess the
Results of Operations
The following table sets forth, for the periods indicated, certain statement of operations data as a percentage of our revenue. Our results of operations are reported as a single business segment.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
Consolidated Statement of Operations: | ||||||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of revenue | 75.6 | 74.9 | 75.7 | 74.9 | ||||||||
Gross profit | 24.4 | 25.1 | 24.3 | 25.1 | ||||||||
Selling, general and administrative (excluding non-cash stock-based compensation) | 12.3 | 13.6 | 12.7 | 13.9 | ||||||||
Non-cash stock-based compensation | 0.1 | 3.1 | 0.1 | 3.6 | ||||||||
Amortization and depreciation expense | 0.5 | 1.5 | 0.4 | 1.6 | ||||||||
Transaction costs | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||
Income from operations | 11.5 | 6.9 | 11.1 | 6.0 | ||||||||
Interest (income) expense, net | 0.0 | 2.7 | 0.0 | 3.3 | ||||||||
Income before income taxes | 11.5 | 4.2 | 11.1 | 2.7 | ||||||||
Income tax expense | 4.6 | 2.2 | 4.4 | 1.4 | ||||||||
Net income | 6.9 | % | 2.0 | % | 6.7 | % | 1.3 | % | ||||
Three Months Ended March 31, 2003 | ||||||
2003 | 2002 | |||||
Consolidated Statement of Operations: | ||||||
Revenue | 100.0 | % | 100.0 | % | ||
Cost of revenue | 77.6 |
| 75.7 |
| ||
Gross profit | 22.4 |
| 24.3 |
| ||
Selling, general and administrative (excluding non-cash stock-based compensation) | 11.4 |
| 13.1 |
| ||
Non-cash stock-based compensation | 0.1 |
| 0.2 |
| ||
Amortization and depreciation expense | 0.6 |
| 0.4 |
| ||
Income from operations | 10.3 |
| 10.6 |
| ||
Interest (income) expense, net | 0.0 |
| (0.1 | ) | ||
Income before income taxes | 10.3 |
| 10.7 |
| ||
Income tax expense | 4.1 |
| 4.3 |
| ||
Net income | 6.2 | % | 6.4 | % | ||
Comparison of Results for the Three Months Ended September 30, 2002March 31, 2003 to the Three Months Ended September 30, 2001March 31, 2002
Revenue. Revenue increased 47%,15% from $137.9$174.0 million for the three months ended September 30, 2001March 31, 2002 to $203.4$199.8 million for the same period in 2002.2003. Of the $65.5$25.8 million increase, approximately $61.9$21.7 million was attributable to organic growth of our existing brands through growth in the number of temporary healthcare professionals and enhancements in contract terms with our hospital and healthcare facility clients, representing an organic growth rate for our recurring operations of 45%13%. The total number of temporary healthcare professionals on assignment in our existing brands grew 26%7% and contributed approximately $35.9$12.6 million to the increase. Enhancementsincrease and enhancements in contract terms which included increases in average hourly rates charged to hospital and healthcare facility clients that accounted for approximately $22.3$10.6 million of this increase, and aincrease. A shift in the mix of payroll versusto flat rate temporary healthcare professional contracts accounted foroffset the above increases by approximately $3.7 million of this increase.$1.5 million. The remainder of the increase, $3.6$4.1 million, was attributable to the acquisition of Healthcare Resource Management Corporation (HRMC) in April 2002.
Cost of Revenue. Cost of revenue increased 49%18%, from $103.3$131.8 million for the three months ended September 30, 2001March 31, 2002 to $153.7$155.0 million for the same period in 2002.2003. Of the $50.4$23.2 million increase, approximately $47.6$20.1 million was attributable to the organic growth of our existing brands and approximately $2.8$3.1 million was attributable to the acquisition of HRMC.Healthcare Resource Management Corporation.
Gross Profit. Gross profit increased 44%6%, from $34.6$42.2 million for the three months ended September 30, 2001March 31, 2002 to $49.7$44.8 million for the same period in 2002,2003, representing gross margins of 25.1%24.3% and 24.4%22.4%, respectively. The decrease in gross margin was primarily attributable to the shift in mix from flat rate to payroll contracts and a greater pass-through of bill rate increases to our travelers. Of the $15.1$2.6 million increase in gross profit, approximately $14.3$1.6 million was attributable to the organic growth of our existing brands and approximately $.8$1.0 million was attributable to the acquisition of HRMC.Healthcare Resource Management Corporation. The decline in gross margin for the current quarter was primarily due to an increase in compensation, health insurance and housing costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 34%, from $18.7were relatively consistent at $22.7 million for the three months ended September 30, 2001March 31, 2002 as compared to $25.0$22.8 million for the same period in 2002. Of the $6.3 million2003. The slight increase approximately $0.7 million wasis primarily attributable to increased employee, advertising and insurance expenses and the acquisition of HRMC. The remaining increase of $5.6 million was primarily attributable to increasesHealthcare Resource Management Corporation offset by reductions in recruiting, information systems development, marketing, administrativethe provision for uncollectible accounts and office expenses and nurse education and professional developmentcost savings resulting from efficiencies in support of the recent and anticipated growth in temporary healthcare professionals under contract.our operations.
Non-Cash Stock-Based Compensation. We recorded non-cash stock-based compensation charges of $4.4$0.2 million for the three months ended September 30, 2001March 31, 2002 and $0.2 million for the same period in 2002three months ended March 31, 2003 in connection with our stock option plans to reflect the difference between the fair market value and the exercise price of previously issued stock options. The decrease of $4.2 million is attributable to theoptions, which are being amortized over their respective vesting of the majority of these options upon the completion of our initial public offering in November 2001.period.
Amortization and Depreciation Expense. Amortization expense decreasedwas consistent for the three months ended March 31, 2002 and the three months ended March 31, 2003 as there were no significant changes in the values of intangible assets subject to amortization. Depreciation expense increased from $1.4$0.7 million for the three months ended September 30, 2001March 31, 2002 to $0.1 million for the same period in 2002. This decrease was attributable to the adoption of SFAS No. 142, effective January 1, 2002, under which goodwill amortization ceased. Depreciation expense increased from $0.6$1.0 million for the three months ended September 30, 2001 to $0.8 million for the three months ended September 30, 2002.March 31, 2003. This increase was primarily attributable to internally developed software placed in service in 2001.2002 and continued infrastructure expansion associated with the growth of our company during the comparable periods.
Interest (Income) Expense, Net. Interest (income) expense, netNet interest income was expense of $3.8$0.1 million for the three months ended September 30, 2001March 31, 2002 as compared to incomenet interest expense of $0.1 million for the same period in 2002. Of the $3.9 million change, approximately $3.1 million was attributable2003, due primarily to the retirementreduction in our cash balance from $37.5 at March 31, 2002 million to $28.6 million at March 31, 2003 as a result of all of our indebtedness (approximately $145.2 million) with the proceeds from and upon the completion of our initial public offeringshare repurchase program initiated in November 2001.2002.
Income Tax Expense. Income tax expense for the three months ended September 30, 2001March 31, 2002 was $3.0$7.5 million as compared to $9.3$8.1 million for the three months ended September 30, 2002,March 31, 2003, reflecting effective income tax rates of 52%40.0% and 39%39.5% for these periods, respectively. The difference between the effective tax rate for the three months ended September 30, 2001 and our expected effective tax rate of 41% for that period is primarily attributable to the effect of various permanent tax difference items, the impact of which is magnified by the reduction in pre-tax income due to the non-cash stock-based compensation expense.
Liquidity and Capital Resources
Historically, our primary liquidity requirements have been for acquisitions, working capital requirements and debt service under our credit facility, acquisitions and working capital requirements.facility. We have funded these requirements through internally generated cash flow and funds borrowed under our existing credit facility. At September 30, 2002,March 31, 2003, we had no debt outstanding under our revolving credit facility. Upon the completion ofOn January 10, 2003, we amended our initial public offering in November 2001, we amended and restated our credit agreement in order to eliminate all ofincrease our term loans and to provide for a secured revolving credit facility ofto up to $50.0$75.0 million in borrowing capacity. The revolving credit facility has a maturity date of November 16, 2004December 31, 2006 and contains a letter of credit sub-facility and a swing-line loan sub-facility. Borrowings under this revolving credit facility bear interest at floating rates based upon either a LIBOR or prime interest rate option selected by us, plus a spread, to be determined based on the outstanding amount of the revolving credit facility. Our amended and restated credit agreement contains a minimum fixed charge coverage ratio, a maximum leverage ratio and other customary covenants. Amounts available under our revolving credit facility may be used for working capital, acquisitions, repurchases of common stock and general corporate purposes, subject to various limitations.
We have relatively low capital investment requirements. Capital expenditures were $2.9$0.9 million and $3.3 million for the ninethree months ended September 30, 2001March 31, 2002 and 2002,2003, respectively. For the first ninethree months of 2002,2003, our primary capital expenditures were $1.7$1.9 million for purchased and internally developed software and $1.6$1.4 million for computers, furniture and equipment and other expenditures.expenditures, including $1.2 million related to our new corporate headquarters. We expect our capital expenditure requirements as a percentage of revenue to be similar in the future, other than costs related to our new corporate headquarters, including leasehold improvements, furniture and equipment, (whichwhich we expect to range between $6.0 million andbe approximately $8.0 million in 2003).
Our principal working capital need is generally for accounts receivable, which has increased with the growth in our business.receivable. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our revolving credit facility. Net cash provided by operations for the ninethree months ended September 30, 2001March 31, 2002 was $10.4$5.1 million as compared to $47.8$21.7 million for the ninethree months ended September 30, 2002,March 31, 2003, resulting primarily from cash earnings generated by us.
In November 2002, our board of directors approved a stock repurchase program authorizing us to repurchase up to $100 million of our common stock on the open market at prevailing market prices from time to time through December 2003. Stock repurchases are subject to prevailing market conditions and other considerations, including limitations under applicable securities laws. Under the terms of the program, we repurchased 2,429,100 shares at an average purchase price of $12.75 per share, or an aggregate of $31.0 million, during the three months ending March 31, 2003. Since the inception of the repurchase plan, we have repurchased 4,507,200 shares for an aggregate purchase price of $66.2 million.
We believe that cash generated from operations the remaining net proceeds from our initial public offering and borrowings under our revolving credit facility will be sufficient to fund our operations for the next 12 months. We expect to be able to finance any future acquisitions either with cash provided from operations, borrowings under our revolving credit facility, bank loans, debt or equity offerings, or some combination of the foregoing.
At March 31, 2002 our Board of Directors authorized the repurchase of up to $100 million of our common stock, from time to time through December 31,and 2003, in open market or privately negotiated transactions. We expect to use available cash balances to effect the repurchase of our common stock. However, if necessary, we could incur indebtedness under our secured revolving credit facility to effect the repurchase of our common stock.
Potential Fluctuations in Quarterly Results and Seasonality
Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences for destinations by our temporary healthcare professionals, the number of temporary healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients are located in areas that experience seasonal fluctuations in population, such as Florida and Arizona, during the winter and summer months. These facilities adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs.
Historically, the number of our temporary healthcare professionals on assignment has increased during January through March followed by declines or minimal growth during April through August. During September through November, our temporary healthcare professional count has historically increased, followed by a decline in December. Seasonality of revenue and earnings is expected to continue. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year.
Recent Accounting Pronouncements
In August 2001,On January 17, 2003, the FASB issued SFASInterpretation No. 143,46,AccountingConsolidation of Variable Interest Entities. Variable interest entities include such entities often referred to as structured finance or special purpose entities. FIN No. 46 expands upon existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for Asset Retirement Obligations, which addressesbusiness purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets andresources for the associated asset retirement costs. The standard appliesentity to tangible long-lived assetssupport its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that havecompany is subject to a legal obligation associated with their retirement that resultsmajority of the risk of loss from the acquisition, constructionvariable interest entity’s activities or development or normal useis entitled to receive a majority of the asset. SFASentity’s residual returns or both. The consolidation requirements of FIN No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the remaining life of the asset. The liability is accreted at the end of each period through charges to operating expense. SFAS No. 143 is effective forfirst fiscal yearsyear or interim period beginning after June 15, 2002.2003. FIN No. 46 will also affect leasing transactions where the lessor may constitute as variable interest entities. Disclosure requirements apply to any financial statements issued after January 31, 2003. We do not anticipateperformed our evaluation related to FIN No. 46 and have determined that the financialdisclosure and measurement provisions did not have an impact of this statement will have a material effect on ourthe Company’s consolidated financial statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to expectations concerning matters that are not historical facts. SuchWe based these forward-looking statements may beon our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “anticipates,“believe,” “believes,“anticipate,” “can,“expect,” “continue,“intend,” “could,“plan,” “estimates,“will,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms“may” and other similar expressions. In addition, any statements that refer to expectations, projections or other comparable terminology. Thesecharacterizations of future events or circumstances are forward-looking statements. The following factors could cause our actual results to differ materially from those implied by the forward-looking statements and all phases of our operations are subject to known and unknown risks, uncertainties and other factors, some of which are identified herein and in this Quarterly Report:
Other factors that could cause actual results levels of activity, performance or achievements andto differ from those of our industry may be materially different from any future results, levels of activity, performance or achievements expressed or implied by thesethe forward-looking statements.statements contained in this Quarterly Report are set forth in our Annual Report on Form 10-K for the year ended December 31, 2002. We undertake no obligation to update the forward-looking statements in this filing. References in this filing to “AMN Healthcare,” the “Company,” “we,” “us” and “our” refer to AMN Healthcare Services, Inc. and its subsidiaries.
Additional Information
We maintain a corporate website at www.amnhealthcare.com/investors. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports, are made available, free of charge, through this website as soon as reasonably practicable after being filed with or furnished to the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not believe that we have any material market risk exposure with respect to derivative or other financial instruments. At September 30,March 31, 2002, our exposure to market risk related primarily to changes in interest rates on our investment portfolio. Our short-term investments consistat March 31, 2002 consisted primarily of fixed income securities. We only investinvested in high credit quality issuers and we dodid not use derivative financial instruments in our investment portfolio. We do not believe that a significant increase or decrease in interest rates would have a material adverse impact onDuring the fair value of our investment portfolio.
During the ninecomparable three months ended September 30,March 31, 2002 and 2003, we had no outstanding debt. A 1% change in the interest rates on short-term investments during the quarter ended March 31, 2002 would have resulted in no fluctuation in interest income for the nine months ended September 30, 2001 and fluctuations of approximately $63,000 for$37,000. During the ninethree months ended September 30, 2002.
(a) | Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q (the “Evaluation Date”)), have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared. |
(b) | Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their evaluation, nor any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken. |
PART II—OTHER INFORMATION
(a) List of Exhibits
Exhibit No. | Description of Document | |
10.1 | Fourth Amendment, dated as of | |
99.1 | Certification by Steven Francis pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
99.2 | Certification by Donald Myll pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
* | Filed herewith. |
(b)Reports on Form 8-K:No reportReport on Form 8-K was filed during the quarter ended September 30, 2002.March 31, 2003.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 12, 2002
AMN HEALTHCARE SERVICES, INC. | ||||||
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Name: | Steven C. Francis | |||||
Title: |
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Date: November 12, 2002
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Name: | Donald R. Myll | |||||
Title: | Chief Accounting Officer and Chief Financial Officer |
I, Steven C. Francis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMN Healthcare Services, Inc. (the “Company”);
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
4. The Company’s other certifying officersofficer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Company’s other certifying officersofficer and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
6. The Company’s other certifying officersofficer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ STEVEN C. FRANCIS | ||||
Name: | Steven C. Francis | |||
Title: |
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I, Donald R. Myll, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMN Healthcare Services, Inc. (the “Company”);
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
4. The Company’s other certifying officersofficer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Company’s other certifying officersofficer and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
6. The Company’s other certifying officersofficer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
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Name: | Donald R. Myll | |||||
Title: | Chief Accounting Officer and Chief Financial Officer | |||||
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